Conference Transcript - SOLS 2026-02-19

Mike, Analyst — Barclays

Well, welcome to everyone on the last day of our Barclays Industrial Conference. I really appreciate everyone being here, and I'm incredibly excited to host David Sewell and Mike Lighthead from Solstice, a new company in our space, and it's a company that has got off to a phenomenal start. So a huge congratulations on your latest earnings and obviously the market reaction. So thanks so much for being here with us. Pleasure to be here. Thanks for having us, sir. And I'd love to start with just a recap, you know, about you did fourth quarter earnings last week. Just for the audience, in case they haven't had a chance, can you walk through some of the key highlights, what really excited you, not only about what you've accomplished, but as you turn the page to 26?

David Sewell, CEO

Yeah, thanks. So we just announced earnings, and it was well-received, 8% top-line growth, but really underpin with some strong secular trends that we're really excited about for the future. Double-digit growth in our nuclear business, double-digit growth in our refrigerants and thermal management business, and double-digit growth in our electronics business, which really gives us a really good momentum heading into 2026 where we gave, you know, mid-single-digit EBITDA guidance. So we feel really good about the business, and we feel really good about our position in what we think is the inflection point of these growth markets.

Mike, Analyst — Barclays

And that clearly seems to be one of the things that's driving us. You just seem to have a prop for some of the key secular trends. So if you don't mind, let's walk through each one of them. So I'd love to talk about nuclear. That is one that I don't think people knew this business had. When you're named after your key product, obviously the refrigerant product, so this is something that I think was underappreciated. Can you talk a little bit about, A, what you do, what the drivers are, and what the outlook is?

David Sewell, CEO

Sure. So we have the only nuclear conversion site in the United States, and there are basically four other locations around the world for nuclear conversion. We make uranium hexafluoride, where we basically take mined uranium ore, which turns into yellow cake, we add our hydrogen fluoride at our facility in Illinois, and we convert that into UF6. And from there, that goes to enrichment, and then from enrichment, that goes to fabrication at the utility. Obviously, we're under huge demand for energy right now, especially with data center growth and everything going on around that, around the world. So nuclear energy has become a huge option for clean energy moving forward. The administration has come out and talked about 400% growth in nuclear energy over the next 25 years. You're seeing right now 75 new nuclear actors under construction. Another 100 have been announced for construction, and that doesn't even include the SMRs. that are out there as well. So an enormous demand for energy, and we just feel like we're exceptionally well-positioned to capture that growth. And in our earnings, we also announced our expansion exploration for our Metropolis site, and we've already announced our 20% de-bottlenecking for 2026. So all this, to your point, all the leading indicators for us are there, and our site is basically sold out through 2030.

Mike, Analyst — Barclays

And it's sold out, including with the threat of somebody else coming in. This has to be something you guys have had for a long time. There's got to be a significant moat. Is there a risk that others try to come in and compete, or is that we probably need it given the growth you're talking about, but what's that risk?

David Sewell, CEO

So obviously we work very closely with the Department of Energy. Our permitting right now is for 15,000 tons of uranium hexafluoride. Our expansion gets us to 10, so we still have that permitting. There are, as I mentioned, there's three other locations that can do uranium conversion. We're actually uniquely positioned because we're vertically integrated with our hydrofluoric acid. We also have a 60-plus year legacy of making uranium hexafluoride, and we feel like we have some proprietary manufacturing processes so what we're doing though is because of the relationships we have with our customers as we do this expansion we're ensuring that we are aligned with customers so our expansion is going to be aligned to customer growth so we've already had the beginnings of conversations with utilities for beyond 2030 and Those conversations have been very positive, and so I think just because of our history and our expertise in manufacturing this, we feel very good about our position.

Mike, Analyst — Barclays

It sounds like you're the first call for all these guys because of the history.

David Sewell, CEO

Well, and hopefully that's the case, and we're going to be a reliable supplier because if you were to do a greenfield, it would be, you know, you're talking four to five years to get production. Understood.

Mike, Analyst — Barclays

Why don't we turn now to the refrigerants, which is, I think it's fair to say, the heart of the company as it sits today. Can you talk through the growth you're seeing, you know, HVAC, auto end markets? What are you seeing from those end markets and just the overall refrigerant market and your position in it?

David Sewell, CEO

Yeah, so. Vis-a-vis, obviously, your key competitor.

Mike, Analyst — Barclays

Sure.

David Sewell, CEO

So our refrigerants business, we just had a terrific quarter, double-digit growth quarter, double-digit year in 2025. And what's happened is regulation has mandated this glow-warming potential product, which hydrofluoro olefins have really become the standard. Europe converted a couple years ago. We just finished the conversion in the United States, and we have a very strong IP position. Obviously, we co-developed that molecule. So the growth has been terrific, and about half of our business is in HVAC, in commercial and industrial. The other half is in automotive. So what's happened is this conversion to HFOs has just created tremendous demand, and you've seen that in the results that we've had. And as those units go into the market, you'll then start to see the aftermarket business start to kick in, which when we do break bulk and packaging, there's actually a little bit higher margin for us. So we'll start to see that margin expansion now that that conversion is complete.

Mike, Analyst — Barclays

And can you elaborate on the impact of the regulatory-driven transitions and how it impacts mix and margin?

David Sewell, CEO

Yeah, it's a huge part. So we work obviously very closely with governments around the world. so they have mandated this conversion to global warming potential products and what that has done is created the need for new innovation that's where HFO has come in and that has converted and you've seen our HFCs which was the previous technology come down because there is cannibalization but we've also seen the growth and you also see growth in data centers that's growing so We've seen a little bit of margin compression with the conversion to HFOs because our aftermarket hasn't kicked in as much. But now that we've completed that, we do see that margin coming back and the growth rates. As we projected at our investor day, we see HFOs in high single-digit growth, cannibalization of HFCs of low single digits, so that mid-single-digit growth outlook.

Mike, Analyst — Barclays

And in terms of the margin, how do you see that stepping back up? Is that a back half of the year? Is it linear? Do you have a sense on how that will play out?

David Sewell, CEO

Yeah, we're going to start to see the benefit starting now. So we've converted that, and our first quarter guidance, you've seen us get back to our – and there's also some transitory costs with our split from Honeywell. But I think you'll start to see the aftermarket in the U.S. come in, second half of 26, that'll start. But we're seeing great data center growth, and our automotive business has been very stable.

Mike, Analyst — Barclays

Great.

David Sewell, CEO

You mentioned data centers.

Mike, Analyst — Barclays

You seem to hit like we talked about all the time, and we'll get to electronics, which is another exciting end market. What are you doing for data centers, and what are you seeing? Obviously, it's just the cause celeb right now in the markets. How are you playing in that?

David Sewell, CEO

Yeah, it's an explosive growth opportunity for Solstice, and we think we're really uniquely positioned because we participate in data centers really in three areas. Obviously, our refrigerants, you need to cool the data centers, and that plays a very large role in it. Our electronics business is really in semiconductors, and really our tremendous value proposition is in leading-edge nodes, which is where everything is going. So we're seeing great demand for our electronics business as well. And then on nuclear, you need to power these, which is a big concern. And so we are uniquely positioned both from the energy, from the thermal management, as well as the semiconductor side of these data centers. And now that all needs to really come together because the heat being generated from these new chips because they're just getting smaller, faster, more stacked. Just air coolant is not enough. We're going to have to go direct to chip, then you're going to have to get to immersion cooling, and we just feel like we're really well positioned with next-generation technology because we play a role in the entire ecosystem.

Mike, Analyst — Barclays

Yeah, so you really manifest itself through almost three of your different products. Exactly right. Exactly right. Electronic chemicals, the term I use, electronic materials, other use, which has become into more and more focus, and I think helped a lot by the CUNITY spin. We have Element out there, so it's almost becoming its own ecosystem. How do you play in electronic chemicals, and are you seeing a lot of the same drivers? I think you just touched on it.

David Sewell, CEO

Yeah, we are. I mean, we play in a couple areas, so when you think about the wafer chip itself, depositions is our biggest aspect of that segment. We manufacture sputtering targets, copper manganese sputtering targets. Again, uniquely positioned, the only manufacturing in the United States for copper manganese sputtering targets. And you really need that high purity material when you talk about leading edge nodes. It really gives us an advantage for being there. And now you're seeing chip fabrication coming back to the United States, which helps us position even more. So I think we had 19% growth in fourth quarter electronics. You've seen, to your point, the other electronics company, all reporting robust growth. It's really all there. And then if you go downstream a little bit on the advanced packaging assembly side, thermal interface, we play a role there. We play a role in some of the other materials in regards to that. So we're just seeing incredible demand, and we just announced in the fourth quarter the expansion of our Spokane. We're going to double the manufacturing site of our sputtering targets. We're really running hand-to-mouth right now, and the demand from our customers, the outlook is really significant.

Mike, Analyst — Barclays

Given we've just talked a lot about all these different segments, I think, and I want to talk about the overall economy, but I think it's the right time. Obviously, you've just spun out. You have, as we've just talked about, several different business units. All, you know, fortunately, performing exceptionally well. But as you take a step back, how do you think about the portfolio that you were given as a spun out, both near-term and potentially long-term?

David Sewell, CEO

Yeah, so as we spend, we really like the portfolio, and we love the diversity of it, and there is a symmetry to it in six of our seven sub-segments of fluorine chemistry, which is really the backbone of our innovation. So we feel very good about it. Having said that, we were blessed on a spin, as you've probably seen many times, the opposite. We have a very healthy balance sheet, low leverage. We really don't have any major litigations out there as well. So we feel very good. And the reality, and this is the benefit of the spin, is this business has not had an acquisition in 10 years since it's been a stand-alone. So with this balance sheet that gives us flexibility, we have increased the spend in our R&D because we think innovation is so critical, and we want to have those next generation molecules and solutions, and we feel good about that. But, you know, when we think about this business and the portfolio, we want to ensure we're driving shareholder value. It fits our strategy. We like where it is today, but I think it'll certainly evolve. Makes sense.

Mike, Analyst — Barclays

I would love to get your perspective for everyone here and for my edification. What are you seeing globally? Like, you are a global company. It's always interesting at these conferences to get it, especially early in the year. You know, not you, but many clients had a tough Q4. And what are we seeing as we enter into 26 in Europe, in China, in the Middle East, in the U.S., you know, across various end markets? What's your initial feel on the economy as we sit here today?

David Sewell, CEO

So we're uniquely positioned because we do touch a lot of these industries and the globalization of our business. The three we talked about, electronics, refrigerants, and thermal management, and nuclear, we see very robust through the cycle here. We are in building materials as well as health care. And we have seen, you know, in 2025, you know, we saw that as a more challenged year. We saw some green shoots in January as we go through that. But the way we forecasted it is just kind of stable. We really aren't expecting a pickup. But if we do see interest rates come down, construction come up, and PMI go up, we would get a tailwind there. but we're not projecting on that side of our business much more than GDP growth.

Mike, Analyst — Barclays

And you're not seeing it as we, you know.

David Sewell, CEO

Well, we did see some green shoots, but we were coming off a softer year. So, you know, Mike, I know, is talking to Daniel, so I'll certainly have him jump in there. But I would say it's stable.

Speaker 1

Yeah, I think that's right. I mean, again, if the world gets better, that's great. But as we currently forecast things, as David mentioned, we're seeing growth in some of those secular areas, but not projecting growth in...

Mike, Analyst — Barclays

You have a great balance sheet. You know, one of the challenges, I suspect, is given you have so many interesting areas to invest in, how do you think about capital allocation amongst your various constituents? You know, share repurchase, dividend, and investment, both organic and inorganic. You don't have unlimited funds. You have a great balance sheet. How are you prioritizing those various levers?

David Sewell, CEO

Yeah, so with innovation really being the backbone of what we do, we have a great ROIC profile. Our return on invested capital is over 19%. And when you think about the semiconductor expansion we're doing, we announced next generation for our defense business, which we haven't talked about.

Mike, Analyst — Barclays

Yeah, we haven't, yeah.

David Sewell, CEO

Yeah, but that's another great business. So we've deployed a lot of capital to those. When you think about the returns we're expecting, the volume growth in those areas, and we also, when we do these expansions, we're making our plants more efficient, so we have an expectation of margin expansion. That is really our first priority because that drives innovation. And our IP portfolio, you know, we're over 5,700 patents. that is a value driver for our shareholders as well as, you know, how we go to market with our customers. And we want to continue that into the future because that really helps us not only with what we want is faster than GDP growth, but also that 25% plus margin profile.

Speaker 1

And just one other thing I would add, just overall capital point is we were pleased to announce our first dividend as well. So it is both it's reinvesting because we see a lot of growth, but also having some excess cash to reward our shareholders as well.

David Sewell, CEO

And, yeah, great point. And then while we want to have a conservative balance sheet, we know we can get a little bit higher than one-and-a-half times levered. But we really don't want to get over-levered, you know, past three times or anything like that.

Mike, Analyst — Barclays

That would only be in a scenario where you perhaps do like an M&A transaction and it would be a short-term spike. Yeah, correct. It sounds like also that as you're deploying capital to these organic projects, you're not build it and hope they come. This is done very much in conjunction with not only demand that you're seeing, but conversations with key customers. So you're lockstep with them.

David Sewell, CEO

Exactly right. So we'll really partner with our customers before we do that capital deployment. A great example is with AstraZeneca. So we've expanded our HFO technology to get into propellants for inhalers, which has been a home run in AstraZeneca. We partnered with us, actually, in the capital deployment to ensure that, you know, when we build it, we have that. And now we have the capability to bring that to medical devices around the world and other companies. And that's why we get that high return and that high degree of confidence. But it also talks about how we co-innovate with our customers. So whether it's for the next generation HFO molecules, what we do in nuclear with utilities, we are working in lockstep with our customers to develop those solutions.

Mike, Analyst — Barclays

Great. Does anybody have any questions? I do want to open it up. I have more I can ask, but I don't want to hog the mic. Mike, you've now been a public company for three or four months. Any initial findings, learnings, anything surprised you coming out of the spin that you didn't expect, pleasantly or unpleasantly?

David Sewell, CEO

Well, what's so exciting for us is when you're part of a large corporation, and Honeywell was a great corporation for this company, but you're always fighting for capital. So what we've been able to do is deploy capital quickly to capture some of these growth segments. And when you talk to our employees around the world, there are so many growth ideas and so many growth segments that are really at this inflection point that we want to capitalize on. And now we're able to be nimble and respond much faster and deploy capital faster and really double down to ensure in areas that are really projecting strong growth that we play a leading position there. And that's a company.

Mike, Analyst — Barclays

I mean, you're in that rare position where the biggest challenge will not be finding growth, which many of my clients and what Mike used to deal with is, like, where's the growth going on? But it's almost how do you allocate to, you have so many hot growth areas, it's going to be allocating, because we didn't even touch on defense. Which is probably as hot as it's been in 30, 40 years.

David Sewell, CEO

No, you're exactly correct. I mean, just the defense industry, you've seen every country around the world increase their defense spend. And our next generation Spectre technology will be the leading ballistics protection, ultra-lightweight technology. material out there. And so we're already, you know, as we work with the Department of Defense to ensure that we're on that next generation specification for the U.S. military, then that translates to militaries around the world and then goes down to law enforcement. And just having that technology, that innovation, that IP, and now that, you know, really also that U.S. manufacturing base really puts us in a good position.

Mike, Analyst — Barclays

And do you feel like you're, for the demand that's likely to come in that, as you get specced in, and then I would imagine if it goes to the U.S., then NATO, it gets preferential and it'll just spread.

David Sewell, CEO

Do you feel like you have the capacity to meet that demand, which is likely going to Well, we didn't, and that's why we're doing this expansion, because really right now it's similar to our sputtering targets manufacturing, we're really sold out. So we need to expand that, but we're just very deliberate on our capital allocation to ensure the volume is going to be there when we do this expansion and this investment, and now we have that.

Mike, Analyst — Barclays

This might not be a fair question, but I'm going to ask it anyway. We'll give it to Mike. Yeah, exactly. And part of, I mean, you're going to, you know, we've talked a lot of the bankers like ourselves, and you see it, like, spins are usually very effective. Now, they usually aren't as remarkable out of the gate as you guys have been. But one of the reasons is I think there's this view, and you touched on a little bit, now that you're liberated, you can make your own decisions. As you think about that, as you've spun out, is there one or two strategic choices that you now see that you can do that would have never been doable within the Honeywell universe? Not to knock Honeywell.

David Sewell, CEO

You know, I mean, we're so blessed with Honeywell provided this company and also how well they positioned us. Because they would be the first to tell you that, look, we may need to put that money in our aerospace business. Or our automation business. And I think, you know, we've really leaned into nuclear, which maybe wasn't some of our customers haven't seen before. So the announcement we made on the potential exploration of a significant expansion in nuclear probably would have been difficult because this would be a very significant investment.

Mike, Analyst — Barclays

Right. And it just wouldn't have been a big part of what overall Honeywell was doing, and it's more meaningful. And it's not a knock.

David Sewell, CEO

I mean, you have to make choices, and you just have so many wonderful businesses at Honeywell. And the same thing goes for Aerospace Auto Motion. They may not have gotten every capital project that they wanted either.

Mike, Analyst — Barclays

And I think you make a good point that you were, because we have seen a lot of successful spins. We've also seen a lot of unsuccessful spins, which usually are because too much leverage, too much other things. You alluded to environmental. They really did spin you in a way that positions you for success and gives you the opportunity to be a consolidator if that's the path you want to go down.

David Sewell, CEO

No, you're 100% right, and Honeywell deserves so much credit for that because they also have the other spin coming in behind us, and they were just, them all and his team were just committed. Let's make these successful. Let's learn from past spins what worked well and what didn't, And when you talk about no legacy liabilities, a really clean balance sheet, that really positions you very well.

Mike, Analyst — Barclays

And I'm going to ask Mike this question. When you've spun out of a bigger company, you know, I think a lot of people assume it's going to take a little bit of time to find your shareholder base. How have you found that transition in terms of investors, you know, index investors and that? You know, what's your conversation been like as the spin has occurred and getting people, finding the right home for this business?

Speaker 1

Yeah, I mean, I think it's a great question. I think coming out of the spin, it was a big churn process. I'm sick of saying the word churn. But, I mean, I think coming out, the analysis that the team did was about 50% of the Honeywell shareholders needed to sell. And those were the clear red lines. That wasn't the gray area ones. I mean, imagine if you're a large-cap aerospace PM that now all of a sudden has a chemical company. So I think the first couple months through year-end, you really saw a lot of that turnover. What we saw earlier this week with the first 13F filings as of year-end 25, we finally got a clean look at what our ownership base is, and I think you've seen a pretty diversified ownership group. You have a good number of index investors. You have a good number of folks who are very well educated and smart on these type of opportunities and a lot of really smart people coming out that really, I think, out of the gate understood the value of these businesses. And then we talked to a lot of traditional materials folks as well as clean energy and tech folks. So I'd say I've been pleasantly surprised with the breadth of engagement. But, yes, I'm very happy to hopefully never say the word churn again after it was all I talked about November, December.

Mike, Analyst — Barclays

And what's been remarkable is because when you spin, there is that inherent churn. And candidly, it's not an obvious story. There's a lot to this story, and a lot of it good. But getting that message out and seeing the receptivity to it has been impressive.

Speaker 1

Yeah, I think in general.

Mike, Analyst — Barclays

Kudos to you and David for that.

Speaker 1

No, I appreciate it. I think in general, to your point, there's a lot of moving pieces. I think we'll be the first to admit there's not a true one-for-one comp for us out in the market, but I think it was really important for us, and David probably touched on it earlier, to sort of have a smooth baton handoff from Honeywell to us. I mean, being able to come out in the fourth quarter and really say, yes, everything we said at Investor Day, that's our guidance framework, that's what we're taking into 26, I think that was received well, and kudos to the team for being able to execute that.

Mike, Analyst — Barclays

And, again, I'll open it up to any questions, but, you know, what's really exciting is it's hard to find companies in my world that have so many different positive tailwind levers that, you know, data centers, nuclear, you know, refrigerants, which also ties into cooling, the defense angle, electronic chemicals. You know, I just can't – if I have a client with one of those, it's great. To have five of them is pretty remarkable.

David Sewell, CEO

Look, we're blessed with a great portfolio, and I give great credit to our team, and especially our R&D team, the innovations that they developed with the IP, but also what gets us so excited is what we're working on for the future. As a standalone now, we just really feel good about the momentum we have.

Mike, Analyst — Barclays

And what it really does, that R&D, is it locks you to the customer. You own the customer because of all the work and value added you did to enable them to be successful.

David Sewell, CEO

For sure, because our philosophy is we'll do everything we can to make our customers successful and what they're trying to accomplish and differentiate, and then we'll just be hopefully successful with them as they grow. Well, we're done.

Mike, Analyst — Barclays

Great.

David Sewell, CEO

Really appreciate it.

Mike, Analyst — Barclays

Thanks for coming, Derek. Our pleasure.

David Sewell, CEO

Thank you, Derek. And thanks so much, Mike. Appreciate it.