Ashland Global Holdings, Inc. Stock

Good day, and thank you for standing by. Welcome to the Ashland Third Quarter Conference Earnings Call. [Operator Instructions] Please be advised that today's conference call is being recorded.

I would now like to hand the conference over to your first speaker today, Sandy Klugman, Director of Investor Relations. Thank you, Sandy.

Thank you. Hello, everyone, and welcome to Ashland's Third Quarter Fiscal Year 2026 Earnings Conference Call and Webcast. My name is Sandy Klugman, and I am Ashland's Director of Investor Relations. Joining me on the call today are Guillermo Novo, Chair and CEO; William Whitaker, CFO; as well as our business unit leaders; Alessandra Assis, Life Sciences and Intermediates; Jim Minicucci, Personal Care; and Dago Caceres, Specialty Additives.

Please note that we will be referencing slides during today's call. We encourage you to follow along with the webcast materials available at ashland.com under Investor Relations.

Please turn to Slide 2. As a reminder, today's presentation contains forward-looking statements regarding our fiscal 2026 outlook and other matters as detailed on Slide 2 and in our Form 10-Q. These statements are subject to risks and uncertainties that could cause future results to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but there is no assurance these expectations will be achieved.

We will also reference certain adjusted financial metrics, both actual and projected, which are non-GAAP measures. We present these adjusted figures to provide additional insight into our ongoing business performance. GAAP reconciliations are available on our website and in the appendix of these slides.

I'll now hand the call over to Guillermo for his opening remarks.

Thanks, Sandy, and welcome to everyone joining us. Please turn to Slide 5. Overall, we delivered a strong third quarter that reflected strong demand, disciplined commercial execution and healthy free cash flow generation. Sales increased across all business units, and our performance was in line with the expectations we outlined at the beginning of the quarter. These results reflect the team's strong execution and reinforce the momentum we are building across the businesses.

Life Sciences delivered double-digit sales growth, benefiting from broad contributions across pharma end markets and ongoing momentum within our globalized and innovate strategies. Pharma achieved its fifth consecutive quarter of volume growth, supported by strength in high-purity excipients, injectables and innovation growth momentum. Personal Care generated another quarter of solid performance led by biofunctional actives, high single-digits growth in skin care and favorable contributions from hair care and microbial protection.

Performance reflected healthy growth across end markets and major regions, supported by strong customer engagement and innovation adoption. Specialty Additives delivered encouraging sales growth in line with our expectations. Strength in Coatings and Performance Specialties was primarily driven by market share gains, reflecting strong commercial execution by the team. Regionally, most markets improved compared to prior year. Intermediates delivered higher sales, supported by improving merchant sales driven by higher NMP demand in North America EV battery and energy storage applications.

Operationally, our third quarter results reflected continued progress on manufacturing performance with further opportunities to improve. We remain focused on targeted investments and disciplined execution and expect continued progress in the fourth quarter as the benefits of these actions build. We also generated strong cash flow during the quarter through disciplined working capital management and ended the quarter with a net leverage of 2.4x, returning to our long-term target range and strengthening our ability to invest in growth and innovation.

Please turn to Slide 6. Our results demonstrated the strength of our execution and the benefit of the actions we have taken across the portfolio. Sales increased 7% year-over-year, reflecting broad-based growth across the portfolio. Profitability was impacted by production production challenges encountered earlier in the fiscal year. Results improved sequentially and were largely in line with our expectations. We continue to make steady progress across our manufacturing network and on our strategic priorities. Our teams remain focused on commercial execution, pricing realization and cost discipline. Pricing actions continue to gain traction, offsetting higher raw material costs while maintaining strong customer relationships.

Please turn to Slide 7. Slide 7 illustrates the breadth of our growth and the quality of our earnings profile. First, our consumer-focused businesses, Life Science and Personal Care continue to generate attractive margins supported by resilient demand, innovation and favorable mix. Second, innovate and globalize strategies continue to deliver measurable results with accelerating momentum in higher-value application across the portfolio.

For the first 9 months of the year, innovate has exceeded its full year target, while Globalize has already achieved its full year target and continues to deliver strong results across the platforms. Third, while margins continue to reflect earlier production rate challenges and cost pressures, the actions we have taken across pricing, manufacturing and commercial executions continue to gain traction. As a result, we are well positioned for further profitability improvement in the fourth quarter.

Before turning the call over to William, I also want to take a moment to share that yesterday, we announced a cooperation agreement with Ancora, an Ashland shareholder with whom we have had constructive dialogue. Under this agreement, we are welcoming Peter Thomas and Allen Spizzo to the Ashland Board as Independent Directors. Both bring significant executive and financial experience in specialty chemicals, and we believe their perspectives will support our continued focus on creating value for our shareholders.

The Board is also forming a Capital allocation Advisory Committee to bring additional rigor and objectivity to our capital allocation strategy and plan. We value ongoing engagement with our shareholders and look forward to working collaboratively with Peter, Allen and the rest of the Board as we continue to execute our strategy.

Now let me leave you with 3 key takeaways before we get into the financials. Demand remained healthy across our core businesses. Our innovate and globalized initiatives continue to generate meaningful growth, and we continue to make progress in addressing the operational challenges we have discussed throughout the year. These are encouraging signs for the business and reinforce our confidence in the opportunities ahead.

Now I'd like to turn over the call to William to provide a more detailed view of the third quarter financial performance. William?

Thank you, Guillermo. Please turn to Slide 9. Third quarter sales were $497 million, up 7% versus the prior year, driven primarily by volume growth across all business units. Volumes increased 6% across the portfolio, led by continued strength in Life Sciences and Personal Care, while Specialty Additives returned to growth and Intermediates benefited from improving merchant demand. Pricing increased approximately 1% year-over-year, led by Life Sciences and Specialty Additives, reflecting sequential improvement of approximately 300 basis points.

Foreign exchange contributed approximately $3 million or 1% to sales. Adjusted EBITDA was $109 million compared to $113 million in the prior year quarter. Growth in Life Sciences and Personal Care was more than offset by lower earnings in Specialty Additives and Intermediates. Profitability continued to reflect the impact of lower production rates earlier in the year and the normalization of incentive compensation from a low base in the prior year. These factors were partially offset by higher volumes, favorable mix and pricing actions.

Sequentially, profitability improved as operating performance gradually improved and commercial actions gained traction across the portfolio. We expect a further step-up in profitability during the fourth quarter. Adjusted EBITDA margin was 21.9% compared to 24.4% in the prior year quarter, reflecting these dynamics. Adjusted earnings per share, excluding amortization expense, was $1.02 compared to $1.04 in the prior year quarter. Cash generation remained a significant strength during the quarter.

Ongoing free cash flow totaled $103 million compared with $108 million in the prior year quarter or representing conversion above 90%. Inventory is down nearly $80 million fiscal year-to-date, supporting strong cash generation and positioning us for improved absorption and reduced inventory-related margin headwinds going forward. We ended the quarter with $936 million of available liquidity and net leverage of 2.4x, returning to our long-term target range.

During the quarter, we also refinanced our credit agreement, extending maturities on attractive terms and further strengthening our financial flexibility. The balance sheet remains a competitive advantage, providing flexibility to support operations, invest in strategic priorities and maintain disciplined capital allocation. With that, I'll turn the call over to our business unit leaders for a closer look at segment performance.

Alessandro, over to you for Life Sciences.

Thank you, William. Good morning, everyone. Please turn to Slide 10 for Life Sciences. Life Sciences delivered another strong quarter with sales of $180 million, up 11% versus the prior year period. Performance was driven by higher sales volumes, led by broad-based strength across pharma applications. Pharma achieved double-digit sales growth and delivered its fifth consecutive quarter of year-over-year volume gains. Demand remained healthy across all regions and product categories, including continued strength in high-purity excipients and injectables.

We also benefit from customer order timing and supply chain normalization during the quarter. Adjusting for those factors, underlying demand trends remain strong and consistent with our expectations. Pricing contributed positively to results as commercial actions began to gain traction during the quarter with full run rate realization expected in the fourth quarter. Foreign exchange contributed approximately $1 million to sales during the quarter. Injectables continued to outperform in the third quarter, delivering exceptional growth aligned with our globalized strategy.

Performance was driven by accelerating adoption of Ashland's high purity differentiated excipient portfolio. Strong customer demand, a growing development pipeline and increasing new product adoption support a strong outlook. We also announced the groundbreaking of our new public coatings manufacturing facility in India, another important step in our globalized strategy. Following recent investments in Brazil, this expansion continues to strengthen our regional manufacturing footprint and position us to better serve customers in some of the fastest-growing pharma markets in the world.

Turning to innovation. Our recently launched products continue to drive above-market growth, led by low nitrite oral solid dosage excipients and high-purity injectable and bioprocessing products. Strong customer adoption validates Ashland's strategy of investing in differentiated technologies that address increasingly complex formulation and regulatory requirements.

Turning to profitability. Adjusted EBITDA increased 11% to $60 million compared to $54 million in the prior year quarter. Adjusted EBITDA margin was 33%, consistent with the prior year. Increased volumes, favorable pricing and product mix offset the impact of lower production rates and higher SARD expense. Loan growth remained the primary driver of earnings improvement, while disciplined commercial execution and favorable mix also contributed to results.

As we look ahead, Life Sciences continues to benefit from resilient pharmaceutical demand and increasing traction from our globalized and innovate strategies. Combined with pricing realization and ongoing innovation adoption, the trends support our confidence in the long-term opportunities ahead.

Please turn to Slide 11 for Intermediates. Intermediates delivered a solid quarter with sales of $37 million, up 12% versus the prior year period, driven by improved merchant demand. Merchant sales increased to $26 million from $23 million in the prior year quarter, supported by higher NMP demand from North American EV battery and energy storage customers ahead of planned fourth quarter shutdowns. Active Video sales were $11 million, up modestly from the prior year, reflecting stable internal demand and market-based transfer pricing. Foreign currency had a negligible impact on sales during the quarter.

Turning to profitability. Adjusted EBITDA was $4 million compared to $7 million in the prior year quarter. The year-over-year decline primarily reflected lower advanced manufacturing tax credits benefits compared to the prior year quarter, while underlying operating performance remained relatively stable. Pricing realization and improving demand in electronics, a key merchant application helped offset a portion of this headwind during the quarter.

While conditions across the broader BDO value chain remain below historical levels, we are seeing soft yet encouraging improvement in NMP demand, mostly for energy storage-related applications. Given the volatility we have experienced in these markets, we remain measured in our near-term outlook. However, our long-term view remains unchanged, and we continue to believe EV battery and energy storage applications represent an attractive growth opportunity for the business.

Now I will turn the call over to Jim to discuss Personal Care.

Thank you, Alessandra. I'll now highlight our Personal Care results. Please turn to Slide 12 for Personal Care. Personal Care delivered another quarter of growth, reflecting broad-based performance across end markets and continued strength in our higher-value applications. Sales were $155 million, up 5% year-over-year, driven by robust volume growth across the portfolio, new commercial wins and favorable mix. Biofunctional actives delivered another quarter of double-digit growth, supported by an expanding customer base.

[indiscernible] continues to experience accelerated adoption due to its multifunctional benefits and ability to instantly improve skin radiance, hydration, elasticity and provide visible wrinkle correction. Building on this momentum, biofunctional actives is also starting to see early commercial wins with Eternight, our 2026 flagship ingredient. Microbial Protection also delivered solid growth, driven by double-digit volume gains across all regions. In the third quarter, we inaugurated and commissioned our new microbial protection production facility in Europe. This investment strengthens our regional manufacturing capabilities, improved supply chain resilience in the region and represent another major step in globalizing microbial protection.

Within Care Ingredients, the portfolio delivered solid gains with positive momentum across hair and skin care markets. Overall, skin care delivered high single-digit growth, hair care delivered mid-single-digit growth and Oral and Home Care generated low single-digit growth. On a regional basis, growth was led by the Americas and China. Pricing improved sequentially as commercial actions continued to gain traction during the quarter, while modestly below prior year. To clarify on pricing, price actions more than offset cost inflation. Specifically in microbial protection, our globalized investments have reduced our cost structure, enabling share gains. Foreign currency contributed approximately $1 million to segment sales.

Turning to innovation. In the third quarter, we successfully executed our first industrial production of multifunctional starch, marking a pivotal step toward our planned calendar 2026 launch. Personal Care continues to make strong progress across our globalized and innovate strategies, supported by strong customer engagement and innovation focus.

Turning to profitability. Adjusted EBITDA increased to $45 million from $41 million in the prior year quarter, and EBITDA margin expanded 110 basis points to 29%, reflecting broad-based growth across all business lines. Improved profitability was driven by higher sales volume and favorable product mix. In summary, Personal Care delivered both mid-single-digit growth and margin expansion in the quarter, demonstrating disciplined execution, strong customer focus and continued adoption of differentiated and innovative technologies.

With that, I'll turn the call over to Dago to review the results of Specialty Additives.

Thank you, Jim. Please turn to Slide 13. Specialty Additives delivered sales growth in the quarter despite continued mixed demand conditions across end markets and regions. Sales increased 4% year-over-year to $136 million, driven by share gains, pricing realization and strong commercial execution in Coatings and Performance Specialties, our most strategic industrial segments. Coatings recovery was driven by higher volumes from share gains across all regions, successful innovation implementation and pricing discipline.

Performance Specialties also delivered year-over-year growth, supported by favorable demand trends and commercial execution. These gains were partially offset by continued weakness in Construction and Energy & Resources, where market conditions remain challenged and generally consistent with recent trends. Construction volumes continue to reflect both softer end market demand and the impact of deliberate portfolio management actions to preferentially serve more attractive regulated segments.

Regionally, growth was broad-based with nearly every region delivering year-over-year improvement. Worth highlighting is that Middle East, Africa, India and China delivered growth despite challenging market conditions and supply chain disruptions. Pricing actions continued to get traction during the quarter and together with favorable product mix supported growth despite a muted demand environment. Foreign exchange contributed approximately $1 million to sales.

Turning to profitability. Adjusted EBITDA was $20 million compared to $26 million in the prior year quarter, while adjusted EBITDA margin was 14.7% compared to 19.8% in the prior year quarter. The results were generally in line with expectations and reflected lower fixed cost absorption associated with earlier operational challenges and reduced production rates at our Hopewell facility. These headwinds were partially offset by favorable pricing and product mix.

From an operational standpoint, we successfully completed the planned turnaround at our Hopewell facility and implemented a number of process control, productivity and operational robustness improvements. While we are encouraged by the trajectory, we view this as an operational improvement journey to achieve our long-term productivity targets. The performance of our broader cellulosic asset base remains solid, and we are leveraging our unique global manufacturing network to increase supply flexibility, optimize production and strengthen overall supply reliability.

We're also making solid progress across our balanced innovation portfolio. from regional solutions designed for local customer needs to core innovations that strengthen and expand our existing product lines to transformative technologies such as our novel additives, which continue to advance to our commercialization and represents a significant long-term growth opportunity for Ashland.

Overall, while end market conditions remain mixed, we are encouraged by the progress being made across the business. Continued pricing realization, strong commercial execution and ongoing operational improvements support our expectation for improved profitability over time. I would like to recognize the team's strong execution and customer focus in what remains a challenging market environment.

And with that, I'll turn the call back to...

Thanks, Dago. Please turn to Slide 15. Let me briefly update you on our execute strategy and manufacturing optimization initiatives. As Dago just discussed, progress across our HEC network optimization has been slower than originally planned. That said, the quarter unfolded largely as expected, operating performance improved, and we continue to advance the actions needed to improve productivity, reliability and network performance.

Beyond HEC, our manufacturing optimization initiatives remain on track. The T&D optimization efforts are now expected to deliver approximately $12 million of benefit this fiscal year. We also completed the final phase of our small plant consolidation initiative during the third quarter, delivering approximately $3 million of EBITDA benefit this year and further simplifying our manufacturing footprint.

In total, VP&D optimization and small plant consolidation are expected to deliver $15 million this year. Importantly, these are structural run rate savings rather than onetime gains, and they position us to enter next year with a leaner, more competitive cost base. Execute remains a core component of our strategy. While we still have work to do, the broader portfolio of manufacturing initiatives is delivering results, and we remain confident in the long-term value and profitability improvement these actions can generate.

Please turn to Slide 16. Our Globalize and Innovate initiatives continue to generate meaningful results and remain an important driver of growth across the portfolio. Through the first 9 months of the fiscal year, Globalize has already achieved its full year growth target with Innovate having exceeded its full year objective. Innovation highlights include continued momentum in high-purity excipients within life sciences, skin longevity technologies and personal care and formulated rheology solutions for stone paint within Specialty Additives.

As you heard from Alessandra and Jim, we are seeing tangible returns from the investments we have made to expand capabilities and strengthen our regional presence. These initiatives are increasing our exposure to higher-value applications, strengthening customer relationships and improving the quality and durability of our growth profile. Just as important, the opportunity pipeline supporting both initiatives remain strong, reinforcing our confidence that globalize and innovate will remain meaningful contributors to growth and value creation in the years ahead.

Please turn to Slide 17. Turning to our outlook, which remains largely unchanged. We continue to see growth across the portfolio, ongoing momentum in higher-value applications, increasing realization of pricing actions and strong cash generation. We expect another step-up in profitability during the fourth quarter. While operating performance remains below historical levels, the impact on profitability should be less pronounced than in the third quarter as operational trends improve and pricing actions continue to gain traction. As a result, we are reaffirming our fiscal 2026 sales and adjusted EBITDA guidance.

We continue to expect sales of $1.835 billion to $1.87 billion and adjusted EBITDA of $385 million to $400 million. We are revising our adjusted EPS outlook to low to mid-single-digit growth from mid- to high single-digit growth, reflecting a higher tax rate associated with unfavorable discrete items. We continue to expect ongoing free cash flow conversion of greater than 50% of adjusted EBITDA for the fiscal year.

With that, I'll turn the call back over to Guillermo to discuss how our technology platforms are creating value across the portfolio before we open the line for questions. Guillermo?

Thank you, William, and please turn to Slide 18. Innovation remains a core driver of Ashland's long-term value creation and an important differentiator across our portfolio. The progress we've made across our globalized and innovate strategy is a direct reflection of the strength of our technology platforms, customer partnerships and R&D capabilities. We're very excited about the progress we're making on our new technology platforms. These new technologies have strong value propositions and target large scalable growth opportunities. strong customer engagement and validation, we feel very confident of the profitable growth potential of these platforms.

With over 52 patents filed, they also present a great opportunity to build sustained differentiation. We're also expanding the range of products and applications these technology platforms can target. We're accelerating the commercialization of new products. To provide investors with a deeper look at these opportunities, we will be hosting an innovation webinar on September 17. During that event, we will provide additional insight into our innovation strategy, our progress in developing and commercializing them and the opportunities we see to create long-term shareholder value. We believe these technology platforms represent a meaningful source of future growth, margin expansion and value creation beyond our current planning.

Please turn to Slide 19. As we conclude today's call, I'd like to reiterate what gives us confidence in the opportunities ahead. First, growth is returning across the portfolio. As the actions we have taken to optimize the business and improve the quality of our mix continue to gain traction, we delivered broad-based sales growth across all business units and regions supported primarily by volume growth, strong customer engagement and disciplined commercial execution. We expect that momentum to continue through the fourth quarter.

Second, we remain focused on disciplined pricing execution. Pricing actions are gaining traction across the portfolio, helping address cost inflation while maintaining strong customer relationships. I would also like to recognize the efforts of our team who have managed through a dynamic environment. Third, our globalized and innovate strategy is working. Globalize and Innovate continue to generate meaningful results, and we are seeing increased returns from the investments that we have made to expand our capabilities, strengthen our regional footprint and accelerate growth in higher-value applications. This is the type of high-quality growth that enhances the long-term strength of our portfolio.

Fourth, Operational performance remains an area of focus. While we are not yet where we want to be, we are making progress and remain committed to improving our performance. We continue to see meaningful opportunities to strengthen profitability as these efforts advance. And finally, we're extremely excited about the progress we are making on our new technology platforms. We look forward to sharing more about customer validation in the coming weeks, but we remain encouraged by the progress we are seeing across our innovation pipeline and the opportunities it creates across the portfolio.

Ashland is a company with resilient end markets, leading technology positions, strong customer relationships and a growing pipeline of innovation opportunities. The combination of improving demand trends, increasing pricing realization, advancing technology platforms and ongoing operational improvements reinforces our confidence in the opportunities ahead. I'd like to thank our employees for their continued commitment and thank our shareholders for their ongoing support and engagement.

Operator, please open the line for Q&A.

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

So I wanted to get a better understanding of the pricing that you're seeing and how we should be thinking about it going into 4Q and maybe early fiscal '27. Do you expect it to largely accelerate from here? Should -- is it going to vary depending on the segment? I guess how should we be thinking about it and the realization of what you need to cover costs, raw material inflation, other inflation, et cetera?

Thanks, John, for the question. Let me first recap just to remind everybody what all this inflation means to Ashland. We are not petrochemical linked anymore after we sold our adhesive business. So we have less exposure to petrochemicals and to high energy raw materials that require high energy for production. So we do -- we're not immune. We do have some impact that we need to capture, but we -- it's much lower. So don't expect the pricing movements that you see with commodity companies. Ours is -- our intent is to recover inflation, maintain margins. We're a specialty company, additives company.

Our focus is value pricing through the products, through the technology. That's how we expand. We don't use these moments to expand margins. We just want to make sure that we're holding. So that's sort of the basis. The team has executed very well. We've captured all the inflation, both raw material and freight and all the pricing we've implemented. Obviously, there's a flow-through effect.

I think next quarter, we'll see bigger benefits in terms of just the pricing ramp rate versus the inflation that we've already seen. But we're basically covering everything that has impacted us, and you'll see that in the next quarter flowing through. After that, we'll see how markets evolve. Like in 2022, I think our focus is on moving fast so that we maximize or minimize the impact and maximize the benefits for us, and the team has done that. So we feel very confident at this point.

But William, do you want to add anything else?

Yes. Just a couple of other specifics. Thanks for the question, John. The important marker for us this quarter is that we swung from down 2% year-over-year in Q2 to up 1% in Q3. We expect that to continue, to Guillermo's point, sequential improvement in Q4 as we get the pricing fully realized. In terms of order of magnitude, I'd expect that to be nearly as large as the sequential improvement we just saw in Q3. And I think overall, as you look to kind of free pricing actions to run rate exiting the year, it's going to be in line with what Guillermo cited on the last earnings call of 3% to 8%. It's going to be roughly -- it depends by region, depends by product line, of course, but we're tracking roughly at the midpoint overall for the company.

Just one other point, John, that I want to make in the prepared remarks, Jim made a comment just so that it doesn't get lost in the translation. For Personal Care, actually, they moved on pricing to recover raw materials. All that has gone through. I think the team has done a lot in terms of the globalized as we regionalize our business, our infrastructure manufacturing. We're changing our cost structure. That's allowed us to do a lot of things. We're getting a lot of share.

But Jim, do you want to comment just to clarify the lower pricing, is it really lower pricing in part of your business? If you could comment on that.

Yes. Thanks, Guillermo. So John, I think as William mentioned, sequentially, we're seeing an improvement and an increase in price. We took actions. We worked through it in March when the conflict started. We started communicating with customers. The actions we've taken are price increases as opposed to surcharges. And so there's a flow-through that came through in the third quarter, but we took the necessary actions to cover the cost inflation in the majority of the portfolio. As we said, specifically in microbial protection, we just commissioned our facility in Europe. That's now the last step in globalizing the business. We now have assets in all regions to provide regional supply, and that's really reduced our cost structure, and that's really enabled the share gains. And so that's a bit of a mix as you look at the overall price impact.

Okay. Got it. No, that's all very helpful color. Maybe just as a second question, just can you speak to the manufacturing optimization as well as Hopewell, which I guess is lumped into that. How that -- it sounds like you're seeing some decent progress, maybe not where you had hoped it would be originally, but seeing some decent progress there. I guess how should we think about how you end your fiscal year and the tailwinds into 2027 from some of these optimization and cost-out plans?

So I think overall, I would differentiate the network optimization impact. I think if you look at the headwinds that we've had, there's 2 different types of things. What happened in Calvert City at the beginning, an equipment failure that was the biggest impact in the weather. That's -- I would put that on aside. If you actually look at the network optimization, what's worked well and where are some of the gaps that we're addressing now. Overall, it worked very well. If you look at our VP&D network, we're reducing costs. We've streamlined assets.

We're getting much better productivity. I think it's still on the early stage. We're doing some cost optimization, but the real productivity work is going forward. So we still see the opportunity to further improve in those areas. All the small plant consolidation is done. Basically, those -- we just moved production units into our bigger sites. so that we can leverage our overall cost structure, all of that is there.

Specifically on HEC, I mean, it's 2 stories. We eliminated a plant. So $25 million, $30 million are gone. Those costs are out. I think how it's flowed through is 2 issues. Part of the benefit we're getting, but it's not an upside anymore. We've used that to fill our plants in China. During this period of time, as we executed, the market in China did go down. So we've rebalanced the network so that we export now from China. So the benefit is -- you're seeing the benefit in terms of sustained margins and improvement. So it wasn't a headwind for us.

On the other -- the rest of the things that are supposed to be more positive, I think really now it's a timing issue. We made a shift in production of a different product mix. that we brought to Hopewell. It's not just turn it on and start producing. It's different process technology. We stopped the plant. We didn't -- we weren't getting the production rates that we wanted. We did a turnaround, as Dago mentioned. That turnaround has been successful. We've put in new equipment, process controls so that we can drive that productivity. It just started up. It's running well.

I think the product we're producing, the production rates are still not where we want them to be, and that's what we're working to ramp up. The benefit of that will take a quarter or 2. It's not just when we hit the performance with recap and all that, it will flow through into the P&L over time. But that's the biggest issue that we have. If I step back for the year, between the Calvert and weather and the Hopewell type situation, probably we've lost about 200 basis points of margin overall. We should be -- this year should have been 200 basis points higher in terms of EBITDA and EBITDA margins. And that's the bogey that we want to start next year and try to make sure that we're in a good place.

Our next caller is David Begleiter from Deutsche Bank.

Guillermo, just on the Q4 guidance, it's about a $15 million range. Is there a bias at this point in time to either the midpoint or the upper end or the range as we sit here now?

Let me make a comment also. I'll have William comment on each of them. I think if you look at revenue and EBITDA, just at a high level, I would say on the revenue side, we feel really good. I mean, first, the markets are improving. The core markets have behaved resiliently than they have been for a while. Our personal care, our life science and specifically pharma are doing well. Our globalized and innovate is going well. We're getting all the pricing over inflation that we wanted to get. So on the revenue side, the teams are focused and the customer relations are great. And even in uncertain times, we're performing well and feel confident.

So from my side, personally, the revenue side, we feel very, very good about. I think on the EBITDA side, it's really about the operating performance. We did communicate in the last call that we were having issues. I think from my side, I'm going to be more careful in terms of how much we want to promise the rate of improvement, one, because we got to drive that improvement over a period of time; and two, the flow-through, as we've talked about before, is it's straightforward. So we want to make sure that we're a little bit more cautious on that side.

But William, do you want to make any comments?

Yes. So we intentionally didn't move the midpoint of the EBITDA guide. And so just to give you some of the parts and pieces on our comfort there. So one, to deliver the EBITDA midpoint, we will need stronger outcome on the sales range. And that's actually where our internal modeling does sit today. So there's a few reasons we've been constructive. First of all, June was a strong exit and then July and August order build are encouraging.

As you heard from the team, Q3 was volume led, and I'd expect Q4 to be more of a balanced delivery across both volume as well as some of the pricing actions we just spoke to. And so as you break it down by business, Life Sciences, I'd expect quarter-over-quarter stability in terms of sales and earnings, which means, by the way, another solid and resilient quarter. Personal Care, we do continue to see broad-based momentum, both in sales mix and lifting margins. I'd say overall, and you've heard in our prepared remarks, we are a bit more cautiously optimistic on the Specialty Additives side, but we are encouraged by the commercial execution of the team.

And then just to elaborate on Guillermo's point, I would say we're again cautiously optimistic on the manufacturing side. It's very much a key focus area for us. It's a real opportunity for improvement, and we do expect gradual progress in Q4. So what's driving the margin lift into the Q4? It's the pricing realization. It's continued momentum on the sales volume with a healthy mix. Globalize and Innovate continues to be an outperformer for us year-to-date and then gradual improvement on the operations side.

Very helpful. And Cam, just on Globalize and Innovate, again, congrats on the success year-to-date. Any early thoughts on some targets for 2027 for Globalize and Innovate?

Yes. We'll be talking -- I think we'll update. As we've done in the past, we want to be transparent on the progress that we're making, specifically on globalized. We've made a lot of investments. We just have a few that have come on stream. So we want to continue to spotlight our performance, not just for you, but internally, it also puts a lot more pressure with greater visibility on what we want to do. So that's going well.

On the innovation side, we're going to update in September. I think the biggest issue that we're looking at now, each of the business, I think Dago mentioned it in his comments, we're getting a lot more traction, not just in the new technology platforms, but the businesses. Once you focus on innovation, it changes everybody, everybody's focus. There's a lot more work even on the core innovation, creative new things that we're doing with new cellulosics and all that, modifying them in the different businesses.

So there's a lot more going on. So we're going to probably expand over time, maybe not in September yet. it's not just new technology platforms. It's which are the scalable innovations that we really see an opportunity to drive growth, to drive margin expansion. And most importantly, it is to drive differentiation. I think this is one of the challenges our industry is having of hypercompetitive commoditization, all that kind of thing. I think driving that is going to be a critical area. So we'll give you -- in September, we want to give you a little bit more color on what are the key technologies that are more scalable, what are the markets that we're targeting and dimensioning those markets, the potential.

Obviously, the commitments, it's going to be a range. So we want to make sure we show the pathway that we're taking, but these are all going to be scalable. And again, what excites me is it's a portfolio. It's not one project that we're betting everything on. It's a number of exciting projects that have significant growth potential for a company our size.

Our next question comes from Reed Halpert with Wolfe Research.

This is actually Chris. Switching over to the Life Sciences segment. I would just like to drill down to the sustainability of the pharma volume growth. It seems like things have been picking up the last couple of quarters. You've been investing in both OSD as well as injectables. Is there anything on the horizon that kind of underscores a greater degree of conviction specifically on the OSD side and anything with GLP-1s, any new products? I know they could be smaller tons, but it seems like things are moving in the right direction.

Thanks for the question. Just a quick comment and Alessandra, if you could comment. But the momentum in Life Science and specifically pharma, it's not innovation, but execute has been a very important part, getting our cost structure, improving our competitiveness. in our core businesses is a big area of focus. So that gives us confidence that as the base business demand grows or stabilizes and we're going to do well. And obviously, there, then there's a lot of the new innovations that the team is doing. But Alessandra, do you want to comment a little bit?

Yes, definitely. So Chris, just to comment, overall, we target to grow at mid-single digits in Life Science. And that's what we expect for 2026. So that's how we should look at that across the quarters. As Guillermo mentioned on OSD or solid growth, we saw VP&D stabilizing. So that's good. We also saw the momentum with our globalized and innovate strategies going very well with injectables, bioresorbable polymers, sugar cellulosics. So we are also excited with launches in other areas, the TVO in Crop Care, we are seeing the customer testing and feedback being positive. not revenue yet in 2026, but that shows the momentum for going forward.

When specific on your question about GLP-1. So Ashland, it is benefiting and will benefit materially from the GLP-1 drugs growth, right, that we are seeing. We expect to see continued upside going forward, both through the chemicals that are used on the API production as well as the excipients that are used in oral solid doses. So -- you see in the coming weeks, we are launching a permeation enhancer, and we are seeing the prelaunch momentum with customers. So that's a launch that we will happen in the month of August. But overall, it is -- we see the momentum from globalize, innovate and then, of course, in a stable market.

Alessandra, can you just comment on permeation enhancers, what is it for some of the investors that maybe aren't as familiar with that?

Yes. So basically, with biologics, it is -- it helps with the absorption of the biologics and into an oral format. So basically, that's what we're launching in the month of August. And as I mentioned, a good momentum with prelaunch sales already.

Got it. And just as a quick follow-up, similar question on Personal Care. Obviously, your portfolio has gone through a lot. There have been a lot of adjustments, restructurings, outages, which obviously have been distributed periodically throughout some of the segments. It seems like you're also building a decent momentum here, specifically in skin and hair. I was kind of curious in terms of your outlook there, how much of that is just a lack of destocking.

Some of your customers have gone through their own restructurings, in some cases, several restructurings. Just in terms of your outlook and your degree of confidence in that portfolio, kind of where do you stand versus the last 6, 12, 18 months? Is this sustainable in fiscal '27? And if so, what's underscoring that the most?

Chris, thanks for the call. So I think if you zoom out and you look at the year, right, I mean, in Q1, we had highlighted that there were some customer-specific outages that occurred mainly in North America. Adjusting for those in Q1, we were low single-digit growth. In Q2, mid-single-digit growth. This quarter, again, mid-single-digit growth, all driven primarily, predominantly by volume. And then as we look into the next quarter, we expect to be in the same ZIP code, mid-single-digit growth. So for the full year, we expect to land mid-single digit versus prior year.

And I think we've built that momentum, right? If you look at biofunctional actives, in Q3, we delivered almost 30% growth in biofunctional actives. We've been very bullish on the technology. We have a great technology. What do we have to do? We have to build the team. We have to build the pipeline, engage with customers and then convert that pipeline. And that's exactly what's happening. And that model is flowing through all of the business lines. Great technology.

We've built the team. We engage with customers. We've built the pipeline. And now we're starting to see the benefit of that. And there is that lead time building the pipeline, which we did last year. And then this year is really, really converting on that pipeline, and it's coming through in the volume growth. And I think the really exciting part is that it's broad-based, right? I mean if you look at Biofunctional Access, 30% growth in the quarter, we are both on trend with exosomes PBRN, but then we're setting trend. And we're developing a new ingredient in biofunctional actives. We'll share a bit more.

We're still filing the IP on that, but this is really going to be the next blockbuster hit in this segment. Microbial protection, double-digit growth on a volume basis across all regions. Our investments are all in place now to globalize that business, regionalize our supply footprint. We're gaining share. And then in our care ingredients, we're doing really well with our wars, with our cellulosics, our EMD. So it's really broad-based, and we expect to continue to carry this momentum into next year.

Our next question comes from John Roberts with Mizuho Securities.

I believe the activists wanted Ashland to run a formal sales process. Was there an agreement to run a formal sales process? Or is that still yet to be determined by the new committee of the Board with the 2 new Board members?

John, thanks for the question. Obviously, that's sort of the elephant in the room that everybody is asking about. Look, first and foremost, our team is focused on driving the execution of our strategy. I think the one thing that is clear from all the communications, ours, even from the core letter and from our discussions with a lot of other investors is this is a very valuable portfolio. We've got a lot of great fundamentals that are going to drive our future value creation. And frankly, that is the #1 priority. Everybody agrees is execute and drive performance, and that's what's going to create the maximum value and alters. What our strategy is, our Board, just to be clear, we have a very good Board already.

We've been changing the Board for many years now. We have experts from every business that we're in. The Board regularly reviews all our strategy. We haven't broken up now because we have an activist or any investor we've been doing a lot of our work, and I've had these discussions with all of you in terms of our views on the market, the industry changes that are happening and the opportunities that lie ahead in the coming years. So none of that has changed.

I think what's changed is we engaged Ancora. We had actually a very constructive discussion. They were constructive. We were constructive. I think everybody understands the businesses, the issues. They came forward with 2 very strong directors that can add value to our business. They have relevant experience to what we're doing. So we saw that as a great opportunity to reinforce the Board. We'll have new views that will come into our strategy work. The committee will be reinforced now with some other new views. And we're going to let them do the work that they have been doing and continue to do.

We're not going to speculate on what they want to do or not. I think that's their job to make recommendations to the full Board of what that process is going to be like. But the #1 priority that we all agree on is execute, drive the performance, create the optionality of value, organic or inorganic, we want to make sure that we have all options. This is not something that you want to just be forced to do one thing. We want to make sure that we have options to create value in multiple directions with our shareholders.

Okay. And then second, just a clarification question. I don't think I've heard about the advanced manufacturing tax credits before in discussing the intermediate segment. So I don't think NMP itself qualifies this here. So this is a derivative effect you're seeing from the battery customers downstream?

[indiscernible], do you want to?

Yes. No, John, this is something that we spoke actually this time last year on it. So just as a reminder, it's an incentive around domestic production in some key sectors, one of which is battery. It does improve our cost position. It helps make domestic producers more competitive. The concept itself was introduced a couple of years ago, but it was -- the eligibility was more defined in Q3 last year. And so as you look year-over-year, it's about a $3 million headwind for the Intermediates business, but sequentially, it's stable. This is something we'd expect to continue to have and be eligible for through at least 2029, and then it continues to phase out from there.

Our next question comes from Josh Spector with UBS.

I wanted to just follow up on actually one of John's earlier questions around the cost savings and the flow-through to '27. I mean you were pretty clear in your answer, you thought this year could be 200 basis points higher from a margin perspective. So about $40 million in EBITDA there. Your comments on Hopewell actually seem a little bit more encouraging this quarter than maybe the last couple of quarters. Like would you expect more of that $40 million to now flow through in '27? Or is that still kind of a 2-year path? I think before it was more flow-through might come in 2028?

I think we'll start seeing the flow-through on a -- I would say, it's talking quarters, we should start seeing that probably in the second -- starting in the second quarter, I think this fourth quarter and even first quarter, just the way the recap works, you're going to have a little bit of noise. That's why we're being a little bit more cautious and it's not just what we do, but how it flows through the P&L today. But after that, I think we should start seeing that flow through. Now there are parts of like the Calvert downtime and all that, that you'll see quicker because we're already in operation.

So the $40 million parts of it will take a little bit longer, parts of it will come, but we'll start seeing some of the benefits. Our biggest issue right now focusing on is Hopewell, getting the productivity, and it's really kilos per hour production of a certain part of our product line that we want to make sure that we're getting the right throughput, the right cost structure as we move forward.

Okay. And if I could just follow up quickly on Specialty Additives. I mean, it seems like you're more comfortable or at least confident around volumes there. And we've been talking about new wins for a while, but I feel like we haven't seen them. And architectural coatings demand isn't incredibly strong. So what's inspiring confidence now for why we'll see stronger volumes over the next kind of few quarters or a year?

A quick comment and Dago, maybe you can comment. The good news there is from what happened in '24, the markets have stabilized. I mean they're not at the highest level. I would say, but at least they're stable. We're starting to see share gains, and Dago will comment on that. So there's a lot of actions now that we can start getting that momentum back.

But Dago, why don't you go region by region and just give us sort of a view of what's happening?

Sure. So yes, if I go region by region because, of course, architectural coatings is a very regional market. And what you'll see in China is that the market is still pretty stable. I would actually say that is declining on the new construction space. Now having said that, other industrial applications like electronics are actually doing quite well for us. But really, the secret sauce when it comes to China is team execution. So we've been able to really convert into dollars all the regional innovation that we're doing in the region. So that's really driven by the team. Europe is flat. There is no signs of recovery. This is driven by Germany and by France. But again, here, we've been very disciplined, especially when it comes to market share execution.

The other big region for us, of course, is North America, and North America remains the $1 million question. New construction is still pretty slow, but we know there is pent-up demand. So it will depend on interest rates, of course, number one. It will depend on consumer sentiment for us to determine when we're going to see that inflection point. Now the good news about all the regions is that innovation is advancing. That's a big part of the growth that we're seeing now.

Commercial discipline is high. So we're being very careful on how we price our products, where value pricing our products. And then pipeline execution, that's critical for us to outperform the market. So that's overall where we are. I would say the markets are stable. Architectural coatings is really nothing to report. Performance Specialties is doing better than expected.

Our next question comes from Jeff Zekauskas with JPMorgan.

It sounds like you've tried to optimize your cash flows this year by reducing your operating rates. How much did that penalize your EBITDA so far this year or for the entire year?

Yes. It's a good question. It builds actually on what Guillermo cited on that 200 basis points comment. So how I would anchor that about $80 million of inventory drawdown. If you point to how much of that is absorption related impacting EBITDA, it's probably $30 million to $35 million. And so really, as we look going into next year, this is the clearest line of sight we have into a margin recovery is producing to demand. And I mean it's related to how Guillermo positioned it, but it's very similar.

So you're right, it did bolster the balance sheet, meaningful inventory drawdown. We don't expect at the Ashland level, meaningful inventory swings going forward. Of course, the details matter. So by product line, we could have some areas that we rebuild in some areas we have inventory above target. But in general, the big inventory fluctuations is what's happened year-to-date. And from here, I would expect it to be stable.

And Jeff, I mean, this is an area of discipline that we're really changing, and you know the history and just inventory. We do not want to drive performance by building inventory. So we're going to be much more disciplined on build as demand goes up. I do think there's upside potential for us given that we've brought it down, but we're just not going to start producing just to artificially create. We're going to balance our actions based on informed views of demand.

Earlier in the call, did you say that there was a turnaround in the intermediates and solvents business in the fourth quarter? And if there is one, is that a meaningful event for you on an EBITDA basis?

The turnaround we did was in Hopewell that we shut down for a period of time because we made investments, equipment to help with some of the process issues that we were having. So the plant is back online and producing, and we're monitoring now the production rates as they come up.

And then lastly, in the capital allocation committee that has been formed, when would you expect that committee to make a recommendation? Or is there no time frame for that committee?

I'm not going to make -- speculate on this, but we have 2 new directors that just got named. We got to onboard them. There's a lot of work that we need to do to bring them up to speed. The Board has been working on our strategy for a long time now. So we're not going to stop at this point in time. It's really bring them up to speed and then let them do their work. But I'm not going to speculate on how fast or that's up to them and what their views, what their recommendations to the Board will be.

Our next call comes from Laurence Alexander with Jefferies.

I wanted to ask about kind of the feedback you're getting from your customers about the different innovation platforms and not so much the kind of the near-term trends with technology per se. But what are they saying about the size of the potential applications and what you would need to deliver for there to perhaps be discussions about either a more aggressive, they help fund capacity or establishment of JVs in some areas where it's appropriate? Or is the overall strategy just for Ashland to try and do everything on its own?

I think that's a great question. I'm not going to steal the thunder of our September 17 event. So if everybody wants to hear the full answer, that's the event that you should participate. But we feel very, very excited Personally, I feel much more confident. I've been on the road visiting our major customers around the world, and we're meeting -- we're getting access to a lot more people, technology, marketing people, the whole engagement has changed because now we validated, I think, the technology.

Now the issue is can we get the right product or the right formulation that they want to launch and can we fall into their reformulation plans whenever they do their big brands, be it in personal care, be it in coatings or even some of the life science. So the feedback has been very positive. I can say, hey, the silicone replacement in personal care is looking really exciting. The -- now expanding the novel -- the multifunctional starch, extremely exciting. work that we're seeing the feedback very strong. And beyond, we were focusing on carbomer replacements of microplastic acrylic-based thickeners and all that. But now the sensorial, there's a lot of other benefits there that people are excited about.

So skin, it's not just for hair, but now also in skin, we got both of those markets really moving well. The super wetter is now going to a lot of different markets. One area that we weren't thinking of moving that quickly was in personal care. And actually, now we found a home in terms of ethnic hair for applications to be able to wet and condition hair much faster. I think as Alessandra mentioned in the TVO for ag, we have it in the seed coatings. We're working now in the oil dispersant that also very exciting. The super weather is doing well over there. I'm personally and I am biased. I'm really excited by the work that coatings is doing, really is more of my prior history.

The TiO2 spacer technology we're working, very well received by customers. We haven't sampled that one yet because we're getting all the IP. That process is going. And I will say, I mean, extremely exciting. Those -- just those examples that I mentioned, we're talking about a very big market potential, and that will be the theme of the meeting. Silicones in personal care is an $800 million market. There's a lot of opportunity. This is not a $3 million, $4 million opportunity. We're trying to target some big opportunities. If you look at rheology, acrylic type chemistry, synthetic chemistries, being able to replace that huge $400 million, $500 million of business that we're going up. TiO2 replacement, and we can get 10% to 20% TiO2 efficiency. You can do the math on how much TiO2 in different types of paints and architectural. So ag also very, very large market.

So that's -- the issue here is scale. And what I would add that I'm excited about is for the external world, we've been talking about the new technology platforms. In the future, you're going to hear us talk about technology platforms because there's a lot of other things now that we are going into our old technology, and we see opportunities to also go after scalable and especially in the cellulosics area, I think change the game over the next couple of years, how do we move on to new things that we can bring to the technology. Not a lot of innovation in that space for a long time, and I'm very excited about that.

Our next question comes from Steven Haynes with Morgan Stanley.

A lot has been covered, but maybe just a quick one on Life Sciences. I think somewhere in the materials, you talked about customer order timing benefiting the quarter. Just to clarify, was that capturing something that was pushed out of the second quarter? Or was that pulling forward something from 4Q?

Alessandra, do you want to comment?

Yes. So to some extent from the second quarter. And -- but as I mentioned, if you look at across second, third, fourth quarter, we target mid-single-digit growth, and that's what we expect looking across the year and across those quarters. So that's -- and we're talking about the fundamentals, right? The market is stable. We are seeing the great momentum with Globalize, Innovate with the growth of injectables, cellulosics portfolio. So definitely, it is -- the underlying fundamentals are there, and the order pattern wasn't material.

Our next call comes from Abigail Eberts with Wells Fargo.

Just wondering if you could speak more regarding the end fundamentals that you're seeing -- end demand fundamentals you're seeing in the Nutrition business and what led to that decline for you specifically?

Alessandra?

Yes. So Nutrition, we talked about the projects we have and working with customers on new applications with a focus on improving our mix as well, more towards an improved mix. And the new wins, they are coming, but they're coming slower than what we anticipated. So we see the momentum with the new applications. It's just coming slower than what we anticipated. And basically, as we talked about nutrition in the past, right, from non-meat applications, this is a market that hasn't materialized, right? It is -- yet the growth isn't there.

So we definitely focus on other applications with our nutrition portfolio. And we are seeing that. It's just the wins are coming lower than what we anticipated. But in the third quarter, specifically, just looking at nutrition, the revenue was stable. It was not a decline.

Our final question of the day comes from Mike Harrison with Seaport Research Partners.

Just one for me. I'm curious in the globalized portion of your strategy, it looks like you're getting good traction with the current round of investments. I believe you made those going back a couple of years. So I'm curious, do you still see that there are some gaps or areas that are going to be in need of further investments? And what could the timing look like on an additional round of globalized investments?

I think we've made a lot of the big investments, if you look at it, and if I go by business. So microbial protection, now we have, as Jim said, every region in Brazil, in North America, in Europe, in Asia, we have local supply. And that changes. It's not just the active -- we back integrated also on some of the key actives. So we got a better cost structure as we go forward. So it puts us in a much more competitive position and allows us to formulate locally using local raw materials. So there's a lot of benefits to that.

Biofunctionals, we now have in Europe, we have capabilities that we're going to add -- in Brazil, we have capabilities and in China. I think the U.S., that would be one that we want to bring in production here, too, so that we can work and be closer to our customers. Those are not big investments, but we'll bring in that capability at the right time. I think in tablet coatings, as Alessandra mentioned in her comments, India is -- that's a big market for us. So we should have the new plant. We did the groundbreaking middle of next year, we should be in production.

Customers are very excited about some of the products that we've been introducing and -- but you got to be local to really to play in that area. And I would say in -- we made most of the investments already in the injectable side. I think the -- in Ireland, the investment we made was oversized so that we can continue to build samples, but now we're already getting our first commercial sales, and that's starting to ramp up. So we're well positioned there.

And in the high-purity excipients for injectables, sugars and other products at [indiscernible]. We made the investment here in the U.S. in Columbus, Ohio, and we're ramping up production there. So we're in a good place. Maybe that's something as we grow, we could put it in another region in the future, but that would be further out. So I would say biofunctionals and the tablet coatings would be the areas that I would see some investments there. Hopefully, I think the issue is going to be with new technologies coming in. I think that's the one that we'll probably look at investments to globalize those product lines as they commercialize.

This concludes the question-and-answer session. I would now like to turn the call back to Guillermo for any closing remarks. Guillermo?

Thank you, everyone, for your participation and questions. We look forward to connecting with everybody over the coming weeks. And more importantly, I look forward to updating you on September 17 on our webinar on innovation update on the progress that we've made on those new technologies. So look forward to seeing you in the near future. Thank you.

Thank you for your participation in today's conference. This does now conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to Ashland's Second Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sandy Klugman, Director of Investor Relations. Please go ahead.

Thank you. Hello, everyone, and welcome to Ashland's Second Quarter Fiscal 2026 Earnings Conference Call and Webcast. My name is Sandy Klugman, and I am Ashland's Director of Investor Relations. Joining me on the call today are Guillermo Novo, Chair and CEO; William Whitaker, CFO; as well as our business unit leaders; Alessandra Faccin, Life Sciences and Intermediates; Jim Minicucci, Personal Care; and Dago Caceres, Specialty Additives. Please note that we will be referencing slides during today's call. We encourage you to follow along with the webcast materials available at ashland.com under Investor Relations.

Please turn to Slide 2. As a reminder, today's presentation contains forward-looking statements regarding our fiscal 2026 outlook and other matters as detailed on Slide 2 and in our Form 10-Q. These statements are subject to risks and uncertainties that could cause future results to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but there is no assurance these expectations will be achieved. We will also reference certain adjusted financial metrics, both actual and projected, which are non-GAAP measures. We present these adjusted figures to provide additional insight into our ongoing business performance. GAAP reconciliations are available on our website and in the appendix of these slides. I'll now hand the call over to Guillermo for his opening remarks.

Thanks, Sandy, and welcome to everyone joining us. I'll start with a brief overview of our second quarter performance, then William will review the financials and outlook, followed by a deeper business unit detail with the team. Please turn to Slide 5. Overall, second quarter results reflect resilient underlying commercial performance amid stable demand conditions with pricing and portfolio mix action remaining a central focus across the organization. Life Sciences delivered steady results supported by resilient pharma demand. Injectables, tablet coatings and high-purity excipients continued to drive growth, marking a fourth consecutive quarter of volume gains.

Progress across our innovate and globalized pillars remain strong with continued adoption of differentiated new product introductions. Personal Care generated broad-based portfolio growth, driven by strong volume gains and execution across biofunctional actives, care ingredients and microbial protection. Biofunctional actives delivered robust double-digit year-over-year growth, while microbial protection continued to gain share following our globalized investments. Specialty Additives operated in a mixed market environment. Coatings volumes grew year-over-year, reflecting share gains and new product traction, while construction sales remained lower, reflecting deliberate portfolio mix actions and slightly softer demand.

Overall results returned to flat year-over-year, which is an important step forward given that we have not yet fully lapped our prior year China impact. Intermediates operated in a stable, but trough level environment with results impacted by both commercial and operating effects of the Calvert City outage. The team will cover more later, but operational performance was impacted by specific issues during the quarter, all of which are internal and not reflective of underlying demand trends. Despite these headwinds, commercial execution across much of the portfolio was solid, and we continue to see encouraging demand trends in Q3.

Please turn to Slide 6. I'll now walk through our second quarter results, which reflect disciplined execution across the portfolio in a mixed market environment. Teams remain focused on cost control, operating discipline and customer service while managing through operational headwinds during the quarter. Structural actions taken over the past several years continue to support the underlying economics of the business, even as near-term performance was pressured by temporary execution challenges. Working capital was a key strength in the quarter, driving strong operating cash flow and reinforcing our focus on cash discipline. Looking across the portfolio, the quarter demonstrated resilient underlying performance and continued progress in strengthening the business foundation with demand conditions generally stable across the portfolio and margin pressure primarily driven by specific operational issues rather than end market weakness.

Please turn to Slide 7. First, our consumer-focused businesses, principally Life Science and Personal Care continue to provide stability, supported by resilient end market demand. Second, innovation and globalization initiatives are gaining traction with accelerating momentum in higher-value applications across the portfolio. Innovation has already exceeded our full year target after 2 quarters, reflecting the strong pipeline execution and commercialization. Third, structural actions taken in prior periods are now embedded across the business, enhancing margin durability and positioning the portfolio to benefit as operating conditions normalize. Teams remain focused on disciplined execution and targeted corrective actions.

Before turning the call over to William, I want to emphasize 3 themes for this quarter: resilient consumer-focused demand, accelerating innovation and globalization momentum and continued commitment on improving execution. I'd like to now turn the call over to William to provide a more detailed review of our second quarter financial performance. William?

Thank you, Guillermo. Please turn to Slide 9. Second quarter sales were $482 million, up 1% year-over-year, reflecting resilient demand conditions across much of the portfolio. Volumes were relatively stable overall with growth in Personal Care offsetting softness in Intermediates, while Life Sciences delivered steady performance. Pricing declined modestly year-over-year, primarily reflecting carryover impacts from prior period pricing actions supporting targeted share gain activity generally across the segments. Foreign exchange was a meaningful tailwind, contributing approximately $16 million or 3% to reported sales. Adjusted EBITDA was $98 million, down 9% year-over-year, reflecting approximately $10 million of previously disclosed temporary impacts, including the Calvert City start-up delay and weather-related operational disruptions during the quarter.

Excluding these discrete items, underlying performance reflected softer pricing, offset by disciplined cost control and foreign exchange benefits, consistent with the resilience we are seeing across the portfolio. As previously discussed, Calvert City impacted results in the second quarter. Repairs are now complete and the facility is back online. Adjusted EBITDA margin was approximately 20%, down 220 basis points year-over-year, largely reflecting these temporary operational disruptions. Adjusted EPS, excluding intangible amortization, was $0.91, down 8% year-over-year, consistent with the EBITDA decline. Cash generation and conversion was notable strength in the quarter. Cash flow provided by operating activities totaled $50 million, up from $9 million in the prior year, driven by disciplined working capital management, including meaningful inventory reductions.

Ongoing free cash flow was $29 million, representing solid conversion driven by working capital improvements and reduced capital expenditures. We ended the quarter with total available liquidity of approximately $939 million and net debt just over $1 billion, resulting in net leverage of roughly 2.7x. The balance sheet remains strong, providing flexibility to support operations, invest in strategic priorities and maintain disciplined capital allocation. With that, I'll turn the call over to our business unit leaders for a closer look at segment performance. Alessandro, over to you for Life Sciences.

Thank you, William. Good morning, everyone. Please turn to Slide 10 for Life Sciences. Life Sciences sales were $172 million, flat year-over-year. Results reflect resilient pharmaceutical demand, partially offset by softness in select non-pharma end markets and modest pricing pressure. Pharma delivered low single-digit growth for a fourth consecutive quarter, supported by strength across differentiated cellulose excipients, injectables and tablet coatings. Outside of pharma, nutrition and other non-pharma markets remained softer, reflecting customer order timing rather than underlying market deterioration. Pricing declined modestly year-over-year, largely reflecting carryover impacts from prior period actions while remained stable sequentially.

Foreign exchange contributed approximately $6 million to sales during the quarter. Looking at our globalized initiatives, Injectables continued delivering quarter-over-quarter growth with a record second quarter results. Positive lead indicators on sales pipeline, new product uptake and new orders signal continued growth momentum in this high-margin segment. Film coatings continued its double-digit growth trajectory versus prior year, fueling capacity release initiatives. Turning to innovation. Growth was supported by expanding adoption of low nitrite oral solid dosage excipients and high-purity injectable and bioprocessing products. New product success in this segment reinforced Ashland's differentiation in regulated, high-value market fully aligned with our growth strategy.

Looking ahead, we have positioned the second half of the year for multiple new product launches across oral solid dose injectables and crop care, supporting sustained growth and portfolio renewal. These initiatives continue to reinforce portfolio differentiation and long-term growth opportunities. Turning to profitability. Adjusted EBITDA was $50 million, down 11% year-over-year. Adjusted EBITDA margin was 29%, reflecting the combined impact of modestly lower pricing and higher costs, including approximately $5 million of weather-related disruption and Calvert City start-up delays during the quarter. These headwinds were partially offset by favorable mix, disciplined execution and foreign exchange, which contributed approximately $3 million to EBITDA.

Importantly, underlying pharma demand remains resilient and recently announced pricing actions are now being implemented across the portfolio. Life Sciences continues to benefit from durable end market fundamentals, strong customer engagement and sustained momentum across our innovate and globalize pillars. Please turn to Slide 11 for Intermediates. Intermediates operated in a challenging but stable trough market environment, consistent with expectations entering fiscal year 2026. Demand conditions remain stable with sales and pricing at trough levels across the BDO value chain. Sales were $35 million, down 5% year-over-year, reflecting continued pressure across the BDO value chain and commercial and operating impacts related to the Calvert City outage.

Merchant sales were $26 million compared to $27 million last year as our relatively steady volumes were partially offset by modest pricing pressure and disciplined commercial actions, including controlled merchant activity. Captive BDO sales were down approximately $1 million year-over-year, primarily reflecting the Calvert City impacts during the quarter. Foreign exchange provided a modest $1 million benefit to sales in the quarter. Turning to profitability. Adjusted EBITDA was $5 million, up from $2 million in the prior year quarter. The improvement reflected disciplined cost management and favorable manufacturing input actions, which more than offset Calvert City related impacts and ongoing pressure across the BDO value chain. Now I will turn the call over to Jim to discuss Personal Care.

Thank you, Alessandro. I'll now highlight our Personal Care results. Please turn to Slide 12 for Personal Care. Personal Care delivered resilient results, supported by broad-based demand and strong execution across the portfolio. Sales were $150 million, up 3% year-over-year or 4% on a comparable basis, driven by growth across all 3 business lines. Biofunctional actives delivered another quarter of double-digit growth, supported by continued adoption of Collapeptyl and customer expansions across Europe and North America. Microbial Protection delivered robust growth across the portfolio and geographies, driven by new customer wins and continued share expansion.

Within Care Ingredients, the portfolio remained resilient with strong growth across hair and skin care categories, particularly in Asia Pacific and Latin America. Previously reported customer-specific outages from the prior quarter have now returned to more normalized levels. Foreign exchange contributed approximately $5 million to sales during the quarter. Turning to innovation. Biofunctional actives recently launched eternight, our 2026 flagship ingredient. Eternight targets key skin longevity markers and was recognized with an industry award at the In-Cosmetics Global event earlier this month. Care Ingredients launched a new hair care conditioning polymer from our guar technology, which is already gaining customer adoption.

Overall, Personal Care continues to benefit from strong momentum across our globalized and innovate platforms, reinforcing growth in consumer-focused applications. Turning to profitability. Adjusted EBITDA was $43 million compared to $44 million in the prior year quarter. The slight decline was driven by operational outages from weather-related events, which were predominantly offset by volume growth and mix. Adjusted EBITDA margin was approximately 29%, demonstrating the strength of the portfolio and benefit of ongoing commercial and productivity efforts. Foreign exchange contributed approximately $2 million to EBITDA. In summary, Personal Care delivered robust sales growth across all 3 business lines, demonstrating strong margin resilience, disciplined execution and meaningful progress across its innovate and globalize initiatives. With that, I'll turn the call over to Dago to review the results of Specialty Additives.

Thank you, Jim. Please turn to Slide 13. Specialty Additives operated in a mixed demand environment during the second quarter with performance varying by end market and region. Overall results reflected disciplined commercial execution with targeted pricing actions supporting share gains and specific operational headwinds. Sales were $134 million, flat year-over-year as volume growth for the second consecutive quarter was largely offset by softer pricing and the lapping of a difficult prior year comparison following share losses in China. Breaking down the segments, Architectural coatings returned to year-over-year growth, supported by share gains and new product traction.

Volume trends improved relative to prior quarters as commercial initiatives gained momentum, while underlying demand remained generally flat with continued regional variability. Construction volumes were lower, reflecting deliberate portfolio mix management actions associated with network optimization and relative muted end market demand. Other end markets were mixed with volumes growth in Performance Specialties offset by softer energy demand tied to customer-specific impacts in the Middle East. Pricing declined modestly year-over-year, reflecting targeted share gain opportunities. Foreign exchange contributed approximately $4 million to reported sales.

Turning to profitability. Adjusted EBITDA was $16 million, down from $26 million in the prior year quarter. Adjusted EBITDA margin was 11.9%, reflecting softer pricing and higher manufacturing-related costs, including approximately $2 million from weather-related disruptions, a discrete bad debt reserve related to a Middle East energy customer as well as productivity challenges associated with Hopewell scale-up, notably regarding the HEC scale-up, product quality and customer service levels have been maintained and achieving profitable scale remains a key operational focus.

While near-term performance has been impacted, these actions are expected to enhance long-term reliability and cost efficiency across our cellulosics network. All other sites continue to operate reliably and our global network supported uninterrupted customer supply. Overall, the focus remains on targeted actions to improve operational performance, strengthen cost control and advance differentiation across the applications, positioning the business to benefit as market conditions normalize. With that, I'll turn the call back to William.

Thanks, Dago. Please turn to Slide 15. Given recent geopolitical developments in the Middle East, I want to briefly highlight how Ashland is positioned in this environment. Starting with exposure. Ashland's direct exposure is limited and manageable. The Middle East and North Africa represent approximately 5% of total sales, largely concentrated in Turkey and Egypt, and we have no manufacturing footprint in the region, which significantly reduces operational risk. From a cost perspective, Ashland is structurally advantaged. We are less reliant on petrochemical and energy-intensive feedstocks across our portfolio.

Energy-intensive inputs represent roughly 15% of sales with the majority sourced from North America, supporting lower cost volatility and more resilient margins as energy prices fluctuate. The team is advancing pricing actions to address cost escalation. And given the additives represent a relatively small share of our customers' overall cost structure, we expect to be able to recover these increases. From a demand standpoint, visibility remains solid, supported by a strong order book and a portfolio concentrated in resilient consumer-facing end markets, including pharma and personal care. Finally, based on prior dislocations, we expect security of supply to become increasingly important to our customers.

Ongoing geopolitical disruptions, antidumping actions and reassessments of single region sourcing are reinforcing the value of reliable diversified supply chains, positioning Ashland as a preferred partner for critical applications. Taken together, while the environment remains dynamic, Ashland's limited exposure, advantaged cost structure, resilient demand profile and supply chain reliability position us well to manage volatility. Please turn to Slide 16. I'd like to spend a few minutes on our execute agenda with a specific focus on manufacturing, including the challenges we encountered at Hopewell, our progress across the broader commitment and how this ties to our longer-term cost savings targets. Starting with Hopewell. Our HCC scale-up has progressed more slowly than planned, which impacted second quarter performance.

As Dago mentioned, our product quality and customer service have been maintained. However, productivity, yield and cost performance did not ramp as expected. These challenges are execution related and internal, and we have taken targeted actions to address them, including tightening operating discipline, increasing leadership focus on the site and advancing specific technical work streams. While productivity has been below expectations, results have stabilized, and we are seeing sequential improvement. We continue to take targeted actions, though the financial benefits will take time to flow through the results. Importantly, the issues at Hopewell do not change the strategic rationale for the consolidation. The site remains critical to simplifying the network and lowering the structural cost base of our cellulosics platform.

Outside of Hopewell, manufacturing optimization efforts continue to progress in line with expectations. VP&D and small plant consolidation initiatives remain on track with benefits weighted towards the second half of fiscal 2026. As a result of timing delays at Hopewell, our fiscal 2026 manufacturing optimization benefit has been reduced by approximately $10 million to $12 million. That reflects delayed realization, not a reduction in the underlying opportunity. Stepping back, our longer-term manufacturing optimization targets remain intact. We continue to expect $50 million to $55 million of sustainable annual cost savings with an opportunity to reach approximately $60 million as China volumes recover.

Execute remains a core pillar of our strategy, focused on simplifying the footprint, improving reliability and strengthening cost competitiveness. While near-term execution has been uneven, the actions underway are designed to ensure we deliver the full value of the program over time. I'll address how this translates into our outlook and expectations for the remainder of fiscal 2026 in a moment. Please turn to Slide 17. I'd now like to briefly update you on the progress across our Globalize and Innovate platforms. Starting with Globalize. Performance has accelerated year-over-year with incremental contribution increasing approximately $8 million to $11 million fiscal year-to-date. Globalized businesses delivered double-digit year-over-year growth in the quarter and incremental sales are ahead of plan to date, reflecting continued traction from prior investments across our regions.

Turning to Innovate, Momentum has been even stronger. Innovate has already exceeded its full year target after just 2 quarters, reflecting accelerated commercialization across the portfolio. Performance has been supported by continued strength in high-purity pharma excipients with emerging contribution from GLP-1-related applications. In the quarter, Innovate delivered approximately $10 million of incremental sales, taking us past our original $15 million full year target. This reflects the strength and depth of our innovation pipeline, particularly in pharma cellulosics, as well as successful new product introductions across other parts of the portfolio.

Based on the progress to date, strong executions across both platforms reinforce our confidence in delivering our fiscal 2026 $35 million combined revenue commitment from Globalize and Innovate. Please turn to Slide 18. I'll now walk you through our updated fiscal 2026 outlook, which reflects current operating conditions and a prudent view on near-term execution while maintaining confidence in the underlying strength of the portfolio. For fiscal 2026, we are updating our guidance as follows: for sales, $1.835 billion to $1.87 billion and adjusted EBITDA of $385 million to $400 million. We also expect adjusted EPS growth to be mid-single to high single-digit growth and ongoing free cash flow conversion of approximately 50% of adjusted EBITDA. The updated outlook reflects softer energy-related demand tied to the Middle East conflict, reduced EV-driven demand and slower-than-anticipated productivity at Hopewell.

This is partially offset by resilient demand in core end markets, ongoing price actions and continued growth across our globalized and innovate platforms. In addition, key assumptions underlying the outlook include Life Sciences and Personal Care are expected to remain resilient, supported by stable end market fundamentals, continued portfolio progress and encouraging early third quarter demand trends. Specialty Additives and Intermediates markets remain stable at trough levels with any recovery in coatings expected to be gradual and regionally uneven. Raw material and logistics costs are trending higher, reflecting geopolitical-driven volatility, although recent pricing actions are expected to offset these impacts.

Performance remains second half weighted, consistent with historical seasonality. Given these factors, we believe it is appropriate to remain prudent while continuing to manage production, inventory and free cash flow with discipline. With that, I'll now turn the call back to Guillermo to discuss our technology platforms and share some closing thoughts before we open the call for questions. Guillermo?

Thank you, William. Innovation remains a core driver of Ashland's long-term value creation and the progress we're seeing in fiscal 2026 reinforces the strength of our pipeline. Slide 19 highlights 3 innovation platforms that demonstrate how we are translating science into scalable, differentiated growth opportunities across multiple end markets. Importantly, these are scalable technology foundations supported by customer collaboration, regulatory progress and clear paths to commercialization. Starting with transformed vegetable oil. This platform continues to move towards early commercialization. Customer trials are progressing in crop care, regulatory milestones are being achieved and TBO-based solutions are expanding into personal care, coatings and industrial applications.

Turning to super wetting agents. Customer feedback remains strong, particularly in personal care. Originally developed within specialty additives, this PFAS-free silicon-free technology is expanding across multiple end markets. Finally, bioresorbable polymers continue to gain momentum across high-value medical applications, including long-acting injectables and medical devices. Beyond these platforms, we continue to advance adjacent innovation programs across personal care and coatings, including new multifunctional starches, pH neutralizers and next-generation rheology solutions with multiple global launches planned in fiscal 2026 and early regulatory progress supporting broader commercialization.

Taken together, these platforms demonstrate Ashland's ability to translate science into scalable growth, combining strong technical capabilities, global manufacturing expansion and deep customer relationships to support value creation over time. Please turn to Slide 20. As we look ahead, I want to briefly outline the leadership priorities guiding our actions as we strengthen the foundation of the business and position Ashland for sustained performance beyond 2026. Our full year expectations reflect both the underlying strength of our portfolio and the reality that our operating performance this year has fallen short of our standard. While the market environment remains mixed, the fundamentals of the business continue to provide resilience. Performance in the second quarter was impacted by specific internal manufacturing challenges.

These issues are disappointing, but they are internal and within our control and addressing them is a top priority for the leadership team. We are making targeted disciplined actions to improve operational reliability, cost performance and consistency of execution. At the same time, several elements of our strategy continue to progress. As William highlighted, innovation and globalize momentum remains strong. Cash generation and balance sheet discipline remains central supporting resilience in a volatile macro. Portfolio simplification and structural actions are strengthening the foundations for improved performance as execution stabilizes. As we move forward, our priorities are clear: operational -- operate safely and reliably with a focus on consistent customer service, stabilize and improve manufacturing execution, execute pricing actions to offset raw material inflation while actively managing supply chain volatility to strengthen resilience, convert innovation momentum into commercial results using our global platforms.

Fiscal 2026 is a year of strengthening the foundation. While near-term manufacturing performance has fallen short of our expectation, the strategy remains sound and our actions are focused on restoring delivery against our commitments. With a more focused portfolio, resilient end markets and clear operational road map, we are positioned to manage near-term challenges while building towards improved performance in fiscal 2027. I want to thank our Ashland employees for their continued commitment during a demanding period. And I thank our shareholders for their continued engagement and support. Operator, please open the line for Q&A.

[Operator Instructions] Our first question comes from Josh Spector of UBS.

I was wondering if you could talk a little bit more about price/cost dynamics. I think from the prior energy cycles, you guys have been a bit more of a beneficiary because of some of your back integration and then it's just a matter of timing for pricing to catch up. But you've lowered your sales guidance for a couple of different reasons rather than raising it with higher pricing. So I'm curious if you could talk about that a bit more around how you expect that to play out in the second half or if that's a little bit more of a longer duration thing or if I'm just thinking about it in the wrong context here.

Thanks, Josh, for your question, a critical question in this environment. Let me answer first on pricing and then on how we adjusted some of the guidance. So first and foremost, on the pricing, we're moving. We've announced each business is executing on that, given cost differences in different regions. It's region by region, product line by product line that we're doing it. Like in 2022, we're moving quickly. We're not a big part of the cost of our customers. We're not as petrochemical exposed. So our increases overall to cover cost is not that significant. So the quicker we can move, get out of the way of our customers, they've got bigger problems that they need to address. That's our objective. So we are moving at that, and we're already starting to get some of that benefit and will start flowing through this month and into the coming months.

We're moving -- just also to clarify, we're moving both on price increases and surcharges. That depends on contracts, how we need to move. I think the market understands the dynamics Obviously, you have to do the dance with customers on timing, magnitude and all that, but we're making very good progress. If you look at our guidance, I think we are -- it's a very uncertain environment right now with many things. So our trim of the high end of the sales guidance was really more driven by things we know. Energy & Resources, we are seeing, it's not a big part of our overall exposure, but we do have some business in the Middle East, and we're seeing that coming down both in terms of sales.

Also, we had some credit issues, but we believe will recover later on. But right now, in this environment, I think it is having a little bit of impact. And also, we're seeing a lot of delays in the EV projects for intermediates. So that's basically what's driving it. On the pricing side, it is an upside. And we didn't put it up or factor that in, but there's still a lot of uncertainty in the macro market. And I think the biggest issues that we're looking at is will demand start picking up again in North America, for example, coatings. North America and Europe, we're not seeing any improvement. So we want to be prudent on that. So I would keep the pricing dynamic more of an upside in these numbers.

Okay. That's helpful. Maybe just quickly within Life Sciences. I think you noted the downturn you saw in Nutrition and talked about customer order timing. And I know that's relatively small, but do you have visibility to that coming back? Because I think most of your comments broadly where demand was more resilient across Life Science and Personal Care, and that's kind of maybe one outlier to that dynamic.

Yes. No, we're trying to be transparent on the specific segments. I'll ask Alessandro to comment. But overall, I would say Life Science and Personal Care are moving positively. We're not talking, for example, we've lapped all the things, but just to be clear, in the case of Personal Care, as an example, we did have some Avoca sales last year. So the growth is actually a little bit stronger. So overall, all the segments are doing pretty well. But Alessandro, if you want to talk -- it's not a big issue.

Yes. Just talking a little bit about the non-pharma nutrition. So we have had -- as we talked about, we have had recent wins and the ongoing commercial activity does support the growth that we are projecting for the third and fourth quarter. Josh, it is timing. There was some order timing on Nutrition, but we are confident on the wins that we're seeing and the commercial activity. It is just a timing, but we see the improving traction.

Our next question comes from Laurence Alexander of Jefferies.

This is Kevin Estok, on for Laurence. Just on your revised outlook, so $385 million to $400 million EBITDA, I guess, could you help frame what -- sort of what needs to go right from here to get to the top end of that range, maybe particularly around like operations and pricing realization?

I think as we said in the other one, pricing is an upside. So the net impact of pricing and macro demand outlook and it's probably mostly in Specialty Additives and Intermediates. There is opportunity for some upside there. Those are the 2 big things, and we're just being prudent and conservative in terms of not including them at this time given the uncertainty. And we're listening to our customers. If you look at the coatings customers in North America, Europe, nobody -- everybody is being more prudent. So I think it's better to be prudent and perform on the upside if those markets get strength.

Just to add a little bit more, as you think about the range on the guidance, it's mostly on the sales side. So as you look at the lower end of it, at the low single-digit year-over-year growth rate, most of that's driven by some of the activity on the pricing side, which, of course, then implies flattish volumes otherwise. But as you look on the higher end of it, it's closer to a 6% to 7% sales growth rate, and it's balanced across both volume and price. And as you look at the volume side, credit to the team, it's been a really strong start on the Globalize and Innovate, and we expect that to continue. So what gets you on the higher end is your delivery growth outside of the Globalize and Innovate.

Our next question comes from Jeffrey Zekauskas of JPMorgan.

If you total up all the onetime events in Specialty Additives in the quarter, how much was that? And do you expect Specialty Additives operating income to grow in the third quarter?

So Jeff, 2 comments that I would say, in line with the question, but I'll broaden it a little bit. The bigger year-to-date impact was the Calvert City, which impacted all the business, mostly Life Science and Personal Care. And that was equipment failure, downtime. It was just waiting to get the equipment delivered. It was just the lead times. We weren't -- there was nothing that we were doing in that period of time other than waiting. So it was more of an absorption impact, and that was the bigger impact for the full year, and obviously, we have a little bit of the weather and all that. But focusing on Calvert and Hopewell. Calvert was the big one. That plant is back on stream and producing did impact sales per se, but a lot of absorption.

We're moving back. Hopewell is -- it had some impact in this quarter, but it's really moving forward. Our production rates are not where we want them to be. So the plant is operating -- the budget is above our expectation and the production rates -- we're not producing at the rate we want. So again, from an absorption perspective, those are the big impacts. I would say between the 2, I would say 20-ish in the -- between the weather and Calvert on the front end and another 10-ish on the Hopewell in the back end, just to be very high level on some of those drivers. So for us, this is -- to be very clear, all the other areas are performing per our expectation. If would have should have could have, but $30 million is an internal issue, does not reflect some of these -- our overall core performance. So overall, this should have been a much better year.

We're very frustrated, obviously, as everybody is on our operating performance, but those are internal things. We're working them. As I said, Calvert is back online, and we already have the resources, the investments in place going on in Hopewell to get the productivity back in line. The other issue that I would point out in terms of our EBITDA impact is we are not planning to make significant inventory rebuild, okay? Given the uncertainty, we are focused right now on specific product lines. The Calvert City outage did help us bring down inventories and normalize them. There are specific products that we're going to build up. Similarly, with the HEC, we built up inventories for the Parlin transition, and that is coming -- and we will build on specific product lines, but it's not a broad base.

We feel very good of all the changes that we've made in the sense of timing. We've reduced the overall cost structure of the company. Parlin is out, we've reduced the operation of specific units in our VP&D network. All that has reduced our cost base and our need for absorption. So that puts us in this uncertain environment in a better, more stable operating environment in terms of our normal production rates that we need to do. So these are specific plant issues that we're addressing at this moment.

And Jeff, on the specific question around Specialty Additives operating income or EBITDA in the second half, a key piece of the Hopewell adjustment, right, the 10 to 12 [indiscernible] material sits within Specialty Additives. So on that basis, I would expect Specialty Additives down year-over-year.

Okay. And then in the intermediates and solvents area, there have been all of these different duties that have been placed on U.S. producers and offshore producers in Europe. Does that affect you? And when you think about the EBIT or EBITDA generation of I&S, what's the trajectory from here? Are we going down or up or nobody can tell?

So Jeff, I would say 2 things. And I would split up our back integration, which is BDO related and the competitive dynamics. So BDO costs are increasing for China overall production. So we would expect that if you look at our -- we're in this business to support our VP&D back integration that should be favorable from a competitive environment perspective because the cost structure for Europe and Asia is going up. We're mostly U.S.-based natural gas, butane based. So we're in a good position. So that's favorable for the entire company. If you look at specifically Intermediates, we don't sell a lot of BDO. It's more the derivatives. We are seeing pricing -- the business is operating stably in the trough, the trough now for several quarters, but it's stable. I think the issue right now is as price inflation comes, that will drive some improvements. Hopefully, given our lower cost structure, that will be an upside potential. Just today, Alessandra was mentioning the IXYS BDO numbers came up. So prices are increasing overall in the U.S., 5% to 6%. So there is good momentum to support. But I don't know if you have anything else you would add, Alessandra.

Yes. No, that's right. We announced price increases this month we are implementing. And William, as you mentioned, right, the cost implications, U.S. versus China are different. And we do see a market stabilization and less erosion from a pricing standpoint. Prices are -- have started to move up with the cost implications. But availability remains -- it's basically this market are different when we look at -- when you compare to other markets that are -- other segments, right, being impacted by the Middle East conflict. So definitely, even though costs are going up, there's still a supply-demand dynamics and not a lot of impact from availability. The availability is not changing significantly in this market with the Middle East conflict. So we are moving forward with prices increases, but of course, managing the supply-demand dynamics.

And Jeff, on the margin side, the Lima -- we did slow down Lima as part of the Calvert City because obviously, that feeds into the Calvert City. So we had to slow that down. So it did have an impact in terms of absorption. But all that is now normalizing with Calvert City picking up. So the cost side should be more normalized as we move forward.

Our next question comes from Michael Sison of Wells Fargo.

Just curious how you think about 2027. I know it's a little bit early to give any specific guidance. But just directionally, what the run rate should be? And what are the pushbacks that we should see next year?

So Mike, just high level and then, William, if you want to give other comments. I mean we're not ready to talk about 2027, but just high level, what we're seeing right now. Obviously, macro uncertainty is what everybody questions. We don't have a crystal ball. But I would say if you look at this year, the business mix, we've done all the work. It is performing as we expected. All the businesses, obviously, Life Science and Personal Care on resilient. So we would expect that to continue. The Specialty Additives is stable. I think we're gaining volume. Coatings as an example, this year, we will get volume growth for the year, and that's about share and going back into the market. I feel very good about what Dago and the team is doing. The response now is much more high-end response in the market.

We're launching a lot of products with different price points. So we're not just dropping price. We're giving customers, hey, choices on different price points of what we can do. We can be competitive. We can change cost performance. So I feel SA is well positioned to continue to drive share gain. And obviously, the expectation would be -- is more the question would be is North America and Europe going to start to improve. We don't see China improving a lot in the foreseeable future in terms of macro demand in the construction side. We've streamlined the manufacturing. I'll repeat it, this has been a challenging year of internal operating issues, but our cost structure, the footprint changes, all those things make us stronger, more competitive and we have a lower cost base. So that should continue taking out a lot of these issues that we had this year, that should be additive to next year's performance.

It should have been additive to this year's performance. The Globalize and Innovate continue with good momentum. So we'll still continue to work that. Then we continue to improve our systems and processes to give more visibility to our regional management teams as they start driving their P&L. We're pushing a lot of these activities to the front line so that they can have more ownership and accountability for driving performance. So our goals moving forward remain, if you look at the [5, 25, 55, 5%] growth is a target overall for the market, plus or minus a few percentage points, getting back to the 25% EBITDA margins and 55% free cash flow conversion.

And just, Mike, we don't want to get into -- we don't want to be premature to get into the specifics on '27, but just a couple of things to keep in mind that we spoke to. One, first half this year at the BLO, right, both the outage as well as the extension as well as weather, which is a $20 million impact in the first half of this year. Two, the team continues to do a really good job. So we're focused on Hopewell, of course, because it's not in line with our expectations, but VP&D and the small plant consolidation, all of that work is progressing. And so you'll continue to expect some carryover benefit from that.

Hopewell, the team is doing work. We're committing to improving operations, particularly in the second half this year. We'll start to get some carryover sequential benefit going into fiscal '27. Of course, this is very dynamic on price raws right now, of course, that's a key piece of the carryover next year, some of the pricing activity as well as raw material. And then to Guillermo's point, volume growth contribution, mix benefit over time as we drive Globalize and Innovate. And really, the only piece on the offset side, of course, is that we have to manage cost inflation. So I think there are several things that point to a nice recovery going into fiscal '27 and a lot of it's in our control.

Our next question comes from Steven Haynes of Morgan Stanley.

I wanted to just come back to the price/cost dynamic for a second. Is there any way to maybe just put a finer point on the magnitude of how much price you're expecting to achieve versus how much cost is going up? I'm just a little -- and maybe I'm sorry if I missed this somewhere earlier in the call, but is the midpoint of the guidance assuming that's neutral this year? Or is it expected to be a net positive or net negative? If you could just put a finer point around all that, that would be helpful.

Thanks, Steven. It's a good and it's an important question. So I think, first of all, let me just anchor on what we've said in the call, and then I'll add some additional color. So the good news for us, right, is that we purchased a number of our raws that are from the U.S., right? And so even those that are energy-intensive or petchem derived, a lot of that is sourced in the U.S. And so the way that we've been sizing this is around the percent of sales, just to help from your framework perspective. So overall, we group energy-intensive raws as well as petchem linked raw materials and freight because freight is obviously moving to. That's roughly 20% of sales. 15% is the raw material basket, 5% is freight, so 20% overall.

So even though we are well positioned, we're, of course, not immune to what's going on in the world from a volatility perspective. Some of our processing inputs are up, of course, and that varies a great deal by product line and by region. So if you isolate that 20% exposure of sales and assume it's up 10% to 15%, you'll get a sense of the increase that we're seeing on the cost structure. As I'm sure you can appreciate, there's lagged components, both on pricing and raws. I would say on the raw side, the lag is a bit longer. So you do get some favorable price raws benefit in the second half on that basis because of our inventory position. But I'd say really the key piece for us is given that magnitude, 10% to 15% on that 20% of sales, the team believes it's a manageable exposure for us, and it's one that we can manage to cover.

And overall, I mean, we're talking -- you could get 20%, put an inflation number to that. That's raw material, we're in the single digits. We've announced -- it depends by region. There are product lines that are much higher. So I don't want to generalize, but 3% to 8% in general has been sort of the numbers that we've been giving, I would say, if I average out some of the numbers. We don't want to get into specific. We're negotiating with customers and all that and the specifics, but it's a very doable number for us, and we've had a good track record in moving that through.

Our next question comes from Chris Parkinson of Wolfe Research.

So just a broad-based question. When you look globally at pretty much every one of your competitors and knowing it's fairly fragmented, but across VP&D, across cellulosic, across HEC, essentially every single supplier has been raising price. And I'm a bit confused in terms of the disconnect in terms of the customer acceptance or let's say, not acceptance as quite yet in terms of that because it doesn't seem like anybody is really budgeting into kind of the middle part of this year.

And at the same time, in certain geographies, people are potentially facing even shortages based on the fact that the supply is at fairly low availability right now. So what are you actually hearing from your customers? Is this a when, not an if? Or just how would you kind of characterize the dynamics heading into the middle of the year?

I don't think it's an if. I mean things are moving. So we're -- like I said, we're moving across the board. Everybody understands the dynamics of what's going on and we're moving. So we're not questioning our need or ability to do the pricing. That's moving, and we expect that to deliver. What we're trying to make sure everybody understand is that we are not as petrochemical exposed. So our numbers are the necessity.

We don't make -- our margin expansion isn't driven by increasing prices in this kind of environment. We want to recover our inflation, our margins so that we don't get erosion into it. And I think our customers know that. But we do -- our overall margin performance is driven by value pricing and by managing our cost structure. And value pricing is going very well, especially as you look at some of the newer products. The price increase inflation is going very well. Obviously, this year, we've taken a lot of strategic actions on the cost, but that's where I would say we underperformed in our internal relations with 2 other plants.

And just as a very quick follow-up, just in the personal care market, at the beginning of the year, I'd say the end of '25 into '26, there were some rumblings of some inventory destocking here and there. At the same time, it does seem like you're seeing pretty substantial improvements, especially in some of the biofunctionals. What are you hearing from customers in terms of the balance of the year, in terms of end market demand, inventory management? It seems like things are back on track, but what is your degree of confidence on that?

Chris, so in Q1, in the December quarter, as we mentioned, excluding some of the specific customer outages, we were up low single digit, and we continue to see momentum in this quarter as we're up low to mid-single digits. I would unpack that into 2 parts. There's the base and then there's the actions that we're driving. So if you look at our biofunctional actives, the base continues to perform well. And we've had really good success expanding our customer base and getting our new products adopted and ramped with customers. Similar, microbial protection, the base is holding well, and the team has done really a phenomenal job converting our pipeline and continuing to gain share in that business line.

And even our Care ingredients, that was the one that was impacted by the customer outages in Q1. They're back online, and that's going to continue to flow through the balance of the year. So as we look out through the rest of the year, we see the market remaining relatively stable. There's the things that we're driving in our globalized business lines that we expect to continue to flow through. And then we'll continue to monitor how the base performs through the balance of the year as it is dynamic, although we still see fairly robust demand.

Our next question comes from David Begleiter of Deutsche Bank.

Guillermo, just on the price/cost fill in FQ3, how much of a tailwind is that dynamic? And what would you expect as well for FQ4?

How much -- I'm sorry...

How much of a tailwind, a dollar EBITDA tailwind do you expect price loss to be for you guys in FQ3 and FQ4.

So I mean, for the price raws, the inflation, most of it will start hitting us a bit later. So our issue is getting the pricing in line. I mean the costs are coming up and it will flow through into our inventories for now. But we want to make sure that we're getting our costs, our pricing in place to cover that as we move forward. So we haven't really outlined specifics on the price increases and the flow-through, but that's already starting to come this month, and it's building in. So we'll be reporting more as we go forward. But it's more of a timing issue.

We do -- I would say, for the spot business, I think we'll be moving spot non-contract business, we will be moving in faster. I think we have a lot of contract business, especially if you look at pharma and some of our bigger customers. And that's where we're working with them on the timing. But we're not uncertain about the magnitude of the increase that we're getting at this point in time. But we don't have a specific number to give you at this point in time.

Great. And on the revised EBITDA guidance, was there a change to incentive comp accruals for this year?

Not significant. I think the biggest issue would be on the Specialty Additives. Obviously, there was some impact on -- given some of the operating issues, but we're working it, but it's not a significant impact overall because we -- for the majority of the organization, it's business by business in terms of incentive comp.

Our next question comes from John Roberts of Mizuho.

What's the route engineering cause of the Hopewell ramp-up issues? Are you doing something differently there than at other HEC sites?

Yes. The whole issue in Hopewell, remember, we shut down Parlin. We changed the mix of the plant significantly. We had just brought on some investments in capacity at the end of last year in terms of HEC overall capacity, but the mix change is really what is driving the productivity. So we're putting a lot of investments in, in terms of enabling the new mix. So we're producing -- we're getting the products we want, but it's not at the production rates that we wanted. And I think that's the biggest issue. But the teams are already working on it. The budgets were a little bit higher, and that is, I would say, 2 things. One is on our own performance. The other one is we are putting more resources to drive those improvements in the near term.

And then in Personal Care, there was a range of growth from high single digits in Skin Care to low single digit in Oral Care and Home Care. Is there just more innovation going on in skin care that's driving that? Or is there something else just in the comparisons to cause the unevenness?

Let me -- a high level, but then you can comment. So it depends on the product line. Obviously, a lot of the biofunctional actives and actually micro goes into the skin care and those areas. So it's a product mix. And it's the base business, but Jim can give more color on especially on the base business.

Absolutely. Yes. So John, as you mentioned, I mean, a lot of our innovation and globalized businesses are both focused in skin and hair, and that is the majority of our Personal Care business, and we're seeing really nice growth in both of those segments. In Oral Care, we also -- and as no surprise, we've shared it in the past, we do have sometimes order pattern timing. And so we are seeing some shift again this year in order pattern timing, fine for the full year. And so that's driving some of maybe the lower comps on a prior year basis. And you'll see that step up as we go through the balance of the year in [oral and home].

Our next question comes from Mike Harrison of Seaport Research Partners.

I had a question on Life Sciences. The last time we went through a round of supply chain disruption and kind of an inflationary cycle, you guys ended up picking up some market share kind of temporarily in the pharma space and then you ended up giving it back. Just curious, could we see that kind of dynamic again given maybe some of the challenges that your competitors are seeing in Europe and Asia? And how would you approach the situation differently to make sure that you're generating more durable share gain with some of your customers?

So Mike, let me high level and Alessandro, if you have anything specific, but just at a high level. I mean in this level of uncertainty with the war, all the news and analysis that we're getting would be, hey, if this persists, the cost structures for China or Asia in general, India would also be impacted and also for Europe would increase. So we are one of the few large producers in that product line from the Western world and we're U.S.-based. There's not a lot of other production at our scale in the U.S. Most of our competitors are either in Europe or in China.

So there is an opportunity. I think as Alessandro said, there is not a shortage at this point in time. So that would be not an issue of cost. I think, would be more of an issue of availability, especially for Europe and for China. So there is an opportunity that, that could evolve as we move forward. I think what would we do? Obviously, I think, one, just this risk reinforces for customers the need to be balanced in terms of their supplier base and having a balance and a U.S.-based good energy costs, good position from a cost structure is obviously a favorable reminder for everybody, and I think that plays well for us.

But obviously, we can do if that scenario starts to play out, there's things that we can do in terms of contracts and how we want to play it. But I think importantly, we would also be very clear with everybody on what's -- what are some of these share shifts that are permanent versus that would be transitory, but we would maximize our performance as orders come in. But if you want to -- anything else you would add?

Yes. As Guillermo mentioned, there is not a shortage at this time, but we are seeing as we have the largest -- the broadest portfolio from an excipient standpoint in the pharma industry. We are a reliable, high-quality supplier. So definitely, we have seen in the last month. I mean, customers nervous about their business continuity plans, BCP plans and looking at dual sourcing. So that opens opportunities for where we didn't have participation. So definitely, we see this as -- there are opportunities. And as Guillermo mentioned, making this more with long term as far as agreements.

But definitely, we expect to see life sciences, specifically pharma continue to deliver healthy growth in the second half of the year and going forward, we see the resilience of the pharma demand, and we are working on basically capitalizing on the momentum of our globalized Innovate, which are areas where we have opportunities to grow our market share. So definitely, the disruption, we don't see a shortage, but it does bring us opportunities from -- as our customers work on their [BCP] plans.

One last thing, Mike, just on your comment, but just broader than just the VP&D question. I mean, there's a lot of uncertainty. And depending on how these things go, there's a lot of upside that can come in Intermediates, I mean shortages. If things get worse, there's a lot of upside. We don't have a crystal ball. We don't think it's prudent just to be overly positive with the guidance that we're giving, especially on the revenue and the core businesses, the core performance of the business portfolio. I think we're in a healthy growth, healthy momentum, and we don't want to be overly optimistic and surprised on that side of the equation, and we're being transparent about it.

I think on the EBITDA side, same thing. If that picks up, it will translate into greater EBITDA. But again, we're going to be more conservative. I think we're acknowledging our internal issues, but we want to be -- we're very pleased with all the broader external macro issues. And we do recognize that there is upside on pricing impact and that there is upside on -- if demand tightness increases.

Our last question comes from John McNulty of BMO.

I just wanted to revisit the commentary around the Innovate part of your kind of midyear progress. So I think you were looking for $15 million for the year, and you're at $16 million already. I think you did $6 million in the first quarter of sales, that means $10 million in the second. So clearly, things are coming in, I think, better than what you expected and you're on pace for potentially coming in double what the target was going to be. I guess can you help us to think about where you expect to end the year in terms of a run rate, just so we can think about how some of that innovation may drive growth as we look into 2027?

I think the way you described it is sort of how we see it. I mean this is a cumulative metric for the year. So if we already gained the business and it's at a certain run rate, if it continues, we will continue with that level of performance. So that's sort of our expectation. As a reminder, I mean, we're -- from a dollar perspective, it's a lot of the core innovations that we've been working on, and it's a very, very healthy growth, both, I would say, right now, pharma and personal care driving a lot of it. But we're launching a lot of new products. So I think there's -- the opportunities for continued momentum there, both with core in the near term.

And I would highlight that I'm very excited on the progress that the team is making on some of the new platforms in significant projects, be it in personal -- especially in personal care and the Specialty Additives. Life Science would be more ag pharma takes a longer pipeline. So it's going to take a little bit longer for those things to take off. But all of them, we're really confident, we've proven the value, the technical and performance value of these platforms. The teams are now really working on product development, specific customer projects to tailor the technologies for them. So both in the near term, but more importantly, in the long term, we see continued momentum there.

I am showing no further questions at this time. I would now like to turn it back to the CEO, Guillermo Novo, for closing remarks.

So thank you, everyone, for your time and your interest. Just wanted to reiterate the 3 big points that we made. From the business side, we're really happy with the overall performance of the businesses, the market trends, be it resilient life science, personal care, stable, specialty additives with growing momentum around share gains, Intermediates stable on the trough with opportunities depending on market dynamics to improve, Globalize and Innovate very strong. Competitive dynamics have been -- continue to be strong, but stable.

So that is giving us room to really start to drive our own agenda moving forward. And we haven't seen any significant prebuying of our things. So overall, the business side of things are moving probably stronger -- on the stronger side of our expectations. We are moving on pricing, and there is upside in terms of the financial impact there. We're muting that a little bit just with caution on demand outlook in core markets that we don't have a crystal ball, and we're not seeing the immediate recovery. Coatings, North America, Europe is a big example. So we're following the lead of our customers and what they're saying.

And lastly, it's the real issue for the outlook changes that we have is more our operating performance and our manufacturing, 3 issues that have impacted us, 2 are behind us. Calvert City, the equipment failure and the delays in getting the replacement equipment, which impacted our absorption, weather impacts, and right now, the big focus for us is Hopewell and getting it back on productivity. We are frustrated with that part of the performance, but we're working on it. That's in our control. It does not represent a view of the broader portfolio or all the bigger strategic actions, and we're confident that we will be overcoming that in the near future. So thank you for your time. We look forward to connecting with you after and answering any other questions you may have. So thank you.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

So it is now my pleasure to introduce Ashland Global Holdings. We are delighted to have William Whitaker, who was promoted Chief Financial Officer in July of 2025. Congratulations.

Thank you, Rosemarie.

So while in his new role, since he joined Ashland in 2015, William has held positions of increasing responsibilities in Corporate Development, Treasury and Financial Planning, among others. And importantly, he had the pleasure of talking to all of us as Investor Relations previously.

So following -- a multiyear period of portfolio optimization via divestitures and acquisitions, results will be cleaner as 2026 unfolds. With a balanced portfolio of natural and naturally-sourced ingredients and additives, the company serves industries such as Life Sciences, Personal Care and household as well as Coatings, among others. Going forward, management's focus will be on operational efficiencies, growth from innovations and when appropriate, M&A for each of the 3 categories just mentioned. Ashland has 46 million shares outstanding, a stock price of around $50 for a market cap of $2.3 billion. Net debt, $1.1 billion and an enterprise value of $3.4 billion. And you will note -- on the overhead, there is a slide which describes the company and its main operations. And so you can refer to that while we are having our fireside chat.

Rosemarie and the Gabelli team just do want to thank you for the invitation. It's always a pleasure to connect with you, and I appreciate those in the room. We have a full audience today, so I appreciate it. And those online, I appreciate your interest.

And in terms of the introduction, just the 1-minute pitch on Ashland, why it's an exciting time. I think Rosemarie gave a good overview. We're a specialty ingredients player. We specialize in areas that are consumer-leaning, as you can see on the pie chart. Quality, consistency, reliability, regulatory environments. That's what's important for us, and by the way, we've been in business for a very long time, over 100 years, but a really key point of our story is it's been quite a transformation story, one that I've had the benefit and privilege of being a part of over the last 11 years of the company. Going forward, the strategy is around execute, globalize and innovate. We're going to get into some of that with the details. But I do want to highlight that it's a very exciting time, to be learning more about the company, and I look forward to sharing our story.

All right. Well, with this -- with this introduction, let's get going. So on the last call, management said that following all of those years of transformation, the reset was now largely completed, and we should start -- investors should start seeing the benefits in 2026. This was correct and expressed a couple of months ago when you reported earnings. Can you talk about the potential impact of the current situation in the Middle East and whether those comments are still valid today?

Of course. And as you can imagine, very topical internally as I'm sure it is for you externally in terms of the conflict in the Middle East. But first, the headline in terms of the transformation and the portfolio reset, that's still valid. We've spent a lot over the last few years simplifying the portfolio, focusing our end markets to Pharma, Personal Care as well as Architectural Coatings. It remains valid. There are structural actions we've taken on the cost side that will continue to play out over time. So I think just as a starting point, the portfolio reset is complete.

And in terms of the Middle East exposure, of course, it's involved a lot of scenario analysis, sensitivity analysis internally. It's an evolving situation, as I'm sure you can all appreciate, uncertainty is very high. And so we do spend our time as a cross-functional leadership team, understanding the moving pieces, what that means for us and then what we would do as a result. If the severity of energy prices increase or if the duration extends, what that means for us, and the simplest way that I would organize our impact is in four tiers.

And the way I would think about the tiers is in relation to how quickly you feel that impact. And I'll go into each of them in detail in a minute, but the first tier is around just direct exposure in the region. Second tier is freight, shipping availability. Third tier is cost and inflation, raw material inflation. And the fourth tier, of course, is demand.

And so first, just to highlight on the direct impact, the headline is that it's manageable for us. We have about 5% of sales in the Middle East and North Africa. The vast majority of that is in Egypt as well as Turkey. So if you exclude that, it's closer to 1% to 1.5% of sales in the region, so very manageable. We have no production in the region. We do have a small warehouse in Turkey, primarily supporting Pharma customers. We do have a team that we're mindful of on the sales and administrative side, primarily based in Istanbul and to a lesser extent, Dubai. Employee safety is a top priority, so we do spend time understanding the dynamics there. So overall, from direct exposure, minimal and manageable.

The next piece is on the freight side, right, freight, shipping availability. Overall, there's no material shortages for us that I would call out today. It's something that we are watching. Just to give you some context, we are very much a global company. We do ship around the world, have a lot of experience in this area. Freight is about 5% of sales. It's about 2/3 outbound customer, 1/3 internal, shipping to staging areas within our warehouse. I bifurcate that because the customer shipping that's mostly ground-based is impacted by the energy, rising energy costs, whereas ocean is both availability, lead times and cost. So some of what we've seen, of course, is risk-based surcharges, rising energy prices. And so what are we doing in response? We're extending our lead times with our customers. On average, and it really does depend. But on average, we have 45 days of weighted average orders in the books at a given time. We're looking to extend that so we can better plan, as we take alternative routes on ocean-based shipping around the globe. We're also introducing surcharges to make sure that we can continue to supply -- be a reliable supplier for our customers.

But then longer term, on the freight and shipping side, you got to build reliability, evaluate other shipping lanes, evaluate other suppliers, depending on the severity and the duration of the overall impact. So for now, it's manageable, but it is very much heightened the bar on execution internally. It's more timing than it is demand.

Third pillar is the raw material inflation component. I think one of the things that's unique about Ashland maybe relative to others, depending on who you follow, we don't have a big pet chem raw material exposure. We do have more natural-based raw materials that are less impacted by what's going on right now. That being said, we do have some petrochemical-derived inputs. So in total, if you were to group pet-chem energy-intensive raw materials with packaging, it's about 15% of sales. But the unique thing for Ashland is that most of our exposure is tied to North America, which at the current time is advantaged versus Europe and Asia. So we're still mapping out the impact to various stakeholders and what that could mean for us. But the raw material basket, again, that you have the energy sensitivity, about 15% of sales and the vast majority of that is North America-based. So what are we doing in response? There are select circumstances where we will have to take pricing actions to maintain margins as well as continued ongoing support of our customers.

The last piece I'll highlight is on demand. And so I think it's still too early to say, right? We're a few weeks into the conflict in the Middle East. There's nothing noteworthy from order trends perspective that we're seeing across our markets or across our business units at this point. I think it goes without saying that the longer this persists and the more the energy goes up, there's a natural wondering of what happens to the consumer over time. The one thing I would say that's specific to Ashland is we have relatively inelastic demand markets, right? Pharma, Personal Care, everyday staples. And so on a relative basis, we should be well positioned, but that is something that we're monitoring.

And the last piece on demand that's all too familiar on the material side is, what this could mean from supply chains up and down from an inventory position. It's still too early to say. I think all of us remember the restocking and de-stocking following COVID. And so that's something that we're very mindful of understanding preorders or getting out in front of potential price increases or increased safety stock in the value chain. We're parsing that out versus underlying demand. So those are the factors, I'd say, as a headline, manageable. It's taking a lot of effort internally. We're focused on it, and there could be some opportunities depending on how this plays out.

Thank you. you have covered a lot more solutions or impact than anyone else. So after divesting non-core businesses since 2020, management has shifted its focus on innovation for growth and operational excellence. Now due to industry headwinds and potentially internal missteps, this has led to some share loss. And so you have taken some additional steps between 2022 and '25. Can you talk about the issues, the most recent actions you have taken and what you expect to see going forward?

Yes. No, it's a great question. There's been a ton of work going on, on simplifying the portfolio over the last, well, 5, 10, almost 15 years at this stage. So what are we doing going forward?

One, it's a focus -- well, all three of these pillars are a focus on organic growth. We're aligned in areas that we have technology and market leadership in our big three end markets. How are we doing that? First is how we're organizing our teams. So over the last few years, we've introduced the business unit-centric approach where in the past, we had functionally aligned leadership teams. We've now organized ourselves around our business units. That's important because you build out leadership teams, support systems, accountability and incentives at a lower level to drive organic growth. The latest development is we're pushing this further into the regions. The regional dynamics by customer, by end market are very different. And so we are continuing to push more and more responsibility into a regional GM model, and that's one that we've seen has been effective.

And then for me, the second pillar of this is on the visibility side. And this is what finance is working to enable. It's been a key accountability for me since I've been in the role is Ashland has a very accurate, efficient and disciplined reporting process externally. Internally, there's some work to do and there's some opportunity, which is the exciting thing. We're spending a lot of time on our operational cost structure, making sure we break it down at a level that's actionable and relevant for the decision-makers in the regions as we embrace that model. So that's a key deliverable for me and the finance team in the year ahead is breaking down manufacturing into various steps, breaking down supply chain logistics into various steps, having KPIs, accountability and visibility to enable that empowerment at the regions.

And then the last piece is the portfolio itself in terms of delivering organic growth. We'll probably talk about it momentarily, but our Globalize and Innovate growth strategy, we are investing. These are these are attractive end markets, areas that are capital light, R&D intensive, attractive areas for us to replicate concentrated success in other areas. And so we're going to continue to introduce new products and make investments in those areas to drive growth.

So following up on this last comment regarding innovations. When you come up with a new ingredient, it does not hit the market instantaneously. And when it does, it does not develop into bigger orders instantaneously either. Can you talk about how long it takes from the moment you have a new molecule, if I can call it that, hitting the market and when you actually can have some revenues and possibly profit? I mean...

That sounds, yes. No, it's a very fair question. So in our business and the Additives business, it's a combination of a lot of singles. It's a very diversified end market, very diversified customer base, very diversified SKUs. So what's important is that you're relevant. A technology platform has applicability across all of your end markets. They're very difficult to build to get to a nearly a $2 billion company, and that's why it's profitable. And that's also why it's difficult to lose at that point. Our lenders appreciate us for this. It's a very diversified business model.

But you're right, because when you're dealing in consumer markets, particularly on life sciences, pharma as well as personal care, things that are going on or in your body, it takes time. And so we have introduced new technology platforms over the last few years. We introduced the concept. We went a little bit deeper this last May. I would encourage you to check out our Innovation Day on some of the exciting market opportunities. In many cases, they're multiples, the size of our total addressable market today. Pharma, it could be anywhere from 5 to 10 years, depending on if it's a branded regulatory approval process. Personal Care is a little bit shorter than that, 2 to 3 years. It depends on -- a lot of what we found is you de-risk the technology, then you iterate, you iterate with your customers and then you fine-tune it for different applications. And then from there, there's consumer trials. And then from there, there's a reformulation cycle that our customers have worked through. They don't mobilize their entire team on a moment -- on a moment's notice.

And so it is a process, but it is a process that we've been making good progress on over the last few years. Technology risk has largely defeased investment risk. The exciting thing that we've done is as we rationalize capacity over the last few years, we do have idle assets that can be re-purposed both from a cost effective and timeliness to leverage as we start to scale the new technology platform. And so where we are now is on that commercial ramp where you get the adoption in the early adopters and beta customers.

So looking at the different segments, your focus now is on Life Sciences, which is around 35% of 2025 revenues. Personal Care, around 32% and Specialty Additives around 28%. So pretty much balanced between all the categories. Could you talk about the changes made in each of those categories and expectation for each of these businesses in terms of growth and profitability?

Yes, absolutely. So to your point, the largest is Life Sciences, which for us, the vast majority of that is within pharma and pharma excipients. That's a delivery mechanism for the active. The way we think about pharma, heavily regulated, quality, consistency, reliability is paramount. That's why you see the margins that you do for our Life Science business, high return on invested capital, resilient demand environment. We are in branded generic and over-the-counter, so it is diversified, and so the strategy within our Life Sciences business is threefold.

First is strengthening our Oral Solid Dose, so pills and tablets franchise. I'll go into a little bit more details in a minute. Scaling our Injectables and Tablet Film Coatings business. That's in our globalized category. And the third is to expand into attractive adjacencies using our new technology platforms such as Bioprocessing. So first, on the Oral Solid Dose, that is the vast majority of the pharma business today. We do have the broadest excipient portfolio in the world. What are we doing to strengthen that? We do have new product introductions. It's actually a key driver for our growth that you're seeing in fiscal '26 on the innovation side. And then we're also strengthening our cost footprint with some actions that we're doing in our VP&D network. The scaling, the injectables and the tablet coatings, this is an important piece of our growth priority for the business unit.

Injectables. This is a growing area and a dominant area in terms of the medical community on delivery for treatments, and we want to participate in that as well, just like we do in the Oral Solid Dose. So we are participating in long-acting excipients in the injectable space. We do have a plant in Ireland. We've invested in capacity and people to continue to replicate that business. It's small but growing very nicely, and we're well positioned against some of the incumbents in that space.

Tablet Coatings. This has historically been produced in the U.S. at our Wilmington office. We're now bringing production into the region where our customers are. It's important from a technical service perspective to be in the region. We're making targeted investments in growing share in that area. In this space, we are a distant #2 but there's a lot of opportunity to be a strong #2 player in that space.

And then the last piece on the Bioprocessing. This is not an area that we've historically had exposure. But the way I would think about this, it's raw materials to make the active. And our new technology platforms have some interesting applications that I encourage you to check out in the May event.

Personal Care, the next biggest. The punchline there is we're playing very well into the mega-trends that our customers are facing in terms of health and wellness, natural, clean beauty products. We are, as I mentioned earlier, we're in a lot of the products that you probably use today, your everyday consumer staples, styling products, conditioning polymers, rheology for everyday lotions. But we've also been on this migration towards higher-value products. So the biofunctional actives and the microbial protection are 2 business lines that we are globalizing. We've made investments. Biofunctional actives, that is the active ingredient. Typically, it's a plant extract, botanical, or peptide. So if you put on a cream and your skin is rejuvenated or fine lines are minimized, this would be the active that we are supplying.

The other business, Microbial Protection, we acquired it a few years ago, primarily had a European concentration. We're putting assets in the region, putting people in the region and replicating that success.

And then lastly, in terms of Specialty Additives. Specialty Additives is primarily architectural coatings, about 60%, 65% architectural coatings additives. What is that? It's rheology. So if you paint and your experience while painting in terms of the flow, the coverage, the splatter, we would be the additives that are enabling good outcomes, particularly if you're a DIY, we sell in the contractor and do-it-yourself. It's more profitable for us in the DIY because those that don't paint every day are not good at it. And so our additives help you be a good painter. That's something that has been -- of course, it's been a challenging -- for those that follow the coating space, it's been a challenging market conditions for a few years now. There was a bit of a pull-forward during the COVID pandemic on repair and remodeling. Housing affordability does remain a challenge in the Western world. A key driver for consumption in that space is housing turnover. You paint when you move and the next person paints when they come in. So that has been softer.

But some of the areas that we're driving growth outside of that. So of course, rheology will be key to what we're doing, and we're the market leader in that space, particularly HEC. But now we're moving beyond rheology. So rheology is one component of an additive that our customers purchase. Think pH neutralizer, think specialty surfactants or super-wetters or deformers. And so we have the channel to market. We're very well respected in the coating space. What can we do beyond rheology. And the other piece, too, is that in spite of the softer market conditions, this is an area that we did consolidate some production recently. We had 4 plants in the world. Now we have 3. That's not a result of the demand environment. This is a result of we've made investments, and it makes sense to consolidate to get economies of scale.

Does it help right now because volumes are soft in architectural coatings? Of course, it does help now. You've seen margin stability in a difficult macro. And I think the key piece on the Specialty Additives side of the equation is that is where you can get some operating leverage. If you were to exclude our Intermediates business, Specialty Additives is about 50% of the production volumes for the company. And so the newly consolidated focused manufacturing footprint has enabled margin stability in a more challenging time. But then on the way up, you get the operating leverage as well.

And following up on the Intermediates business, which is small at about 5% of total revenues. It is a source of many investors' questions. Do you need to have it? Can you actually -- what is it for? And couldn't you just buy those raw materials, which are used by the other divisions buying them into the market?

Yes. So that's right. Our fourth business unit is Intermediates. And to Rosemarie's point, it is different than the other business units. Traditionally, in the 3 areas we just talked about, we have a leading position, 1, 2, a sizable position in the areas that we play.

Intermediates is a commodity. It's not a specialty business like we just talked about. Why are we in it? It is a key raw material, BDO for some of our downstream businesses. So what we produce in Personal Care as well as Life Sciences on the acetylenic side, it is a key raw material that's consumed. And so we enjoy the benefit of supplier economics and reliability in our key downstream raw material. And it is a fairly, I would say, streamlined reporting unit, to your point, it's 5% of sales. It's one plant. It's a lean team. It's very effective from a capital deployment and cash efficiency. And from a strategic perspective, some of the competitors in the space are also vertically integrated.

Are there any questions from the audience?

So I enjoyed your presentation, but I'm looking at the free cash flow conversion. And maybe what you've been explaining, how you can tie that into the free cash flow conversion. What is your -- what's the company's expectations of where this 32% is going to go to in 2026, 2027 and so forth?

Yes, it's a good question. So in terms of the financial algorithm, and I'll get to the 32% and the bridge to the longer term. We've committed to 200 to 300 basis points of out-performance versus market from a top line perspective, assuming a GDP-type growth rate in the markets we participate, mid-single-digit top line would be the commitment, greater than 25% EBITDA margin and then greater than 50% free cash flow.

To your point, we weren't there last year. So what drove some of that? The key thing, and we talked about it a little bit, is we've been doing a lot of -- on the execute pillar, capacity rationalization and capacity consolidation. And as a part of that, it's a lot easier said than done. So what you do is you build safety stock in advance, and that was -- that was a dynamic that was playing out late last year was building inventory in advance of plant consolidation. And so first half of this year, it's interesting. You can start to see this play out. The way I would think about free cash flow cadence for the company, traditionally, Q1 is a net cash draw as you're building inventory in advance of your seasonal pickup. Q2 is typically breakeven and then you make all of your money in the second half of the year.

That wasn't the dynamic that we experienced in Q1. It's not the dynamic we'd expect in Q2 because we're drawing down the inventory that we built in advance of some of the network consolidation. So as I think about capital deployment, CapEx is about $100 million. Leverage is in a really great place, 2.7x. We have no debt maturities until January 2028. Weighted average cost of debt is inside of treasuries. We locked in rates at a good time. And so from here, what do we do? We pay the dividend. We paid a dividend -- our increase is at 13% CAGR since 2009. We've increased it each and every calendar year since that time, something we're proud of. It's an important part of our capital discipline approach. That's about 35% to 40% of the free cash flow is the dividend.

From there, we look at bolt-on M&A. We want to do M&A. We don't need to do M&A. There's a whole lot of things that we just talked about in terms of the Globalize, Innovate and Execute, and we could share more on why we think that's valuable from an organic perspective. And then thereafter, we repurchase shares. We've retired 25%. We gave the share count earlier. We were above 60 million shares outstanding 5 years ago. So we've taken out about 25% of the shares over the last 5 years. That's something we continue to do. We see a lot of value here at this point, absent M&A.

Yes. Thanks for the question. Last December, Activist Investors, Standard Investments disclosed that they acquired a significant stake in the company. Have you guys had any discussions or engagement with them? And maybe just share a little bit of that conversation.

Yes. So some background. So yes, Standard Investments filed a 13D a few months ago, to your point. They do have some legacy overlap with Ashland. So the Standard Industries used to own ISP and sold it to Ashland 15 years ago now. So we've had -- before this role, I was in Investor Relations, we've had ongoing dialogue with Standard for a number of years. Obviously, they disclosed the position. They see value. The 13D is pretty broad in terms of positions.

But we've had discussion since, nothing I would say in terms of an update in terms of their intent. I think part of how I think about it is, from your seat, it's also been a validation because they own and operate businesses themselves. And so when we have that dialogue with them, it's a little bit interesting because they're not just investors, they're also operators. And so they understand the opportunities as well as the risks that we're navigating.

Thank you, William. So now that we have a better understanding of the company's strategy. Can you share how much you expect to generate company-wide in your revenues and in margin improvement over the short and longer term from all of those innovations projects?

And so this is something because we're through the portfolio reset that we're going to be radically transparent. And so one of the things you'll find in our quarterly reporting now is, we're breaking out our Globalize and our Innovate commitments, which is disclosing at a pretty granular level. So one of the things that we've done this year, we've committed to $35 million of incremental sales growth, which is what's supporting our top line commitment for the year. We started Q1, $9 million of that $35 million in our seasonal low. We do expect that to continue going forward.

And in terms of margin, I mean, what do you see the size actually? If you put all of that basket of Innovation together, how much in revenues do you think they can generate over the next 3 to 5 years? I am sure you have looked at that. Otherwise, you would not put them in the marketplace.

Well, one of the things that -- how we've positioned this is because we've demonstrated that the total addressable market from the innovation portfolio roughly adds 50% to our total addressable market, which is billions of dollars. But we also understand that's probably a bridge too far given where we are in terms of the development cycle and proving that out financially.

So how we've positioned it is the 200 to 300 basis points of out-performance in terms of that growth algorithm. It's a derisker to deliver against that. And then by the way, it's upside in the sense that there's optionality because oftentimes, if you get one large customer in this space, it can really be quite meaningful in terms of validation and financial results.

And there won't be any cannibalization as you introduce those, are they going to replace some of your existing product lines?

It's very modest. What I would say, in general, there we're going after the synthetic nonbiodegradable incumbents. And so it's almost all additive. There's some minor overlap, but not material in the context of the opportunity that we're talking about.

Thank you very much. We have now ran out of time. And so we really, really appreciate you coming in, in person and introducing us to what we should call what -- the new Ashland.

Yes, I appreciate it, Rosemarie. I appreciate the interest and feel free to reach out to us if we can better explain the story. Thanks so much.

Hello, and thank you for standing by. Welcome to Ashland's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions]

I would now like to hand the conference over to Sandy Klugman, Director of Investor Relations. You may begin.

Thank you. Hello, everyone. Welcome to Ashland's First Quarter Fiscal Year 2026 Earnings Conference Call and Webcast. My name is Sandy Klugman, and I'm Ashland's Director of Investor Relations. Joining me on the call today are Guillermo Novo, Chair and CEO; William Whitaker, CFO; as well as our business unit leaders. Alessandra Fassin, Life Sciences and Intermediates; Jim Minicucci, Personal Care and Dago Caceres, Specialty Additives.

Please note that we will be referencing slides during today's call. We encourage you to follow along with the webcast materials available at ashland.com, under Investor Relations.

As a reminder, today's presentation states forward-looking statements regarding our fiscal 2026 outlook and other matters as detailed on Slide 2 and in our Form 10-Q. These statements are subject to risks and uncertainties that could cause future results to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but there is no assurance these expectations will be achieved. We will also reference certain adjusted financial metrics, both actual and projected, which are non-GAAP measures. We present these adjusted figures to provide additional insight into our ongoing business performance. GAAP reconciliations are available on our website and in the appendix of these slides.

I'll now hand the call over to Guillermo for his opening remarks.

Thanks, Sandy, and welcome to everyone joining us. For today, I'm happy to join this call from Shanghai, China. I'll begin with our first quarter highlights and how we're advancing our strategic priorities. Later in the call, I'll return to share some of the latest innovation developments where we continue to see tremendous momentum and opportunities for differentiation. William will review our financial results, operational execution and outlook. And our business unit leaders will provide additional insight into performance across their segments and markets.

Please turn to Slide 5. Let's begin with a review of the key business drivers for the first quarter. We delivered solid results while navigating ongoing demand softness in coatings and constructions supported by strong execution and disciplined cost actions. Life Science delivered healthy growth supported by resilient pharma demand and momentum across our Innovate and globalized pillars. Injectables, tablet coatings and high-value cellulose excipients all contributed to year-over-year growth. Innovation continued to strengthen performance with contribution from low nitride cellulosics, high-purity excipients and several new product introductions.

Personal Care delivered stable performance with underlying demand broadly steady. Biofunctional actives grew double digits and Microbial protection continued to gain share as our globalized initiatives supported high-value applications. Softer volumes in core hair and skin care primarily reflected unplanned and isolated customer plant outages.

Specialty Additives continued to face muted demand with coatings and construction driving most of the year-over-year decline. Coatings weakness was most pronounced in China and select export markets. While construction softness reflected broader market conditions. Despite lower volumes, cost actions and HCC network benefits drove meaningful margin expansion.

Intermediates market conditions were modestly softer, reflecting trough-like dynamics across BDO and its derivatives which pressured captive BDO transfer pricing. The merchant business was stable with steady volume and modest pricing pressure resulting in flat sales. Operationally, the team continue to manage through the equipment replacement in Calvert City while delivering solid free cash flow. Although this issue impacted costs and pressured margins across the [ BPMB ] chain, customer supply remain uninterrupted. The impact we expected to be contained within the first quarter will now extend into the second quarter. As commissioning of the new unit revealed additional equipment issues that are delaying the startup. We anticipate completing the necessary fixes and bring the unit online later in the quarter.

Although outside Q1, recent weather-related events also have impacted our operations in the Mid-Atlantic. Customer supply remain uninterrupted, but we expect incremental costs, which William will address later in the call, as part of our outlook for the year. While we saw month-to-month variability, we're excited the quarter -- we exited the quarter on a stronger footing with December improving versus November and the momentum continuing in January. Taken together, these results reflect steady execution and continued progress across our strategic priorities.

Now I'll turn the call over to William to walk through the first quarter financial performance in more detail. William?

Thank you, Guillermo. Please turn to Slide 6. Our first quarter performance reflects increasing consistency of our operating model. Across the portfolio, the team executed well, advanced our initiatives and managed through operational impacts while maintaining solid cost discipline. The portfolio and manufacturing optimization actions we took last year are supporting margins through improved mix, lower costs and a more efficient footprint. Avoca was included in our Q1 results last year, but as we move into Q2, we fully lapped our portfolio actions, providing us with a clear performance baseline going forward. We've also strengthened our working capital performance and delivered strong operating cash flow, a focus area for the team. Altogether, the quarter reflects a strengthening foundation with early signs of improving momentum, indicating that a growth inflection is building as fiscal 2026 unfolds.

Please turn to Slide 7. First, the consistency of our consumer-facing businesses now roughly 85% of our portfolio continues to provide meaningful stability and resilience. Second, our innovation and globalized initiatives are gaining strong traction with sustained momentum in our highest value applications. Third, last year's structural actions are fully embedded, improving margin durability and positioning us for stronger leverage as demand recovers. And finally, even in segments experienced more challenging conditions our teams remain disciplined and focused on core fundamentals, ensuring we stay well positioned as industry conditions evolve. Overall, the quarter reflects resilient performance as our streamlined portfolio, strengthened cost structure and disciplined execution continue to support our long-term strategy, with innovation accelerating, globalized expanding and productivity, initiatives progressing, we are well positioned to build momentum throughout the year.

And now on to the financial details. Please turn to Slide 9. Sales for the quarter were $386 million, down 5% versus last year, the previously announced Avoca divestiture accounted for roughly $10 million or about 2% of the decline. Excluding this portfolio action, sales were down 3%, reflecting a mixed demand environment.

Life Sciences continued to grow, supported by steady demand and ongoing innovation momentum. Personal Care remained stable overall and would have grown low single digits, excluding the on-plan customer outages. Specialty Additives softened, reflecting broader demand conditions and ongoing competitive intensity. Pricing declined 2% generally across segments, primarily reflecting carrier adjustments from the prior year. FX contributed a favorable $9 million or 2% to sales versus prior year.

And moving on to profitability. Adjusted EBITDA was $58 million, down 5% year-over-year, including a $1 million impact from the Avoca divestiture. Excluding that action, adjusted EBITDA declined 3%, reflecting lower volumes and modest pricing pressure, partially offset by favorable mix, lower SARD and FX benefits.

Importantly, the quarter included the anticipated $10 million adjusted EBITDA impact from the Calvert City outage. As Guillermo noted, we had expected the full effect to be recognized in the first quarter, but some impact will now carry into the second quarter, which we'll address in our guidance. Raw material costs remain generally stable to favorable and we continue to benefit from our cost actions across the portfolio. Adjusted EBITDA margins held steady at 15% with over 250 basis points of compression stemming from the Calvert City outage. Adjusted operating income grew 27% versus prior year, reflecting the stability of the underlying business as well as reduced depreciation and amortization from our optimization actions.

Adjusted EPS, excluding intangible amortization, was $0.26, down 7% from the prior year, reflecting lower income. We delivered a strong quarter of cash generation with $125 million of cash provided by operating activities and $26 million of ongoing free cash flow, which excludes the previously disclosed tax refund. Lower working capital and CapEx drove healthy free cash flow conversion of nearly 50% in our seasonally low quarter. We ended the quarter with total liquidity of approximately $900 million a strong position as we move into the balance of the fiscal year. Net debt was $1.1 billion, and our net leverage remained solid at 2.7x providing flexibility to invest in strategic priorities while maintaining disciplined capital allocation.

Now let's turn it to our business unit leaders for a closer look at segment performance. Alessandra, over to you.

Thank you, William. Good morning, everyone. Please turn to Slide 10 for Life Sciences. Life Sciences sales were $139 million, up 4% from the prior year driven by resilient pharma demand and continued strength across our innovate and globalized pillars. Pharma delivered low single-digit year-over-year growth making its third consecutive quarter of volume gains. Demand remained strong for our high-value cellulosic excipient, supported by broad customer engagement across regions.

Injectables delivered another quarter of strong above-market growth with continued pipeline expansion and accelerating uptake of recently launched products. Reinforcing our confidence in sustainable growth we see in this high-margin segment. Tablet coatings delivered double-digit year-over-year growth across all regions with particularly strong momentum in Asia Pacific. In Nutrition, recent wins and ongoing commercial activity continue to support improving traction as we move through fiscal 2026. Pricing was slightly lower year-over-year, in line with expectations and largely reflecting carryover impacts from prior year adjustments, but remained stable sequentially. Foreign exchange provided a $3 million benefit to sales.

Turning to innovation. We continue to advance Ashland's leadership in pharmaceutical ingredients. We saw meaningful contributions from our low nitrite offerings, including the recently launched [ Plasson ] low nitride and [ Benecel low nitride ] rates. In injectables, we launched our new high-purity bile sucrose stabilizer for biologics in October. Early customer engagement has been encouraging with positive technical feedback and a growing commercial pipeline. In addition, multiple new injectable launches are planned for fiscal 2026 each supported by strong prelaunched customer engagement and rising market pool. These advancements reinforce our commitment to delivering high-quality solutions that meet evolving customer needs.

Turning to profitability. Adjusted EBITDA was $31 million, up 11% year-over-year. Margins expanded to 22.3% a 140 basis point improvement, including a $4 million impact from the Calvert City outage during the quarter. The year-over-year increase was driven by favorable mix, resilient pharma demand and lower SARD as restructuring benefits continue to flow through, partially offset by modest pricing pressure. Foreign exchange provided an additional $2 million benefit to EBITDA. Life Sciences continues to demonstrate strong operational discipline, resilient end market demand and consistent progress across both our innovate and globalized agendas.

Please turn to Slide 11 for Intermediates. Intermediates performance remained challenged. Consistent with what we expected entering the fiscal year. Sales were $31 million, down 6% versus last year. Merchant sales were $22 million with steady volumes and modest pricing pressure, resulting in flat year-over-year performance. Captive video sales declined to $9 million, driven by both lower volumes and lower transfer prices. Foreign exchange had a negligible impact on sales.

Turning to profitability. Adjusted EBITDA was $1 million, down from $6 million in the prior year, with margins declining to 3.2% from 18.2%. Margins compressed due to lower pricing, reduced operating leverage and roughly $2 million of early quarter upstream production impacts from the Calvert City outage. The team remains focused on disciplined commercial execution, cost control and navigating a market environment that is expected to remain challenged until broader industrial activity in groups.

Now I will turn the call over to Jim to discuss Personal Care. Jim?

Thank you, Alessandra. I'll now highlight our Personal Care results. Please turn to Slide 12 for Personal Care. Personal Care delivered resilient results, underscoring the stability of the portfolio despite mixed market conditions. Sales were $123 million, down 8% year-over-year, almost entirely due to the Avoca divestiture which reduced sales by approximately 7%. With the Avoca divestiture now lapped, we have a clean baseline going forward into Q2.

Organic sales declined 1%, reflecting a broadly stable demand environment. Biofunctional actives continued to perform well and delivered another quarter of double-digit growth versus prior year quarter. Customer expansions and project pipeline conversions are accelerating. [ Colopepto ], our 2025 [ Hero ] product launch is gaining broad-based market adoption. [ Colopepto ] mimics 20 collagen sequences in our skin, providing immediate flash hydration and corrects the appearance of both expression and deep wrinkles in the skin. Microbial protection delivered year-over-year volume growth above market, driven by share gains across most regions and customer wins. With a competitive and regional footprint, microbial protection is well positioned to continue executing on a robust opportunity pipeline.

Within care ingredients, performance varied by region and segment. In general, most regions performed well with notable strength in the EMEA region and China. Care Ingredients experienced several unplanned customer plant outages in the quarter and softer demand in North America. Foreign exchange contributed approximately $3 million of favorability to segment sales. For Personal Care, innovation and commercial execution remain a strength with continued momentum in our globalized platforms and sustained demand for higher-value differentiated applications.

Turning to profitability. Adjusted EBITDA was $26 million compared to $30 million in the prior year. This includes a $1 million EBITDA impact from the Avoca divestiture. Excluding that portfolio action, EBITDA was modestly lower, driven by the more than $4 million Calvert City impact in the demand trends noted earlier. Partially offset by mix and cost discipline. EBITDA margins remained healthy at 21.1%, demonstrating the strength of the portfolio and the benefit of ongoing commercial and productivity efforts. Personal Care continues to deliver strong performance in our globalized platforms, resilient margins and meaningful traction in our innovation pipeline.

Now I'll hand it over to Dago to review the results of Specialty Additives. Dago?

Thank you, Jim. Please turn to Slide 13. Specialty Additives continue to operate in a muted demand environment during the first quarter. Sales were $102 million, down 11% year-over-year. Coatings and construction accounted for the vast majority of the year-over-year shortfall. In coatings, the decline was led by China, where weak demand and structural overcapacity continues to wait on results. Additional softness came from export markets in the Middle East, Africa and India, where competitive intensity remained elevated. North America continued to show new demand in the coatings market. Outside these regions, coatings demand was relatively stable with outperformance in Europe and Latin America. Construction volumes were also lower, reflecting soft conditions across the nonstructural repair and remodel market, our primary area of exposure.

Across other industrial end markets, including energy and performance specialties, demand remained muted but generally stable. Pricing was modestly lower year-over-year, while foreign exchange contributed approximately $2 million to sales. Importantly, the team continues to execute on operational efficiency initiatives and capture benefits from prior manufacturing optimization actions, including the HCC consolidation which improved our cost structure and mitigated the impact of lower volumes.

Adjusted EBITDA was [ $50 ] million, up 15% from the prior year. EBITDA margin improved to 14.7%, a 340 basis point expansion supported by efficiencies from the consolidated HCC network. The team remains sharply focused on cost discipline and commercial excellence while continuing to advance innovation that helps our customers deliver differentiated solutions in a challenging market. Underscoring the strength of our innovation pipeline, we delivered approximately $5 million in sales from recent product launches this quarter.

Looking ahead, Specialty Additives is well positioned to benefit from an eventual coins recovery, supported by disciplined cost management, a more efficient manufacturing network and ongoing innovation progress.

With that, I'll hand it back to William. William?

Thanks, Dago. Please turn to Slide 15. As we move through the first quarter, I want to highlight the progress we're making across our execute pillar and how our operational transformation continues to support the business. Overall, our total cost savings target of approximately $30 million for fiscal 2026 remains on track. Specifically, our restructuring plan is completed and will be ratably recognized throughout the first half of the fiscal year, we continue to make progress on our network optimization targets. VP&D optimization and small plant consolidation efforts also remain on schedule with benefits weighted toward the second half.

As we talked about last quarter, we are addressing higher-than-expected unit costs at the consolidated HCC site as we scale operations. Following the [ parlay ] closure and network volume rebalancing, we are delivering productivity improvements and stabilizing operations while strengthening the global HCC network. Our total savings target of $50 million to $55 million remains intact with upside to $60 million as China demand improves. Across the network, we're seeing potential for additional productivity improvements and capacity optimizations. This work is ongoing, but the trajectory remains positive.

Our priorities with execute remain clearer. Deliver structural cost improvements, simplify the network and enhance systems and processes, which include sales and operations planning, standard costing and forecasting. All of which strengthened planning, accountability and ultimately, performance. I want to recognize our operations team for managing through isolated challenges this quarter. I will speak to these dynamics further in the outlook.

Please turn to Slide 16. I'd now like to provide an update on our globalized and innovate platforms. As we move through fiscal '26, I'm encouraged by the early year momentum we've seen across both pillars. On globalize, we're seeing solid traction supported by increased customer engagement, focused commercial initiatives and early benefits from our recent investments. Year-to-date, we've delivered $3 million of incremental globalized sales towards our $20 million goal for the year with notable contributions across the portfolio. In aggregate, the globalized business lines grew 8% versus last year.

On the Innovate side, momentum was even stronger. We delivered $6 million of incremental innovation sales towards our $15 million goal for the year. This reflects the continued strength of our innovation pipeline, particularly in pharma cellulosics as well as recent commercial introductions across multiple segments. Guillermo will speak to this in more detail shortly, but the team continues to advance a broad and healthy launch pipeline. The early performance across globalized and innovate highlights the strength of these levers and the strategic advantage they bring to our portfolio. While still early in the year, we remain on track to deliver our fiscal 2026 $35 million revenue commitment from globalized and innovate.

Please turn to Slide 17. I will now walk through our updated fiscal '26 outlook, which reflects a prudent view of market conditions and continued confidence in our ability to execute. For fiscal 2026, we are narrowing our adjusted EBITDA range to $400 million to $420 million. All other elements of our guidance remain unchanged. Let me briefly summarize the assumption underlying this outlook.

Life Sciences and Personal Care remain resilient, supported by stable end markets and momentum across our globalized and Innovate platforms. Specialty Additives and intermediates remain mixed with a coatings recovery expected to be gradual and regionally uneven until broader housing and industrial activity improves. We are seeing healthy demand patterns in consumer-oriented categories to start the second quarter. Raw materials are expected to be stable to favorable overall and supply chains remain reliable.

Similar to prior years, we expect a second half weighted performance. We continue to expect innovate and globalize to drive growth above underlying markets and our total cost savings target of $30 million remains on track to support margin improvement through the year. As Guillermo discussed, repairs to the Calvert City unit for taking longer than anticipated. What we had initially expected to be contained to the first quarter will now extend into the second.

In recent weeks, we also experienced brief outages at multiple sites due to adverse weather. While the operations team managed safely without customer disruption, these events resulted in incremental costs and downtime, our revised outlook reflects approximately $11 million of temporary impacts from the Calvert City start-up delay and recent weather-related disruptions all isolated to the second quarter. The volume-related impacts, which were roughly 2/3 of the overall total are fully recoverable, but the timing of absorption recovery is more challenging. VP&D cannot begin recovering absorption until the unit is back at normal operating rates, which will not occur until late Q2. This means recovery can only begin in Q3 with partial flow-through in the income statement into Q4.

For HCC, recovery depends on the seasonal demand lift. Visibility into April through September demand typically firms in March, which creates uncertainty about when and how much recovery can be prudently initiated. Given these timing constraints and the current visibility on seasonal demand, we believe it is prudent to remain more cautious at the top end of the guide. We will continue to manage production, inventory and free cash flow with discipline while ensuring uninterrupted customer supply.

Overall, our fiscal 2026 guidance reflects balanced planning, disciplined execution and visibility into the drivers of long-term value creation, even as we manage temporary operational challenges.

With that, I'll turn the call over to Guillermo to discuss our technology platforms and leadership priorities. Guillermo?

Thank you, William. Please turn to Slide 18. Innovation remains one of the most powerful drivers of long-term value creation at Ashland. And the momentum we're seeing this early in fiscal 2026 is both exciting and strategically import. This slide highlights just a few of the breakthrough platforms that are reshaping our pipeline and opening new opportunities across multiple end markets. These are not isolated projects, they're scalable technology platforms built on science, customer collaboration and disciplined execution, each with potential to fuel long-term growth.

Since the 2025 Innovation Day, our teams have delivered meaningful progress across multiple platforms. Our [ TBO ] technologies continued to advance through early commercial adoption, supported by regulatory filings across all key regions and multiple customer qualification cycles. In Ag, our TBO for seed coatings, [ Agrimer Eco Coat ] received U.S. EPA [ prefer ] approval in 2025 and is also reach approved. Its performance and sustainability profile have been validated by multiple customer trials with more trials ongoing. Customers are in the process of filing their own regulatory approvals for their formulated products in different regions. We're also making great progress in the development of a [ TBO ] for oral dispersions in ag formulations. This product would already have regulatory approval, the same as our [ Agrimec Eco Coat].

In Personal Care, we launched [ Lubrhante ], a TVO-based product for air conditioning with great customer feedback for customer approvals and many other testing and formulations. Development of our TVO for hairspray and styling is maturing well, nearing Generation 1 launch with encouraging customer evaluations underway. Our TVO technology for silicone alternatives have past preliminary testing with key customers and now is in advanced evaluations. In Coatings, we continue to make progress on developing TVO technology for [ TiO2 ] exficiency and for UV curing. Based on current performance profiles, all customers are showing strong interest in these technologies.

Most of the new TVO development projects continue to advance and are demonstrating strong performance and value for our customers. Our super wedding agent platforms, which offers PFAS-free and silicon-free sustainability advantages achieved another successful launch in Industrial and Specialty Coatings. Our Coatings team recently launched a new version of our weather [ East 310 ], which has broader geographic regulatory approvals and is accelerating commercialization. We've had successful customer trials and feedback on our new super weather for ag, validating performance benefits with no phytotoxicity relative to the current commercial letters. We expect to receive U.S. [ EPA ] feedback in this April.

In Personal Care, we're expanding this technology into hair care and home care applications. In hair, we are currently targeting textured hair or early beta testing feedback has been very positive. In Home Care, we're advancing the super weather technology for auto dishwash applications. In bioresorbable polymers, Momentum is building an aesthetic medicine, especially next-generation thermal pillars. With fiscal year 2025 launches and recent customer audit supporting a strong multiyear outlook. We also continue to scale a strong pipeline with pre clinical milestone sales for both generic and new drug development programs.

We're also excited about the interest and performance feedback we've received in Personal Care for our new modified starch for rheology control and skin [ livon ] applications, and we will be launching this product this year. In addition, we're expanding our starch technology into hair styling applications. These platforms are strategically important each representing a scalable and high-value opportunity that strengthens our ability to compete and win in differentiated markets. They reflect the combined strength of our science, our global reach, and our ability to commercialize meaningful new technologies. Together, they reinforce why innovation remains a key driver of our long-term growth.

Lastly, although not part of our new technology platforms, our coatings team is launching a number of new multifunctional HCC products this year that can provide unique cost and performance benefits to our customers, including better cost in use, and improved performance.

Please turn to Slide 19. As we look ahead, I'd like to outline the leadership priorities guiding our execution. While markets are mixed, as anticipated, we entered the year with momentum on several fronts. The business has become significantly more focused, resilient and better positioned to drive higher value growth. Our cost actions are already supporting margin performance with additional P&L benefits expected as the year progresses. Our innovation platforms and globalize investments continue to gain traction.

Our priorities for the fiscal 2026 are clear: deliver on safety, profitable growth, free cash flow and [indiscernible]. Advanced our manufacturing optimization and inventory performance, accelerate innovation, scale our globalized platforms and foster a productivity-focused culture. Strengthen our systems and process, including leveraging AI to enhance productivity, prioritize talent development, leadership stability and organizational strength and maintain transparent communications and consistent execution in our engagement with our investors.

Fiscal 2026 is about converting our transformation into sustained performance. With a more focused and resilient portfolio, disciplined capital allocation and clear strategic road map, Ashland is well positioned to deliver durable value creation for all stakeholders. And despite temporary operational and weather challenges, our strategy, strong execution and commercial momentum give us confidence in delivering our fiscal 2026 commitments.

Thank you to the entire Ashland team for your commitment and execution, and thank you for joining our call today. Operator, please open the line for Q&A.

[Operator Instructions] Our first question comes from the line of Josh Spector with UBS.

I had 2 questions. First, just specifically on Personal Care, can you talk about the comments around the customer outage impacting demand? Is that an ongoing issue? Is that resolved? Do we catch up from that?

And then second, I mean Guillermo some of your prepared remarks from the release last night, you talked about some optimism, I think, on some of the demand you were seeing building in your second quarter here. Just wondering if you could give more color there, if that's adding to any visibility or if it's still pretty limited.

Okay. Let me give a quick comment on the demand and then on the PC outage. Jim I'll pass you to give some comments. So we did start. If you look at Q1, we started the quarter strong in November. And I think like other companies, November was a bit softer. And we did see the pickup really in December and January is also as commented continue to grow. So and then it's pretty broad-based in terms of Life Science and Personal Care. I would say in coatings, it's in line with our expectations. I'm not overreading the coatings side because this is still low in the seasonality. The season really starts to pick up in March and really April to September is when we see the bigger volume. So it's a bit early, but it's been stable and I would say no big surprises.

So overall, right now, we're not trying to overread. No -- there's nothing really to change our outlook. So we're pretty confident. And I think over the next 2 months, we should start picking up. Our order book for February still remains strong, too. So we'll see how that evolves. Obviously, we have now, I'm in China, Chinese New Year and all that, it will be a weaker February, but the margin should pick up.

And then on the PC side, I mean, there are outages. We just had our own outages on things, and so they're temporary and recoverable. But Jim, do you want to comment on the...

Thanks, Josh, thank you for the question. So as William had mentioned, excluding those customer outages, the business would have been up low single digits. Specifically in North America, there were several customers that had unplanned outages. The outages were on the customer side. So it was not related to our inability to supply or anything driven from our side and through conversations with customers, we understand that it was not demand-driven either. The outages all occurred in Q1. Some of them were multi-week with a couple of them extending over a month, almost 2 months in one case. They all are back online, they all came back online before we closed Q1, and we do expect to recover most of it in Q2 and through the balance of the year.

So we are starting to recover some of that in Q2. And by the end of the fiscal year, we do expect to recover most of that impact.

Our next question comes from the line of Michael Sison with Wells Fargo.

First of all, Care -- for Personal Care, do we -- should we see volume start to turn the corner here in the second or third quarter? Is that -- because I think Avoca is done, right, in terms of the outlook? Do we start to see positive volume growth?

Yes. So Avoca is done, as Jim said, so that from the comps are going to be cleaner. If we see just the macro on the consumer side, it's behaving resilient overall. Most of our customers are indicating that lot of in the single digits. So from a volume perspective, we expect to continue to see that as the year progresses. So no big surprise there, Mike.

Great. And then maybe just revisiting kind of the longer-term outlook. How do you think about rebuilding EBITDA to higher levels from here?

So I think, one, a lot of it has to do -- if you look at our strategy, execute, globalizes, innovate. Execute is about productivity. We've got a lot of projects going through, there -- we're already seeing the benefits. You see it with all the impacts on markets and competitive dynamics over the last year, our margins continue to hold up and I think that's a reflection of a lot of the productivity actions. So we're already doing that. Obviously, as volumes pick up, we'll have a lot more leverage in terms of our absorption and most of our key plants. So volume pickup, obviously, will be very helpful.

For now, we continue to remain focused on driving that productivity. Most of the projects are going very well. I think the one plant that we're putting a lot of effort on because of all the network trends at the HCC network optimization is our hope well plan. They're very busy, there's a lot of activity there. When we closed Portland, they've brought a lot of products. We've had a little bit of cost issues there. So that one, we're going to continue to focus. And obviously, the storm was one of the plants that was hardest hit. So some of those initiatives have been stalled a little bit just as a result of the storm. But we're focused. We have a clear agenda, and we're going to continue to drive that.

The rest is going to be -- the globalize, innovate, all those are higher-margin areas. And the more we can grow, the more we can extend our margins and our EBITDA. And equally, I would say, in life science, a lot of the cellulosic growth that we're seeing in our core businesses are all higher-margin businesses.

Mike, just to add, it's William. I think the other key piece, too, to keep in mind is we have the $90 million program outstanding, right? That's the combination of the restructuring and the manufacturing optimization. We got 25 of that in fiscal '25. We've committed to another 30 in fiscal '26. That leaves another 35 yet to play out. So that's the other component on top of what Guillermo referenced on the productivity side. I just wanted to make sure to have those levers as well.

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

On the China coatings demand, is there a line of sight to the bottom so that you'll begin at least comping flat year-over-year at some point?

Yes. So let me get some comments, and then I'll Dago, if you could comment. I'm here right now in China. I would say a lot of the impact of the down market we started last year and it's already happened, most of the impact with our customers. I don't expect that this is going to improve that quickly. We see a lot of actions by the government to stimulate to reenergize the profit market, but the reality is it's going to take a while.

I think the issue is for here is going to be expect muted demand for a while with the overcapacity, you're -- we're going to continue to see deflationary pressures across the board. Most of that has already happened. We've been hit hard in our business here in China. So we're bottoming out. There's a limit to how much you can lose path what -- when you lose some business, you count was more. So I think what I'm excited now is the team, we've rebalanced the network so that we're not getting impacted with empty capacity in our plants. We're using this very cost-effective plant for us. We're using it for exports now around the world and especially in the Middle East and Africa. So well positioned.

And today, just talking to our teams, they've really done a fantastic job in just looking at our portfolio, using this time to get our plant costs in order but also expanding our product line, both into more cost-effective, different performance, the cost parameters so that we can compete on the low end and also some higher performance products that we can provide both lower cost in use but higher performance. So we're expanding our ability to go back into the market in a more constructive way than just price gains as we move forward. But Dago, do you want to comment on the comps and some of the other things your team is doing?

Sure, Guillermo. And I think you're spot on. So I mean, the China comps are expected to ease in the second half following the second quarter. So we already took a hit versus the last year comps. So we'll be expecting to lap up to the next quarter. So that's number one.

The other point that I would like to emphasize is what is it that we're making to resolve the situation, right? What is it that we're working on that? There's 3 points that I want to emphasize. One is commercial discipline. The other one is productivity and the third one is innovation. So on commercial discipline, which a lot of focus on volume, price management to ensure that we do what's right for the business. And there is also a lot of focus on customer intimacy, just staying very close to customers so that we can deploy our innovation.

Productivity, the good news is that [ Nanjing ] is a really excellent plant that we have, is a very strong asset, and we do have very clear productivity improvement targets that we're going after. So I'm very excited about that as well. But probably the best one is really on innovation. We're moving fast. We're moving with urgency. We expect some of the results that we're doing on the innovation on our core products to materialize actually 2026 which will really help us with the situation. And the intent here is to protect our core portfolio and basically kind of produce create products that are made for the China market. So very excited about what we are doing here.

And last point, I just want to reinforce what Guillermo was saying is this is a really good plant. This is a plant that I would say -- I would call it a global asset, absolutely. Initial intent was to produce in China for China, but this plant can produce for any other parts of the world. So what we're doing is rebalancing. There is opportunities outside of China for sure that we're going after with a lot of focus.

And then secondly, where are you facing the most risk and uncertainty around global trade issues?

I think that the area that we're looking at more is what's Europe going to do. I think the -- there's a lot of push right now for our industry. In terms of some of the cost competitive, the plant consolidations. So there's a lot of dialogue going on there, but there's no clear decisions on what they're going to do. But I would say that's probably the area of focus for us at this point in time. We don't have anything that I would say, specific, but we know that this is probably one of the areas of a higher pressure in terms of the regional interest to take some action.

[Operator Instructions] Our next question comes from the line of Chris Parkinson with Wolfe Research.

Just turning back to Life Sciences. I want to break down the growth algo here now that you're passing multiple years of a little bit of choppiness. But when you take a step back, how are you thinking about -- you didn't mention VP&D in the PowerPoint. So I'm kind of curious on what effect, if any, that had on the price mix in the quarter? And then it seems like you're actually gaining pretty decent momentum and tablets and cellulosics. So when we look at this for '26 and then kind of into 27, is this finally getting back to just a low kind of like a low single-digit volume growth rate, perhaps a little bit more constructive price mix, getting margins back up to the prior year's levels? Like how should we be parsing that out?

Let me a quick comment, and then I'll pass it to Alessandra, she can give more detailed color on the business. But I would say just specifically on the VP&D, the Life Science business has been fine. That's where we had the issue a while back, and you know the story, one big competitor coming back in and all that was the biggest issue for us. That has stayed pace, right? So the VP&D, I would say volumes are stable, pricing are stable. That's not the biggest growth driver at this point in time. We wanted to stabilize it. I think we're seeing that across the world. That's one of the issues of really driving productivity, making sure that we're going to be competitive in any price that we gave in the past that we're trying to recover through productivity, asset utilization, all those kinds of things.

But the team, the broader strategy continues to progress and never really stopped. In terms of the cellulosics or some of the these other areas. But Alessandra, you could comment on that and on VP&D as you see things would be great.

Yes. Sure. So we -- looking ahead, looking at the next few quarters, we expect to continue to deliver on the healthy growth. So two aspects, looking at the resilient pharma demand roughly low single digit. And then we are seeing the momentum across our both innovate and globalized pillars and that represents around 200 basis points above market on the growth that we are projecting.

As Guillermo mentioned, VP&D is expected to be stable with just -- we've just concluded the contract negotiations in Europe. And they were mostly aligned with our expectations of share and with modest price pressure on certain portfolios. But net-net, they were in line with our expectations. So we remain very much focused in positioning our globalized innovate growth strategies and the share gain opportunities. When you look at injectables, we deliver an outstanding first quarter, double-digit growth versus prior year, we are seeing a strong uptake on new products. Guillermo talk about this on innovation on his prepared remarks. You've seen the pipeline expansion and also a very effective regional business development model that we have put in place, which is positioning us to continue to see sustainable above-market growth in the coming quarters on tablet coatings specifically. We also saw double-digit growth year-over-year in the first quarter. The pipeline has expanded significantly and we -- our production efforts were focused in the last few quarters, and we're seeing that.

We're seeing the good momentum from a production, from a productivity improvement in [ Remington ] and also our new the new sites in Brazil and China supporting our growth for the fiscal year 2026. And we have a new plant that we announced before in India that is coming up in fiscal 2027. So Guillermo was just in India a few days ago also visiting the new site, which is coming up in fiscal 2027.

So overall, a lot of discipline from a commercial standpoint, on price volume management and the focus on positioning our globalized and innovate growth strategies, then we are confident on the growth we're projecting over the next couple of quarters.

Got it. And just as a real quick follow-up and kind of triangulating some of the things you said to Josh's question. In Personal Care, it seems like there's a lot of moving parts. And it seems like you're seeing a decent recovery in the biofunctionals and bioactives in addition to some new products and NPI momentum. Is that a functionality of stronger demand in places like Asia? Stabilization in Europe is the tumor that they say? I'm trying to get to kind of the growth rates ex the issues you saw in hair care, but it seems pretty constructive. So I'd be kind of curious on how you're thinking about that as we progress through fiscal year '26.

Make a quick comment. And Jim, if you can talk about the specific regions and biofunctionals and of the areas. But just to make one thing clear. If you look at our core personal care business. That's the established business that we've had for a long time. It's pretty stable. The ups and downs are more driven by customer demand and there's not big shared shifts. I think the growth is coming from the new things. Our globalized are in both biofunctionals and micro protection. And in the core, it's all these new technologies that we're working on that, frankly, Personal Care was the first business really in which we were developing the TVOs and all these products. So there is a level of stability.

A lot of these it's up and up it's the same customers that have been buying some of these products for a long time, and there is a lot of stability there. But Jim, if you want to comment a little bit more color?

Sure. Thanks, Guillermo. So I think we've really been working to make the Personal Care story as simple as possible, just given all the different pieces and parts of the portfolio. And I think when you look at Q1 we're very happy with Q1. As you mentioned, biofunctional performed extremely well. We have stabilization in our base, which we had talked about in the prior quarter that base continues to be stable, and we're seeing even some growth there. We're more excited by all the work the team has done to expand the biofunctional portfolio. We've gained a lot of new customers, especially in Europe and in China, and we're getting our new product launches into those customers, as I mentioned, [ Colopeptil ] -- it's -- I don't want to say a miracle product, but it's something that within 3 minutes, you already start to feel that hydration within a couple of hours, you already start to get real -- glowing in your skin, and the team has done a great job launching products.

And we feel biofunctional is really moving in the right direction going forward.

Microbial protection, it's all about continuing to grow there, convert opportunities, and we've seen really nice growth across all the regions. And then as Guillermo mentioned, in our care ingredients business we had the customer outages, specifically in Q1. Aside from that, there's always perhaps some noise as you go into the end of the year. But generally, it's very stable. The team has done a really nice job converting opportunities, especially in skin. You will see, as we go through the balance of the year, oral care will be, I would say, more smooth this year for us over the next 3 quarters. Sometimes it tends to be a bit more concentrated in a couple of quarters. It will be smoother through Q2 to Q4. But overall, I would say Q1, really, it was the customer outages in North America demand, but we're continuing to monitor as I said, a bit of a mixed environment there.

[Operator Instructions] Our next question comes from the line of Mike Harrison with Seaport Research Partners.

I was wondering, in Life Sciences, you mentioned low nitrite cellulosic. Can you help us understand what differentiates those from typical cellulosics and why that's important?

Well, [indiscernible], if you could comment just on the ones that we've already launched and the ones that we continue to launch and not just cellulosic, but the whole theme of high purity that you guys are working on.

Yes. Yes. So we launched the new low nitriI'dgrades for both [ Gladstone ], which is VP&D and [ Benecel ] [indiscernible]. So this brings on hands of product quality, basically from nitrosamine on the pharma industry. and versus the regulatory requirements, right? And it is the pharma companies overall across the board, not just large pharmas, but generics, all pharma companies are very much focused on that on bringing the low nitride grade for excipients to help with the nitrosamine levels on their formulations. So that has been a good success for us with the launch on the low nitride, and we see that more and more in our in our portfolio, expanding into with no like-fit rates, not just on cellulosics and to your question, but also on VP&D and other areas.

All right. That's very helpful. And then I was also within the Specialty Additives business, I was hoping for a little bit more detail on the $5 million of contribution that you're expecting from innovation. Is that mostly the super wetting agent that you referred to on Slide 18 or maybe what product lines or technologies are really starting to show commercial traction within Specialty Additives?

Yes, thanks for the question. So yes, I would say it's across the board. It's across the board. So when you look at our strategy for Specialty Additives, it is a heavy focus, of course, on protecting our [ reologyfier ] participation. And we have new products that are going there. But then there is a big effort right now to go beyond, decide it into other IPs. So you have you have deformers, you have wetting agents, you have PH neutralizers, et cetera. And the team has been very focused on expanding our portfolio because it really solidifies the participation that we have with customers, it gives us higher access and also it enables us to go after other parts of our customers' portfolio.

For instance, we're very strong in architectural coatings. We know our customers also have participation in industrial coatings it is really a great opportunity to branch out and to really solidify our position there. So when you look at the sales and what we're working on for this year because we have very good targets, very strong targets for innovation really, the focus is going to be on number one, solidifying our position in and differentiating in [ reology ] modification of synthetic cellulosic. Number two, continue to expand our additives. So you're going to see a lot of that and super well in ages are included there. But then strategically and longer term, very much excited about the progress we're making with our platform technologies. In particular, TVO and TiO2 space, et cetera, where we do expect to see some good traction this year.

And Mike, I wanted to highlight it in my comments, I talked a little bit on the regulatory, if you notice on a lot of the innovations, not just the innovation and the customer the regulatory side. When you bring in new products to market in today's world, you have to deal with all the approvals for selling these products in ag and reach in Europe. And I think the coatings team and the Specialty Additives has done a wonderful job.

The [ EasyWeb free 10 ], we launched [ Newer 300 ]. It's working well. But given its profile, we have certain requirements in terms of the regulatory so they were able to go in, modify it enough so that no performance was changed, but it now allows us to accelerate the commercialization because it meets much more of the regulatory requirements around the world.

So strategizing as we develop these products and making sure that we're within certain areas to accelerate commercialization within regulatory is really important in that very good job there. So that launch will really help us get traction on commercialization.

Our next question comes from the line of John McNulty with BMO.

This is Bhavesh for John. Just one question for me. So recently, we saw that an oral dose GLP-1 drug was approved by the FDA. Can you speak to whether your Life Sciences platform has exposure to this line of the oral dose medication? And if yes, help us think about the potential for demand pull for this one.

Alessandra, do you want to comment on that?

Yes, sure. So thinking about looking at the GLP-1. So both the orla GLP-1 and oral biologics presents a significant opportunity for Ashland. And our VP&D portfolio is especially relevant to this space as it is our tablet coatings. When you think about the high volume, high throughput needed for the types of demand that we are talking about. So our high solid coatings acquirers Genesis is also especially relevant for that.

So currently, we have multiple active projects with some of the biggest pharma players in this space. In addition, we are doubling down on innovation in this area as we have identified a pipeline with over 80 emerging opportunities and one of those innovations is our sodium cap rate, which is an operation enhanced that we target to launch over the summer. We already have received multiple customer samples requests and are working with several customers on that upcoming launch for this summer.

So in summary, yes, GLP-1 formulations and the overall oral biologics represent a significant opportunity for Ashland. And our VP&D portfolio is of particular interest and as well our new innovation programs.

[Operator Instructions] Our next question comes from the line of [ Karl Vanderberg ] with Deutsche Bank.

This is Dave Begleiter. Guillermo, you mentioned improving momentum in January. Can you talk about and you do some easy comps in Q2 across all 3 segments? So what does that mean for volume growth in those segments year-over-year?

As we said, it will be in line with what we had been forecasting to Personal Care and Life Science, it's in the low single digits. And anything over that, we need to grow through some of the innovation, but we -- the order book is in line with our forecast or our updated forecast on what we're doing. So no big surprise there.

Same thing in SA, we're seeing the same thing. All the orders are coming in line. It's going to be still challenged versus prior year because of China and some of the dynamics there. But if you in North America, Europe actually did very well for us. But I'd just be cautious in SA, I'm not going to really be positive or negative until we start getting closer to the bigger season these months don't mean as much in terms of what the full year is going to come out. But for us, it's reassuring that January and the order book for February remains strong.

Got it. In terms of the first half outages, how much of that $20 million plus do you get back in the second half of the year?

So we're working -- we're going to start working on the first part this quarter, but obviously, that's getting delayed. Most of the issues were in the VP&D side in Q1. Now that's why we're being a little bit more cautious. In theory, all of it is recoverable. The issue is when we want to recover it. So in VP&D, as William said, if we start at the end of the -- and again, we're working -- just to be clear, we're working to get it done as quickly as possible. We're expecting by the second half of the quarter. If we can get a few -- every week counts in terms of being able to improve our performance. So we've given ourselves some room there. in terms of the timing of when the unit will come on stream.

But in our current forecast, it would be at the end of this quarter, which means we -- as William said, we need to get most of that in the third quarter to impact this year. If not, if we do it in the fourth quarter, will recover, but it will flow into next year. So VP&D is an issue of getting the plant starting and then we can start getting the recovery. of the absorption part. There are other costs. This is especially around the storm that are costs, energy costs that went up and other repair costs with the freeze. I mean not huge items, but items that have added up that we -- that are going to be more of a headwind.

I think as William said, 2/3 was absorption, 1/3 was cost. [ HCC ] is a choice. I think there -- I'll be honest, I'm being very conservative until we start seeing the season, we can always produce more than ever want. I think if this is a time of being prudent, like we've done in other years, I'm very open of the balance sheet is something we need to look at, not just the P&L. We're not here just to hit one quarter results, this is long term. We want to do the right thing for the long term for the company. I think having a solid balance sheet, cash is king and a lot of these times of uncertainty. So we're going to be a little bit more prudent. Again, if the season starts in March, that's probably when we would start making that decision. That means, again, that third quarter would be the critical quarter to rebuild it.

[Operator Instructions] Our next question comes from the line of Laurence Alexander from Jefferies.

This is [ Denis ] on for Laurence. I was just -- you mentioned injectable launches and some of the new products. But just in general, I was wondering how long it takes a new product to ramp up to mid-cycle and then to peak sales just the time frame?

It really varies by product line. But like we've said before, we're talking about everything we're doing. We want to show it. We want to be very transparent. But reality, when these approvals come, they take time. If you go into the example I would use a Personal Care customer approves and it's a big brand.

They have in next 2027, I'm going to reformulate the approved now, but they launch in 2027 or 2026. They have dates which they're doing. So our issue is make sure that we get the approvals, get everything ready before those launch dates. So we have road maps of when all these big brands are doing reformulation. We're working with our customers. and it's very important to hit those states. Coatings is a little bit different. They can move a little bit more quickly. But again, they do a lot more testing, they like it, they want it, but then they have some testing. So everybody has their norm on how they move through.

I would say the pharma is really partnering with them across their entire development cycle. But when they're ready to launch, you will go them, but that's -- depending if it's a generic, it could be 3 to 5 years if it's new drug, you're in a longer pipeline. But we -- that's the importance of having strong pipelines. And what we've been doing last year is built the pipeline. And that's what I'm excited about that the technologies have now enhanced that they are in pipelines, we're getting validation. So it's really now going into our customers thinking we like these technologies, when are we going to commercialize? Are we going to commercialize this year, next year? So it's a very different conversation as we move forward.

[Operator Instructions] Our next question comes from the line of Eric Boyes with Evercore.

First, could you please provide an update on the contract price renewals that I think recently occurred around year-end? And how might when those renewals go into effect, impact kind of price by segment in fiscal 2Q and for the balance of the year?

I think most of them, as Alessandra said, I think, are mostly completed. We're in final form in pharma, mostly in Europe, and that's pretty advanced. So I think we're were mostly done on there. I think the only ones -- and Dago you can comment in some regions, we have some now that are ongoing, Middle East, Africa, India, that are going now in the March, April time frame. But most of the other ones are already done. But Dago any other?

No. I mean in the case of coatings and to large contracts. I would say North America and Europe, they just follow the calendar year. So those contracts are done. And I guess the results are as expected. Other areas in Asia, actually, the contracts were finalized in October. That's actually their cycle October to October. We're only missing areas in Middle East, Africa, India, where we have a couple of strategic customers, and that will be April. So the contracts are finalized, we are valid starting in early April. So that's the only one that is remaining, we will negotiating as we speak. And we expect to finalize some of those contracts very soon.

Okay. Great. And then as a follow-up, are any further asset sales maybe in additives or intermediates under consideration, either now or previously and if not, I suspect not, could you remind on why that may not make strategic sense?

So we've done a lot of the changes already in terms of selling the parts of the business that we didn't see fit and most of them are stand-alone arch. We've consolidated some of the product lines that we didn't like that we couldn't sell. And we have the assets that we can repurpose that was more of our CMC asset in the U.S. and MC asset in Europe. And I think the timing of that was very good. We shut down a plant and consolidated. So all those actions are done.

We're going to do some more optimization, more around the productivity where it would be more units within a plant that we're streamlining so that we can -- instead of having a lot of equipment and not having them utilized really focused and invest on the ones that are higher end that can give us the best cost, but that wouldn't involve a sale. The rest of the business is integrated. And this is the part, everybody you want to just be like -- the same plants that supply across multiple areas, frankly speaking, just from my past experience with other companies, I mean all this artificially cutting up things haven't worked out that well.

So for us, we like the portfolio we have. It is integrated. We feel that between the high-quality pharma, Personal Care and architectural coatings being -- it is being impacted, but headed historically to be more consumer-oriented. We see that stability in North America and Europe. I would say what's happening in Asia is a little bit different than norm. We like those. We think focusing on additives low-cost news, high-value use and allows the differentiation, and we can leverage the scale across the assets. So we think that integration is critical and we don't think there's value in artificially...

[Operator Instructions] Our next question comes from the line of Steven Haynes with Morgan Stanley.

Just wanted to ask on your execute slide. You've got the $30 million, I think, of restructuring, and then there's the additional productivity that currently says still [ TBD ] I've been hopping between calls, so apologies if I missed this, but have you kind of outlined the time line and maybe how to think about like what that uplift could look like relative to the cost savings that you've already kind of disclosed and quantified for us all?

So we're working through that. We've done a lot of network optimization as we looked at, for example, in our selling chain between the 2 plants in Texas City, Calvert City, we had units that overcapacity, they've been an overcapacity a long time. We've consolidated shut them down, put all our volume on the more productive units, so that's driving our cost and productivity.

As we looked at across other production units, what we're finding is that there is an opportunity to continue to drive. So again, if we have a simple example, core reactors and they're over underutilized can we concentrate on 1 or 2, what are volumes there that's in those reactors to get more throughput, reduce cycle times, those kinds of things we're doing. So some of them we're already doing we're planning out how much we can get. Others we create the productivity, but the benefit will come as volumes pick up. So the issue is productivity, you can't wait to have the volume to do it. You do it and as the volume comes, you're just going to be able to leverage it, but it allows us to reduce costs as we do some of these changes.

So that's the part that we're trying to calculate. And obviously, this the storm and all that right now, our engineers and everybody have been a little bit distracted over the last few weeks but we continue to work. And throughout the year, we will be defining that. And our view is going to be continue to do what we're doing now, be very transparent as to the goals that we want to commit to. Tell you what we're going to do, and then we'll be held accountable to deliver on those targets.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Guillermo Novo for closing remarks.

Well, thank you, everyone, for participating in our call. We really appreciate it. We're very excited that the portfolio is in difficult times performing as we expected. We will continue to drive our strategy. We believe that, that's going to be the best way to generate significant valuation and optionality for us to really drive our strategy of profitable growth.

So we look forward to seeing all of you in the near future and have more discussions on Ashland. Thank you for your interest.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to Ashland's Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Sandy Kidman. Sandy, please go ahead.

Thank you. Hello, everyone, and welcome to Ashland's Fourth Quarter Fiscal Year 2025 Earnings Conference Call and Webcast. My name is Sandy Klugman, and I recently joined Ashland as the company's Director of Investor Relations. I'm excited to be stepping into this role at a pivotal time for Ashland and our stakeholders, and I look forward to connecting with many of you in the months ahead.

Joining me on the call today are Guillermo Novo, Chair and CEO; William Whittaker, CFO; as well as our business unit leaders. Alessandra Assis, Life Sciences and Intermediates, Jim Minicucci, Personal Care; and Dago Caceres, Specialty [indiscernible].

Please note that we will be referencing slides during today's call. We encourage you to follow along with webcast materials available at ashland.com, under Investor Relations.

Please turn to Slide 2. As a reminder, today's presentation contains forward-looking statements regarding our fiscal 2026 outlook and other matters as detailed on Slide 2 and in our Form 10-K. These statements are subject to risks and uncertainties that could cause future results to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but there is no assurances expectations will be achieved. We will also reference certain adjusted financial metrics, both actual and projected, which are non-GAAP measures.

We present these adjusted figures to provide additional insight into our ongoing business performance. reconciliations are available on our website and in the appendix of these slides.

I'll now hand the call over to Guillermo for his opening remarks.

Thanks, Sandy, and welcome to everyone joining us. Today, I'll provide an overview of our fourth quarter performance, discuss our strategic priorities and share our guidance for fiscal 2026. Please turn to Slide 5. Let's begin with a summary of our recent performance. .

Ashland's fourth quarter results reflect our disciplined approach and ability to deliver in line with expectations despite ongoing macroeconomic challenges. We maintained strong margins and achieved revenue and EBITDA consistent with our prior guidance. Our continued focus on execution, along with momentum across our globalized and innovative initiatives helped offset areas of competitive intensity and muted demand. Q4 sales were $478 million, down 8% year-over-year, primarily due to portfolio optimization initiatives. Excluding these actions, sales declined 1%.

Adjusted EBITDA was $119 million, down 4% year-over-year, including an $11 million impact from portfolio optimization. On a comparable basis, adjusted EBITDA increased 5% with margins expanding to roughly 25%. Importantly, these results reflect the early benefits of our strategic actions and position us well to improve performance.

Please turn to Slide 6. Now let me briefly summarize the performance of our business units. Life Science delivered steady performance, reflecting the benefits of our sharpened focus on higher-value pharma. Demand remained resilient, with continued strength in cellulosic excipients, public coatings and injectables. There was some weakness in nutrition in the quarter, but the team has recently secured share gains that support a return to growth next year.

Our innovate and globalized strategies are supporting quality growth and strong margin durability. Personal Care generated broad-based gains across end markets and regions while maintaining strong profitability. Disciplined execution and a sharpened commercial focus are driving results in a muted environment, investments in biofunctional actives and microbial protection delivered momentum with both lines returning to healthy growth in Q4.

Specialty Additives executed well in a mixed market, increasing quarter-over-quarter EBITDA. All end markets outside coatings improved, including Performance specialties, Construction and Energy & Resources. Our gains were more than offset by weaker coatings in China, India, and Middle East and North America. We continue to direct resources towards high-value applications, strengthening our position ahead of a coatings recovery.

Intermediate space headwinds from lower pricing and production volumes, which impacted profitability. The team remains focused on optimizing its operations against a challenging market backdrop. Stepping back from the segment, I want to highlight how our transformation efforts are shaping Ashland's path forward. Portfolio optimization and restructuring are complete. And the organization is focused on consistent delivery. As we've discussed before, approximately 85% of our portfolio serves consumer-facing end markets. These areas tend to be more stable and less exposed to economic cycles, providing a measure of consistency and resilience in the face of the broader macroeconomic volatility.

The $60 million manufacturing optimization program is helping margins, though the timing of the P&L impacted later than we initially expected. William will discuss the drivers later. In the quarter, Life Science and Personal Care, each delivered EBITDA margins close to or above 30%. Specialty Additives achieved its highest margins of the year, while intermediates continue to face margin pressures in a challenging market. On a comparable basis, adjusted EBITDA increased year-over-year across all business units, except intermediates.

Our globalized platforms returned to healthy growth in Q4, and we outperformed our innovation targets. In summary, even as external conditions remain unpredictable, we continue to drive results through disciplined execution and clear focus on our priorities. With our focused portfolio, cost actions gaining momentum and growth initiatives taking hold, Ashland is well positioned to deliver resilient long-term value.

I'd like to now turn over the call to William to provide a more detailed review of the fourth quarter financial performance. William?

Thank you, Guillermo. Please turn to Slide 8. Sales were $478 million, down 8% from last year, with portfolio optimization actions accounting for a $38 million reduction. Excluding those changes, sales were essentially flat, down 1% with steady demand in most areas. We saw volume gains in Personal Care, which helped balance softer results in Specialty Additives, while Life Sciences held steady. Pricing was down about 2% overall, mainly reflecting targeted pricing adjustments in life sciences from Q2 and continued pressure in intermediates.

Excluding intermediates, Pricing was down just 1% and foreign exchange provided a modest 1% lift. Adjusted EBITDA came in at $119 million, a 4% decrease year-over-year. Portfolio actions accounted for an $11 million headwind. But if you set those aside, underlying EBITDA improved by 5%, marking a return to growth on a comparable basis. Lower SARD from restructuring actions contributed to margin expansion alongside improved mix. These gains were partially offset by lower pricing and production volumes, while raw material costs remained stable.

Our adjusted EBITDA margin expanded to 24.9%, up 110 basis points from last year. This was our most profitable quarter of the year and in line with our long-term margin target of 25%. Adjusted earnings per share, excluding acquisition amortization, was $1.08, down 14% from the prior year, disproportionately impacted by a higher effective tax rate in the quarter. The increase reflects jurisdictional tax changes and limited use of foreign tax credits. We expect our effective tax rate to be in the mid-20s next year. We delivered another quarter of solid cash generation with ongoing free cash flow totaling $52 million. That's a healthy conversion of adjusted EBITDA, reflecting our disciplined approach to capital spending and working capital.

While Q4 ongoing free cash flow was down year-over-year, primarily due to higher accounts receivable from strong September sales to remain consistent with recent expectations. At quarter end, our total liquidity stood at just over $800 million, providing us with plenty of flexibility. Net leverage was 2.9x. And with $103 million tax refund received in October from our nutraceutical sale net leverage is now closer to mid-2s. This positions us well to continue investing in our strategic priorities while maintaining disciplined new capital allocation.

Now let's turn to our business unit leaders for a closer look at segment performance. Sandra, over to you for life sciences.

You, William. Good morning, everyone. Please turn to Slide 9 for Lifetime. Life Sciences sales were $173 million in the fourth quarter, down 10% from last year. The decline was primarily driven by the divestiture of the nutraceuticals business and exit from low-margin nutrition offerings. On a comparable basis, sales were generally stable declined 2% year-over-year, reflecting a mix of volume and price.

Turning to demand trends. Pharma remained resilient across most regions, achieving low single-digit sales growth year-over-year. This momentum was driven by innovation and demand for high-value cellulosic excipients and sustained growth in our globalized business lines, tablet coatings and injectables in line with our long-term strategy and growth objectives. Nutrition end markets were softer, but recent business wins are expected to support a return to profitable growth in fiscal 2026. On pricing, the year-over-year headwinds narrowed sequentially with pricing generally stable throughout the quarter.

Foreign exchange provided a $3 million tailwind to sales. We continue to advance pharmaceutical innovation, highlighted by the launch of Vila sucrose, a high-purity excipient for injectables and the expansion of our low [indiscernible] to help customers mitigate nitrosamine risk. The new offerings reinforce Ashland's commitment to delivering high-quality solutions for the evolving needs of the pharma industry.

Now let's look at profitability. Adjusted EBITDA was $55 million, representing a 32% margin and a 2% decline versus $56 million last year. The year-over-year decrease primarily reflects a $3 million impact from portfolio optimization actions, which shifted the segment's portfolio towards high-return applications. Excluding this impact, adjusted EBITDA increased $2 million, driven by mix and reduced our expenses, which more than offset lower pricing compared to last year. As Guillermo mentioned, reaching an adjusted EBITDA margin above 30% for the full year is the first for life sciences. This is a milestone that highlights our strategic focus and disciplined execution and the strength of our margin foundation.

Please turn to Slide 10 for Intermediates. Intermediates continued to face pricing and volume pressure in the fourth quarter with merchant sales and NMP and BDO bonds broadly lower year-over-year. Lower production volumes also impacted profitability and competitive intensity from Chinese overcapacity and exports remain a key market factor, particularly in Europe. BDO pricing remains near a cyclical low. Sales were $33 million, down 8% from the same period last year. This included $23 million in merchant sales and $10 million in captive BDO sales. The year-over-year sales decline was primarily driven by lower overall pricing and merchant bonds.

Intermediate generated $5 million in adjusted EBITDA representing a 15.2% margin, down from $10 million and a 27.8% margin in the prior year. Margins compressed both sequentially and relative to the prior year, reflecting lower pricing and production. The team continues to manage the business with discipline, and a focus on efficiency as we navigate a challenging market environment. Now I will turn the call over to Jim to discuss Personal Care. Jim?

Thank you, Alessandra. I'll now highlight our Personal Care results. Personal Care sales were $151 million in the fourth quarter, down 7% year-over-year, primarily reflecting the divestiture of the Avoca business. On a comparable basis, Personal Care delivered 5% sales growth with strong volume gains, outperforming a stable but muted market environment. The team executed well and delivered broad-based growth across all end markets and regions. As expected, both globalized business lines delivered robust growth this quarter and are set to continue their performance as strategic investments innovation and the renewed commercial approach continues to gain traction.

In biofunctional access, sales were up double digits. Performance was driven from a stable base in multiple new customer launches utilizing our innovative actives. Microbial protection delivered its fourth consecutive quarter of sequential growth and resumed healthy year-over-year expansion. Europe delivered robust growth in all regions converted major customer wins. In addition, our commercial excellence efforts in the care ingredients portfolio continue to deliver performance in both hair and skin care across regions. Personal Care advanced our innovation pipeline with 2 new product introductions based on the transformed vegetable oil platform.

Turning to profitability. Adjusted EBITDA was $43 million compared to $47 million in the prior year, representing a margin of 28.5%. The year-over-year decrease was primarily due to portfolio optimization, which reduced EBITDA by $7 million. Excluding this impact, adjusted EBITDA increased $3 million, driven by higher organic sales partially offset by lower pricing. In summary, Personal Care delivered strong growth, resilient profitability and visible traction in our strategic priorities, setting a solid foundation for continued improvement in fiscal year 2026. Now I'll hand it over to Dago to review the results of Specialty Additives.

Dago?

Thank you, Jim. Please turn to Slide 12. The Specialty Additives sales were $131 million in Q4, down 9% year-over-year and consistent with Q3. In exit of low-margin construction business, reduced sales by approximately $4 million or 3%. Excluding these actions, segment sales declined 6%, reflecting continued coating weakness in China, competitive intensity in export markets, such as the Middle East, Africa and India and softer demand in North America. Most of the volume decline was due to last year's share loss in China where overcapacity and weak demand continue to weigh on volumes and intensified competition.

While [indiscernible] demand remains soft. Most regions saw stable sales sequentially. Performance specialties, construction and energy outperformed the market supported by share gain initiatives. Pricing remained stable year-over-year and foreign exchange contributed a favorable $2 million impact to sales. Adjusted EBITDA was $29 million, consistent with the prior year and up $3 million sequentially as favorable cost offset lower volumes resulting in the strongest margin of the year at 22.1%. Portfolio utilization actions reduced EBITDA by $1 million. Excluding this, adjusted EBITDA increased $1 million with improved cost efficiencies driving the year's strongest margin performance.

Following the ACC production closure in [indiscernible], we rebalance the network and prioritized high-value applications to stabilize margins in a lower demand environment. Looking ahead, Specialty Additives is well positioned to capitalize on accordance recovery, driving outsized margin gains as demand improves.

With that, I'll turn the call back over to William for some additional commentary. William?

Thanks, Dago. Please turn to Slide 14. As we close out fiscal '25, I want to highlight the meaningful progress our teams have delivered. We completed our $30 million restructuring program, realizing $20 million in savings this year with another $12 million expected in fiscal '26. Our $60 million manufacturing optimization initiative is well underway with $5 million in savings this year and $18 million projected next year. A major milestone was the full closure of [indiscernible] consolidating our HEC operations. VP&D cost actions continue to progress and we remain on track to achieve our fiscal '26 run rate target. We have also closed 2 smaller plans as a part of our consolidation efforts and expect to complete the process in fiscal '26.

Productivity improvements continue across the VP&D manufacturing chain. As communicated throughout the year, while strategic initiatives are largely on track, P&L realization is extending beyond additional expectations, reflecting current operating realities. First, cost improvements are flowing through more gradually due to weighted average inventory accounting and elevated inventory levels tied to consolidation and tariff mitigation. Our initial assumptions on timing proved ambitious, and we are adjusting accordingly.

Second, higher costs at our consolidated site partially tied to the accelerated HEC time line are impacting unit costs. We're actively addressing these pressures. Third, the lower Asia Pacific volumes have reduced plant loading. While we've shifted network volume to maintain utilization, this has lowered U.S. production and additive savings. Overall, manufacturing network optimization benefits are expected to range from $50 million to $55 million under current conditions. We continue to target the full $60 million opportunity, which remains achievable as China volumes recover.

Despite timing adjustments, the program is already supporting margins and remains a key lever for future improvement. These actions are strengthening our cost position and support margin expansion. We remain agile in responding to market shifts, and our restructuring actions are already helping offset softness in select end markets. In addition, we are enhancing our financial systems and forecasting capabilities to improve accuracy, drive accountability and strengthen performance and operations. Looking ahead, our priorities are clear. finalize the cost savings program and continue to drive productivity and operational excellence through our streamlined footprint.

With that, I'll now turn the call back over to Guillermo. Guillermo?

Please turn to Slide 15. As we wrap up fiscal 2025, I'm proud of the resilience and agility Ashland has demonstrated. Our teams exceeded our innovation targets and advance our globalized agenda, which began delivering visible results in Q4. We saw steady sequential momentum in our globalized platform throughout the year as investments took hold.

While the base business was down on the year in Personal Care, [indiscernible] segments Q4 marked a turning point, growing double digits in the quarter. We have clear goals to sustain and accelerate this momentum in fiscal 2026. Regarding our Innovate strategy, our teams outperformed our innovation targets driven by core technology advancements. A showcase at the recent Innovation Day, we continue to strengthen our new technology platforms that are central to Ashland's long-term potential. The energy around our innovation pipeline is growing, and we're pleased with the traction we've established. These achievements reinforce our confidence in the long-term value of our portfolio.

Looking ahead, we will continue to disclose targets transparently. We believe openness around the goals is essential as we pursue high-quality growth. We are committed to sharing both successes and challenges openly. This approach is fundamental to building credibility and confidence in our strategy, ensuring you have a clear view of our progress and the path forward. For fiscal 2026, we are targeting $20 million in incremental globalized sales and $15 million in innovation-driven growth as we scale platforms and advance recent launches.

Please turn to Slide 16. As we look ahead to fiscal 2026, our focus remains on disciplined planning and consistent deleverage. This marks our second consecutive quarter of meeting EBITDA commitments and important step in building credibility going into the new year. Our guidance is grounded in prudent assumptions and reflect a continued emphasis on execution, consistency and transparency. Importantly, our planning reflects a return to growth signaling a constructive shift in trajectory and renewed momentum across our businesses.

Ashland expects full year sales of $1.835 billion to $1.905 billion, representing organic growth of 1% to 5%. Portfolio resets are minimal, roughly $10 million due to owning Avoca for Q1 of fiscal 2025, making this year's results easier to baseline. Adjusted EBITDA is projected between $400 million and $430 million with free cash flow conversion of 50% and CapEx near $100 million. This supports an attractive free cash flow yield and provides flexibility for capital deployment.

Next year, we expected adjusted EPS to grow double digits plus and meaningfully faster than EBITDA, driven by operating improvement and lower depreciation from portfolio optimization. Our assumptions reflect current market realities. Life Science and Personal Care remain resilient, supported by innovate and globalize momentum. Specialty Additives and Intermediates, Specialty Coatings continue to face pressure, while macro factors like interest rates and housing turnover could support recovery, we've tempered upside in our outlook.

We expect to outperform underlying markets through share gains, innovation and disciplined execution. Tariff-related uncertainties persist. We're actively managing sourcing, production and logistics and pricing. Input costs remained stable with steady raw materials and well-functioning supply chains. On the cost side, our manufacturing network optimization program continues to advance. Most plant actions are complete, and we remain on track to deliver $50 million to $55 million in savings under current conditions. The full $60 million opportunity is still intact and achievable as China volumes recover.

As William noted, timing shifts will reduce the impact in fiscal 2026, but the contribution remains meaningful. Key factors included in our 2026 guidance, approximately $30 million of restructuring and network optimization from our $90 million program. About [indiscernible] million related to resetting performance-based compensation and merit increases. Approximately $10 million impact driven by repairs and network-wide operational and working capital efficiency measures following the Calvert City outage.

We're also increasing our R&D investment by $4 million to accelerate innovation in some of the leading disruptive opportunities. Overall, our fiscal 2026 guidance reflects a prudent view of market conditions. We remain focused on advancing innovation, scaling globalized platforms and driving cost and productivity initiatives to support high-quality growth, even in muted markets.

With consistent execution, mix improvement and disciplined capital allocation, Ashland is well positioned to deliver resilient performance and long-term value creation.

Please turn to Slide 17. In closing, I want to highlight a few key priorities as we look ahead. Fiscal year 2025 ended on a healthy note with our teams delivering on operational and strategic goals despite the challenging macro. The completion of portfolio optimization and network consolidation has made Ashland more focused, resilient business, well positioned for growth in high-value works. We entered 2026 with momentum. Cost actions are yielding early margin gains with full P&L impact expected [indiscernible].

Innovation remains a growth catalyst. We're focused on accelerating commercial success. Recent investments are driving renewed progress in our globalized platforms, reinforcing our confidence in the long-term opportunities. Our priorities for fiscal 2026 are clear, delivering on safety, profitable growth, free cash flow and asset returns, advancing network optimization and inventory performance. Accelerating innovation, scale globalized platforms and foster a productivity culture. Strength in systems such as S&OP, costing, planning and leveraging AI. Prioritizing talent and organizational stability and engaging our investors through transparent and consistent execution. Fiscal 2026 will be about converting transformation into sustained performance.

With a focused platform and resilient core Ashland is positioned to deliver greater value across stakeholders. Our core businesses have demonstrated stability through challenging periods, and we've strengthened our margins and improved our asset returns. The foundation we've built give us confidence as we pursue our strategic priorities. Thank you to the entire Ashland team for your resilience and teamwork. We're focused on translating opportunity into performance.

Operator, let's open the line for Q&A.

[Operator Instructions] Our first question comes from the line of David Begleiter from Deutsche Bank.

Just on volumes, what are volumes in Q4? And why are your volume assumptions at the high and low end of the EBITDA guidance range for next year? .

David, and thanks for the question. So on the volume side, we had pretty nice pickup in volume. If you look at our life science and the personal care. Those were the biggest drivers. If you look at SA, the coating side specifically, you probably -- it was mixed by region. The Coatings business, we have to look at it region by region. Some were up, some were flat and some were down China obviously being the most down year-on-year and intermediates did not recover. It stabilized. I think pricing has been the biggest challenge there, some volume, but pricing has been a bigger issue.

As we look forward, what's going to be on the lower end or with the higher end. On the higher end, I mean, half the growth in our target, if you look at our midpoint is globalize and innovate gets to around 2%. So we're only looking at about 1% at the midpoint of market growth or share gains within the market. So on the low end is that the market gets muted and the competitive intensity increases that we would cannibalize our growth and globalize and innovate. And on the upside that we get a more robust recovery in some of the markets.

And just on the cadence of next year or this year, should Q1 EBITDA be up versus Q1 last year? .

Yes, David, it's William. So a couple of the moving pieces as you compare to last year, in fiscal '25, we pulled forward a lot of maintenance activity, if you recall. So that was a $25 million headwind last year. Q1 is typically where we'll do a lot of our annual compliance shutdowns. So we have about half of that this year, about $12 million. But then we've also shared that Calvert City outage. So that's a $10 million impact in Q1. So as you look at the puts and takes on the manufacturing side, I would expect sales volume to be in line with how we've talked about the guide in terms of year-over-year. Life Sciences should have a nice comp in terms of the sales volume in Q1 as compared to last year. And then pricing trends have been stable. And so year-over-year pricing should be a more modest headwind. So if you put that all together, we're roughly flat, flattish versus the prior year. But I would say that the key element of that is the Calvert City action that we've shared late last month.

Our next question comes from the line of John McNulty from BMO.

So in life sciences, you spoke to some weakness in the nutrition side and then also spoke to some wins that will help to offset that. I guess can you flesh out both of those a little bit more, where was the weakness on the nutrition side, what were some of the business or parts of the business that were a little bit softer. And then also speak to what drove the wins. Where should we be thinking about that in terms of some of the traction that you're getting there? .

So John, let me ask Alessandra to answer this question directly.

Yes. So the weakness, it was mostly in North America and Europe. In Europe with a customer of ours, then losing market share. But as Guillermo mentioned and I also commented on the prepared remarks, we are -- we have -- we are gaining some traction with share gains. And this is -- it's mostly on the Klucel and we will see that reflected in our in our results in the coming quarters, but we expect to see the recovery showing in the first quarter already.

The share gain we got already -- it already started this -- it's already -- we've already gotten orders and it's already impacted. So it's not to come, it's already gained.

Okay. Got it. That's helpful. And then just a question on the cash flow side. You've got CapEx set for $100 million now. I guess how much of that is growth CapEx. And you had the big Innovation Day where you highlighted a bunch of pillars, where some of them are going to need some capital, some aren't, I guess, how much how much should we be thinking about in terms of growth CapEx tied to some of those innovation pillars that look like they're pretty close to turning the corner and starting to commercialize. .

So let me just a quick comment and William, you can give a little bit more detail. But the big drivers are going to be things around globalized, and we're still investing in India and even just finishing some of the projects in Europe. And I would say also, as we look at the HEC projects that we've done getting out of Parlin, are investments we're pacing them because just the demand is a little bit softer, but there are some capital projects that we're going to be adding to increase capacity in the U.S. Given it's a little bit more muted, we're going to be managing through that at a slower pace. But those are part of the plan. But William, do you want to give a little bit more detail?

Yes, John, it's a good question. It fits really in the strategy of what we're doing on the asset side. So first, from a CapEx perspective, maintenance CapEx is coming down. So as we've rightsized the footprint, stay in business capital is probably down $15 million -- $15 million. So $55 million to be stay in business of that $100 million. from there there are some things that we'd like to do from a cost savings perspective that debottleneck the plant. So that's probably another $15 million. And then on top of that, to get to the 100 is the growth projects. And to Guillermo's point, that's supporting the globalized initiatives. So specifically, microbial protection as well as the OSD tablet coatings business gets us to the $10 -- and then going forward, to your question on the new technology platforms, that's something that we've contemplated in the plan. I think a key element of that for us is right, as we rightsize the footprint, what can we be doing to repurpose the assets in the future in terms of optionality.

And so we're not at any point now where we're making a meaningful, but I'd say, a meaningful bridging item because we're able to efficiently access that capacity with the internal assets that we've rightsized.

[Operator Instructions] Our next question comes from Chris Parkinson from Wolfe Research.

Just when we're taking a step back and looking at the personal care markets, the results were pretty good for skin and hair. However, some of your customers are speaking positively about hiring customers, negatively about lower-end customers. in some cases, there are signs of life in Asia for the first time in several years. But it just seems like the overall outlook is still pretty mixed. Is that what you're generally hearing -- and how are you thinking about that in the near term versus how are you thinking about the growth algo relative to market for your portfolio over the intermediate to long term?

Great. So I'll ask Jim to comment on that in more detail. But there is a lot of difference depending on where -- what segments you're on and the regions. So there is a lot of variation -- and you can see that in some of the earnings calls of other players, some are up in North America, down in Europe. So there's a lot of variation going on, and it really depends on your business profile, what customers, what segments you're in. So for us, Jim, if you want to comment on how it defects us.

Sure. Thanks, Guillermo. Chris, so maybe starting with the last part of your question in terms of near term and the medium to long term. So as we look at our business and what we've shared around our activities and globalize to innovate, we feel we have a lot of levers in the portfolio. We have a very broad product portfolio across different segments where we can outperform the market. that's our medium to long term.

Specifically, in terms of what we're seeing in the market right now, I think you captured it well. It is a mixed environment where your position with customers can really play into the performance that you're seeing. And if we do maybe a quick walk around the world. North America is a bit of a mixed environment. In Q4, we saw stable performance versus prior year there with skin and hair continuing to hold up quite well. In Europe, we have seen a continued acceleration in Europe throughout the year, and that continued in Q4, especially in skin and in sun. If you look at sell-in versus sell-out, that channel has really improved in the Sun Care market as inventories have come down, and we've seen nice growth in our [indiscernible] Sun Care.

Within Asia and in China specifically, we've continued to focus on local regionals. As you mentioned, we are seeing stabilization and some growth in the prestige segment as well. And so there, our biofunctional actives business performed really well in our other segments within skin and hair.

In Latin America, I would say Brazil is a bit of a mixed environment right now. Skin was quite strong and hair is a bit mixed and Mexico and Argentina were both strong in personal care and in home care. When you look at our business specifically, what I'd say is, and we've talked about this throughout the year, our 2 globalized business lines, biofunctional active in my cola protection. We've done a tremendous amount of work. The team has done a great job really driving the commercial activities there, and we have been very successful having new customer launches with our biofunctional actives and share gains in our [indiscernible] protection.

Specifically in biofunctional actives as we shared, that part of the business has been impacted by some customer specific headwinds. We've locked that. As we said in the last call, that has stabilized, and we do expect some incremental growth there. And now you're starting to see the new customer wins really come through externally where it was masked in the past. And then similarly, in microbial protection, the base has stabilized and the new wins that we've converted throughout the year coming through in our results, and we expect that to continue as we go into fiscal '26.

And just a quick follow-up on some other questions for life sciences. You mentioned in your remarks, I mean, low single-digit growth, and it seems like a 2-part question. One, can we confirm that we finally lapped a lot of the other kind of headwinds that we are looking at with a European competitor. And two, you do mention that growth came from both cellulosics as well as injectables. Is that just off of a very, very slow base? Or is there a new product that's contributing to that? And just how to think about the bifurcation of the growth of cellulosics versus injectables over the intermediate to long term would be very helpful.

So Chris, the cellulosic have always been strong. So there's variations, there's probably more around customer orders and inventory but not I mean, those businesses have been performing. Our issue was more on the VP&D side and that has stabilized. But Alessandra, you want to give a little bit more color?

Yes. And both, I mean the silolosics and [indiscernible] and injectables. This is pretty much aligned with our strategy, focused on positioning the globalized and innovate. So that's our growth strategy. If you look at injectables, starting with the injectables. So we are consistently having consistently performing above market growth. We launched last quarter, we talked about the medical bio resorbable polymers for medical devices that were launched now just last month.

We launched 4 injectables [indiscernible] sucrose to expand our offering on -- with high purity stabilizers for critical biologic applications. So basically, injectables as part of our globalized has been outperforming market and we have been growing nicely, not only showing the results from a revenue standpoint, but also very important in our pipeline, our sales pipeline in terms of dollars and in terms of customer programs has increased over 30% and in the last year compared to the year before.

Then on [indiscernible], we are seeing the momentum and also operational gains with our manufacturing facility. So we announced we are making -- we made investments in Brazil. We started that new facility in April. We have a facility in China. We have a facility in the U.S. We are building a new facility in India. And -- so we are seeing the momentum with double-digit year-over-year growth, specifically in Q4. That was for both injectables and codes I think globalize, it was very strong and also the pipeline growing nicely for [indiscernible] coatings.

And as Guillermo mentioned, I mean, Cellulosics is part of our innovate. It's part of our innovation metrics and we have been growing nicely with that as well. So overall, Life Science, we exceeded our targets from an innovation standpoint, and it was driven by adoption of high purity solutions across not only [indiscernible] with cellulosics, but also on injectables.

Can you comment on the VP&D stability?

Yes. So VP&D, we are -- you asked the question prepared the -- with the competitor that years ago, there was some disruption in the market. Yes, we have seen that stabilize. So it is currently both from a volume and price standpoint is currently stable. We are entering the contract season in Europe. So there could be some plus or minus some movement, but it's currently is stable.

Our next question comes from the line of Steven Haynes from Morgan Stanley.

Why don't you, I guess, follow up on the Life Sciences pricing piece. Are you able to, I guess, just provide a bit of color around what percent of your I guess, book or however you want to frame it is coming up for renegotiation each year in terms of the price contracting?

We don't talk about the exact business mix and by customers. But I would say most of it -- the bigger thing is Europe. Europe is where some of the bigger players, they tend to do it at the same time. So it would cover everything, VP&D, cellulosic. So it's the entire portfolio. You do a contract with all the products there. And obviously, from a sales perspective, the cellulose 6 of P&D are the biggest part of the mix. tablet coatings and injectables would be the newer stuff with very different technology.

Okay. And then maybe as a follow-up, the $4 million of the incremental R&D spend that you flagged in the guide, was that R&D spend kind of originally in your plan? Is it being pulled forward? And are you able to kind of provide a bit of color on where that incremental spend is going in terms of the kind of several platforms that you highlighted at Investor Day.

Yes. As we highlighted at Investor Day, the 2 things, as we launch these and work with customers in developing the 2 questions is investment for manufacturing the CapEx. And fortunately, we have capital that we've idled that we can repurpose and that's the focus. But the other part, just the recognition that, hey, as these things really start moving we probably will need to add resources to really develop the products depending on what the customer wants or the applications. Right now, most of that is on the new technology platforms. the TVO [indiscernible] transform vegetable oil is the one that has the broadest legs if you look at it, it's going into almost every business in life science, in tablet coatings in ag, it's hitting a lot of areas in many, many applications in personal care and encoding.

So we're adding both resources. We're trying to ad resources so that we can scale this capacity. So not every business needs to double the work. So right now, part of it is going to be in the coatings area. We have some really exciting technology developments with TiO2 efficiency and without kids and a few other areas. So on the polymerization side, we're adding some of the capabilities that will help all the businesses, but we're centering it there. because that team is a little bit more focused and we have more capabilities there. And then another part of it we're doing on our central R&D, again, to support, there's more requests for -- from customers for modifications the core technology, we're getting validation. The issue now is converting them into specific products that our customers want. And that will take a much greater engagement with customers. So that's what we're going to add. But we're going to pace ourselves. As we said, we're not going to just throw R&D. We want to see where things are advancing and then we will drive the investments.

I think on the other areas like super weathers and [indiscernible] neutralizes and all that, we are -- we've added resources, but it's really been more shifting within the businesses of people that they had on other projects supporting them as they go. So we'll be providing more color on the innovation side.

Our next call comes from the line of Jeff Zekauskas from JPMorgan.

I think you expected $100 million from your innovation pipeline in 2027. What do you expect from it in 2026? .

For the '26, what we've outlined right now is it was $15 million of new innovation and mostly still core the launches, as we said in the Innovation Day for the newer technologies would probably be starting more in the '27 and beyond range just based on the developments with customers. And Jeff, it's a cumulative target in terms of incremental sales. So we did $13 million this year plus the $15 million, so roughly $30 million in terms of since the Strategy Day in terms of the cumulative commitment at this point through '26.

And to be -- just to be clear also, Jeff, is just -- we've kept it very simple on the globalized side -- so the global lines, we just put everything in there. So it does like injectables. There is a lot of innovation there. We just wanted to make a very clear story because we're investing differently in the globalized. There's assets. There's other things that we need to do. They're very unique for all the areas. So that sort of you get the full -- the net picture, this is how that's doing, tablet coatings and biofunctionals and micro protection all have a lot of R&D and technology going. So right now, when we're calling innovation, it's core and then the new technology platforms that don't fall in those 4 segments.

On your cash flows, I think you said that you expected a 50% conversion in 2026. Does that include the $100 million that you received as a tax refund. And as far as your inventories go, they've sort of moved up from about, I don't know, 530 at the beginning of the year to 570 or so at the end of the year, even though your sales are down, I don't know, 15%. So do you have to cut your production to get your inventories to a more reasonable level? .

Do you want to answer on that.

Yes. So Jeff, in terms of the 50%, that does not include the $103 million tax return. So just to give you a sense of the bridge, right? So it's the EBITDA midpoint. There's not a lot of movement on cash tax and cash interest, working capital for the full year. There's certainly an opportunity, right? VPN in Q1, there's going to be an impact of $16 million to $18 million release because of the Calvert City outage, but then also in HEC, we closed Partland and in advance of that. We build inventory to facilitate that transition. And so we do think inventory is an opportunity. We've traditionally been at 2.5 turns over the last couple of years.

But in terms of hitting the 50% commitment it roughly equates to maintaining working capital at a consistent level. So as sales grow, we'll have an investment accounts receivable, of course, but then there'll be some offset on some of the actions that we're taking on inventory.

And Jeff, on the inventory side, the 2 big areas that went up a little bit is one HEC with the closure of Pearland we had -- we have them and it was part of our plan. We had to build inventory because we need to transition as we start off. We got to qualify the new plant. So we built enough inventory. So it will be coming down. It's not about shutdowns now. The HEC network, just to be very clear on the total because that's probably on the network optimization, the pushback on dollars to next year, it's really around the HEC network. And it's several things that are happening. One, our flow-through average accounting. I mean our calculation is probably -- we're a little bit too aggressive on some of that. That's part of it. I think the inventory build impacts that. So it delays a little bit.

But more importantly, I think it's going to be, one, the benefits are there, the plants closed, right? So we have the benefit. Part of it is probably 2/3 will come through flow through this year and next year as we move forward. The 1/3 will come, I think, later. It's not that it's gone -- that's the part that with the lower demand in China, we have rebalanced our network the network now is pretty full in a down market. So we're much more stable in how we run. But we shifted volumes that we were planning to make in the U.S. to China, and China now is -- our plant in China is exporting now to other parts of the world. So we've rebalanced the network.

From my view, what I'm looking at is about 1/3 of their goal in HEC is probably going to be delayed until China recovers and we can take that volume back into the plans that we had planned originally. China is bottoming. It's still soft. It's still hypercompetitive, but we are starting to see opportunities to gain share to move some volume up, but it's going to take -- it's going to be a journey out there.

Our next question comes from the line of Laurence Alexander from Jefferies.

Two things. One, with the comments about competitive intensity, particularly from Chinese competitors, are you seeing that focused on the same consistent areas? Or is it broadening out to more parts of your portfolio? And secondly, on the innovation pipeline, can you give a little bit of a sense of the horse race in terms of which platforms your customers are saying are most important, even if they're on a slower burn. .

Yes. So on the first question, the China competition, it's really the same areas for us. I mean, I know that this is a broad theme for many companies. For us, it's really mostly been VP&D and HEC. They're different, I think, for us. One is our global competitors actually are supplying from China. They have multiple plants and the -- so when we say China, it's not just Chinese players, in its China sourcing, where -- of the big volume in the market, we're the last non-China producer really of size in a lot of these areas. So -- so that's what we see in VP&D. In HEC, I think it is a combination of overcapacity in China, but also the down market. the exports have been pretty -- rest of most of it, we're seeing in Middle East, Africa and India, is where we've seen most of it. So the pressure for us and where we're going to be exporting from China is we'll keep China to support China but also to play in the Middle East, Africa and India type segments.

If you look at the innovation side, the interest is everywhere. I think the issue of the technology of the transport vegetable oil has the greatest functional flexibility. So we're going to really a number of very different directions. If you look at what life science or pharma where ag is looking at versus what personal care and coatings are looking at. As we -- each of them advances their technology, what they're doing in terms of functionality, we can apply it into other markets and that's very helpful. I think that's going to be the one that we're really most focused on, on how do we drive scale. And that means we've got to focus on a few of the bigger opportunities to create scale because longer term, this is something that like I've said in the Innovation Day. This is more a technology again to acrylics or whatever something that can be much broader. And so that's the one that attracts a lot of interest.

I think the additive side of things in terms of the super letters, those are more additives. I've been personally very surprised on how many new applications the teams, they've modified it. We're going into ag, we launched just now in Brazil into -- as we presented into the bioprocessing personal care with some really exciting opportunities in both skin and hair. And in coatings, these could be really scalable opportunities of size. So those are areas that I think we're very excited about. The starch is another 1 that's very good, mostly for personal care, but I think it will have a home later on as we look into the life science space.

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

Maybe help us separate seasonality in the Specialty Additives business from trend line here, the 6% decline that you just reported for the September quarter, and that's essentially all volume if things have stabilized kind of to normal levels, we would be down 6% in the -- I know you don't want to give guidance for the December quarter, specifically, but is that an easy comp that minus 6 that normalizes? Or -- are we still trending down below trend line. .

So the -- let me make some comments and then I'll ask Dago to comment. The answer is going to be it's going to be varied by region, as I said. So clearly, the North America is where we've seen -- it's not that the market is coming down, but it's -- the expectations have come down from our customers, both in DIY and contractors. I think China is different. It's down and it's not picking up. Those are -- I would say, are the 2 big ones Dago, why don't you give some color?

Yes. I mean it's a very good question. So what I will say, I mean if I look at where we are in China, we don't see a recovery, quite frankly, I wouldn't say in the next 1 or 2 years. The reason for that is that China needs to go through structural issues that they need to fix on the property sector. And we continue to see actually deacceleration on the investment in the property sector, which very much drives the [indiscernible] market in China. So we will continue to see some. I think it's stabilizing more at the bottom, but we will continue to see some softness, I would say, into 2026.

And then when you think about North America, I mean, the key drivers in the cutting market, I would say, is to the sales of homes and those can be existing homes or it can be new construction. And let's call it, repaint, remodel, [indiscernible] market, right? And when you look at sales of existing or sales of homes, that's driven by interest rates and that's driven by housing prices. And interest rates are still relatively high and housing prices are also relatively high. So I don't think there is going to be that there is a -- that's why there is some conservatism in the market about those 2. Then when you look at the repaint and remodel the do-yourself market, that 1 continues to be pretty flat. And the project is slightly better, but not really picking up momentum a whole lot.

You look at our customers, if you look at what the market is saying, I mean, they tend to kind of follow this view that maybe the first half of 2026, calendar year 2026 is going to be soft because of these conditions. Now having said that, have been surprised in the past, the market can recover, can pick up if the construction market picks up, and we'll have to be ready for that. But for now, what we're saying is Europe is pretty stable. North America is stable. China, we know the story, and then we'll see some competitive pressure in Middle East, Africa, India and rest of Asia that we've been managing kind of throughout the last year.

And I think, John, the upside that everybody has to not pull the hope is North America that if there is a pent-up demand for homes, construction, all that kind of stuff, but it's a macro that we don't control. So we're going to follow what our customers are saying at this point in time.

Our next question comes from Josh Spector from UBS.

First, I wanted to just ask on the pricing side. I mean you kind of hit it on the Life Sciences side earlier saying that you're seeing stabilization there. But on the specialty side, I mean, year-over-year, you said pricing was flat, but I think you alluded to potentially increased pressure. Do you think about that more on the volume side of things? Or do you still see some downside risk on pricing as you're looking into fiscal '26?

Let me -- just 1 comment -- my personal view is pricing and where to see the pressure is China and exports is so low now. Nobody is making money. There is a bottom. At the end of the day, you can't go down it's not worth it after a while. So I do think it's -- there is some stability. The issue is going to be more export markets, and this is the whole issue, I think, in the impact in exports to Europe and all that, that we're seeing in different products, not just SA, but in other areas. But do you want to comment a little bit more.

The way I would look at this is, in general, the United States, it's going to be -- and North America is going to be a pretty stable market from a pricing standpoint. And I will say it is the same case for Europe. So those are our 2 largest markets. And there, we see the typical normal kind of performance in terms of volume and pricing equation. -- but I would see a relatively stable versus what we saw in fiscal year 2025. And again, that's by large our 2 key markets. Then when it comes to the rest of the world, we're just being very careful and we always do the volume price balance to determine where it makes sense for us to hold prices, and we do that on a regular basis. That's why you didn't see our pricing come down in the last quarter. or if we want to selectively go after certain share gains, right, if we want to balance the network better. So say we will continue to see some pressure in 2026, again, especially areas like Middle East, Africa, India. But I would say it's pretty similar to what we're seeing so far. And the good news continues to be that customers value very much what we bring to the table, the value quality, they value innovation, they value our overall value proposition. So -- we believe that with the right mix, and we'll be able to hold on to what we have.

And just quickly, Guillermo or William. I mean what are your thoughts around capital allocation here? Do you need to get leverage down before you think about resuming buybacks? Or is that something you think about doing more near term? .

So I'll let then give more detail. But we have flexibility right now. I think as William said in his comments, we can do both. I think we will be pragmatic as we've been in the past. I mean there is a value side right now and where the share price is. But we also -- in this uncertain environment, we want to make sure that we're balancing that out with how we manage our debt. But do you want to comment a little bit more.

Yes. Thanks, Josh. So the capital allocation priorities are unchanged. First, we're going to fund the high-quality organic growth investments that's included in the $100 million CapEx and the productivity agenda as well. That's a key area for us to improve the cost structure at the plants. The other piece is the leverage is important. We want to keep that within our target range and preserve balance sheet flexibility. Thereafter, we returned excess capital -- excess cash to shareholders. We have a stated dividend policy at 30% payout. We're a bit above that. So I'd expect dividend increases to be more moderate from here.

Post dividend, we'd look to be balanced in our capital deployment like we've done in the past with episodic share repurchase activity. I think 1 thing that you can gather from the outlook is we do expect to generate good free cash flow in the year ahead. So as you roll forward the tax return that we just talked about, plus the free cash flow we'll be down below 2, if you roll that forward and deliver the midpoint of the EBITDA guide. So plenty of flexibility, and we'll continue to be balanced and disciplined in how we approach it in the year ahead.

Our next question comes from the line of Abigail Edgars from Wells Fargo.

I just wanted to confirm timing on portfolio optimization headwinds. When should we expect to see those fully [indiscernible].

Yes. So I think that's the good news is going into next year, it's -- there's a little bit of an impact in Personal Care in Q1. It's about $10 million in sales, $1 million in EBITDA. And then that's -- and so for the first time in quite some time, it's a very clean baseline and our reporting should be if we grow 2%, we grow 2%, and there's not necessarily this adjustment on things that we've rationalized or sold in the past. So it's a very clean set of going into next year. .

Okay. Great. That's good news. Also, just another timing question. You expect your recovery Nutrition mid-FY '26, maybe later, maybe earlier, what's the timing of that?

[indiscernible], as Guillermo mentioned, it's already happening as we speak in the month of October. So we -- those wins specifically with [indiscernible], it has happened. We started to receive orders towards the end of fiscal year Q4 and have already been delivering products in October, now November. So -- it's real. It's happening already, and we expect to see attrition coming to closing the gap that we saw in Q4. As I mentioned, it was a share gain of our customer in Europe. And of course, as a consequence, we ended up losing share as well. But it's [indiscernible] coming with new wins and it's a profitable [indiscernible].

And I would highlight that the mix that what we lost is more lower margin material what we're gaining is better mobility material in terms of the margin profile. So net-net, it will be positive.

Our final question comes from Mike Harrison from Seaport Research Partners.

Just wanted to follow up a little more on the network optimization. My question is more on the time line of the benefits that you kind of pushed out here. But I'm just curious -- what needs to happen in order to realize some of those benefits more quickly? Is it as simple as better demand? Do you need better demand in specific regions or product lines or are there any other actions? I know you mentioned it sounds like maybe some incremental VP&D actions. Are there other actions you can take to maybe help accelerate some of those benefits? .

Yes. So if you look at the actions, Mike, the small plant, it's a smaller number. Most of that are done within the first half of this year. Those will be done and they'll just flow through. HEC, as we discussed, is the 1 that's creating more of the flow-through timing issue. And that one is those 3 stages of, hey, the the action is done. The assumption on the flow-through from an average accounting was probably too optimistic, more delayed but the inventory and the revenue. So sales will be the big issue. And the big catalyst, if sales pick up, we can move a lot more of the materials, so that flow-through just accelerates.

The part that we do want to be transparent is part of it, about 1/3 of the HEC volume. I'm glad we did it. but it's holding up our position in China. It's now instead of being incremental, we would have had a deterioration of our business in China. And this action has helped it already, right? So we're getting a benefit. It's just not incremental. For it to become incremental, that's what we say that China has to pick up for somebody else needs to pick up to offset that so that we can rebalance the network. So that's the one that has the most timing issues because it's done.

I think the VP&D, we're working across. We've had several [indiscernible] plants. We worked on one. We're going to start working on the other ones, a lot of actions in timing. So that one, the conclusion of the events will dictate the timing of those things.

Right. And then the other question I had was for Dago, I was hoping you could give an update on some of the efforts to expand your applications or opportunities in Industrial Coatings I think most of your commentary addressed the architectural side, and I was just wondering, are there some new business wins or applications that you're pursuing? .

Yes, absolutely. A very good question and very much at the heart of what we're doing at the heart of this priority, which is innovation. We're doing a couple of things. First, we're looking at quick wins. And what we mean by quick ones is that we already have a pretty robust portfolio where what we really needed was application data that can be used into industrial coating applications. So we're doing a lot of that. And with with the portfolio that we have, we want to go after those industrial customers. We know who they are, we know how to get there, and we have the existing portfolio. So that for us is real equipment an area that we're looking into a little bit more to accelerate the monetization of our innovation efforts.

And then longer term, it's twofold. It's also the core business. It's also the core portfolio. But then we have areas like [indiscernible]. For instance, [indiscernible], we just launched another product, a couple of weeks ago, and it's ready to go, and we're already seeing pretty good traction from our customers. It's one customer at a time. It's talking to the customers, making sure we're meeting their needs. -- but I would say that area is advancing quite well. And we continue to find opportunities. I think the challenge that we're going to have moving forward is to make sure that we focus and we allocate the resources we have into the right opportunities where we can get a bigger bang for our buck. But it's going pretty well and hopefully, more to come on that one. [indiscernible] question.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Guillermo Novo for closing remarks.

Well, thank you, everyone, for your participation and interest. As I said, I want to congratulate the team, a lot of very dynamic external environment, and I think we've delivered a lot of the things that we committed to. So we feel very good about that. We still expect the external environment to remain volatile and with a high degree of uncertainty, positive and negative. So there could be some positives as well and want to be just looking at the negative, there is just uncertainty.

I think this really drives us to focus on the things that we can control. We go back to our strategy is relevant for this environment. I think the actions we took our execute, the portfolio optimization, even if they're delayed are helping us in driving performance in the near term, making us more competitive in all our core businesses. So we're focusing on things we can control. That's about the execution of our portfolio optimization and productivity and operating discipline. It's about driving globalized and driving innovation to really drive top line growth. And if we do that, we feel very confident about the future even in these environments. So if things get better, we have a huge potential for higher leverage of our manufacturing assets and all that. So that would be really the bigger catalyst that we would see in terms of momentum if we see some market recovery there.

So with that, we look forward to seeing you in the coming weeks, and thank you.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.