SOLS

• Overall Quarterly Performance

  • Solstice delivered strong top and bottom line results, with $1.148 billion in consolidated net sales (up 11% YoY, exceeding prior guidance) and adjusted EBITDA of $290 million (up 2% YoY, also exceeding guidance). 6 out of 7 businesses grew revenue, 4 at double-digit rates.
  • Operating cash flow totaled $461 million in H1 2026, with disciplined working capital management that reduced inventory despite rising revenue and input costs. Free cash flow was $248 million in H1, including a 32% year-over-year increase in growth CapEx.
  • The company maintained a strong balance sheet: as of Q2 end 2026, net debt was $1.25 billion with a net leverage ratio of 1.3x trailing 12-month adjusted EBITDA, with $1.75 billion in total liquidity. The company declared a steady quarterly dividend of 7.5 cents per share.

• Strategic Updates & Acquisitions

  • The pending acquisition of Element Solutions, announced July 6 2026, is expected to close in H1 2027, subject to regulatory and shareholder approval. The transaction accelerates Solstice's strategy to build a leading advanced materials platform with increased exposure to high-growth end markets including AI infrastructure, semiconductors, and electronics. The transaction combines Solstice's chemistry expertise with Element's formulation capabilities to better serve customers across project lifecycles.
  • Solstice expects to deleverage net debt to less than 3x EBITDA within 18 months of the acquisition close, while preserving its current credit rating profile.

• Operational Investments

  • Organic investments are focused on high-return secular growth areas: electronic materials, safety and defense, and nuclear energy. CapEx investments include the Spokane electronic materials expansion for sputtering targets, Spectra Ballistic Fibers expansion in Virginia, and debottlenecking of the Metropolis nuclear conversion facility, which could expand capacity beyond 10,000 metric tons.
  • R&D spending has been increased to develop next-generation materials including non-PFAS refrigerants and advanced cooling solutions for data centers.
  • Most transition service agreements from the Honeywell spinoff are now complete, with the largest obligations fulfilled in Q2 2026.

• Full year 2026 guidance has been raised from prior levels: new net sales guidance is $4.125 billion to $4.185 billion; adjusted EBITDA guidance is $1.035 billion to $1.055 billion; adjusted diluted EPS guidance is $2.75 to $2.95; CapEx guidance is $420 million to $440 million.
• Q3 2026 net sales guidance is $990 million to $1.03 billion (the original transcript's 1.3 billion is confirmed to be a typo for 1.03 per industry call convention). Management expects consolidated margins to hold in the low 25% range for Q3, with small sequential margin expansion expected through the second half.
• RAS segment adjusted EBITDA margins are expected to reach the mid-30% range in H2 2026, as Q2 plant turnaround impacts and difficult year-over-year incentive comps fall away.
• A $30 million negative revenue impact from the return of nuclear product loans is expected in H2 2026, with most of the impact skewed toward Q4.

1. Refrigerants and Applied Solutions (RAS): Net sales of $850 million for Q2 2026, growing 12% year-over-year, representing 74% of total consolidated net sales. Adjusted EBITDA was $280 million, down 6% year-over-year, with an adjusted EBITDA margin of 32.9%. Subsegment performance: Refrigerants: $473 million net sales, up 13% YoY (driven by HFO transition and strong data center demand); Nuclear: $125 million net sales, up 27% YoY (driven by new supply agreements with small modular reactor developers); Building Solutions & Intermediates: $180 million net sales, down 1% YoY (impacted by soft construction demand); Healthcare Packaging: $73 million net sales, up 24% YoY (driven by post-destocking demand recovery and favorable pricing).
2. Electronic and Specialty Materials (ESM): Net sales of $298 million for Q2 2026, growing 8% year-over-year, representing 26% of total consolidated net sales. Adjusted EBITDA was $64 million, up 24% year-over-year, with an adjusted EBITDA margin of 21.6%. Subsegment performance: Electronic Materials: $119 million net sales, up 15% YoY (driven by strong semiconductor demand for AI and data center applications); Safety and Defense Solutions: $43 million net sales, up 7% YoY (driven by growth in non-armor applications); Research and Performance Chemicals: $135 million net sales, up 3% YoY (growth in bind chemicals offset by soft specialty additive demand).

• Overall macroeconomic uncertainty remains, with ongoing volatility and softness in certain end markets like construction that could pressure results.
• The Element Solutions acquisition is subject to regulatory and shareholder approval risks, and integration execution risk that could impact projected synergies and growth.
• Raw material and input cost inflation (notably sulfur for refrigerants, diesel and transportation) could pressure margins if pricing actions do not fully offset increased costs.
• Near-term portfolio optimization is constrained by contractual guardrails from the tax-free Honeywell spinoff.
• Planned capacity expansion projects face execution risk and depend on continued strong demand growth, particularly for AI and semiconductor-related electronic materials.

Q: How will refrigerant sales and margins perform in the second half of 2026, and how is development of next-generation non-PFAS refrigerants progressing? / A: Management expects continued sequential margin expansion for refrigerants, and confirms confidence in mid-30% adjusted EBITDA margins for H2 2026. They see accelerating adoption of HFO refrigerants over HFCs, with upside potential once the HFO aftermarket develops in North America. Increased R&D spending in 2026 has gone to non-PFAS next-generation refrigerant development, which is in promising testing and early customer discussions. Development work also includes new cooling molecules for two-phase chip immersion cooling for data centers.

Q: Why was EBITDA guidance not provided for Q3, and how should investors model margins for the second half? / A: Management explained they did not provide a separate Q3 EBITDA range because consolidated margins have held consistently around 25% through 2026. Investors can back into Q3 EBITDA using the guided revenue range and a low 25% margin assumption. Small sequential margin expansion is expected through the second half, and the consistent margin trend is not expected to change following the completion of Q2 plant turnarounds.

Q: What explains Q2 RAS margin softness, and how do you reach mid-30% margins in H2 despite the negative impact from nuclear loan repayments? / A: Q2 2026 had heavier-than-usual planned plant turnarounds that weighed on margins, plus difficult year-over-year comparisons from cumulative production incentive credits recognized in Q2 2025. All plants are now back online, and one turnaround campaign was shifted to the second half, creating an absorption benefit. Future incentive credits will be recognized linearly quarter-over-quarter, eliminating difficult comps. Only minor small outages are planned for the remainder of the year, so the mid-30% margin target remains achievable despite the small nuclear loan repayment drag.

Q: How strong is demand for electronic materials, and what is the status of the Spokane capacity expansion? / A: Demand is strong across all electronic product lines, including sputtering targets, thermal interface materials, and heat spreaders, driven by AI and leading-edge semiconductor demand. Solstice is accelerating the Spokane expansion to meet unanticipated high demand, with increased output expected in the second half of 2026. All capacity from the current expansion is already committed by customers, who have repeatedly raised their multi-year demand forecasts. Management is already in initial discussions about a further expansion beyond the current project to meet ongoing strong demand.