Solstice Advanced Mat Q3 2026 Earnings Call Transcript

Quartr
Provided by Quartr
November 4, 2026

Key Takeaways

  • Positive Sentiment: Third-quarter sales rose 8% to about $1.05 billion, while adjusted EBITDA increased 13% to $265 million and margin expanded to 25.3%. Solstice raised full-year 2026 guidance for a second consecutive quarter, now forecasting adjusted EBITDA of $1.05 billion–$1.06 billion and adjusted EPS of $2.90–$2.95.
  • Positive Sentiment: Electronic materials sales surged 31%, supported by AI and data-center demand for deposition and thermal solutions; the company said customers are seeking additional supply. However, Spokane is currently capacity-constrained, and most benefits from its expansion are expected in 2028, with some incremental volume possible in 2027.
  • Positive Sentiment: Nuclear backlog reached $2.6 billion, with contracts extending through 2039, and debottlenecking at Metropolis is expected to lift production above 10,000 tons this year, with potential for another 1,000–2,000 tons. A larger expansion remains under evaluation and depends on customer commitments, government coordination, and attractive project economics.
  • Neutral Sentiment: Refrigerant sales grew 8% as automotive and data-center demand offset weakness in residential HVAC; management expects modest year-over-year growth in the fourth quarter and anticipates market normalization in 2027. Building-related end markets remained soft, while Healthcare Packaging’s 24% growth partly reflected recovery from prior-year customer destocking.
  • Positive Sentiment: Strong cash generation supported $100 million of share repurchases in the quarter, and the company intends to substantially complete the remaining $400 million under its authorization by the end of the first quarter of 2027. Solstice also reported that its transition from legacy Honeywell services was completed ahead of schedule and under budget.
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Earnings Conference Call
Solstice Advanced Mat Q3 2026
00:00 / 00:00

There are 13 speakers on the call.

Operator

Greetings. Welcome to Solstice Advanced Materials third quarter 2026 earnings call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star 0 from your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Mike Leithead, Vice President Investor Relations. Thank you. You may now begin.

Speaker 1

Thank you and good morning, everyone. Welcome to Solstice'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'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 CEO, and Tina Pierce, our CFO. 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.

Speaker 1

We will then be happy to take your questions. With that, I will now turn the call over to David.

Speaker 2

Thank you, Mike, and thank you everyone for joining us today. During the third quarter, Solstice 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 is well aligned to several durable secular trends such as nuclear energy, thermal management, AI, and data centers.

Speaker 2

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 has completed its transition of 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.

Speaker 2

Before discussing a couple of our growth initiatives in more detail, I want to take a step back and spin just a moment on where we are strategically as a company. Following the mutual termination of our merger with Element Solutions Inc, 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 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.

Speaker 2

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 foundation for even better performance going forward. Last week marked one year since Solstice 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 shareholders through our dividend and share repurchase program.

Speaker 2

Altogether, we believe Solstice 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 five, data center growth provides a useful example of how Solstice's innovation is positioned to drive superior growth and value creation. Today, Solstice'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.

Speaker 2

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 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 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.

Speaker 2

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 productions, and innovation in advanced packaging. This is the Solstice 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 six, 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.

Speaker 2

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 1,000-2,000 tons at limited incremental capital cost. We will increase our production beyond 10 KT 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.

Speaker 2

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. 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 the market. With that overview, I will now turn it over to Tina to discuss our third quarter financial performance in more detail.

Speaker 3

Thank you, David, and good morning, everyone. Turning to slide seven, I would 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, and 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 was $80 million, compared with a net loss attributable to Solstice 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.

Speaker 3

Adjusted EBITDA margin was 25.3%, up 109 basis points year-over-year, reflecting sales growth and improved operating leverage. Turning to slide eight, 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 was approximately $1.05 billion for the quarter. Organic net sales was 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.

Speaker 3

Turning to slide nine, our Refrigerants & 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 & Intermediates sales declined 5% to $167 million, reflecting continued softness in construction-related end markets.

Speaker 3

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 & Specialty Materials segments 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 material sales increased 31% to $135 million. Demand remained robust for sputtering targets and thermal solutions used in memory and AI-related applications.

Speaker 3

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 & Performance Chemicals 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 & Defense Solutions, and nuclear.

Speaker 3

Even with that higher investment, free cash flow was $368 million. We would highlight that since our spin-off from Honeywell approximately one year ago, our cash position has increased approximately $250 million after returning approximately $136 million of cash to share owners. 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 12-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 views its disciplined process of allocating capital. First, we see the best opportunities today in reinvesting in our existing portfolio.

Speaker 3

Solstice 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 share owners, as demonstrated with our recent $500 million share repurchase authorization, which we intend to substantially complete by the end of the first quarter 2027.

Speaker 3

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-$4.22 billion, with adjusted EBITDA in the range of $1.05 billion-$1.06 billion, and adjusted diluted EPS in the range of $2.90-$2.95. Our capital expenditure outlook is unchanged at $420 million-$440 million. We remain focused on how we sequence growth projects and continue to prioritize investments backed by attractive returns and customer demand.

Speaker 3

For the fourth quarter, we expect net sales of $1.01 billion-$1.035 billion, adjusted EBITDA of $246 million-$256 million, and adjusted EPS of $0.57-$0.62. I will now turn the call back to David for closing remarks.

Speaker 2

Thank you, Tina. Our third quarter performance reinforces the core elements of the Solstice 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. We are maintaining a disciplined approach to capital allocation.

Speaker 2

Our strong balance sheet and cash generation allows us to reinvest in the company while returning meaningful excess cash to share owners 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 shareholder value. We are committed to building on the progress the Solstice 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. With that, we are ready to take your questions.

Operator

Thank you. We will now be conducting a question-and-answer session. If you would 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 would 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. Our first question will be coming from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions.

Speaker 4

Yeah. Thank you, and good morning. David, nice to see the debottlenecking of nuclear at Metropolis. Can you talk a little bit about how you're achieving that incremental one to two kilotons, associated cost, and the timing of that? What impact, if any, does that have on your ambitions to explore more substantial capacity expansion?

Speaker 2

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 2027. As far as the impact to the expansion, it just gives us great flexibility, but I don't think it deters 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 some initial preliminary costs. We've talked about those being the three pillars. This additional one to two 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.

Speaker 4

Great. As a second question, if I may, I 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 also provide an update on the Spokane, Washington expansion project?

Speaker 2

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. 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 2027 and our manufacturability for additional capacity.

Speaker 4

Great. Thank you so much.

Operator

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

Speaker 5

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 lend some of your own voice to what's happening in the market. A lot of conversation around choppiness and residential HVAC demand, but obviously you're seeing some pretty good growth. So, what explains what you're seeing versus some of the others? Thanks.

Speaker 2

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 and stationary because of where housing is, 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 454B headwind continuing, but then as we go into 2027, we expect normalization in that market.

Speaker 2

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 454B as we go into 2027.

Speaker 5

Yeah. Maybe if I could just follow up on 2027 then specifically, what does normalization look like? Do you have visibility for that aftermarket in 454B being cleaned up enough to say that it enables growth in 2027? And then maybe just expand on the data center comment where that's whatever, 5%, 6% of sales growing 50%. Seems like that should be an adder for next year as well.

Speaker 2

Yeah, 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 2026. I think about it a little bit like healthcare. 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 2026, and then we'll be back to that normalization in 2027.

Speaker 5

Okay. Thank you, David.

Operator

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

Speaker 6

Thank you. Good morning.

Speaker 2

Morning.

Speaker 6

On the conversion business, what are your latest thoughts on the more substantial expansion? Is this more likely a go than not? Then, can you comment approximately what percent of your target contracts have you been able to sort of lock in to greenlight this project so far?

Speaker 2

Yeah, as we've talked about, it's those three pillars. It's locking up about 80% of customer commitments to fulfill a modular design plant 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 of 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.

Speaker 2

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 will be a trigger with where the costs land and the alignment with the DOE. Certainly more to come on that.

Speaker 6

Thank you, David. 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 the segment over the next few quarters?

Speaker 2

As we think about RAS margins, I will certainly have Tina add additional color. As 454B continues to rebound, we do expect that margin expansion. As we've talked about, when that aftermarket kicks in for 454B with HVAC units in the residential sector established, we do see margin expansion there. 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 454B.

Speaker 3

The only thing I would add, David, is just the R&D spin.

Speaker 2

Yeah.

Speaker 3

We continue to invest in the next generation of refrigerant molecules, so that was the other contributing factor.

Speaker 6

Thank you very much.

Operator

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

Speaker 7

Hi, good morning.

Speaker 2

Morning.

Speaker 7

Just to follow up on the electronic materials strengths. 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-

Speaker 2

Yeah

Speaker 7

opportunity you see going forward.

Speaker 2

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. 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 on new applications.

Speaker 2

So, 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.

Speaker 7

All right. 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. 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.

Speaker 2

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. 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 plant expansion.

Operator

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

Speaker 8

Morning, David and Tina. Question around any potential Electronic & Specialty Materials capacity constraints you guys may be seeing. I mean, obviously, the 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 sort of invested to sort of maintain that double-digit growth?

Speaker 2

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 have committed over $200 million to double the size of the plant as well as make it more efficient. So, we are trying to accelerate that to meet the demand. It is a very complex manufacturing process that we have, very unique, that provides the great purity of the material and help improve our customer yields at the same time. So, we are doing everything we can for 2027 to accelerate that expansion. Obviously, you are at a little bit of a wait on when equipment can arrive that is on order, that kind of thing.

Speaker 2

So, we are working with our suppliers in that regard, but we are doing everything we can to meet the demand forecast from our customers on depositions. We do not feel like we are constrained in thermal management right now. We feel like we have a really good supply chain there. We are seeing terrific growth there, and we are able to continue to meet our customer needs there. But we are really focused on our Spokane facility and continuing to look for ways to flow through more targets for 2027.

Speaker 8

Understood. 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? Then, as one sort of thinks about 2027, what sort of growth? Would those growth levels be sustainable as one sort of looks into the next year?

Speaker 2

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

Speaker 8

Very helpful. Thanks so much, David.

Speaker 2

Thanks, Hassan.

Operator

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

Speaker 9

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?

Speaker 2

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 are at about 2.6% now, and so we will continue to slightly edge that up. But what is exciting is what this R&D team is able to deliver as we continue to do that. We have got some really exciting molecules in development, both in refrigerants as well as next-gen technologies and electronics, all under testing. So, you have 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.

Speaker 2

There will be a little bit more, but we are getting to a place where we feel is normalized for where we want to be as an innovation company.

Speaker 9

Okay, thank you. On capital allocation, is there anything about this environment in particular that you think favors share purchases as opposed to M&A or vice versa?

Speaker 2

As we have talked about, we are in the midst of a $500 million share buyback. We think this is a great time to buy with where the share price is at. We will be largely complete, as Tina alluded to, by the end of the first quarter. We will work with our board before then on further share repurchases, but until that time, it probably would be more prudent to wait till coming out of that meeting with our board as we talk about further share repurchases. But that, with the amount of cash we are generating, the organic nature of where we are at, we do see opportunities to continue with share repurchases and returning capital to shareholders.

Speaker 9

Perfect. Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 10

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

Speaker 3

Well, John, I think what you are alluding to is the NCI, and we have seen an increase there. We are kind of guiding towards $70 million for the year. What we have seen is really a favorable mix, as well as what David alluded to in terms of the site has been running extremely well. It was really a combination of those two factors.

Speaker 2

John, to your point on pricing, we do not really talk about how we do our loan returns on pricing, but as you can imagine, it is at a more probably lower price repayment. As we talked about, we are now really pretty much at the end of our a little bit more drips and drabs, but we think we are definitely through almost all of the loan repayments, which would be a negative impact on pricing.

Speaker 10

Thank you.

Speaker 2

Thanks, John.

Operator

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

Speaker 11

Great. Thanks for taking my question. Hope you guys are well. And congrats on the strong results here. I guess, first off, on refrigerants, just curious, concerning your comments earlier, I know it's a little bit early to 2027. When do you expect to get that visibility on the channel?

Speaker 2

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. 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.

Speaker 11

Okay. 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? Does that require even greater capacity expansion? Is there a second phase that you're still working on as well? Thanks.

Speaker 2

Yeah. I will talk about the expansion. I will certainly have Tina talk about the accounting on that. We are in the throes of accelerating the capacity expansion to get that complete. As we talked about, it is kind of 2028. We are trying to do as much as we can to pull in for 2027. The demand has been so robust, and we are getting forecasts well out to 2030 from our customers and beyond. We are in early stages of yet 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.

Speaker 3

Yes. As mentioned, for the initial expansion, it is a three-year program that will conclude in 2028. When we increased our capital guidance last quarter to $420 million-$440 million, one of the considerations was, as David alluded, we are trying to pull more of that CapEx in from 2027 and 2028 so that we can get more product out to our customer. Secondly, we are looking at kind of the next potential project as well. We are continuing to have very strong demand signals from our customers, but overall, the program is proceeding extremely well.

Speaker 11

Thanks a lot.

Speaker 2

Thanks, Arun.

Operator

Thank you. Next question is from the line of Charles Boukey with Jefferies. Please proceed with your questions.

Speaker 12

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? If you could speak around volumes around that, if they will be prioritized given the U.S. government connection there.

Speaker 1

Yeah. Thanks, Charles. This is Mike. I mean, I think, look, it is obviously, I think, 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 is too early for us, particularly where we are in the process, to give any sort of comment around price. But I think, look, they have obviously been on public record saying they need 1.5 KT as early as the 2030s. I think what we wanted to show today is that we have now found an incremental 1 to 2 KT out of 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 are in a credible position today with our asset base.

Speaker 12

Great. Thanks. Maybe one last question on pricing. I mean, in the conversion market today, you are 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 you envisage pricing going?

Speaker 2

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. We'll continue to see how those orders progress with the demand globally. That's typically how we run our plants and locking up about 90% of that volume with contract pricing.

Speaker 12

Great. Super helpful. Thanks for that, and congratulations on the quarter.

Speaker 2

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.

Speaker 1

Great. Well, look, really appreciate everybody joining us today and your continued interest in Solstice. If you have any questions, I will 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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