Albemarle Corporation's Q1 2024 earnings call was held, with Vice President of Investor Relations and Sustainability Meredith Bandy leading the call. CEO Kent Masters and CFO Neal Sheorey were also present, along with President of Specialties Netha Johnson and President of Energy Storage Eric Norris for the Q&A session. The company's net sales were $1.4 billion and adjusted EBITDA was $291 million, with continued growth in the Energy Storage segment and successful execution of productivity plans. The company also strengthened its competitive position and financial flexibility.

During the first quarter of 2024, the company delivered $90 million in cost savings and is on track to deliver $280 million in productivity improvements by 2024. They have also held successful bidding events for spodumene concentrate and lithium carbonate and continue to advance their growth projects. The company reaffirmed their full year outlook and remains confident in their ability to drive sustainable growth and create value. In terms of financial performance, net sales were down 47% compared to the same period last year, while adjusted EBITDA was $291 million and diluted EPS was negative $0.08.

The company's adjusted diluted EPS for the quarter was $0.26, excluding restructuring charges and mark-to-market losses. The decline in earnings was due to margin compression, timing of higher cost spodumene, and reduced equity earnings. However, this was partially offset by growth in lithium carbonate and hydroxide sales, as well as increased sales and EBITDA in the Ketjen business. The company's adjusted EBITDA declined due to lower lithium pricing, but was partially offset by higher volumes and improvements in restructuring and productivity. The company has provided outlook ranges based on historical lithium market pricing scenarios and has made updates to its tax rate and share count expectations.

The company is updating its adjusted effective tax rate guidance to reflect different lithium price scenarios and changes in geographic income mix. They expect a modest tax expense benefit at lower pricing and a more typical tax rate at higher pricing. Cash flow conversion in 2024 is expected to be below historical averages due to several factors, including lower dividends from a joint venture and increased working capital investments. The company also expects higher interest expenses and similar cash taxes compared to the previous year. In the Energy Storage segment, two-thirds of 2024 volumes are expected to be sold on variable price contracts, with the remaining one-third on short-term purchase agreements.

Albemarle is experiencing strong year-over-year growth in energy storage volume and expects this trend to continue in the second half of the year. However, there may be some quarterly variation in EBITDA and margin due to the timing of Talison shipments. The company's Specialties business is facing challenges in the Consumer Electronics sector but is seeing higher demand in other areas. They expect higher sales and volumes in the second half of the year, but adjusted EBITDA may be toward the lower end of the outlook range. The Ketjen business is seeing success in their turnaround program and anticipates increased volumes in 2024. Albemarle has taken action to maintain a solid financial position and enhance their flexibility during the market downturn. This includes a $2.3 billion public preferred stock offering in March.

Albemarle has taken proactive actions to strengthen their financial position and continue investing in their last mile expansion projects and core end markets. They repaid their outstanding commercial paper and ended the quarter with a larger cash balance, which will be used to complete their capital projects. Their capital allocation strategy remains the same, with a focus on operational execution and cost control. While lithium prices may be unsustainable in the long-term, Albemarle is managing to the current environment and taking steps to preserve long-term growth and value creation.

Albemarle remains confident in the growth of the EV market and the resulting increase in demand for lithium. They anticipate a 2.5x increase in demand from 2024 to 2030 and believe that over 100 new lithium projects will be needed to meet this demand. Albemarle is actively working to promote transparency and efficiency in the lithium market through successful bidding events and partnerships with industry leaders. These events allow for real-time trading dynamics to be shared and give Albemarle another sales channel to expand their market access.

The company plans to hold regular bidding events to drive fair and transparent price discovery and will continue to focus on efficiency and cost reduction. They are on track to exceed their 2024 target of $280 million in productivity benefits and have added cash management to their tracker. They also remain focused on sustainability and plan to publish a sustainability report and host a Sustainability Day. The company is making progress on their in-flight projects, including the Salar Yield improvement project in Chile and the Kimberton I and II trains in Australia.

Albemarle's Kemerton plant has achieved a milestone of 50% operating rates for battery-grade product and is currently in qualification. The remaining capital spend for the facility is small and the focus is on ramping up production and getting it qualified with customers. The Qinzhou plant in China is on schedule to achieve nameplate capacity by mid-year, while the Meishan plant has already achieved a 50% operating rate for battery-grade material. Albemarle's in-flight projects are expected to deliver 20% volumetric growth per year from 2022 to 2027. The company also has the flexibility to toll or sell excess spodumene to maximize economic returns. Albemarle's high-quality, low-cost resource portfolio, including the Salar de Atacama, Greenbushes, Wodgina, and Kings Mountain, gives it a unique advantage in the industry and is expected to lead to significant margin expansion and earnings generation in the near term.

Albemarle's energy storage margins are expected to normalize above 30% with a $15 per kilogram lithium price scenario, and every $1 per kilogram increase in price would result in 200 basis points of margin expansion. The company is diversified and vertically integrated, with a strong focus on process chemistry knowledge and manufacturing expertise. Their strategy aligns with attractive trends in various industries, and they have a proven management team. Upcoming events and conferences are listed on Slide 20. The call is now open for questions.

During a recent earnings call, Aleksey Yefremov asked Kent Masters about their lithium volumes projection and whether they would need to raise more equity or debt to achieve those volumes. Masters stated that they would be able to reach their projected volumes without additional capital, but if prices stayed where they were currently, they would need to ramp down their CapEx. The next question from Arun Viswanathan was about the current lithium market fundamentals, including disruptions in spodumene production and curtailments in China that could potentially stabilize prices.

The speaker discusses the current state of the lithium market, noting that some production has come offline and prices have responded with a marginal increase. They expect to see more resources come offline if prices remain low, leading to a balance in the market. The demand for lithium in China is strong, and inventory levels are currently low, which is favorable for price.

The speaker discusses the potential impact on the company's earnings if lithium prices were to remain the same, mentioning the recent decrease in production at Greenbushes and the delay in the third train at Wodgina. They also mention the risk of logistics challenges in the Middle East affecting their specialties business.

The company does not anticipate any further corrective actions or responses for their JV spodumen facilities due to current market conditions. They still expect to exploit these resources in the long term as they are world-class and low cost. There will be a 500 basis point drag on EBITDA margins this year due to the commissioning of new facilities, but this is expected to improve in the following years as the facilities ramp up to full capacity.

Rob Hoffman asks about the company's $280 million productivity benefits goal for 2024 and if the faster pace of Ketjen results and guidance will contribute to reaching that goal. Kent Masters says they are ahead of schedule but have not built it into their forecast. Neal Sheorey mentions that the SG&A line has seen a decline due to restructuring activities. Rob also asks about the potential tolling volume going down over time, and Eric Norris explains that it is dependent on the ramp of plants.

Albemarle is currently running auctions for spodumene and salts in order to increase transparency in the market and gain more knowledge about the industry. This is not a change in their strategy of being an integrated producer, and they will continue to sell most of their products through long-term agreements. The auctions provide an opportunity for them to participate in a different part of the value chain.

The company's strategy has not changed, but they are making adjustments to increase transparency in the marketplace and take advantage of any dislocations. They still have deals with tollers for the majority of their excess spodumene. The cost of their spodumene inventory is consistent with market prices, and they are working off higher-cost inventory from previous periods. The projected spodumene inventory cost for the March quarter is $4,000 a ton, but the company needs to verify this number.

In the fourth quarter, the company adjusted for LCM, which helped to reduce the gap in spodumene cost. However, prices still decreased in the first quarter. The company still plans to divest its catching business, but will wait for the right timing. The EBITDA sensitivity is unchanged, but higher volumes could lead to higher EBITDA. The cash flow guide has many factors that could affect it.

Neal Sheorey and Eric Norris discuss the lower cash conversion rate this year and how it may improve in 2025. They mention that cash taxes will likely be lower next year and that facilities are ramping up well, which will contribute to cash conversion. They also note that the current ramping of plants will eventually come to an end and the plants will start contributing to cash conversion in the back half of this year and into 2025. They also mention that as the business grows, the new plants will become a smaller percentage of the portfolio.

The company has received positive feedback for their spodumene and carbonate auctions, with good participation rates and strong interest. The results of these auctions have been incorporated into price reporting agencies and have helped the company better understand the market and segment their customers. This information will also be reflected in the contracts with their customers.

Eric Norris, the speaker, mentioned in his remarks that the company is looking to expand its auctions to other geographies and products. They have already conducted four auctions in China and are now looking to include product outside of China, such as Australia, and possibly hydroxide. The company has seen low inventory levels in March and believes that part of the current demand is due to restocking for the upcoming peak buying season in China for electric vehicles. This makes it difficult to accurately gauge demand based on Q1 sales, as many of the EVs sold during this time were using lithium from late last year. The company expects increased EV sales in April and May, and believes the current demand is a result of both fundamental demand and restocking due to low inventory levels.

The speaker, Apurva Kilambi, asks a follow-up question about the updated technical report on Greenbushes, which showed a decrease in grades and recoveries and an increase in costs. Eric Norris explains that the report was based on different standards and that the resource is still the best in the world. The company's aim is to continue expanding the resource through joint ventures and potential future expansions. The next question from Michael Sison asks about the minimum capital needed for the company, which is around a billion, and what this means for their capacity potential in the future. Neal Sheorey responds that they could reach this maintenance capital level by the end of 2025 if prices remain stable.

The company is currently planning for a 20% growth rate through 2027, but if they were to cut back on their projects, it would impact their long-term growth. The company's current EBITDA margins are around 30%, but they would be stronger if lithium prices increase. The main issue with prices is the need for returns on new investment projects to support the EV transition, and the necessary price varies by project and geography.

Different factors such as geography, region, and technology contribute to varying numbers in the energy storage sector. The speaker cannot provide a specific number, but the second quarter is expected to see a 10-point increase in EBITDA margin due to partners taking their allotment off of Talison and an additional 200,000 tons being offtaken. However, this is a one-time increase and margins are expected to return to healthy levels in the third and fourth quarter.

The speaker explains that the company expects to see margin expansion in the third and fourth quarters as their plants ramp up production and absorb fixed costs. They also anticipate higher volumes in the second quarter compared to the first quarter due to peak demand for energy storage in the third quarter. In response to a question about the geopolitical dynamics affecting battery manufacturing, the speaker mentions the company's integrated strategy and diverse resource and conversion locations around the world, which allows them to plan for potential impacts from political factors.

The company's goal is to increase conversion in North America to meet the market demand, but they have paused due to issues such as price and geopolitics. They are using this pause to figure out their next steps. The company is also making adjustments to their refining processes to meet the evolving cathode chemistries, including balancing hydroxide and carbonate production and eventually shifting to lithium metal. They see a strong demand for high nickel hydroxide outside of China, while carbonate supports the LFP market in China.

The company is interested in the innovations coming out of China in the form of LFP chemistries, which offer higher energy density and efficiency at a lower cost. They are considering investing in LFP in the US and are monitoring the market to develop a strategy. The marginal cost of production is around $20, but new projects may push that higher. The impact of price floors on the company's realized price is not disclosed, but some floors have held at current prices.

The speaker, Kent Masters, thanks everyone for joining the conference call and highlights their company's focus on innovation, adaptation, and sustainability. They aim to be the top choice for customers and investors. The call ends with a closing remark from Masters.

This summary was generated with AI and may contain some inaccuracies.