Robert Spingarn: Okay. That’s great color. So I appreciate that. Patrick, just briefly on the biz jet. I think you talked about biz jet before and have content per aircraft is up versus ’19, and that’s one of the — at least one of the reasons why you’re above ’19 levels in revenue. Is there any way to measure that what your content is as a percentage of an aircraft’s value and how that’s moved and where it’s going to move over the next couple of years? And how much confidence do you and Nick have in the biz jet production rate hikes?
Patrick Winterlich: So the way I would talk about biz jets is we saw some fantastic growth in build rates over the last couple of years, and we’re now at an elevated level. Now the growth rate may not continue at the same pace, but I do expect to see if that stay remain at this elevated level of demand, and that’s pulling through a lot of Hexcel composite material. To answer your question about sort of content, the more modern — the larger, more modern jets are pulling through significant shipsets. I think we called out that the large business jets are in the $200,000 to $500,000 range. And some of the larger ones, the largest sort of Gulfstream and the Dassault sort of Falcon 10X with the carbon wing are going to push beyond that.
So we’re extremely excited about further secular penetration of composites onto those platforms, which we expect to remain at elevated demand level for some time for the foreseeable future and beyond. So we’re very confident on the outlook for business jet.
Robert Spingarn: Thank you both, for the color.
Operator: Your next question comes from the line of Ken Herbert from RBC. Your line is open.
Ken Herbert: Yes, good morning, Patrick and Nick. Maybe, Patrick, really nice gross margins in the quarter. And you called out sales mix and absorption. As we look at where the incremental were this quarter, with the build rate plans, it doesn’t sound like maybe those tailwinds necessarily moderate too much, at least through this year. So how should we think about incrementals on the gross margin line? And is the current margin rate sustainable? Or how much are you expecting or thinking we should see that moderate over the year?
Patrick Winterlich: Yes. I mean, it was a great margin quarter, and the volume leverage was the key driver. I think as I said in my script, I would moderate expectations a little bit. We had a particularly sort of Hexcel fiber-rich product mix in Q1 which helped. It gave us a bit of punch. And going forward, inventory, I would not expect to continue to grow. If anything, we will now be stabilizing that and, if anything, bringing it down. So I wouldn’t expect an absorption tailwind either going forward. I mean, we do expect good quality margins but I would moderate down a little bit from what I would see is a little bit of an exceptional Q1 margin performance.
Ken Herbert: No, that’s helpful. And as I think about headcount and bringing staff back to support the higher rates, where are you in that process? And maybe at which level of staffing are you to support future rates? Or how much of that do you still have to go?
Patrick Winterlich: So as you know, we took our headcount down from about 7,000 heading into the pandemic to about 4,500. Today, we’re actually probably pushing 5,500. So we’ve almost brought back 1,000 people, which reflects the growth from the trough of the pandemic. I mean, our direct headcount will just pro rata. It will grow as demand grows. I mean, you can see sort of our guidance this year, $1.8 billion roughly just under the midpoint if you look at the midpoint. And if you compare that to the $2.4 billion, so that’s about a $3.75 billion level. So we will not jump again this year, a bit more in the coming years. We will manage indirect labor very prudently, but we will obviously not constrain ourselves to the growth opportunities, the R&T opportunities in front of us, and we will invest in people going forward. But the biggest mover on headcount is obviously direct labor, and that will follow revenue.
Ken Herbert: Great. Thank you very much.
Operator: And your next question comes from the line of Myles Walton from Wolfe Research. Your line is open.
Myles Walton: Thanks. With Flora now decided, and you alluded to it, but I was hoping you could talk to some of the relative content you’d have on the Valor. Is the shipset closer to a V-22 or CH-53K? And I guess how much of the content is still up for bid?
Nick Stanage: Well, Myles, I would say the content will certainly be above the Black Hawk. We’re still working on multiple packages both Valor. So it’s really premature for us to get a shipset at this point in time other than it’s going to be nice, it’s going to be a material driver for us and it will be more than the Black Hawk.
Myles Walton: Okay. All right. And then Patrick, you mentioned the restock benefit on the 350? Any way to size that? And the reason I ask is it’s hard to imagine that Commercial Aerospace sales don’t sequentially grow in some way, shape or form through the course of the year, which, I guess, is implied at the top end of your guidance still. So maybe if you can size that or give us any way to stay in the range.
Patrick Winterlich: Yes. I mean, we did — as Nick said, I mean, we entered the year around six and we’re now on a ramp towards nine in 2025. So we’re going to be in some sort of slope. It won’t be a perfect straight line. I think what we saw in the first quarter that perhaps was a little bit of a surprise with a lot of demand, and that must have included some restocking. And the A350 is a very Hexcel fiber-rich platform. And you have heard us say before, whenever we get that sort of pull-through of mix, it boosts our margins. So I do agree, we’re going to see steady growth. Whether we will get the same sort of restocking fiber-rich mix every time, I doubt, they definitely gave us a margin percentage boost in the first quarter this year.
Nick Stanage: I would just add to Patrick’s comments that in addition to the A350 in production, we’re also providing materials for the freighter. And Airbus has recently completed the central wing box that again has all Hexcel fibers on. And then lastly, remember, our supply chain for the A350 are over 40, 50 locations. So it’s quite a complex broad supply chain that does require some safety stock and some provisioning of materials, which we think some of that came through in Q1.
Myles Walton: Okay, all right. Thank you.
Operator: Your next question comes from the line of Kristine Liwag from Morgan Stanley. Your line is open.
Kristine Liwag: Great. Patrick, Nick, following up on the earlier questions on cash use, with the new Boeing airplane seemingly not in the horizon for this decade, the balance sheet where it is, the relatively minimal CapEx requirement, I mean, you’re going to be in a period of unprecedented growing free cash flow in this up cycle. So what’s your appetite to use the balance sheet or this cash for a transformative M&A? Do you think you need it? Are there anything of interest? Or potentially just returning 100% of that free cash flow to shareholders through dividends or buybacks?
Nick Stanage: Yes, Kristine. So thanks for the question. First, I would remind everyone that the lead time for material selection before a new airplane is lost, is in the vicinity of five years to 10 years. So you shouldn’t think that we’re not investing, working with our customers on the next-generation materials, processes and solutions for those types of platforms, which we are. Secondly, do we need to do M&A? We don’t view that we need to. That’s really how we drive our discipline and the value proposition to how it enhances our portfolio. So as you say, we have plenty of powder. We’re looking at various areas and targets and technology that we think would fit very well. That’s an active process that we have our team working on. But again, could we return more to shareholders, depending on the availability and the actionability of those targets? Again, it could fluctuate based on those factors.
Kristine Liwag: Great. And then in terms of the investment dollars, can you size that? Is this 5% of sales annually or less? How should we think about that level of investment that you’d have to do for the next airplane program?
Nick Stanage: Yes. We really don’t go there. We’re working with our customers on very a few technologies, whether you’re talking about fibers, whether you’re talking about matrix systems, whether you’re talking about in auto plate, out of auto plate, thermal set, thermoplastic, there’s a wide variety of technologies that will be used in different parts of the aircraft. I’d also say we’re firm believers that the penetration — the secular penetration of composites will continue to grow. So as we can make our materials more flexible, more adaptable to new processing, it opens up the window of the next composite airplane to be above 50%, who knows, maybe 70%.
Kristine Liwag: Well, 70% would be a lot. Great. Thank you very much.
Operator: Your next question comes from the line of Pete Skibitski from Alembic Global. Your line is open.
Pete Skibitski: Hey, good morning, Nick and Patrick and Kurt. Nice quarter, guys, On Industrial, the sales decline, I think the release mentioned wind. Was European wind down in the quarter? And what’s kind of the prospects of that going forward? Have you bottomed there or not? And last one is, could you just touch on are you seeing any headwinds in the balance of the Industrial portfolio or not?
Patrick Winterlich: Yes. So on wind, really, all our sales now are European-focused. As you’ll remember, we — investors pulled out essentially a plate making in the U.S. in 2020. We closed our wind in Colorado plant. We announced at the end of last year, the closure of our Taishan China plant. So those have now gone. So really, all our wind energy focus or at least the vast majority of it is in Europe out of our European production base. I think, as I said in my script, we’re now sort of stabilizing on wind. The last three quarters have been relatively level, but certainly a step down — fairly significant step down year-over-year if you look at Q1 ’22 to Q1 ’23. But we expect to continue to support the wind energy business at this rough level for some period of time, and we’re innovating some resin coating gel products, which we hope to see grow around the world actually.
In terms of the rest of automotive, nearly every segment was up. Automotive was up, recreation was up. And one or two of the key other industrial places were up. So we’re seeing general strength around the wind business. Wind has kind of merged back, if you like, to be one of three or four key elements of our industrial market.
Pete Skibitski: Thanks guys.
