HEXCEL CORP /DE/ — Call Transcript 2026

Hello everyone, and welcome to Hexcel fourth quarter and full year 2025 earnings call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press Star, followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Kurt Goddard, Vice President of Investor Relations. Please go ahead. Thanks, Ellie. Hello, everyone. Welcome to Hexcel Corporation's fourth quarter and full year 2025 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 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 earnings release. A replay of this call will be available on the investor relations page of our website. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request. With me today are Tom Gentile, our Chairman, CEO, and President, and Mike Lenz, Interim Chief Financial Officer. The purpose of the call is to review our fourth quarter and full year 2025 results, detailed in our news release issued yesterday. Now, let me turn the call over to Tom. Tom? Thanks, Kurt. Hello, hello, everyone, and thank you for joining us today for Hexcel's fourth quarter and full year 2025 earnings call. With positive signs emerging for a sustained ramp-up in commercial aircraft production rates, we are confident in Hexcel's ability to meet this increasing demand. Longer term, it is a promising outlook for the entire industry. IATA recently released data highlighting the current backlog for commercial aircraft has exceeded 17,000. Same report also noted that to date, there has been a delivery shortfall of at least 5,300 aircraft, underscoring the current imbalance between supply and demand for commercial aircraft. The fact that even with this historically high backlog, airlines are still ordering new aircraft underscores how much demand there is for these new aircraft that incorporate more lightweight material, are more fuel-efficient, and require less maintenance than the older aircraft they will replace. This situation is positive for manufacturers like Hexcel, as production rates are likely to remain at elevated levels for an extended period. As a vertically integrated manufacturer of advanced lightweight carbon fiber composites with a broad product portfolio, we are well-positioned to support the needs of our commercial and defense customers. Also, we continue to focus on developing advanced material solutions for next-generation aircraft, as lightweight composite materials increasingly replace metals and aircraft structures to make them lighter, stronger, and more fuel efficient. Combined with our commitment to operational excellence, we see Hexcel as well-positioned to benefit as commercial aircraft production rates continue to recover and funding for defense platforms increase globally. 2025 was a challenging year for us as destocking by the OEMs, schedule delays, and lingering supply chain constraints for the OEMs impacted our plans. Despite these challenges, Hexcel closed the year on a positive note as we continued to see an upturn in commercial orders that we first highlighted in our previous earnings call. This positive trend is setting us up for a stronger 2026. Across all our major programs, the A350, the A320, 787, and the 737, we see positive catalysts that a sustained recovery and ramp-up in commercial aircraft build rates is beginning to take hold. On the A350, the closing of the Spirit AeroSystems transaction moves major A350 production in-house for Airbus, eliminating a previous bottleneck. On the A320, engines have been a problem. Safran is expanding LEAP engine production capacity with a new final assembly line in Morocco. LEAP production continues to increase, with record unit shipments in the fourth quarter, 2025, and full year 2025 unit shipments exceeded the pre-pandemic 2019 prior peak. The GTF from Pratt & Whitney engine shipments have also been increasing and are forecast to increase further in 2026, and Airbus added two new A320 final assembly lines, one in the U.S. and one in China. On the 787, Boeing broke ground to expand its Charleston, South Carolina, site to double 787 output, and Boeing reported that they are transitioning production to eight aircraft per month. They also said in their earnings call on Tuesday that the 787 inventory is more normalized with the supply chain now. On the 737, Boeing reported that they are producing at a rate of 42 aircraft per month after the FAA lifted the production cap. Along with reduced supply chain disruptions, these catalysts give us growing confidence that the long-awaited recovery in commercial aircraft production is coming into focus as impediments to the OEM reaching their peak build rates are receding, and the destocking we experienced in 2025 appears to be largely behind us. Aircraft production peaked in 2018 at 1,734 aircraft. In 2025, production was still just 1,503 aircraft, or about 87% of the pre-pandemic level. In 2026, we should finally fully recover to pre-pandemic production levels as an industry, although wide-body production will probably not recover fully for a couple more years. With the historic backlog held by Airbus and Boeing and our sole source position and long-term contracts on our commercial programs, Hexcel is in a strong position to benefit from the increase in commercial aircraft production. As we have previously highlighted, when Airbus and Boeing achieve publicly disclosed peak build rates, we expect to generate $500 million in incremental sales annually from those sole source contracts. Additionally, growth from defense and space, as well as business and regional jets, will add over $200 million in additional sales. As our sales volumes increase, it drives greater operating leverage and margin expansion for our business. It was based on our confidence in this production ramp and our ability to execute on it, that we initiated the $350 million accelerated share repurchase program last October. Shifting to opportunities in defense and space, we expect strong long-term demand in this market as defense budgets in the U.S. and allied nations globally continue to increase due to an uncertain geopolitical environment and the development of new platforms. We continue to engage the U.S. Defense Prime directly, as well as government stakeholders, highlighting Hexcel's unique value proposition. We are well-positioned to serve defense customers with Hexcel's innovative, lightweight, advanced materials that provide defense and space customers with greater payloads, greater range, and low observability that those platforms require. Additionally, our vertically integrated operations in the U.S. and across Europe provide those governments with secure and sovereign access to advanced carbon fiber that is critical for defense platforms. Our strong positions in both commercial and defense markets underscore Hexcel's ability to capture growth going forward. With this foundation in place, let me now turn to our financial performance for the fourth quarter and full year 2025, which reflects the actions we have taken to navigate near-term challenges and position for long-term success. Our 2025 full-year results were impacted by Airbus revising the A350 production schedule, combined with channel destocking on the A350 and other programs. In 2025, Hexcel achieved full-year sales of $1.894 billion, adjusted EPS of $1.76, and free cash flow of $157 million. In the fourth quarter, Hexcel generated $492 million in sales, up 3.7% from 2024, highlighting the positive trend in commercial orders as we enter 2026. Commercial aerospace sales in the fourth quarter were $299.5 million, an increase of 7.6% compared to 2024. This increase was due to strong growth in the A320, along with increases in 787 and 737 volumes, as well as increased regional jet sales. The overall sales volume increase in the commercial segment was partially offset by lower sales volume in the A350 due to lingering destocking in the quarter. In our defense space and other segments, sales were $191.8 million in the fourth quarter, down 1.9% compared to the same period in 2024. Taking a closer look at this market, we experienced increased sales for defense and space due to strength in military rotorcraft programs and launchers, but sales overall were lower due to the divestment of our Austrian-based industrial business that we announced at the end of the third quarter in 2025. Overall, our full year 2025 results were impacted by Airbus-initiated schedule changes on the A350 program, destocking by the OEMs, and charges related to the disposition of non-core businesses in Austria and Connecticut. In addition, we closed a facility in Belgium as we rationalized our footprint to streamline operations. Commercial order activity continued to trend higher throughout the quarter, which we expected and first highlighted in our third quarter earnings call. Also, we believe the majority of destocking by the OEMs is now generally behind us. However, this remains a watch item for all of us, and we will continue to monitor it throughout 2026. While our results reflected the headwinds we faced in 2025, they also underscored the importance of the operational discipline we maintained throughout the year. Let me share with you a few of the actions we took to strengthen our operational excellence foundation for the future. As we dealt with the impact from schedule changes and destocking throughout 2025, we kept a strong focus on cost control and operational discipline. This included the business rationalization I mentioned earlier, as we exited industrial markets like wind energy and winter recreation markets, and we continued to streamline operations in 2026. We just announced a proposal to refocus our Leicester, U.K., site to perform work solely related to commercial aerospace development. Along with our cost control initiatives, we continue to invest in productivity enhancements in our factories through automation, AI-driven workflows, and digitization, while maintaining high levels of safety and quality. Also, we remain focused on managing headcount closely. We finished 2025, about 330 positions fewer compared to our year-end headcount for 2024, and well below our original plan for 2025. This delta reflects an intentional use of attrition to lower headcount during 2025, which was slow, along with the headcount reductions that resulted from our site rationalization activity. Going into 2026, we are starting to evaluate some selective hiring earlier in the year to support increased A350 production, followed by some general hiring that will likely begin around mid-year. In the third quarter of 2025, we launched the $350 million accelerated share repurchase program, which underscores our confidence in Hexcel's long-term growth. This decision reflects our strategy to invest in Hexcel as we see tremendous opportunity to benefit from increasing commercial aircraft build rates and growth organically in defense and space over the coming years. Also, as we noted in the third quarter earnings call, I want to be very clear that we remain committed to disciplined financial management and our targeted leverage range of 1.5x-2x net debt to EBITDA. We intend to repay the $350 million we borrowed from our revolver for the ASR as soon as possible in 2026 to return Hexcel to that target leverage range. We also announced a 6% increase in the quarterly dividend to $0.18 per share, reflecting our positive outlook on Hexcel's long-term growth and strong, strong cash generation profile. Since the beginning of 2024, we have returned over $800 million to stockholders through dividends and share repurchases. Along with strengthening our financial foundation in 2025, we also focused on leadership across the organization. We welcomed several new members to the Hexcel leadership team, bringing fresh perspectives and deep industry expertise to help drive our strategic priorities. This includes Mike Lenz, who joined us as our interim CFO while we conduct a search for the next permanent CFO. You'll hear from Mike shortly. We have made great progress in the CFO search, and we are focused on identifying the right person for Hexcel. Also, we added new functional and business program leaders across defense, safety, R&D, quality, and operations, all areas that are critical to delivering on customer commitment and maintaining the highest standards of excellence. Before I turn it over to Mike, let me briefly highlight our outlook for 2026. I want to emphasize that 2025 was a year of disciplined execution as we managed through the schedule changes and the impact from destocking. We closed the year with encouraging trends, including an uptick in commercial orders and the margin rate for the fourth quarter, carrying over a trend that began the previous quarter. We believe the commercial recovery is gaining traction as OEMs take steps toward higher production rates across all our key programs. At the same time, defense and space markets remain robust, with budgets increasing and the demand for advanced composite solutions across rotorcraft, fixed wing, and space applications. As OEMs hit their publicly disclosed peak commercial build rates before the end of the decade, this will, as I said, generate $500 million in incremental sales from existing contracts with Airbus and Boeing, and we expect to generate in excess of $1 billion in free cash flow cumulatively over the next four years, from 2026 to 2029. In 2026, we expect sales in the range of $2.0 billion-$2.1 billion, adjusted EPS between $2.10-$2.30, and free cash flow greater than $195 million. Increased operating leverage from higher sales volumes, along with the disciplined execution and focus on controlling costs, will be the primary driver of these results. We believe that our guidance reflects prudent assumptions regarding commercial aircraft rate ramps. Now, Mike will provide additional details of our financial results. Mike? Thank you, Tom. We closed the year with a strong fourth quarter and a return to year-over-year growth. The higher sales supported adjusted operating margin expansion, illustrating the operating leverage opportunity ahead. The commercial aerospace OE recovery continues to become more apparent, both in our business and in the broader supply chain. Total fourth quarter 2025 sales of $491 million increased 1.6% in constant currency. Growth in the commercial aerospace market was partially offset by lower defense, space, and other sales, following the divestment of the Austrian Industrial business on September 30, 2025. By market, commercial aerospace fourth quarter 2025 sales were $300 million, representing approximately 61% of total fourth quarter sales. Fourth quarter commercial aerospace sales increased 5.8% compared to the fourth quarter of 2024. Sales increased for the A320, 787, and 737, whereas sales decreased for the A350 as a result of some lingering destocking. Sales for other commercial aerospace in the fourth quarter increased 16.1% year-over-year, led by regional jets. Defense, space, and other represented approximately 39% of fourth quarter sales and totaled $192 million, decreasing 4.3% on a constant currency basis from the same period in 2024. Sales were basically unchanged year-over-year on an organic basis. Demand was strong for a European fighter program and European helicopter programs, as well as launchers and satellites, offset by lower automotive sales and the absence of the divested Austrian Industrial business. Gross margin of 24.6% in the fourth quarter decreased from 25% in the fourth quarter of 2024, principally due to sales mix. As a percentage of sales, operating expenses, including selling, general, and administrative expenses and R&D expenses, were 11.4% in the fourth quarter of 2025, compared to 13% in the comparable prior year period. We continue to focus on cost control, and there is leverage within our operating cost structure so that expenses should grow slower than the rate of sales growth. Adjusted operating income in the fourth quarter was $65 million or 13.3% of sales, compared to $57 million or 12.1% of sales in the comparable prior year period. In terms of foreign exchange, Hexcel benefits when the US dollar is strong. We generally sell in US dollars for commercial aerospace, yet we have a significant European presence and European cost base. We hedge our operating profit over a 10-quarter time horizon, so foreign exchange gains and losses are layered into the financial results over time. Foreign exchange has become a headwind as the impact of the weaker dollar is now being felt. Fourth quarter 2025 operating margins was negatively impacted by approximately 110 basis points from foreign exchange. In contrast, fourth quarter 2024 had a favorable impact of approximately 60 basis points. Now turning to our two segments. The composite materials segment represented 80% of total fourth quarter sales and generated an adjusted operating margin of 20.5%. This compares to an adjusted operating margin of 15.3% in the prior year period. The engineered products segment, which is comprised of our structures and engineered core businesses, represented 20% of total sales and generated an adjusted operating margin of 11.1%, which compares to an adjusted operating margin of 10.7% in the prior year period. For the full year of 2025, we met our updated sales and adjusted EPS guidance. The lower tax rate was supportive, contributing roughly $0.02 to adjusted EPS. The lower effective tax rate in 2025 primarily reflects the tax benefits associated with restructuring charges for the closure of the Belgium facility, which contributed roughly a 4% rate reduction. To share some further perspective on our commercial aerospace business for the full year, latest generation wide-body sales comprised about one-third of total commercial aerospace sales in 2025. Narrow-body sales were also about one-third of sales, and legacy commercial aircraft were about 10%. Other commercial aerospace, including business jets and regional aircraft, accounted for the remainder at somewhat less than 25%. Shifting to full year 2025 defense, space, and other sales, approximately one-third of defense and space 2025 sales were outside of the U.S. Our international defense and space sales are predominantly from customers located in NATO-aligned countries and also include customers in India, Brazil, and South Korea. Net cash provided by operating activities in 2025 was $231 million, compared to net cash provided of $290 million in 2024. Working capital was a use of cash of $1.5 million in 2025, compared to a cash use of nearly $1 million in 2024. Capital expenditures on an accrual basis were $77 million in 2025, compared to $81 million in the comparable prior year period. Free cash flow in 2025 was $157 million, which compares to $233 million-$203 million in 2024. There are always a number of moving parts with working capital at year-end, and free cash flow came in below our guidance. Strong sales in December led to an end of the quarter increase in accounts receivable greater than we forecasted, combined with lower than projected payables at year-end, along with some retirement plan flows. Adjusted EBITDA totaled $346 million in 2025, compared to $382 million in 2024. Following our revolver borrowing to finance the ASR, our leverage is temporarily elevated. Leverage, defined as net debt to last twelve months Adjusted EBITDA, was just under 2.7 times at year-end 2025. As Tom said, we remain firmly committed to a disciplined financial policy to returning leverage to the targeted range of 1.5x-2x as soon as possible during 2026. The board of directors declared an $0.18 quarterly dividend yesterday, and this reflects a $0.01 or 6% increase compared to the prior dividend. The dividend is payable to stockholders of record as of February ninth, with a payment date of February seventeenth. I will conclude by sharing some additional details regarding our 2026 guidance. In terms of comparing 2026 sales guidance to our actual 2025 sales, recall that the divested industrial facility in Austria generated just under $30 million of sales in 2025, so those sales are not recurring in 2026. Further, the Leicester, U.K., facility that Tom referenced earlier generated around $15 million sales in 2025. So if the facility is closed in the first half of 2026, that will only be a partial year of sales this year. Foreign exchange will be a headwind in 2026 compared to 2025 due to the weaker dollar. We are not guiding to an expected FX impact due to the uncertainty of future rates, but as a reference, our average euro dollar rate in 2025 was 1.13. FX had an approximately 10 basis points unfavorable year-over-year operating impact to operating margin in 2025. In 2024, the average EUR/USD rate was 1.08, and FX was a benefit of approximately 40 basis points year-over-year. Cash conversion should exceed 100% for a period of time, as capital expenditures remain subdued. Inventory days on hand should continue to trend lower during 2026 as we grow into our inventory levels, while even though inventory may grow modestly on a dollar basis, sales are expected to grow faster, leading to a reduction in days on hand. Then three comments regarding seasonality. Operating expenses are typically elevated in the first quarter on stock-based compensation. Third quarter sales are seasonally soft due to summer holidays, particularly impacting European sales, and the business typically uses cash in the first quarter of the year, with the strongest cash generation typically in the second half of the year. Repayment of the revolver will be a priority during the year and consistent with Tom's comment regarding our focus on deleveraging in 2026. As a result, interest expense should decrease as the year progresses, as cash is generated and used to pay the revolver. Depending on the timing of cash receipts and market rates, interest expense for 2026 is expected to be in the range of $50 million-$55 million. Lastly, we are projecting an effective tax rate of 20% for our EPS range. With that, let me turn the call back to Tom. Thanks, Mike. Before we move to Q&A, I want to take a moment to express our deep appreciation for Jeff Campell's leadership on Hexcel's board of directors. Jeff recently announced that after almost 23 years of service on the Hexcel board, the last seven as our lead director, he will not stand for re-election at our next annual meeting. Jeff has been an invaluable contributor to our governance and strategy for more than two decades. We are grateful for his commitment and the impact he has made on Hexcel. Looking ahead, Hexcel enters 2026 with strong momentum. Positive order trends we saw late in 2025, combined with the catalyst enabling increased commercial aircraft production and the opportunities we have in defense and space, position us well for the future. We are excited about the path ahead and confident in Hexcel's ability to deliver value for our customers and shareholders. With that, Ellie, we are ready to take questions. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. Please limit your questions to one question and one follow-up. Thank you. I'd now like to call Ken Herbert for our first question from RBC Capital Markets. Your line is now open. Yes. Hi, good morning. Thanks for the question. Maybe, Tom, just to start with the midpoint of the up 8% in revenues in the 2026 guide, can you provide any more detail on how we should think about commercial aerospace within that growth, and specifically, what the underlying assumptions are associated with the A350? Right. Right, and so the 8% is a mix of course, our commercial and then the defense, space, and other. Defense, space, and other is gonna be diluted because, as Mike explained, we are, aren't gonna have the $30 million from the Austrian business, and also probably about $8 million or so from that Leicester, U.K., business that I mentioned. So, so that, that gets us to the 8%. For commercial aerospace by itself, I would describe the growth rate as low to mid double digits for next year. So we are seeing an increase. And the assumptions underlying that, because we right now are very aligned to the original equipment, commercial aerospace build rates for the OEM, Boeing and Airbus in particular. Primarily, the A350 is our biggest program, where we have a shipset of $4.5 million-$5 million. That's a big driver. As I said in the past, we're assuming about 80 units delivered and produced that we're gonna deliver to Airbus in 2026. That's up from the 57 that they delivered in 2025, so it's a big leap. But what we see is we do a bottom-up demand forecast, where we contact all 35 of the locations that receive material, and the 80 is a pretty good representation of what we think from the bottoms up as well as the top-down analysis. Now, I also want to remind you that we're a material provider, so we're typically 4-6 months ahead of the OEM in terms of what our assumptions are, because we're looking that far ahead in terms of the material. So it's really our forecast is kind of a mix between the forecast for 2026 and 2027 combined. But for the A350, the underlying assumption in our plan is about 80. Now just to carry on, for the A320, as we've said before, our shipset out is between $200,000 and $500,000. On the A320, it's more toward the upper end of that range. We're assuming low to mid 700s. And again, remember that we're six months ahead of Airbus, so our number is gonna be a little bit higher than what they're communicating or estimating. On the MAX, we're targeting mid-400s, which we are gonna monitor closely. We saw a lot of destocking in 2025. They're getting through that, but there's probably still some lingering destocking on the 737 program, so we'll watch that, but we're expecting mid-400s. And then the 787, consistent with Boeing, what they said on their call, 90-100 is what we're assuming in our plan. So for the four major programs, those are our assumptions. As I said, we're a little bit ahead of the OEMs because we're a material provider, but we've also tried to be conservative in making those assumptions as we build a plan, because we know it's been tough with the supply chain. But as I mentioned in my prepared remarks, there are four catalysts across each of those major programs that give us confidence that these build rates can now start to ramp up, and that they will hit their peak production rates in the next few years. That's great. I appreciate all the detail, Tom. Just one quick follow-up. On the A350, you'd called out in prior quarters that you were seeing purchase order activity and customer activity that supported these rates and your expectations into 2026. Can you just comment, did that continue through the end of the fourth quarter, and what have you seen so far this year, specifically on that program, in terms of just customer purchasing activity or pull? Right. The purchase orders are very strong this year, in contrast to last year. And so we see. We've got good visibility on the purchase orders, firm purchase orders, all the way out through May, so five months. And so that's good. But it was this bottoms up demand management profile that I mentioned, where we, with Airbus, go out to all 35 internal Airbus plants, as well as external third-party plants, and we basically poll them on what their orders are gonna be. And so that bottoms up analysis is also giving us confidence in that 80 number that we gave. In fact, we're confident enough that we've had a number of carbon fiber lines mothballed over the past few years because production's been lower. We actually brought one online earlier than expected, just so that we're prepared for the increase and even if it goes above that. So that's just to give you a little bit of color on how we built that plan and the confidence we have in the assumptions. Great. Thanks a lot, Tom. Thanks, Ken. Your next question comes from the line of Gautam Khanna of TD Cowen. Your line is now open. Hey, I apologize if I missed this, but I was wondering in the fourth quarter composite segment, if you could quantify the out-of-period benefits or the one-timers. And then just, you know, one of the things we noticed last year is you had, you know, pretty high decremental margins, but the implied incrementals look to be kind of like 30, mid-30s. Wondering if, you know, what would be the case for upside, and why shouldn't we think that there could be, just given you get the leverage coming back? Okay, let me take the incremental margin first, and I'll turn it over to Mike. You, you're right on the incremental margins. It's mid-30s, is what we're seeing based on the current plan. And the upside is really, it gets down to commercial build rates. If we see higher production rates on the A350, the A320, the 737, the 787, then we'll see upside to those incremental margins. The key point about Hexcel is we are all about operating leverage. As the production rates go up, we're going to get operating leverage. As I mentioned in my remarks, production is only 80% recovered, 87% recovered overall, and less on wide bodies. As the production gets back to pre-pandemic levels, that generates a lot of operating leverage for us, which will improve margins and our incremental margins as we go forward. Now, I'll let Mike answer the question about that. Yeah, so the adjusted operating margin in the fourth quarter for composite materials, that was 20.5%, was the margin. We can follow up if you need more specifics about what numbers plug there to get to that margin, but that is the adjusted one. The table, as you know, that's a GAAP number. Thank you. Thanks, Gautam. The next question comes from the line of Gavin Parsons of UBS. Your line is now open. Thank you. Good morning. Morning. I'd love to just go back to the incremental conversation. Could we have a little bit more color around maybe fixed versus variable costs? Just kind of aligning your hiring expenses, your utilization to your revenue. Just how do we think about some of the pieces underlying incremental schedule? Right. Well, we're managing cost overall in the corporate area. You saw G&A, it was lower than last year, so we held the line, a lot of belt-tightening on things like professional fees and headcount and T&L and things like that. The other thing that we've done is, as we said, in terms of cost, we fixed costs in the factories. Now, this is, in some of the labor, the direct labor is variable costs, but we've had a hiring freeze on. We also let attrition go down because the volume wasn't there. We didn't need all the people, so we did let attrition go down. We had a couple of small staff reductions, and so we ended the year with 330 headcount below where we ended 2024, and it was way below our original plan for 2025. We're keeping that low level of headcount going into 2026. We're only going to start to hire as we see evidence that those rates are coming up. We're starting to see it on the A350, which is why we started up that new carbon fiber line a little bit early. But other than that, we're going to wait until midyear before we start any increased hiring. That's how we're going to manage some of the fixed and variable costs as we go into 2026. Then on A350, will you go up at the same rate as Airbus? Will you be leading them on that typical 4-6-month time frame? How do we think about the time frame? We're, as I said, a little bit ahead of them, but we're more in lockstep. There was a lot of destocking last year, but as we get into fourth quarter and we got into December in particular, we saw that kind of normalizing and, you know, shipping to them at, you know, at close to their delivery rate. So we expect that to continue throughout 2026, and we'll go up with them. We'll be a little bit ahead, as I said, so our rates are generally a little bit ahead of them. But as I said, we're protecting more on the upside, and that's why we started up that extra carbon fiber line, because the initial bottoms-up forecast is probably a little bit higher than our underlying assumptions, and we want to be ready. We just don't want to miss. As you know, there have been a lot of companies called out for being behind on production rates for Boeing and Airbus. We don't want to be one of them. We haven't been. We've always been a very good supplier in terms of on-time delivery and quality, and we intend to remain that way. Thanks, Tom. Appreciate it. Welcome. Your next question comes from the line of John McNulty of BMO Capital Markets. Your line is now open. Yeah, thanks for taking my question. Maybe just fleshing out a little bit more about how to think about incremental margins going forward. It looks like based on the revenue outlook that you've laid out, you're kind of calling for somewhere, you know, around a 30% incremental margin, which is definitely kind of lower than what we saw in 4Q. And I would imagine, just given that you are really feeling some demand pull, and you've got kind of the assets and the people in place, I would think it should be maybe a little bit north of that. So I guess, how should we be thinking about what's embedded in the guide at this point? Right. Well, I guess if you took the midpoint and you add it back, it would be in kind of the low 30s%. You know, we, we think it could be a little bit better. That's why I say mid-30s%. But, and it's for the reasons that I mentioned, it's for us, it's about operating leverage. We've been so under capacity the last six years, really since the pandemic began, that we're not able to basically allocate all of the fixed costs and depreciation from the assets that we put in place to go up in rate. As we start being able to absorb all of that depreciation, because the volume's going up, it's going to lead to operating leverage, which will drive margins faster than revenue growth, and that will create the positive incremental margins. So I think the mid guides, I would say, are probably low mid thirties, you know, low 30s, but I said I'm comfortable with saying mid-thirties on incremental margins for 2026. Got it. Okay, fair enough. And then just as a follow-up or quick question, so you just got finished with a big ASR, so I understand you've already put a lot of capital behind the stock. I guess as we look to 2026, it sounds like debt reduction is kind of the first priority, just getting leverage back to where you want it to be, which seems like that should be pretty quick. Should we expect further cash going into buybacks as we look into 2026? How should we be thinking about that? Well, I just go back to last year when we did the ASR, we did a $600 million share purchase reauthorization. And so we had 134 on a previous authorization. We added 600, we took out 350, so we still have 384 left. We want to get back down to our target leverage ratio, but after that, we will certainly look at continued share repurchase. But the first goal is to get down, and we expect to be down to less than two by the end of the year. Got it. Thanks very much for the color. Thank you. Your next question comes from the line of Scott Mikus of Melius Research. Your line is now open. Morning, Tom and Mike. I just wanted to ask kind of on the incremental margins as well, just does the guidance range kind of contemplate any higher cost to de-mothball additional carbon fiber lines if Boeing and Airbus actually exceed the A350 and 787 production rate targets that you have baked into the guide? And then some of the other puts and takes, I mean, can you quantify the year-over-year tailwind to operating income from closing the Austrian and Leicester facilities? And is there an additional tailwind from the ERP implementation that you did in 2025 that won't repeat in 2026? Okay, let me talk about the mothball costs. We've built in all the costs into the plan required as we bring new capacity online, so we don't expect any incremental. And it's but taking those lines out is not that big of a deal. It's really about just going and hiring the people. So those costs are all incorporated into our plan and our outlook. In terms of the... Your second question was on the operating income to close all of the different assets. Okay, that's all incorporated. Yes. On the ERP, let me just be clear. The ERP, there was some costs in 2025. There's some additional costs in 2026 as we implement it. It's just incorporated into our numbers. We're probably about halfway through the overall implementation. We expect to get most of it done in 2026, maybe a little bit in 2027, but it's not, it's not material in terms of our overall numbers, so we're not highlighting it. It's just incorporated into our SG&A. It's roughly flattish, if you think about it for the ERP, but we're rolling out a greater number in 2026 than we did in 2025. So as Tom said, we're pushing to get through that, but likely the early 2027. Yeah. But, but the overall focus is we are gonna continue very strong, disciplined management of all of our costs so that we can continue to drive margins, which will obviously contribute to the incremental margin. Okay. Just to clarify, were the Austrian and Leicester facilities, were they EBIT negative in 2025? It was immaterial, in terms of, you know, close to breakeven, maybe even a little negative. So, not material. And so, as we've said, we closed those. They were basically non-core operations, and this was all part of streamlining the portfolio so that we can be more focused and productive as we go forward. And so, both of those, plus closing the Belgian facility and selling our Hartford facility, all contribute to that. It's about lowering costs and being more productive. We won't see the full impact of that. We'll see some of it this year. We'll see all of it on a full year basis next year. Okay, got it. Thank you. Thanks. Your next question comes from the line of Michael Ciarmoli of Truist Securities. Your line is now open. Hey, morning, guys. Thanks for taking the question. Tom, I think I missed it. Did you guys give, in terms of the revenue guidance, did you give a breakdown or a split by the end market in terms of, what we should expect this year between commercial aero and, space and defense? And then just any update on sort of the price-cost equations? You know, I know, some of the main material inputs, you know, notably, acrylonitrile, some of those, you know, prices could be coming down. I know you've got the hedging strategy, but any general update there as well on how that may impact margins as we're kind of talking about this incremental margin? Right. Okay, so on revenue guidance for 2026, what I said is commercial will be low to mid double digits. Defense will be low to mid single digits growth, defense on its own, defense and space on its own. Because the defense space and other is gonna be, you know, flat to slightly negative because of the $30 million from the Austrian facility, plus the $8 million or $9 million or so from the Leicester facility. But defense by itself will be, say, low to mid double digits, and commercial will be low to mid double... Excuse me, defense is low to mid single digits, and commercial aerospace will be low to mid double digits growth for 2026. On the price-cost equation, AN, acrylonitrile, is the basic raw material that we use to make the carbon fiber. It's essentially a petroleum byproduct, but we hedge propylene. So it is, it's a fairly volatile price over the years. It is down right now, but we hedge it, so we smooth it out over the years, so we don't expect variation on that because we have a very strong hedging program on that. The other thing I will mention is that, you know, we talk about margins a lot. As production rates go up, and as we get to the target peak production rates across all the programs for Boeing and Airbus, that's gonna generate, as I said, $500 million of incremental revenue per year. Then on top of that, we have a couple hundred million dollars of increase in defense and regional jets and business jets. The combination of all of that gives us a path back to 18% margins before the end of the decade. So we are always working on pricing, as contracts come up, and so we'll continue to do that. But along with the operating leverage and the productivity initiative, we do have a path back to the 18% margins for the end of the decade as, as the OEMs achieve their peak production rates across all the different programs. Great. Thanks, guys. Your next question comes from the line of Myles Walton of Wolfe Research. Your line is now open. Thanks. Good morning. Mike, I just wanted to follow up on the margins in composite materials. I understand that the press release is 20.5%, but that number is enormously greater than what you've ever done in the last several years, and even back pre-COVID. You know, you'd have to have 10 higher volumes. So was there anything in there that was non-normal? I understand it might not be non-GAAP one-timer, but anything non-normal in that margin? No, there was nothing specifically unique for the—in terms of any one-timers there. Again, you know, we had a pretty very solid cost control here at the end of the quarter, you know, and so that certainly contributed to that. Well, I think another thing that contributed was compensation. In other words, our incentive compensation didn't pay out at target because 2025 was a fairly light year for all the reasons that we mentioned. But unfortunately, that resulted, unfortunately for the management team, in lower payout on compensation, and that contributed to the margin, and particularly in fourth quarter, because that's when those costs- Yeah, the biggest, the biggest true up is in the fourth quarter because you true it up for the full year in Q4. Got it. So it's a reversal of accruals through the course of the year. What was the size of that reversal? I don't think it's we haven't revealed it, so I'd rather not just go into that right now. But it was obviously fairly sizable because the year we just didn't hit the target. The other thing in this year's numbers that wasn't in last year, you recall last year, I succeeded Nick. We had duplicate expenses at the CEO level for the back half of last year. Obviously, that didn't repeat this year, so that was also a contributor. And then, as Mike said, just a lot of cost control on SG&A, travel, professional fees, headcount, all the normal levers, we continue to focus on it. Okay. And a longer-term question, Airbus, one of their heads of commercial, their new head of commercial, talked about the new plane likely not having a composite fuselage, but, but obviously having a composite wing. Can you just landscape us, if you mapped an A320 to a new plane without a composite fuselage, but with a composite wing, what the shipset scaling would look like? Right. Well, first of all, I still think that the jury's out on the fuselage because you get lighter weight, better fuel performance, and you also get less maintenance. So that's something I think that the OEMs will continue to take into account. But right now, the A320 and the MAX are about 15% carbon fiber composite. We've said that our shipset value on that is $200,000-$500,000. On the A320, it's close to the upper end of that range, so call it $500,000. If you put a wing on the next narrow-body, that'll take the 15%-30%. So double the $500,000 to $1 million per shipset at 75 per month, it's a lot of carbon fiber. The other thing is the fuselage would probably take the 30% up to 50%, and so that's also a possibility. And so that, at that point, you would take the 30%-50%, the $1 million per shipset probably goes to $1.5 million-$2 million per shipset at 75 aircraft per month. So that just gives you a thought process on it. Now, the wing, for sure, 100% will be carbon fiber because the characteristics of the wing, improve lift, drag ratio, increase range, reduce fuel consumption. So that's not a consideration anymore. There is still a lot of discussion on the fuselage. Of course, we're advocating for it. I think there's a lot of strong arguments for it. It's all about reducing the cost, improving the time, and reducing the capital required to produce it, and all of those things I think are in the works. There's lots of pilots going on. We'll continue to make the case, but if it is a fuselage, that takes up to 50% and about $2 million per shipset on the narrow-body. Perfect. Thanks, Tom. You're welcome. Your next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is now open. Hey, good morning. Just one question. Tom, this business, Seemann Composites, was recently purchased by another public company, but it seems like something that would have been a good strategic fit for Hexcel, given that they make advanced composites for aerospace and defense market. I'm sorry, which one- I was just curious if . . . Yeah, it's, it's called Seemann Composites. Karman, Karman bought it, a space company. I was just curious if that was an opportunity that you had the opportunity to look at, or business you had an opportunity to look at, and if so, why Hexcel was not a buyer? Right. I'm, unfortunately, I'm not familiar with Seemann. Do they make composite structures or do they make composite materials? I believe it's composite materials for the marine market, but yeah, it's, it's all good. I'll pass it along. Yeah, I'm sorry, just not familiar with that. So it's not in one of our core markets, and so we did not look at it, and so I unfortunately just can't answer it. Understood. Thank you. Your next question comes from the line of Sheila Kahyaoglu of Jefferies. Your line is now open. Good morning, guys, and thank you for the time. Tom, maybe just to start off, just looking at your revenue assumptions, at least some of the shipset content you've helped frame on the commercial aero side, it seems like you're a little higher on Airbus deliveries than folks expect, and a little lower on Boeing. So maybe what's driving some of those assumptions? Well, on Boeing, I'll start there. On the MAX, we did see a lot of destocking last year. I know they're getting up to 42 aircraft per month, but our numbers really show them what they were pulling from us, still a little bit lower than that. So yes, we are being probably a little bit more conservative on Boeing and on the 737. On the 787, I think we're right on top of them, 90-100. So it's really the 737, and it's more worried about the destocking, but we'll see. On Airbus, we're a little higher than consensus, but we're probably a little bit lower than the Airbus estimates. And again, we're a little bit lower than our bottoms-up demand management tool would indicate. So we have a lot of visibility and clarity on Airbus, and so, you know, that's why we are putting the peg where we are. We still think that the 80 is conservative on the Airbus A350, based on all of our bottoms-up work and all the top-down work and what the master schedule at Airbus says. So we're comfortable with it. We'll watch it throughout the year and monitor it to make sure that we're seeing evidence of it. But that's what all of our bottoms-up analysis is telling us. That makes sense. And then if I could ask one on margins, how do you think about just risks to profitability going forward and how we should be thinking about the FX headwind? Well, FX is gonna be a headwind, the dollar is lower, and, Mike, maybe you can comment a little bit on this. Well, yeah, no, sure, Sheila, thanks. You know, we talked about previously, you know, the weakening of the dollar to the euro early last year shifted, you know, the effect of foreign exchange on earnings from a, you know, tailwind for the first half of the year to a headwind in Q3 and into Q4. And, you know, we've certainly projected a higher headwind in Q4 versus Q3, but, you know, the 110 basis points that I called out in Q4, that included the settlement of certain short-term non-USD balances that influenced the year-over-year FX comparison to a greater degree than historically. So we don't, we don't anticipate that to be an ongoing trend, so I would not project the Q4 impact as the run rate into 2026. So hope that helps. But we did build in headwind into 2026 into the plan. That's already baked in for headwind on foreign exchange. So that's already baked in. Got it. It'll be there. We have a hedging program, so it'll be a little bit more muted than it might have otherwise been, but there is some headwind into 2026, and we incorporated that already into the outlook. Great. Thank you. Thanks, Sheila. Your next question comes from the line of Ron Epstein of Bank of America. Your line is now open. Yeah. Hey, hey, good morning, guys. Thanks, thanks for the question. Yeah, maybe just revisiting some of the stuff that we've already spoken about, but when we think about, you know, maybe a next-generation aircraft, you alluded to, you know, potentially lower fabrication costs, that kind of thing. Are you guys doing work on out-of-autoclave? I mean, can you, can you just give us a sense on, you know, maybe some of the, the new tech that you all are looking at? Right. So we are working with the OEMs, both of them, on production techniques to improve all of those characteristics that I talked about. Let me give you an example. We-- yes, we are working on out-of-autoclave, but it starts with layup. You know, there's automated fiber placement, has replaced hand layup, but it's-- the question is, how many kilograms an hour can you lay up? If it's 20 kg an hour, we think we have techniques that could take it up to 80 kg an hour, maybe even double that to 160 kg an hour, by making the tape wider and thicker and faster. We're looking at not only prepreg layup, but also dry layup. We're also looking at how can we improve the cure time on carbon fiber. Today, it could be 12 hours. We think we have ways to take that down to 3 hours or even less than 2 hours. We're also looking at ways to improve non-destructive inspection and make that better. And also looking at improved ways to do resin infusion at the point of manufacture. And then on top of that, is looking at ways to improve joining techniques. So all these things improve the time it takes to build the part, it reduces the cost, and it also reduces the amount of capital. Capital being autoclaves, or it could be NDI type equipment, trim and drill, all of those things, by all of the techniques that I just mentioned. So those are some of the levers, and yes, we are working very actively with the OEMs on those techniques. That's a big part. The production system is absolutely critical to the next generation aircraft. Not just about the cost of the material, it's also about the whole production system. Yeah, that, that makes a ton of sense. And if, if I may, just a, a second question real quick. We, missile production, you know, going up a lot, I mean, you're just kinda, you know, there's been a lot of announcements about that, some big agreements with the, with the big contractors. And a lot of the unmanned systems, you know, these smaller systems are carbon fiber composite systems. But when you look at the changing defense environment, you know, with the volume of everything kind of going up, particularly a lot of things that are made out of carbon fiber, how do you think about the potential opportunity there for you? Big opportunity. You know, lightweight is so critical because range is important, and durability is also important. Now, some of these drones are they don't carry people, and they don't come back. They're one way, so it changes some of the requirements. But in general, range and strength are key, and our material addresses both of those issues. So this new defense that you were describing is a big opportunity for us, and one of the things I mentioned in my prepared remarks is we have started to strengthen our defense team so that we can address these markets. These are new markets. They don't exist today. They're growing very fast. We think we can play a big part in it, and that's why we're strengthening the team so that we can do that. Got it. Great. Thank you very much. Thanks, Ron. Our last question for today comes from the line of Kristine Liwag of Morgan Stanley. Your line is now open. Hey, good morning, everyone. Tom, you know, looking at the production rates from Boeing and Airbus, it's clear that it seems like we're beyond the trough, and you've got stability and visibility in your business. Now that you know we're in this better place, I was wondering, can you discuss how you're thinking about the portfolio today? Over time, when you look at your exposure to OE, do you want to expand more into aftermarket? Do you want to expand more into defense or potentially go into more vertically integrated component structure? It'd be helpful to think about where the direction, you wanna, you see the business going in the next few years. Right. So certainly we wanna continue to grow, Christine, and those things are all important, but the number one priority for us right now in the immediate future is to focus exclusively on making sure we can ramp up on these production rates. That's gonna generate so much operating leverage, and so that's what our focus is. That's a little bit why we did the ASR, is because we have great confidence that this is gonna go up. We thought we were undervalued at the time, and this is an opportunity for us, and we wanna make sure that we're laser focused on executing it. On the other growth initiative that we are gonna push very hard is defense. It's already about 35% of our current business, but we think it can be more. We think it's growing, not only in the U.S., but also in Europe and also in some other markets like Turkey or India, Brazil, some other markets. And so we think we can play a big part there, and so that's the focus for us in growth in the immediate future is in defense. And then, as I said, just to reinforce, the big priority for us over the next couple of years, absolutely laser focused on executing on the rate ramps for all of our customers to make sure that we can deliver the quality and maintain a safe work environment. Thank you very much. Thanks, Christine. Thank you. This concludes our question and answer session for today, and this concludes the session. Thank you so much for attending. Have a wonderful day. Good-

Speaker 10: Hello everyone, and welcome to Hexcel fourth quarter and full year 2025 earnings call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press Star, followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Kurt Goddard, Vice President of Investor Relations. Please go ahead. Hello everyone, and welcome to Hexcel fourth quarter and full year 2025 earnings call. hello everyone and welcome to hexcel fourth quarter and full year 2025 earnings call Please note that this call is being recorded. please note that this call is being recorded After the speaker's prepared remarks, there will be a question and answer session. after the speaker's prepared remarks there will be a question and answer session If you'd like to ask a question during that time, please press Star, followed by one on your telephone keypad. if you'd like to ask a question during that time please press star followed by one on your telephone keypad Thank you. thank you I'd now like to hand the call over to Kurt Goddard, Vice President of Investor Relations. i'd now like to hand the call over to kurt goddard vice president of investor relations Please go ahead. please go ahead

Speaker 6: Thanks, Ellie. Hello, everyone. Welcome to Hexcel Corporation's fourth quarter and full year 2025 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 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 earnings 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. Thanks, Ellie. thanks ellie Hello, everyone. hello everyone Welcome to Hexcel Corporation's fourth quarter and full year 2025 earnings conference call. welcome to hexcel corporation's fourth quarter and full year 2025 earnings conference call Before beginning, let me cover the formalities. 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 the course of this call. i would like to remind everyone about the safe harbor provisions related to any forward-looking statements we may make during the course of this call Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. 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. such factors are detailed in the company's sec filings and earnings release A replay of this call will be available on the investor relations page of our website. 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. 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, and Mike Lenz, Interim Chief Financial Officer. The purpose of the call is to review our fourth quarter and full year 2025 results, detailed in our news release issued yesterday. Now, let me turn the call over to Tom. Tom? It cannot be recorded or rebroadcast without our express permission. it cannot be recorded or rebroadcast without our express permission Your participation on this call constitutes your consent to that request. your participation on this call constitutes your consent to that request With me today are Tom Gentile, our Chairman, CEO, and President, and Mike Lenz, Interim Chief Financial Officer. with me today are tom gentile our chairman ceo and president and mike lenz interim chief financial officer The purpose of the call is to review our fourth quarter and full year 2025 results, detailed in our news release issued yesterday. the purpose of the call is to review our fourth quarter and full year 2025 results detailed in our news release issued yesterday Now, let me turn the call over to Tom. now let me turn the call over to tom Tom? tom

Speaker 15: Thanks, Kurt. Hello, hello, everyone, and thank you for joining us today for Hexcel's fourth quarter and full year 2025 earnings call. With positive signs emerging for a sustained ramp-up in commercial aircraft production rates, we are confident in Hexcel's ability to meet this increasing demand. Longer term, it is a promising outlook for the entire industry. IATA recently released data highlighting the current backlog for commercial aircraft has exceeded 17,000. Same report also noted that to date, there has been a delivery shortfall of at least 5,300 aircraft, underscoring the current imbalance between supply and demand for commercial aircraft. The fact that even with this historically high backlog, airlines are still ordering new aircraft underscores how much demand there is for these new aircraft that incorporate more lightweight material, are more fuel-efficient, and require less maintenance than the older aircraft they will replace. Thanks, Kurt. thanks kurt Hello, hello, everyone, and thank you for joining us today for Hexcel's fourth quarter and full year 2025 earnings call. hello hello everyone and thank you for joining us today for hexcel's fourth quarter and full year 2025 earnings call With positive signs emerging for a sustained ramp-up in commercial aircraft production rates, we are confident in Hexcel's ability to meet this increasing demand. with positive signs emerging for a sustained ramp-up in commercial aircraft production rates we are confident in hexcel's ability to meet this increasing demand Longer term, it is a promising outlook for the entire industry. longer term it is a promising outlook for the entire industry IATA recently released data highlighting the current backlog for commercial aircraft has exceeded 17,000. iata recently released data highlighting the current backlog for commercial aircraft has exceeded 17,000 Same report also noted that to date, there has been a delivery shortfall of at least 5,300 aircraft, underscoring the current imbalance between supply and demand for commercial aircraft. same report also noted that to date there has been a delivery shortfall of at least 5,300 aircraft underscoring the current imbalance between supply and demand for commercial aircraft The fact that even with this historically high backlog, airlines are still ordering new aircraft underscores how much demand there is for these new aircraft that incorporate more lightweight material, are more fuel-efficient, and require less maintenance than the older aircraft they will replace. the fact that even with this historically high backlog airlines are still ordering new aircraft underscores how much demand there is for these new aircraft that incorporate more lightweight material are more fuel-efficient and require less maintenance than the older aircraft they will replace This situation is positive for manufacturers like Hexcel, as production rates are likely to remain at elevated levels for an extended period. As a vertically integrated manufacturer of advanced lightweight carbon fiber composites with a broad product portfolio, we are well-positioned to support the needs of our commercial and defense customers. Also, we continue to focus on developing advanced material solutions for next-generation aircraft, as lightweight composite materials increasingly replace metals and aircraft structures to make them lighter, stronger, and more fuel efficient. Combined with our commitment to operational excellence, we see Hexcel as well-positioned to benefit as commercial aircraft production rates continue to recover and funding for defense platforms increase globally. 2025 was a challenging year for us as destocking by the OEMs, schedule delays, and lingering supply chain constraints for the OEMs impacted our plans. This situation is positive for manufacturers like Hexcel, as production rates are likely to remain at elevated levels for an extended period. this situation is positive for manufacturers like hexcel as production rates are likely to remain at elevated levels for an extended period As a vertically integrated manufacturer of advanced lightweight carbon fiber composites with a broad product portfolio, we are well-positioned to support the needs of our commercial and defense customers. as a vertically integrated manufacturer of advanced lightweight carbon fiber composites with a broad product portfolio we are well-positioned to support the needs of our commercial and defense customers Also, we continue to focus on developing advanced material solutions for next-generation aircraft, as lightweight composite materials increasingly replace metals and aircraft structures to make them lighter, stronger, and more fuel efficient. also we continue to focus on developing advanced material solutions for next-generation aircraft as lightweight composite materials increasingly replace metals and aircraft structures to make them lighter stronger and more fuel efficient Combined with our commitment to operational excellence, we see Hexcel as well-positioned to benefit as commercial aircraft production rates continue to recover and funding for defense platforms increase globally. 2025 was a challenging year for us as destocking by the OEMs, schedule delays, and lingering supply chain constraints for the OEMs impacted our plans. combined with our commitment to operational excellence we see hexcel as well-positioned to benefit as commercial aircraft production rates continue to recover and funding for defense platforms increase globally 2025 was a challenging year for us as destocking by the oems schedule delays and lingering supply chain constraints for the oems impacted our plans Despite these challenges, Hexcel closed the year on a positive note as we continued to see an upturn in commercial orders that we first highlighted in our previous earnings call. This positive trend is setting us up for a stronger 2026. Across all our major programs, the A350, the A320, 787, and the 737, we see positive catalysts that a sustained recovery and ramp-up in commercial aircraft build rates is beginning to take hold. On the A350, the closing of the Spirit AeroSystems transaction moves major A350 production in-house for Airbus, eliminating a previous bottleneck. On the A320, engines have been a problem. Safran is expanding LEAP engine production capacity with a new final assembly line in Morocco. Despite these challenges, Hexcel closed the year on a positive note as we continued to see an upturn in commercial orders that we first highlighted in our previous earnings call. despite these challenges hexcel closed the year on a positive note as we continued to see an upturn in commercial orders that we first highlighted in our previous earnings call This positive trend is setting us up for a stronger 2026. this positive trend is setting us up for a stronger 2026 Across all our major programs, the A350, the A320, 787, and the 737, we see positive catalysts that a sustained recovery and ramp-up in commercial aircraft build rates is beginning to take hold. across all our major programs the a350 the a320 787 and the 737 we see positive catalysts that a sustained recovery and ramp-up in commercial aircraft build rates is beginning to take hold On the A350, the closing of the Spirit AeroSystems transaction moves major A350 production in-house for Airbus, eliminating a previous bottleneck. on the a350 the closing of the spirit aerosystems transaction moves major a350 production in-house for airbus eliminating a previous bottleneck On the A320, engines have been a problem. on the a320 engines have been a problem Safran is expanding LEAP engine production capacity with a new final assembly line in Morocco. safran is expanding leap engine production capacity with a new final assembly line in morocco LEAP production continues to increase, with record unit shipments in the fourth quarter, 2025, and full year 2025 unit shipments exceeded the pre-pandemic 2019 prior peak. The GTF from Pratt & Whitney engine shipments have also been increasing and are forecast to increase further in 2026, and Airbus added two new A320 final assembly lines, one in the U.S. and one in China. On the 787, Boeing broke ground to expand its Charleston, South Carolina, site to double 787 output, and Boeing reported that they are transitioning production to eight aircraft per month. They also said in their earnings call on Tuesday that the 787 inventory is more normalized with the supply chain now. LEAP production continues to increase, with record unit shipments in the fourth quarter, 2025, and full year 2025 unit shipments exceeded the pre-pandemic 2019 prior peak. leap production continues to increase with record unit shipments in the fourth quarter 2025 and full year 2025 unit shipments exceeded the pre-pandemic 2019 prior peak The GTF from Pratt & Whitney engine shipments have also been increasing and are forecast to increase further in 2026, and Airbus added two new A320 final assembly lines, one in the U.S. and one in China. the gtf from pratt & whitney engine shipments have also been increasing and are forecast to increase further in 2026 and airbus added two new a320 final assembly lines one in the u.s and one in china On the 787, Boeing broke ground to expand its Charleston, South Carolina, site to double 787 output, and Boeing reported that they are transitioning production to eight aircraft per month. on the 787 boeing broke ground to expand its charleston south carolina site to double 787 output and boeing reported that they are transitioning production to eight aircraft per month They also said in their earnings call on Tuesday that the 787 inventory is more normalized with the supply chain now. they also said in their earnings call on tuesday that the 787 inventory is more normalized with the supply chain now On the 737, Boeing reported that they are producing at a rate of 42 aircraft per month after the FAA lifted the production cap. Along with reduced supply chain disruptions, these catalysts give us growing confidence that the long-awaited recovery in commercial aircraft production is coming into focus as impediments to the OEM reaching their peak build rates are receding, and the destocking we experienced in 2025 appears to be largely behind us. Aircraft production peaked in 2018 at 1,734 aircraft. In 2025, production was still just 1,503 aircraft, or about 87% of the pre-pandemic level. In 2026, we should finally fully recover to pre-pandemic production levels as an industry, although wide-body production will probably not recover fully for a couple more years. On the 737, Boeing reported that they are producing at a rate of 42 aircraft per month after the FAA lifted the production cap. on the 737 boeing reported that they are producing at a rate of 42 aircraft per month after the faa lifted the production cap Along with reduced supply chain disruptions, these catalysts give us growing confidence that the long-awaited recovery in commercial aircraft production is coming into focus as impediments to the OEM reaching their peak build rates are receding, and the destocking we experienced in 2025 appears to be largely behind us. along with reduced supply chain disruptions these catalysts give us growing confidence that the long-awaited recovery in commercial aircraft production is coming into focus as impediments to the oem reaching their peak build rates are receding and the destocking we experienced in 2025 appears to be largely behind us Aircraft production peaked in 2018 at 1,734 aircraft. aircraft production peaked in 2018 at 1,734 aircraft In 2025, production was still just 1,503 aircraft, or about 87% of the pre-pandemic level. in 2025 production was still just 1,503 aircraft or about 87% of the pre-pandemic level In 2026, we should finally fully recover to pre-pandemic production levels as an industry, although wide-body production will probably not recover fully for a couple more years. in 2026 we should finally fully recover to pre-pandemic production levels as an industry although wide-body production will probably not recover fully for a couple more years With the historic backlog held by Airbus and Boeing and our sole source position and long-term contracts on our commercial programs, Hexcel is in a strong position to benefit from the increase in commercial aircraft production. As we have previously highlighted, when Airbus and Boeing achieve publicly disclosed peak build rates, we expect to generate $500 million in incremental sales annually from those sole source contracts. Additionally, growth from defense and space, as well as business and regional jets, will add over $200 million in additional sales. As our sales volumes increase, it drives greater operating leverage and margin expansion for our business. It was based on our confidence in this production ramp and our ability to execute on it, that we initiated the $350 million accelerated share repurchase program last October. With the historic backlog held by Airbus and Boeing and our sole source position and long-term contracts on our commercial programs, Hexcel is in a strong position to benefit from the increase in commercial aircraft production. with the historic backlog held by airbus and boeing and our sole source position and long-term contracts on our commercial programs hexcel is in a strong position to benefit from the increase in commercial aircraft production As we have previously highlighted, when Airbus and Boeing achieve publicly disclosed peak build rates, we expect to generate $500 million in incremental sales annually from those sole source contracts. as we have previously highlighted when airbus and boeing achieve publicly disclosed peak build rates we expect to generate $500 million in incremental sales annually from those sole source contracts Additionally, growth from defense and space, as well as business and regional jets, will add over $200 million in additional sales. additionally growth from defense and space as well as business and regional jets will add over $200 million in additional sales As our sales volumes increase, it drives greater operating leverage and margin expansion for our business. as our sales volumes increase it drives greater operating leverage and margin expansion for our business It was based on our confidence in this production ramp and our ability to execute on it, that we initiated the $350 million accelerated share repurchase program last October. it was based on our confidence in this production ramp and our ability to execute on it that we initiated the $350 million accelerated share repurchase program last october Shifting to opportunities in defense and space, we expect strong long-term demand in this market as defense budgets in the U.S. and allied nations globally continue to increase due to an uncertain geopolitical environment and the development of new platforms. We continue to engage the U.S. Defense Prime directly, as well as government stakeholders, highlighting Hexcel's unique value proposition. We are well-positioned to serve defense customers with Hexcel's innovative, lightweight, advanced materials that provide defense and space customers with greater payloads, greater range, and low observability that those platforms require. Additionally, our vertically integrated operations in the U.S. and across Europe provide those governments with secure and sovereign access to advanced carbon fiber that is critical for defense platforms. Our strong positions in both commercial and defense markets underscore Hexcel's ability to capture growth going forward. Shifting to opportunities in defense and space, we expect strong long-term demand in this market as defense budgets in the U.S. and allied nations globally continue to increase due to an uncertain geopolitical environment and the development of new platforms. shifting to opportunities in defense and space we expect strong long-term demand in this market as defense budgets in the u.s and allied nations globally continue to increase due to an uncertain geopolitical environment and the development of new platforms We continue to engage the U.S. we continue to engage the u.s Defense Prime directly, as well as government stakeholders, highlighting Hexcel's unique value proposition. defense prime directly as well as government stakeholders highlighting hexcel's unique value proposition We are well-positioned to serve defense customers with Hexcel's innovative, lightweight, advanced materials that provide defense and space customers with greater payloads, greater range, and low observability that those platforms require. we are well-positioned to serve defense customers with hexcel's innovative lightweight advanced materials that provide defense and space customers with greater payloads greater range and low observability that those platforms require Additionally, our vertically integrated operations in the U.S. and across Europe provide those governments with secure and sovereign access to advanced carbon fiber that is critical for defense platforms. additionally our vertically integrated operations in the u.s and across europe provide those governments with secure and sovereign access to advanced carbon fiber that is critical for defense platforms Our strong positions in both commercial and defense markets underscore Hexcel's ability to capture growth going forward. our strong positions in both commercial and defense markets underscore hexcel's ability to capture growth going forward With this foundation in place, let me now turn to our financial performance for the fourth quarter and full year 2025, which reflects the actions we have taken to navigate near-term challenges and position for long-term success. Our 2025 full-year results were impacted by Airbus revising the A350 production schedule, combined with channel destocking on the A350 and other programs. In 2025, Hexcel achieved full-year sales of $1.894 billion, adjusted EPS of $1.76, and free cash flow of $157 million. In the fourth quarter, Hexcel generated $492 million in sales, up 3.7% from 2024, highlighting the positive trend in commercial orders as we enter 2026. With this foundation in place, let me now turn to our financial performance for the fourth quarter and full year 2025, which reflects the actions we have taken to navigate near-term challenges and position for long-term success. with this foundation in place let me now turn to our financial performance for the fourth quarter and full year 2025 which reflects the actions we have taken to navigate near-term challenges and position for long-term success Our 2025 full-year results were impacted by Airbus revising the A350 production schedule, combined with channel destocking on the A350 and other programs. our 2025 full-year results were impacted by airbus revising the a350 production schedule combined with channel destocking on the a350 and other programs In 2025, Hexcel achieved full-year sales of $1.894 billion, adjusted EPS of $1.76, and free cash flow of $157 million. in 2025 hexcel achieved full-year sales of $1.894 billion adjusted eps of $1.76 and free cash flow of $157 million In the fourth quarter, Hexcel generated $492 million in sales, up 3.7% from 2024, highlighting the positive trend in commercial orders as we enter 2026. in the fourth quarter hexcel generated $492 million in sales up 3.7% from 2024 highlighting the positive trend in commercial orders as we enter 2026 Commercial aerospace sales in the fourth quarter were $299.5 million, an increase of 7.6% compared to 2024. This increase was due to strong growth in the A320, along with increases in 787 and 737 volumes, as well as increased regional jet sales. The overall sales volume increase in the commercial segment was partially offset by lower sales volume in the A350 due to lingering destocking in the quarter. In our defense space and other segments, sales were $191.8 million in the fourth quarter, down 1.9% compared to the same period in 2024. Commercial aerospace sales in the fourth quarter were $299.5 million, an increase of 7.6% compared to 2024. commercial aerospace sales in the fourth quarter were $299.5 million an increase of 7.6% compared to 2024 This increase was due to strong growth in the A320, along with increases in 787 and 737 volumes, as well as increased regional jet sales. this increase was due to strong growth in the a320 along with increases in 787 and 737 volumes as well as increased regional jet sales The overall sales volume increase in the commercial segment was partially offset by lower sales volume in the A350 due to lingering destocking in the quarter. the overall sales volume increase in the commercial segment was partially offset by lower sales volume in the a350 due to lingering destocking in the quarter In our defense space and other segments, sales were $191.8 million in the fourth quarter, down 1.9% compared to the same period in 2024. in our defense space and other segments sales were $191.8 million in the fourth quarter down 1.9% compared to the same period in 2024 Taking a closer look at this market, we experienced increased sales for defense and space due to strength in military rotorcraft programs and launchers, but sales overall were lower due to the divestment of our Austrian-based industrial business that we announced at the end of the third quarter in 2025. Overall, our full year 2025 results were impacted by Airbus-initiated schedule changes on the A350 program, destocking by the OEMs, and charges related to the disposition of non-core businesses in Austria and Connecticut. In addition, we closed a facility in Belgium as we rationalized our footprint to streamline operations. Commercial order activity continued to trend higher throughout the quarter, which we expected and first highlighted in our third quarter earnings call. Also, we believe the majority of destocking by the OEMs is now generally behind us. Taking a closer look at this market, we experienced increased sales for defense and space due to strength in military rotorcraft programs and launchers, but sales overall were lower due to the divestment of our Austrian-based industrial business that we announced at the end of the third quarter in 2025. taking a closer look at this market we experienced increased sales for defense and space due to strength in military rotorcraft programs and launchers but sales overall were lower due to the divestment of our austrian-based industrial business that we announced at the end of the third quarter in 2025 Overall, our full year 2025 results were impacted by Airbus-initiated schedule changes on the A350 program, destocking by the OEMs, and charges related to the disposition of non-core businesses in Austria and Connecticut. overall our full year 2025 results were impacted by airbus-initiated schedule changes on the a350 program destocking by the oems and charges related to the disposition of non-core businesses in austria and connecticut In addition, we closed a facility in Belgium as we rationalized our footprint to streamline operations. in addition we closed a facility in belgium as we rationalized our footprint to streamline operations Commercial order activity continued to trend higher throughout the quarter, which we expected and first highlighted in our third quarter earnings call. commercial order activity continued to trend higher throughout the quarter which we expected and first highlighted in our third quarter earnings call Also, we believe the majority of destocking by the OEMs is now generally behind us. also we believe the majority of destocking by the oems is now generally behind us However, this remains a watch item for all of us, and we will continue to monitor it throughout 2026. While our results reflected the headwinds we faced in 2025, they also underscored the importance of the operational discipline we maintained throughout the year. Let me share with you a few of the actions we took to strengthen our operational excellence foundation for the future. As we dealt with the impact from schedule changes and destocking throughout 2025, we kept a strong focus on cost control and operational discipline. This included the business rationalization I mentioned earlier, as we exited industrial markets like wind energy and winter recreation markets, and we continued to streamline operations in 2026. We just announced a proposal to refocus our Leicester, U.K., site to perform work solely related to commercial aerospace development. However, this remains a watch item for all of us, and we will continue to monitor it throughout 2026. however this remains a watch item for all of us and we will continue to monitor it throughout 2026 While our results reflected the headwinds we faced in 2025, they also underscored the importance of the operational discipline we maintained throughout the year. while our results reflected the headwinds we faced in 2025 they also underscored the importance of the operational discipline we maintained throughout the year Let me share with you a few of the actions we took to strengthen our operational excellence foundation for the future. let me share with you a few of the actions we took to strengthen our operational excellence foundation for the future As we dealt with the impact from schedule changes and destocking throughout 2025, we kept a strong focus on cost control and operational discipline. as we dealt with the impact from schedule changes and destocking throughout 2025 we kept a strong focus on cost control and operational discipline This included the business rationalization I mentioned earlier, as we exited industrial markets like wind energy and winter recreation markets, and we continued to streamline operations in 2026. this included the business rationalization i mentioned earlier as we exited industrial markets like wind energy and winter recreation markets and we continued to streamline operations in 2026 We just announced a proposal to refocus our Leicester, U.K., site to perform work solely related to commercial aerospace development. we just announced a proposal to refocus our leicester u.k site to perform work solely related to commercial aerospace development Along with our cost control initiatives, we continue to invest in productivity enhancements in our factories through automation, AI-driven workflows, and digitization, while maintaining high levels of safety and quality. Also, we remain focused on managing headcount closely. We finished 2025, about 330 positions fewer compared to our year-end headcount for 2024, and well below our original plan for 2025. This delta reflects an intentional use of attrition to lower headcount during 2025, which was slow, along with the headcount reductions that resulted from our site rationalization activity. Going into 2026, we are starting to evaluate some selective hiring earlier in the year to support increased A350 production, followed by some general hiring that will likely begin around mid-year. Along with our cost control initiatives, we continue to invest in productivity enhancements in our factories through automation, AI-driven workflows, and digitization, while maintaining high levels of safety and quality. along with our cost control initiatives we continue to invest in productivity enhancements in our factories through automation ai-driven workflows and digitization while maintaining high levels of safety and quality Also, we remain focused on managing headcount closely. also we remain focused on managing headcount closely We finished 2025, about 330 positions fewer compared to our year-end headcount for 2024, and well below our original plan for 2025. we finished 2025 about 330 positions fewer compared to our year-end headcount for 2024 and well below our original plan for 2025 This delta reflects an intentional use of attrition to lower headcount during 2025, which was slow, along with the headcount reductions that resulted from our site rationalization activity. this delta reflects an intentional use of attrition to lower headcount during 2025 which was slow along with the headcount reductions that resulted from our site rationalization activity Going into 2026, we are starting to evaluate some selective hiring earlier in the year to support increased A350 production, followed by some general hiring that will likely begin around mid-year. going into 2026 we are starting to evaluate some selective hiring earlier in the year to support increased a350 production followed by some general hiring that will likely begin around mid-year In the third quarter of 2025, we launched the $350 million accelerated share repurchase program, which underscores our confidence in Hexcel's long-term growth. This decision reflects our strategy to invest in Hexcel as we see tremendous opportunity to benefit from increasing commercial aircraft build rates and growth organically in defense and space over the coming years. Also, as we noted in the third quarter earnings call, I want to be very clear that we remain committed to disciplined financial management and our targeted leverage range of 1.5x-2x net debt to EBITDA. We intend to repay the $350 million we borrowed from our revolver for the ASR as soon as possible in 2026 to return Hexcel to that target leverage range. In the third quarter of 2025, we launched the $350 million accelerated share repurchase program, which underscores our confidence in Hexcel's long-term growth. in the third quarter of 2025 we launched the $350 million accelerated share repurchase program which underscores our confidence in hexcel's long-term growth This decision reflects our strategy to invest in Hexcel as we see tremendous opportunity to benefit from increasing commercial aircraft build rates and growth organically in defense and space over the coming years. this decision reflects our strategy to invest in hexcel as we see tremendous opportunity to benefit from increasing commercial aircraft build rates and growth organically in defense and space over the coming years Also, as we noted in the third quarter earnings call, I want to be very clear that we remain committed to disciplined financial management and our targeted leverage range of 1.5x-2x net debt to EBITDA. also as we noted in the third quarter earnings call i want to be very clear that we remain committed to disciplined financial management and our targeted leverage range of 1.5x-2x net debt to ebitda We intend to repay the $350 million we borrowed from our revolver for the ASR as soon as possible in 2026 to return Hexcel to that target leverage range. we intend to repay the $350 million we borrowed from our revolver for the asr as soon as possible in 2026 to return hexcel to that target leverage range We also announced a 6% increase in the quarterly dividend to $0.18 per share, reflecting our positive outlook on Hexcel's long-term growth and strong, strong cash generation profile. Since the beginning of 2024, we have returned over $800 million to stockholders through dividends and share repurchases. Along with strengthening our financial foundation in 2025, we also focused on leadership across the organization. We welcomed several new members to the Hexcel leadership team, bringing fresh perspectives and deep industry expertise to help drive our strategic priorities. This includes Mike Lenz, who joined us as our interim CFO while we conduct a search for the next permanent CFO. You'll hear from Mike shortly. We have made great progress in the CFO search, and we are focused on identifying the right person for Hexcel. We also announced a 6% increase in the quarterly dividend to $0.18 per share, reflecting our positive outlook on Hexcel's long-term growth and strong, strong cash generation profile. we also announced a 6% increase in the quarterly dividend to $0.18 per share reflecting our positive outlook on hexcel's long-term growth and strong strong cash generation profile Since the beginning of 2024, we have returned over $800 million to stockholders through dividends and share repurchases. since the beginning of 2024 we have returned over $800 million to stockholders through dividends and share repurchases Along with strengthening our financial foundation in 2025, we also focused on leadership across the organization. along with strengthening our financial foundation in 2025 we also focused on leadership across the organization We welcomed several new members to the Hexcel leadership team, bringing fresh perspectives and deep industry expertise to help drive our strategic priorities. we welcomed several new members to the hexcel leadership team bringing fresh perspectives and deep industry expertise to help drive our strategic priorities This includes Mike Lenz, who joined us as our interim CFO while we conduct a search for the next permanent CFO. this includes mike lenz who joined us as our interim cfo while we conduct a search for the next permanent cfo You'll hear from Mike shortly. you'll hear from mike shortly We have made great progress in the CFO search, and we are focused on identifying the right person for Hexcel. we have made great progress in the cfo search and we are focused on identifying the right person for hexcel Also, we added new functional and business program leaders across defense, safety, R&D, quality, and operations, all areas that are critical to delivering on customer commitment and maintaining the highest standards of excellence. Before I turn it over to Mike, let me briefly highlight our outlook for 2026. I want to emphasize that 2025 was a year of disciplined execution as we managed through the schedule changes and the impact from destocking. We closed the year with encouraging trends, including an uptick in commercial orders and the margin rate for the fourth quarter, carrying over a trend that began the previous quarter. We believe the commercial recovery is gaining traction as OEMs take steps toward higher production rates across all our key programs. Also, we added new functional and business program leaders across defense, safety, R&D, quality, and operations, all areas that are critical to delivering on customer commitment and maintaining the highest standards of excellence. also we added new functional and business program leaders across defense safety r&d quality and operations all areas that are critical to delivering on customer commitment and maintaining the highest standards of excellence Before I turn it over to Mike, let me briefly highlight our outlook for 2026. before i turn it over to mike let me briefly highlight our outlook for 2026 I want to emphasize that 2025 was a year of disciplined execution as we managed through the schedule changes and the impact from destocking. i want to emphasize that 2025 was a year of disciplined execution as we managed through the schedule changes and the impact from destocking We closed the year with encouraging trends, including an uptick in commercial orders and the margin rate for the fourth quarter, carrying over a trend that began the previous quarter. we closed the year with encouraging trends including an uptick in commercial orders and the margin rate for the fourth quarter carrying over a trend that began the previous quarter We believe the commercial recovery is gaining traction as OEMs take steps toward higher production rates across all our key programs. we believe the commercial recovery is gaining traction as oems take steps toward higher production rates across all our key programs At the same time, defense and space markets remain robust, with budgets increasing and the demand for advanced composite solutions across rotorcraft, fixed wing, and space applications. As OEMs hit their publicly disclosed peak commercial build rates before the end of the decade, this will, as I said, generate $500 million in incremental sales from existing contracts with Airbus and Boeing, and we expect to generate in excess of $1 billion in free cash flow cumulatively over the next four years, from 2026 to 2029. In 2026, we expect sales in the range of $2.0 billion-$2.1 billion, adjusted EPS between $2.10-$2.30, and free cash flow greater than $195 million. At the same time, defense and space markets remain robust, with budgets increasing and the demand for advanced composite solutions across rotorcraft, fixed wing, and space applications. at the same time defense and space markets remain robust with budgets increasing and the demand for advanced composite solutions across rotorcraft fixed wing and space applications As OEMs hit their publicly disclosed peak commercial build rates before the end of the decade, this will, as I said, generate $500 million in incremental sales from existing contracts with Airbus and Boeing, and we expect to generate in excess of $1 billion in free cash flow cumulatively over the next four years, from 2026 to 2029. as oems hit their publicly disclosed peak commercial build rates before the end of the decade this will as i said generate $500 million in incremental sales from existing contracts with airbus and boeing and we expect to generate in excess of $1 billion in free cash flow cumulatively over the next four years from 2026 to 2029 In 2026, we expect sales in the range of $2.0 billion-$2.1 billion, adjusted EPS between $2.10-$2.30, and free cash flow greater than $195 million. in 2026 we expect sales in the range of $2.0 billion-$2.1 billion adjusted eps between $2.10-$2.30 and free cash flow greater than $195 million Increased operating leverage from higher sales volumes, along with the disciplined execution and focus on controlling costs, will be the primary driver of these results. We believe that our guidance reflects prudent assumptions regarding commercial aircraft rate ramps. Now, Mike will provide additional details of our financial results. Mike? Increased operating leverage from higher sales volumes, along with the disciplined execution and focus on controlling costs, will be the primary driver of these results. increased operating leverage from higher sales volumes along with the disciplined execution and focus on controlling costs will be the primary driver of these results We believe that our guidance reflects prudent assumptions regarding commercial aircraft rate ramps. we believe that our guidance reflects prudent assumptions regarding commercial aircraft rate ramps Now, Mike will provide additional details of our financial results. now mike will provide additional details of our financial results Mike? mike

Speaker 8: Thank you, Tom. We closed the year with a strong fourth quarter and a return to year-over-year growth. The higher sales supported adjusted operating margin expansion, illustrating the operating leverage opportunity ahead. The commercial aerospace OE recovery continues to become more apparent, both in our business and in the broader supply chain. Total fourth quarter 2025 sales of $491 million increased 1.6% in constant currency. Growth in the commercial aerospace market was partially offset by lower defense, space, and other sales, following the divestment of the Austrian Industrial business on September 30, 2025. By market, commercial aerospace fourth quarter 2025 sales were $300 million, representing approximately 61% of total fourth quarter sales. Fourth quarter commercial aerospace sales increased 5.8% compared to the fourth quarter of 2024. Thank you, Tom. thank you tom We closed the year with a strong fourth quarter and a return to year-over-year growth. we closed the year with a strong fourth quarter and a return to year-over-year growth The higher sales supported adjusted operating margin expansion, illustrating the operating leverage opportunity ahead. the higher sales supported adjusted operating margin expansion illustrating the operating leverage opportunity ahead The commercial aerospace OE recovery continues to become more apparent, both in our business and in the broader supply chain. the commercial aerospace oe recovery continues to become more apparent both in our business and in the broader supply chain Total fourth quarter 2025 sales of $491 million increased 1.6% in constant currency. total fourth quarter 2025 sales of $491 million increased 1.6% in constant currency Growth in the commercial aerospace market was partially offset by lower defense, space, and other sales, following the divestment of the Austrian Industrial business on September 30, 2025. growth in the commercial aerospace market was partially offset by lower defense space and other sales following the divestment of the austrian industrial business on september 30 2025 By market, commercial aerospace fourth quarter 2025 sales were $300 million, representing approximately 61% of total fourth quarter sales. by market commercial aerospace fourth quarter 2025 sales were $300 million representing approximately 61% of total fourth quarter sales Fourth quarter commercial aerospace sales increased 5.8% compared to the fourth quarter of 2024. fourth quarter commercial aerospace sales increased 5.8% compared to the fourth quarter of 2024 Sales increased for the A320, 787, and 737, whereas sales decreased for the A350 as a result of some lingering destocking. Sales for other commercial aerospace in the fourth quarter increased 16.1% year-over-year, led by regional jets. Defense, space, and other represented approximately 39% of fourth quarter sales and totaled $192 million, decreasing 4.3% on a constant currency basis from the same period in 2024. Sales were basically unchanged year-over-year on an organic basis. Demand was strong for a European fighter program and European helicopter programs, as well as launchers and satellites, offset by lower automotive sales and the absence of the divested Austrian Industrial business. Gross margin of 24.6% in the fourth quarter decreased from 25% in the fourth quarter of 2024, principally due to sales mix. Sales increased for the A320, 787, and 737, whereas sales decreased for the A350 as a result of some lingering destocking. sales increased for the a320 787 and 737 whereas sales decreased for the a350 as a result of some lingering destocking Sales for other commercial aerospace in the fourth quarter increased 16.1% year-over-year, led by regional jets. sales for other commercial aerospace in the fourth quarter increased 16.1% year-over-year led by regional jets Defense, space, and other represented approximately 39% of fourth quarter sales and totaled $192 million, decreasing 4.3% on a constant currency basis from the same period in 2024. defense space and other represented approximately 39% of fourth quarter sales and totaled $192 million decreasing 4.3% on a constant currency basis from the same period in 2024 Sales were basically unchanged year-over-year on an organic basis. sales were basically unchanged year-over-year on an organic basis Demand was strong for a European fighter program and European helicopter programs, as well as launchers and satellites, offset by lower automotive sales and the absence of the divested Austrian Industrial business. demand was strong for a european fighter program and european helicopter programs as well as launchers and satellites offset by lower automotive sales and the absence of the divested austrian industrial business Gross margin of 24.6% in the fourth quarter decreased from 25% in the fourth quarter of 2024, principally due to sales mix. gross margin of 24.6% in the fourth quarter decreased from 25% in the fourth quarter of 2024 principally due to sales mix As a percentage of sales, operating expenses, including selling, general, and administrative expenses and R&D expenses, were 11.4% in the fourth quarter of 2025, compared to 13% in the comparable prior year period. We continue to focus on cost control, and there is leverage within our operating cost structure so that expenses should grow slower than the rate of sales growth. Adjusted operating income in the fourth quarter was $65 million or 13.3% of sales, compared to $57 million or 12.1% of sales in the comparable prior year period. In terms of foreign exchange, Hexcel benefits when the US dollar is strong. We generally sell in US dollars for commercial aerospace, yet we have a significant European presence and European cost base. As a percentage of sales, operating expenses, including selling, general, and administrative expenses and R&D expenses, were 11.4% in the fourth quarter of 2025, compared to 13% in the comparable prior year period. as a percentage of sales operating expenses including selling general and administrative expenses and r&d expenses were 11.4% in the fourth quarter of 2025 compared to 13% in the comparable prior year period We continue to focus on cost control, and there is leverage within our operating cost structure so that expenses should grow slower than the rate of sales growth. we continue to focus on cost control and there is leverage within our operating cost structure so that expenses should grow slower than the rate of sales growth Adjusted operating income in the fourth quarter was $65 million or 13.3% of sales, compared to $57 million or 12.1% of sales in the comparable prior year period. adjusted operating income in the fourth quarter was $65 million or 13.3% of sales compared to $57 million or 12.1% of sales in the comparable prior year period In terms of foreign exchange, Hexcel benefits when the US dollar is strong. in terms of foreign exchange hexcel benefits when the us dollar is strong We generally sell in US dollars for commercial aerospace, yet we have a significant European presence and European cost base. we generally sell in us dollars for commercial aerospace yet we have a significant european presence and european cost base We hedge our operating profit over a 10-quarter time horizon, so foreign exchange gains and losses are layered into the financial results over time. Foreign exchange has become a headwind as the impact of the weaker dollar is now being felt. Fourth quarter 2025 operating margins was negatively impacted by approximately 110 basis points from foreign exchange. In contrast, fourth quarter 2024 had a favorable impact of approximately 60 basis points. Now turning to our two segments. The composite materials segment represented 80% of total fourth quarter sales and generated an adjusted operating margin of 20.5%. This compares to an adjusted operating margin of 15.3% in the prior year period. We hedge our operating profit over a 10-quarter time horizon, so foreign exchange gains and losses are layered into the financial results over time. we hedge our operating profit over a 10-quarter time horizon so foreign exchange gains and losses are layered into the financial results over time Foreign exchange has become a headwind as the impact of the weaker dollar is now being felt. foreign exchange has become a headwind as the impact of the weaker dollar is now being felt Fourth quarter 2025 operating margins was negatively impacted by approximately 110 basis points from foreign exchange. fourth quarter 2025 operating margins was negatively impacted by approximately 110 basis points from foreign exchange In contrast, fourth quarter 2024 had a favorable impact of approximately 60 basis points. in contrast fourth quarter 2024 had a favorable impact of approximately 60 basis points Now turning to our two segments. now turning to our two segments The composite materials segment represented 80% of total fourth quarter sales and generated an adjusted operating margin of 20.5%. the composite materials segment represented 80% of total fourth quarter sales and generated an adjusted operating margin of 20.5% This compares to an adjusted operating margin of 15.3% in the prior year period. this compares to an adjusted operating margin of 15.3% in the prior year period The engineered products segment, which is comprised of our structures and engineered core businesses, represented 20% of total sales and generated an adjusted operating margin of 11.1%, which compares to an adjusted operating margin of 10.7% in the prior year period. For the full year of 2025, we met our updated sales and adjusted EPS guidance. The lower tax rate was supportive, contributing roughly $0.02 to adjusted EPS. The lower effective tax rate in 2025 primarily reflects the tax benefits associated with restructuring charges for the closure of the Belgium facility, which contributed roughly a 4% rate reduction. To share some further perspective on our commercial aerospace business for the full year, latest generation wide-body sales comprised about one-third of total commercial aerospace sales in 2025. The engineered products segment, which is comprised of our structures and engineered core businesses, represented 20% of total sales and generated an adjusted operating margin of 11.1%, which compares to an adjusted operating margin of 10.7% in the prior year period. the engineered products segment which is comprised of our structures and engineered core businesses represented 20% of total sales and generated an adjusted operating margin of 11.1% which compares to an adjusted operating margin of 10.7% in the prior year period For the full year of 2025, we met our updated sales and adjusted EPS guidance. for the full year of 2025 we met our updated sales and adjusted eps guidance The lower tax rate was supportive, contributing roughly $0.02 to adjusted EPS. the lower tax rate was supportive contributing roughly $0.02 to adjusted eps The lower effective tax rate in 2025 primarily reflects the tax benefits associated with restructuring charges for the closure of the Belgium facility, which contributed roughly a 4% rate reduction. the lower effective tax rate in 2025 primarily reflects the tax benefits associated with restructuring charges for the closure of the belgium facility which contributed roughly a 4% rate reduction To share some further perspective on our commercial aerospace business for the full year, latest generation wide-body sales comprised about one-third of total commercial aerospace sales in 2025. to share some further perspective on our commercial aerospace business for the full year latest generation wide-body sales comprised about one-third of total commercial aerospace sales in 2025 Narrow-body sales were also about one-third of sales, and legacy commercial aircraft were about 10%. Other commercial aerospace, including business jets and regional aircraft, accounted for the remainder at somewhat less than 25%. Shifting to full year 2025 defense, space, and other sales, approximately one-third of defense and space 2025 sales were outside of the U.S. Our international defense and space sales are predominantly from customers located in NATO-aligned countries and also include customers in India, Brazil, and South Korea. Net cash provided by operating activities in 2025 was $231 million, compared to net cash provided of $290 million in 2024. Working capital was a use of cash of $1.5 million in 2025, compared to a cash use of nearly $1 million in 2024. Narrow-body sales were also about one-third of sales, and legacy commercial aircraft were about 10%. narrow-body sales were also about one-third of sales and legacy commercial aircraft were about 10% Other commercial aerospace, including business jets and regional aircraft, accounted for the remainder at somewhat less than 25%. other commercial aerospace including business jets and regional aircraft accounted for the remainder at somewhat less than 25% Shifting to full year 2025 defense, space, and other sales, approximately one-third of defense and space 2025 sales were outside of the U.S. shifting to full year 2025 defense space and other sales approximately one-third of defense and space 2025 sales were outside of the u.s Our international defense and space sales are predominantly from customers located in NATO-aligned countries and also include customers in India, Brazil, and South Korea. our international defense and space sales are predominantly from customers located in nato-aligned countries and also include customers in india brazil and south korea Net cash provided by operating activities in 2025 was $231 million, compared to net cash provided of $290 million in 2024. net cash provided by operating activities in 2025 was $231 million compared to net cash provided of $290 million in 2024 Working capital was a use of cash of $1.5 million in 2025, compared to a cash use of nearly $1 million in 2024. working capital was a use of cash of $1.5 million in 2025 compared to a cash use of nearly $1 million in 2024 Capital expenditures on an accrual basis were $77 million in 2025, compared to $81 million in the comparable prior year period. Free cash flow in 2025 was $157 million, which compares to $233 million-$203 million in 2024. There are always a number of moving parts with working capital at year-end, and free cash flow came in below our guidance. Strong sales in December led to an end of the quarter increase in accounts receivable greater than we forecasted, combined with lower than projected payables at year-end, along with some retirement plan flows. Adjusted EBITDA totaled $346 million in 2025, compared to $382 million in 2024. Following our revolver borrowing to finance the ASR, our leverage is temporarily elevated. Capital expenditures on an accrual basis were $77 million in 2025, compared to $81 million in the comparable prior year period. capital expenditures on an accrual basis were $77 million in 2025 compared to $81 million in the comparable prior year period Free cash flow in 2025 was $157 million, which compares to $233 million-$203 million in 2024. free cash flow in 2025 was $157 million which compares to $233 million-$203 million in 2024 There are always a number of moving parts with working capital at year-end, and free cash flow came in below our guidance. there are always a number of moving parts with working capital at year-end and free cash flow came in below our guidance Strong sales in December led to an end of the quarter increase in accounts receivable greater than we forecasted, combined with lower than projected payables at year-end, along with some retirement plan flows. strong sales in december led to an end of the quarter increase in accounts receivable greater than we forecasted combined with lower than projected payables at year-end along with some retirement plan flows Adjusted EBITDA totaled $346 million in 2025, compared to $382 million in 2024. adjusted ebitda totaled $346 million in 2025 compared to $382 million in 2024 Following our revolver borrowing to finance the ASR, our leverage is temporarily elevated. following our revolver borrowing to finance the asr our leverage is temporarily elevated Leverage, defined as net debt to last twelve months Adjusted EBITDA, was just under 2.7 times at year-end 2025. As Tom said, we remain firmly committed to a disciplined financial policy to returning leverage to the targeted range of 1.5x-2x as soon as possible during 2026. The board of directors declared an $0.18 quarterly dividend yesterday, and this reflects a $0.01 or 6% increase compared to the prior dividend. The dividend is payable to stockholders of record as of February ninth, with a payment date of February seventeenth. I will conclude by sharing some additional details regarding our 2026 guidance. Leverage, defined as net debt to last twelve months Adjusted EBITDA, was just under 2.7 times at year-end 2025. leverage defined as net debt to last twelve months adjusted ebitda was just under 2.7 times at year-end 2025 As Tom said, we remain firmly committed to a disciplined financial policy to returning leverage to the targeted range of 1.5x-2x as soon as possible during 2026. as tom said we remain firmly committed to a disciplined financial policy to returning leverage to the targeted range of 1.5x-2x as soon as possible during 2026 The board of directors declared an $0.18 quarterly dividend yesterday, and this reflects a $0.01 or 6% increase compared to the prior dividend. the board of directors declared an $0.18 quarterly dividend yesterday and this reflects a $0.01 or 6% increase compared to the prior dividend The dividend is payable to stockholders of record as of February ninth, with a payment date of February seventeenth. the dividend is payable to stockholders of record as of february ninth with a payment date of february seventeenth I will conclude by sharing some additional details regarding our 2026 guidance. i will conclude by sharing some additional details regarding our 2026 guidance In terms of comparing 2026 sales guidance to our actual 2025 sales, recall that the divested industrial facility in Austria generated just under $30 million of sales in 2025, so those sales are not recurring in 2026. Further, the Leicester, U.K., facility that Tom referenced earlier generated around $15 million sales in 2025. So if the facility is closed in the first half of 2026, that will only be a partial year of sales this year. Foreign exchange will be a headwind in 2026 compared to 2025 due to the weaker dollar. We are not guiding to an expected FX impact due to the uncertainty of future rates, but as a reference, our average euro dollar rate in 2025 was 1.13. In terms of comparing 2026 sales guidance to our actual 2025 sales, recall that the divested industrial facility in Austria generated just under $30 million of sales in 2025, so those sales are not recurring in 2026. in terms of comparing 2026 sales guidance to our actual 2025 sales recall that the divested industrial facility in austria generated just under $30 million of sales in 2025 so those sales are not recurring in 2026 Further, the Leicester, U.K., facility that Tom referenced earlier generated around $15 million sales in 2025. further the leicester u.k facility that tom referenced earlier generated around $15 million sales in 2025 So if the facility is closed in the first half of 2026, that will only be a partial year of sales this year. so if the facility is closed in the first half of 2026 that will only be a partial year of sales this year Foreign exchange will be a headwind in 2026 compared to 2025 due to the weaker dollar. foreign exchange will be a headwind in 2026 compared to 2025 due to the weaker dollar We are not guiding to an expected FX impact due to the uncertainty of future rates, but as a reference, our average euro dollar rate in 2025 was 1.13. we are not guiding to an expected fx impact due to the uncertainty of future rates but as a reference our average euro dollar rate in 2025 was 1.13 FX had an approximately 10 basis points unfavorable year-over-year operating impact to operating margin in 2025. In 2024, the average EUR/USD rate was 1.08, and FX was a benefit of approximately 40 basis points year-over-year. Cash conversion should exceed 100% for a period of time, as capital expenditures remain subdued. Inventory days on hand should continue to trend lower during 2026 as we grow into our inventory levels, while even though inventory may grow modestly on a dollar basis, sales are expected to grow faster, leading to a reduction in days on hand. Then three comments regarding seasonality. Operating expenses are typically elevated in the first quarter on stock-based compensation. FX had an approximately 10 basis points unfavorable year-over-year operating impact to operating margin in 2025. fx had an approximately 10 basis points unfavorable year-over-year operating impact to operating margin in 2025 In 2024, the average EUR/USD rate was 1.08, and FX was a benefit of approximately 40 basis points year-over-year. in 2024 the average eur/usd rate was 1.08 and fx was a benefit of approximately 40 basis points year-over-year Cash conversion should exceed 100% for a period of time, as capital expenditures remain subdued. cash conversion should exceed 100% for a period of time as capital expenditures remain subdued Inventory days on hand should continue to trend lower during 2026 as we grow into our inventory levels, while even though inventory may grow modestly on a dollar basis, sales are expected to grow faster, leading to a reduction in days on hand. inventory days on hand should continue to trend lower during 2026 as we grow into our inventory levels while even though inventory may grow modestly on a dollar basis sales are expected to grow faster leading to a reduction in days on hand Then three comments regarding seasonality. then three comments regarding seasonality Operating expenses are typically elevated in the first quarter on stock-based compensation. operating expenses are typically elevated in the first quarter on stock-based compensation Third quarter sales are seasonally soft due to summer holidays, particularly impacting European sales, and the business typically uses cash in the first quarter of the year, with the strongest cash generation typically in the second half of the year. Repayment of the revolver will be a priority during the year and consistent with Tom's comment regarding our focus on deleveraging in 2026. As a result, interest expense should decrease as the year progresses, as cash is generated and used to pay the revolver. Depending on the timing of cash receipts and market rates, interest expense for 2026 is expected to be in the range of $50 million-$55 million. Lastly, we are projecting an effective tax rate of 20% for our EPS range. With that, let me turn the call back to Tom. Third quarter sales are seasonally soft due to summer holidays, particularly impacting European sales, and the business typically uses cash in the first quarter of the year, with the strongest cash generation typically in the second half of the year. third quarter sales are seasonally soft due to summer holidays particularly impacting european sales and the business typically uses cash in the first quarter of the year with the strongest cash generation typically in the second half of the year Repayment of the revolver will be a priority during the year and consistent with Tom's comment regarding our focus on deleveraging in 2026. repayment of the revolver will be a priority during the year and consistent with tom's comment regarding our focus on deleveraging in 2026 As a result, interest expense should decrease as the year progresses, as cash is generated and used to pay the revolver. as a result interest expense should decrease as the year progresses as cash is generated and used to pay the revolver Depending on the timing of cash receipts and market rates, interest expense for 2026 is expected to be in the range of $50 million-$55 million. depending on the timing of cash receipts and market rates interest expense for 2026 is expected to be in the range of $50 million-$55 million Lastly, we are projecting an effective tax rate of 20% for our EPS range. lastly we are projecting an effective tax rate of 20% for our eps range With that, let me turn the call back to Tom. with that let me turn the call back to tom

Speaker 15: Thanks, Mike. Before we move to Q&A, I want to take a moment to express our deep appreciation for Jeff Campell's leadership on Hexcel's board of directors. Jeff recently announced that after almost 23 years of service on the Hexcel board, the last seven as our lead director, he will not stand for re-election at our next annual meeting. Jeff has been an invaluable contributor to our governance and strategy for more than two decades. We are grateful for his commitment and the impact he has made on Hexcel. Looking ahead, Hexcel enters 2026 with strong momentum. Positive order trends we saw late in 2025, combined with the catalyst enabling increased commercial aircraft production and the opportunities we have in defense and space, position us well for the future. We are excited about the path ahead and confident in Hexcel's ability to deliver value for our customers and shareholders. Thanks, Mike. thanks mike Before we move to Q&A, I want to take a moment to express our deep appreciation for Jeff Campell's leadership on Hexcel's board of directors. before we move to q&a i want to take a moment to express our deep appreciation for jeff campell's leadership on hexcel's board of directors Jeff recently announced that after almost 23 years of service on the Hexcel board, the last seven as our lead director, he will not stand for re-election at our next annual meeting. jeff recently announced that after almost 23 years of service on the hexcel board the last seven as our lead director he will not stand for re-election at our next annual meeting Jeff has been an invaluable contributor to our governance and strategy for more than two decades. jeff has been an invaluable contributor to our governance and strategy for more than two decades We are grateful for his commitment and the impact he has made on Hexcel. we are grateful for his commitment and the impact he has made on hexcel Looking ahead, Hexcel enters 2026 with strong momentum. looking ahead hexcel enters 2026 with strong momentum Positive order trends we saw late in 2025, combined with the catalyst enabling increased commercial aircraft production and the opportunities we have in defense and space, position us well for the future. positive order trends we saw late in 2025 combined with the catalyst enabling increased commercial aircraft production and the opportunities we have in defense and space position us well for the future We are excited about the path ahead and confident in Hexcel's ability to deliver value for our customers and shareholders. we are excited about the path ahead and confident in hexcel's ability to deliver value for our customers and shareholders With that, Ellie, we are ready to take questions. With that, Ellie, we are ready to take questions. with that ellie we are ready to take questions

Speaker 10: We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. Please limit your questions to one question and one follow-up. Thank you. I'd now like to call Ken Herbert for our first question from RBC Capital Markets. Your line is now open. We are now opening the floor for question and answer session. we are now opening the floor for question and answer session If you'd like to ask a question, please press star followed by one on your telephone keypad. if you'd like to ask a question please press star followed by one on your telephone keypad Please limit your questions to one question and one follow-up. please limit your questions to one question and one follow-up Thank you. thank you I'd now like to call Ken Herbert for our first question from RBC Capital Markets. i'd now like to call ken herbert for our first question from rbc capital markets Your line is now open. your line is now open

Speaker 4: Yes. Hi, good morning. Thanks for the question. Maybe, Tom, just to start with the midpoint of the up 8% in revenues in the 2026 guide, can you provide any more detail on how we should think about commercial aerospace within that growth, and specifically, what the underlying assumptions are associated with the A350? Yes. yes Hi, good morning. hi good morning Thanks for the question. thanks for the question Maybe, Tom, just to start with the midpoint of the up 8% in revenues in the 2026 guide, can you provide any more detail on how we should think about commercial aerospace within that growth, and specifically, what the underlying assumptions are associated with the A350? maybe tom just to start with the midpoint of the up 8% in revenues in the 2026 guide can you provide any more detail on how we should think about commercial aerospace within that growth and specifically what the underlying assumptions are associated with the a350

Speaker 15: Right. Right, and so the 8% is a mix of course, our commercial and then the defense, space, and other. Defense, space, and other is gonna be diluted because, as Mike explained, we are, aren't gonna have the $30 million from the Austrian business, and also probably about $8 million or so from that Leicester, U.K., business that I mentioned. So, so that, that gets us to the 8%. For commercial aerospace by itself, I would describe the growth rate as low to mid double digits for next year. So we are seeing an increase. And the assumptions underlying that, because we right now are very aligned to the original equipment, commercial aerospace build rates for the OEM, Boeing and Airbus in particular. Right. right Right, and so the 8% is a mix of course, our commercial and then the defense, space, and other. right and so the 8% is a mix of course our commercial and then the defense space and other Defense, space, and other is gonna be diluted because, as Mike explained, we are, aren't gonna have the $30 million from the Austrian business, and also probably about $8 million or so from that Leicester, U.K., business that I mentioned. defense space and other is gonna be diluted because as mike explained we are aren't gonna have the $30 million from the austrian business and also probably about $8 million or so from that leicester u.k business that i mentioned So, so that, that gets us to the 8%. so so that that gets us to the 8% For commercial aerospace by itself, I would describe the growth rate as low to mid double digits for next year. for commercial aerospace by itself i would describe the growth rate as low to mid double digits for next year So we are seeing an increase. so we are seeing an increase And the assumptions underlying that, because we right now are very aligned to the original equipment, commercial aerospace build rates for the OEM, Boeing and Airbus in particular. and the assumptions underlying that because we right now are very aligned to the original equipment commercial aerospace build rates for the oem boeing and airbus in particular Primarily, the A350 is our biggest program, where we have a shipset of $4.5 million-$5 million. That's a big driver. As I said in the past, we're assuming about 80 units delivered and produced that we're gonna deliver to Airbus in 2026. That's up from the 57 that they delivered in 2025, so it's a big leap. But what we see is we do a bottom-up demand forecast, where we contact all 35 of the locations that receive material, and the 80 is a pretty good representation of what we think from the bottoms up as well as the top-down analysis. Primarily, the A350 is our biggest program, where we have a shipset of $4.5 million-$5 million. primarily the a350 is our biggest program where we have a shipset of $4.5 million-$5 million That's a big driver. that's a big driver As I said in the past, we're assuming about 80 units delivered and produced that we're gonna deliver to Airbus in 2026. as i said in the past we're assuming about 80 units delivered and produced that we're gonna deliver to airbus in 2026 That's up from the 57 that they delivered in 2025, so it's a big leap. that's up from the 57 that they delivered in 2025 so it's a big leap But what we see is we do a bottom-up demand forecast, where we contact all 35 of the locations that receive material, and the 80 is a pretty good representation of what we think from the bottoms up as well as the top-down analysis. but what we see is we do a bottom-up demand forecast where we contact all 35 of the locations that receive material and the 80 is a pretty good representation of what we think from the bottoms up as well as the top-down analysis Now, I also want to remind you that we're a material provider, so we're typically 4-6 months ahead of the OEM in terms of what our assumptions are, because we're looking that far ahead in terms of the material. So it's really our forecast is kind of a mix between the forecast for 2026 and 2027 combined. But for the A350, the underlying assumption in our plan is about 80. Now just to carry on, for the A320, as we've said before, our shipset out is between $200,000 and $500,000. On the A320, it's more toward the upper end of that range. We're assuming low to mid 700s. Now, I also want to remind you that we're a material provider, so we're typically 4-6 months ahead of the OEM in terms of what our assumptions are, because we're looking that far ahead in terms of the material. now i also want to remind you that we're a material provider so we're typically 4-6 months ahead of the oem in terms of what our assumptions are because we're looking that far ahead in terms of the material So it's really our forecast is kind of a mix between the forecast for 2026 and 2027 combined. so it's really our forecast is kind of a mix between the forecast for 2026 and 2027 combined But for the A350, the underlying assumption in our plan is about 80. but for the a350 the underlying assumption in our plan is about 80 Now just to carry on, for the A320, as we've said before, our shipset out is between $200,000 and $500,000. now just to carry on for the a320 as we've said before our shipset out is between $200,000 and $500,000 On the A320, it's more toward the upper end of that range. on the a320 it's more toward the upper end of that range We're assuming low to mid 700s. we're assuming low to mid 700s And again, remember that we're six months ahead of Airbus, so our number is gonna be a little bit higher than what they're communicating or estimating. On the MAX, we're targeting mid-400s, which we are gonna monitor closely. We saw a lot of destocking in 2025. They're getting through that, but there's probably still some lingering destocking on the 737 program, so we'll watch that, but we're expecting mid-400s. And then the 787, consistent with Boeing, what they said on their call, 90-100 is what we're assuming in our plan. So for the four major programs, those are our assumptions. And again, remember that we're six months ahead of Airbus, so our number is gonna be a little bit higher than what they're communicating or estimating. and again remember that we're six months ahead of airbus so our number is gonna be a little bit higher than what they're communicating or estimating On the MAX, we're targeting mid-400s, which we are gonna monitor closely. on the max we're targeting mid-400s which we are gonna monitor closely We saw a lot of destocking in 2025. we saw a lot of destocking in 2025 They're getting through that, but there's probably still some lingering destocking on the 737 program, so we'll watch that, but we're expecting mid-400s. they're getting through that but there's probably still some lingering destocking on the 737 program so we'll watch that but we're expecting mid-400s And then the 787, consistent with Boeing, what they said on their call, 90-100 is what we're assuming in our plan. and then the 787 consistent with boeing what they said on their call 90-100 is what we're assuming in our plan So for the four major programs, those are our assumptions. so for the four major programs those are our assumptions As I said, we're a little bit ahead of the OEMs because we're a material provider, but we've also tried to be conservative in making those assumptions as we build a plan, because we know it's been tough with the supply chain. But as I mentioned in my prepared remarks, there are four catalysts across each of those major programs that give us confidence that these build rates can now start to ramp up, and that they will hit their peak production rates in the next few years. As I said, we're a little bit ahead of the OEMs because we're a material provider, but we've also tried to be conservative in making those assumptions as we build a plan, because we know it's been tough with the supply chain. as i said we're a little bit ahead of the oems because we're a material provider but we've also tried to be conservative in making those assumptions as we build a plan because we know it's been tough with the supply chain But as I mentioned in my prepared remarks, there are four catalysts across each of those major programs that give us confidence that these build rates can now start to ramp up, and that they will hit their peak production rates in the next few years. but as i mentioned in my prepared remarks there are four catalysts across each of those major programs that give us confidence that these build rates can now start to ramp up and that they will hit their peak production rates in the next few years

Speaker 4: That's great. I appreciate all the detail, Tom. Just one quick follow-up. On the A350, you'd called out in prior quarters that you were seeing purchase order activity and customer activity that supported these rates and your expectations into 2026. Can you just comment, did that continue through the end of the fourth quarter, and what have you seen so far this year, specifically on that program, in terms of just customer purchasing activity or pull? That's great. that's great I appreciate all the detail, Tom. i appreciate all the detail tom Just one quick follow-up. just one quick follow-up On the A350, you'd called out in prior quarters that you were seeing purchase order activity and customer activity that supported these rates and your expectations into 2026. on the a350 you'd called out in prior quarters that you were seeing purchase order activity and customer activity that supported these rates and your expectations into 2026 Can you just comment, did that continue through the end of the fourth quarter, and what have you seen so far this year, specifically on that program, in terms of just customer purchasing activity or pull? can you just comment did that continue through the end of the fourth quarter and what have you seen so far this year specifically on that program in terms of just customer purchasing activity or pull

Speaker 15: Right. The purchase orders are very strong this year, in contrast to last year. And so we see. We've got good visibility on the purchase orders, firm purchase orders, all the way out through May, so five months. And so that's good. But it was this bottoms up demand management profile that I mentioned, where we, with Airbus, go out to all 35 internal Airbus plants, as well as external third-party plants, and we basically poll them on what their orders are gonna be. And so that bottoms up analysis is also giving us confidence in that 80 number that we gave. In fact, we're confident enough that we've had a number of carbon fiber lines mothballed over the past few years because production's been lower. Right. right The purchase orders are very strong this year, in contrast to last year. the purchase orders are very strong this year in contrast to last year And so we see. and so we see We've got good visibility on the purchase orders, firm purchase orders, all the way out through May, so five months. we've got good visibility on the purchase orders firm purchase orders all the way out through may so five months And so that's good. and so that's good But it was this bottoms up demand management profile that I mentioned, where we, with Airbus, go out to all 35 internal Airbus plants, as well as external third-party plants, and we basically poll them on what their orders are gonna be. but it was this bottoms up demand management profile that i mentioned where we with airbus go out to all 35 internal airbus plants as well as external third-party plants and we basically poll them on what their orders are gonna be And so that bottoms up analysis is also giving us confidence in that 80 number that we gave. and so that bottoms up analysis is also giving us confidence in that 80 number that we gave In fact, we're confident enough that we've had a number of carbon fiber lines mothballed over the past few years because production's been lower. in fact we're confident enough that we've had a number of carbon fiber lines mothballed over the past few years because production's been lower We actually brought one online earlier than expected, just so that we're prepared for the increase and even if it goes above that. So that's just to give you a little bit of color on how we built that plan and the confidence we have in the assumptions. We actually brought one online earlier than expected, just so that we're prepared for the increase and even if it goes above that. we actually brought one online earlier than expected just so that we're prepared for the increase and even if it goes above that So that's just to give you a little bit of color on how we built that plan and the confidence we have in the assumptions. so that's just to give you a little bit of color on how we built that plan and the confidence we have in the assumptions

Speaker 4: Great. Thanks a lot, Tom. Great. great Thanks a lot, Tom. thanks a lot tom

Speaker 15: Thanks, Ken. Thanks, Ken. thanks ken

Speaker 10: Your next question comes from the line of Gautam Khanna of TD Cowen. Your line is now open. Your next question comes from the line of Gautam Khanna of TD Cowen. your next question comes from the line of gautam khanna of td cowen Your line is now open. your line is now open

Speaker 1: Hey, I apologize if I missed this, but I was wondering in the fourth quarter composite segment, if you could quantify the out-of-period benefits or the one-timers. And then just, you know, one of the things we noticed last year is you had, you know, pretty high decremental margins, but the implied incrementals look to be kind of like 30, mid-30s. Wondering if, you know, what would be the case for upside, and why shouldn't we think that there could be, just given you get the leverage coming back? Hey, I apologize if I missed this, but I was wondering in the fourth quarter composite segment, if you could quantify the out-of-period benefits or the one-timers. hey i apologize if i missed this but i was wondering in the fourth quarter composite segment if you could quantify the out-of-period benefits or the one-timers And then just, you know, one of the things we noticed last year is you had, you know, pretty high decremental margins, but the implied incrementals look to be kind of like 30, mid-30s. and then just you know one of the things we noticed last year is you had you know pretty high decremental margins but the implied incrementals look to be kind of like 30 mid-30s Wondering if, you know, what would be the case for upside, and why shouldn't we think that there could be, just given you get the leverage coming back? wondering if you know what would be the case for upside and why shouldn't we think that there could be just given you get the leverage coming back

Speaker 15: Okay, let me take the incremental margin first, and I'll turn it over to Mike. You, you're right on the incremental margins. It's mid-30s, is what we're seeing based on the current plan. And the upside is really, it gets down to commercial build rates. If we see higher production rates on the A350, the A320, the 737, the 787, then we'll see upside to those incremental margins. The key point about Hexcel is we are all about operating leverage. As the production rates go up, we're going to get operating leverage. As I mentioned in my remarks, production is only 80% recovered, 87% recovered overall, and less on wide bodies. As the production gets back to pre-pandemic levels, that generates a lot of operating leverage for us, which will improve margins and our incremental margins as we go forward. Now, I'll let Mike answer the question about that. Okay, let me take the incremental margin first, and I'll turn it over to Mike. okay let me take the incremental margin first and i'll turn it over to mike You, you're right on the incremental margins. you you're right on the incremental margins It's mid-30s, is what we're seeing based on the current plan. it's mid-30s is what we're seeing based on the current plan And the upside is really, it gets down to commercial build rates. and the upside is really it gets down to commercial build rates If we see higher production rates on the A350, the A320, the 737, the 787, then we'll see upside to those incremental margins. if we see higher production rates on the a350 the a320 the 737 the 787 then we'll see upside to those incremental margins The key point about Hexcel is we are all about operating leverage. the key point about hexcel is we are all about operating leverage As the production rates go up, we're going to get operating leverage. as the production rates go up we're going to get operating leverage As I mentioned in my remarks, production is only 80% recovered, 87% recovered overall, and less on wide bodies. as i mentioned in my remarks production is only 80% recovered 87% recovered overall and less on wide bodies As the production gets back to pre-pandemic levels, that generates a lot of operating leverage for us, which will improve margins and our incremental margins as we go forward. as the production gets back to pre-pandemic levels that generates a lot of operating leverage for us which will improve margins and our incremental margins as we go forward Now, I'll let Mike answer the question about that. now i'll let mike answer the question about that

Speaker 8: Yeah, so the adjusted operating margin in the fourth quarter for composite materials, that was 20.5%, was the margin. We can follow up if you need more specifics about what numbers plug there to get to that margin, but that is the adjusted one. The table, as you know, that's a GAAP number. Yeah, so the adjusted operating margin in the fourth quarter for composite materials, that was 20.5%, was the margin. yeah so the adjusted operating margin in the fourth quarter for composite materials that was 20.5% was the margin We can follow up if you need more specifics about what numbers plug there to get to that margin, but that is the adjusted one. we can follow up if you need more specifics about what numbers plug there to get to that margin but that is the adjusted one The table, as you know, that's a GAAP number. the table as you know that's a gaap number

Speaker 1: Thank you. Thank you. thank you

Speaker 15: Thanks, Gautam. Thanks, Gautam. thanks gautam

Speaker 10: The next question comes from the line of Gavin Parsons of UBS. Your line is now open. The next question comes from the line of Gavin Parsons of UBS. the next question comes from the line of gavin parsons of ubs Your line is now open. your line is now open

Speaker 2: Thank you. Good morning. Thank you. thank you Good morning. good morning

Speaker 15: Morning. Morning. morning

Speaker 2: I'd love to just go back to the incremental conversation. Could we have a little bit more color around maybe fixed versus variable costs? Just kind of aligning your hiring expenses, your utilization to your revenue. Just how do we think about some of the pieces underlying incremental schedule? I'd love to just go back to the incremental conversation. i'd love to just go back to the incremental conversation Could we have a little bit more color around maybe fixed versus variable costs? could we have a little bit more color around maybe fixed versus variable costs Just kind of aligning your hiring expenses, your utilization to your revenue. just kind of aligning your hiring expenses your utilization to your revenue Just how do we think about some of the pieces underlying incremental schedule? just how do we think about some of the pieces underlying incremental schedule

Speaker 15: Right. Well, we're managing cost overall in the corporate area. You saw G&A, it was lower than last year, so we held the line, a lot of belt-tightening on things like professional fees and headcount and T&L and things like that. The other thing that we've done is, as we said, in terms of cost, we fixed costs in the factories. Now, this is, in some of the labor, the direct labor is variable costs, but we've had a hiring freeze on. We also let attrition go down because the volume wasn't there. We didn't need all the people, so we did let attrition go down. Right. right Well, we're managing cost overall in the corporate area. well we're managing cost overall in the corporate area You saw G&A, it was lower than last year, so we held the line, a lot of belt-tightening on things like professional fees and headcount and T&L and things like that. you saw g&a it was lower than last year so we held the line a lot of belt-tightening on things like professional fees and headcount and t&l and things like that The other thing that we've done is, as we said, in terms of cost, we fixed costs in the factories. the other thing that we've done is as we said in terms of cost we fixed costs in the factories Now, this is, in some of the labor, the direct labor is variable costs, but we've had a hiring freeze on. now this is in some of the labor the direct labor is variable costs but we've had a hiring freeze on We also let attrition go down because the volume wasn't there. we also let attrition go down because the volume wasn't there We didn't need all the people, so we did let attrition go down. we didn't need all the people so we did let attrition go down We had a couple of small staff reductions, and so we ended the year with 330 headcount below where we ended 2024, and it was way below our original plan for 2025. We're keeping that low level of headcount going into 2026. We're only going to start to hire as we see evidence that those rates are coming up. We're starting to see it on the A350, which is why we started up that new carbon fiber line a little bit early. But other than that, we're going to wait until midyear before we start any increased hiring. That's how we're going to manage some of the fixed and variable costs as we go into 2026. We had a couple of small staff reductions, and so we ended the year with 330 headcount below where we ended 2024, and it was way below our original plan for 2025. we had a couple of small staff reductions and so we ended the year with 330 headcount below where we ended 2024 and it was way below our original plan for 2025 We're keeping that low level of headcount going into 2026. we're keeping that low level of headcount going into 2026 We're only going to start to hire as we see evidence that those rates are coming up. we're only going to start to hire as we see evidence that those rates are coming up We're starting to see it on the A350, which is why we started up that new carbon fiber line a little bit early. we're starting to see it on the a350 which is why we started up that new carbon fiber line a little bit early But other than that, we're going to wait until midyear before we start any increased hiring. but other than that we're going to wait until midyear before we start any increased hiring That's how we're going to manage some of the fixed and variable costs as we go into 2026. that's how we're going to manage some of the fixed and variable costs as we go into 2026

Speaker 2: Then on A350, will you go up at the same rate as Airbus? Will you be leading them on that typical 4-6-month time frame? How do we think about the time frame? Then on A350, will you go up at the same rate as Airbus? then on a350 will you go up at the same rate as airbus Will you be leading them on that typical 4-6-month time frame? will you be leading them on that typical 4-6-month time frame How do we think about the time frame? how do we think about the time frame

Speaker 15: We're, as I said, a little bit ahead of them, but we're more in lockstep. There was a lot of destocking last year, but as we get into fourth quarter and we got into December in particular, we saw that kind of normalizing and, you know, shipping to them at, you know, at close to their delivery rate. So we expect that to continue throughout 2026, and we'll go up with them. We'll be a little bit ahead, as I said, so our rates are generally a little bit ahead of them. But as I said, we're protecting more on the upside, and that's why we started up that extra carbon fiber line, because the initial bottoms-up forecast is probably a little bit higher than our underlying assumptions, and we want to be ready. We're, as I said, a little bit ahead of them, but we're more in lockstep. we're as i said a little bit ahead of them but we're more in lockstep There was a lot of destocking last year, but as we get into fourth quarter and we got into December in particular, we saw that kind of normalizing and, you know, shipping to them at, you know, at close to their delivery rate. there was a lot of destocking last year but as we get into fourth quarter and we got into december in particular we saw that kind of normalizing and you know shipping to them at you know at close to their delivery rate So we expect that to continue throughout 2026, and we'll go up with them. so we expect that to continue throughout 2026 and we'll go up with them We'll be a little bit ahead, as I said, so our rates are generally a little bit ahead of them. we'll be a little bit ahead as i said so our rates are generally a little bit ahead of them But as I said, we're protecting more on the upside, and that's why we started up that extra carbon fiber line, because the initial bottoms-up forecast is probably a little bit higher than our underlying assumptions, and we want to be ready. but as i said we're protecting more on the upside and that's why we started up that extra carbon fiber line because the initial bottoms-up forecast is probably a little bit higher than our underlying assumptions and we want to be ready We just don't want to miss. As you know, there have been a lot of companies called out for being behind on production rates for Boeing and Airbus. We don't want to be one of them. We haven't been. We've always been a very good supplier in terms of on-time delivery and quality, and we intend to remain that way. We just don't want to miss. we just don't want to miss As you know, there have been a lot of companies called out for being behind on production rates for Boeing and Airbus. as you know there have been a lot of companies called out for being behind on production rates for boeing and airbus We don't want to be one of them. we don't want to be one of them We haven't been. we haven't been We've always been a very good supplier in terms of on-time delivery and quality, and we intend to remain that way. we've always been a very good supplier in terms of on-time delivery and quality and we intend to remain that way

Speaker 2: Thanks, Tom. Appreciate it. Thanks, Tom. thanks tom Appreciate it. appreciate it

Speaker 15: Welcome. Welcome. welcome

Speaker 10: Your next question comes from the line of John McNulty of BMO Capital Markets. Your line is now open. Your next question comes from the line of John McNulty of BMO Capital Markets. your next question comes from the line of john mcnulty of bmo capital markets Your line is now open. your line is now open

Speaker 3: Yeah, thanks for taking my question. Maybe just fleshing out a little bit more about how to think about incremental margins going forward. It looks like based on the revenue outlook that you've laid out, you're kind of calling for somewhere, you know, around a 30% incremental margin, which is definitely kind of lower than what we saw in 4Q. And I would imagine, just given that you are really feeling some demand pull, and you've got kind of the assets and the people in place, I would think it should be maybe a little bit north of that. So I guess, how should we be thinking about what's embedded in the guide at this point? Yeah, thanks for taking my question. yeah thanks for taking my question Maybe just fleshing out a little bit more about how to think about incremental margins going forward. maybe just fleshing out a little bit more about how to think about incremental margins going forward It looks like based on the revenue outlook that you've laid out, you're kind of calling for somewhere, you know, around a 30% incremental margin, which is definitely kind of lower than what we saw in 4Q. it looks like based on the revenue outlook that you've laid out you're kind of calling for somewhere you know around a 30% incremental margin which is definitely kind of lower than what we saw in 4q And I would imagine, just given that you are really feeling some demand pull, and you've got kind of the assets and the people in place, I would think it should be maybe a little bit north of that. and i would imagine just given that you are really feeling some demand pull and you've got kind of the assets and the people in place i would think it should be maybe a little bit north of that So I guess, how should we be thinking about what's embedded in the guide at this point? so i guess how should we be thinking about what's embedded in the guide at this point

Speaker 15: Right. Well, I guess if you took the midpoint and you add it back, it would be in kind of the low 30s%. You know, we, we think it could be a little bit better. That's why I say mid-30s%. But, and it's for the reasons that I mentioned, it's for us, it's about operating leverage. We've been so under capacity the last six years, really since the pandemic began, that we're not able to basically allocate all of the fixed costs and depreciation from the assets that we put in place to go up in rate. As we start being able to absorb all of that depreciation, because the volume's going up, it's going to lead to operating leverage, which will drive margins faster than revenue growth, and that will create the positive incremental margins. Right. right Well, I guess if you took the midpoint and you add it back, it would be in kind of the low 30s%. well i guess if you took the midpoint and you add it back it would be in kind of the low 30s% You know, we, we think it could be a little bit better. you know we we think it could be a little bit better That's why I say mid-30s%. that's why i say mid-30s% But, and it's for the reasons that I mentioned, it's for us, it's about operating leverage. but and it's for the reasons that i mentioned it's for us it's about operating leverage We've been so under capacity the last six years, really since the pandemic began, that we're not able to basically allocate all of the fixed costs and depreciation from the assets that we put in place to go up in rate. we've been so under capacity the last six years really since the pandemic began that we're not able to basically allocate all of the fixed costs and depreciation from the assets that we put in place to go up in rate As we start being able to absorb all of that depreciation, because the volume's going up, it's going to lead to operating leverage, which will drive margins faster than revenue growth, and that will create the positive incremental margins. as we start being able to absorb all of that depreciation because the volume's going up it's going to lead to operating leverage which will drive margins faster than revenue growth and that will create the positive incremental margins So I think the mid guides, I would say, are probably low mid thirties, you know, low 30s, but I said I'm comfortable with saying mid-thirties on incremental margins for 2026. So I think the mid guides, I would say, are probably low mid thirties, you know, low 30s, but I said I'm comfortable with saying mid-thirties on incremental margins for 2026. so i think the mid guides i would say are probably low mid thirties you know low 30s but i said i'm comfortable with saying mid-thirties on incremental margins for 2026

Speaker 3: Got it. Okay, fair enough. And then just as a follow-up or quick question, so you just got finished with a big ASR, so I understand you've already put a lot of capital behind the stock. I guess as we look to 2026, it sounds like debt reduction is kind of the first priority, just getting leverage back to where you want it to be, which seems like that should be pretty quick. Should we expect further cash going into buybacks as we look into 2026? How should we be thinking about that? Got it. got it Okay, fair enough. okay fair enough And then just as a follow-up or quick question, so you just got finished with a big ASR, so I understand you've already put a lot of capital behind the stock. and then just as a follow-up or quick question so you just got finished with a big asr so i understand you've already put a lot of capital behind the stock I guess as we look to 2026, it sounds like debt reduction is kind of the first priority, just getting leverage back to where you want it to be, which seems like that should be pretty quick. i guess as we look to 2026 it sounds like debt reduction is kind of the first priority just getting leverage back to where you want it to be which seems like that should be pretty quick Should we expect further cash going into buybacks as we look into 2026? should we expect further cash going into buybacks as we look into 2026 How should we be thinking about that? how should we be thinking about that

Speaker 15: Well, I just go back to last year when we did the ASR, we did a $600 million share purchase reauthorization. And so we had 134 on a previous authorization. We added 600, we took out 350, so we still have 384 left. We want to get back down to our target leverage ratio, but after that, we will certainly look at continued share repurchase. But the first goal is to get down, and we expect to be down to less than two by the end of the year. Well, I just go back to last year when we did the ASR, we did a $600 million share purchase reauthorization. well i just go back to last year when we did the asr we did a $600 million share purchase reauthorization And so we had 134 on a previous authorization. and so we had 134 on a previous authorization We added 600, we took out 350, so we still have 384 left. we added 600 we took out 350 so we still have 384 left We want to get back down to our target leverage ratio, but after that, we will certainly look at continued share repurchase. we want to get back down to our target leverage ratio but after that we will certainly look at continued share repurchase But the first goal is to get down, and we expect to be down to less than two by the end of the year. but the first goal is to get down and we expect to be down to less than two by the end of the year

Speaker 3: Got it. Thanks very much for the color. Got it. got it Thanks very much for the color. thanks very much for the color

Speaker 15: Thank you. Thank you. thank you

Speaker 10: Your next question comes from the line of Scott Mikus of Melius Research. Your line is now open. Your next question comes from the line of Scott Mikus of Melius Research. your next question comes from the line of scott mikus of melius research Your line is now open. your line is now open

Speaker 13: Morning, Tom and Mike. I just wanted to ask kind of on the incremental margins as well, just does the guidance range kind of contemplate any higher cost to de-mothball additional carbon fiber lines if Boeing and Airbus actually exceed the A350 and 787 production rate targets that you have baked into the guide? And then some of the other puts and takes, I mean, can you quantify the year-over-year tailwind to operating income from closing the Austrian and Leicester facilities? And is there an additional tailwind from the ERP implementation that you did in 2025 that won't repeat in 2026? Morning, Tom and Mike. morning tom and mike I just wanted to ask kind of on the incremental margins as well, just does the guidance range kind of contemplate any higher cost to de-mothball additional carbon fiber lines if Boeing and Airbus actually exceed the A350 and 787 production rate targets that you have baked into the guide? i just wanted to ask kind of on the incremental margins as well just does the guidance range kind of contemplate any higher cost to de-mothball additional carbon fiber lines if boeing and airbus actually exceed the a350 and 787 production rate targets that you have baked into the guide And then some of the other puts and takes, I mean, can you quantify the year-over-year tailwind to operating income from closing the Austrian and Leicester facilities? and then some of the other puts and takes i mean can you quantify the year-over-year tailwind to operating income from closing the austrian and leicester facilities And is there an additional tailwind from the ERP implementation that you did in 2025 that won't repeat in 2026? and is there an additional tailwind from the erp implementation that you did in 2025 that won't repeat in 2026

Speaker 15: Okay, let me talk about the mothball costs. We've built in all the costs into the plan required as we bring new capacity online, so we don't expect any incremental. And it's but taking those lines out is not that big of a deal. It's really about just going and hiring the people. So those costs are all incorporated into our plan and our outlook. In terms of the... Your second question was on the operating income to close all of the different assets. Okay, that's all incorporated. Okay, let me talk about the mothball costs. okay let me talk about the mothball costs We've built in all the costs into the plan required as we bring new capacity online, so we don't expect any incremental. we've built in all the costs into the plan required as we bring new capacity online so we don't expect any incremental And it's but taking those lines out is not that big of a deal. and it's but taking those lines out is not that big of a deal It's really about just going and hiring the people. it's really about just going and hiring the people So those costs are all incorporated into our plan and our outlook. so those costs are all incorporated into our plan and our outlook In terms of the... in terms of the Your second question was on the operating income to close all of the different assets. your second question was on the operating income to close all of the different assets Okay, that's all incorporated. okay that's all incorporated

Speaker 8: Yes. Yes. yes

Speaker 15: On the ERP, let me just be clear. The ERP, there was some costs in 2025. There's some additional costs in 2026 as we implement it. It's just incorporated into our numbers. We're probably about halfway through the overall implementation. We expect to get most of it done in 2026, maybe a little bit in 2027, but it's not, it's not material in terms of our overall numbers, so we're not highlighting it. It's just incorporated into our SG&A. On the ERP, let me just be clear. on the erp let me just be clear The ERP, there was some costs in 2025. the erp there was some costs in 2025 There's some additional costs in 2026 as we implement it. there's some additional costs in 2026 as we implement it It's just incorporated into our numbers. it's just incorporated into our numbers We're probably about halfway through the overall implementation. we're probably about halfway through the overall implementation We expect to get most of it done in 2026, maybe a little bit in 2027, but it's not, it's not material in terms of our overall numbers, so we're not highlighting it. we expect to get most of it done in 2026 maybe a little bit in 2027 but it's not it's not material in terms of our overall numbers so we're not highlighting it It's just incorporated into our SG&A. it's just incorporated into our sg&a

Speaker 8: It's roughly flattish, if you think about it for the ERP, but we're rolling out a greater number in 2026 than we did in 2025. So as Tom said, we're pushing to get through that, but likely the early 2027. It's roughly flattish, if you think about it for the ERP, but we're rolling out a greater number in 2026 than we did in 2025. it's roughly flattish if you think about it for the erp but we're rolling out a greater number in 2026 than we did in 2025 So as Tom said, we're pushing to get through that, but likely the early 2027. so as tom said we're pushing to get through that but likely the early 2027

Speaker 15: Yeah. But, but the overall focus is we are gonna continue very strong, disciplined management of all of our costs so that we can continue to drive margins, which will obviously contribute to the incremental margin. Yeah. yeah But, but the overall focus is we are gonna continue very strong, disciplined management of all of our costs so that we can continue to drive margins, which will obviously contribute to the incremental margin. but but the overall focus is we are gonna continue very strong disciplined management of all of our costs so that we can continue to drive margins which will obviously contribute to the incremental margin

Speaker 13: Okay. Just to clarify, were the Austrian and Leicester facilities, were they EBIT negative in 2025? Okay. okay Just to clarify, were the Austrian and Leicester facilities, were they EBIT negative in 2025? just to clarify were the austrian and leicester facilities were they ebit negative in 2025

Speaker 15: It was immaterial, in terms of, you know, close to breakeven, maybe even a little negative. So, not material. And so, as we've said, we closed those. They were basically non-core operations, and this was all part of streamlining the portfolio so that we can be more focused and productive as we go forward. And so, both of those, plus closing the Belgian facility and selling our Hartford facility, all contribute to that. It's about lowering costs and being more productive. We won't see the full impact of that. We'll see some of it this year. We'll see all of it on a full year basis next year. It was immaterial, in terms of, you know, close to breakeven, maybe even a little negative. it was immaterial in terms of you know close to breakeven maybe even a little negative So, not material. so not material And so, as we've said, we closed those. and so as we've said we closed those They were basically non-core operations, and this was all part of streamlining the portfolio so that we can be more focused and productive as we go forward. they were basically non-core operations and this was all part of streamlining the portfolio so that we can be more focused and productive as we go forward And so, both of those, plus closing the Belgian facility and selling our Hartford facility, all contribute to that. and so both of those plus closing the belgian facility and selling our hartford facility all contribute to that It's about lowering costs and being more productive. it's about lowering costs and being more productive We won't see the full impact of that. we won't see the full impact of that We'll see some of it this year. we'll see some of it this year We'll see all of it on a full year basis next year. we'll see all of it on a full year basis next year

Speaker 13: Okay, got it. Thank you. Okay, got it. okay got it Thank you. thank you

Speaker 15: Thanks. Thanks. thanks

Speaker 10: Your next question comes from the line of Michael Ciarmoli of Truist Securities. Your line is now open. Your next question comes from the line of Michael Ciarmoli of Truist Securities. your next question comes from the line of michael ciarmoli of truist securities Your line is now open. your line is now open

Speaker 7: Hey, morning, guys. Thanks for taking the question. Tom, I think I missed it. Did you guys give, in terms of the revenue guidance, did you give a breakdown or a split by the end market in terms of, what we should expect this year between commercial aero and, space and defense? And then just any update on sort of the price-cost equations? You know, I know, some of the main material inputs, you know, notably, acrylonitrile, some of those, you know, prices could be coming down. I know you've got the hedging strategy, but any general update there as well on how that may impact margins as we're kind of talking about this incremental margin? Hey, morning, guys. hey morning guys Thanks for taking the question. thanks for taking the question Tom, I think I missed it. tom i think i missed it Did you guys give, in terms of the revenue guidance, did you give a breakdown or a split by the end market in terms of, what we should expect this year between commercial aero and, space and defense? did you guys give in terms of the revenue guidance did you give a breakdown or a split by the end market in terms of what we should expect this year between commercial aero and space and defense And then just any update on sort of the price-cost equations? and then just any update on sort of the price-cost equations You know, I know, some of the main material inputs, you know, notably, acrylonitrile, some of those, you know, prices could be coming down. you know i know some of the main material inputs you know notably acrylonitrile some of those you know prices could be coming down I know you've got the hedging strategy, but any general update there as well on how that may impact margins as we're kind of talking about this incremental margin? i know you've got the hedging strategy but any general update there as well on how that may impact margins as we're kind of talking about this incremental margin

Speaker 15: Right. Okay, so on revenue guidance for 2026, what I said is commercial will be low to mid double digits. Defense will be low to mid single digits growth, defense on its own, defense and space on its own. Because the defense space and other is gonna be, you know, flat to slightly negative because of the $30 million from the Austrian facility, plus the $8 million or $9 million or so from the Leicester facility. But defense by itself will be, say, low to mid double digits, and commercial will be low to mid double... Excuse me, defense is low to mid single digits, and commercial aerospace will be low to mid double digits growth for 2026. Right. right Okay, so on revenue guidance for 2026, what I said is commercial will be low to mid double digits. okay so on revenue guidance for 2026 what i said is commercial will be low to mid double digits Defense will be low to mid single digits growth, defense on its own, defense and space on its own. defense will be low to mid single digits growth defense on its own defense and space on its own Because the defense space and other is gonna be, you know, flat to slightly negative because of the $30 million from the Austrian facility, plus the $8 million or $9 million or so from the Leicester facility. because the defense space and other is gonna be you know flat to slightly negative because of the $30 million from the austrian facility plus the $8 million or $9 million or so from the leicester facility But defense by itself will be, say, low to mid double digits, and commercial will be low to mid double... but defense by itself will be say low to mid double digits and commercial will be low to mid double Excuse me, defense is low to mid single digits, and commercial aerospace will be low to mid double digits growth for 2026. excuse me defense is low to mid single digits and commercial aerospace will be low to mid double digits growth for 2026 On the price-cost equation, AN, acrylonitrile, is the basic raw material that we use to make the carbon fiber. It's essentially a petroleum byproduct, but we hedge propylene. So it is, it's a fairly volatile price over the years. It is down right now, but we hedge it, so we smooth it out over the years, so we don't expect variation on that because we have a very strong hedging program on that. The other thing I will mention is that, you know, we talk about margins a lot. As production rates go up, and as we get to the target peak production rates across all the programs for Boeing and Airbus, that's gonna generate, as I said, $500 million of incremental revenue per year. On the price-cost equation, AN, acrylonitrile, is the basic raw material that we use to make the carbon fiber. on the price-cost equation an acrylonitrile is the basic raw material that we use to make the carbon fiber It's essentially a petroleum byproduct, but we hedge propylene. it's essentially a petroleum byproduct but we hedge propylene So it is, it's a fairly volatile price over the years. so it is it's a fairly volatile price over the years It is down right now, but we hedge it, so we smooth it out over the years, so we don't expect variation on that because we have a very strong hedging program on that. it is down right now but we hedge it so we smooth it out over the years so we don't expect variation on that because we have a very strong hedging program on that The other thing I will mention is that, you know, we talk about margins a lot. the other thing i will mention is that you know we talk about margins a lot As production rates go up, and as we get to the target peak production rates across all the programs for Boeing and Airbus, that's gonna generate, as I said, $500 million of incremental revenue per year. as production rates go up and as we get to the target peak production rates across all the programs for boeing and airbus that's gonna generate as i said $500 million of incremental revenue per year Then on top of that, we have a couple hundred million dollars of increase in defense and regional jets and business jets. The combination of all of that gives us a path back to 18% margins before the end of the decade. So we are always working on pricing, as contracts come up, and so we'll continue to do that. But along with the operating leverage and the productivity initiative, we do have a path back to the 18% margins for the end of the decade as, as the OEMs achieve their peak production rates across all the different programs. Then on top of that, we have a couple hundred million dollars of increase in defense and regional jets and business jets. then on top of that we have a couple hundred million dollars of increase in defense and regional jets and business jets The combination of all of that gives us a path back to 18% margins before the end of the decade. the combination of all of that gives us a path back to 18% margins before the end of the decade So we are always working on pricing, as contracts come up, and so we'll continue to do that. so we are always working on pricing as contracts come up and so we'll continue to do that But along with the operating leverage and the productivity initiative, we do have a path back to the 18% margins for the end of the decade as, as the OEMs achieve their peak production rates across all the different programs. but along with the operating leverage and the productivity initiative we do have a path back to the 18% margins for the end of the decade as as the oems achieve their peak production rates across all the different programs

Speaker 7: Great. Thanks, guys. Great. great Thanks, guys. thanks guys

Speaker 10: Your next question comes from the line of Myles Walton of Wolfe Research. Your line is now open. Your next question comes from the line of Myles Walton of Wolfe Research. your next question comes from the line of myles walton of wolfe research Your line is now open. your line is now open

Speaker 9: Thanks. Good morning. Mike, I just wanted to follow up on the margins in composite materials. I understand that the press release is 20.5%, but that number is enormously greater than what you've ever done in the last several years, and even back pre-COVID. You know, you'd have to have 10 higher volumes. So was there anything in there that was non-normal? I understand it might not be non-GAAP one-timer, but anything non-normal in that margin? Thanks. thanks Good morning. good morning Mike, I just wanted to follow up on the margins in composite materials. mike i just wanted to follow up on the margins in composite materials I understand that the press release is 20.5%, but that number is enormously greater than what you've ever done in the last several years, and even back pre-COVID. i understand that the press release is 20.5% but that number is enormously greater than what you've ever done in the last several years and even back pre-covid You know, you'd have to have 10 higher volumes. you know you'd have to have 10 higher volumes So was there anything in there that was non-normal? so was there anything in there that was non-normal I understand it might not be non-GAAP one-timer, but anything non-normal in that margin? i understand it might not be non-gaap one-timer but anything non-normal in that margin

Speaker 8: No, there was nothing specifically unique for the—in terms of any one-timers there. Again, you know, we had a pretty very solid cost control here at the end of the quarter, you know, and so that certainly contributed to that. No, there was nothing specifically unique for the—in terms of any one-timers there. no there was nothing specifically unique for the—in terms of any one-timers there Again, you know, we had a pretty very solid cost control here at the end of the quarter, you know, and so that certainly contributed to that. again you know we had a pretty very solid cost control here at the end of the quarter you know and so that certainly contributed to that

Speaker 15: Well, I think another thing that contributed was compensation. In other words, our incentive compensation didn't pay out at target because 2025 was a fairly light year for all the reasons that we mentioned. But unfortunately, that resulted, unfortunately for the management team, in lower payout on compensation, and that contributed to the margin, and particularly in fourth quarter, because that's when those costs- Well, I think another thing that contributed was compensation. well i think another thing that contributed was compensation In other words, our incentive compensation didn't pay out at target because 2025 was a fairly light year for all the reasons that we mentioned. in other words our incentive compensation didn't pay out at target because 2025 was a fairly light year for all the reasons that we mentioned But unfortunately, that resulted, unfortunately for the management team, in lower payout on compensation, and that contributed to the margin, and particularly in fourth quarter, because that's when those costs- but unfortunately that resulted unfortunately for the management team in lower payout on compensation and that contributed to the margin and particularly in fourth quarter because that's when those costs-

Speaker 8: Yeah, the biggest, the biggest true up is in the fourth quarter because you true it up for the full year in Q4. Yeah, the biggest, the biggest true up is in the fourth quarter because you true it up for the full year in Q4. yeah the biggest the biggest true up is in the fourth quarter because you true it up for the full year in q4

Speaker 9: Got it. So it's a reversal of accruals through the course of the year. What was the size of that reversal? Got it. got it So it's a reversal of accruals through the course of the year. so it's a reversal of accruals through the course of the year What was the size of that reversal? what was the size of that reversal

Speaker 15: I don't think it's we haven't revealed it, so I'd rather not just go into that right now. But it was obviously fairly sizable because the year we just didn't hit the target. The other thing in this year's numbers that wasn't in last year, you recall last year, I succeeded Nick. We had duplicate expenses at the CEO level for the back half of last year. Obviously, that didn't repeat this year, so that was also a contributor. And then, as Mike said, just a lot of cost control on SG&A, travel, professional fees, headcount, all the normal levers, we continue to focus on it. I don't think it's we haven't revealed it, so I'd rather not just go into that right now. i don't think it's we haven't revealed it so i'd rather not just go into that right now But it was obviously fairly sizable because the year we just didn't hit the target. but it was obviously fairly sizable because the year we just didn't hit the target The other thing in this year's numbers that wasn't in last year, you recall last year, I succeeded Nick. the other thing in this year's numbers that wasn't in last year you recall last year i succeeded nick We had duplicate expenses at the CEO level for the back half of last year. we had duplicate expenses at the ceo level for the back half of last year Obviously, that didn't repeat this year, so that was also a contributor. obviously that didn't repeat this year so that was also a contributor And then, as Mike said, just a lot of cost control on SG&A, travel, professional fees, headcount, all the normal levers, we continue to focus on it. and then as mike said just a lot of cost control on sg&a travel professional fees headcount all the normal levers we continue to focus on it

Speaker 9: Okay. And a longer-term question, Airbus, one of their heads of commercial, their new head of commercial, talked about the new plane likely not having a composite fuselage, but, but obviously having a composite wing. Can you just landscape us, if you mapped an A320 to a new plane without a composite fuselage, but with a composite wing, what the shipset scaling would look like? Okay. okay And a longer-term question, Airbus, one of their heads of commercial, their new head of commercial, talked about the new plane likely not having a composite fuselage, but, but obviously having a composite wing. and a longer-term question airbus one of their heads of commercial their new head of commercial talked about the new plane likely not having a composite fuselage but but obviously having a composite wing Can you just landscape us, if you mapped an A320 to a new plane without a composite fuselage, but with a composite wing, what the shipset scaling would look like? can you just landscape us if you mapped an a320 to a new plane without a composite fuselage but with a composite wing what the shipset scaling would look like

Speaker 15: Right. Well, first of all, I still think that the jury's out on the fuselage because you get lighter weight, better fuel performance, and you also get less maintenance. So that's something I think that the OEMs will continue to take into account. But right now, the A320 and the MAX are about 15% carbon fiber composite. We've said that our shipset value on that is $200,000-$500,000. On the A320, it's close to the upper end of that range, so call it $500,000. If you put a wing on the next narrow-body, that'll take the 15%-30%. So double the $500,000 to $1 million per shipset at 75 per month, it's a lot of carbon fiber. Right. right Well, first of all, I still think that the jury's out on the fuselage because you get lighter weight, better fuel performance, and you also get less maintenance. well first of all i still think that the jury's out on the fuselage because you get lighter weight better fuel performance and you also get less maintenance So that's something I think that the OEMs will continue to take into account. so that's something i think that the oems will continue to take into account But right now, the A320 and the MAX are about 15% carbon fiber composite. but right now the a320 and the max are about 15% carbon fiber composite We've said that our shipset value on that is $200,000-$500,000. we've said that our shipset value on that is $200,000-$500,000 On the A320, it's close to the upper end of that range, so call it $500,000. on the a320 it's close to the upper end of that range so call it $500,000 If you put a wing on the next narrow- body, that'll take the 15%- 30%. if you put a wing on the next narrow- body that'll take the 15%- 30% So double the $500,000 to $1 million per shipset at 75 per month, it's a lot of carbon fiber. so double the $500,000 to $1 million per shipset at 75 per month it's a lot of carbon fiber The other thing is the fuselage would probably take the 30% up to 50%, and so that's also a possibility. And so that, at that point, you would take the 30%-50%, the $1 million per shipset probably goes to $1.5 million-$2 million per shipset at 75 aircraft per month. So that just gives you a thought process on it. Now, the wing, for sure, 100% will be carbon fiber because the characteristics of the wing, improve lift, drag ratio, increase range, reduce fuel consumption. So that's not a consideration anymore. There is still a lot of discussion on the fuselage. Of course, we're advocating for it. I think there's a lot of strong arguments for it. The other thing is the fuselage would probably take the 30% up to 50%, and so that's also a possibility. the other thing is the fuselage would probably take the 30% up to 50% and so that's also a possibility And so that, at that point, you would take the 30% - 50%, the $1 million per shipset probably goes to $1.5 million-$2 million per shipset at 75 aircraft per month. and so that at that point you would take the 30% - 50% the $1 million per shipset probably goes to $1.5 million-$2 million per shipset at 75 aircraft per month So that just gives you a thought process on it. so that just gives you a thought process on it Now, the wing, for sure, 100% will be carbon fiber because the characteristics of the wing, improve lift, drag ratio, increase range, reduce fuel consumption. now the wing for sure 100% will be carbon fiber because the characteristics of the wing improve lift drag ratio increase range reduce fuel consumption So that's not a consideration anymore. so that's not a consideration anymore There is still a lot of discussion on the fuselage. there is still a lot of discussion on the fuselage Of course, we're advocating for it. of course we're advocating for it I think there's a lot of strong arguments for it. i think there's a lot of strong arguments for it It's all about reducing the cost, improving the time, and reducing the capital required to produce it, and all of those things I think are in the works. There's lots of pilots going on. We'll continue to make the case, but if it is a fuselage, that takes up to 50% and about $2 million per shipset on the narrow-body. It's all about reducing the cost, improving the time, and reducing the capital required to produce it, and all of those things I think are in the works. it's all about reducing the cost improving the time and reducing the capital required to produce it and all of those things i think are in the works There's lots of pilots going on. there's lots of pilots going on We'll continue to make the case, but if it is a fuselage, that takes up to 50% and about $2 million per shipset on the narrow-body. we'll continue to make the case but if it is a fuselage that takes up to 50% and about $2 million per shipset on the narrow-body

Speaker 9: Perfect. Thanks, Tom. Perfect. perfect Thanks, Tom. thanks tom

Speaker 15: You're welcome. You're welcome. you're welcome

Speaker 10: Your next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is now open. Your next question comes from the line of Scott Deuschle of Deutsche Bank. your next question comes from the line of scott deuschle of deutsche bank Your line is now open. your line is now open

Speaker 12: Hey, good morning. Just one question. Tom, this business, Seemann Composites, was recently purchased by another public company, but it seems like something that would have been a good strategic fit for Hexcel, given that they make advanced composites for aerospace and defense market. Hey, good morning. hey good morning Just one question. just one question Tom, this business, Seemann Composites, was recently purchased by another public company, but it seems like something that would have been a good strategic fit for Hexcel, given that they make advanced composites for aerospace and defense market. tom this business seemann composites was recently purchased by another public company but it seems like something that would have been a good strategic fit for hexcel given that they make advanced composites for aerospace and defense market

Speaker 15: I'm sorry, which one- I'm sorry, which one- i'm sorry which one-

Speaker 12: I was just curious if . . . Yeah, it's, it's called Seemann Composites. Karman, Karman bought it, a space company. I was just curious if that was an opportunity that you had the opportunity to look at, or business you had an opportunity to look at, and if so, why Hexcel was not a buyer? I was just curious if . . . i was just curious if . Yeah, it's, it's called Seemann Composites. yeah it's it's called seemann composites Karman, Karman bought it, a space company. karman karman bought it a space company I was just curious if that was an opportunity that you had the opportunity to look at, or business you had an opportunity to look at, and if so, why Hexcel was not a buyer? i was just curious if that was an opportunity that you had the opportunity to look at or business you had an opportunity to look at and if so why hexcel was not a buyer

Speaker 15: Right. I'm, unfortunately, I'm not familiar with Seemann. Do they make composite structures or do they make composite materials? Right. right I'm, unfortunately, I'm not familiar with Seemann. i'm unfortunately i'm not familiar with seemann Do they make composite structures or do they make composite materials? do they make composite structures or do they make composite materials

Speaker 12: I believe it's composite materials for the marine market, but yeah, it's, it's all good. I'll pass it along. I believe it's composite materials for the marine market, but yeah, it's, it's all good. i believe it's composite materials for the marine market but yeah it's it's all good I'll pass it along. i'll pass it along

Speaker 15: Yeah, I'm sorry, just not familiar with that. So it's not in one of our core markets, and so we did not look at it, and so I unfortunately just can't answer it. Yeah, I'm sorry, just not familiar with that. yeah i'm sorry just not familiar with that So it's not in one of our core markets, and so we did not look at it, and so I unfortunately just can't answer it. so it's not in one of our core markets and so we did not look at it and so i unfortunately just can't answer it

Speaker 12: Understood. Thank you. Understood. understood Thank you. thank you

Speaker 10: Your next question comes from the line of Sheila Kahyaoglu of Jefferies. Your line is now open. Your next question comes from the line of Sheila Kahyaoglu of Jefferies. your next question comes from the line of sheila kahyaoglu of jefferies Your line is now open. your line is now open

Speaker 14: Good morning, guys, and thank you for the time. Tom, maybe just to start off, just looking at your revenue assumptions, at least some of the shipset content you've helped frame on the commercial aero side, it seems like you're a little higher on Airbus deliveries than folks expect, and a little lower on Boeing. So maybe what's driving some of those assumptions? Good morning, guys, and thank you for the time. good morning guys and thank you for the time Tom, maybe just to start off, just looking at your revenue assumptions, at least some of the shipset content you've helped frame on the commercial aero side, it seems like you're a little higher on Airbus deliveries than folks expect, and a little lower on Boeing. tom maybe just to start off just looking at your revenue assumptions at least some of the shipset content you've helped frame on the commercial aero side it seems like you're a little higher on airbus deliveries than folks expect and a little lower on boeing So maybe what's driving some of those assumptions? so maybe what's driving some of those assumptions

Speaker 15: Well, on Boeing, I'll start there. On the MAX, we did see a lot of destocking last year. I know they're getting up to 42 aircraft per month, but our numbers really show them what they were pulling from us, still a little bit lower than that. So yes, we are being probably a little bit more conservative on Boeing and on the 737. On the 787, I think we're right on top of them, 90-100. So it's really the 737, and it's more worried about the destocking, but we'll see. On Airbus, we're a little higher than consensus, but we're probably a little bit lower than the Airbus estimates. And again, we're a little bit lower than our bottoms-up demand management tool would indicate. Well, on Boeing, I'll start there. well on boeing i'll start there On the MAX, we did see a lot of destocking last year. on the max we did see a lot of destocking last year I know they're getting up to 42 aircraft per month, but our numbers really show them what they were pulling from us, still a little bit lower than that. i know they're getting up to 42 aircraft per month but our numbers really show them what they were pulling from us still a little bit lower than that So yes, we are being probably a little bit more conservative on Boeing and on the 737. so yes we are being probably a little bit more conservative on boeing and on the 737 On the 787, I think we're right on top of them, 90-100. on the 787 i think we're right on top of them 90-100 So it's really the 737, and it's more worried about the destocking, but we'll see. so it's really the 737 and it's more worried about the destocking but we'll see On Airbus, we're a little higher than consensus, but we're probably a little bit lower than the Airbus estimates. on airbus we're a little higher than consensus but we're probably a little bit lower than the airbus estimates And again, we're a little bit lower than our bottoms-up demand management tool would indicate. and again we're a little bit lower than our bottoms-up demand management tool would indicate So we have a lot of visibility and clarity on Airbus, and so, you know, that's why we are putting the peg where we are. We still think that the 80 is conservative on the Airbus A350, based on all of our bottoms-up work and all the top-down work and what the master schedule at Airbus says. So we're comfortable with it. We'll watch it throughout the year and monitor it to make sure that we're seeing evidence of it. But that's what all of our bottoms-up analysis is telling us. So we have a lot of visibility and clarity on Airbus, and so, you know, that's why we are putting the peg where we are. so we have a lot of visibility and clarity on airbus and so you know that's why we are putting the peg where we are We still think that the 80 is conservative on the Airbus A350, based on all of our bottoms-up work and all the top-down work and what the master schedule at Airbus says. we still think that the 80 is conservative on the airbus a350 based on all of our bottoms-up work and all the top-down work and what the master schedule at airbus says So we're comfortable with it. so we're comfortable with it We'll watch it throughout the year and monitor it to make sure that we're seeing evidence of it. we'll watch it throughout the year and monitor it to make sure that we're seeing evidence of it But that's what all of our bottoms-up analysis is telling us. but that's what all of our bottoms-up analysis is telling us

Speaker 14: That makes sense. And then if I could ask one on margins, how do you think about just risks to profitability going forward and how we should be thinking about the FX headwind? That makes sense. that makes sense And then if I could ask one on margins, how do you think about just risks to profitability going forward and how we should be thinking about the FX headwind? and then if i could ask one on margins how do you think about just risks to profitability going forward and how we should be thinking about the fx headwind

Speaker 15: Well, FX is gonna be a headwind, the dollar is lower, and, Mike, maybe you can comment a little bit on this. Well, FX is gonna be a headwind, the dollar is lower, and, Mike, maybe you can comment a little bit on this. well fx is gonna be a headwind the dollar is lower and mike maybe you can comment a little bit on this

Speaker 8: Well, yeah, no, sure, Sheila, thanks. You know, we talked about previously, you know, the weakening of the dollar to the euro early last year shifted, you know, the effect of foreign exchange on earnings from a, you know, tailwind for the first half of the year to a headwind in Q3 and into Q4. And, you know, we've certainly projected a higher headwind in Q4 versus Q3, but, you know, the 110 basis points that I called out in Q4, that included the settlement of certain short-term non-USD balances that influenced the year-over-year FX comparison to a greater degree than historically. So we don't, we don't anticipate that to be an ongoing trend, so I would not project the Q4 impact as the run rate into 2026. So hope that helps. Well, yeah, no, sure, Sheila, thanks. well yeah no sure sheila thanks You know, we talked about previously, you know, the weakening of the dollar to the euro early last year shifted, you know, the effect of foreign exchange on earnings from a, you know, tailwind for the first half of the year to a headwind in Q3 and into Q4. you know we talked about previously you know the weakening of the dollar to the euro early last year shifted you know the effect of foreign exchange on earnings from a you know tailwind for the first half of the year to a headwind in q3 and into q4 And, you know, we've certainly projected a higher headwind in Q4 versus Q3, but, you know, the 110 basis points that I called out in Q4, that included the settlement of certain short-term non-USD balances that influenced the year-over-year FX comparison to a greater degree than historically. and you know we've certainly projected a higher headwind in q4 versus q3 but you know the 110 basis points that i called out in q4 that included the settlement of certain short-term non-usd balances that influenced the year-over-year fx comparison to a greater degree than historically So we don't, we don't anticipate that to be an ongoing trend, so I would not project the Q4 impact as the run rate into 2026. so we don't we don't anticipate that to be an ongoing trend so i would not project the q4 impact as the run rate into 2026 So hope that helps. so hope that helps

Speaker 15: But we did build in headwind into 2026 into the plan. That's already baked in for headwind on foreign exchange. So that's already baked in. But we did build in headwind into 2026 into the plan. but we did build in headwind into 2026 into the plan That's already baked in for headwind on foreign exchange. that's already baked in for headwind on foreign exchange So that's already baked in. so that's already baked in

Speaker 14: Got it. Got it. got it

Speaker 15: It'll be there. We have a hedging program, so it'll be a little bit more muted than it might have otherwise been, but there is some headwind into 2026, and we incorporated that already into the outlook. It'll be there. it'll be there We have a hedging program, so it'll be a little bit more muted than it might have otherwise been, but there is some headwind into 2026, and we incorporated that already into the outlook. we have a hedging program so it'll be a little bit more muted than it might have otherwise been but there is some headwind into 2026 and we incorporated that already into the outlook

Speaker 14: Great. Thank you. Great. great Thank you. thank you

Speaker 15: Thanks, Sheila. Thanks, Sheila. thanks sheila

Speaker 10: Your next question comes from the line of Ron Epstein of Bank of America. Your line is now open. Your next question comes from the line of Ron Epstein of Bank of America. your next question comes from the line of ron epstein of bank of america Your line is now open. your line is now open

Speaker 11: Yeah. Hey, hey, good morning, guys. Thanks, thanks for the question. Yeah, maybe just revisiting some of the stuff that we've already spoken about, but when we think about, you know, maybe a next-generation aircraft, you alluded to, you know, potentially lower fabrication costs, that kind of thing. Are you guys doing work on out-of-autoclave? I mean, can you, can you just give us a sense on, you know, maybe some of the, the new tech that you all are looking at? Yeah. yeah Hey, hey, good morning, guys. hey hey good morning guys Thanks, thanks for the question. thanks thanks for the question Yeah, maybe just revisiting some of the stuff that we've already spoken about, but when we think about, you know, maybe a next-generation aircraft, you alluded to, you know, potentially lower fabrication costs, that kind of thing. yeah maybe just revisiting some of the stuff that we've already spoken about but when we think about you know maybe a next-generation aircraft you alluded to you know potentially lower fabrication costs that kind of thing Are you guys doing work on out-of-autoclave? are you guys doing work on out-of-autoclave I mean, can you, can you just give us a sense on, you know, maybe some of the, the new tech that you all are looking at? i mean can you can you just give us a sense on you know maybe some of the the new tech that you all are looking at

Speaker 15: Right. So we are working with the OEMs, both of them, on production techniques to improve all of those characteristics that I talked about. Let me give you an example. We-- yes, we are working on out-of-autoclave, but it starts with layup. You know, there's automated fiber placement, has replaced hand layup, but it's-- the question is, how many kilograms an hour can you lay up? If it's 20 kg an hour, we think we have techniques that could take it up to 80 kg an hour, maybe even double that to 160 kg an hour, by making the tape wider and thicker and faster. We're looking at not only prepreg layup, but also dry layup. We're also looking at how can we improve the cure time on carbon fiber. Right. right So we are working with the OEMs, both of them, on production techniques to improve all of those characteristics that I talked about. so we are working with the oems both of them on production techniques to improve all of those characteristics that i talked about Let me give you an example. let me give you an example We-- yes, we are working on out-of-autoclave, but it starts with layup. we-- yes we are working on out-of-autoclave but it starts with layup You know, there's automated fiber placement, has replaced hand layup, but it's-- the question is, how many kilograms an hour can you lay up? you know there's automated fiber placement has replaced hand layup but it's-- the question is how many kilograms an hour can you lay up If it's 20 kg an hour, we think we have techniques that could take it up to 80 kg an hour, maybe even double that to 160 kg an hour, by making the tape wider and thicker and faster. if it's 20 kg an hour we think we have techniques that could take it up to 80 kg an hour maybe even double that to 160 kg an hour by making the tape wider and thicker and faster We're looking at not only prepreg layup, but also dry layup. we're looking at not only prepreg layup but also dry layup We're also looking at how can we improve the cure time on carbon fiber. we're also looking at how can we improve the cure time on carbon fiber Today, it could be 12 hours. We think we have ways to take that down to 3 hours or even less than 2 hours. We're also looking at ways to improve non-destructive inspection and make that better. And also looking at improved ways to do resin infusion at the point of manufacture. And then on top of that, is looking at ways to improve joining techniques. So all these things improve the time it takes to build the part, it reduces the cost, and it also reduces the amount of capital. Capital being autoclaves, or it could be NDI type equipment, trim and drill, all of those things, by all of the techniques that I just mentioned. So those are some of the levers, and yes, we are working very actively with the OEMs on those techniques. That's a big part. Today, it could be 12 hours. today it could be 12 hours We think we have ways to take that down to 3 hours or even less than 2 hours. we think we have ways to take that down to 3 hours or even less than 2 hours We're also looking at ways to improve non-destructive inspection and make that better. we're also looking at ways to improve non-destructive inspection and make that better And also looking at improved ways to do resin infusion at the point of manufacture. and also looking at improved ways to do resin infusion at the point of manufacture And then on top of that, is looking at ways to improve joining techniques. and then on top of that is looking at ways to improve joining techniques So all these things improve the time it takes to build the part, it reduces the cost, and it also reduces the amount of capital. so all these things improve the time it takes to build the part it reduces the cost and it also reduces the amount of capital Capital being autoclaves, or it could be NDI type equipment, trim and drill, all of those things, by all of the techniques that I just mentioned. capital being autoclaves or it could be ndi type equipment trim and drill all of those things by all of the techniques that i just mentioned So those are some of the levers, and yes, we are working very actively with the OEMs on those techniques. so those are some of the levers and yes we are working very actively with the oems on those techniques That's a big part. that's a big part The production system is absolutely critical to the next generation aircraft. Not just about the cost of the material, it's also about the whole production system. The production system is absolutely critical to the next generation aircraft. the production system is absolutely critical to the next generation aircraft Not just about the cost of the material, it's also about the whole production system. not just about the cost of the material it's also about the whole production system

Speaker 11: Yeah, that, that makes a ton of sense. And if, if I may, just a, a second question real quick. We, missile production, you know, going up a lot, I mean, you're just kinda, you know, there's been a lot of announcements about that, some big agreements with the, with the big contractors. Yeah, that, that makes a ton of sense. yeah that that makes a ton of sense And if, if I may, just a, a second question real quick. and if if i may just a a second question real quick We, missile production, you know, going up a lot, I mean, you're just kinda, you know, there's been a lot of announcements about that, some big agreements with the, with the big contractors. we missile production you know going up a lot i mean you're just kinda you know there's been a lot of announcements about that some big agreements with the with the big contractors And a lot of the unmanned systems, you know, these smaller systems are carbon fiber composite systems. But when you look at the changing defense environment, you know, with the volume of everything kind of going up, particularly a lot of things that are made out of carbon fiber, how do you think about the potential opportunity there for you? And a lot of the unmanned systems, you know, these smaller systems are carbon fiber composite systems. and a lot of the unmanned systems you know these smaller systems are carbon fiber composite systems But when you look at the changing defense environment, you know, with the volume of everything kind of going up, particularly a lot of things that are made out of carbon fiber, how do you think about the potential opportunity there for you? but when you look at the changing defense environment you know with the volume of everything kind of going up particularly a lot of things that are made out of carbon fiber how do you think about the potential opportunity there for you

Speaker 15: Big opportunity. You know, lightweight is so critical because range is important, and durability is also important. Now, some of these drones are they don't carry people, and they don't come back. They're one way, so it changes some of the requirements. But in general, range and strength are key, and our material addresses both of those issues. So this new defense that you were describing is a big opportunity for us, and one of the things I mentioned in my prepared remarks is we have started to strengthen our defense team so that we can address these markets. These are new markets. They don't exist today. They're growing very fast. We think we can play a big part in it, and that's why we're strengthening the team so that we can do that. Big opportunity. big opportunity You know, lightweight is so critical because range is important, and durability is also important. you know lightweight is so critical because range is important and durability is also important Now, some of these drones are they don't carry people, and they don't come back. now some of these drones are they don't carry people and they don't come back They're one way, so it changes some of the requirements. they're one way so it changes some of the requirements But in general, range and strength are key, and our material addresses both of those issues. but in general range and strength are key and our material addresses both of those issues So this new defense that you were describing is a big opportunity for us, and one of the things I mentioned in my prepared remarks is we have started to strengthen our defense team so that we can address these markets. so this new defense that you were describing is a big opportunity for us and one of the things i mentioned in my prepared remarks is we have started to strengthen our defense team so that we can address these markets These are new markets. these are new markets They don't exist today. they don't exist today They're growing very fast. they're growing very fast We think we can play a big part in it, and that's why we're strengthening the team so that we can do that. we think we can play a big part in it and that's why we're strengthening the team so that we can do that

Speaker 11: Got it. Great. Thank you very much. Got it. got it Great. great Thank you very much. thank you very much

Speaker 15: Thanks, Ron. Thanks, Ron. thanks ron

Speaker 10: Our last question for today comes from the line of Kristine Liwag of Morgan Stanley. Your line is now open. Our last question for today comes from the line of Kristine Liwag of Morgan Stanley. our last question for today comes from the line of kristine liwag of morgan stanley Your line is now open. your line is now open

Speaker 5: Hey, good morning, everyone. Tom, you know, looking at the production rates from Boeing and Airbus, it's clear that it seems like we're beyond the trough, and you've got stability and visibility in your business. Now that you know we're in this better place, I was wondering, can you discuss how you're thinking about the portfolio today? Over time, when you look at your exposure to OE, do you want to expand more into aftermarket? Do you want to expand more into defense or potentially go into more vertically integrated component structure? It'd be helpful to think about where the direction, you wanna, you see the business going in the next few years. Hey, good morning, everyone. hey good morning everyone Tom, you know, looking at the production rates from Boeing and Airbus, it's clear that it seems like we're beyond the trough, and you've got stability and visibility in your business. tom you know looking at the production rates from boeing and airbus it's clear that it seems like we're beyond the trough and you've got stability and visibility in your business Now that you know we're in this better place, I was wondering, can you discuss how you're thinking about the portfolio today? now that you know we're in this better place i was wondering can you discuss how you're thinking about the portfolio today Over time, when you look at your exposure to OE, do you want to expand more into aftermarket? over time when you look at your exposure to oe do you want to expand more into aftermarket Do you want to expand more into defense or potentially go into more vertically integrated component structure? do you want to expand more into defense or potentially go into more vertically integrated component structure It'd be helpful to think about where the direction, you wanna, you see the business going in the next few years. it'd be helpful to think about where the direction you wanna you see the business going in the next few years

Speaker 15: Right. So certainly we wanna continue to grow, Christine, and those things are all important, but the number one priority for us right now in the immediate future is to focus exclusively on making sure we can ramp up on these production rates. That's gonna generate so much operating leverage, and so that's what our focus is. That's a little bit why we did the ASR, is because we have great confidence that this is gonna go up. We thought we were undervalued at the time, and this is an opportunity for us, and we wanna make sure that we're laser focused on executing it. On the other growth initiative that we are gonna push very hard is defense. It's already about 35% of our current business, but we think it can be more. Right. right So certainly we wanna continue to grow, Christine, and those things are all important, but the number one priority for us right now in the immediate future is to focus exclusively on making sure we can ramp up on these production rates. so certainly we wanna continue to grow christine and those things are all important but the number one priority for us right now in the immediate future is to focus exclusively on making sure we can ramp up on these production rates That's gonna generate so much operating leverage, and so that's what our focus is. that's gonna generate so much operating leverage and so that's what our focus is That's a little bit why we did the ASR, is because we have great confidence that this is gonna go up. that's a little bit why we did the asr is because we have great confidence that this is gonna go up We thought we were undervalued at the time, and this is an opportunity for us, and we wanna make sure that we're laser focused on executing it. we thought we were undervalued at the time and this is an opportunity for us and we wanna make sure that we're laser focused on executing it On the other growth initiative that we are gonna push very hard is defense. on the other growth initiative that we are gonna push very hard is defense It's already about 35% of our current business, but we think it can be more. it's already about 35% of our current business but we think it can be more We think it's growing, not only in the U.S., but also in Europe and also in some other markets like Turkey or India, Brazil, some other markets. And so we think we can play a big part there, and so that's the focus for us in growth in the immediate future is in defense. And then, as I said, just to reinforce, the big priority for us over the next couple of years, absolutely laser focused on executing on the rate ramps for all of our customers to make sure that we can deliver the quality and maintain a safe work environment. We think it's growing, not only in the U.S., but also in Europe and also in some other markets like Turkey or India, Brazil, some other markets. we think it's growing not only in the u.s but also in europe and also in some other markets like turkey or india brazil some other markets And so we think we can play a big part there, and so that's the focus for us in growth in the immediate future is in defense. and so we think we can play a big part there and so that's the focus for us in growth in the immediate future is in defense And then, as I said, just to reinforce, the big priority for us over the next couple of years, absolutely laser focused on executing on the rate ramps for all of our customers to make sure that we can deliver the quality and maintain a safe work environment. and then as i said just to reinforce the big priority for us over the next couple of years absolutely laser focused on executing on the rate ramps for all of our customers to make sure that we can deliver the quality and maintain a safe work environment

Speaker 5: Thank you very much. Thank you very much. thank you very much

Speaker 15: Thanks, Christine. Thanks, Christine. thanks christine

Speaker 10: Thank you. This concludes our question and answer session for today, and this concludes the session. Thank you so much for attending. Have a wonderful day. Good- Thank you. thank you This concludes our question and answer session for today, and this concludes the session. this concludes our question and answer session for today and this concludes the session Thank you so much for attending. thank you so much for attending Have a wonderful day. have a wonderful day Good- good-