Good morning. My name is Emma. I will be your conference operator today. This time, I would like to welcome everyone to the Hexcel Fourth Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Patrick Winterlich, Chief Financial Officer, you may begin your conference. Thanks, Emma. Good morning, everyone. Welcome to Hexcel Corporation's Fourth Quarter 2022 Earnings Conference Call. Before beginning, let me cover the formalities. I want to remind everyone about the safe harbor provisions relating 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 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 of Investor Relations. The purpose of the call is to review our fourth quarter 2022 results detailed in our news release issued yesterday. Let me turn the call over to Nick. Thanks, Patrick. Good morning, everyone, thank you for joining us today as we share both fourth quarter and full year 2022 results. Many of our key markets have seen a robust return to growth in 2022, especially in commercial aerospace, where air travel has experienced a strong and much-welcomed rebound. Our space and defense markets have remained strong and have grown nicely over 2021. It has also been a year of supply chain challenges, inflationary pressures, and a tight labor market. Hexcel has remained focused on meeting our customers' needs and overcoming the headwinds faced. We achieved a roughly 20% step-up in annual revenues and delivered double-digit operating margins, a 500 basis point improvement over 2021. The strong recovery and return both to domestic and international travel are plain to see at airports that now are crowded with travelers and high load factors for airlines globally. We see it as airlines are reportedly returning into service older aircraft that are not fuel efficient simply because they cannot get new planes fast enough to meet passenger demand. The opportunities for growth are tremendous, and I continue to believe that no company is better positioned than Hexcel to benefit from the strong pull for newer, composite-intensive, lightweight aircraft that are more fuel efficient. Hexcel advanced materials are enabling enhanced sustainability and will continue to do so for decades to come. In 2022, we celebrated numerous times with supplier recognitions from customers including Airbus, Boeing, Lockheed Martin, CTRM Aero Composites, Sunseeker, and the list goes on. Our customer intimacy throughout these challenging times has never been better. So many times over the past several months, customers have asked, "How are you doing it? How does Hexcel just keep delivering when others are struggling?" I give credit to our One Hexcel team. They've done a phenomenal job. They go above and beyond, not only to ensure that we succeed, but to further position us for an incredible future. I could not be prouder of the team as they stayed the course, remained focused, and never wavered in their commitment to our customers. Let's turn to some specifics reported in our earnings release last night. First, I'll cover the fourth quarter results and then full year 2022. Fourth quarter sales of $429 million were 19% higher than Q4 2021. Adjusted diluted EPS in the fourth quarter was $0.40 compared to $0.16 last year. Turning to our three markets. In commercial aerospace, fourth quarter sales of more than $256 million represented an increase of almost 29% in constant currency when compared to Q4 2021 and up 23% sequentially over the past quarter. We have now realized six consecutive quarters of double-digit sales growth in this market. Other commercial aerospace increased almost 45% in the fourth quarter compared to Q4 2021. Business jets and regional jets both grew strongly year-over-year. Virtually every platform from narrow body to wide body to business jets is growing. The customers continue to ramp as fast as the supply chain allows. 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. The same is true in space and defense. Fourth quarter sales of $126 million represented a 22% increase year-over-year in constant currency. This was broad-based growth across the submarkets we serve and also geographically, with growth in programs in the U.S., Europe, and Asia. We were pleased last quarter to see the U.S. Navy confirm full production for the composite-rich CH-53K heavy lift helicopter. This will become a top defense platform for us in the next few years as production ramps. Industrial sales, $47 million, were down 7% year-over-year in constant currency. Due to economic pressures, the wind energy industry has changed structurally, and opportunities for our legacy glass prepreg products are limited. However, we have seen stability in our wind business in the second half of 2022, focused on our European market. Our industrial business is pivoting away from wind energy to other markets, including automotive, consumer electronics, marine, and recreation. I mentioned earlier that some of our customers have recognized us this year. I wanted to specifically mention the sustainability award we received in November from Airbus Defence and Space. The award granted to Hexcel recognizes a partnership we announced in 2021 with Fairmat to recycle carbon fiber prepreg composite offcuts from Hexcel's European operations and our customers. The offcuts are reused in manufacturing composite panels sold in the industrial markets. It's an award that recognizes a key collaboration and important milestone in our relentless pursuit of innovations that, in partnership with our customers, will lead to a more sustainable future for us all. Let's turn to our full year 2022 results. Sales were $1.58 billion, up almost 22% year-over-year in constant currency. Adjusted diluted EPS for the year was $1.28 compared to $0.27 in 2021. Adjusted operating income as a percentage of sales was 10.4%, which is almost double our 2021 result. In our markets, commercial aerospace sales were led by the Airbus A320neo and A350 programs, combined with strong growth of about 63% year-over-year for other commercial aerospace driven by business jets. We're encouraged as we begin 2023 by strong order activity for both narrow bodies and wide bodies. Our two largest commercial aerospace customers, Airbus and Boeing, delivered 1,141 commercial aircraft in 2022 combined, up 20% over 2021. Backlogs are growing with more than 12,600 aircraft in total for Airbus and Boeing. Airlines are ordering again as they refresh and increase their fleets to meet increased growth in passenger demand and as they strive toward meeting their sustainability goals for emission reductions through greater fuel efficiency, which is achieved in great part by replacing heavy metal components with lightweight composite materials. The recent order from United Airlines for 100 Boeing 787s and 100 737 MAX jets reflect the largest order for years for wide bodies as demand increases, especially for international travel. With the Chinese government recently lifting its strict COVID entry requirements, air travel within China and cross-border is expected to expand rapidly, another positive factor for new commercial aircraft demand. Now turning to space and defense, the invasion of Ukraine heightened global concerns for the need to strengthen national defense. As a result, we see governments around the world committing to increased defense spending, and that leads to increased opportunities for us over time. Hexcel composites are the benchmark in this market, and our products are on over 100 programs, which provide us a diversified foundation for a strong future. Industrial sales were negatively impacted by the declining wind energy business, which was mostly offset by growth in a variety of other industrial markets. At the end of 2022, we closed our industrial wind energy plant in Tianjin, China, due to a decline in wind energy orders that led to a stop in prepreg production earlier in the year. Our industrial business serves over 30 different markets from a manufacturing site in Austria, including legacy wind business. This legacy European wind blade business is forecasted to remain stable for a period of time, supported by existing contracts. While we no longer have manufacturing operations in China, we'll continue to maintain a sales office in Shanghai to serve our customers in the region, including Comac. Our focus is set firmly on a solid growth trajectory in 2023. With the increased demand we forecast across the business in the coming years, we have reinitiated construction on a carbon fiber line in Decatur, Alabama. This new line should be operational and qualified in 2025 for aerospace-grade carbon fiber production. When the line is completed, the Decatur plant will be home to our first combined PAN and carbon fiber production facility in the U.S. Reflecting confidence in our return to growth and our capacity to generate cash in the coming years, the Hexcel board announced yesterday an increase in our quarterly dividend from $0.10 to $0.125 per share. As you read in our news release last night, we're issuing 2023 financial guidance with double-digit growth in both sales and EPS. We are guiding to $1.725 billion-$1.825 billion in sales for 2023, with adjusted diluted earnings per share of $1.70-$1.90. Our guidance on free cash flow is to generate more than $140 million while continuing to tightly manage accrued capital expenditures with spend of approximately $90 million. I'll 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 for our financial results. We hedge this currency exposure over a 10-quarter horizon to protect our operating income. As a result, currency changes are layered into financial results over time. As a reminder, the year-over-year sales comparison I will provide are in constant currency, which thereby removes the foreign exchange impact to sales. Turning to our 3 markets, commercial aerospace represented approximately 58% of total fourth quarter 2022 sales. Fourth quarter commercial aerospace sales of $256.2 million increased 28.9% compared to the fourth quarter of 2021. The Airbus A320neo and A350 grew the strongest, followed by encouraging growth from both the Boeing 787 and 737 MAX. Business and regional jets grew strongly year-over-year. Space and defense represented 29% of fourth quarter sales and totaled $126.5 million, increasing 22% from the same period in 2021. Strength was broad-based globally, with growth in all of our various sub-sectors, including fixed wing, rotorcraft, and space. Industrial comprised 13% of fourth quarter 2022 sales. Industrial sales totaled $46.7 million, decreasing 7% compared to the fourth quarter of 2021 on lower wind energy sales. For wind energy, the year-over-year fourth quarter comparison was somewhat challenging as there were still wind energy sales in Asia for the prior year period, but no sales in the fourth quarter of 2022. Wind energy sales stabilized in the second half of 2022, with sales virtually unchanged sequentially from the third quarter to the fourth quarter of 2022. Recreation and other industrial sales grew year-over-year, whereas automotive was unchanged. On a consolidated basis, gross margin for the fourth quarter was 23.1% compared to 19.2% in the fourth quarter of 2021. Higher sales volume is driving favorable operating leverage, although inflationary cost pressures and the productivity challenges related to a less experienced workforce remain headwinds. Additionally, energy costs continue to pressure margins, and we are working to minimize near-term volatility. We do this by locking in forward contracts, typically for 12 months. These assumptions are built into our guidance for 2023. As a% of sales, selling, general, and administrative expenses and R&T expenses were 12.3% in the current quarter compared to 12.2% in the fourth quarter of 2021. The fourth quarter saw a rebalancing of an unusually low third quarter SG&A expense. For the year, SG&A and R&T expenses were 12.3% of sales compared to 13.6% of sales in 2021. Adjusted operating income in the fourth quarter was $46.3 million or 10.8% of sales. The year-over-year impact of exchange rates in the fourth quarter to adjusted operating income was favorable by approximately 40 basis points. The financial impact of closing the Tianjin in China wind energy plant was not material. The plant size is just under 90,000 sq ft, so relatively small for Hexcel. Most of the assets were fully depreciated, and the charges incurred were primarily severance-related. Now turning to our two segments. The composite materials segment represented 83% of total sales and generated a 12.7% operating margin, strengthening year-over-year on higher sales that support increased capacity utilization. The operating margin in the comparable prior year period was 8.7%. The engineered products segment, which is comprised of our structures and engineered core businesses, represented 17% of total sales and generated a 14.4% operating margin driven by a favorable sales mix. The operating margin in the comparable prior year period was 4.2%. The effective tax rate for the fourth quarter of 2022 was 17.7%. For full year 2022, the effective tax rate was 21.1%. Changes in the geographic mix of profitability, as well as changes in valuation allowances, impacted the effective tax rate in 2022. Net cash generated by operating activities for 2022 was $173.1 million compared to $151.7 million in 2021. Working capital was a use of cash of $72.7 million in 2022, increasing to support higher sales. Capital expenditures on an accrual basis was $69.8 million for fiscal year 2022 compared to $41.4 million for fiscal year 2021, with the growth largely reflecting the construction of the new R&T Innovation Center at our Salt Lake City, Utah facility and the expansion of our engineered core facility in Casablanca, Morocco. Free cash flow was $98.7 million for the fourth quarter of 2022 and was $96.8 million for the fiscal year 2022. Rising profitability was favorable to cash generation, partially offset by higher working capital that is supporting our sales growth along with higher capital expenditure in 2022. In 2021, free cash flow generation was $123.8 million. The board of directors declared a twelve and a half cent quarterly dividend yesterday, payable to stockholders of record as of February 10th, with a payment date of February 17th. We did not repurchase any common stock during the fourth quarter of 2022. The remaining authorization under the share purchase program on December 31st, 2022 was $217 million. I would like to share additional detail regarding our 2023 guidance. As Nick stated, we are forecasting sales in the range of $1.725 billion-$1.825 billion, adjusted diluted EPS in the range of $1.70-$1.90, and free cash flow of greater than $140 million. Accrued capital expenditures are forecast in the range of $90 million. This forecast includes ongoing maintenance capital expenditures as well as the spend related to the reinitiated fiber line construction, the completion of the work on our R&T center in Salt Lake City, and the expansion of our facility in Morocco. We expect full year 2023 commercial aerospace sales to comprise approximately 58% of total sales. Our sales forecasts are based on publicly stated OEM aircraft build rates and expectations. We expect space and defense to comprise approximately 29% of total sales, and we expect industrial to comprise approximately 13% of total sales. Additionally, we expect depreciation to remain similar to 2022 levels. We have locked in much of our forecast energy and acrylonitrile needs for 2023 to minimize the impact to our margins of any price volatility experienced in those markets. Consistent with prior years, selling, general, and administrative expenses are forecast to be higher in the first quarter of 2023 compared to the following quarters, reflecting the timing of recording stock-based compensation expense. Continuing on this seasonality, we expect free cash flow to be stronger in the second half of the year. Our 2023 forecast foreign exchange exposure is more than 80% hedged today. Based on our existing hedges, foreign exchange is forecasted to be a tailwind in 2023 and is incorporated into our guidance. We estimate that a 5% movement in relevant exchange rates would have approximately a $2.5 million impact to earnings net of our hedges. We expect the effective tax rate in 2023 to be approximately 23%. With that, let me turn the call back to Nick. Thanks, Patrick. Before I turn it over to questions, I wanted to share with you that earlier this month, I had the pleasure of welcoming the Hexcel team to our 75th anniversary and to set the stage for a year-long celebration of the pivotal moments and people in our past. That have propelled us to this significant moment in our history. This anniversary provides us with a rare opportunity not only to look back at our shared legacy as a company, but also to look ahead to all that Hexcel can and will become in the next 5, 10, or 25 years from now when we celebrate our 100th anniversary. Our history at Hexcel is rich and diverse. It was in 1948 that 2 twenty-something-year-old mechanical engineers, who had recently graduated from the University of California, Berkeley and completed service in the U.S. Navy, took $500, moved into a basement workshop, and changed the aerospace industry forever with some fiberglass honeycomb dipped in resin. Although much has changed in the world, and with Hexcel since the time of our founding, one thing has never changed, and that's lightweighting. It was our first innovation, and for 75 years, we have continued building a strong, broad portfolio of lightweight materials for our customers. We have changed the world for the better. Over its 75-year history, Hexcel has completed more than 20 mergers and acquisitions. All that we are today reflects all that we have been in the past and challenges us to continue building a strong foundation for the future. Hexcel has been a composite leader for 75 years and will continue to lead our industry for at least 75 more. Lightweight composites are the future of sustainability. Hexcel has the products, the knowledge, and most importantly, the people to deliver that sustainable and profitable future. Emma, we're ready to take questions now. Thank you. Thank you. As a reminder, if you would like to ask a question, press star followed by the number 1 on your telephone keypad. We ask today in the interest of getting to as many questions as possible, that you please limit yourself to 1 question and 1 follow-up. Thank you. Your first question comes from the line of David Strauss with Barclays. Your line is now open. Thanks. Good morning, everyone. Morning, David. Could you touch on, you know, the margin outlook implied in the guidance for 2023? It looks like you're implying somewhere in the mid-30% incremental margin range, if that's correct. You know, you've previously talked about getting back to, you know, the mid-teens% margins when you get back to $1.8 billion-$1.9 billion revenue. Is that still how you're thinking about progression from here? Yeah. Hi, David. I mean, firstly, yes, you're in the ballpark. That is kind of the leverage shape that we're seeing that you can do the math that's built into our guidance. I would agree with that. And then, the caveat there, I mean, we will drive it as strongly as we can, as we always do with incremental volumes and margins. We're gonna continue and push. We will do that as much as we can. I guess in relation to that, I mean, we called it out. I mentioned it in the narrative. We do have some headwinds around the edges of our cost range. We do a very good job on sort of long-term contracts for our resins and major fibers and hedging FX and hedging acrylonitrile, but we do have inflationary exposures around minor raw materials, freight, packaging, energy, especially energy in Europe. Those mid-teens margins, 14%-16% range, are more challenged right now. We're not giving up on those targets, and we're gonna push as hard as we can, especially as the revenue continues to grow in the next sort of couple of years up towards that, yeah, $1.8 billion, $1.9 billion, and plus range. We'll keep driving, but there are headwinds today that makes it a bit tougher. Okay. In terms of capital deployment from here, you know, you obviously announced the dividend increase. You've been paying down a bit of debt. Obviously still have authorization on the share repo program. How should we think about what you might do with the, you know, the cash that you're gonna generate next year? Would you see yourselves getting back to buying back stock? Thanks. Yeah. I mean, our priorities remain the same. We're always gonna look after our organic growth, but we're doing that comfortably now. We should be under that 100 level of CapEx, as we've called out for a few years now. M&A is definitely on our agenda. We're staying focused and disciplined for opportunities. We see that as part of our growth. In the meantime, we announced what we believe is a very positive dividend increase, the 25% from $0.10 to $0.125. Stock repurchase will come onto our agenda as the cash starts to come in. This year, next year, the next two or three years, we are gonna generate a lot of cash. It's gonna start to flow, and undoubtedly, I would expect stock repurchase to emerge at some point. M&A, we're staying disciplined, increase in dividends, and then balance it with some stock repurchase is how I would look at it. Thanks very much. Your next question comes from the line of Pete Skibitski with Alembic Global. Your line is now open. Hey, good morning, guys. Morning, Pete. Sort of raw material and labor inflation and your ability to kind of pass that through to customers, kind of understanding you use hedging. Also part two of that is on all the new hires that you've made, you know, how long do you expect it to take to get the new hires up the learning curve? Thanks. In terms of, I mean, we've talked about the raw material inflations and even just to David, as I was saying, we do a good job for some of our key raw materials to mitigate the impact, but we're not immune to inflationary pressures. We have seen them. I think the probably 2022 saw bigger inflationary pressures than hopefully we're gonna see in 2023. We're starting to see it dissipate. Energy costs, however, in Europe are high. Where we can pass pricing through or sort of increase pricing to sort of cover those cost increases, we do. We have a lot of long-term contracts, some of which have formula that allow us to pass it through, and we obviously take advantage of that wherever we can and work with our customers to manage pricing. Industrial, we have more flexibility. That tends to just flow straight through per formula. We do have some price increase flow through, but a lot of the time we're taking efficiency and productivity to manage and overcome the inflationary pressures. In terms of labor, you can't give someone five years, three years experience in six or nine months. We're working as hard and as focused as we can on training and accelerating it. We were very encouraged by the output and the production we saw in Q4, which really underpinned our ability to get out the higher level of sales. At the end of Q3, we called out the strong demand, and we certainly saw that in the fourth quarter. Oh. We're still working on training. It's not a short-term fix, and we'll keep pushing it through 2023. Sorry, you guys cut out for a minute there. I appreciate the time. I'll let it pass on. Thanks. Thanks, Pete. Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is now open. Pardon me. Next question. Oh, my apologies. Sorry, this is Elena in for Sheila. Just on the organic sales growth of low teens in 2023, how are you thinking about the contribution from narrow bodies versus wide body ramps given disruptions to the MAX and 787? We're really not giving. I think I heard the question, Patrick. Hello? Sheila, if you look, obviously we have more content on wide bodies, and what we're seeing with respect to the A350, the Airbus A330, and the 787 coming back, that provides a nice boost to 2023. Similarly with Boeing rebounding and stabilizing their supply chain, MAX is expected to grow, and the 320 is just limited by the supply chain. You know, we're not gonna give you the% per se on narrow body versus wide body, but we're seeing pretty strong growth in both of those platforms. Great. Thank you. Your next question comes from the line of Ron Epstein with Bank of America. Your line is now open. Hey, good morning, guys. Maybe just a quick one on technology. When you think about looking out over the next couple of years or maybe even towards the end of the decade, with Boeing really not pursuing a new airplane for a while, other than what they've got, you know, going on at the moment, how are you thinking about investments in technology and, you know, where do you think you need to spend maybe some incremental, you know, internal funded money on what? Just curious how you're thinking about that. Yeah, Ron. You know, remember, the development cycle for commercial aircraft is quite long, seven, eight years. Material development obviously takes place well in advance. I don't know that we're spending incremental. We're spending the appropriate level for what we see as opportunities for next generation materials, both from a mechanical standpoint as well as processing capability and the ability to lay the materials down and to form the parts faster. It's not unique solely to a potential new Boeing aircraft or a new Airbus aircraft. The penetration we're seeing in business jets, penetration and opportunities we're seeing in space and defense all require next generation materials. Again, we're pretty much agnostic. Our assets run all of our products. Our development on our fiber is applicable across all of our markets. A continued focus on R&D and investment, getting our center done in Salt Lake City and getting it staffed appropriately is certainly front and center and a key driver for our future. Great. Thank you. Your next question comes from the line of Myles Walton with Wolfe Research. Your line is now open. Thanks. Good morning. Morning. Good morning, Myles. Patrick, I think you gave end market composition for 2023, which you can back into growth rates. Correct me if I got them wrong, but it did look like, the commercial end markets were growing about 13% and defense up about 11%. Are those right? I guess commercial seems a little bit lower and defense seems a little bit stronger than I would otherwise expect. Anything to call out there? Yeah. No, no. Your math is pretty good. I mean, commercial aero, perhaps the ramp rates are slowing a little bit, certainly Airbus from what we saw in 2022, but it's still good solid growth, and it's the majority of the growth. It's still the largest portion, again. Space and defense, we're just seeing a lot of general strength very broadly. CH-53K, F-35 is still continuing to creep up. We've got some European military spend going up, and then we're across such a broad base, and given the military budgets, there's just a lot of pull at the moment. I guess I should also mention business jets and commercial aero remains robust, but again, at what you'd probably expect, a lower growth rate. Okay. Maybe one, on the CapEx side and starting Decatur, is that primarily for growth beyond 25 versus what you. When you started the program, obviously the A350 was at 10, and you were thinking about beyond 10. 787 was at, you know, 52 going to 57. You're thinking about beyond that. Is the focus of the Decatur expansion eyes on those kind of rates, or is it more of an efficiency formula that you don't need those kind of growth beyond 5 or 8? It's a combination, Myles. We obviously see the wide bodies continuing to creep up. Military, as we've just talked about, is gonna pull increasing demand for our products. The business jets, something like the Dassault Falcon 10X with a composite wing, that's pulling. It really is sort of we see some growth in the wide bodies plus some new programs and extra pull come 2025, 2026 in general program growth. All right. Thanks. Your next question comes from the line of Robert Spingarn with Melius Research. Your line is now open. Good morning. Good morning. Nick, I wanna follow on with what you ended your monologue with a little bit and touch maybe on what Ron was talking about, just because this is such a secular story. I wanted to ask you about your opportunity on narrow body specifically, and why, you know, what are the technical hurdles, and can you get to narrow body at some point like you are on wide body? While I know there's no new aircraft on the near-term horizon, I am thinking of things like A320neo rewing, A220-500, and then I'll throw in the GE or the CFM RISE program as well. Yeah. Thanks, Robert. There's no reason whatsoever that narrow bodies can't approach the similar penetration or entitlement as wide bodies. Remember, the latest airplanes developed happen to be the wide bodies, the 787 and A350, and they're the aircraft that are 50% composite in total weight. If you look at the next new narrow body and the entitlement, our technology and the market technology has just enabled that to perhaps grow even bigger. You can see signs of that. Look at what Dassault is doing with the Falcon 10X. That's a composite wing. Mm-hmm. We're seeing more and more pull for composites. We're seeing the development that we're doing, not only on the mechanical performance of our composite fiber products, but the way it's processed, the way our customers are able to make parts, lay it down in tape or fiber placement, the way they're able to cure it, whether it's in-autoclave or out of autoclave, and whether it's a combination of thermoplastics or thermosets. We have that total array, that total suite of products to enable our customers to optimize those next new aircraft. As a follow-on to that, is there any way for us to think about the relative differences in your product offering than your closest peers? Well, first thing I'd say is we're the largest in the aerospace industry. I would say we're the most vertically integrated and diversified. If you look at our portfolio of PAN and fiber, woven products, unidirectional and woven prepregs, honeycomb core, engineered core, all the way to structures. If you look at our peers and what they have to offer, it's a much narrower band. Now, I'm sure they're working similar technologies to improve mechanical performance, to improve processing and laydown, but I like where we are. I like the direction we're moving and at the pace we're moving, and I think our customers are going to appreciate and recognize the value proposition we provide them for the long term. Thanks, Nick. Appreciate it. Thanks, Robert. Your next question comes from the line of Kristine Liwag with Morgan Stanley. Your line is now open. Hey, good morning, Nick. Morning, Patrick. Morning, Kristine. Maybe a follow-up on wide body demand. When you look at Boeing's production rate plans, we're seeing the 787 go from 1.5 to 2.5 per month to date. They're kind of, you know, going to that 10 per month by 2025, 2026, and that's a 400%-500% increase. You know, you guys already have the CapEx in place since you were, you know, meeting the rates higher than that pre-COVID. It would seem like a step up in volume should be relatively easy for you. Just wanna understand, are there any hurdles that we wanna keep in mind as we see the ramp up, or should this be, you know, easy-peasy considering you have the CapEx in place already? Well, I'm not sure I'd characterize it as that easy. Growing and ramping up and driving efficiency and productivity is always challenging and we always challenge our team to go above and beyond and not do it the way we had in the past decade. To find new ways, new opportunities to make us even more productive going forward. To your point on expanding and growing, knowing how to put the assets in the ground, that's fairly straightforward. We've replicated our assets numerous times in various countries, and we know how to do that well. We've got great processes and teams to make sure we manage and deliver and execute based on our commitments. I'd say, and Patrick touched on it, the training curve. We have a significant number of our team that are fairly new in terms of their knowledge with the product, the processing and efficiencies. Although we're running and we're ramping up, and we're seeing our efficiencies climb rapidly, that is the challenge that we really focus on and really work on going forward. We know how to do it, to your point. We've done it before. It's nothing special. It's just a matter of executing, and I think we have a pretty good track record on delivering on our commitments and executing to plan. Thanks, Nick. That's really helpful. I mean, you've addressed your market share and success in carbon fiber, and you've benefited from the high barrier to entry to intermediate modulus carbon fiber. That's been very clear in your operating history. When we look at that next generation narrow body, when we get to that 2030s timeframe, if thermoplastics do indeed take more of a share versus your traditional metal products, like, how do you think about that evolution? Would you have the same benefit in terms of your technology? Is that a substitution also for carbon fiber? How do you think about the evolution of thermoplastics and carbon fiber in that sense and your competitive advantage? Well, thermoplastics clearly are not as mature as thermoset technology, and it has ways to go. What's promising is we have that technology. We're working on that technology. We're demonstrating that technology with our customers. I don't believe there's going to be mass transfer of products moving from thermoset to thermoplastic overnight. I think there will be applications that are better suited for thermoplastic, that are better suited for thermoset, and again, why I love our position is that we offer both. We can help our customers identify the optimum solution based on the application they have. Again, I think it's gonna be a function of when that new aircraft is launched, how far down the road, because all technology, whether it's thermoset, thermoplastic, or honeycomb core and noise suppression or thermal management, those technologies just continue to advance every day and will be even more ready down the road. Thank you very much. Thank you. Your next question comes from the line of Gautam Khanna with Cowen. Your line is now open. Hey, guys. Great quarter. Thanks. I wanted to just ask, you know, M&A pipeline, anything evolving there? Anything of interest yeah, if you could just comment on that. Well, you know, we never slow down, Gautam. We've got an active business development function. We look at technologies that would enhance our portfolio, would allow us to serve our customers better, provide more value. We have an active pipeline. Bolt-on type acquisitions, bolt-on type technology targets are high on our priority list. Obviously, I can't get into details on any of those names, you can imagine some of them may be actionable, may not be actionable, that changes over time. It's clearly one of the priorities we constantly look at, we balance our capital deployment against what internal developments we have versus what M&A opportunities we see not only near term, but potentially midterm or longer term. I was just curious with, you know, a while back there was the Woodward pursuit or whatever we want to call it. Any desire to move into the aftermarket? Again, the Woodward merger of equals that we worked in 2019 and announced early in 2020, which we then had to abandon because of the pandemic, that was very unique. A game changer really for both companies, and to the advantage of our customers in offering more efficient and optimized solutions. The aftermarket is certainly a nice piece of business that helps diversify away from OE and can stabilize markets during different type of macro events. It's certainly attractive, but it's not what drives our strategy. Our strategy is driven around lightweight, innovative solutions to help our customers meet their efficiency and sustainable requirements going forward. If there happen to be some aftermarket tied to that's great, but we don't target that or make that a priority. Your next question comes from the line of Michael Sison with Wells Fargo. Your line is now open. Hey guys. Nice, nice end of the year. Just curious, you know, we're in sort of a interesting time. You know, most pundits are looking for a downturn in the U.S. to battle inflation. How do you think that affects the industry this time around if there is a meaningful slowdown in the U.S. and, you know, all the indicators still seem pretty positive for aerospace, but just your thoughts there. Yeah, Mike. You know, if I start with space and defense, we've seen that that market segment is fairly resilient to short-term recessions or economic impacts, and we see the same. Commercial aerospace, if you look at where we are coming out of the pandemic, if you look at the strong demand, and if you look at the supply chain challenges, perhaps a little slowdown in other areas may actually be an enhancement to help the supply chain catch up and get the new craft in customers' hands that are looking for them. We see minimal to no short-term impact in our commercial markets. Even in our industrial segments, if you look at our strategy and the way we differentiate, it tends to focus on the high end, whether you're talking automotive or marine or the recreation and sports. Those are high-performing applications that really are pretty resilient to recessions. Electronics and consumer goods, certainly there could be an impact there, but right now we do not see the impact of being significant based on what we're looking at today. Great. Thank you. Thanks, Mike. Your next question comes from the line of Michael Ciarmoli with Truist Securities. Your line is now open. Hey, good morning, guys. Thanks for taking the question. Nice results. If I can, just to go back to the guidance and I guess the implied midpoint of the growth rate for Aero, you had a really strong sequential uptick in this current quarter. You know, hadn't really been much change in rates, and I guess, you know, it seems like that revenue run rate is just gonna be flattish through 2023 to get to the midpoint. I mean, is that the right way to look at it? I mean, it sounds like the H7 ramp will be a bit later, but anything, you know, from a cadence perspective we should be thinking about? I think we'll see some steady growth sort of going into the first half of 2023. I think the seasonality that we always historically saw and we saw what we did see it in 2022 with Q3 being a bit softer, reflecting the European sort of holidays in that region is likely to happen again and now sort of going forward in future years. I think we'll see that seasonality, and we'll see how the year finishes, which is really gonna depend on where the OEMs are with their build rates. I think Q4 over Q3 2022 was clearly a large step up, but you've got that kind of seasonality effect. We talked about the strong underlying demand and our ability to get products out the door. We're gonna see another step up again into the first half of 2023. Perhaps Q3 will back off a little bit just seasonal-wise, hopefully finish the year strong again. A fairly solid, stable, robust growth year, but double digits in all our markets, which is what you'll see. Commercial aerospace, space and defense, and industrial. Got it. I mean, you're basically there back at the $1.8 billion. It sounds like you're definitely grappling with some of those inflationary cost headwinds. Just to be clear that, I guess the confidence level in the mid-teens, maybe, kind of battling that a bit. Should we just calibrate expectations to deal with some of these higher costs around that target you guys had out there? I think you're all doing it. I mean, you're backing into our guidance EPS. I think that obviously reflects a little bit of the headwinds, I think notably the European energy, which should be... I don't wanna be complacent, I don't wanna be overly optimistic, but hopefully in time will dissipate, and then as we come out of 2023 into 2024, that should give us a bump on margins as we return to something more normal. As Nick talked about and as I talked about, we're gonna drive efficiency and productivity to overcome these, what are really inflationary pressures as much as we can and drive the incremental margins. In the short term, there are some headwinds to that initial mid-teen guidance, but we're working hard to continue to aim for it. Got it. Perfect. Thanks, guys. Your next question comes from the line of Richard Safran with Seaport Research Partners. Your line is now open. Nick, Patrick, Kurt, good morning. Two fairly quick questions for you here, one on biz jets, one on free cash flow. You know, you had some really good outperformance all through 2022 on business jets. Looks like it starts to be a difficult comp this year. I just want to know if you could discuss your outlook for business jets and if you think the current level of sales is sustainable. Yeah. Hi, Richard Safran. I mean, we saw fantastic growth 2022 over 2021 in business jets and regional jets were good too, but I guess business jets especially. We see continued strength. I mean, the rates of growth, I don't expect to see the step up 2023 over 2022 the same as that 2022 over 2021. We do see the elevated sales, the continued strength, Gulfstream, Dassault, Bombardier continue to build it, to bring out new models. They're all more composite rich than the older business jets. It has become a really good space for us and we see continued strength. We're positive, Richard Safran. Okay. Thanks. Just quick follow-up. On your cash flow guide, for this year, I'm kind of curious as to what leverage you have and what your working capital assumptions are. For example, is there any buffer or safety stock embedded in your guide? You know, if things start to improve as the year goes on, might that be upside to your guide? I'm just trying to get at generally here, what's the possibility of being coming in 2023 above your free cash flow guide? Well, that's obviously our objective, and Nick and I are gonna push cash as hard as we can. I mean, I think when your top line is growing, you've always got a bit of upward pressure, a bit of growth around working capital. We took some of the pain and we pulled it out on our inventory growth in 2022. We kind of got ahead of ourselves a little bit, very deliberately, to support our customers and to get the sales out of the door. Hopefully the inventory growth will be less than it might normally otherwise be. As sales go up, receivables go up, we'll manage payables. Hopefully only modest, but with top line growth, working capital will grow modestly, and we'll keep driving cash. Can we outperform? That's definitely our target, Rich. Thanks for the color. Appreciate it. Your last question today comes from the line of Robert Stallard with Vertical Research. Your line is now open. Thanks so much. Good morning. Morning. Thanks for sneaking me in there. Don't know what happened with the technical side there. Anyway, I'd like to follow up on Myles' question from earlier on defense because, you know, what you saw in Q4 and what you're projecting for 2023 on revenue growth is clearly different from what other defense companies are saying, particularly in aeronautics. If you look at Lockheed, look at Northrop, look at the A400M, whatever it might be. I wondered if you could give us a little more clarity on what you've seen and what gives you confidence this growth rate is sustainable? Well, I mean, we're seeing what's in front of us, Rob, and we're seeing continued, well, strong growth on the CH-53K. I mean, I know we keep talking about it, but it truly is really good growth. It continues to grow very strongly, the last year, this year, and probably going into 2024. The F-35 is not gonna grow a lot more, but it's gonna step up a little bit more in 2023. Understanding Lockheed's delivery issues, but they continue to produce and we're supporting the production. You've got, as I say, just broad spend across sort of... You look at Europe, you've got the Rafale, which is going well. You've got stability even in the Eurofighter, which is a little bit stronger than if you'd have asked me what 2023 was gonna be 2 or 3 years ago, I would have said the EF was gonna be down. Instead, it's actually probably gonna go up. Then just general broad strength across many, many platforms. As we talk about civil helicopters stepped up. It's a small part of what we do, but it stepped up nicely, especially in Europe in 2022. That's gonna continue for a while. Space itself is more robust with the commercial space applications. It's very broad-based, Rob, is the answer. CH-53K sounds like it's the key one for us to watch going forward though, because, you know, I know there are a lot of other things out there. It is. It is. I think we've said, At some point it's gonna be up there with the F-35 and those two will comfortably be our two largest programs. Yeah. That's great. Thanks, Patrick. This concludes today's conference call. Thank You all for attending. You may now disconnect.