Solstice Advanced Mat Q3 2026 Earnings Call Transcript

Solstice Advanced Mat (NASDAQ:SOLS) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Solstice Advanced Mat reported a strong 8% increase in net sales for Q3 2026, driven by electronic materials, refrigerants, and healthcare packaging, exceeding their guidance range.

The company completed $100 million in share repurchases during the quarter, with plans to complete an additional $400 million by Q1 2027.

Solstice Advanced Mat increased its full-year 2026 guidance for the second consecutive quarter, expecting net sales between $4.195 billion and $4.22 billion, and adjusted EBITDA between $1.05 billion and $1.06 billion.

The company has completed its transition off Honeywell TSAs ahead of schedule and under budget, and continues to align with secular trends such as nuclear energy and AI.

Operational highlights include a $2.6 billion nuclear backlog and ongoing capacity expansions in electronic materials and nuclear conversion, aiming to meet increased demand.

Management emphasized disciplined capital allocation, focusing on reinvestment in growth opportunities within the existing portfolio and returning cash to shareholders.

The call indicated strong cash generation with operating cash flow of $693 million for the first nine months of 2026, supporting strategic investments and shareholder returns.

Full Transcript

OPERATOR

Greetings. Welcome to Solstice Advanced Mat Third Quarter 2026 Earnings Call. At this time all participants are in listen-only mode. The question-and-answer session will follow the formal presentation. Anyone today who requires operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. I’ll now turn the conference over to Mike Leithead, Vice President, Investor Relations.

Thank you. You may now begin.

Mike Leithead (Vice President, Investor Relations)

Thank you and good morning everyone. Welcome to Solstice Advanced Mat’s third quarter 2026 earnings call. We released our third quarter 2026 financial results earlier this morning. Today’s presentation, including non-GAAP reconciliations, and our earnings press release are available on the Investor Relations portion of Solstice Advanced Mat’s website at investor.solstice.com. Our discussion today will include forward-looking statements that are based on our best view of the world and our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. Joining me today are David Sewell, our President and Chief Executive Officer, and Tina Pierce, our Chief Financial Officer. David will open today’s call with highlights of our third quarter results and an update on a few key strategic initiatives.

Tina will then review our segment performance, capital deployment, and financial outlook before turning the call back to David for closing remarks. We will then be happy to take your questions. With that, I’ll now turn the call over to David.

David Sewell (President and Chief Executive Officer)

Thank you, Mike, and thank you everyone for joining us today. During the third quarter, Solstice Advanced Mat again delivered strong results with performance that reflects the quality of our portfolio, the durability of our customer relationships, and disciplined execution across the company. I would like to take this opportunity to thank each of our team members for their incredible hard work that enabled this outcome. Third quarter net sales increased 8%, exceeding the top end of our guidance range, led by electronic materials, refrigerants, and healthcare packaging. Nuclear also continues to demonstrate strong underlying momentum despite the impact of previously communicated product loan returns. Together, this continued top-line momentum demonstrates that Solstice Advanced Mat is well aligned to several durable secular trends such as nuclear energy, thermal management, AI, and data centers.

At the same time, the team is relentlessly focused on operational execution and delivering on the 25% margin commitment we made following our spin last year. We are happy to report that Solstice Advanced Mat has completed its transition off all remaining legacy Honeywell TSAs this quarter, both ahead of schedule and under budget. Our financial performance has led to strong cash generation, which we were able to utilize for both reinvestment into the growth of our business and for increased return of cash to shareholders. We completed $100 million of share repurchases in the third quarter and are now intending to substantially complete the remaining $400 million under our current share repurchase authorization by the end of the first quarter of 2027. Pulling it all together, our solid year-to-date performance and continued momentum enable us to raise full year 2026 guidance for a second consecutive quarter.

Before discussing a couple of our growth initiatives in more detail, I want to take a step back and spend just a moment on where we are strategically as a company. Following the mutual termination of our merger with Element Solutions, we have been moving forward with strong conviction in our business and standalone strategy, as well as confidence in our ability to create shareholder value through disciplined execution of our growth plan. Solstice Advanced Mat truly is a differentiated advanced materials company because of our longstanding customer relationships, technical expertise, and unique asset base.

Those characteristics create attractive and durable positions across our portfolio. Our expertise in materials innovation is primed to solve challenges such as thermal management and energy evolution, which are key concerns for growing economic sectors such as AI, infrastructure, and data centers. This business has grown net sales at a 4% compounded annual rate since 2017, and we believe our exposure to these areas will serve as a foundation for even better performance going forward.

Last week marked one year since Solstice Advanced Mat became an independent company. Our transition to a standalone public company is complete, and our organization is focused on operational excellence, margin improvement, and cash flow generation. Finally, we are maintaining a disciplined approach to capital allocation that balances investment in our business along with returning excess capital to shareholders. We are funding organic investments where our technology, customer access, and existing asset base give us a clear right to win.

At the same time, we are returning excess cash to share owners through our dividend and share repurchase program. Altogether, we believe Solstice Advanced Mat provides a unique combination of secular growth, leading margins, and strong cash generation with compelling opportunities to prudently deploy capital and reinvest in the business. Turning to slide 5, data center growth provides a useful example of how Solstice Advanced Mat innovation is positioned to drive superior growth and value creation today. Solstice Advanced Mat’s businesses serving data center and AI-related applications represent approximately 6% of our expected 2026 revenue, with sales up more than 50% versus last year. I would note this does not include sales from our nuclear conversion business, which indirectly helps power facilities with clean energy.

Today in refrigerants, we expect approximately $100 million of 2026 sales from differentiated data center cooling applications. In electronics, we expect over $150 million of 2026 sales from our thermal interface materials, heat spreaders, physical vapor deposition targets, and electronic polymers, which support performance across the semiconductor and data center value chain. What makes the data center opportunity particularly attractive for Solstice Advanced Mat is that the industry’s constraints are increasingly materials-driven. Higher computing density increases thermal loads; more advanced chips and memory require enhanced deposition materials, packaging solutions, and thermal management. Data center growth will necessitate investment in future nuclear production. Customers need partners that can solve these challenges at scale with strong reliability.

Solstice Advanced Mat brings proprietary intellectual property, deep technical know-how, and an established manufacturing asset base to those conversations. We are partnering directly with customers to address current requirements while developing the next generation of solutions. As the materials landscape evolves, we are working hand in hand with our customers on future solutions such as two-phase direct-to-chip fluids, potential immersion cooling applications, further expansions of our sputtering targets production, and innovation in advanced packaging.

This is a Solstice Advanced Mat growth algorithm in action: start with a differentiated technology position, work closely with customers on mission-critical challenges, and reinvest in R&D and capacity where we see durable demand and attractive returns. Turning to slide 6, we also want to provide an update on our nuclear conversion growth strategy. Industry demand continues to strengthen, supported by the need for reliable carbon-free baseload power, recent government lending activity, the scheduled end of waivers for Russian enriched uranium imports at the start of 2028, and long-term power agreements between hyperscalers and energy providers. Our nuclear backlog reached $2.6 billion in the third quarter with contracts now extending through 2039.

This backlog includes supply commitments in place with multiple small modular reactor customers. Against that backdrop, we continue to advance capacity in a disciplined way through the commendable efforts of our manufacturing team working on incremental debottlenecking at our Metropolis facility. We now expect to exceed 10,000 tons in production this year with a clear pathway to an additional 1,000 to 2,000 tons at limited incremental capital cost. We will increase our production beyond 10,000 tons in a measured way, in line with contracted customer demand and operational readiness.

This strong outcome at Metropolis gives us not only increased operational flexibility but also enables us to respond to U.S. government requirements for unobligated uranium hexafluoride as needed. This low-risk and high-return expansion once again reinforces the differentiated position of Metropolis as the only established uranium conversion facility in the United States. In parallel, we continue to evaluate a large-scale expansion. We have completed our initial engineering study, and customer discussions regarding expansion-related offtake continue to progress very well, with multiple conditional agreements signed or under negotiation. Any final decision will remain grounded in expected returns, additional customer commitments, and further refinement of net project costs. And while the opportunity is significant, our approach will remain disciplined.

We will align capital deployment with contracted demand and attractive economics rather than build ahead of the market. With that overview, I will now turn it over to Tina to discuss our third quarter financial performance in more detail.

Tina Pierce (Chief Financial Officer)

Thank you, David, and good morning, everyone. Turning to slide 7, I’d like to discuss our third quarter 2026 consolidated results. Third quarter net sales were approximately $1.05 billion, an increase of 8% year over year, which, as David noted, exceeded the top end of the guidance we provided for the quarter. Both of our reporting segments contributed to the increase, with growth led by electronic materials, refrigerants, and healthcare packaging.

GAAP net income attributable to Solstice Advanced Mat was $80 million, compared with the net loss attributable to Solstice Advanced Mat of $35 million in the third quarter of 2025. Diluted EPS was $0.50 and adjusted diluted EPS was $0.80. Adjusted EBITDA was $265 million, an increase of 13% from adjusted standalone EBITDA of $235 million in the prior year period. Adjusted EBITDA margin was 25.3%, up 109 basis points year over year, reflecting sales growth and improved operating leverage.

Turning to slide 8, I will walk through in more detail the key drivers of our year over year net sales and adjusted EBITDA performance. For the third quarter, net sales were approximately $1.05 billion. For the quarter, organic net sales were approximately 8%, reflecting volume and pricing improvement across both segments. Volume growth was led by electronic materials, reflecting robust demand for deposition and thermal solutions, along with higher refrigerant and healthcare packaging volumes.

Pricing was also favorable, helping offset modest raw material inflation. Adjusted EBITDA increased from $235 million to $265 million, with contributions from both segments reflecting net sales growth and operational leverage. Corporate costs also declined modestly year over year. Turning to slide 9, our Refrigerants and Applied Solutions segment generated net sales of $726 million, up 6% year over year. Segment adjusted EBITDA increased 3% to $251 million, and adjusted EBITDA margin was 34.5%. Consistent with our prior expectations, refrigerant sales increased 8% to $433 million. The breadth of our portfolio continues to be an important advantage as strong automotive and data center demand more than offset softer residential end markets.

Nuclear sales increased 4% to $66 million. Results in the quarter included the approximately $30 million impact of previously communicated product loan returns. Underlying demand remains robust, as demonstrated by the $2.6 billion backlog and the longer duration of customer contracts. Building Solutions and Intermediates sales declined 5% to $167 million, reflecting continued softness in construction-related end markets. Healthcare packaging sales increased 24% to $61 million, driven by higher volume and favorable pricing following customer destocking in the second half of 2025.

Overall, the RAS segment continues to benefit from a diversified portfolio, strong positions in attractive applications, and disciplined execution. Now turning to slide 10, our Electronic and Specialty Materials segment delivered a record quarter with strong growth and margin expansion. Segment net sales were $320 million, up 13% year over year. Adjusted EBITDA increased 44% to $68 million, and adjusted EBITDA margin expanded 453 basis points to 21.2%. The improvement in segment adjusted EBITDA margin was driven primarily by sales growth and strong operating leverage. Electronic Materials sales increased 31% to $135 million.

Demand remained robust for sputtering targets and thermal solutions used in memory and AI-related applications. Our expansion in Spokane to double sputtering target capacity continues to progress well, and we are committed to meeting our customers’ demand. Safety and Defense Solutions sales increased 3% to $54 million, reflecting improved volumes, research, and performance. Chemical sales increased 4% to $131 million, driven by higher demand for specialty additives.

In summary, the ESM results demonstrate the earnings power of this portfolio and reinforce our confidence in our growth investments. Moving to slide 11, our balance sheet and cash flow remain important sources of strategic flexibility. Through the first nine months of 2026, operating cash flow was $693 million, supported by healthy earnings and disciplined working capital management, including continued focus on inventory optimization. Capital expenditures were $325 million, up 31% from the prior year period as we funded multi-year capacity expansions in electronic materials, safety and defense solutions, and nuclear.

Even with that higher investment, free cash flow was $368 million. We would highlight that since our spinoff from Honeywell approximately one year ago, our cash position has increased approximately $250 million after returning approximately $136 million of cash to shareholders. As of September 30th, total debt was approximately $2 billion, cash and cash equivalents were $714 million, and net debt was approximately $1.25 billion. Net leverage ended the quarter at 1.3 times trailing twelve-month adjusted EBITDA.

Total liquidity was approximately $1.7 billion, including $1 billion of availability under our revolving credit facility. Turning now to capital allocation, we would like to spend a moment to highlight how Solstice Advanced Mat views its discipline allocating capital. First, we see the best opportunities today in reinvesting in our existing portfolio. Solstice Advanced Mat maintains a robust pipeline of high-return organic growth projects such as our sputtering targets expansion in electronic materials and the nuclear work we discussed earlier. Additionally, investment comes in the form of R&D as we continue to drive innovation with a development pipeline of next-generation refrigerant molecules.

Second, we continue to work to optimize our portfolio. Our company continually assesses our portfolio for ways to sharpen around our core businesses, while at the same time evaluating selective bolt-on M&A that would deliver high-value opportunities in our growth markets. Third, we are committed to returning excess cash to shareowners, as demonstrated with our recent $500 million share repurchase authorization, which we intend to substantially complete by the end of the first quarter 2027.

We intend to deploy capital to these priority areas while staying grounded in commitments to annually grow our dividend, invest in maintenance and asset reliability, and maintain a balance sheet that supports our current credit ratings. Turning to slide 13, based on our robust year-to-date performance, we are again raising our full year 2026 guidance. We now expect full year net sales in the range of $4.195 billion to $4.22 billion, with adjusted EBITDA in the range of $1.05 billion to $1.06 billion, and adjusted diluted EPS in the range of $2.90 to $2.95. Our capital expenditure outlook is unchanged at $420 million to $440 million. We remain focused on how we sequence growth projects and continue to prioritize investments backed by attractive returns and customer demand.

For the fourth quarter, we expect net sales of $1.01 billion to $1.035 billion, adjusted EBITDA of $246 million to $256 million, and adjusted EPS of $0.57 to $0.52. I will now turn the call back to David for closing remarks.

David Sewell (President and Chief Executive Officer)

Thank you, Tina. Our third quarter performance reinforces the core elements of the Solstice Advanced Mat investment thesis. We have a differentiated portfolio with leading positions in mission-critical materials. That portfolio is aligned to attractive secular trends in nuclear energy, thermal management, AI, and data centers. We are converting these exposures into tangible growth, as evidenced by our Q3 growth in electronic materials of 31% and refrigerants of 8%, as well as our growing nuclear backlog.

We are also demonstrating consistent operational execution. Our Q3 adjusted EBITDA increased 13%, adjusted EBITDA margin expanded to 25.3%, and both segments contributed to year-over-year earnings growth. At the same time, we are investing for the future. Our growth capital is targeted toward opportunities where we have differentiated technology, established customer relationships, and visible demand. And we are maintaining a disciplined approach to capital allocation. Our strong balance sheet and cash generation allow us to reinvest in the company while returning meaningful excess cash to shareowners through the dividend and share repurchases.

Looking ahead, our priorities are straightforward: deliver on our commitments, execute our growth investments with discipline, continue to improve productivity and returns, and allocate capital in a way that maximizes long-term shareowner value. We are committed to building on the progress the Solstice Advanced Mat team has made in our first year as a standalone public company. And I want to thank our employees around the world for their continued focus on our customers, safe operations, and strong execution.

And with that, we are ready to take your questions.

OPERATOR

Thank you. We’ll now be conducting a question-and-answer session. If you’d like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. And our first question will be coming from the line of Kevin McCarthy with Vertical Research Partners.

Please proceed with your questions.

Kevin McCarthy (Analyst at Vertical Research Partners)

Yes, thank you, and good morning, David. Nice to see the debottlenecking view. Nuclear at Metropolis. Can you talk a little bit about, you know, how you’re achieving that incremental 1 to 2 kilotons, associated cost, and the timing of that, and then what impact, if any, does that have on your ambitions to explore more substantial capacity expansion?

David Sewell (President and Chief Executive Officer)

Morning, Kevin. In regards to the debottlenecking, there are a series of low-capital projects that our manufacturing and engineering team have identified and are underway. I think you’ll see incremental improvements throughout 2027, with that completion before the end of the year of ’27. As far as the impact to the expansion, it just gives us great flexibility, but it doesn’t, I don’t think, deter our conviction for long-term expansion of the facility.

We’re moving forward with really robust conversations with customers. We continue with strong government engagement. We now have, you know, kind of some initial preliminary costs. You know, we’ve talked about those being the three pillars. So, you know, this additional 1 to 2 KT expansion really fulfills potential unmet needs through 2030. And then we’ll continue to look for further expansion beyond that as those three pillars come to fruition.

Kevin McCarthy (Analyst at Vertical Research Partners)

Great. And then as a second question, if I may, appreciate the additional disclosures this morning around your data center exposure and the associated growth. Maybe just broadly, if I think about the 31% growth that you posted in electronic materials, can you speak to forward trajectory as you see it in coming quarters, and then also provide an update on the Spokane, Washington expansion project?

David Sewell (President and Chief Executive Officer)

Certainly, Kevin. It’s really an important growth segment for us. We continue to see very robust demand for data center-related projects. We see no signaling of any slowdown. In fact, if anything, customers are actually looking for us to pull forward demand, particularly around thermal interface and sputtering targets. So we are moving with alacrity and accelerating where we can. On Spokane, to the second question you had, we have pulled in capital to try to accelerate. We will get some volume increments from that acceleration in 2027, with the majority of that in 2028. But we’re doing everything possible, because the demand is so robust, to try to see where we can continue to outpace our current forecast for ’27 and our manufacturability for additional capacity.

Kevin McCarthy (Analyst at Vertical Research Partners)

Great. Thank you so much.

OPERATOR

The next question is from the line of Josh Spector with UBS. Please proceed with your questions.

Josh Spector (Analyst at UBS)

Yeah, hi, good morning. I was wondering if you could talk about refrigerants a bit. I mean, the 8% growth you’ve had in the quarter was definitely pretty strong. Curious how you expect that to trend in the fourth quarter and just, you know, lend some of your own voice to what’s happening in the market. A lot of conversation around choppiness in residential HVAC demand. But, you know, obviously you’re seeing some pretty good growth. So what explains what you’re seeing versus some of the others?

David Sewell (President and Chief Executive Officer)

Yeah, thanks, Josh, for the question. We’re really proud of what the team’s been able to execute and accomplish in refrigerants. To your point, there’s definitely headwinds in 454B in stationary because of where housing is and as well as the destocking of what’s happening year over year. But where the team was really able to execute, which we’ve communicated, is the breadth of our portfolio, the strength of our IP around that portfolio in areas like automotive, data center growth, and commercial has offset that.

As we look to Q4, we do see modest growth year over year. We definitely see that 454 headwind continuing. But then as we go into 2027, we expect normalization in that market. So we feel like we’re very well positioned with the execution of what the team’s been able to do in the market and then with hopeful tailwinds that we see for 454 as we go into ’27.

Josh Spector (Analyst at UBS)

Yeah, maybe if I could just follow up on ’27 then specifically: what does normalization look like? Do you have visibility for that aftermarket and 454B being cleaned up enough to say that it enables growth in ’27? And then maybe just expand on the data center comments where that’s whatever 5, 6% of sales growing 50%. Seems like that should be an adder for next year as well.

David Sewell (President and Chief Executive Officer)

Yeah. So I’ll start with the latter part of your question. We definitely see continued strength in data centers as we move forward, so we feel very good about that. We definitely believe we’ll see normalization in 454B. Probably a little early to talk about 2027 exactly, but we do see us coming out of that from where we’re at ’26. I think about it a little bit like healthcare. You know, we had the destocking in 2025. In healthcare, you’ve seen how we’ve been able to come out of that growth in 2026.

So we’re thinking a little bit similar that the destocking will be complete through ’26 and then we’ll be back to that normalization in ’27.

Josh Spector (Analyst at UBS)

Okay, thank you, David.

OPERATOR

The next questions are from the line of Alexei Yefremov with Barclays. Please proceed with your questions.

Alexei Yefremov (Analyst at Barclays)

Thank you. Good morning. On the conversion business, what are your latest thoughts on the more substantial expansion? I guess is this more likely a go than not? And then can you comment approximately what percent of your target contracts have you been able to lock in to greenlight this project so far?

David Sewell (President and Chief Executive Officer)

Yeah, so as we’ve talked about, it’s those three pillars. It’s locking up about 80% of customer commitments to fulfill a modular design plan as we build that out in phases. It’s the continued coordination with the U.S. Government, Department of Energy, and it ties in with the return on the investment that we see. So the debottlenecking is definitely an exciting part of our growth algorithm over the next several years. We do believe with all of the investments that are happening in new reactors—you’ve seen the announcements from Korea, you’ve seen reactors that were decommissioned that are now coming back online; you look at the global aspect of 30-plus reactors being built around the world—we do believe that additional capacity will be needed as we get beyond the 2030s. We’re having really good dialogue with our customers. As we alluded to in the prepared remarks, we already have multiple conditional volume commitments for that expansion.

We’re not all the way up to that 80% level yet, though, but as we get to that level, I think that’ll be a trigger with where the costs land and the alignment with the DOE. So certainly more to come on that.

Alexei Yefremov (Analyst at Barclays)

Thank you, David. And I wanted to ask you about refrigerants and applied segment margins. I mean, they’re good, but down year over year. What kind of normalized margins should we think about for this segment over the next few quarters?

David Sewell (President and Chief Executive Officer)

So as we think about RAS margins, I’ll certainly have Tina add additional color. As 454 continues to rebound, we do expect that margin expansion. And as we’ve talked about, when that aftermarket kicks in for 454, with HVAC units in the residential sector established, we do see margin expansion there. So this was a really good quarter for RAS because we did get that sequential margin expansion, which we’ve talked about, and we would expect that to continue with aftermarket coming into play once that hits as well as the normalization of 454.

Tina Pierce (Chief Financial Officer)

And the only thing I would add, David, is just the R&D spend. We continue to invest in the next generation of refrigerant molecules, so that was the other contributing factor.

Alexei Yefremov (Analyst at Barclays)

Thank you very much.

OPERATOR

Our next question is from the line of Mike Harrison with Seaport Research Partners. Please proceed with your questions.

Mike Harrison (Analyst at Seaport Research Partners)

Hi, good morning. Just to follow up on the electronic materials strength, you guys were about to do a meaningful acquisition in that space and it didn’t work out. Just curious if you can speak to how you’re thinking about other bolt-on or maybe more transformative M&A opportunities to better access the electronics opportunity that you see going forward.

David Sewell (President and Chief Executive Officer)

Yeah, thanks for the question, Mike. That was really a once-in-a-generation opportunity we looked at with the Element acquisition. We reacted quickly from shareholder feedback. The logic was sound. We got great feedback that everyone understood the strategic logic, but they really liked our portfolio—the organic nature of the portfolio, the strong IP position we had. So there really is no transformational M&A that we would look at on the horizon as we think about electronics moving forward.

We really have a strong position on the front end with depositions as well as in thermal management on the back end, and then you throw the work we’re doing in refrigerants that tie into that. So we feel really good about our portfolio as well as organic opportunities we’re working on with our customers, new applications. We would look at it that way, and then if there is a unique tuck-in type acquisition that strengthens and brings that shareholder value that we would look at, we would certainly do so.

But right now there’s nothing from a transformation-type M&A that we would do, and we feel really good with our portfolio today.

Mike Harrison (Analyst at Seaport Research Partners)

All right, and then second question on the nuclear business. It looks like you’re expecting some decline in Q4 just related to shipment timing. And I know that business can be a little bit lumpy, but I’m just wondering, are there any known unusual factors that we need to keep in mind as we’re thinking about order timing and the growth pattern during 2027 in nuclear? Thanks.

David Sewell (President and Chief Executive Officer)

Yeah, Mike, you captured it perfectly. It’s just a lumpy type order pattern, as you know, because you’re talking about orders three and four years out. Absolutely nothing unusual, fully anticipated. We actually came in a little bit higher in our full-year growth than we anticipated. Now with the debottlenecking, we’ll look for further opportunistic sales where they might be available. And we’ve expanded our backlog from $2.2 billion to $2.6 billion in the last several months.

So we feel great about where we’re at as well as where negotiations are at for conditional volume with the planned expansion.

OPERATOR

Our next question from the line of Hassan Ahmed with Alembic Global. Please proceed with your questions.

Hassan Ahmed (Analyst at Alembic Global Advisors)

Morning, David and Tina. Question around any potential electronic material capacity constraints you guys may be seeing. I mean, obviously the sort of semiconductor-related growth has been strong. So I’m just wondering whether you’re running into any constraints. If you guys are, just to sort of maintain that double-digit growth over there, what sort of capital would need to be invested to sort of maintain that double-digit growth?

David Sewell (President and Chief Executive Officer)

Thanks, Hassan. Very fair question. And the answer is we are a little bit constrained right now. We are making and selling, I should say, everything we can make at our Spokane facility for depositions. We are pulling in capital. We’ve committed over $200 million to double the size of the plant as well as make it more efficient, and so we’re trying to accelerate that to meet the demand. It’s a very complex manufacturing process that we have—very unique—that provides the great purity of the material and helps improve our customer yields at the same time.

So we’re doing everything we can for 2027 to accelerate that expansion. Obviously you’re at a little bit of a wait on when equipment can arrive that’s on order, that kind of thing, so we’re working with our suppliers in that regard. But we’re doing everything we can to meet the demand forecast from our customers on depositions. We don’t feel like we’re constrained in thermal management right now. We feel like we have a really good supply chain there. We’re seeing terrific growth there. We’re able to continue to meet our customer needs there. But we’re really focused on our Spokane facility and continuing to look for ways to flow through more targets for 2027.

Hassan Ahmed (Analyst at Alembic Global Advisors)

Understood. And David, as a follow-up on healthcare packaging, again very strong growth year on year over there, sales up 24%. Was that primarily customer restocking? Was it new business wins? And then, as one thinks about 2027, would those growth levels be sustainable as one looks into the next year?

David Sewell (President and Chief Executive Officer)

Yeah, Hassan, you’re spot on. We definitely saw the destocking from last year, and when you look at maybe a two-year CAGR growth, the normalization is around that 6% is where it would fall in. And we just see normalization of that now that we’re out of the destocking. So we do think about that as kind of a mid–single-digit business. But we’ll be able to get more clarity on healthcare and the forecast as we get into fourth quarter earnings.

Hassan Ahmed (Analyst at Alembic Global Advisors)

Very helpful. Thanks so much, David.

David Sewell (President and Chief Executive Officer)

Thanks, Hassan.

OPERATOR

The next questions are from the line of Peter Osterlins with Truist Securities. Please proceed with your questions.

Alec (Analyst at Truist Securities)

Good morning, this is Alec on for Pete. How can we think about the relative scale of the R&D investments across the two segments, and how is that balance expected to change heading into 2027?

David Sewell (President and Chief Executive Officer)

What we talked about from a company standpoint overall is when we spun, we thought we were underinvested in R&D. We were about 2% of sales. Our vision, because of the innovation, because of the co-innovation we do with our customers, the next-generation molecules that are in development—our target was to get closer to 3% of sales. We’re at about 2.6% now, and so we’ll continue to slightly edge that up. But what’s exciting is what this R&D team is able to deliver as we continue to do that.

We’ve got some really exciting molecules in development, both in refrigerants as well as next-gen technologies in electronics, all under testing. So you’ve seen that ramp up, as Tina mentioned. You saw that impact on margins with RAS because it was more heavily skewed to RAS on the investment just because of the nature of the next-gen molecules. There’ll be a little bit more, but we’re getting to a place where we feel is normalized for where we want to be as an innovation company.

Well, as we’ve talked about, we’re in the midst of a 500 million dollar share buyback. We think this is a great time to buy with where the share price is at. It will be largely complete, as Tina alluded to, by the end of the first quarter. We’ll work with our board before then on further share repurchases. But until that time, it probably would be more prudent to wait until coming out of that meeting with our board as we talk about further share repurchases.

But with the amount of cash we’re generating, the organic nature of where we’re at, we do see opportunities to continue with share repurchases and returning capital to shareholders.

OPERATOR

Thank you. Next questions are from the line of John Roberts with Mizuho. Please proceed with your questions.

John Roberts (Analyst at Mizuho)

Thank you. General Atomics minority interest declined significantly. I assume that was related to the UF6 loan repayment. What level of pricing margin was applied to that 30 million? Was that at conditions at the time of the loan or was it current conditions? And would that minority interest have been closer to the second quarter or your fourth quarter guidance without that repayment?

Tina Pierce (Chief Financial Officer)

Well, John, I think what you’re alluding to is the NCI, and we have seen an increase there. We’re guiding towards 70 million for the year. And what we’ve seen is really a favorable mix as well as what David alluded to in terms of the site has been running extremely well. So it was really a combination of those two factors. And, John, to your point on pricing, we don’t really talk about how we do our loan returns on pricing, but as you can imagine, it’s at a more probably lower-price repayment. But as we talked about, we’re now really pretty much at the end of our— a little bit more drips and drabs — but we think we’re definitely through almost all of the loan repayments, which would be a negative impact on pricing.

John Roberts (Analyst at Mizuho)

Thank you.

OPERATOR

Thanks, John. The next question is from the line of Arun Viswanathan with RBC. Please proceed with your questions.

Arun Viswanathan (Analyst at RBC Capital Markets)

Great. Thanks for taking my question. Hope you guys are well, and congrats on the strong results here. I guess first off, on refrigerant, just curious during your comments earlier, it’s a little bit early to 27. When do you expect to get that visibility on channel?

David Sewell (President and Chief Executive Officer)

Arun, you broke up on us a little bit. We’ll give a lot more clarity on that when we get through fourth quarter. I would say, though, we do have a high degree of confidence that we’ll be through the destocking and be to a normalization rate. When we spun, we talked about a normalization rate in the high single digits in HFOs cannibalizing low single digits in HFCs. So I don’t think our forecast would alter too much from that. But we’ll give you better clarity when we do fourth quarter earnings.

Arun Viswanathan (Analyst at RBC Capital Markets)

Okay. And then if I could just ask on electronic materials, I think you’ve discussed that the Spokane facility has been largely accounted for at this point. Is that accurate, and does that require even greater capacity expansion? Is there a second phase that you’re still working on as well? Thanks.

David Sewell (President and Chief Executive Officer)

Yeah, yeah. So I’ll talk about the expansion. I’ll certainly have Tina talk about the accounting on that. So we are in the throes of accelerating the capacity expansion to get that complete. As we talked about, it’s kind of 2028. We’re trying to do as much as we can to pull in for 27. The demand has been so robust, and we’re getting forecasts well out to 2030 from our customers and beyond. So we are in early stages of conversations of yet another expansion so we can get in front of that. But right now the main focus is getting through this initial expansion.

Tina Pierce (Chief Financial Officer)

Yes, as mentioned, for the initial expansion, it’s a three-year program that will conclude in 2028. When we increased our capital guidance last quarter to 420 to 440, one of the considerations was, as David alluded, we’re trying to pull more of that capex in from 27 and 28 so that we can get more product out to our customer. And then secondly, we are looking at kind of the next potential project as well. We see we’re continuing to have very strong demand signals from our customers.

But overall, the program is proceeding extremely well.

Mike Leithead (Vice President, Investor Relations)

Thanks, Arun.

OPERATOR

Thank you. The next question is from the line of Charles Boke with Jefferies. Please proceed with your questions.

Charles Boke (Analyst at Jefferies)

Hi. Hi team. Thanks for taking my question. I wanted to ask a quick question around the unobligated material you referenced and the ability for the debottlenecking to address those requirements for the U.S. government. Can you just speak to what the margin profile may look like for these government-specific requirements? Do they look and mirror the standard utility contracts? Will they be different? And if you could speak around volumes around that, if they’ll be prioritized given the U.S. government connection there.

Mike Leithead (Vice President, Investor Relations)

Yeah, thanks, Charles. This is Mike. I mean, I think it’s obviously a very constructive signal in the UF6 market to see the NNSA out there with their RFI looking for potential further UF6 demand sources. I think it’s too early for us, particularly where we are in the process, to give any sort of comment around price. But, look, they’ve obviously been on public record saying they need 1.5 KT as early as the 2030s. And I think what we wanted to show today is that we’ve now found an incremental 1 to 2 KT on Metropolis.

We have the ability to service that from our existing asset and continuously look for further areas to serve our customers as the established site here in the U.S. So, look, early days, but I think we’re in a credible position today with our asset base.

Charles Boke (Analyst at Jefferies)

Great, thanks. And maybe one last question on pricing. I mean, in the conversion market today, you’re seeing sort of spot prices slightly higher than the long-term side of things of the uncontracted capacity. How are you guys thinking about leaving a spot open given the current price delta and where UF6 pricing is going?

David Sewell (President and Chief Executive Officer)

So from the way we’ve approached our capacity and ensuring that we’re good partners with our customers through their supply chain is typically about 90% of our capacity is through contract pricing, and about 10% would be open for the spot market per year. With this additional debottlenecking, that could give us further opportunity. So we’ll continue to see how those orders progress with the demand globally. But that’s typically how we run our plants, in locking up about 90% of that volume with contract pricing.

Charles Boke (Analyst at Jefferies)

Great. Super helpful. Thanks for that. And congratulations on the quarter.

David Sewell (President and Chief Executive Officer)

Many thanks, Charles. I appreciate it.

OPERATOR

Thank you. At this time, I’ll turn the floor back over to Mr. Leithead for closing comments.

Mike Leithead (Vice President, Investor Relations)

Great. Well, look, really appreciate everybody joining us today and your continued interest in Solstice Advanced Mat. If you have any questions, I’ll be around all day. But thank you and have a good day.

OPERATOR

Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day.

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