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DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• Vice President, Investor Relations - Kurt Goddard
• Chairman, CEO and President - Thomas C. Gentile
• Chief Financial Officer - Sales G. Coogan

TAKEAWAYS

• Net Sales -- $496.4 million, representing an 8.8% increase compared to the previous year driven by growth in the commercial aerospace market.
• Commercial Aerospace Sales -- $330.3 million, increasing 20.5% due to higher volumes across the Airbus A350, Boeing 787, A320neo, and 737 MAX platforms.
• Defense, Space & Other Sales -- $166.1 million, an 8.7% decrease reflecting the divestiture of noncore industrial operations and lower launcher rocket motor volume in the U.S. market.
• Adjusted Diluted EPS -- $0.50, compared to $0.37 in the third quarter of the prior year, supported by increased volume, price realization, and a lower tax rate.
• Adjusted Operating Margin -- 11.0%, an increase from 9.8% in the prior year period, reflecting improved operating leverage and price realization.
• Full-Year Revenue Guidance -- $2.025 billion to $2.125 billion, reaffirming previously stated targets based on steady production demand signals.
• Full-Year Adjusted Diluted EPS Guidance -- $2.30 to $2.40, maintained as higher production rates offset short-term investment costs.
• Free Cash Flow Guidance -- greater than $195 million for the full year, supported by higher earnings and disciplined capital management.
• A350 Shipset Forecast -- approximately 100 shipsets for 2027, a 25% increase from the 80 shipsets projected for the current fiscal year.
• Hiring and Training Costs -- impacted short-term margins as the company onboarded 525 new employees year to date to prepare for higher production rates in 2027.
• Composite Materials Segment -- reported an adjusted operating margin of 14.6%, up from 11.2% in the prior year, driven by better fixed-cost absorption on higher sales.
• Engineered Products Segment -- generated an adjusted operating margin of 11.8%, compared to 15.5% in the prior year quarter.
• Share Repurchase Authorization -- increased to $750 million from the $380.6 million remaining as of Sept. 30, 2026, to allow for opportunistic buybacks.
• Net Debt to Adjusted EBITDA -- 2.1x at the end of the third quarter, with management expecting to return to the targeted range of 1.5 to 2.0 by year end.
• Incremental Sales Opportunity -- $500 million annually in commercial aerospace sales expected as Airbus and Boeing reach peak production rates on existing contracts.
• Gross Margin -- 23.3%, compared to 21.9% in the third quarter of the prior year, benefiting from improved price realization and volume leverage.
• Research and Development Expense -- 3.3% of sales, representing an increase from 3.1% as the company continues to invest in next-generation single-aisle platform innovation.
• Foreign Exchange Impact -- resulted in a 30 basis point headwind to the adjusted operating margin during the third quarter due to a weaker dollar.
• Capital Expenditure Accrual -- $61.2 million for the first nine months of the year, compared to $49.9 million in the equivalent period of the prior year.
• Acrylonitrile (AN) Costs -- represent a single-digit percentage of total sales, with management utilizing hedges and procurement contracts to mitigate price volatility.
• Quarterly Dividend -- $0.18 per share, payable to stockholders of record as of Nov. 2, 2026.

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RISKS

• CFO Coogan stated, "Foreign exchange remains a headwind year over year due to weaker dollar," noting that the third quarter operating margin was negatively impacted by approximately 30 basis points.
• CEO Gentile noted that Defense and Space sales were impacted by "temporary softness in space launchers rocket motors in the US market," which he attributed to unique industry dynamics.
• CEO Gentile reported that the process of "restarting production lines and hiring new workers to support the production rate ramp pressures margins in the short term."

SUMMARY

Hexcel Corporation (HXL -2.07%) reported quarterly results reflecting a transition toward higher production rates as commercial aerospace demand continues to recover across all major widebody and narrowbody platforms. Management reported that the company is actively restarting idle manufacturing lines and has accelerated hiring beyond initial targets to meet projected delivery schedules for 2027. The company stated that it is executing a multiyear margin expansion initiative focused on price realization and cost efficiency to reach an 18% operating margin target by the end of the decade. Financial priorities include returning leverage to a targeted range of 1.5 to 2.0 net debt to adjusted EBITDA while maintaining investments in advanced material innovation for next-generation aerospace and defense platforms.

• CEO Gentile noted that current material shipments precede final aircraft assembly by at least six months, providing management with high visibility into delivery rates for mid-2027.
• CFO Coogan reported a target for operating margins to approach 20% by the end of the decade through the successful execution of price realization on long-term agreement renegotiations and continuous improvement efforts.
• Management confirmed that the company is currently capitalized sufficiently to support Airbus production targets of 12 A350 aircraft per month by 2028 without significant additional capacity investment.
• The company is expanding its engagement with new aerospace and defense market entrants through the qualification of its honeycomb portfolio with the NCAMP database, streamlining the adoption process for next-generation platforms.
• Management indicated that while petroleum-derived raw material prices have risen, approximately single-digit percentages of the cost base are exposed to these fluctuations due to extensive hedging programs.
• CEO Gentile stated that the recent 10-year contract for the F-35 program provides a significant long-term demand signal for Hexcel's high-performance composite materials.

INDUSTRY GLOSSARY

• Acrylonitrile (AN): A primary chemical precursor used in the production of carbon fiber.
• Honeycomb: A lightweight cellular structural material used in aerospace components to provide high strength-to-weight ratios.
• LTA (Long Term Agreement): Multiyear supply contracts between Hexcel and aircraft manufacturers that define pricing and volume commitments.
• NCAMP (National Center for Advanced Materials Performance): An aerospace database and qualification center that allows engineers to evaluate design-ready composite products.
• Prepreg: Reinforcing fabric that has been pre-impregnated with a resin system, requiring heat and pressure to cure into a final part.
• Shipset: A complete set of materials or components provided by Hexcel for the construction of one individual aircraft.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us and welcome to the Hexcel Third Quarter 2020 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, please press *1 again. I will now hand the conference over to Kurt Goddard, vice president, investor relations. Kurt, please go ahead.

Kurt Goddard: Hello, everyone. Welcome to Hexcel Corporation's Third Quarter Earnings Conference Call. Before beginning, let me cover the formalities. I would like to remind everyone about the safe harbor provisions related to any forward looking statements we may make during this call. Certain statements contained in this call may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 2000. 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 earnings release. We will be referencing a supporting presentation today that is available on the webcast.

In the earnings release and in today's webcast and the supporting presentation, we reference non GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are provided in the earnings release and in the appendix to the presentation. 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 Tom Gentile, our chairman, CEO, and President, Sales G. Coogan, our chief financial officer.

The purpose of the call is to review our third quarter 2020 results detailed in our news release issued yesterday. Now let me turn the call over to Tom. Tom?

Thomas C. Gentile: Thanks, Kurt. Hello, everyone, and thank you for joining us today for Hexcel's third quarter 2020 earnings call. Beginning with Slide 4 of the slide deck, Increasing customer demand across commercial aerospace, defense and space continues to provide a strong long term outlook for the advanced lightweight materials Hexcel provides. As commercial aircraft production rates recover, we work to capture defense and space growth, our focus is on executing the ramp to deliver for customers and capture the significant growth opportunities ahead of us. As discussed on our previous earnings call, third quarter results reflected the typical seasonality we experienced during the summer months, with extended European holidays.

With a strong demand outlook in Q4 and 2020, we continue to return idle manufacturing lines to production and to recruit new employees to meet the higher production rates. Restarting production lines and hiring new workers to support the production rate ramp pressures margins in the short term, but it positions Hexcel to benefit from greater operating leverage in future periods. Hexcell has a compelling value proposition with a broad and differentiated portfolio of advanced lightweight composite materials solutions. Decades of technical expertise, vertically integrated capabilities at scale, long standing relationships with leading aerospace and defense manufacturers. We are also building relationships with new market entrants, including defense techs, space, and commercial aerospace companies.

These strengths position us well as customers increase production and introduce new platforms that drive demand for Hexcel's lightweight high performance materials. In the third quarter, referring to Slide 5, Hexcel generated sales of $496 million up 9% from the same period last year. Adjusted operating margins were 11.0%, up from 9.8% compared to the third quarter of 2020. And adjusted diluted earnings per share of 50 cents compared with 37 cents in the third quarter of last year. Turning to Slide 6. Commercial aerospace sales were $330 million for the quarter, up 21% year over year. Volumes increased across all our major commercial platforms, including the Airbus A350, the A320neo, the Boeing 787, the 737 MAX.

As we have pointed out previously, Hexcel is an upstream material supplier and generally ships several months ahead of final aircraft assembly. We manage the business based on production demand and purchase orders we receive. Not reported OEM aircraft deliveries. The demand signals we see continue to support the production ramp and our current hiring plans. Consequently, we are reaffirming our financial guidance for the full year 2026. With revenues between $2.025 billion and $2.150 billion diluted EPS of $2.30 to $2.40 per share and free cash flow greater than $195 million. Specifically on the A350, purchase orders received through year end of 2026 support our guidance of at least 80 ship sets. Looking into 2027.

Current demand signals indicate around 100 A350 ship sets. As we prepare for that step up in production, we will do so with a focus on maintaining the safety, quality, and delivery performance our customers expect. Turning to Defense and Space on Slide 7. Sales for this market were $166 million for the quarter. Year over year decline primarily reflects the previously disclosed divestiture of our non core industrial business in Austria, and closure of noncore industrial operations at our Leicester, UK facility. These actions streamlined our footprint, and increased our focus on niche industrial markets that value Hexcel's high performance aerospace grade composite materials.

Sales in Defense and Space were impacted by temporary softness in space launchers rocket motors in the US market, a slow quarter for the F-35 program due to timing and customer schedule shifts and a slower quarter for the Rafale due to summer sales seasonality. The defense and space market is a strategic priority for organic growth, with its compelling long term potential. Government budgeting, procurement and program funding could take time to translate into production and ultimately sales. Particularly for companies further back in the supply chain such as Hexcel. We have strong positions across rotorcraft, fixed wing, and other programs, with traditional defense primes, many of which are expected to be in service for decades.

Also, we are expanding our work with new aerospace and defense Xcel's advanced lightweight materials provide the high performance required for defense and space platforms, and we are confident in long term demand in this market. Taken together, these demand trends across our portfolio support a promising growth trend. As Airbus and Boeing reach their publicly announced peak production rates, we expect approximately $500 million in incremental commercial aerospace sales annually from our existing contracts compared to fiscal year 2020 sales. We also see approximately $200 million of additional growth opportunities across defense and space, regional and business jets.

As these higher volumes move through our existing capacity, we will realize better fixed cost absorption and will generate greater operating leverage. Combined with pricing increases, as contracts renew, productivity improvements and disciplined cost control, the production ramp provides a path to approximately 18% adjusted operating margins before the end of the decade. We also see potential upside beyond that 18% as we focus more aggressively on pricing that reflects the value we deliver and the barriers to entry that exist to produce lightweight, aerospace-grade carbon fiber composites. I have asked Sales to take the lead on driving a multiyear margin expansion initiative, which we will describe in more detail on future calls. Looking at capital allocation.

Our cash generation profile allows us to invest in the business while maintaining a strong balance sheet. Following the increase in debt from our accelerated share repurchase last October, we are on track to on track to return our leverage to our targeted range of 1.5x to 2.0x net debt to adjusted EBITDA by the end of 2020. Reflecting confidence in Hexcel's growth and cash generation potential, our board has increased the share repurchase authorization to $750 million from the $381 million remaining as of September 30 of this year. We will evaluate share repurchases once we return to our targeted leverage range sometime during Q4 of 2020.

Also, as we announced last night, the board has declared a quarterly dividend of $0.18 per share. On Slide 8, turning to innovation, our team recently attended CAMX, the largest composites and advanced materials show in North America. We engaged with customers, suppliers, and industry partners at the event demonstrating how Hexcel's advanced materials vertically integrated operations support growing demand for commercial aerospace, defense and space platforms. At CAMX, we announced 3 advances across our Honeycomb and Prepreg portfolio. The announcements highlighted how Hexcel innovation enables customers to build next generation platforms that are lighter and stronger and can be manufactured faster at higher rates.

This focus on material and manufacturing innovation broader adoption of Hexcel Advanced Composites and positions us to secure positions on future aerospace and space platforms. The lower image you see on Slide 8 is an aerospace honeycomb that we recently qualified with an aerospace database called NCAMP, which is part of NIAR, at Wichita State University. Which enables engineers at our customers and prospective customers to evaluate design ready products. This is 1 example of how we are supporting new A&D entrants, and we streamline the process for evaluating, adopting our composite solutions.

To summarize before I turn the call over to Sales, the third quarter reflected normal summer seasonality, the restart of idle production lines, and our accelerated hiring to meet rising customer demand. At the same time, commercial aerospace sales volumes continued to increase, a 21% increase. The production rate recovery is taking hold, and we are continuing to focus on execution to meet the rate ramp. Our differentiated portfolio, technical expertise, strong global reputation, deep customer relationships combined with our global manufacturing footprint. Positions us well to capture growth, improve operating leverage, and generate cash going forward. This supports our confidence in Hexcel's long term outlook and reinforces our 2026 financial guidance.

With that, I will turn the call over to Sales to discuss the third quarter financial results in more detail. Sales?

Sales G. Coogan: Thank you, Tom. I have now been with Hexcel about 6 months. And as you heard Tom comment, a key priority and focus for me is margin expansion. I am working very closely with our global team to improve price realization, while tightly managing our costs and continuous improvement efforts to expand our operating margins. While it is too soon to provide specific details and actions of these initiatives, we continue to see the benefits of price in our margins during 2026. Now turning to our financial results for the period. Starting with Slide 9. Third quarter 2020 sales of $496 million grew 8.8%. Strong commercial aerospace growth was partially offset by lower defense, space and other sales.

By market, commercial aerospace sales for the third quarter of 2020 were $330 million, an increase of 21% compared to the third quarter of 2020. Commercial aerospace comprised approximately 67% of the total quarterly sales. All 4 of our primary platforms grew year over year, including A350, 787, A320neo, and 737 MAX, As Airbus and Boeing continue to ramp their aircraft production. Sales for other commercial aerospace in the third quarter increased 1% year over year. Defense, space and other third quarter sales of $166 million represented approximately 33% of total sales.

Third quarter sales decreased 9% on lower space volume, The 2 fighter programs that Tom described and the absence of sales from the industrial businesses we exited in 2025 and 2026. Lower space volume was largely attributable to lower launchers rocket motors, which are going through a temporary soft spot due to some unique industry dynamics here in the U.S. As a reminder, we have exited noncore industrial markets through the divestiture of the Austrian industrial business on September 30, 2025, and the winding down of the industrial business at our Leicester UK site earlier this year. Our industrial business is now solely focused on niche industrial opportunities that demand high performance of aerospace-grade composite solutions.

Gross margin of 23.3% in the third quarter of 2020 increased from 21.9% in the third quarter of 2020 on improved operating leverage and price realization. The use of hedges and procurement contracts continues to mitigate the near term impact of higher oil prices. If oil remains elevated, the impact to energy and AN cost will be layered into our business over time. I would also like to remind listeners that Hexcel is vertically integrated. With value added along the production process, and that we have a broad product line in addition to carbon fiber. AN is not a significant driver of our cost base at only low single digits as a percentage of sales.

And, of course, the flip side of elevated oil prices is that higher energy costs further drive the value proposition for lightweight Hexcel composites to support aircraft fuel efficiency. As a percentage of sales, selling, general, and administrative expenses were 9.0% in the third quarter of 2020. Unchanged from the comparable prior year period. R&D expenses were 3.3% in the third quarter of 2020 compared to 3.1% in the third quarter of 2020. As we continue to drive innovation to position Hexcel to win work packages on next generation platforms including the next gen single aisle aircraft under development. Foreign exchange remains a headwind year over year due to weaker dollar.

The third quarter 2020 operating margin was negatively impacted by approximately 30 basis points due to foreign exchange. Adjusted operating income in the third quarter was $54 million or 11.0% of sales compared to $45 million or 9.8% of sales in the comparable prior year period. Adjusted EBITDA totaled $304 million or 19.9% of sales for the 9 months ended September 30, 2026. This compares to $249 million or 17.8% of sales for the 9 months ended September 30, 2025. As a reference, trailing 12-month adjusted EBITDA through September 30, 2026, was $401 million. Adjusted EPS of 50 cents increased 35% from the comparable prior year period, on volume and price and was also supported by a lower tax rate.

The quarter's tax rate largely benefited from the implementation of tax planning strategies in the quarter, resulting in a true up to our rate for the full year. A true-up to our rate for the full year. And of course, a lower tax rate leads to lower cash taxes. Now turning to our segments, per Slide 10, Composite Materials segment represented 79% of total quarterly sales and generated an adjusted operating margin of 14.6%. This compares to an adjusted operating margin of 11.2% in the prior year period. The Engineered Products segment, which is comprised of our structures and engineered core businesses, represented 21% of total sales and generated an adjusted operating margin of 11.8%.

This compares to an adjusted operating margin of 15.5% in the prior year period. Net cash provided by operating activities in the first 9 months of 2026 was $171 million compared to $105 million in the first 9 months of 2025. Working capital was a cash use of $78 million in the first 9 months of 2026 compared to a cash use of $64 million in the first 9 months of 2025. Capital expenditures on an accrual basis for the first 9 months of 2026 were $61 million compared to $50 million in the comparable prior year period. Now turning to Slide 11.

Free cash flow in the 9 months ended September 30, 2026, was $103 million compared to $50 million in the 9 months ended September 30, 2025. Leverage defined as net debt to last 12 months adjusted EBITDA, was about 2.1x at September 30, 2026. Which compares favorably to the year end 2025 leverage of just under 2.75x. We are on track to return to our target leverage ratio of 1.5x to 2.0x during the fourth quarter of 2026. Company did not repurchase any shares of common stock in the third quarter of 2020. With the remaining authorization under our program as of September 30, 2020, totaling $381 million.

As Tom noted earlier, yesterday, the Board of Directors increased our share repurchase authorization to $750 million. And we will look to recommence our share repurchase activity once we have reached our target leverage levels. In addition, yesterday, the board of directors declared a $0.18 quarterly dividend. The dividend is payable to stockholders of record as of November 2, with a payment date of November 9. Finally, on Slide 12, as Tom highlighted, our 2026 financial guidance is reaffirmed and unchanged. With that, let me turn the call back to Tom.

Thomas C. Gentile: Thanks, Sales. Let me close with a few key takeaways from the quarter on Page 13. Customer demand continues to increase, and we are restarting idle lines early. And investing now in hiring people to prepare Hexcel for higher production levels in 2027 and beyond. These hiring and training costs do impact near term margins. But they position us to execute the production ramp and deliver for our customers. As higher volumes move through our existing capacity, we will benefit from improved cost absorption and operating leverage. Importantly, we are maintaining our fiscal guidance for 2026. We see the production rate ramp up continuing into 2027 with very strong demand.

Our initial outlook on the A350 our largest program, is that we will deliver around 100 shipsets in 2027, approximately a 25% increase over 2026. We also remain on track to achieve our target leverage of less than 2.0x net debt to EBITDA and our Board of Directors has approved an increase in our share repurchase authorization to $750 million. As the OEMs reach their target levels of production for each program, we have a clear path to return our margins to the pre pandemic level of 18%, with upside based on the price realization that we are now seeing in the market.

Our differentiated portfolio, technical capabilities and strong customer positions, we are confident in Hexcel's ability to convert this growth into stronger margins, cash generation and long term value for our stockholders. With that, Hillary, we are now ready to take questions.

Operator: Thank you. We will now begin the question and answer session. For the courtesy of others who would like to ask a question, please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1. To withdraw your question, please press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Michael Ciarmoli from Guggenheim Securities. Your line is open. Please go ahead.

Michael Ciarmoli: Hey, morning, guys. Thanks for taking the question. Tom or James, just on the A350, the 25% increase next year, you guys have obviously been producing ahead of what Airbus has been delivering. It sounds like you are pretty confident in the line of sight there. Is there any risk of sort of a destock situation or that you would be slowed down at all? And then, I guess, just tying in with the ramp on the A350, I mean, that is your biggest program, it kind points to incremental revenue of almost $100 million. it is the most margin rich content.

So should we fix expect any disproportionately higher margin expansion next year on maybe better incremental as that program ramps? Thanks.

Thomas C. Gentile: Right. So, you know, obviously, the A350 this year so far through September had delivered 38 units. We have been calling for 80 units all year in terms of our guidance. And we feel confident in that because we have firm purchase orders now that go right through the end of the year. And as we stated, we are a material supplier, so we are well upstream, at least 6 months ahead of Airbus. The material we are delivering today is not for deliveries today, obviously. it is for deliveries next June and July. So that is 1 thing is that we still see a very high probability that 80 is the right number for this year.

The reason we are saying 100 for next year is really we are triangulating a number of different signals. First of all, Airbus has publicly stated they are still on track to have 12 aircraft per month by 2028. And that next year is gonna be right in line with that. The other thing is we have their skyline. They give us a long term schedule that goes out 2 or 3 years. And that is consistent with 100 deliveries next year. In addition, we do supplier surveys of all the 15 or so sites around the world that take A350 material. And we asked them what are they seeing in terms of their outlook and their near term demand.

And they are also confirming that 100 next year is a good number. And then also some of the initial purchase orders that we already have in place for next January and February reinforce that number. So we feel confident that 100 is a good number that we will not see destocking next year. Of course, 2028 is even gonna be higher. We will not get into those numbers just yet. But we see a steady increase as Airbus proceeds toward 12 aircraft per month in 2028, which is their target. Now in terms of margin expansion, on the A350, as it expands, it obviously helps us in terms of our fixed cost absorption.

And getting more operating leverage, and so that will have a positive impact on margin. Yes. Okay. Great. Guys. I will jump back in the queue. Okay. Thanks. Thank you.

Operator: Your next question comes from the line of Gavin Parsons from UBS. Your line is open. Please go ahead. Hey, thanks for your question.

Gavin Parsons: Good morning. Is it possible to quantify the magnitude of the accelerated investment for growth this year? And then specifically looking at corporate, I think that line's up $17 million year to date. So just what you are assuming for corporate expense this year? And what is a good run rate level?

Thomas C. Gentile: Well, 1 way to quantify the investment we are making, I think a good surrogate would be headcount. We have to hire new heads to support the line. So between last year and this year, we have moved forward 3 of our carbon fiber lines and started them up early. Obviously, we have to hire to support that. But we also have to support all of our other products. Our engineered core, our structures, and so forth. And so at the beginning of this year, we said that we were gonna hire 400 people over the course of the year. Well, as of the end of September, we hired about 525. So we are already well ahead of the pace.

And by the end of the year, we will probably hire another couple hundred more. To support the production that we see next year. So that gives you some indication of the level of investment that we are making. In terms of corporate expense, the SG&A, as Sales said, was about 9.0% of sales. Was consistent with where it is last year. As our production goes up and our revenues increase, we do not expect that corporate costs are gonna go up at the same level. And so we are targeting to get back to our 6.5% to 7.0% SG&A as a percent of corporate. Of total sales as we get up to the full rates of production. Got it.

Thank you. You are welcome.

Operator: Your next question comes from the line of Scott Mikus from Melius Research. Your line is open. Go ahead.

Scott Mikus: Good morning, Good morning, Tom. Morning. Tom, Toray has signaled that it wants to get on to the A350 program eventually. Just curious how you are thinking about that when it comes to pricing as that LTA comes due. 30, but also the capital investments you would need to make on that program. Because it seems like Airbus is gonna take the production rate above 12 per month. Maybe into the mid teens at some point. So does it make sense to invest more in CapEx if Airbus is potentially going to shift some share to Toray?

Thomas C. Gentile: Well, Scott, what I would say is material systems are very complex. They require a lot of validation of the material system itself and certification into the airplane. Those things take years. Then you would have to industrialize it. I think it is very difficult to change the material system. Certainly for any primary or secondary structure. So that is 1 thing to take into account. In terms of capital investments, we are capitalized sufficiently with the production lines that we have in place. To achieve the 12 aircraft per month that Airbus has indicated by 2028. If they go above that, that would require probably another carbon fiber line. In the early 20 thirties.

And so we would be in discussions with Airbus well in advance. it is probably about a 3-year lead time of something like that. And we would be in discussions with them well in advance of that. So that is the way I would say it is we do not need any production capacity to achieve the target production levels that they have right now, which is 12 aircraft per month. by 2028. If they go above that in the early 20 thirties, we would we would talk with them about that at that time. Okay. Got it. Thank you. Yeah. Thanks.

Operator: Your next question comes from the line of Richard Safran from Seaport Research Partners. Your line is open. Please go ahead.

Richard Safran: Thanks. Good morning. I wanted to ask you guys about rotorcraft. there is been a concern out there. Army aviation budgets are under some pressure in fiscal 2020 request. So I want to know if you could go into what, if anything, does that mean for Hexcel next year? And part 2 of that question is that you have mentioned CH-53K, UHC 60, and more recently the V-280. I just wanted to know what you are baking into your outlook here. Thank you.

Thomas C. Gentile: Right. Well, rotorcraft is a very big product segment for us. And as you indicated, the CH-53K is our biggest program. So we have about $2.5 million to $3.5 million per shipset on the CH-53K. We have the whole material all the carbon fiber, all the resin, plus some of the structures as well. That aircraft, of course, is for the marines, not the army. And so that is 1 thing about it. it is got a program of record of 200 units and we are on track. I think Sikorsky has indicated they wanna get up to about 24 per year. And they are on pace to achieve that.

So that is gonna be a good program for us for a long period of time. And in addition to the 200-unit sales program of record, they have also done some foreign military sales initially to Israel about 15 or 16 units, and then possibly more in the future. So that is. In terms of rotorcraft, that is the marine. On the army, we still have a huge position with the Black Hawk. We do the SPARs. Our shipset value that we have talked about is between $250 thousand and $300 thousand per shipset. And the Blackhawk there is about 3 thousand units in The US, and then there is a lot of units overseas.

That program is likely to go for a very long time into the future. They already have firm orders through 2032. And not only do we do new production, but because we do the spars on the blades for the Blackhawk, there is a lot of aftermarket too. So as it gets a lot of utilization, we will see that. So we see the Blackhawk as a very good program many years into the future. Sikorsky is upgrading the engines on it, and They are also putting in place autonomy, so it is going to be a very capable aircraft.

You mentioned the V-280 that Textron is building, is also going to be a great aircraft, but that is still several years out in terms of when it enters into service. We have been talking to Textron about material packages on that. We see it is gonna be a great program. But, again, it is a few years out, so it does not impact us in the next few years. Other army helicopters like the CH-47 are mostly metallic, and so we have some chipset content on them. But it is not material. The other thing about rotorcraft is we do a lot with Airbus. We do a lot with Turkey and TAI.

We do a lot with HAL in India. And so our rotorcraft exposure is much broader than just army aircraft. As I said, it includes the CH-53K. It includes Airbus and TAI and HAL. Then we still have a very strong position on the Blackhawk, and then we will have a good position in the future on the V-280. Thank you very much. Welcome.

Operator: Your next question comes from the line of David Strauss from Wells Fargo. Your line is open. Please go ahead.

David Strauss: Hey, good morning. Good morning. Tom, on the A350, and, you know, your forecast to get to a 100 in 2027, I would have thought if Airbus is actually going to get to 12 a month in 2028 -- or sorry, 12 a month in 2028 that you would actually, you know, given your lead times, that, you know, we would be looking at actually more than 100 shipsets in 2027. Well, what I would say is we have we have looked at it, and that is the number that we think is consistent with that target.

And it will go up a little bit more in 2028, When they say they are gonna get to 12 aircraft per month in 2020, it will not be on a full year run rate. You probably will not see that until 2029. So if you think about 132 in 2029, which is 12 aircraft per month, for Airbus, you know, with the 1 month off in August. We see the run rate in 2027, 2028, and then feeding into 132 and 29 as consistent. So 100 next year is right in line with that outlook. Okay and a quick follow-up.

I do not know if you wanted to offer any comments as we are looking at 2027, consensus right now is for low double digit revenue growth, and I think somewhere in the low 30% incremental margin Is that a reasonable framework to think about 2027 at this point?

Sales G. Coogan: Yes. Sales, why do not you-- yes. So I think as we are going through right now pulling together our expected performance for 2027. We wanted to make sure we talked about our expectations around the A350. As you said, we will have more information on our full year outlook and expectations across the portfolio of products when we issue our results for 2020-- when we issue results at the end of the year for the full year 2026. So more to come on that. But, you know, generally speaking, we expect revenue growth into next year, and we expect that to result in some higher absorption of the fixed cost base over that period of time.

And we are gonna see some of the near term headwinds that we have today will result in some favorable performance as we move through next year. But we have to remind folks that, you know, some of the hiring that we have done here in the second half of 2020 is gonna continue to provide a little bit of headwinds going into the first part of the year given that there is some training and inefficiencies that come with onboarding the number of folks that we are bringing on board. Alright. Thanks very much. Yes.

Operator: Your next question comes from the line of Kristine Liwag from Morgan Stanley. Your line is open. Please go ahead.

Analyst: Hi, Tom. Hi, Sales. How are you doing today? Can you talk more about what you are seeing for demand in Q4 and 2027? That is driving the pull forward in hiring and the new lines coming on. Is it primarily the higher commercial rates? Is it a greater pull from maybe defense and space? I mean, any additional details you can share would be great. Thanks.

Thomas C. Gentile: Yeah, well, on the commercial programs, let's just go through them. A350, they in the last quarter, they were at about 7 per month. And we expect that to continue into the fourth quarter, maybe tick up a little bit. As Airbus pushes for their year end. And then I explained the outlook for 2027 based on the different triangulations that we do. On the A320, Airbus is running at about 55. That probably will step up. Airbus is still saying they are gonna get to 870 deliveries for the full year. So they are pushing hard in Q4, and they said that everything they need to produce those aircraft already in their final assembly line.

In Toulouse and Hamburg, in Tianjin, and Mobile. So I think they have good confidence in that. With Airbus, we actually saw a pull of 10 on the 787 in the last quarter. And we have been calling 90 to 100 for the year, and they are on track for that, maybe even a little bit above. And on the 737, they have been pulling at about 41 for us. We are estimating at 500 for the year, and they seem to be on for that, maybe even a little bit higher. So on all the commercial programs, we see fourth quarter continuing in the same trend With some strong upside.

Boeing and Airbus always close the year strong, and we do not expect this year to be any different. And then we also expect Q4 to be a little bit better on defense and space. As we said, our fighter programs had off quarters. F-35 was kind of soft. Just saw the big deal this morning. On Lockheed for 10 years. of 156 aircraft a year. So we are not worried about the F-35 being soft in the quarter. that is just some choppiness. And that is not gonna continue. So we have got great confidence in defense and space continuing to increase.

What we saw, as I mentioned in my comments, on space, for example, is launchers were pretty slow. Launches seem this year to be a little bit lower than they were last year. SpaceX has been the dominant player on that. They do not use much composite. Today. On their launching systems. We have some content, but not a lot. And the other launchers have been slower this year. As they regroup for from some issues that they had. And so we expect that to start to pick up if not in the fourth quarter, then into 2027. Thank you. Appreciate it. Welcome.

Operator: Your next question comes from the line of Noah Poponak from Goldman Sachs. Your line is open. Please go ahead.

Noah Poponak: Hey, guys. Good morning. Just to follow-up right there. The full year revenue range implies that Q4 growth would be pretty strong and acceleration from what you have seen earlier in the year. So I guess what is behind what is the split of, I guess, defense and commercial in that? Or to what extent does that count on the defense slippage coming right back in the fourth quarter versus moving into next year? And then a second question I had, James, you stated that your biggest focus, highest priority is margin expansion. Can you talk about where you think margins can go long term? And can you maybe.

I do not know if it is possible to quantify how much more spending you guys see in the near term related to the investments you have described.

Thomas C. Gentile: Okay. Okay. Well, let me take the first part of that, which is the 2026 growth story. in Q4, we see it stronger, obviously, sequentially. To close the year, we are still targeting at least mid range of our guidance and possibly slightly above that. And it really, the split between commercial and defense is gonna be our kind of normal 65/35 split. So nothing extraordinary about that. And on margins, I would say is Sales has come in and brought some new perspectives. I have asked him to take this lead on driving a very comprehensive margin improvement story. And maybe, Sales, you can talk a little bit about where you see the opportunity?

Sales G. Coogan: Yeah, absolutely. And so, we talked about, you know, historically, we have seen a 200-basis-point gap from our prior peak margin rates just getting some cost inflation and other pressures that we have seen, you know, across the supply chain. Our objective in undertaking these margin expansion initiatives is to close that gap. So as we have talked about getting back to our prior peak rates, you know, it would be about 200 basis points lower, and then at our higher revenue levels, we could hone in on about 18% overall EBIT margins for the business.

The opportunity here would be for us to drive above that 18% and close that 200-basis point gap, and we can see the opportunity to approach somewhere closer to 20%, given the initiatives that we are gonna put in place to be able to do that. it is a combination of factors, so there is gonna be some level of G&A efficiency that we undertake. Some level of continuous improvement initiatives to improve our yields and efficiencies and our production processes. But I think most importantly, it is price realization on our LTA renegotiations and making sure that we catch value for the product and technologies we are providing to our customers.

Thomas C. Gentile: And then, Noah, you asked about spending CapEx to hit the near term production ramp. And we have said about $100 million. You know, it is gonna be in that range of, you know, the next few years. Possibly a little bit higher because do not forget, before the pandemic, we started a couple lines in Decatur, Alabama. A new carbon line and a new pan line, our precursor. We are gonna pull those forward, and so there will be a little bit of spending over the next few years. But it is still gonna be in the range of $100 million to $125 million. As we go forward.

We do not need to do any significant capital expenditure until the early 20 thirties if rates go up on the A350 or when we start to contemplate next generation single aisle. But for the near term, it is gonna be in the range that we have described. And, Tom, just on p and l spending. So in the quarter, the discussion of incremental spending related to hiring and other drivers of forward growth. And then you guys have discussed maybe there is a little bit more of that in the near term that maybe pressures what the incremental would otherwise be. Can you quantify over the next few quarters, how long do you have to do that?

And what does it do to the incremental or the year over year change, or what is it in dollars? Any framing you can help with for modeling the nearer term margins. Right. As we said for this year, we are holding to our guidance. And so that gets us to about, you know, 13% for the full year in terms of operating margin. And in terms of incrementals, we have always had mid thirties to 30s, and it is going to end up in that range. And then going into next year, we expect with, you know, continued operating leverage, as we. As these hires come on board, that will also support the margins.

And as Sales said, you know, we have got a clear path to the 18%, but we are going to be looking at higher potentially up to 20%. As we go forward. And it will be a straight line from 2027 as the volume comes in. Thank you.

Operator: Your next question comes from the line of Kenneth Herbert from RBC. Your line is open. Please go ahead. Okay. A reminder to unmute yourself locally on your device if you would like to ask a question. I will move forward to the next question in queue. Kenneth, please rejoin the queue if you would like to ask a question. Your next question comes from the line of Ronald Epstein from Bank of America. Your line is open. Please go ahead.

Ronald Epstein: Yeah. Hey. Good morning, guys. Good morning, Tom. Was wondering if you could speak to. You know, we have got 2 new awards out there for 6th-gen fighters. At Boeing in and what kind of opportunity does that present for you guys? Because I would imagine those things must be because of eyeballs in advanced materials. Right. Both of those, the 6th-generation NGAD for the Air Force and the Navy, and Boeing won both of them, so congratulations to them. Those were very intense competitions over many years. You know, the.

Those programs because there is low observability and they are trying to increase range, you know, there is a huge incentive for them to use lightweight materials like carbon fiber composite. And so we certainly will be working with Boeing to position for that. They could develop just demonstrators using existing material systems that the military has used for many years. And if you go back many years to the F-18 and the F-22 and the B-2 and then the F-35, that material system has always been Hexcel carbon fiber and then using resin from Cytec.

And so, those material system was part of the demonstrators And so as they go into production, something that we will be talking to Boeing about. As they finalize the. Those programs. But it does represent good opportunity Sixth-generation fighters are gonna depend on range, and they are gonna depend on low observability. And those are 2 things that lightweight composite material really excels at. Because it is 5 times stronger than aluminum and 30% lighter and so it does help increase range and reduce fuel consumption. And it also enables architectures that promote low observability. Got it. Got it.

And then in the press release and in the presentation, you guys mentioned that there is a little bit of softness with launchers and rocket motors. Seems a little counterintuitive with what is going on. Just curious if it is a timing thing or what is going on there.

Thomas C. Gentile: Well, timing, as I was saying, launches this year look a little bit lighter than last year, and most of them are SpaceX. And SpaceX has been pretty public about not using composite yet. In their in their launch vehicles. So some of the other launchers that use a lot of carbon fiber composite have not had as many launches this year if you look at the numbers. And so we have bigger shipsets on some of those other folks And for various reasons, the well documented in the press, they are in a pause And so that will start to pick up as they resolve the issues that they encounter. Got it. Got it. Thank you. Okay. Thanks.

Operator: Your next question comes from the line of Peter Skibitski from Alembic Global. Your line is open. Please go ahead.

Peter Skibitski: Hey, good morning, guys. Hey, Tom, a little bit earlier to the new Lockheed, F 35 contract, the 10-year. Just curious. I do not know if they let suppliers in yet kind of in terms of terms and conditions that they were working the contract with the Pentagon or if it was brand new to you today. But I was just wondering conceptually how you think about the impact to Hexcel from a from that level of visibility on that program. Oh, yeah. We do not know yet. I literally just read it before I came onto this call in the trade press. A 10 year deal, that is looking at 156 aircraft per year.

So it goes out quite a long way. Do not know what the conditions are and how those will flow down. I assume they will be pretty typical. The program's already been in existence for a long time. But I thought it was just encouraging. Is that there is a huge demand signal. it is multiyear. That program is gonna extend many years into the future, which is good for us because we have a significant position on it. But it is great, I think, for our defense forces and our warfighters because that is a very capable aircraft all 3 versions of it. So that was great news to read this morning. Okay. Great. Just 1 for me.

Notwithstanding your prior comments about production rates on the commercial side, but you had Airbus strikes in Spain over the quarter or so and then some riot issues in France. Have you have you noticed any incremental changes to demand pull that you thought might be a result of the strikes that will be you know, now that they are settled, that they would kind of you know, accelerate. Now that they are fleet. And then with the riots, do you think, impact either your supply chain or your French facilities at all, do you think?

Thomas C. Gentile: Great. Regarding Spain, as you said, they did resolve the labor issues, and we did not see any impact at all. On production or pull. And similarly with the situation in France, we have not seen any impact as a result of that. We obviously will monitor it and we read about it. In the press. We talked to Airbus very frequently. But so far, we have not seen any impact from those issues. Okay. Great. Thank you. Welcome.

Operator: Your next question comes from the line of Gautam Khanna from Cowen. Your line is open. Please go ahead.

Gautam Khanna: Yes. Thanks. Good morning. Was wondering just to follow-up on an earlier question on the A350. Inventory that is in the channel. If you could describe maybe how aligned the various customers that you ship to are in terms of how much they are pulling from Hexcel. And maybe if you could give us an update, like, through Q3, how many shipset equivalents do you think you have actually moved into the channel And just, again, fundamental question is really around, like, confidence that what happened last year does not happen maybe early next year where, you know, you are shipping ahead and then they just kinda pull back or keep you flatter for longer. You know?

What gives you that conviction? Right. Thank you.

Thomas C. Gentile: Well, so as I said, last quarter, they pulled at about 7. So that would be 21. So we have had probably about you know, the equivalent of 60 to 65 already pulled for the year. Which leaves another 20 or so for the last quarter, which is very achievable at a rate of 7. So we see them perfectly in line with what we have called in our guidance. And we talked to Airbus. We talked to all of the locations And as I said, there are about 15. Some of them are part of Airbus, like Airbus Atlantic, and Kinston, or Northrop in Salt Lake City. or Airbus Aerostructures in Germany.

A lot of different locations that are getting material. We talk to them, and we talk about their outlook. And that is why we have confidence in the fourth quarter outlook. In terms of inventory in the channel, you know, 1 of the things that Airbus has said is that their. it is in interiors and seats. Have been 1 of the drawbacks. Well, you can build a plane without interiors and seats, and then when they come, you can finish the airplane off and deliver it. And so there is there is no doubt some of that is happening.

But as we said, we are not too concerned about destocking in 2027 because we see this demand signal of 100 units next year. An increase from this year. So we see strong demand pull throughout the year to date, I said in the 60 to 65. Strong demand signals with firm purchase orders for Q4, and then equally strong demand signals going into 2027. I guess what I am asking though is how does that differ than how you felt a year ago? Because if you remember, there was a similar dynamic. Was there just not the same demand signals in late 2025 or 2026? What would make you feel different? 2025 were the exact opposite.

You know, when we were in the middle of 2020, there was indications that 2025 might have 2098 and then it dropped to 2094. We built our plan at 2084, and, eventually, they delivered 2080. 2057. So it kinda dropped throughout the year, we could see that. And we reflected it. If you recall, we actually dropped our guidance twice in 2025. This year, we have seen the opposite. We have seen the demand signals continue to strengthen and go up. As we have gone throughout the year, which is why we pulled the trigger on all the hiring and the start up of the lines. because we are seeing the demand, and we are leaning into it.

And that is the big difference is last year was the other way around. This year, it is all positive and growing. And the production rates have been increasing. Exactly in line with their public statements. Thanks a lot. I appreciate it. You are welcome.

Operator: Your next question comes from the line of Myles Walton with Wolfe Research. Your line is open. Please go ahead.

Myles Walton: Thanks. Good morning. 1 question, 1 clarification and 1 question. On the clarification can you say what is the tax rate implied in the new EPS guidance that is been reiterated? Is it 15% to 17%? And then a question for Tom. Can you just comment on the China carbon fiber for aerospace applications? I know 1 of the larger firms, they are offering a T1.1 thousand IM10 type grade product line this summer. Starting low quantities. But I am just curious if you think that there are future competitors with you on, say, an Airbus?

Sales G. Coogan: So on the tax rate assumptions, kind of in that 17% to 18% range for the fourth quarter timeframe, we do expect that tax rate for the full year to be maybe slightly north of 16% for the full year period, but modestly higher here in the fourth quarter as we close the year out within that range.

Thomas C. Gentile: Good. And then, regarding China, yeah, at JEC, there was 1 of the Chinese companies that did indicate they had a version of T1.1 thousand what we call IM10 or IM11. That they were making. So we, you know, do not know yet how far along they are in terms of getting it qualified. it is not on any program today. So there is still probably work for them to finalize it, qualify it, and then be able to industrialize it for aerospace programs. Then get it put on a program. it is not realistically a competitor on current generation programs with Airbus or Boeing, Next generation, depending on how far out it is, perhaps they could compete.

There are some geopolitical issues that people would probably wanna take into account as well. But we watch it carefully. They are capable in China. So we do not certainly disregard them, and they have great resources. At this point, I think it is still a bit early for them to be a competitor, certainly on current generation products. Maybe for the next generation, but we will see. Okay. Thank you. Welcome.

Operator: Your next question comes from the line of Sheila Kahyaoglu. from Jefferies. Your line is open. Please go ahead.

Sheila Kahyaoglu: Good morning, Tom and Sales. Thank you so much. I wanted to ask on margins. Good morning. You have hired about 525 people year to date. You are going to do more. You know, assuming that number gets up to 700 or so, do we think about your excess cost base being about $50 million this year? And how that translates into 2027, and just as we think about the higher COGS costs I know you have a hedging plan and procurement contracts that kind of spread that cost. How do you, I guess, see those 2 items, both labor and raw material inputs, factoring into margins in 2027?

Sales G. Coogan: Yeah. So as we think about that, there is a bit of a roll. Rolling case there. So we add the heads, the heads come onboard, there is a bit of an inefficiency trading, you know, start costs that occur, the volume fills in, and we get the absorption benefit from the efficiency as we bring those individuals on board. And so as we hire. Right? So, you know, 1 of the dynamics here in third quarter was we had lower volume given the seasonality, and we were hiring to support, right? So that put a little bit of incremental pressure on margin in the third quarter time frame.

Which we did not see last year because of, as Tom noted, we saw a falling demand environment in the back half of last year, whereas today, we see a rising demand environment. You know, coming into this third quarter of this period. So we expect that trend to continue a little bit into the fourth quarter here we do the hiring. You know, we have that baked into our expectations for the 2026 time frame. As it relates to 2027, we would expect maybe a little bit of first half you know, inefficiency be. From the hiring we did in the fourth quarter and third quarter time frame until they get fully up to speed.

But then, again, as we move through the course of the year, we would gain and the absorption on the higher volume and see margins improve.

Thomas C. Gentile: Right. And as we said, our target as we get up to the full rates of production is we see a path to the 18% margin. But with better price realization, we think that could go as high as 20% by the end of the decade. Now you also asked about hedging. And cost of goods sold. As Sales mentioned, oil prices are going up. Acrylonitrile is a petroleum derivative. But we do hedge that. We hedge propylene, which is also a byproduct of petroleum as a surrogate. Yep. And that is an 8-quarter hedge, so we are cushioned from some of the high spikes that we have seen in oil pricing and what the impact could be on acrylonitrile.

But as Sales also said, acrylonitrile, while it is the core basis of carbon fiber, it is only single-digits in terms of cost for us in terms of revenue. So if there is all the value added that comes afterwards, which makes up our product. Acrylonitrile is a relatively small purchase for us. And the variability we see is gonna be relatively small because of the mitigation programs we put in place. Okay. Thank you so much. Yep. Thanks.

Operator: Thank you for your questions. There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.