ALBEMARLE Earningcall Transcript Of Q2 of 2024

Neal Sheorey -- Chief Financial Officer

Thanks, Kent, and good morning, everyone. Beginning on Slide 5, let's move to our second-quarter

performance.  In  Q2  2024,  we  recorded  net  sales  of  $1.4  billion  compared  to  $2.4  billion  in  the

prior-year  quarter,  a  decline  of  40%,  driven  principally  by  lower  pricing.  During  the  quarter,  we

recorded a loss attributable to Albemarle of $188 million and a diluted loss per share of $1.96.

This  result  included  an  after-tax  charge  of  $215  million,  primarily  related  to  capital  project  asset

write-offs for Kemerton 4. Adjusted diluted EPS was $0.04 per share. Moving to Slide 6. Our second

quarter  adjusted  EBITDA  of  $386  million  was  down  substantially  versus  the  year  ago  period  as

favorable volume growth was more than offset by lower prices and reduced equity earnings due to

soft fundamentals in the lithium value chain.

Compared  to  the  first  quarter,  second  quarter  adjusted  EBITDA  rose  33%,  driven  by  higher  sales

volumes across all businesses and higher income from increased Talison JV sales volumes. As a

reminder,  on  last  quarter's  earnings  call,  we  said  that  we  expected  an  approximately  $100  million

sequential  lift  to  our  EBITDA  from  higher-than-normal  offtake  by  a  partner  at  the  Talison  JV,  and

that's  what  we  saw  in  the  quarter.  Turning  to  Slide  7.  As  we've  done  in  prior  quarters,  we  are

providing full year 2024 outlook considerations based on historically observed lithium market pricing

scenarios.

The  price  scenario  shown  represent  a  blend  of  relevant  market  prices,  including  both  China  and

ex-China pricing for lithium carbonate and hydroxide. The numbers you see here on this slide have

not changed since our last earnings call. What is new is what Kent mentioned at the top of the call.

We  now  expect  the  $15  per  kilogram  price  scenario  to  be  applicable  even  assuming  lower  July

market pricing persists for the balance of the year.

We are able to maintain this scenario due to the success of our enterprisewide cost improvements,

continued strong volume growth, higher sales volumes at our Talison JV, and contract performance

in  energy  storage.  Moving  to  Slide  8.  We  continue  to  prioritize  our  financial  flexibility  and  strong

liquidity to navigate the dynamic market environment. We ended the second quarter with available

liquidity of $3.5 billion, including $1.8 billion of cash and cash equivalents and $1.5 billion available

under our revolver.

Our  net  debt  to  adjusted  EBITDA  was  2.1  times,  which  was  well  below  the  quarter's  covenant

maximum  of  five  times.  We  continue  to  add  new  liquidity  resources  such  as  our  AR  factoring

program,  and  from  a  long-term  debt  perspective,  we  are  well-positioned  and  have  no  significant

maturities  due  until  late  2025.  Turning  to  Slide  9,  which  shows  our  improved  operating  cash  flow

performance  and  considerations.  Our  focus  on  cash  generation  and  efficiency  continues  to  drive

important benefits.

Our  operating  cash  flow  conversion  in  the  second  quarter  was  94%,  which  was  unusually  high

primarily  due  to  increased  Talison  dividends.  We  also  continue  to  drive  volume  growth,  cost  and

productivity  improvements  and  working  capital  efficiencies,  all  of  which  contributed  to  our  cash

conversion.  As  we  look  forward,  we  now  expect  our  full  year  operating  cash  conversion  to  be

approximately 50%, which is at the higher end of our historical range. I'll now hand it back to Kent.

Jerry Kent Masters, Jr. -- Chairman, President, and Chief Executive Officer

Thanks,  Neal.  Turning  to  Slide  10  for  more  details  about  the  actions  we  announced  yesterday  to

streamline our operations, build on the cost out, and productive actions we already have underway

and maintain Albemarle's competitive position across the cycle. Now, on Slide 11, I'll first cover the

fundamentals  in  our  market.  On  the  demand  side,  EV  registrations  are  up  more  than  20%  year  to

date through June, led by strong growth in China.

However,  the  pace  of  growth  in  Europe  and  the  U.S.  has  moderated  substantially  versus  the

industry's expectations. Across the value chain, we are seeing meaningful mix shifts. First, stronger

growth in plug-in hybrid sales, which has translated to smaller batteries with less lithium per vehicle.

And  second,  we  see  a  continuation  in  the  trend  toward  more  carbonate-based  batteries.  Both  of

these developments are still positive for overall long-term lithium demand. However, they highlight

the  shifting  nature  of  this  value  chain  as  it  develops  and  matures.  These  demand  changes  are

occurring at the same time as we see dynamic conditions on the supply side.

We have yet to see significant changes at the mine level as existing and new supplies continue to

come  to  market.  And  on  the  conversion  side,  there  is  still  oversupply  predominantly  in  China.  At

current Chinese spot pricing, we believe and are hearing from the market that many nonintegrated

producers  are  unprofitable  with  some  operating  at  reduced  rates  or  idling  production.  And  we're

hearing that even producers who are integrated into cathode or batteries are under pressure.

Moreover, current pricing is well below the incentive pricing required for Western greenfield lithium

projects. At the same time, geopolitical developments are also adding uncertainties to our business.

This  includes  escalating  trade  tensions  and  ongoing  armed  conflicts.  Challenging  Western  supply

chain dynamics are also at play.

Notably,  the  IRA's  30D  consumer  tax  credit  has  yet  to  benefit  upstream  producers  like  Albemarle.

And specific to our position, as written the final U.S. Department of Energy foreign entity of concern

or FIAC rule will impact the eligibility of our Australian product, and we suspect that others could be

impacted  as  well.  While  current  dynamics  add  challenging  uncertainties,  there  is  no  question  that

the energy transition remains well underway, and the long-term growth potential of our end markets

is strong, as you can see on Slide 12.

The global EV supply chain is on track to achieve the critical $100 per kilo hour tipping point where

EVs  are  at  cost  parity  with  internal  combustion  engine  vehicles.  The  Chinese  industry  has  likely

surpassed  that  target  with  the  rest  of  the  world  not  far  behind.  Taking  all  these  changes  into

consideration, we continue to anticipate two and a half times lithium demand growth from 2024 and

to  2030.  Additionally,  we  see  battery  size  growing  over  time,  driven  by  technology  developments

and EV adoption.

These factors all translate to significantly higher long-term global lithium needs. Turning to Slide 13.

In  January,  we  announced  a  series  of  proactive  actions  to  preserve  growth,  reduce  cost,  and

optimize  cash  flow.  Our  teams  have  successfully  executed  on  many  of  those  actions,  including

ramping in-flight projects at Xinyu, Meishan, and the Salar on or ahead of schedule, delivering cost

out  and  productivity  actions  and  we  are  now  tracking  to  deliver  50%  ahead  of  our  initial  targets,

reducing  2024  estimated  capex  by  between  $300  million  and  $400  million  year  over  year,  and

enhancing our financial flexibility including improving cash generation and conversion.

While these steps have served us well, the industry dynamics I just described require us to do more

to ensure our competitiveness across the cycle. Building on the actions we announced in January,

we  announced  yesterday  that  we  were  embarking  on  a  comprehensive  review  of  our  cost  and

operating  structure,  pushing  deeper  into  our  playbook  to  further  pivot  and  pace  to  maintain  our

leading position. We are focused on the four key areas you see on the slide: optimizing Albemarle's

global  conversion  network  to  preserve  our  world-class  resource  advantages,  improving  our  cost

competitiveness  and  efficiency,  continuing  to  reduce  capital  expenditures  and  future  capital

intensity,  and  enhancing  Albemarle's  financial  flexibility.  The  middle  section  of  this  slide  highlights

that we've already taken the next set of actions across these four focus areas.

And the bottom of the slide details additional opportunities that we'll closely evaluate as part of the

process. The comprehensive review of our cost and operating structure has just begun, and we plan

to  provide  additional  details  with  our  third  quarter  earnings.  That  said,  we  took  the  difficult  but

necessary  decision  to  bring  forward  the  first  step  in  the  review,  which  is  to  further  optimize  our

Australian network as we show on Slide 14. As one of the first steps in this comprehensive review,

we announced yesterday immediate adjustments to our Australian lithium hydroxide footprint.

These  changes  follow  our  previously  announced  decision  not  to  proceed  with  the  construction  of

Kemerton Train 4. Specifically, we will idle production at Kemerton Train 2 and place the unit in care

and  maintenance.  Additionally,  we  will  stop  construction  activity  on  Train  3.  Notably,  we  estimate

that  stopping  construction  on  Train  3  will  save  at  least  $200  million  to  $300  million  of  capital

spending over the next 18 months.

These  changes  allow  us  to  focus  on  optimizing  and  ramping  Kemerton  Train  1  to  preserve

optionality  and  diversity  across  both  product  type  and  geography.  In  the  coming  weeks,  we'll  be

identifying other ways to optimize our global conversion network with a focus on the highest priority

and  highest  return  options.  Our  global  portfolio  of  convergent  assets  and  our  extensive  holding

network  provide  the  flexibility  to  maximize  the  value  of  our  high-quality  resources  and  to  provide

either  carbonate  or  hydroxide  to  meet  the  needs  of  our  customers  as  their  demands  and

technologies evolve. Turning to Slide 15.

As we deliver these initial savings and begin the next phase of our review, our operating model, the

Albemarle  Way  of  Excellence,  remains  the  standard  by  which  we  operate.  By  executing  our

operating  model,  we  are  building  a  culture  of  continuous  improvement  to  identify  best  practices  at

every point in the cycle. We are on track to exceed our initial goals for restructuring and productivity

savings 

through  manufacturing,  procurement  and  back-office 

initiatives.  Much  of 

the

better-than-expected performance to date is in manufacturing improvements.

For  example,  optimized  PON  management  at  the  Salar  and  overall  equipment  effectiveness

improvements  at  La  Negra  have  maximized  production  at  one  of  our  lowest-cost  assets.  These

manufacturing benefits in Chile are in addition to the increased efficiency and volume we expect as

the Salar yield improvement project continues to ramp. Moving to Slide 16 and our capital spending

profile. As I mentioned earlier, we expect 2024 capex to be $300 million to $400 million below 2023

levels.

Moving  forward,  we  are  evaluating  opportunities  to  further  reduce  our  capital  intensity  and  total

capital spending. This will provide enhanced optionality, improve free cash flow and put Albemarle in

a  stronger  competitive  position  long  term.  Our  capital  spending  profile  is  another  element  of  our

comprehensive  review,  and  we'll  have  more  to  say  about  our  near-term  spending  plan  on  future

calls. Moving to Slide 17.

With  all  these  near-term  factors  shifting  and  requiring  us  to  take  action,  I  think  it's  important  to

remember  that  Alber  continues  to  have  significant  competitive  strengths.  And  so,  I  will  end  with  a

review  of  our  framework  and  the  core  advantages  we  continue  to  prioritize  as  drivers  of  our

long-term value creation. Slide 18 provides our strategic framework, which informs our planning and

gives  us  confidence  that  we  will  achieve  our  growth  ambition  to  lead  the  world  in  transforming

essential resources into critical ingredients for modern living. This framework defines where we play,

how we win and how we deliver.

Albemarle remains uniquely positioned to enable operational excellence during this dynamic period

thanks to our competitive strengths, including our globally diverse portfolio of world-class resources,

leading  process  chemistry,  deep  innovation  and  technical  know-how  customer-centric  approach  to

the  market  and  responsible  stewardship.  Each  of  our  competitive  strengths  will  help  us  right  now

and well into the future in ways that we summarize on Slide 19. First, our world-class resources are

arguably  the  best  in  the  industry  with  large-scale,  high-grade,  and  therefore,  low-cost  assets.  In

energy storage, we have access to some of the high-grade resources in both hard rock and brine.

In  Australia  with  Greenbushes  and  Wagina  and  one  of  the  largest  known  hard  rock  assets  in  the

U.S.,  Kings  Mountain.  And  in  Chile  with  our  long-standing  position  in  the  Salar  de  Atacama.

Similarly, in specialties, we are the only producer with access to both of the two best brine resources

globally. In Jordan, on the southeast side of the Dead Sea, the source is the largest concentration of

bromine in the world.

and in the smack over formation in Arkansas, the only source of commercial bromine in the United

States.  In  both  of  our  core  businesses,  we  maximize  the  value  of  our  world-class  resources  by

converting and flexibly derivatizing into higher value and use products in our conversion assets or in

the  case  of  energy  storage,  through  our  extensive  polling  network.  Second,  our  leading  process

chemistry  know-how  is  key  to  achieving  further  productivity  and  cost  improvements  safely  and

sustainably.  For  example,  the  Salar  yield  improvement  project  utilizes  a  proprietary  technology  to

enable up to 20% higher yield.

At  Magnolia,  we've  leveraged  advanced  process  controls  to  increase  production  while  lowering

costs and improving sustainability. And at both the Salar and Magnolia, we have evaluated a wide

range  of  direct  lithium  extraction  options  and  are  and  are  piloting  proprietary  and  third-party

solutions in order to be prepared for technology shifts that could be important and more sustainable

Salar options for this industry. Third, we have a pipeline of high-impact innovative solutions in both

bromine  and  lithium.  Our  research,  testing,  and  piloting  facilities  in  North  Carolina,  Louisiana,  and

Langelsheim,  Germany  allow  us  to  participate  in  differentiated  high-margin  segments  and  support

our customers' specific requirements.

Fourth,  Albemarle's  leading  industry  position  as  a  partner  of  choice  is  demonstrated  through  our

growing number of partnerships with iconic pioneering companies. Both our businesses have high

Net Promoter Scores with significantly positive gaps relative to competitors, reflecting long-standing

successful relationships with major customers. And last but not least, our responsible stewardship,

strong  values  and  high-performance  culture  are  increasingly  recognized  by  leading  organizations.

For  example,  we  recently  earned  an  EcoVadis  gold  medal,  placing  us  in  the  top  5%  of  global

companies and demonstrating our commitment to creating a more resilient world and advancing the

sustainability objectives of our customers.

In summary, on Slide 25, Albemarle delivered another strong quarterly performance in the second

quarter, including sequential improvements in adjusted EBITDA and cash from operations. Despite

lower market pricing, we've been able to maintain our full year 2024 outlook considerations, thanks

in  part  to  enterprisewide  cost  improvements,  strong  energy  storage  project  ramps  and  contract

performance.  However,  we  understand  these  positive  actions  may  not  be  sufficient  given  ongoing

industry  headwinds.  Our  entire  organization  is  focused  on  delivering  operational  excellence  while

positioning the company to capitalize on the incredible long-term opportunities in our markets.

That's  why  we  are  taking  the  proactive  steps  to  control  what  we  can  control  and  ensure  we  are

competitive  across  the  cycle.  Albemarle  is  a  global  leader  with  a  world-class  portfolio  and  vertical

integration  strength.  We  are  uniquely  positioned  to  win.  I  am  confident  we  are  taking  the  right

actions  to  maintain  our  competitive  position  and  ensure  we  execute  with  agility  today  and  in  the

future.

I look forward to seeing some of you face-to-face at upcoming events listed here on Slide 26. And

with that, I'd like to turn the call back over to the operator to begin the Q&A portion.

Operator

Questions & Answers: