Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hexcel Q3 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. It's now my pleasure to turn the call over to the Chief Financial Officer, Mr. Patrick Winterlich. Sir, please go ahead. Thank you, Brent. Good morning, everyone. Welcome to Hexcel Corporation's Q3 2022 Earnings Conference Call. Before beginning, let me cover the formalities. I want to remind everyone about the safe harbor provisions related to any forward-looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments, and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the company's SEC filings and last night's news release. A replay of this call will be available on the investor relations page of our website. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request. With me today are Nick Stanage, our Chairman, CEO, and President, and Kurt Goddard, our Vice President from Investor Relations. The purpose of the call is to review our Q3 2022 results detailed in our news release issued yesterday. Now let me turn the call over to Nick. Thanks, Patrick. Good morning, everyone, and thank you for joining us today as we share our Q3 2022 results, which reflect strong incremental margin performance and another robust step for the full year of progress as we move beyond the pandemic. Our key challenge today is meeting the strong market demand in front of us. Our aerospace customers are continuing to increase build rates as orders for new planes grow to meet airline requirements for capacity and modern fuel-efficient aircraft. Passenger numbers are growing back rapidly, and in many parts of the world are back to pre-pandemic levels and even higher as pent-up demand drives both personal and business travel. The pull for Hexcel lightweight advanced composites remains strong in all of our markets and by all indicators will strengthen even more in 2023, and I am confident that we will be ready to meet that challenge. Hexcel has a sustainable competitive advantage, excellent customer relationships, and leading sole source positions in key markets with high barriers to entry. With our innovative technology and the broadest aerospace composite product portfolio in the industry, there is no other company in our advanced materials space that is better positioned to take advantage of the growth opportunities ahead than Hexcel. In addition to inflationary headwinds and supply chain constraints over the past several months, the Q3 reflects some seasonal customer production slowing, notably in Europe. However, while an August slowdown is typical for European aerospace and defense, that slowing in our sales was amplified this year by our need to train and onboard a larger number of new hires than normal. With time and diligent training, our new Hexcel employees will increase their experience and efficiency and allow us to return to productivity and throughput levels we have historically achieved and more. While these challenges are real, we won't let them distract us from our operational excellence commitment to streamlining processes, drive productivity, and work efficiently. Our objective remains unchanged to deliver perfect customer performance with respect to quality, on-time delivery, and value. Now let's turn to some specifics reported in our earnings release last night. Q3 sales of almost $365 million were more than 12% higher in constant currency as compared to Q3 2021. Q3 adjusted diluted EPS was $0.33 compared to $0.13 last year. Commercial aerospace sales of about $209 million were up 26.5% in constant currency, led by growth in the Airbus A350 and A320neo programs. As the market recovers, Hexcel benefits from the continued penetration of lightweight composite materials as well as our relentless commitment to innovate with our customers on new materials and processes for next-generation programs. Our commercial aerospace customers continue to forecast growth in both narrow-body and wide-body programs where Hexcel has strong positions, reflecting robust domestic passenger demand and growing confidence in the return of international travel. Business jets and regional aircraft sales increased more than 69% in the Q3 of 2022 compared to Q3 2021. As we discussed last quarter, business jets represent a great opportunity for Hexcel over the next few years, with launches of new composite-rich business jets. With content on some of the larger business jets nearing that of narrow bodies, we see nothing but opportunity for greater penetration of advanced composite materials, including the potential for more composite wings, like the Dassault Falcon 10X, and noise-reducing advanced composites that are unique to Hexcel's portfolio. Turning to space and defense, Q3 sales of about $109 million were essentially flat in constant currency. However, key programs remain strong, and year-to-date sales in this market are up almost 5% in constant currency, led by the CH-53K heavy lift helicopter, as well as civil rotorcraft, satellites, launchers, and rocket motors. Demand for fighter aircraft such as the F-35, Rafale, and even the Eurofighter are strong and growing, reflecting strengthening defense budgets around the world. Our expectation is that space and defense will grow robustly as build rates increase, and we continue to win positions on existing and new platforms. Looking forward, we are waiting keenly to hear the decision on the new FLRAA rotorcraft and then at a later date, the decision for the FARA rotorcraft. Hexcel is ready to support both of these exciting new generation programs with our lightweight composite technology, which in time will further strengthen our space and defense sales. Industrial sales declined more than 8% in constant currency due to lower wind energy sales. Offsetting the decline in wind energy is continued growth in other industrial markets, including high-end automotive, marine, and recreation. During the quarter, our HexPly carbon fiber reinforced epoxy prepregs received type approval from Bureau Veritas, which is a world leader in testing, inspection, and certification services. As a result, we anticipate increased sales of our composite materials, especially in the manufacture of masts and other large structural components for wind-assisted ship propulsion. Again, our lightweight advanced composites are playing an integral role in enabling more sustainable fuel-efficient transportation, whether that is aerospace, automotive, or marine. In every case, helping to improve efficiency and reduce emissions. I'd like to take a moment to share that earlier this month, our leadership team spent a full day with Hexcel's R&T team to review progress toward continued innovations in both our products and processes. Our R&T team has a relentless focus on stronger and lighter composite solutions, as well as maximizing the efficiency of our production processes. While I can't share specifics on their work, I can tell you that our scientists are fully dedicated to ensuring that Hexcel propels the development of advanced lightweight composite solutions to meet our customers' future demands. Not only do they continue to advance carbon fiber and honeycomb core technology for next generation programs, they're continuing our focus toward end of life and more sustainable solutions. As a reminder, some of our U.S. R&T team are moving their work into our flagship research and technology center at Salt Lake City early in 2023, and I look forward to sharing their technological breakthroughs with you in the future. Year to date, total Hexcel sales are up almost 22% year-over-year in constant currency, and EPS of $0.88 compared to $0.11 this time last year, all of which reflect our strong performance and forward momentum as we enter the final quarter of 2022. Now let me turn it over to Patrick to provide more details on the numbers. Thank you, Nick. As a reminder, the majority of our sales are denominated in dollars. However, our cost base is a mix of dollars, euros, and British pounds as we have a significant manufacturing presence in Europe. As a result, when the dollar strengthens against the euro and the pound, our sales translate lower, while our costs also translate lower, leading to a net benefit to our margins. Conversely, a weak dollar is a headwind to our financial results. We hedge this currency exposure over a 10-quarter horizon to protect our operating income. The continued strengthening of the dollar versus the euro and the pound had a negative year-over-year impact to Q3 2022 reported sales of approximately $9 million, with the greatest impact being on our industrial business. Conversely, the strong dollar is positive for our margins. As a reminder, the year-over-year sales comparisons I will provide are in constant currency, which thereby removes the foreign exchange impact to sales. Turning to our three markets, commercial aerospace represented approximately 57% of total Q3 sales. Q3 commercial aerospace sales of $209.1 million increased 26.5% compared to the Q3 of 2021 from higher Airbus A320neo production rates and from growth in the Airbus A350 program. Q3 sales have historically been softer than the Q2 as OEM production slows due to summer holidays, particularly in Europe. This was a consistent trend for Hexcel leading into the pandemic and affected Hexcel sales again this year. Space and Defense represented 30% of Q3 sales and totaled $108.9 million, which was essentially unchanged from the same period in 2021. It was a quarter of relatively small puts and takes. CH-53K and Legacy AH-64 increased year-over-year, while F-35, Black Hawk, and Space were a bit softer. Industrial comprised 13% of Q3 2022 sales. Industrial sales totaled $47 million, decreasing 8.4% compared to the Q3 of 2021. While automotive, recreation, and other industrial markets increased year-over-year, the growth did not offset lower wind energy sales. Wind energy comprised around 20% of Q3 industrial sales. On a consolidated basis, gross margin for the Q3 was 22.4% compared to 19.8% in the Q3 of 2021, with the improvement reflecting operating leverage. Inflationary pressures continue to remain a headwind, particularly with select raw materials, freight costs, consumables such as packaging and higher energy costs. Raw materials are the largest component of our cost of sales, followed by labor. As I have previously referenced, many of our large raw material purchases are protected by long-term contracts or hedges that are designed to layer in pricing changes over time. Depreciation is our third highest cost category, followed by utility costs, which represent roughly a mid-single digit percentage of total cost of sales. As a percentage of sales, selling, general and administrative ex-administrative expenses and R&T expenses were 11.1% in the current quarter compared to 12.7% in the Q3 of 2021. We continue to tightly control costs as this decreasing percentage of sales demonstrates. Adjusted operating income in the Q3 was $41.2 million, or 11.3% of sales. The year-over-year impact of exchange rates in the Q3 was favorable by approximately 50 basis points. Now turning to our two segments. The Composite Materials segment represented 80% of our total sales and generated a 13.5% adjusted operating margin, strengthening on higher capacity utilization as the adjusted operating margin in the comparable period last year was 11.4%. The Engineered Products segment, which is comprised of our structures and engineered core businesses, represented 20% of total sales and generated an 8.3% adjusted operating margin. The adjusted operating margin in the comparable prior year period was 8.1%. I would also like to note that the year-to-date adjusted operating margin for Engineered Products is now 11.5% compared to 7.1% for the same period in 2021 on a similar level of sales, which reflects our move toward higher value add programs in this part of our business. The effective tax rate for the Q3 of 2022 was 21.4%, which included a discrete tax charge of $1.3 million, resulting from the true up of a deferred tax item. For the 2022 financial year, we are now estimating a tax rate of approximately 22%, about 1% lower than previously estimated, principally due to various tax credits being larger than expected. Net cash provided by operating activities was $56.4 million for the first nine months of 2022, compared to $64.2 million for the first nine months of 2021. Working capital was a cash use of $115 million year to date in 2022, compared to a cash use of $46 million for the first nine months of 2021. Working capital has increased to support growing sales and reflects a higher inventory buffer or safety stock to help mitigate some of the global logistics challenges and constrained supply chains. Capital expenditures on an accrual basis were $49.1 million for the first nine months of 2022, compared to $14.3 million in the prior year period. The increase in capital expenditures reflects higher maintenance CapEx as our capacity utilization expands, combined with growth CapEx, including our previously announced production expansion in Morocco to support commercial aerospace and defense markets, as well as the construction of a new research and technology innovation center in Salt Lake City, Utah, to support next generation aircraft and future industrial applications. Free cash flow for the first nine months of 2022 was negative $1.9 million compared to a positive $49.2 million in the comparable prior year period. The decision to hold high levels of inventory, and particularly raw materials, has been the principal headwind to free cash flow generation that I cautioned last quarter. We continue to tightly manage our debt levels, having now repaid over $300 million of debt over the last three years. This lower level of debt provides Hexcel a strong foundation as we evaluate future capital allocations. We did not repurchase any common stock during the Q3 of 2022. The remaining authorization under the share repurchase program at September 30, 2022 was $217 million. The board of directors declared a $0.10 quarterly dividend yesterday, payable to stockholders of record as of November 4, with a payment date of November 14. Before turning the call back to Nick, I would like to review the updated guidance included in the earnings release issued yesterday. We narrowed our 2022 sales guidance to a range of $1.53 billion-$1.60 billion. Note, foreign exchange is estimated to be approximately a $35 million headwind to our 2022 sales number, assuming exchange rates remain around current levels for the remainder of the year. We have narrowed our adjusted diluted earnings per share guidance to a range of $1.12-$1.24, reflecting continued strong execution. We are benefiting from operating leverage while managing inflationary cost pressures. We are forecasting strong free cash flow generation in the Q4 of 2022. However, we do not expect to reach the prior guidance of greater than $145 million, primarily due to higher raw material inventory levels as we purposefully increase our safety stock. We now expect to be in the range of $100 million of free cash flow for the year. Forecasted accrual capital expenditures of approximately $75 million in fiscal year 2022 is unchanged. The underlying effective tax rate estimate for fiscal year 2022 is now reduced to 22% from 23% previously. With that, let me turn the call back to Nick. Thanks, Patrick. One of the biggest challenges we face is ensuring that we meet current and forecasted demand. We will continue to drive productivity and efficiency, and in the near term, we are putting additional focus on training our workforce to deliver the output volume required, while always driving operational excellence. Our commercial aerospace customers are ramping up almost every platform. Our space and defense customers are seeing robust and growing demand, and value-add industrial opportunities continue to emerge. We expect this strong growth will continue in the years ahead, especially as air travel returns to pre-pandemic levels globally, and all our markets increasingly turn to the value that lightweight, strong, and durable advanced composites provide as the world strives toward lower emission transportation alternatives. Our Hexcel team is determined and ready to take full advantage of the significant growth opportunities that lie ahead. As always, our focus remains on delivering excellence to our customers and value to our shareholders. Brent, we're now ready to take questions. At this time, I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. In the interest of time, please limit yourself to one question and one follow-up question. Your first question comes from the line of Ken Herbert with RBC. Your line is open. Yeah. Hi, good morning, Nick and Patrick. Good morning, Ken. Hey, I just wanted to first ask around the change in the free cash flow guide for the full year. I can appreciate the incremental investments in working capital. How do you view that maybe working down? What do you need to see in obviously your supply chain or in the industry to get comfortable to start to take, you know, to release some of this working capital? What would be your expectations on timing around that? Yeah. Hi, Ken. I mean, it's a very deliberate decision that we've taken as many companies are taking, really faced with the sort of global supply chain constraints, longer lead times, shipping instead of four weeks is eight weeks or six weeks is 12 weeks. Faced with that uncertainty and with the really great demands that we've got in front of us, we want to maximize our sales. We deliberately chose to build our inventory levels, and that is sort of pulling us down to that range of about $100 million. Really, it's a timing thing. I mean, we would have grown into that level of inventory over time anyway. Arguably, that cash flow impact we're taking in 2022 rather than in the future. If anything, it's gonna strengthen our free cash flow performance in 2023 and beyond. As sales grow, our working capital levels would normally grow, but the way I would put it, we've accelerated some of that as a buffer, as sort of anticipating the strong demand in front of us, and bringing it into 2022, so we won't have that hit again in 2023. That's helpful. Just as a follow-up, as you think about sort of this de-risking, ideally through the investments, is this more to do with perhaps what you're seeing in Europe and the risk of incremental disruptions there? Or is there any sort of Geographic or other angle we should think about on this? I think it's very broad, Ken. I mean, obviously that is a factor, but as is sort of the extended China COVID lockdown, as is still emerging out of the pandemic, as is the industrial ramp up around the world. I mean, I think it's a multi-factor impact, and it's really just being prudent and smart, we believe, in the face of that to maximize our output in the period ahead. Great. Thanks, Patrick. Your next question comes from the line of Robert Spingarn with Melius Research. Your line is open. Hey, good morning, Nick and Patrick. I wanna make sure I'm not misunderstanding the pressure on sales, you know, the decrease in combination with the lower cash flow. Could you talk a little bit about the intake of product from Boeing? You called out the A320 and A350, and you called out BizJet, but is Boeing taking product at your expected rate? I'll take that, Rob. With respect to Boeing, if we look at the specific programs, the MAX clearly has been ramping up throughout the year, and we're aligned with Boeing, and their rate just over 30. Certainly ready to go higher when their supply chain issues ease and when they go up, potentially downstream to maybe 38. With respect to the 787, that's a little different story. It's been very slow, very low rates. I think our Q3 actually dipped just a little bit. Again, Boeing has started deliveries back up, but that hasn't really translated into production demand for us, which will in the coming quarter and quarters ahead. There's an expectation there that Boeing will ramp up back to probably starting with a number of five, maybe, mid to late next year after they burn off some of the inventory based on the rework that's taking place as we speak. We're pretty much as expected per our plan and no big surprises from Boeing or Airbus side. Okay. 'Cause I just wanted to make sure that some of this extra inventory, I mean, Patrick, you were very clear it's deliberate, you're preparing for the future, but I thought some of it might be Boeing and, you know, lingering. It's really not. It's really raw materials that are fungible across all of our customers and product ranges. Again, it's just basically protection. I think Patrick mentioned it. We actually have stronger demand than we produced in the Q3. Part of that was supply chain disruptions and even though it appears to be stabilizing from our perspective, it's still not back to a consistency where it was pre-pandemic, where our plants can run efficiently. Then with respect to the labor and training, bringing new shifts on, bringing our assets back online, that's just taken more time and we're seeing it improve, and it certainly will improve greatly in Q4 and throughout next year. Okay. Then just as the follow-up, in the past you've talked about getting back to the mid-teens plus operating margins when sales hit that $1.8 billion-$1.9 billion level. But you know, there's a lot going on. We have inflation as a headwind, FX potentially a tailwind. Does that algorithm hold true going forward, or has it changed somewhat? Well, I think, Rob, you pointed out that a lot of things have changed with respect to inflation and labor. I'm not gonna say we're giving up on that objective to get to the mid-teens when we're in the $1.8 billion-$1.9 billion revenue range. We're still driving for that, and it's not out of reason. Okay. Thank you. Thank you. Your next question comes from the line of Michael Sison with Wells Fargo. Your line is open. Hey, guys. Nice quarter there. Hey, in terms of the outlook for Industrial, if you think about 2023, a lot of folks think there's gonna be a downturn and your business a little bit different than wind. So any thoughts of how, I guess, resistant the business could be as we head into 2023? Mike, thanks for the question. You know, it's mixed. Recreation remains very strong. Automotive remains strong. You have to remember, we're not into mainstream commodity automotive. We're on the high end, specialized products that are typically less affected by slowdowns in the economy and recession. We don't see a big change there. We're actually being very selective with pricing in that market because carbon fiber is very tight, and we're selectively choosing what markets we're going to continue to pursue and which markets we're going to price in and maybe pull back a little bit. You know the wind story. Wind kind of changed direction in the U.S. for us. It's just migrated to a commodity type blade manufacturing and technology which we had no interest to pursue. We think the industrial segment will hold up well, given the differentiation in the products and the platforms that we pursue. Great. Just a quick follow-up on commercial aerospace. You know, the Q4 is gonna be, you know, an incremental step up from the prior quarters. If you think about the build rate heading to 2023, you know, how much growth do you, or do you need to sort of plan for in 2023, as you ramp up the sales force and new workers and such? Thanks. Well, clearly we're expecting pretty strong growth in 2023. We're still rolling up the plan, but as we said in the comments, many of the platforms are in the process of ramping up. Certainly, Airbus is ramping up strongly. We see nice growth. It's a little early for us to guide, Mike, but we're in the process of recruiting. I can say for one of the first times in my career, I've seen our headcounts go ahead of our plan level. That's an indication of our training and trying to get prepared and making sure our workforce is prepared for the growth, not only in Q4 but in 2023. We think we're gonna enter the year very strong. We're clearly going to have strong demand and strong growth. Great. Thank you. Thank you, Mike. Your next question comes from the line of Ron Epstein with Bank of America. Your line is open. Hey. Excuse me. Hey, good morning, guys. Morning, Ron. Maybe just kind of digging down more on those growth numbers. As we think about going into next year, I mean, you know, the consensus has got you know, reasonable growth for you guys. I mean, how should we think about that in the backdrop of a potentially slowing economy? Seems like the freighter market's got a couple cracks in it. I guess maybe another way of getting at this is, I mean, when do you think 787 production could get back to, like, a good healthy number, like six or seven per month? Like, I think everybody's just struggling just to try to figure out how you can get to the growth that you say you're gonna get to. Yeah. I mean, we're confident. I mean, I'll split Boeing and Airbus. I mean, if I start with Boeing, I mean, the 787 is clearly, I mean, I don't know about rate six or seven, but it's certainly positive going up to five towards the back end of next year from a very low rate today. So that's nice growth. The 737 MAX is stabilizing, and as Nick alluded to, Boeing will look for the opportunity to push that up as and when they can. And then you have Airbus. I mean, the A350 is now very solid at five. It's gonna move to 6 at some point next year. And the A320 is rapidly moving up to sort of 65, again, early 2024. So all of that is very solid. You've got a solid foundation in space and defense and increasing military budget. You've got business jets, which may not go up. I mean, they're not gonna keep going up 70% quarter-over-quarter, but it's a great market for us, and it is gonna keep growing. All of that gives us confidence in solid growth going into 2023 and beyond. Now, when the build rates of the wide-bodies move up on sort of to the high single digits, we're watching, but we're encouraged by the growth in international travel, international passengers, passenger demand. Freighter traffic is not gonna stall forever. I mean, I hear what you're saying. I don't think they're big cracks. Overall, we're confident on the narrow bodies. We're confident the wide bodies are gonna come back, and that's based on international travel. That's not just 'cause we want it. As Nick said, we're bringing in people. We're training them up. We've brought in raw materials to be ready for this demand that, quite honestly, we're struggling to meet right now. We're expecting a solid Q4, and we're looking positively at 2023. Gotcha. Maybe one follow-on to that, maybe back to the labor point, 'cause this is something we've heard consistently across many different companies in you know, in the sector, that getting labor has just been tough, skilled labor, getting labor trained up. I mean, how's that going for you guys, and is it different regionally or not? I'd say we've seen that improve over time. I'd say nine months ago it was a little tougher than it is. I think we've changed and tweaked our processes and how we're going after and identifying talent. All in all, we're bringing in very strong people. The challenge is getting them trained on our production lines, whether it's fiber related or precursor related, which some of those are pretty skilled positions with very good labor rates. It just takes time for us to do that. I'd say finding the people is not a problem. Getting them trained and efficient, back to where our expectations are, that's just taken some time. Gotcha. Thank you. Your next question comes from the line of Myles Walton with Wolfe Research. Your line is open. Good morning. I was hoping to just touch on the seasonality versus the headcount stresses to the top line in the quarter. You obviously anticipated some of the seasonality, but I'm just curious if you could quantify sort of the impact of the lower headcount or the lower efficiency of work being done. Nick, can you actually put numbers to your headcount goals? I think you were at almost 7,000 in 2019, and you ended 2021 just below 5,000. Just do we build back up to 7,000 over the next few years? Well, if, as we approach $2.5 billion, we certainly will, Myles. And that's all of our goals here. You know, to get specific on where we are, I'd say both in Europe and the U.S., we brought in probably just less than 100 over our plan to give you a little color on getting some of those skilled positions trained and in place. Again, to Patrick's point on our 2023 projections, we'll grow into that headcount very, very quickly. It's just good business management and operational management to hold a little inventory to make sure we can protect our customers because the demand is strong. Just to say it again, we did not ship the demand that we had in front of us in Q3. I wouldn't say we impacted our customers negatively from slowing their lines down. We did not do that, but we definitely caused a shrinkage of that supply chain, and we've got to replenish that. That's what we're going to do in Q4 and beyond. Again, we're just ramping up our lines, bringing shifts in, getting the assets going, getting our fiber lines, all of them running 100% across the board, both in the U.S. and Europe, from a low point in the pandemic where that was the largest area where we reduced our headcount and shut down our assets, Myles. Okay. Again, that drives a big portion of our output and certainly is a focus for us going forward. Thanks. Patrick, in the Q3 corporate costs, was there a one-time reversal of any size? Also sort of, maybe just the EPS walk, how much is lower corporate cost as a benefit in that new EPS range? Yeah, I mean, obviously corporate costs are always a bit lumpy, Myles. I mean, if you look at the year-to-date position, I think we're sort of over $10 million a month, which is where I would expect it to be. I think this year Q1 was probably a little bit heavy. Q3, as you're obviously alluding to, was a little bit light. We had a sort of what I would call a year-to-date realignment cleanup of things by sort of healthcare insurance and workers' comp, and I think there was one severance reversal. But I think I always try to look at the year-to-date positions because if you get too hung up on the quarters, corporate can look a little bit messy. In the EPS, I mean, it's not a lot in the EPS this quarter or year to date it's even less, Myles. I think you can see we probably had a penny just over from tax and yeah, corporate was light. What really encourages me, and I think is more important or is as important is the gross margin, that sort of factory manufacturing operational performance. We had great leverage over 50%. That's what tells me the business is moving in the right direction and we're hitting the margins we should be, even if core happens to be a little bit light in Q3. Makes sense. Thanks, Patrick. Your next question comes from the line of Pete Skibitski with Alembic Global. Your line is open. Yeah, good morning, guys. Just wanted to follow up to try to understand the seasonality aspect a little bit better than I do right now. I would think that even if there are fewer people working at Airbus, you know, in August, that they would still be accepting and their supply chain would be accepting a lot of your product during the quarter in anticipation of, you know, the 2023 production schedule. What impacts that? How does seasonality impact you guys? Yeah. I mean, Pete, if you look at our history and perhaps we just need to sort of put the pandemic behind us a little bit, but I mean, I looked back at the last decade, 2013, 2014, 2015, 2016, all the way back. Every Q3 steps down. It's because of Europe and it's lighter. They do actually cut their production levels. They have vacation in Spain and France, and it's been there forever. Obviously we lost that in the pandemic. 2020 was just crazy. 2021 was an exceptional sort of still growing out of that trough position. I think what we're seeing in 2022 is a return to a more standard seasonal shape for Hexcel and the aerospace industry in Europe. That's what we saw. You combine that with a little bit of strong dollar FX, and you combine that with the throughput that sort of Nick alluded to, and that's why you see this seasonal step down. I can tell you now, every Q3, assuming things stay more or less normal going forward, you'll see this adjustment in our annual sales. Okay. Okay, fair enough. Last one for me is just, as we think about the sequential decline in margin rate in the Q3 at both the segments. Was that primarily due to lost volume, lower volume? You know, and how much from the, you know, we talked about the labor issues there, and then also I was wondering how much mix impacted as well. Yeah. I mean, it wasn't overly significant. I mean, Composite Materials obviously went down a little bit, but it's on lower sales, so you're losing volume leverage. I mean, I actually think we held our margins very well on what a $30 million step down in total for the company quarter-over-quarter. We've always talked to Engineered Products sort of being a mix because the programs come and programs go. I would point you, as I called out in sort of the prepared comments, that we're 11.5% versus 7% year-to-date. That just reflects a strengthening of sort of the average and quality of margins we're seeing in that business. I'm not overly concerned on those lower sales. Essentially, it's a leverage story, volume leverage, and as volume steps back up, I'm sure we'll drive those margins again. Okay. Thanks for the color. Your next question comes from the line of Michael Ciarmoli with Truist Securities. Your line is open. Hey, good morning, guys. Thanks for taking the questions. I guess just maybe back to where Rob was asking, on costs and inflation and, you know, looking at raw materials, what are you guys able to offset with price? You know, as you guys think about your planning, you know, I know, Patrick, you talk about the hedging, but how are you planning for these costs in 2023? I guess what are you seeing from your basic or from your recent hedging? I mean, Michael, we start from, we've called it out many times, we have some really good mitigation with major sort of purchase contracts, our major resins and other key raw materials. We have long-term purchase contracts which go back to back with our commercial contracts, and some of those go out to 2030. That is a great initial protection. As I said, I mean, raw materials are our biggest cost element. The hedging, as you just mentioned, Well, we hedge propylene as a proxy for acrylonitrile, which is our key raw material input for our carbon fibers. Again, that smooths our cost. Beyond that, yes, we're not immune to inflationary pressures, and through productivity and efficiency, we're having to sort of address and overcome that, things like freight and utilities and minor raw materials. And as we go forward into 2023 and we're planning, we put in continuous improvement programs and operational excellence, as we've talked to you many times, we take on that challenge to overcome those headwinds and to maximize margins as we can. We have a great foundation of some mitigation in long-term contracts and hedging, and then we operationally challenge ourselves to overcome remaining headwinds. Got it. Then just to follow up, you talked about at one point you took out $150 million of costs. Has there been an update to what amount of those savings you think you can keep here? Especially, I mean, just thinking about the new hires and wages, how should we think about, I guess, layering on of those costs that you originally taken out and what can be sort of sustaining savings? Yeah. I mean, we haven't specifically updated. I think we've acknowledged that as volumes come back and at the low point, I guess we were a $1.3 billion company. As we move to where we are today and towards $2 billion and beyond, we will need to sort of add back some of that indirect cost back, and well over half of it. Now, we will try to hold on to as much as we can to ultimately drive sort of better leverage and efficiencies and ultimately push our operating income margins to beyond where they were previously. That's our goal. We're gonna maximize what we hold on to, and that's what Nick and I are focused on as we move forward. Got it. Thanks, guys. Your next question comes from the line of David Strauss with Barclays. Your line is open. Thanks. Good morning, everyone. Morning. Good morning, David. Wanted to ask about, you know, given your manufacturing footprint in Europe, how do you feel about the energy situation there and any impact it could have on you? Well, clearly, we're watching it closely. You know, probably the priority we're keeping an eye on is Germany. As you probably know, we have one prepreg site in Germany. From a risk mitigation and ability to deal with that, if there should be a rationing or a reduction in available energy in that region, we have extra capacity on prepreg, where we could reallocate that and move that and not disrupt our customer deliveries or our revenues. From that standpoint, we think we're protected. Now, if that were to impact from a broader scale some of the chemical companies in the German region, the indirect impact could be bigger, and we'll just monitor that and our team works dual sourcing and making sure that our supply chain is adequately protected. Okay. Patrick, on currency, just, you know, an update on where you are from a- From a hedging standpoint and, you know, how big of a positive benefit could it be as we look out over the next couple of years? Just, you know, if we assume kind of euro-dollar parity from here. Yeah. I mean, I think we've called out year to date is about 30 basis points. Obviously, if the Q4 stays where we are today, that's probably gonna nudge up slightly. I don't know, but maybe 40 basis points for the year. What we've obviously been doing because of our 10-quarter rolling hedging program is locking in these stronger rates, as we look forward, and we'll see that impact in 2023 and 2024, especially as we go into 2023, again, our objective is to be roughly 75% hedged, on our sort of margin gap, our currency exposure. So there is an upside. I mean, it's hard to call it out year-over-year as we lock in these. I mean, what we're really doing with hedging is smoothing. Yes, we've locked in some of this margin benefit for a period of time, is the way I would summarize it. Obviously the dramatic change we've seen in 2022 over 2021, well, I was about to say something dangerous. We don't expect to see that again. Who knows? I don't wanna predict the future, but given how much hedging we've got locked in, we feel in a good place with our FX going forward. Could you say what your average hedge rate is in 2022? I don't know. We've never really disclosed that. I mean, if you look back over the last sort of two or three years and average it out, we're gonna be close to that. I think that's all I'll say. Thank you. Your next question comes from the line of Kristine Liwag with Morgan Stanley. Your line is open. Hey, guys. You know, when you look at working capital headwinds this year, despite that, the business is still generating positive free cash flow, and you've talked about how you expect excess inventory unwind through 2023. When you think about 2023, it should be a higher free cash flow year than 2022, at the very least. How are you thinking about capital deployment and priorities for that between allocating capital for incremental M&A or return to shareholders? Yeah. Hi, Kristine. I mean, going forward, as we've been sort of signaling for some time, we are looking towards strong cash generation for a number of years. Our capital expenditure will remain subdued, and we're gonna generate significant free cash flow. Therefore, to your point, we will be looking at sort of capital allocation. We're already paying a dividend. Our board of directors will continue to review that on a quarterly basis, and we'll do that as we go into 2023. Stock buyback comes back on the table along with M&A. Now, in a disciplined way, we will always look at M&A opportunities and if we can repeat something like ARC Technologies, we'd be excited to do that. Until then, we will look at share buyback. I mean, we don't have anything specific to signal today, but with the cash we will have in 2023 and beyond, that will definitely be on the agenda. Yes. Thanks, Patrick. Your next question comes from the line of Gautam Khanna with Cowen. Your line is open. Hey, good morning, guys. Hey, morning. Morning, Gautam. Hey. Question and a follow-up. Just first on Q4 guidance and the range. I'm just curious sort of what are the puts and takes that could swing it to the low or high end? And then as a follow-up, just on the 787, could you remind us kind of how concentrated your customers are there? Is it pretty dispersed like it is on the A350 across multiple subcontract manufacturers or is it kind of Spirit? Or, you know, is it largely in one or two? Thank you. Okay. With respect to the guidance, you know, our midpoint gives you really the Q4 guidance and that's what I would recommend you use. What could impact that? Well, clearly our run rate on training, efficiency and throughput, catching up some of that delivery in Q3 that we talked about that we couldn't get out of the shop, that certainly could help push us above the midpoint. I really don't see a program scaling down. Not to say that something couldn't happen, but it seems less likely that the downside would be at risk. With respect to your question on the A350, there really is not one of the many customers. I think we have 40-50 different ship-tos for the A350. Probably one of the biggest ones is Airbus itself, if you look at all the sites we ship into. A Spirit or some of the other tier ones, tier twos, it's spread pretty widely across that supply chain. I meant on the 787. I apologize. By analogy, is it similar to the A350 in terms of it being distributed, or is it largely to one or two? Try to gauge kind of what levels of inventory channel, and if you have a view. The 787 certainly has fewer and different mix of the products, but there's not a specific tier one that stands out that I would highlight that drives the majority. Thank you. Obviously, we've got an excellent engine in the cell content, so that is one of the big drivers in supply chain pulls. Thank you. Thank you. Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open. Thanks so much. Good morning, Nick and Patrick. I want to follow up on the last question about margins. You know, when we think about the implied [EBITDA] margin of 9.5% versus the 10.5% or so you've done year to date, what drives it down 100 basis points in the Q4? Is that sort of the run rate base we should be working off of for 2023? Obviously what I'm gonna say is we don't guide to a quarter. You've obviously backed into that from the annual numbers, which is a range. Our target is very much to drive double-digit operating income margin for 2022. I think that's what we talked to as we came into the year, and it's still our objective today. I understand how mechanically you've backed into that number, but we're gonna push margins and EPS in the Q4 as strongly as we can, and we're definitely aiming for double-digit operating margins, as we go forward. Okay. Just on defense, if we could talk about, you know, it dipped again this quarter after being up mid-single digits in the H1. You know, how do you kind of expect that to trend? Has it changed at all? You know, how is the F-35 sort of impacting that? F-35 is a little bit lumpy. I mean, we've heard Lockheed talk about sort of some supply chain challenges. I personally wouldn't overplay it. I don't think now we're gonna get to that sort of top rate, 156 next year, but I think we're not gonna be far off it, and we still see it as a very positive and significant program from us. With the CH-53K growing strongly and military budgets generally improving, we see space and defense continuing to be a solid sort of market for us. Okay, great. Thank you. Your final question comes from the line of Richard Safran with Seaport Research Partners. Your line is open. Nick, Patrick, Kurt, good morning. Morning. Good morning, Richard. First, could you discuss a bit more about share gain opportunities for your end markets? Now, Nick, I think this time probably for you, but I think you already mentioned defense. Is the right way to think about share gains for Hexcel, is that commercial is mostly spoken for, share gains are mostly gonna be in defense and maybe industrials as you look forward? Well, we know the qualification and the sole source positions in many of our markets. On commercial aerospace, again, there's small opportunities here and there. It's really positioning for the next new engine, nacelle, wing or new entire aircraft. On the space and defense, there are opportunities. There's new programs, as well as things like the CH-53K ramp that we announced, which was a nice win, a nice technology and high growth area for our Casablanca site, our engineered product site. When we were in the process of transitioning out the Boeing, more commoditized type work to our joint venture in Malaysia, that was always the strategy. It was backfill that with higher margin, higher technical requirement type products and solutions. Space and defense, there are opportunities. We continue to pursue those. Clearly our focus is on new platforms, FLRAA, FARA. We've got great positions with both of the competitors in that. We're virtually agnostic. We're excited. Clearly those platforms will have significantly more volume than the platforms that they'll replace. Not volume, shipset content. We're excited. Then industrial. Industrial is. We're very selective there. The areas looking for lightweight, durable, composite type materials just continues to expand. Transportation, we mentioned marine, that's been growing nicely for us. We're very selective in certain electronic applications. Recreation remains strong. There's a whole host of sub-segments in the industrial that our team continue to monitor, and we're selectively growing there and positioning our technology for long-term sustainable growth and profitability. Okay. Just real quick, Patrick, with respect to your comments about debt levels and pay down, I'm just wondering if you're now thinking that you're pretty close to an optimal capital structure. If there are any other balance sheet improvements you think you need to make? I'm tempted to think based on your remarks, no. No. I mean, we can see we're gonna generate cash. We have some fixed bonds, about $700 million, as you know. We'll be using very little of our revolver as we move through next year. It's gonna give us a great platform for capital allocation, as we start to evaluate that. Okay. Thanks very much for the color, gentlemen. Thank you. Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.