Hexcel Corporation

Ladies and gentlemen, thank you for standing by, and welcome to HECSAL's second quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Patrick Winterlich, Chief Financial Officer. Thank you. Please go ahead, sir.

Thank you, Julianne. Good morning, everyone. Welcome to HECSL Corporation's second quarter 2020 earnings conference call. Before beginning, let me cover the formalities. First, I want to remind everyone about the safe harbour provisions related to any forward-looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments, and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the company's SEC filings and last night's news release. A replay of this call will be available on the investor relations page of our website Lastly, this call is being recorded by Hexel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request. With me today are Nick Stanage, our Chairman, CEO and President, and Kurt Goddard, our Vice President of Investor Relations. The purpose of the call is to review our second quarter 2020 results detailed in our news release issued yesterday. Now let me turn the call over to Nick.

Thanks, Patrick. Good morning, everyone, and thank you for joining us as we share our second quarter results. Looking back at the scenario planning, we do part of our annual strategic reviews No one could have imagined the specific nature and magnitude of a global pandemic and economic consequences we are experiencing today. Understanding, learning, and adjusting in real time to today's realities are essential steps to delivering shareholder value. Our OneHexcel team will continue to act quickly and aggressively. We will remain vigilant and responsive to our customers and we will position the company to be even stronger when growth returns. As you saw in our release last night, the COVID-19 pandemic had a significant impact on our second quarter sales, operating income, and earnings per share. These results are disappointing, yet not surprising. Once the pandemic's effect on air travel and the global economy unfolded earlier this year, we moved swiftly to assess the steep decline ahead and knew that the impact on aerospace and industrial industries would lead to one of our most challenging years ever. Commercial aerospace has been impacted significantly as a result of the pandemic, and we expect this downturn will extend for some time to come. As you know, year over year, global flights are down more than 50%, and major airlines are flying well below their planned capacity levels. In our commercial aerospace market, demand is down for both wide-body and narrow-body aircraft, as well as business jets. Our industry currently faces declines in deliveries, orders, and backlogs, while rising cancellations and deferrals indicate it could take a number of years before we see full recovery. In addition, quarantines, shelter in place orders, social distancing, and personal income loss are contributing factors that have negatively impacted our industrial segment, especially automotive and recreation, as consumers delay or cancel plans for major purchases. All in all, we have rarely faced a headwind of this magnitude that materialized so quickly and impacted us so significantly. For us to rebound and recover, we readily accept the challenge to stay agile, respond rapidly to market signals, and continue to push the boundaries for even greater operational excellence. And we are doing just that. In early April, we announced plans to take a combination of decisive actions to align our operations with current and forecasted demand. We continue to target labor cost reductions of about 30%, which to date includes approximately 1,600 job eliminations, as well as temporary reductions in salaries and furloughs. Hiring and promotions are on hold, and we have cut overhead costs by reducing and eliminating discretionary spending, minimizing capital expenditures, reducing benefits, and more. We have more work to do, particularly in some countries where processes for restructuring take time. As we restructure our organization, we continue to simplify and streamline processes to enable and leverage our strong and talented team. I can assure you that as painful as it is for us to lose team members, we will right-size our company to ensure that we continue to deliver strong shareholder value. Sales in our second quarter were $379 million, down 38% year-over-year. Adjusted diluted EPS was $0.08 compared to $0.94 in the second quarter of 2019. We delivered second quarter adjusted operating income of $19.5 million with a margin of 5.1% compared to 18.9% in Q2 2019. Now let me turn to our three primary markets. Commercial aerospace build rates have declined rapidly in response to the COVID-19 pandemic and sales were correspondingly lower across all programs with the Airbus A350 representing the largest revenue drop. In addition, significant inventory reductions in the supply chain contributed to the decrease in sales. In other commercial aerospace, we saw a 25% year-over-year decline in revenue. As mentioned in our news release last night, one of the most impacted areas as a result of the supply chain correction has been on the demand for our carbon fiber. As a result, we have temporarily idled a large part of our capacity to match build rates and reductions in demand. We are communicating regularly with our customers and remained aligned and flexible to meet their expected production and supply chain requirements. For space and defense, lower demand in a number of international programs contributed to a modest sales drop. If we look only at U.S. space and defense, sales were up slightly. Our position in space and defense have been growing, especially with our acquisition of our technologies. Current indications are that key defense spending will continue at current levels and we remain optimistic for this sector. Wind energy sales are the largest sub-market in industrial and sales decline 13.6% year over year. The decline can be attributed primarily due to production disruptions in Q1 that extended into the second quarter and general pandemic headwinds. In the second half, we expect continued challenges not only resulting from this pandemic, but also from increased cost pressures in the wind energy industry in general, and specifically for wind turbine blades. As we look forward, we remain optimistic and are viewing this pandemic as a unique opportunity to reevaluate everything we do to ensure that we are focused on the things that matter the most and will support our recovery. Those include maintaining our strong customer relationships, investing in innovation, driving operational excellence, and creating long-term value for shareholders. While it feels like everything has changed over the past few months, nothing has changed about who we are at HECSAL. We're a world leader in advanced composite technology. Even in the face of lower demand and softer sales, we remain a key technology supplier to our customers with whom we share strong and collaborative relationships that will serve us well for years to come. Our near-term objectives are clear. Staying agile and vigilant with a sharp focus on taking decisive actions today that prepare us for a strong recovery and sustainable future growth. On the innovation front, our R&T teams continue to focus on new products and new formulations, especially for next-generation aircraft. This work helps to solve our customers' most pressing challenges and secure both existing and new business that will position us for even greater growth in the future. Not only is this a time to further secure HECSL as a global leader in advanced composite technology, It also is an opportunity to closely examine our entire supply chain to drive efficiency and optimize inventory levels to generate cash. All of these actions will strengthen our foundation and better prepare us to take advantage of the recovery and strong growth that we believe lies ahead. We further strengthened our balance sheet during the second quarter of 2020, increasing liquidity by $53 million while realigning our cost structure and global headcount. We're taking decisive actions to reduce costs, generate cash, and staying close to our customers to understand the market demand dynamics. I'll turn it over to Patrick to provide more details on the numbers.