Greetings, and welcome to the Solstice Advanced Materials Third Quarter 2025 Earnings Call [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mike Leithead, Vice President, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. Welcome to Solstice's Third Quarter 2025 Earnings Call. Solstice completed its spin-off from Honeywell on October 30 and is now listed on the Nasdaq Stock Exchange under the ticker SOLS. We are excited to be with you today for our first earnings call following the spin. We released our third quarter 2025 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. Turning to Slide 3. 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. Tina will then review our segment performance 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.

Thank you, Mike, and thank you, everyone, for joining us today. First, I'd like to recognize this significant milestone for Solstice as we host our first earnings call following our spin-off from Honeywell. Exactly 1 week ago today, we rang the opening bell at the NASDAQ to mark the beginning of our next chapter. The excitement was palpable throughout the day, not only from those participating in the celebration on site, but from all of our employees who cheered us on from their locations around the world. I can't stress enough how grateful I am to each of our team members who dedicated their time and talents to make that milestone possible and to the entire Solstice team who continue to deliver for our customers. As you'll hear on today's call, even as we were in the final stretches of preparing the business to operate as an independent entity, we continued to deliver strong financial results. As we discussed at our Investor Day last month, Solstice has a strong track record of peer-leading growth, fueled by our technology platforms and underpinned by strong secular growth trends in the end markets we serve. Our third quarter performance builds on this track record, delivering year-over-year net sales growth of 7%. This growth reflects both strong demand for our products as well as the significant value that our differentiated product platform provides our customers. During the third quarter, we also maintained our best-in-class margin profile, delivering adjusted stand-alone EBITDA margins of 24.3%. Our strong margin profile is driven by our commitment to operational excellence, capital efficiency and the specialty nature of our portfolio. During our Investor Day last month, we discussed how we are refining our operating model to focus on commercial excellence, drive productivity and optimize return on invested capital. Following our…

Thank you, David. Now let me talk in a bit more detail about the results in each of our 2 segments, beginning with Refrigerants and Applied Solutions on Slide 7. Overall, the segment achieved $687 million in net sales for the third quarter of 2025, reflecting 9% growth year-over-year. The growth is composed of 8% organic net sales growth and 1% increase due to foreign currency translation. The segment posted $243 million in adjusted EBITDA for the third quarter of 2025, down 3% year-over-year and adjusted EBITDA margin of 35.4%, down 431 basis points year-over-year. As David mentioned previously, this decrease was primarily driven by stationary refrigerants product mix, which more than offset positive flow-through in both -- both in volume and pricing. Transitory cost had a negligible impact in the segment. Looking at performance for our subsegments, Refrigerant net sales increased 22% year-over-year to $400 million, driven by both favorable pricing and volume growth. As David mentioned, our refrigerants business experienced a significant increase in demand for our low global warming potential refrigerants for stationary applications due to the ongoing regulatory transition towards next-generation HFO solutions. We also saw modest growth in auto during the quarter and continued to strengthen our aftermarket position. Building Solutions and Intermediate net sales were $175 million, down 3% year-over-year. Although continued softness in the construction market impacted performance, we remain focused on driving LGWP solutions and on continuing our strong operational execution to ensure we are well positioned to serve our customers upon a return to more normalized demand in key end markets. For Healthcare Packaging, net sales were $49 million, down 14% year-over-year. The decline was due to lower volumes resulting from some destocking we saw in the pharmaceutical end market. Despite this headwind during the quarter, we're confident in our strong…

Thank you, Tina. Please turn to Slide 11. As Tina just mentioned, we are on track to deliver on our full year 2025 guidance. Our outlook is based on our belief in Solstice clear right to win and future prospects that are supported by strong secular trends, a clear path ahead for resilient and long-lasting growth and a refined operating model that enables our strategy to unleash that growth. We are committed to unlocking growth by expanding our leadership positions through investing in our capabilities, expanding our deep customer relationships and enhancing our proven growth engine. Our third quarter results reflect the burgeoning benefits of our strategy as demonstrated through our strong top line. We will also deploy our refined operating model to continue driving operational excellence. Our model focuses on our innovation and commercialization processes to maximize customer value and drive growth. It steers us to commercial excellence through best-in-class practices around pricing, margin management and customer centricity. It also aligns us towards disciplined capital deployment and optimization, efficient supply chain and logistics management and manufacturing excellence. We're confident that this operating model will enable us to further our strategy and unleash our growth potential. I'm also confident that our near-term transition positions us well to benefit in the medium and long term. As a stand-alone company, we have the ability to focus our capital spend on the highest return projects with an aim to improve margins and drive organic top line growth. We believe ongoing momentum in areas such as refrigerants, semiconductor materials, protective fibers and nuclear validates our decision to invest in these areas, which are well aligned with our growth strategy. Looking beyond 2025, we already are finding opportunities and actioning items to improve our cost profile. This should provide a long-term pathway for margin improvement, furthering our financial strength. Finally, we have a strong liquidity position and financial flexibility that is enabling us to invest for high-return growth at a time when many others in the chemical space are pulling back. We apply a disciplined capital allocation strategy that strengthens our ability to serve customers and reflects a focus on investing in growth while maintaining a strong and flexible balance sheet. We have both the financial flexibility and strategic focus to enable organic and inorganic investments that drive technological innovation, improve customer proximity, bolster our industry leadership and expand that leadership as we pursue our differentiated growth strategy. With over 130 years of innovation at the intersection of chemistry, engineering and material science, our business has built a deeply rooted legacy. We have demonstrated long-standing leadership across multiple innovation cycles, not just keeping pace with the market, but defining it. I couldn't be more excited as we embark on our future as an independent company. We look forward to sharing additional updates in the months ahead. With that, we are now happy to take your questions.

[Operator Instructions] Our first question comes from the line of John McNulty with BMO Capital Markets.

Congratulations on the split. So I wanted to get into the AES segment a little bit more. Even since your Capital Markets Day, there's been growing enthusiasm kind of around the nuclear markets. And I guess we can see that even today in your backlog expanding. I guess, can you help us to understand a little bit more about what drove that backlog increase? Was it primarily price? Was there more volume coming in? And also how you can capture volume growth going forward? I know you've got the big debottleneck that's coming on, but it seems like you may be close to sold out even post that. So I guess, how do we think about the growth for this business given the enthusiasm and excitement around nuclear right now?

John, thanks for the question. And the backlog increase, we saw a 12% backlog increase, to your point. That was new orders, not pricing. And we are aligned with our capacity expansion with the volume anticipated demand that we see. However, there has been a lot of recent announcements of expansion investments. So we're following that very closely. And if we need to continue to expand manufacturing capabilities, we'll be able to do so to meet the demand. But it's an exciting growth opportunity for us long term, and it's really nice to see all of these announcements and investments that have been made in the marketplace.

Got it. Okay. No, that's helpful. And then just as a follow-up, the refrigerants business, it seems like it's actually -- despite the volume or the top line side, it seems like it's a little bit more of a drag on EBITDA than I guess we were expecting it to be. I guess can you help us to unpack that mix shift like kind of negative headwind? And I guess, how does that set you up as you're looking to 2026? Can we see the refrigerants EBITDA and the margins inflect up at that point?

John, you're exactly right. It's really driven by the short-term transition from HFCs to HFOs and really more specifically from 410A transitioning to 454B. And we did anticipate the margin contraction during the initial transition, which is within the forecast of that 25% year-over-year margin. But what we see moving forward is we'll finish up the transition, pricing has stabilized. And then as we get into 2026, we'll start to see the aftermarket kick in. And as we've talked about, that's a little bit higher margin business than our OEM business. So we see the opportunity growing in margins. We just need to get through the transition, and this was an expected transition that we had. And I think you'll definitely see it in the fourth quarter and then start really reducing the beginning of the year. And then as -- we'll give a forecast in 2026, but we should be out of the transition as we get in further into '26.

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Congratulations on your first public quarter, exciting stuff. David, I wanted to pick up on your prior thought. At the Capital Markets Day on October 8, you set forth an EBITDA growth trajectory in the mid-single-digit range for the medium term. And I understand you'll probably give more specific guidance next quarter. But as we think about that mid-single-digit glide path, might it apply to 2026 as well? Or do you think there are either transition issues or market issues that you're seeing that would cause it to be below or above that range? How are you thinking about that growth trajectory for the next year or so?

Yes. Thanks for the question, Kevin. We'll certainly, to your point, give 2026 guidance when we report fourth quarter. But the way we think about it and have we -- and again, we're on track for how we see it is exiting the year around that 25% margin and then our growth rate will come from there. So we don't feel like there'll be continued downside. We feel like the 25% is our baseline, and that's where we'll be able to grow from with the growth secular trends that we're seeing that get us pretty excited.

And Kevin, this is Mike. I would just build on that a little bit. As you'll see in the appendix, we included a slide to sort of help people bridge through some of these transitory costs. As David mentioned, most of these will be behind us as we exit the year. So we really do feel comfortable that as we get into '26, a lot of these margin impacts are not expected to carry over.

Very good. And to follow up on that, Mike, I was noticing on Slide 13 in the appendix, it looks like you're baking into the fourth quarter about 300 basis points having to do with plant downtime. So David, can you elaborate on that? Is that having to do with maintenance or inventory management efforts? And maybe you can talk about what's down and what the effects might be on a segment level, please?

Yes. So Kevin, it's a combination of both planned downtime and some unplanned downtime. The planned downtime was mostly in Baton Rouge and Geismar, but that was fully baked into our forecast. We did have some unplanned downtime. It was an issue with the reactor. That was in our ESM business. The good news is we're fully operational. Everything is up and running, but we did incur some costs in that in the third quarter, and we will incur some costs and impact on that in the fourth quarter. But again, good news is fully operational, and we'll have it behind us once we get through the fourth quarter.

Our next question comes from the line of Josh Spector with UBS.

I want to follow up on that last question. Just -- so if you look through your slides and kind of how you guys have talked about the second half, you have $30 million in transitory costs you're calling out from corporate. It seems like you're calling out a lot of this plant and downtime impact as perhaps more temporary at maybe $20 million, $25 million. Are those things that we should be adding back base case to next year? And if that number is wrong, what would you point us to instead?

Yes. Josh, so really, the anchor is the guidance that we provided. And so that's the $950 million of EBITDA for 2025, which is approximately a 25% margin rate. So what we've highlighted here on Page 13 is, yes, the $30 million of transitory cost, those will definitely not reoccur. We had $10 million -- approximately $10 million in quarter 3, and then you can see there's approximately $20 million in Q4. And this involved a hedge. We are part of the broader Honeywell hedging program. That has been discontinued effective at the time of the spin. And then as we stood up our new freight and logistics organization, there were some changes in the estimates associated with that. All of that is behind us now. And then as David alluded on the plant downtime and absorption, all of the plants are up and operating now. So we don't anticipate that going forward. And then the final factor there is just seasonality, and that's largely our refrigerants business. That business tends to be a little bit heavier in second and third quarter. So that's the third reason for the step down. But overall, we continue to remain confident in the guidance that we provided at our Investor Day.

Okay. And just going back to the RAS segment and some of the moving pieces on margins. I guess one piece I don't understand is that you're seeing a big margin and EBITDA impact in the second half from the transition, but it doesn't really seem like you saw that anywhere to the same degree in the first half. So I don't know if there's a difference in mix half-on-half that has a bigger impact. And I guess, importantly, when we're thinking about first half '26 and the margins that you reported, is there a headwind that we need to anticipate there that's a negative for EBITDA? Or is that already largely baked in and we can grow off of that?

Yes, Josh, it's a good question. There's a couple of pieces here that I'll walk through on the refrigerants. In 2024, 410 market was really tight, and that pricing has since stabilized. So we are up against that from a year-over-year standpoint. But the other piece that's a factor is we have such strong demand and to ensure we could supply our customers, we did import from overseas to meet that demand and keep our customers running. And when we did that, there was a little bit of a margin impact for obvious reasons, but we felt it was more important to satisfy the needs of our customers. So we did see some margin contraction with that. The good news about that is we are fully stabilizing our supply chain to meet the demand needs. So we don't anticipate having that as we go into 2026.

Our next question comes from the line of John Roberts with Mizuho Securities.

I don't think we have the 2 quarters of 2025 first half separated yet. That's fair. So maybe to follow on, on that question, will the transitory headwinds be big enough that the March quarter will be down? I don't even know what our March quarter 2025 was to compare against. But will you be able to flip to up? I know you don't want to give guidance for 2026 yet, but just directionally, will those headwinds be big enough that we'll still have a down March 2026 quarter?

No, we should be through the transitory costs through -- by the end of the year. We will have the TSAs that we talked about at our Investor Day that go through most of 2026. So we will have those costs. We'll have a little bit of the transition from HFCs to HFOs leaking into the first quarter, which are anticipated. But by and large, those transitory costs should be behind us.

And when will we get the split for the first half of 2025 results, so we'll have the comparisons?

Yes, John, it's Mike. So yes, we will be able to break that out for you in short order here going forward.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Leithead for his final comments.

Great. Well, look, we really appreciate everybody joining us today for our first earnings call as a public company. If you need anything, please reach out to the IR department and happy to help. So thank you, and have a good day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.