솔스티스 어드밴스드 매터리얼스(SOLS) 2026년 3분기 실적 발표 컨퍼런스 콜: 가이던스 상향

핵심 요약

• 2026년 3분기 순매출은 전자 재료, 냉매 및 헬스케어 패키징의 성장에 힘입어 전년 동기 대비 8% 증가한 약 10억 5,000만 달러를 기록했습니다.
• 조정 EBITDA는 13% 증가한 2억 6,500만 달러를 기록했으며, 조정 EBITDA 마진은 109베이시스포인트(bp) 확대된 25.3%를 나타냈습니다. 조정 희석 주당순이익(EPS)은 0.80달러였습니다.
• 전자 및 특수 재료 부문은 13% 증가한 3억 2,000만 달러의 분기 최대 매출을 달성했으며, 조정 EBITDA는 44% 증가했습니다. 전자 재료 매출은 스퍼터링 타깃 및 열 관리 솔루션 수요에 힘입어 31% 성장했습니다.
• 솔스티스(Solstice)는 2분기 연속으로 2026년 전체 실적 전망치(가이던스)를 상향 조정했습니다. 현재 순매출은 41억 9,500만 달러~42억 2,000만 달러, 조정 EBITDA는 10억 5,000만 달러~10억 6,000만 달러로 예상하고 있습니다.
• 원자력 수주잔고는 2039년까지 연장되는 계약을 포함해 26억 달러에 달했습니다. 경영진은 2026년 메트로폴리스(Metropolis) 생산량이 1만 톤을 초과할 것으로 예상하고 있으며, 적은 자본 투입을 통한 병목 현상 해소(debottlenecking)로 1,000~2,000톤의 추가 잠재 생산 능력을 확인했습니다.
• 솔스티스는 3분기에 1억 달러 규모의 자사주 매입을 완료했으며, 2027년 1분기 말까지 현재 승인된 잔여 4억 달러를 대부분 완료할 계획입니다.

주요 재무 데이터

사업 및 영업 실적

냉매 및 응용 솔루션

부문 매출은 6% 증가한 7억 2,600만 달러를 기록했습니다. 조정 EBITDA는 3% 증가한 2억 5,100만 달러로 34.5%의 마진을 기록했습니다.

냉매 매출은 8% 증가한 4억 3,300만 달러를 기록했습니다. 자동차 및 데이터센터 수요가 주거용 시장의 부진과 지속적인 R-454B 유통 채널 재고 조정을 상쇄했습니다. 경영진은 4분기에 전년 동기 대비 완만한 냉매 매출 성장을, 2027년에는 정상화를 예상하고 있으며, 4분기 실적 발표 시 세부 사항을 추가로 제공할 것이라고 언급했습니다.

원자력 매출은 이전에 공지된 약 3,000만 달러 규모의 제품 대여 반납 영향에도 불구하고 4% 증가한 6,600만 달러를 기록했습니다. 수주잔고는 최근 몇 달 동안 22억 달러에서 26억 달러로 확대되었으며 다수의 소형모듈원자로(SMR) 고객사의 계약을 포함하고 있습니다.

헬스케어 패키징 매출은 2025년 하반기 고객사 재고 조정 이후 출하량과 가격이 개선되면서 24% 증가한 6,100만 달러를 기록했습니다. 경영진은 정상화된 기준에서 이 사업을 한 자릿수 중반대의 성장 사업으로 규정했습니다.

건축 솔루션 및 중간재 매출은 건설 관련 시장의 지속적인 부진으로 인해 5% 감소한 1억 6,700만 달러를 기록했습니다.

전자 및 특수 재료

부문 매출은 13% 증가한 3억 2,000만 달러를 기록했습니다. 조정 EBITDA는 44% 급증한 6,800만 달러를 기록했으며, 마진은 453베이시스포인트(bp) 확대된 21.2%를 나타냈습니다.

전자 재료 매출은 메모리 및 AI 관련 응용 분야에 사용되는 스퍼터링 타깃 및 열 관리 솔루션 수요에 힘입어 31% 증가한 1억 3,500만 달러를 기록했습니다. 솔스티스는 스포캔(Spokane) 시설의 생산 능력을 두 배로 늘리기 위해 2억 달러 이상을 투자하고 있습니다. 경영진은 2027년에 일부 물량 증대가 이뤄지고 증설 대부분은 2028년에 가동될 것으로 예상하고 있습니다.

안전 및 방산 솔루션 매출은 3% 증가한 5,400만 달러를 기록했으며, 연구 및 성과 화학제품 매출은 4% 증가한 1억 3,100만 달러를 기록했습니다.

AI 및 데이터센터 익스포저

AI 및 데이터센터 응용 분야에 공급하는 사업은 2026년 예상 매출의 약 6%를 차지하며, 매출은 전년 동기 대비 50% 이상 증가했습니다. 이는 원자력 변환 사업을 제외한 수치입니다.

솔스티스는 2026년 냉매 부문 내 데이터센터 냉각 응용 분야에서 약 1억 달러, 방열 소재(열전도 소재), 히트 스프레더, 증착 타깃 및 전자 폴리머를 포함한 전자 제품에서 1억 5,000만 달러 이상의 매출을 예상합니다.

경영진 가이던스

솔스티스는 연초 이후 실적 성과와 지속적인 사업 모멘텀을 바탕으로 2026년 전체 실적 전망치를 상향 조정했습니다.

경영진은 설비투자가 고객 수요와 매력적인 예상 수익률이 뒷받침되는 프로젝트에 계속 집중될 것이라고 밝혔습니다. R&D 지출은 분사 당시 매출의 약 2%에서 현재 약 2.6%로 증가해 회사의 목표치인 약 3%를 향해 가고 있습니다.

리스크 및 관전 포인트

• 스포캔 시설은 현재 증착 재료 생산 능력 한계에 가깝게 가동되고 있으며, 추가 물량의 출력 시점은 장비 확보 가능 여부 및 프로젝트 실행력에 일부 좌우됩니다.
• 주거용 HVAC 부진과 R-454B 재고 조정은 냉매 사업의 악재로 남아 있으나, 경영진은 2027년 정상화를 기대하고 있습니다.
• 건축 솔루션 및 중간재의 건설 관련 수요는 여전히 부진합니다.
• 원자력 매출은 장기 주문 및 인도 일정으로 인해 고르지 않을 수 있습니다. 경영진은 예상되는 4분기 감소 원인이 비정상적인 영업상의 문제가 아닌 시점(타이밍) 때문이라고 설명했습니다.
• 대규모 메트로폴리스 증설은 고객 구매 확약, 미국 정부와의 조율, 프로젝트 비용 및 예상 수익률에 따라 달라집니다. 회사는 진행 전 계획된 모듈형 생산 능력의 약 80%를 충족하는 확약 확보를 목표로 하고 있으나 아직 해당 기준치에 도달하지 못했습니다.
• 차세대 냉매 분자에 대한 지속적인 R&D 투자가 단기적으로 냉매 및 응용 솔루션 부문 마진에 부담을 주고 있습니다.

애널리스트 Q&A 하이라이트

• 원자력 병목 현상 해소: 경영진은 2027년까지 점진적인 생산성 개선을 기대하고 있으며, 연말 전에 1,000~2,000톤의 추가 생산 능력이 확충될 예정입니다. 이 프로젝트들은 제한적인 추가 자본만을 필요로 하며, 잠재적인 대규모 증설을 대체하지는 않습니다.
• 전자 재료 생산 능력: 솔스티스는 스포캔 시설에서 증착 응용 분야로 생산할 수 있는 전량을 판매하고 있습니다. 회사는 자본 집행을 가속화하고 있으며, 현재 프로젝트를 넘어서는 추가 증설에 대한 초기 논의를 시작했습니다.
• 냉매 전망: 자동차, 상업용 및 데이터센터 응용 분야의 광범위한 포트폴리오가 주거용 부진을 상쇄하고 있습니다. 경영진은 R-454B 재고 조정이 2026년 중에 대부분 완료될 것으로 예상합니다.
• M&A 전략: 엘리먼트 솔루션즈(Element Solutions) 인수 거래가 중단된 이후, 경영진은 대규모 구조적 M&A를 추진하지 않고 있다고 밝혔습니다. 선별적인 보트온(bolt-on) 인수는 여전히 가능하지만, 현재는 자체 투자(organic investment)가 최우선 과제입니다.
• 자본 환원: 경영진은 컨퍼런스 콜에서 논의된 현재 주가 수준에서 자사주 매입이 매력적인 현금 활용 방안이라고 보며, 기존 5억 달러 규모의 프로그램이 대부분 완료된 후 추가 승인 가능성에 대해 이사회와 논의할 예정입니다.
• 원자력 계약: 솔스티스는 일반적으로 연간 생산 능력의 약 90%에 대해 계약을 체결하고 약 10%는 스폿 시장용으로 남겨둡니다. 병목 현상 해소 조치는 추가적인 유연성을 제공할 수 있습니다.

실적 발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Greetings. Welcome to Solstice Advanced Materials Third Quarter 2026 Earnings Call. 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.

Michael Leithead

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' 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. We will then be happy to take your questions.

With that, I'll now turn the call over to David.

David Sewell

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 health care 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.

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 Solsys 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 are able to utilize for both reinvestment into the growth of our business and for increased return of cash to shareowners. 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 stand-alone 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 long-standing 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 1 year since Solsys became an independent company. Our transition to a stand-alone 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 shareowners through our dividend and share repurchase program. Altogether, we believe Solsys 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 Solsys' innovation is positioned to drive superior growth and value creation. Today, Solsys' 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 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.

As the materials landscape evolves, we are working hand-in-hand with our customers on future solutions such as 2-phase direct-to-chip fluids, potential immersion cooling applications, further expansions of our sputtering targets productions and innovation in advanced packaging. This is the Solsys 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 kt in a measured way in line with contracted customer demand and operational readiness.

The 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

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 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 stand-alone 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 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 health care 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 & 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 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 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 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 9 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 multiyear 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 spin-off from Honeywell approximately 1 year ago, our cash position has increased approximately $250 million after returning approximately $136 million of cash to shareowners.

As of September 30, 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 1.3x 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. 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 the 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 $0.62.

I will now turn the call back to David for closing remarks.

David Sewell

Thank you, Gina. 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.

And we are maintaining a disciplined approach to capital allocation. Our strong balance sheet and cash generation allows us to reinvest in the company while returning meaningful excess cash to shareholders 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 Solsa team has made in our first year as a stand-alone 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

And our first question will be coming from the line of Kevin McCarthy with Vertical Research Partners.

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Kevin McCarthy

David, nice to see the debottlenecking of nuclear at Metropolis. Can you talk a little bit about 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

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 kind of 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 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 kind of some initial preliminary costs. We've talked about those being the 3 pillars. So 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 3 pillars come to fruition.

Kevin McCarthy

Great. And then 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 then also provide an update on the Spokane, Washington expansion project.

David Sewell

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.

Operator

The next question is from the line of Josh Spector with UBS.

Joshua Spector

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 in residential HVAC demand. But obviously, you're seeing some pretty good growth. So what explains what you're seeing versus some of the others?

David Sewell

Yes. Thanks, Josh, for the question. We're really proud of what the team has been able to execute and accomplish in refrigerants. To your point, there's definitely headwinds in 454B and stationery 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 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 has been able to do in the market and then with hopeful tailwinds that we see for 454 as we go into '27.

Joshua Spector

Maybe if I could just follow up on '27 then specifically is 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 '27? And then maybe just expand on the data center comment where that's whatever, 5%, 6% of sales growing 50%, it seems like that should be an adder for next year as well.

David Sewell

Yes. 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 health care. We had the destocking in 2025 in health care. 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.

Operator

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

Aleksey Yefremov

On the conversion business, what are your latest thoughts on the more substantial expansion? I guess, is this more likely to 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

Yes. So we -- as we've talked about, it's those 3 pillars. It's locching 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, -- 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. So certainly more to come on that.

Aleksey Yefremov

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 sort of over the next few quarters?

David Sewell

So as we think about RA 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

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.

Operator

Our next question is from the line of Mike Harrison with Seaport Research Partners.

Michael Harrison

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 opportunities we see going forward.

David Sewell

Yes. Thanks for the question, Mike. That was really a once-in-a-generation opportunity we looked at with the Element acquisition. The -- we reacted quickly from shareholder feedback. The logic was sound. We've 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 on new applications. 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.

Michael Harrison

All right. And then a 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?

David Sewell

Yes, Mike, you captured it perfectly. It's just a lumpy type order pattern, as you know, because you're talking about orders 3 and 4 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 plant expansion.

Operator

Our next questions are from the line of Hassan Ahmed with Alembic Global.

Hassan Ahmed

A 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 sort of invested to sort of maintain that double-digit growth?

David Sewell

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 help 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 weight 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

Understood. And David, as a follow-up on Health care 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 sort of one thinks about 2027, what sort of growth -- would those growth levels be sustainable as sort of one looks into the next year?

David Sewell

Yes, Hassan, you're spot on. We definitely saw the destocking from last year. And when you look at maybe a 2-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 give more clarity on health care and the forecast as we get into fourth quarter earnings.

Operator

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

Peter Osterland

This is Alec on for Pete. How can we think about the relative scale of the R&D investments across the 2 segments? And how is that balance expected to change heading into 2027?

David Sewell

What we've 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 and 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 RaaS on the investment just because of the nature of the next-gen molecules. But 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.

Peter Osterland

Okay. And on capital allocation, is there anything about this environment in particular that you think favors share repurchases post M&A or vice versa?

David Sewell

Well, as we've talked about, we're 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'll 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 that 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

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

John Ezekiel Roberts

General Atomics minority interest declined significantly. I assume that was related to the U.S. 6 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? And would that minority interest have been closer to the second quarter or your fourth quarter guidance without that repayment?

Tina Pierce

Well, John, what -- I think what you're alluding to is the NCI. And we have seen an increase there. We're kind of 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 2 factors.

David Sewell

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 not -- it's at a more probably lower priced 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 the -- almost all of the loan repayments, which would be a negative impact on pricing.

Operator

The next question is from the line of Arun Viswanathan with RBC.

Arun Viswanathan

Congrats on the strong results here. I guess, first off on refrigerants, just curious your comments earlier, it's a little bit early to -- when do you expect, I guess, get that visibility on the channel...

David Sewell

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

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 like a second phase that you're still working on as well?

David Sewell

Yes. 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 forecast well out to 2030 from our customers and beyond. So 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.

Tina Pierce

Yes. As mentioned, for the initial expansion, it's a 3-year program that will conclude in 2028. When we increased our capital guidance last quarter to $420 million to $440 million, one of the considerations was, as Dave 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.

Operator

Next question is from the line of Charles Boakye with Jefferies.

Charles Boakye

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?

Michael Leithead

Yes. Thanks, Charles. This is Mike. I mean I think, look, 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's too early for us, particularly where we are in the process to give any sort of comment around price. But I think, 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 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're in a credible position today with our asset base.

Charles Boakye

Great. 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 the spot open given the current price delta and where you envisage pricing going?

David Sewell

So from what -- 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 and locking up about 90% of that volume with contract pricing.

Operator

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

Michael Leithead

Great. Well, look, I really appreciate everybody joining us today and your continued interest in Solstice. 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.