Meredith Bandy:

Thank you and welcome everyone to Albemarle's second quarter 2024 earnings conference call. Our earnings were released after the market yesterday, and you'll find the press release and earnings presentation posted to our website under the Investor Section at albemarle.com. Also posted to our website is yesterday’s additional press release announcing our initiation of a comprehensive review of our cost and operating structure which we will also reference during our comments today. Joining me on the call today are Kent Masters, Chief Executive Officer; Neal Sheorey, Chief Financial Officer; Netha Johnson, President of Specialties; and Eric Norris, President of Energy Storage are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance and strategic initiatives may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation which also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. And now, I'll turn the call over to Kent.

Neal R. Sheorey:

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 $0.4 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 off-take 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 enterprise-wide 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 5 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 continued 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.

Operator:

[Operator Instructions]. Our first question comes from Aleksey Yefremov. Your line is now open. Please go ahead.

Jerry Kent Masters, Jr.:

So let's say you characterize what you've said. So even as we've moved that from $15 to, say, $12 to $15. And then we commented that even at July prices, those hold for the rest of the year, we'll make that forecast. And so if there's a chance it could be higher. If prices moved up or there are a number of reasons we're able to hold that forecast is around the volumes that we're selling contract terms, things like that. So it could move up if prices are stronger, it's not collared, so to speak. So if things work in our direction, it could be a number of different things. It could be higher than that. But that's the best visibility we have at the moment.

Jerry Kent Masters, Jr.:

Yes. So okay, you're right, it's early. But I think our volume and what we indicated in the beginning of the year, our volume growth shouldn't be significantly different than that. I mean we are changing some of our -- we're taking out conversion capacity, but we still have the resource that should align to that. So it's not significantly different than we had indicated at the last call.

Stephen Byrne:

Yeah, thank you. Kemerton has some more meaningful freight costs than some of your Chinese conversion. But roughly what is the cash margin for Kemerton 2 and where would you put it on the cost curve, what quartile?

Stephen Byrne:

Okay. It seems like there's more than just a cost cut. It's a supply cut. But with respect to the roughly $1 billion -- sure. Go ahead, Kent.

Stephen Byrne:

Right. Understood. The $1 billion charge in 3Q, can you put that into buckets and how much of it is cash?

Operator:

Our next question comes from Patrick Cunningham. Patrick, your line is now open. Please go ahead.

Neal R. Sheorey:

Yes. Yes. This is Neal, again. So yes, thanks for asking that question because we are -- as we said in our considerations in the prepared remarks, we're taking that range now up to a 50% conversion, which is towards the high end of our historical range now. And there's -- I'd say there's two things that I would point to that where we're doing better than expected. The first is from a dividend perspective from our equity companies, that was certainly better than we expected coming into the year. You heard in our prepared remarks and you know about the additional offtake that we saw at Talison. So that definitely boosted dividends in the second quarter and helped our cash conversion. And then the other part is, yes, on the working capital side, we are highly focused on it, and we have a lot of initiatives around this, and we're seeing some of those come through already in the first half of the year and are continuing to work on that in the back half of the year. So working capital was another nice tailwind to cash in terms of the release of cash from there.

Neal R. Sheorey:

Yes. So I can maybe take the second part of that. We are obviously, from a volume perspective, we're obviously tracking towards the higher end of the 10% to 20% volume growth range that we gave you at the beginning of the year. And I think at this point for the visibility we have, we're probably going to keep tracking towards the high end of that range. So I wouldn't say our earnings corridor or our outlook considerations are really driven by volume per se. It's really around the pricing range that we've given you, that kind of $12 to $15 range today.

Operator:

Our next question comes from Vincent Andrews. Vincent, your line is now open. Please go ahead.

Jerry Kent Masters, Jr.:

Yes, I don't think our view has changed, right. So that will -- as we go through this, I mean, we'll reiterate that, but I suspect it will stay the same.

Neal R. Sheorey:

Yes. So Vincent, to your question, that's right. We put in place an AR factoring program. It's an initial program. We'll continue to evaluate that and add to it as we can as we go along. But essentially, that factoring program is currently untapped. We will use it when we need liquidity if and when we need liquidity. And so basically, at that point, that's when you'll see it, and we'll talk about it. But at this point, it's an untapped resource available to us.

Harris Fein:

Hey, good morning. This is Harris Fein on for Chris. So we walked through that the $15 per kilo scenario still holds at $12. I guess how much of that is because of higher Talison shipments and cost improvements and I guess, like where would EBITDA be absent those items if we were just isolating the contract component and I am just kind of trying to get a sense of what that looks like if prices go down to, let's say, $10 per kilo through the back half of the year?

Neal R. Sheorey:

Yes, maybe just to add on to that, just a reiteration that those outlook considerations we provided were always a view on the average pricing across the year. And so with the last couple of earnings releases, we've given you -- you obviously know the sales that we've had in energy storage, and we've given you the volumes that we've sold. So you can look at what our average realized price has been. It's been above $15 for the first half of the year. And so when you -- you can take your -- whatever lithium price you'd like to in the back half of the year and do the averaging. But that's why we say when you take July pricing and roll it forward, it falls within that range that we've given you. With regards to Talison, I think the best way to answer that is just to go back to what we've said before. We told you that in the second quarter, we expected about $100 million sequential lift related to the Talison offtake, the additional Talison offtake, and that's exactly what we saw. So maybe that gives you an idea of how to think about that part of your question.

Jerry Kent Masters, Jr.:

Okay. So -- I mean, the cost on -- the cost curve that you see, Neal said on Slide 12. I mean that's a curve that we've been -- that the industry has been looking at for some time. That $100 per kilowatt hour has been a benchmark or a tipping point we call it that people have been looking for, and we're below that in China today. Now some of that fair enough is on -- is because lithium prices are low, but the majority of it is just on the experience curve, the technology and the battery technology. So we think that maintains itself. And then the rest of the world will follow China and they've hit that hurdle. It's not there in the West yet, but we believe that it comes shortly. I'm not -- I don't think I want to comment on the OEMs' cost position. I think a lo1t of it goes into it, including batteries is a big part of it, but it's the rest of the vehicle as well. But we're not -- I'm not going to get into the comment on auto cost positions. But I think the battery technology is hitting those benchmarks we've been looking for, for a long time, and it's only going to get better.

David Begleiter:

Thank you and good morning. Kent, what does the Kemerton capacity curtailments mean for Wodgina production, if anything?

David Begleiter:

Very good. And just on what's happening in China, how much LiFePo production do you think is shut down and has that number changed at all in the last couple of months here?

Operator:

Our next question comes from Stephen Richardson. Stephen, your line is now open. Please go ahead.

Jerry Kent Masters, Jr.:

Yes. So we are -- I mean look, we're going through this, we'll be cautious around that, right, to see what we can. As we are operating, we're not growing as fast. We're ramping some of these assets, but we have a view of sustaining capital, and we're challenging that. But we're going to push on that. We'll be rigorous about it. It might take risk, but we're going to be more aggressive around that than others. It's a big piece. Most -- a lot of these assets are still ramping and they're pretty new. So we've been conservative on our estimates around the sustaining capital. So we're going to dig into that and change our approach a little bit, but we see that as an opportunity.

Jerry Kent Masters, Jr.:

Yes. No, I think that's right. And I go back to the comments we've said earlier. So what we had said previously in the call or in the previous quarter's call, around the changes we did in January. We've got a couple of years of growth in the assets that we have on the ground and ramping. So we'll continue to do that at 2025 and into 2026, but then it starts to -- without further investment, we start to maximize on that. But we -- and Kemerton doesn't really change that. Again, the resource is there and the investments that we've made in there continue to ramp up. And -- but it's the conversion capacity. Actually changing Kemerton gives us a little more flexibility on product mix, but it limits us a little bit more, we're less diverse geographically around that. And that's the trade-off we're making.

Laurence Alexander:

Good morning. Two questions. First can you just give a sense, not so much about kind of the next round of restructuring, but how you think about the longer-term objective. I mean if, for example, prices were to just stay at the current range, where would you expect energy storage margins to go over four, five, six years, however long it took for you to right size or how much do you think you can bring down the cost structure, so that's the first one, just how you think about the longer-term objectives for the business if market conditions do not improve? And secondly, can you just give a bit of a spotlight comments on sort of the state of play for DLE projects in Latin America, what do you need to see either in terms of partnerships or government support for anything to move forward in current conditions?

Operator:

Our next question comes from Kevin McCarthy. Kevin, your line is now open. Please go ahead.

Jerry Kent Masters, Jr.:

Okay, so I'll go at a high level. If it gets deeper, Eric will jump in. But I mean, this is -- I mean, it is carbonate is usually the preferred chemistry for LFP technology, and there's been a shift toward LFP. And I would say that's the preferred technology in China. Because China is on such a growth rate and the West is slowing down a little bit. That's -- there's more of a shift of -- a little bit of a portfolio mix toward carbonate. Now the West is looking at carbonate or LFP as well. Therefore, our view from a year or two ago, we always expected a mix. It was a little more hydroxide heavy. Now it's probably carbonate heavy in that view. And then that product mix, I mentioned product mix earlier when I was talking about Kemerton, that does play into that. Kemerton is hydroxide, and we can toll that same resource for carbonate if we need to, and that gives us more flexibility. So it was a consideration in our decisions around 2 and 3.

Jerry Kent Masters, Jr.:

Yes. So there's a cost to put it in care and maintenance, right and it would be a cost to come back, but I don't know that it's not dramatic. It would be ordinary course I think if we brought it back. There's a number of things we have to do. Part of the decision about focusing on Train 1 and not 2 is to really optimize that asset, get it to work. We've all -- we have struggled with workforce in Australia and we struggle to ramp the two of them together. So we're going to focus on one, ramp that up to make that really operate, really understand the technology and process. And we think we can bring it back faster and more efficiently to Train 2 when the conditions make that right. So we've got do a few things before we would do that, we would get the plant to operate, really understand the technology and the process chemistry that's unique to Kemerton. And then we can bring that to Train 2. It will be -- but we'll need the market to improve before we do that. And then there would be a time frame in order to bring it back. So it's not going to turn on a dime, but we'll plan for that. And it is not dramatic from a -- not big from a capital standpoint, but there would be cost to bring it back on, and we'd have to bring people back on to do that as well.

Colin Rusch:

Thanks so much guys. As you're working through enforcing these contracts, can you talk about some of the dynamics with the customers and any sort of compromises that you might be making to adjustments. Historically, you've kind of enforced some pricing and you reallocated volumes. Just want to get a sense of how those dynamics are playing out?

Colin Rusch:

Thanks so much. And then just a little bit more on the technology side. As we see more silicon-based anodes, whether it's increased levels of doping or silicon, I know it's completely -- the challenge of lithiation is pretty substantial. Can you talk a little bit about how much leverage you're getting out of the R&D center and helping folks figure out process and approaches to the lithiation challenge?

Operator:

Our next question comes from David Deckelbaum. David, your line is now open. Please go ahead.

Neal R. Sheorey:

Yes, I think I'm going to answer this probably very similar to the way that Kent did. So obviously, as we look at CAPEX into 2025 and 2026, this decision that we're sharing today around Kemerton will absolutely factor into lowering our CAPEX in those out years. And we've always talked about our focus on doing that in this environment. Just as Kent mentioned to an earlier question, we're working through that with our teams right now. And obviously, we understand that what the current environment looks like and that we need to spend a lot of hard time looking at our CAPEX spending and how we can -- where we can bring that down and how we can bring that down as quickly as possible without taking unnecessary risk. So I would just say like we're working on that equation now, and we'll have more to share, I think, in the next couple of quarters.

Jerry Kent Masters, Jr.:

Well, it's not -- well, not just totally. So we've got a network of conversion assets today. And so Meishan is up and operating and ramping as we speak. And we've got first sales from Meishan in this quarter. And we -- as we said, ahead of schedule, we have multiple other facilities in China that we own and operate for conversion. So Kimberton is a portion of it, of our Hard Rock conversion assets. And it will be a blend. We will use some tolling to supplement our conversion assets, but we have significant conversion assets and the Kemerton 3 and 4 is just a portion of it. And again, we'll have 1 operating and 2 to bring on after that. So it's still a significant portfolio of conversion assets that we have, and then we don't want to forget about the carbonate that we bring from Chile as well. So it's a pretty good portfolio of conversion assets. And I would say this is a tweak, not like a big wholesale change in that network with the change to Kemerton.

John Roberts:

Thanks and who would have thought that [indiscernible] would be the good performing business here in the portfolio. I'll ask a question on the specialties business. Is some of the weakness in specialties temporary channel destocking or had those -- had your channels already destocked like many others have and the weakness you're seeing actually is reflective of the end market weakness?

Operator:

That's all the time we have for questions. I will now pass it back to Kent Masters for closing remarks.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Meredith Bandy:

Thank you. Welcome everyone to Albemarle's first quarter 2024 earnings conference call. Our earnings were released after the close of market yesterday, and you'll find the press release and earnings presentation posted to our website under the Investor Section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Neal Sheorey, Chief Financial Officer. Netha Johnson, President of Specialties; and Eric Norris, President of Energy Storage are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance and timing of expansion projects, may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation that same language applies to this call. Also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. And now, I'll turn the call over to Kent.

Neal Sheorey:

Thanks, Kent, and good morning, everyone. Beginning on Slide 5. Let's jump into our first quarter performance. In Q1 2024, we recorded net sales of $1.4 billion, compared to $2.6 billion for the prior year quarter, a year-over-year decline of 47%, driven principally by lower pricing, partially offset by volume growth. Adjusted EBITDA was $291 million significantly down from the same period last year, when pricing and margins across our Energy Storage and Specialties businesses were at peak levels. Diluted EPS was negative $0.08. Adjusted diluted EPS was $0.26, which excludes primarily restructuring charges and mark-to-market losses on public equity securities held or sold in the quarter. Our earnings decline was driven mostly by margin compression on lower pricing, especially within our Energy Storage segment. Additionally, we had some margin pressure due to timing of higher cost spodumene flowing through cost of goods sold and reduced equity earnings at the Talison joint venture. These factors were partially offset by volumetric growth, primarily lithium carbonate and hydroxide, and we also recorded spodumene sales at favorable pricing. Also, the Ketjen business recorded increased net sales and EBITDA driven primarily by higher volumes. Looking at Slide 6, we'll break down the company's first quarter adjusted EBITDA by driver. Compared to the prior year quarter, the decline in EBITDA was $1.4 billion related to lower lithium pricing in both Energy Storage and Specialties, $90 million in cost of goods sold due to timing of higher priced spodumene inventories built in prior periods and $270 million related to pretax equity income primarily from our Talison JV. Offsetting these declines were improvements of $251 million related to higher volumes as our Energy Storage projects continue to ramp as well as better Clean Fuel Technologies volumes at Ketjen, and $80 million of net improvements mainly due to restructuring and productivity benefits across multiple areas, including procurement, manufacturing and back office spend. This demonstrates our team's agility and focus on delivering higher volumes and productivity improvements in the current market environment. Turning to Slide 7. As we did last quarter, we are providing outlook ranges, based on historically observed lithium market pricing scenarios. We are reaffirming our outlook considerations published last quarter. There are two notable updates here related to our tax rate and share count expectations. We are updating our adjusted effective tax rate guidance to reflect the range of lithium price scenarios as well as our updated expectations for geographic income mix. At the $15 lithium price scenario we expect a modest tax expense benefit in our P&L. At higher pricing we expect a more typical tax rate in the mid to high 20% range. We have also accounted for the adjusted change in the diluted share count to reflect our $2.3 billion public mandatory convertible preferred stock offering. Moving to Slide 8, where we provide some operating cash flow considerations. We had previously highlighted that, our cash flow conversion would be constrained this year, and I want to provide some additional color on those drivers. As you see here, our cash flow conversion in 2024 is expected to be below historical averages for four reasons. First, Talison is progressing its chemical grade plant, or CGP3 expansion, resulting in lower dividends from the JV. Second, working capital release related to lower lithium pricing is expected to be mostly offset by increased working capital investments for our new plants at Kemerton, Meishan, Salar Yield and Qinzhou. Third, cash tax is expected to be similar to last year, primarily reflecting jurisdictional mix. For example, we will pay Australian cash taxes in mid-year, based on earnings estimates from the prior year period. Finally, we expect to have higher interest expenses year-over-year. Turning to Slide 9. I'll provide further details on trends in each segment's outlook. First, in Energy Storage, we continue to expect approximately two-thirds of our 2024 volumes to be sold on index referenced variable price contracts. The remaining one-third of the volume is still expected to be sold on short-term purchase agreements, including our recently announced bidding events, which Kent will discuss in a moment. Year-over-year energy storage volume growth is trending toward the high end of our expected 10% to 20% range, driven by timing of project ramps and spodumene sales. We continue to anticipate increased year-over-year volumes in the second half of the year due to the ramp of our expansions. All else being equal, we continue to expect improving margins through the year, as lower cost spodumene offsets new facility ramp costs. However, we expect some quarterly variance in EBITDA and margin due to the timing of Talison shipments. Specifically, in Q2, we expect a lift to our EBITDA margin of about 10 points from higher offtake by our partners at the Talison JV. Next, on Specialties. Our outlook reflects continued softness in Consumer Electronics, partially offset by solid demand in Oilfield Services, Agriculture and Pharmaceutical Applications. Furthermore, we are seeing higher costs for logistics as we manage through regional challenges, notably at our site in Jordan. We anticipate higher sales in the second half of the year, on the expectation of modest end market recovery and improved pricing in Bromine Specialties. Taking together, we now expect Specialties adjusted EBITDA to be toward the lower end of the outlook range. Finally, at Ketjen, we are seeing the building success of our turnaround program. We are optimistic about increased volumes driven by high refinery utilization. In Q1, we have seen end market strength primarily in clean fuel technology and expect higher volumes across each of the Ketjen businesses in 2024. Turning to Slide 10 and our financial position. As you know, during the quarter, we took action to maintain a solid investment grade credit rating and further enhance Albemarle's financial flexibility as we navigate this market down cycle. In March, we closed a $2.3 billion public preferred stock offering to fortify our competitive position and stay ahead of dynamic market conditions. Together, with the amended credit facility we discussed in February, these actions put Albemarle in a position to invest in and finish our last mile expansion projects, as well as capitalize on the secular growth trends we see in our core end markets of Mobility, Energy, Connectivity and Health. Following the offering, we repaid our outstanding commercial paper resulting in improved leverage. We ended the quarter with larger than normal cash balance and a primary of that cash will be to complete our in-flight capital project. Our balance sheet management highlights our focus on adopting to changing market condition and controlling the things in our control. Finally, turning to Slide 11 for a reminder of our capital allocation strategy. This is a slide you've seen before and we're touching on it briefly to acknowledge that our capital allocation priorities have not changed. We'll continue to selectively invest in high return growth, but we'll be patient and disciplined. Our near-term focus remains on operational execution and you can expect that our actions will be aligned with driving cost and productivity improvements, ramping our assets to full contribution and preserving our financial flexibility. While we believe current lithium prices are unsustainable for most of the industry in the long-term, we are managing to the current environment. To support our ability to reinvest and grow for the future, we are taking the prudent steps to right size our capital spending and cost structure, focusing on ramping our plants to full contribution and volume growth capture and taking steps to boost cash flow and enhance our financial flexibility. With that, I'll turn it back over to Kent to provide more details on the proactive actions Albemarle is taking in the current market to preserve long-term growth and value creation.

Operator:

[Operator Instructions] Our first question is from Aleksey Yefremov at KeyBanc Capital.

Kent Masters:

Yes. So -- well, we forecast for the year looking out for the year, so 10% to 20%, and we've said we'd probably be at the upper end of that and those -- the volumes that we show are based on the capital program that the long-term volumes we show are based on the capital program that we have in place and the projects that we're executing currently and no need for additional capital for that.

Kent Masters:

Yes. So if prices stayed where they were today, you'd see us ramping CapEx down. It takes us a little bit of time. So it's not -- we have a run rate that we think is kind of a minimum CapEx level of about -- to maintain assets about $1 billion a year. We wouldn't get there in '25, but kind of a run rate in line with that toward the end of '25, we could if we felt prices were going to stay where they are today.

Arun Viswanathan:

I just want to get your thoughts on maybe fundamentals that you're observing in the lithium markets. These days, it sounds like there was some disruption in some spodumene production. There was some, I think, curtailments in China related to disposal waste altogether that has taken some production off the market and may potentially stabilize the price environment. Could you maybe highlight some of those issues for us and maybe describe the inventory side as well, what you're observing in both the downstream cathode manufacturers and upstream lithium producers.

Eric Norris:

Sure. First of underneath that the other factor as important is demand. China stands as a market and start -- first of all, the majority of demand in the world, over 60% of the demand and start contrast to the U.S. or Europe with very strong growth you may have seen reported even in April growth that was quite significant for various automotive producers, BYD being up 49%. So there's very strong growth in China coming off of very low inventory levels. And that's obviously a favorable indicator for price in light of the pressure on producers at these price levels that Kent described. And the inventory more specifically, what we're seeing is inventory is pretty much at very low levels, ending in March, relatively speaking. So less than 2 weeks from a lithium producer standpoint, and about a week for downstream cathode company. That's in China. It's a little higher for battery producers -- or excuse me, for battery inventories. But again, at levels that are very low compared to the average we saw in 2023. So that, coupled with this demand signal we're getting from China, we see it as a positive signal for price going forward. And obviously, we'll have to -- we don't know for sure, but we'll watch that carefully. And should that happen, that will benefit our earnings going forward.

Netha Johnson:

Yes, I think it's a fair assumption. There's always risk in the Middle East. But in terms of our operational, we've seen limited operational impact year-to-date, but the logistics is where the challenge is and we are incurring additional costs to secure those logistics out of that part of the world. So that's what's impacting our business. But that's different than what it was last year. So yes, that's definitely a risk in the second half. As we move into that for specialties.

David Deckelbaum:

I wanted to just follow-up on the outlook if prices were to stay the same. You've obviously seen the impact of lower near-term production at Greenbushes. And then obviously, you have CGP3 which is still under construction and ramping. We've heard from Wodgina with the third train kind of being deferred a bit. Do you anticipate any more I guess, corrective actions or responses under some of the JV spodumen facilities that you're involved with, if prices were to remain where they are today?

David Deckelbaum:

I appreciate that. And I'm curious on the second question, just I think you've highlighted some EBITDA margin recovery in the second quarter with increased partner offtake at Talison and some variability there throughout the year. But as we think about your EBITDA margins in '24 versus '25, is there a ballpark range that you would estimate that commissioning new facilities has a sort of a drag on EBITDA margins this year versus next year? .

Operator:

Our next question is from Steve Byrne, Bank of America.

Kent Masters:

So I think we're using the $280 million and as we forecast that out. It's still early in the year. We're probably a little ahead of schedule, but not ready to call it and build into our forecast that will beat that. But we'll be -- we're optimistic. We're comfortable with the program and the target is a pretty big target for us across the organization, and we feel pretty good on a run rate that we can meet that or maybe beat it, but we've not built that into our forecast.

Rob Hoffman:

That's helpful. And just a follow-up in terms of your longer-term volume growth chart here, -- why doesn't the potential tolling volume go down over time? Wouldn't you generate higher margins at your own conversion plants?

Rob Hoffman:

Why volume go down.

Operator:

Our next question is from Andres Castanos at Berenberg.

Kent Masters:

Yes. So I'm not sure that is the last part of the question. Let me start on the front and you catch that in the follow-up if I don't answer your question. So we're doing the auctions, both on spodumene and on salts, the health transparency in the marketplace, price discovery to really understand, make the market a little clearer, a little more transparent. We get good information for it. And then we've decided to include spodumene as part of that just more transparency in the market, more knowledge that we get around that. And it's an opportunity for us to participate in a different part of the value chain. So it's not a change in our strategy of being an integrated producer. We'll sell most of our products through these long-term agreements on a salt basis as we have historically. So that strategy didn't change, but it's just it's an adjustment to take -- to try and get more transparency in the marketplace and then to sell spodumene a different value, a different product at a different value in the marketplace. So if there are dislocations, we can take advantage of that.

Eric Norris:

So I think the question was the cost of our spodumene inventory versus the index. So as we showed in our first quarter results, we are still working off a little bit of spodumene that went into inventory in prior periods, that is at a little bit higher cost than where it is today, and we documented how much of that was in our first quarter results in our EBITDA bridge. You can expect that there'll be a little bit more of that spodumene that we'll have to work off. But for the most part, you will start to see a spodumene costs rolling through our COGS that is consistent with what is in the market as we get towards the middle of the year and in the back half of the year. And that's built into the outlook scenarios that we've been publishing.

John Roberts:

Last quarter, Slide 13 on Greenbush has discussed the lag and the lower cost of market issue. It projected a spodumene inventory cost for the March quarter of about $4,000 a ton. Does that play out the way you projected last quarter?

John Roberts:

Yes. All right. And then have your thoughts on the role of catching in the portfolio changed at all since the last call?

Operator:

Our next question is from Christopher Parkinson at Wolfe Research.

Kent Masters:

Yes. Actually, it's a fair assumption. Basically, the way that we constructed those EBITDA ranges reason their range is driven by that volume consideration that we have, the 10% to 20%. So I think all things being equal, that's a fair assumption to make.

Neal Sheorey:

Well, actually, I have a little different viewpoint on that. I do think that our cash conversion should be improving in 2025 for a few reasons. Number one, as I mentioned or as we mentioned in the prepared remarks, our cash taxes are very similar this year to what we had last year, and that's primarily because of Australia, and we're paying taxes based on income from last year. If you assume that pricing is sort of flat for the rest of the year, I think you should assume that our cash taxes will be lower next year, all things being equal. The other part is that our facilities are so far, as you heard in Kent's remarks, ramping quite well. And so we would expect that those will start to contribute as we get into the back end of this year and into 2025. And as Kent mentioned, right now for where we are, the ramp that you see in our volume growth is just based on the projects that we are finishing up right now and are ramping right now. So we won't be ramping plants forever, that will most certainly come to an end and those plants will begin contributing and the back half of this year and into 2025. So I do anticipate our cash conversion to get better.

Operator:

Our next question is from Kevin McCarthy at Vertical Research Partners.

Eric Norris:

Matt, this is Eric. We've got very good participation. We're very early in our process. And so we're very -- with a qualification process to make sure we're -- we're inviting people to these auctions that meet certain standards, but that's growing over time. The participation rate we received and the corresponding conversion of those invited versus those who put in a bid has been strong. The interest has been, therefore, good and the outcome has been well received what we think about the market, particularly from a price reporting agency, we found that these through the normal surveying process, the results of these bids have found their way into the price reporting agencies. Of course, they determine how they use that in their next calculations, but it's our anticipation that they're lending there as well. And then as we turn to the -- to our sort of contracted customer base, they appreciate that what we're doing is better understanding in what is a pretty immature market how -- what the drivers are, as Kent was referring to different types of prices, whether that's inside the country, outside of country or an IRA compliant, non-RA compliant product or a spodumene versus a better grade carbonate. It's giving us better intelligence to better segment, understand what's happening in the market and a lot of the same for our customers in the contract side ultimately because that would be reflected in the indices they referenced.

Eric Norris:

Yes. So I touched on a little bit when I talked about IRA compliant. But just as reference, almost -- actually, all 4 auctions that we've done today have all been inside of China with available inventory on the ground there. We'll be looking for product outside of China shipped on a CIF basis, for example. We'll be looking at that certainly for our Australia product. We'll be looking at it for [indiscernible] compliance ship to the U.S. and across our product range, including hydroxide.

Apurva Kilambi:

This is Apurva on for Ben. So we're heading into what has historically been a peak buying season in China just off of the earlier comments on demand, are you starting to see this restocking materialize?

Apurva Kilambi:

Great. And as my follow-up, looking back with your 10-K, you actually published an updated technical report on Greenbushes. With that report, we saw something of a step down in both grades and recoveries and concurrently, costs have moved upwards. Given those technical effects, where do you see the next phase of resource growth coming from for Greenbushes.

Operator:

Our next question is from Michael Sison at Wells Fargo Securities.

Neal Sheorey:

Yes. So I think we've commented on that earlier. So we can -- we would look at the billion that's kind of maintenance capital for us around to maintain our assets and continue to operate there. And we could -- if we -- if prices stay where they are, we could get to that kind of on a run rate by the end of '25, so '26 number, so to speak. '25 would be a little bit higher, but we get to the run rate by '25. That would impact our long-term growth if we went to that level. So the current planning that we have, the projects we're executing at the moment, get us kind of a 20% growth rate through '27 or so. And if we were to cut back to those levels, we'd impact that materially beyond that.

Eric Norris:

Right. So I'm not going to comment on other people's margins. But if we stay where we are, we can operate at about -- at a 30%-ish type margin rate once we get the noise out of the P&L, that kind of the transition from the big prices and some of the spodumene costs. So on a run rate we could get to around 30% and still grow our business for us. I think that's the good margins that you're talking about. We've had stronger margins than that, and they would be stronger if prices move up. The issue with price is really about returns on new investment projects more than it is about our existing business, P&L and the margins that we can deliver. So prices need to move up in order to develop new projects to get the growth the industry needs to support the EV transition. I'm not going to comment on because it's different by every project and every geography as to what price you need and you need to believe that for 10 or 15 years in order to get a return on the project when you go through FID. So I can't say a number and if I had one, I probably wouldn't say it, but they are different by geography, by region, by technology, what the resource looks like. So it's quite different. There's no way to pick one particular number.

Chris Perrella:

It's Chris Perrella on for Josh. I just wanted to follow up on Neal, the 2Q Energy Storage EBITDA margin that you guided to, given the puts and takes, you have the higher cost spodumene inventory, which is maybe a $50 million drag in the second quarter, but you also have the one-off from Talison. So how does that bridge together to get to your 2Q margin? And then does it step down with the absence of the Talison one-off in the second half of the year?

Chris Perrella:

That's perfect. And then a quick follow-up. Sequentially into the second quarter, do you expect volumes to be up? I'm just trying to bridge the seasonality to get to the 190 [indiscernible] for the full year?

Operator:

Our next question is from Colin Rusch at Oppenheimer.

Netha Johnson:

Yes. So okay, interesting question. So the politics is playing into the market significantly, and we've got the integrated strategy. So we've got a good resource position, and it's spread around the world, so we have nice diversity around that. And we've built conversion. So we have conversion in Chile, in the U.S., lower scale at the moment. And Australia and China. So we're spread around the world, and we've got nice diversity around that and it allows us to kind of plan for some of these aspects. So our goal would be to have larger scale conversion in North America to satisfy the North American market and we are -- but we've paused on that a little bit, just on some of the issues that you've described, price being a big one, how geopolitics plays into it. And we're going to use that pause to figure out exactly what we do around that.

Neal Sheorey:

Yes. I'll start on that. Eric can fill in the gaps. I think -- I mean the biggest thing for us at the moment is with the primary products around hydroxide and carbonate is balancing that. So as LFP has become more prevalent. It's got stronger demand on carbonate and we've been a stronger -- a larger percentage of our portfolio is carbonate historically. We've been building out hydroxide and then balancing those 2 is understanding where those chemistries go. And then long term, it's going to be about solid state and then how you shift from so much -- be more about carbonated hydroxide to about lithium metal. But that's a longer-term scenario. The carbonate hydroxide is playing out in the assets we're building now.

Operator:

Our final question is from Patrick Cunningham at Citi.

Kent Masters:

Yes, it changes -- it changes over time with volumes in the industry. But most new projects come on are going to be higher on the cost curve and moving that up. So we still think that within a $1 or $2, the accuracy of that. But I think we still believe that fundamentally is about the target of marginal cost today.

Eric Norris:

I'm sorry, your question was -- the price floor impact on our realized price for the quarter? Or was that the question?

Eric Norris:

Let's put it this way. We don't disclose a lot of our price floors, and they tend to range because often based on age of contracts. At current prices, some of those floors, some are being tested, floors have held. And so we certainly are seeing the floors come into play for some of our business.

Kent Masters:

Okay. Thank you, and thank you all for joining us today. We continue to innovate, adapt and lead the world in transforming essential resources into the critical ingredients for modern living with people and planet in mind. We are focused on continuing to be the partner of choice for our customers and investment of choice for both the present and the future. Thank you for joining us.

Meredith Bandy:

Thank you. And welcome everyone to Albemarle’s fourth quarter and full year 2023 earnings conference call. Our earnings were released after the close of market yesterday and you’ll find the press release and earnings presentation posted to our website under the Investor Section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Neal Sheorey, Chief Financial Officer. Netha Johnson, President of Specialties; and Eric Norris, President of Energy Storage are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook considerations, guidance, expected company performance and timing of expansion projects, may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation that also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. And now, I’ll turn the call over to Kent.

Neal Sheorey:

Thanks, Kent, and good morning, everyone. It’s a pleasure to join my first earnings call with Albemarle. I’ve hit the ground running, and in the coming weeks, I’ll be on the road meeting with our shareholders and analysts. I’m looking forward to reconnecting with many of you and building new relationships with those of you I haven’t yet met. Moving to slide five, I’ll start with a review of our fourth quarter and full year 2023 performance. In Q4, we reported net sales of $2.4 billion, down 10% compared to last year, as lower lithium market pricing was partially offset by increased volumes in Energy Storage and higher volumes in pricing in Ketjen. As Kent mentioned, we recorded two charges in Q4 that impacted results. The first was a lower of cost or market charge of $604 million and the second was a tax valuation allowance in China of $223 million. These charges were fundamentally related to the fact that in the second half of 2023, lithium market prices feel over a relatively short period of time. In the case of the LCM charge, market prices reached a level such that our cost of inventory, especially spodumene, which we purchased at a market price from our Talison JV, was above the market price of the final lithium salts, which resulted in us writing down the value of our inventory in accordance with GAAP. Similarly, in the case of the tax valuation allowance, the rapid decline in market prices led us to recognizing losses in China as we process the higher cost spodumene in inventory. In China, we are only allowed a five-year carry-forward period to utilize these losses. In accordance with GAAP, we recognize the valuation allowance against the losses. The company’s full year results excluding those charges met our previously announced expectations. Net sales of $9.6 billion were up 31%, primarily driven by volume growth. Adjusted diluted EPS, excluding both charges, was $22.25, roughly flat year-over-year. Looking at slide six, fourth quarter adjusted EBITDA was $289 million, excluding the lower of cost or market charge. This primarily reflects a decrease in Energy Storage adjusted EBITDA, driven by a lower lithium market pricing, which more than offset higher volumes. In Specialties, adjusted EBITDA declined $64 million, primarily due to lower sales volumes and pricing, reflecting ongoing demand weakness in key end markets. Ketjen adjusted EBITDA increased $34 million, as higher sales and higher pricing more than offset increased raw materials costs. Turning to slide seven, before I transition to forward-looking information, I want to take a moment to review our adjusted EBITDA definition and share an update that we plan to make. Effective with Q1 2024, we are updating our definition of adjusted EBITDA to include Albemarle’s share of the pre-tax earnings of our Talison joint venture. There are a few important reasons for this change. First, the updated definition better reflects our vertical integration with Talison’s Greenbushes mine, one of the world’s largest, highest grade and lowest cost lithium resources. Second, it smooths the impact of price variations in inventory timing that obscure the underlying profitability of our full-chain integration. And finally, this definition is consistent with the amendment to our revolving credit facility, which I’ll discuss later on the call. As a reference point, on this slide, we’ve given you both the Energy Storage and Albemarle full year 2023 adjusted EBITDA under the previous and updated adjusted EBITDA definition. We will report under the updated definition in 2024. Therefore, all of our comments and numbers regarding 2024 modeling considerations are based on this new definition. Turning to slide eight, to help investors model Albemarle’s earnings under different price scenarios, we have provided ranges of outcomes for our Energy Storage business based on three lithium market price scenarios that were observed in the back half of 2024. First, year-end 2023 market pricing of about $15 per kilogram of lithium carbonate equivalent or LCE. Second, Q4 2023 average market pricing, which was about $20 per kilogram of LCE. And third, second half 2023 average market pricing, which was about $25 per kilogram of LCE. Within each scenario, the ranges are based on our expectation to increase Energy Storage volumes by 10% to 20% in 2024 compared to 2023. All three scenarios assume flat market pricing flowing through Energy Storage’s current book of business. These scenarios demonstrate the resilience of our Energy Storage business. As you would expect, given our strong resource positions around the world, we can maintain solid margins even with lower year-over-year lithium pricing, which are further bolstered by our organic volumetric growth and the normalization of temporary inventory timing impacts. Moving to slide nine, here we provided modeling considerations for Specialties, Ketjen and Corporate. We expect Specialties 2024 net sales of $1.3 billion to $1.5 billion and adjusted EBITDA of $270 million to $330 million. Ketjen 2024 net sales are expected to be $1 billion to $1.2 billion with adjusted EBITDA of $130 million to $150 million. The Corporate outlook reflects our planned decrease in capital expenditures, which we expect to total $1.6 million to $1.8 billion in 2024, down from $2.1 billion in 2023. Corporate costs in 2024 are expected to be between $120 million and $150 million. Corporate costs in 2023 included interest income that is not expected to recur, and therefore, excluding this factor, Corporate costs are relatively flat year-over-year. Adding it all together on slide 10, we provided here the full roll-up of Albemarle under each of the Energy Storage price scenarios. Turning to slide 11, I’ll provide some further detail on the trends that underpin each segment’s outlook. In Energy Storage, approximately two-thirds of 2024 estimated volumes are expected to be sold on index-referenced, variable-priced contracts. The remaining approximately one-third of volume is expected to be sold on short-term purchase agreements. This is a modest change from our past mix and reflects our positioning in this lower price environment. We could potentially add additional long-term contracts, but we will only entertain that if the pricing and other terms reflect long-term industry fundamentals. Energy Storage volume is expected to be weighted toward the second half of 2024 as our own capacity expansions ramp and as we experience normal seasonality. Specialties results are also expected to be back-half-weighted. The Specialties outlook reflects continued softness and opaque demand conditions in consumer electronics and elastomers and markets, partially offset by strong demand in oilfield services, agriculture and pharmaceuticals. We continue to actively monitor the situation in the Middle East, and in particular the Red Sea, and are working with our partners to facilitate safe, efficient and cost-effective transport of our products to customers. To-date, operations continue largely as normal, though we are experiencing some shipping delays and tighter availability of processing materials. In Ketjen, we are optimistic about increased volumes driven by high refinery utilization, as well as higher pricing, primarily in clean-fuel technology products. Ketjen made good progress against its improvement plans in 2023 and we are expecting another year of improvement in both net sales and adjusted EBITDA. Moving to slide 12, we continue to deliver volumetric growth with line-of-sight to a growth CAGR of about 20% from 2022 to 2027. Our expected 2024 volume growth reflects projects that are at or near completion and which we have prioritized as we reduce capital spending in other areas. This includes commissioning and startup of the Meishan lithium conversion facility, completion of commissioning activities at the Kemerton lithium conversion facility and ongoing expansions at Silver Peak, La Negra and Qinzhou. Our long-term expected lithium sales volumes are mostly unchanged as we continue to utilize flexible tolling arrangements to bridge to full capacity at our conversion expansions, as well as pace supply to current market conditions. Turning to slide 13, this is an update to a slide we provided last quarter, which explains how Energy Storage margins are impacted by JV accounting and the inherent timing lag that occurs from the mine through our conversion processes. The inventory lag we saw beginning in the second half of 2023 is expected to be reduced for two reasons. First, the lower of cost or market charge recorded in Q4 2023 resets inventory costs closer to current market pricing. And second, the Talison JV partners recently agreed to change the spodumene pricing to M-1 or a one-month lag versus the prior use of a three-month lag. That said, these changes will not completely offset the inventory lag, particularly in a period where prices have significantly changed. And therefore, we expect our first half 2024 margins in Energy Storage to be impacted by the lag as we process higher cost spodumene inventory and by expected reduced sales from Talison to our JV partner. Importantly, when we look beyond these temporal impacts, we estimate that Energy Storage could exit the year at a margin of approximately 30%, assuming constant current market pricing and a return to normal shipments from the Talison JV. Turning to slide 14 and our financial position. As our rapid action in recent months has shown, we are committed to maintaining a solid investment-grade credit rating and enhancing our financial flexibility as we navigate the lower price environment. With our earnings release yesterday, we announced that we have completed an amendment to our revolving credit facility to ensure ongoing financial flexibility. The amendment uses the revised adjusted EBITDA definition consistent with the definition that we will use for financial reporting going forward. I’m happy to share that we had unanimous support from our bank syndicate for the amendment. This action, along with all the steps we are proactively taking as a company to modify our cost and capital spending, demonstrates our focus on maintaining financial flexibility, adapting with changing market conditions and exercising our investing discipline. With that, I’ll turn it back over to Kent to provide more details on our actions to preserve growth, reduce costs and optimize cash flow.

Operator:

[Operator Instructions] Your first question comes from a line of Stephen Richardson from Evercore ISI. Your line is open.

Kent Masters:

Neal, you want to take that?

Stephen Richardson:

Thanks. Maybe just a follow-up specifically on assets. The 10-K, which it looks like you just filed, suggests, just looking at those numbers, that the Atacama was flat year-over-year. Is -- could you just give us an update on the Salar expansion and what the status is in Chile right now in terms of incremental volumes?

Eric Norris:

Yeah. I mean, for virgin brine that we pump, it’s -- I think the rule of thumb has been more like 18 months, but for the Salar Yield, it’s six months. We commissioned that in the middle of last year. That’s enabling, Steve, the growth that we will see in that 10% to 20% range. A big chunk of that is coming out from carbonate, from Chile, from the La Negra plant, enabled by Salar Yield.

Operator:

Your next question comes from a line of Colin Rusch from Oppenheimer. Your line is open.

Kent Masters:

Yeah. So, I mean, to be blunt, I think that’s going to be about the pricing levels that we see and the trends that we see. So, we see demand there. The volume growth in the industry is there and we start seeing some projects come out, operating projects, as well as projects on the books, like the ones that we described. So, for us to kind of re-accelerate, if you will, we’ll need to get a better view of what pricing is and the long-term view of that as well. So we think what the prices today are unsustainable. They’re below operating cash levels of some assets that are currently operating and they’re definitely below reinvestment levels, and as we said, particularly in the West, there’s not a particular price that kicks up necessarily a range of projects off. It’s all individual, depending on the resource, where it’s located, what the cost position is of that and the conversion asset, where that’s located. So, there’s not one number that we will look at, but we’ll look at it project-by-project, but it’s not going to -- if spot prices hit a number, that’s not going to necessarily turn us back into investment mode. We need to have a view that that’s a long-term number that we can rely on through the life of that asset.

Eric Norris:

Hey, Colin. Hi. It’s Eric. We’ve spent a lot of time looking at inventory and there’s been a drawdown effect that’s been on and off throughout all of last year and into this year. At the top of the supply chain upstream, looking at lithium salts and even the next level cathode production, we feel that inventory is normalized. The drawdown we’re seeing now, harder to predict and understand because it’s less visible to us, is at the battery cell, battery module and EV level. There are a lot of reports out there that vary on that. It’s not a highly quantitative or a highly known number, but I -- we think there’s probably a couple months’ excess as we exited last year, that will be drawn down this year that’s going to affect apparent demand. So that’s why our demand forecast is a difference if you look at, I can’t remember which slide it is, the lithium supply side towards the back of the deck between lithium demand growth and EV growth, and that is that drawdown effect happening at the battery and EV level.

Operator:

Your next question comes from the line of Steve Byrne from Bank of America. Your line is open.

Neal Sheorey:

Hey, Steve. I’ll repeat what I said before. It is not upstream. We’re not seeing large inventory levels. We’re actually seeing projects, spodumene projects, go into care and maintenance. There’s several in Canada, or excuse me, in Australia, there’s one in Canada and some others that are questionable that we’re watching closely. And so it’s not there, it’s not at the conversion level. We track that as well, as well as the direct consumer for us, which is the cathode companies. We have very high visibility to that. That was at one point fairly high a year ago. That has since come down. The inventory that we’re seeing is further downstream, as I was saying earlier. It’s the battery and EV level of supply chain and that is affecting apparent demand to the lithium industry, albeit EVs are growing quite healthfully about 30% we see for the year going forward.

Neal Sheorey:

Well, look, I’ll answer the price question. Maybe Kent would like to comment on the broader supply question. On the price question, I think what you’re seeing in China is particular, let’s remember China’s almost three quarters, two-thirds to three quarters of lithium supply is consumed in China. It’s very much the market where things are set and the trend there has been strongly towards, in the past year, towards carbonate for LFP production. That trend is the opposite in other parts of the world that are developing like Europe and North America, although we are seeing LFP interest. So those two products are starting to balance out, looking to be closer to 50-50 in their mix, although we have to watch it. It will move with time as technology and scale economies develop. That is causing that near-term, if you will, putting things upside down because historically hydroxide has been higher than carbonate. In the near-term, we’re seeing that flip. We would expect that to revert over time as the industry grows. Do you want to comment on supply more broadly, Kent?

Steve Byrne:

Thank you.

Josh Spector:

Good morning. Good morning. So I had a couple of questions around your pricing scenarios. When you talk about $15 a kilogram on the Asian markets, what is implied in that scenario in terms of Albemarle realized pricing and really getting towards the impact of floors, if that is meaningful or not or if anything has changed in that regard?

Josh Spector:

Your EBITDA ranges for 15% versus 20% versus 25%. It is the same change in EBITDA between each range. If there were floors in the high-teens, low 20s, wouldn’t the increment from 15% to 20% be a bigger step up than 20% to 25%? I guess, what would I be missing in that math?

Josh Spector:

Okay. I will follow up on that offline. Thanks.

Jeffrey Zekauskas:

Thanks very much. I have a question on your Specialties forecast. For next year, you -- at the midpoint, you assume EBITDA is about the same and revenues are about flat. And last year in the first quarter, I think, your Specialties EBITDA was something like $162 million and maybe you finished the year at something close to $30 million. How can you get to flat EBITDA as a base case?

Jeffrey Zekauskas:

Okay. And then for my follow-up, can you talk about what your either cash flow expectations are this year or free cash flow expectations for 2024?

Jeffrey Zekauskas:

Sure.

Jeffrey Zekauskas:

Great. Thank you very much.

Vincent Andrews:

Thank you very much and good morning. Maybe just following up on that, just looking at the balance sheet at the year end, your receivables are up year-over-year, your inventory is up year-over-year, your payables are about flat and that’s in a -- obviously, the lithium price ended the year much lower at the end of 2023 than it did at the end of 2022. So what’s the bridge on that that caused that working capital to build despite the lower prices?

Vincent Andrews:

That’s very helpful. Thank you. And Kent, can I just ask you to refresh us on what return on invested capital you’re looking for when you put CapEx to work in the Energy Storage business and I don’t know if you want to define it differently by geography, but just sort of what those rough hurdle rates are and if they’ve evolved at all over the last few years, given the price movement.

Vincent Andrews:

Thanks very much, guys.

David Begleiter:

Thank you. Good morning, and Neal, welcome aboard. Kent and Eric, Energy Storage EBITDA guidance, if you were to mark-to-market that guidance to current prices, assuming no change in prices for the rest of the year, how much lower would your EBITDA guidance be for Energy Storage?

David Begleiter:

Understood. And Eric, just on lepidolite production in China, how much do you think has been shut in? How much do you expect to be shut in? Why has there not been more shut-in up until now for lepidolite production in China?

David Begleiter:

Thank you.

Joel Jackson:

Hi guys. I’m not sure it’s Joe Jackson. So I wanted to ask a question about some of your sales guns for Energy Storage. If I take your guide, it’s $15,000 a ton, 10% to 20% more volume than the 150,000 tons you did Energy Storage last year. That would imply sales just a bit below $3 billion, maybe $2.9 billion for Energy Storage for this year. We’re going to, I think, $3.3 billion or something like that. What is the $400 million or $500 million difference in sales? Is that an accounting thing, spodumene, can you explain it, please?

Joel Jackson:

Yes. Okay. Fair enough. I just wanted to also ask you about the U.S. strategy. So as this industry was really looking at regional supply chains and you really were going to go after Kings Mountain and U.S. Mega-Flex, you put those plans on hold, but you’re still doing the permitting, of course, at Kings Mountain. As you know, it takes a while sometimes to get mine’s permit in the States. Is this -- how important is this U.S. strategy going to be? Is this something maybe that will have to be reassessed? Can the DoE or DoD with some of the different funding options help revive some of this? It seems like there’s a bit of a damper here on some of the objectives of political and the industry.

Operator:

Your next question comes from a line of Mike Sison from Wells Fargo. Your line is open.

Eric Norris:

So depending on where we land -- Mike’s is Eric, depending on where we land in that range of 10% to 20%, you’re talking something that could be close to, it’s going to get close to 200,000 tons, 190,000 tons, 200,000 tons at the top end and that is being driven, just to be specific, by more production out of Chile, which we discussed earlier and that’s realizing some of the efficiencies of the Salar Yield Project and the bottlenecking capacity downstream for La Negra to drive that growth. It’s also being driven by increased spodumene production out of Australia and the ramp of Kemerton, Qinzhou as well, where Meishan is more of a 2025 item for the time being, but that plan is ramping nicely for that period of time. That then brings me to how you think about the future. Kemerton I and II will continue to ramp as you go into 2025. Meishan will start to ramp in 2025 and 2026. The interesting thing about our near-term volume picture is we’re going to be looking at that sort of 20% plus volume growth for some years to come, based upon the investments we have made already. The things that we have idled or paused from an investment standpoint that Kent earlier referenced were longer term, further out, sort of really second half of decade in terms of what they were going to deliver. So the impact of slowing those down, should prices stay low and we not return to investing those projects will be felt in the latter part of the decade, which is, I’ll also remind you, is a point in time where we see industry supply already getting tight relative to demand. So there’s some real challenges because we don’t see demand slowing down. We certainly see weakness in certain parts of the smallest market, which is North America, but on the whole we see a very strong growth and a challenging environment for supply to be able to meet it in the long term. But we have good growth, I would say, in the coming years for multiple several years ahead of us.

Mike Sison:

Got it. And just a quick follow-up, and just because I figured you guys be better off knowing what the potential is for lithium prices. I know you don’t want to get into a specific forecast, but what do you think needs to happen to get pricing back to greenfield economics?

Eric Norris:

It’s not an understatement to say, Mike, that if prices stay where they are, which is well below marginal cash costs, and as we said, we thought it would be less volatile, is that you’re going to see -- we believe, you’re going to see enough projects ultimately come off that that inflection point where we start to get structurally short on supply moves forward from the latter part of the decade into the middle part of the decade. So that only -- what that says is excessively low prices only aggravate excessively high prices potentially down the road. That’s the challenge. We, and certainly our customers, would love to see a much more moderated cycle and as the market does recover, we’ll look to try to find ways to reduce that volatility in our mix. But certainly we’d hope that for the industry more broadly as well.

Operator:

Your next question comes from a line of John Roberts from Mizuho. Your line is open.

Kent Masters:

So sequentially from the fourth quarter, is that what your question, I guess, year-over-year…

Kent Masters:

Just to clarify the question.

Kent Masters:

Yeah. I mean, I think, there’s going to be a difference between production and sales. I think you -- if you look at what happens seasonally with EVs, it is -- each year is a rapid rise to December and then a drop seasonally in January. So from a production standpoint, we’ll be sequentially up. From a demand standpoint, seasonal demand plays a role for the whole industry, including us.

Kent Masters:

Yeah. Well, and it’s hard to generalize that, John. I mean, I think, you have to go by region. So what I’d tell you is in China, there was a nice growth in plug-in hybrids last year. By our reckoning and our estimates, the estimates we had at the beginning of the year where we didn’t anticipate that, that plug-in hybrid growth came at the expense of internal combustion engines, not at the expense of battery electric vehicles in China, which is the largest market. It’s 6% of the market. In Europe in the past year, you’ve seen the opposite trend. Battery electric vehicles have been growing faster than plug-in hybrids. The U.S., which is the smallest market is in a pivot point now, which I don’t, we’ll have to see which direction it goes. There’s a lot of discussion about how certain automotive producers are struggling with demand and costs to play and so I think they’re looking at plug-in hybrids as an alternative, but it is on the margin it’s the smallest market. So I think it has the least effect on lithium demand. By and large, going back to your original question, battery size grows, may grow at varying rates year on year on year, but it grows over time as we go forward.

Kevin McCarthy:

Yes. Thank you and good morning. Would you comment on the expected quarterly cadence or phasing of your adjusted EBITDA and Energy Storage in your $15 per kilogram scenario? I thought I heard a comment in the prepared remarks that you would expect to be at a 30% margin by the end of the year. So perhaps you can kind of walk through that margin escalation expectation.

Kevin McCarthy:

That makes sense. Thank you for that. And as a follow-up, if I zoom out the lens and look at your segment margins during the last cyclical trough for lithium, they were around 34% or 35% under the old definition of adjusted EBITDA. And so my question would be if prices persist at the $15 per kilogram scenario, what do you think the new trough margins could be moving forward into let’s say 2025 plus? Is that mid-30% level still representative or indicative or do you think they would be materially higher or lower than that?

Kevin McCarthy:

Very helpful. Thanks a lot.

Kent Masters:

Thank you and thank you all for joining us today. Albemarle is a global leader in transforming essential resources into the critical ingredients for modern living, with people and planet in mind. Our strategy and path to capitalize on the opportunities of electrification over the coming years is clear and we will continue to operate with the discipline operating model to scale and innovate, deliver profitable growth and advance sustainability. We continue to work to be the partner of choice for our customers and the investment of choice for both the present and the future. Thank you for joining us.

Meredith Bandy:

Alright. Thank you, Sheryl and welcome to Albemarle’s third quarter conference call. Our earnings were released after the close of market yesterday and you will find the press release and earnings presentation posted to our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Scott Tozier, Chief Financial Officer; Netha Johnson, President of Specialties; and Eric Norris, President of Energy Storage, are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance, timing of expansion projects, and growth initiatives may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation, which also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. And now, I will turn the call over to Kent.

Scott Tozier:

Thanks, Kent and hello everyone. On Slide 5, let’s review our third quarter performance. Net sales were $2.3 billion, up 10% compared to last year. This increase was driven by higher energy storage volumes, thanks to expansion of our mining and conversion assets. Net income attributable to Albemarle was approximately $303 million, down 66% compared to the prior year. Similarly, diluted EPS was $2.57, down 66%. Higher net sales were more than offset by higher cost of goods sold, primarily due to inventory timing and I will discuss these timing impacts more in a moment. Our year-to-date results reflect the strong performance and significant growth we have achieved this year despite recent softer lithium pricing. For the 9 months ended September 30, net sales are up 55% year-over-year and net income is up 42%. Looking at Slide 6, third quarter adjusted EBITDA was $453 million, a decrease of 62% year-over-year, driven primarily by softer lithium market pricing and timing impacts of spodumene inventory and energy storage. The Specialties business was also down due to continued lower volumes and pricing related to softness in certain end markets. For the first three quarters of 2023, adjusted EBITDA was more than $3 billion, up 38% against last year. Again, energy storage growth reflects the majority of that increase with both volumes and prices up year-over-year. On Slide 7, as Kent mentioned, we are lowering our total company outlook for 2023. As has been our practice, this outlook assumes recent lithium market price indices are constant for the remainder of the year. And as a result, we have decreased the range for net sales. Under this methodology, 2023 total company net sales would be in the range of $9.5 billion to $9.8 billion. This range represents an increase in net sales of 30% to 35% over the prior year, driven by the ramp of our energy storage volumes. Our adjusted EBITDA outlook is expected to be in the range of $3.2 billion to $3.4 billion. This implies full year EBITDA margins of 34% to 35%. Our full year 2023 adjusted EPS outlook has also been adjusted to a range of $21.50 to $23.50. We expect our net cash from operations to be in the range of $600 million to $800 million. The decrease in adjusted EBITDA and net cash from operations reflects current lithium market prices and lower expected sales volumes at our Talison joint venture. Our partner at Talison, elected not to take their full allocation in the second half of this year, and this has impacted our equity income for the period. Our CapEx guidance remains in line with previous forecasts at $1.9 billion to $2.1 billion, which as a reminder from last quarter, reflects 100% ownership of our conversion assets with the completed revised agreements with Mineral Resources. We expect to provide our full year 2024 outlook on our fourth quarter call in February. Turning to the next slide for more detail on our outlook by segment. Assuming recent lithium market prices remain constant through the rest of the year, we expect energy storage 2023 net sales in the range of $7 billion to $7.2 billion and adjusted EBITDA to be flat to slightly down on the year as timing impacts of higher priced spodumene more than offset higher net sales. We are projecting that full year average realized pricing increases will be in the range of 15% to 20% year-over-year and energy storage volume growth in the range of 30% to 35% year-over-year. We continue to expect Q4 to see stronger production volumes as a result of project ramps. In 2024, volume growth is anticipated to continue as as Kemerton, Qinzhou and La Negra ramp to meet the expected demand from continued strong EV production. In the Specialties, we now expect net sales to be approximately $1.5 billion, with adjusted EBITDA expected to be down 40% to 45% year-over-year for the full year. This is due to continued softness in consumer electronics and elastomers, partially offset by strength in demand in other specialties end markets, including pharmaceuticals and oilfield. We continue to monitor the situation in the Middle East and any impacts at our operations in Jordan. Currently, JBC is operating as usual without disruption to our supply chain. Macroeconomic and geopolitical uncertainties will impact market visibility in this business well into 2024. Ketjen’s 2023 full year adjusted EBITDA is now expected to be up 250% to 325% year-over-year due to higher pricing and volumes as well as productivity improvements. During the quarter, we saw higher volumes driven by high refinery utilization. We also saw benefits of higher contract pricing primarily for FCC products, which is expected to continue through 2023 and into 2024. We are encouraged to see inflation in Material and Energy costs moderating and expect this trend to continue through 2024. On Slide 9, we have an experienced team that knows how to operate in a variety of price environments. Maintaining our disciplined growth mindset we are taking a comprehensive review of actions that will support our near-term profitability and cash flow. As we’ve done in the past, we’re reviewing our project spend and sequencing of our projects to preserve cash. We’re also implementing cost and efficiency improvements across our business. For example, we’ve reduced non-critical travel and are reducing discretionary spending. Our Albemarle Way of Excellence is the standard by which we choose to operate. Slide 10 provides an update to the targets we’ve made in manufacturing and procurement. We’re on track to exceed our goal of $170 million in productivity benefits in 2023. In manufacturing, improvements to our overall equipment effectiveness to improve yield and utilization are expected to exceed $70 million in benefits. In procurement, we strategically sourced to capture lower raw material pricing. In 2024, we expect to increase these initiatives, targeting additional benefits across manufacturing, procurement and back office. Lowering operational costs in our business is critical to our success as we orient towards sustainable growth. As a reminder, most of our energy storage volumes are sold under long-term contracts with strategic customers. Our expected 2023 sales mix on Slide 11 remains unchanged from last quarter and reflects recent lithium market prices. We expect year-over-year energy storage volume growth to be in the range of 30% to 35% in 2023. This is driven by successful execution and ramping new capacity as well as additional tolling. With additional conversion assets coming online in 2024 and beyond, we still anticipate a 20% to 30% CAGR in Albemarle sales volumes between now and 2027. And we remain on track to nearly triple our volumes to more than 300,000 tons. Slide 13, is the updated bridge for our energy storage adjusted EBITDA margins. Full year 2023 margins are expected to normalize in the 40% range from the very high rates we saw in 2022. As always, Talison equity income is included in our adjusted EBITDA on an after-tax basis, that tax drag impacted EBITDA margins by about 7% to 10%. The other impacts on the chart are relatively small and our offsetting. Higher lithium pricing is offset by other items. This year, we had a 5% negative impact from MARBL JV accounting that goes away next year with the closure of the restructured MARBL JV. That leaves the largest impact to our margins at 20% spodumene inventory lag. We understand this inventory lag is complicated and can be difficult to forecast. So I want to spend a little bit more time on that. Through the Talison joint venture, Albemarle has access to one of the world’s best lithium resources. Greenbushes is a large, high-grade and, therefore, low-cost spodumene mine. We recognize our 49% share of Talison earnings in equity income and cash dividends. Our 50% share of Talison offtake also flows through inventories and cost of goods sold based on market pricing. The timing of inventories and sales can often drive short-term margin variations. Excluding these timing impacts, we expect energy storage adjusted EBITDA margins to be in the range of 30% to 40%, even at today’s prevailing market pricing for lithium and spodumene. Turning to Slide 15. In the Talison joint venture, we recognized profit associated with our partners’ offtake immediately. We recognized profit associated with our offtake when the product is converted and sold which typically takes about 6 months from when we first extract spodumene from the ground. Throughout 2022 in the first half of 2023, Talison pricing on partner shipments was higher than that realized on our own shipments. Timing differences between the recognition of our profit on our partner’s offtake and our offtake resulted in about $800 million of benefit to EBITDA during that period. As spodumene market prices decrease, we expect this effect to reverse as we recognized higher priced spodumene and cost of goods sold and lower prices in equity income. However, we expect this timing-related impact to be temporary, with no impact to adjusted EBITDA at steady market prices. Again, assuming today’s market prices are held constant, we expect energy storage adjusted EBITDA margins to average in the range of 30% to 40%. Turning to Slide 16. Albemarle’s capital allocation priorities remain unchanged. First, investing in high-return organic and inorganic growth, second, maintaining financial flexibility and our investment-grade credit rating; and lastly, funding our dividends. Planned expansions to deliver volumetric growth continue to progress across the company’s global portfolio. Although, as I mentioned before, in this softer market, we are taking a hard look at the level of our CapEx spending and the sequence of our projects. As it relates to inorganic opportunities, we announced a few weeks ago that we decided not to pursue a binding agreement to purchase Liontown and formally withdrew our non-binding offer. While we had productive engagement with Liontown and as we learn more, we decided that moving forward with the acquisition at this time was not in Albemarle’s best interest. This reflects our disciplined capital allocation and M&A approach. As we look forward, we continue to evaluate a broad range of M&A opportunities. However, in the current environment, the scale of those opportunities are not as big. And we have many options available across 3 areas

Operator:

[Operator Instructions] Your first question comes from the line of Patrick Cunningham with Citi. Patrick, your line is now open.

Patrick Cunningham:

That’s helpful. And then just given some of the recent price weakness headlines, dialing back EV targets, I’m just curious on more detail on how you’re thinking about growth investments and trajectory going forward. How has your thinking started to change on regions, project spending and sequencing of those projects?

Patrick Cunningham:

Alright, thank you.

Josh Spector:

Hi, thanks for taking my question. I guess, first, I wanted to ask on kind of lithium pricing and specifically the realized pricing for Albemarle. And just kind of thinking about a scenario where spot goes less than $20, so say, $18 per kilogram. What happens to the other 80% of your contracts? You’ve talked about floors, you’ve indicated that there above or at the high end of the cost curve. But what really does that mean? In that scenario, I guess, what does Albemarle realize in terms of pricing?

Josh Spector:

Yes, thanks, Eric. And I guess I wanted to follow-up just on the margin comments that you made, Scott. So the range that you gave, I mean, it’s different than you go back a couple of years ago, you talked about 45% plus. And I believe at that time, you said you could maintain those margins in a lower price environment. I guess I don’t know if I’m remembering right or if anything has changed, but what accounts for the difference?

Josh Spector:

Okay, thank you.

Joel Jackson:

Good morning, Eric. So I think Eric, you just said you were perplexed how low prices have come down to maybe low 20s here, LCE – so you said you’re considering reinvestment economics. So maybe you could talk about why you think prices have gone down to where they are? Is it lepidolite? Is it African spodumene? Is it something else? What do you think? Everyone is still there?

Meredith Bandy:

Hi, can you hear us on the line?

Eric Norris:

Shanelle, can you hear us?

Eric Norris:

Okay. Okay. Sorry, not sure what happened there. So Shanelle, I’ll – if it’s okay, and you can hear me, just confirming?

Eric Norris:

Okay. So I’ll continue to answer Joel’s question. Joel, so I apologize for the interruption...

Eric Norris:

Yes. So what I was describing is that we do a lot of work to model supply and demand. And if you look last year, this year, next year, remove for a moment, what we know has happened this year, which has been an inventory correction in the supply chain, the industries by our reckoning is operating at us if you look at supply or demand over supply about a mid-90s capacity utilization rate. So that’s the part that’s perplexing. And in any other market, at those levels, you wouldn’t see pricing fall like it has. Now we have had an inventory correction this year. It’s largely run its course, at least at the cathode level in the largest market in the world, and that’s one of the slides we shared with you. Any inventory correction further in the supply chain, we would expect on balance to occur or be behind us or certainly be behind us in the balance of this year. And so as we look forward, we don’t see a rationale for why prices would fall to where they are because they are below reinvestment economics. As we’ve said many times, our concern would be towards the end of the decade that there needs to be a sufficient amount of capacity to serve the EV market. Here we are operating at a healthy – relatively healthy supply-demand utilization with prices where they are. So it’s very difficult to explain how that’s the case, Joel, but obviously, we’re well positioned with our cost position and our go-to-market strategy to weather that storm. It’s just – it’s going to be challenging for the industry at these levels. So that’s our greater concern is future availability and investment in supply to support the transition across the industry. So that’s probably the best we can tell you in terms of our view at the moment.

Kent Masters:

Yes. So that’s the balance, right? I think what we’re saying is we look at our capital programs, and we’re going to cut back where we can. And – but it’s not changing our overall strategy around growth – and again, our cost position protects us with that. So it’s not really the returns on the projects given what we see, but it’s more about the capital that we’re investing while the market is down. So we’re just adjusting the timing on that, and then we will be cautious as we layer those back in over time to make sure that we’re right around pricing.

Operator:

Our next question comes from the line of Michael with Wells Fargo Securities. Michael, your line is open.

Eric Norris:

Why don’t I comment on the demand first. I think it’s an important topic, and then I’ll turn it over to Scott. This is Eric speaking. A couple of facts just to get a flavor of our business today. All of our contracts are performing. We’re able to sell product into the spot markets for that 20%. There is a lot of negative sentiment broadly in sort of media around the marketplace. It happens to be around maybe certain manufacturers announcements. I think you can’t lose sight of the fact that the bigger markets, China, are the bigger producers in the EV space, are continuing to grow their output, and that’s driving healthy demand. It is true that this year demand from a production standpoint – the need for new production is probably underperformed the 40% growth. So the market for consumption it’s been closer to 35% growth year-on-year, where the EV market is growing at 40%, and that’s because of the inventory correction we see or have seen – but looking forward, that’s not a sustainable trend once inventory is running its course, there is a return to normalcy and/or potentially even a restocking that occurs. So we feel very good about what – we see what’s happening now is road bumps, but certainly not a determinant for the long-term growth we have. And as we look out to 2024, we will be bringing on capacity that will allow us to put against those contracts, as I said, are performing well, another double-digit year growth in 2024. As for margins, I’ll let Scott comment.

Michael Sison:

And then I guess, if the industry is running in the mid-90s, and let’s just say demand does continue to grow next year. Stability in pricing hasn’t been the case, right, for the last year or so? I mean do you think there is potential for a quick rise again in pricing? Would that happen if prices – if folks restock?

Michael Sison:

Got it. Thank you.

Jeffrey Zekauskas:

Thanks very much. Your cash flow through the first 9 months was $1.45 billion and you’re expecting cash flow for the year of $600 million to $800 million. Why is the cash flow in the fourth quarter, negative 6% or negative 8%? Is that one-time? Is it ongoing? And what do you make that?

Jeffrey Zekauskas:

Second, just what you said was that your EBITDA margin was being penalized by about 7 to 10 percentage points than your lithium business because of these timing differences. If you look at the EBITDA of energy storage, excluding equity income, in the quarter, it was about negative 15. And so if you take 10% of the energy storage revenues of $1.7 billion, that’s another $170 million. You netted out, that’s $150 million. So it looks like the EBITDA margin on your businesses, excluding Talison is about 8%. And – so what am I doing wrong in the math? What am I missing? And then why do the – so what are the returns on your business, excluding Talison and the changes in inventories?

Operator:

Your next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets. Your line is now open.

Scott Tozier:

Yes. That’s pretty close, Aleksey.

Eric Norris:

Aleksey, hey, it’s Eric Norris. It obviously because of that curve that you referenced on Slide 15, it would vary at any point in time. But in the fourth quarter itself, it’s over $100 million sort of in that $100 million to $200 million range.

Operator:

Your next question comes from the line of David with Deutsche Bank. David, your line is open.

Eric Norris:

It’s Eric again. So, you may recall that we saw the same phenomenon in the – during the first quarter as well when prices took a similar dip and if you – and so there are a couple of factors going on. One, starting first with merchant spodumene producers, those are the producers we refer to as they are buying spodumene on the market, converting it in China. Their cost has – when you start to get certainly at current price levels, actually, probably when you get into the mid-20s and less, they start – their margins start to get upside down. In fact, the prior comment that Scott just answered around the negative margins that were pointed out in the quarter on a non-consolidated basis, for us are an illustration of what a non-integrated producer would be dealing with. So, they shutdown at those prices or they have to, unless they can get their hands on lower-cost spodumene. Spodumene has been coming down, hasn’t been coming down at the same rate. The big question, obviously, that pivot point of when they shutdown depends on when or what the spread is basically to spodumene, but that is currently negative. Lepidolite is a bit of a different story. It’s a much higher cost material to produce and has had – there has been froth with environmental and start-up challenges. So, there has been both a moderation of capacity for those reasons over the course of the year as well as a moderation of capacity for the same reason I just referenced. Un-integrated lepidolite producers who buy lithium in the market and convert it are seeing a similar margin loss at these prices. If you look at lepidolite producers from peak from where they started the beginning the year to now, it’s about a 40% reduction of which about 10% has come offline in the recent few months, some more came off in the earlier part of the year. So, those are the various factors that are driving closures within China at these prices. Obviously, price recovers, they could come back, of course.

Eric Norris:

I don’t know that we have given a guidance fully on that yet. But I mean if you take the demand forecast that we gave you earlier in the year that were multiyear, you would see a similar growth rate projected for next year as we had this year. This year’s growth rate was clipped a little bit by – for lithium consumption. It was clipped a little bit by the inventory correction we saw during the year, but it’s well into the 30s for sure going into next year, we believe.

Operator:

Your next question comes from the line of David with TD Cowen. David, your line is open.

Kent Masters:

So, I think we went through that process a year ago and couldn’t get the value for catching that we were thinking about. So, we rebranded it. we are treating it as a wholly owned subsidiary, and that’s kind of the go forward for the moment. I don’t know that we would think about it long-term as part of the overall strategy. But in the near-term, that’s part of the plan.

Eric Norris:

The best way to answer that, and you are right, every supplier has a different situation and the situation for our partners at Talison that they have unique issues and challenges that are different perhaps than ours. When we look at our rate of capacity addition downstream for conversion, and that includes Qinzhou coming up and includes Kemerton I and II coming up in that part of the world, and continuing to run [Technical Difficulty] in our Qinzhou facilities at full capacity and then look at ramping Meishan later in the year next year. We see demand for more spodumene to obviously serve that growth. We haven’t given precise guidance on what that volume growth is for next year. We will do that in three months’ time. But as I have said, I think earlier, it’s a double-digit type growth we are expecting again, which has a demand on spodumene. Our mandate is to run efficiently in this environment, right, because cash preservation to support our growth is critical. So, we are not in a mode of trying to carry working capital that we aren’t going to put into – convert into cash in a reasonable timeframe. So, building inventories is less of a strategy than ramping production to match the conversion demand downstream. And again, we will give more guidance on all of that in a number of months.

Kent Masters:

Yes, the thinking at the moment is that we will do that in normal course to be the February earnings.

Operator:

Your next question comes from the line of Kevin McCarthy of Vertical Research Partners. Kevin, your line is open,

Scott Tozier:

Yes. Kevin, so that should apply. And just as a reminder, that’s on a full year basis. So, it has to move by $10 over the full year and the full year impact of that kind of 5% to 7% range [Technical Difficulty] it’s a little bit confusing because that moves up and down like we did this year that makes it a little bit harder to track through that. But that ratio carries forward into 2024. Yes. So, the only – I would say we except from that is if you were to get into the contract or it’s correct. So, that number is kind of – when we put that out there, it was a higher number, wasn’t anywhere near the floors.

Scott Tozier:

Yes. I think as you look at that chart, you can kind of see where those lines start to converge and that the trough would be in this fourth quarter of 2023. Of course, as you look at that, you are going to have some impact in the first quarter. So, I think as you look at the next year from that impact that the trough in 2024 would be in the first quarter.

Operator:

Your next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent, your line is open.

Kent Masters:

Yes. So, there is a lot in that question, and it depends on how things play out. I mean I guess the things – we want to make sure that we kind of set fundamentally, we want to be investment grade, and we kind of have a – we have a target or a kind of a ceiling that we kind of work to is about 2.5x around that. So, we want to be – and obviously, that’s under stress period, so we want to stay below that, and we will have to make adjustments to do that, right. So, we want to preserve our organic growth plan that we have because we have got resources for that. Our acquisitions have been focused on a couple of different areas. We will still look at M&A, but it’s not going to be at the same scale that we were frankly looking at six months ago.

Eric Norris:

Well, I mean I think in theory, you are right. I mean there is margin to give from a spodumene mine producer. But then on the other hand, there is market demand, what’s required. That’s the counter effect to price, obviously. And with the amount of capacity that will come off, while the room for spodumene prices to potentially come down at some point, there is now demand for salts in the market that is not being met, and that would turn things the other way around, right. So, it’s about the demand equation, which I think generally speaking, the market is to soft, not the trade, not the lithium market. But the broader global markets, stock markets are a little down on is that the demand is not as weak, we see it as weak as being portrayed and particularly in China. So, as that – and in China, as a reminder, is about 70% of the world’s consumption or production of EVs. So, I think it’s the demand factor that would be the mitigating factor on further spodumene prices. But to your point, I don’t know we know exactly where spodumene prices will go because we keep – it’s hard to predict relative to when there is a stimulus on demand that pulls them back up.

Scott Tozier:

Thanks Vincent.

Colin Rusch:

Thanks so much guys. With the inventory hanging out at these lower levels, we are seeing some new balances in terms of a variety of supply chains. What’s your expectation around where that normalizes in terms of days of inventory? It seems like the industry is running awfully lean at this point. And then if you could also address what you are hearing from some of your longer term OEM customers around concerns on security supply as they adjust some of their EV production plans?

Operator:

Our final question comes from the line of Steven [ph] with Bank of America. Steven, your line is open.

Kent Masters:

Yes. So, we – I mean look, we have a broad R&D program and extracting lithium and converting lithium to salt and other materials is the big part of that. From the program, it sounds like you are referencing would be around direct lithium extraction, which is a variety of technologies. It’s not just one particular thing, but a variety of technologies that tends to be unique for each brine. And we have a program around that, that’s – it’s kind of broad in nature, but it’s very focused on the resource we have in Magnolia and the Salar de Atacama. It would also apply in Argentina as well or to any brine resources. But what – at the moment, the work is particularly focused on the Salar de Atacama and the brine to Magnolia, Arkansas.

Operator:

That was all the time we have for questions. I would like to turn the call back over to Kent.

Operator:

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

Meredith Bandy:

Thank you, Aisha, and welcome, everyone, to Albemarle's Second Quarter 2023 Earnings Conference Call. Our earnings released after the close of market yesterday, and you'll find the press release and earnings presentation posted to our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Scott Tozier, Chief Financial Officer; Netha Johnson, President of Specialties; and Eric Norris, President of Energy Storage are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance and timing of expansion projects, may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation, which also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. Now I'll turn the call over to Kent.

Scott Tozier:

Thanks, Kent, and hello, everyone. On Slide 5, let's review our second quarter performance. Net sales were $2.4 billion, up 60% compared to last year. This nearly $1 billion increase was driven by energy storage as a result of both higher market pricing and higher volumes, which were up almost 40%. Net income attributable to Albemarle was approximately $650 million, up 60% compared to the prior year. Diluted EPS was $$5.52, also up almost 60%, and adjusted diluted EPS of $7.33 was more than double last year. At the end of July, we reached agreements in principle with the Department of Justice on a matter that we initially disclosed in 2018 related to conduct in our catch-in business occurring prior to 2018. Our Q2 GAAP results include an approximately $219 million accrual to resolve this matter. Looking at Slide #6. Second quarter adjusted EBITDA was over $1 billion, an increase of nearly 70% year-over-year, driven primarily by higher pricing as well as higher volumes in Energy Storage. Our Specialties business was down year-over-year due to lower volumes and pricing related to weakness in certain end markets such as electronics and [Technical Difficulty], insurance claim receipts and lower energy costs. Let's look at the updated total company outlook on Slide 7. We are raising our 2023 guidance for net sales and adjusted EBITDA to reflect current lithium market prices. As has been our practice, this guidance assumes recent lithium market price indices are constant for the remainder of the year. And as a result, we have increased the lower end of the range for net sales. We now expect 2023 total company net sales to be in the range of $10.4 billion to $11.5 billion. We expect third quarter net sales to be relatively flat sequentially followed by an increase in fourth quarter net sales as we ramp energy storage volumes. We are increasing our adjusted EBITDA guidance to be in the range of $3.8 billion to $4.4 billion. This implies full year EBITDA margins in the range of 37% to 38%, also up from previous guidance. Our full year 2023 adjusted diluted EPS guidance is also increasing to a range of $25 to $29.50, reflecting a year-over-year improvement of about 25% at the midpoint. We expect our net cash from operations to be in the range of $1.2 billion to $1.8 billion. This is a decrease in outlook driven primarily by 2 factors. First, higher working capital related to the timing of our energy storage shipments. We now expect lithium sales volumes to be weighted towards the back half of the year, particularly in Q4, due to the timing of our growth projects and tolling volumes. This is expected to result in higher accounts receivable at year-end, which will convert to cash in early 2024. Second, this outlook assumes that the DOJ payment of approximately $219 million is made by year-end. Our CapEx guidance has increased to $1.9 billion to $2.1 billion. This increase reflects the revised agreements with Mineral Resources. Following these revisions, Albemarle will maintain 100% ownership of the Kemerton, Qinzhou and Meishan lithium processing plants. Apart from this change, capital spending is in line with previous forecasts. Turning to the next slide for more detail on our outlook by segment. We're increasing our full year 2023 energy storage net sales guidance to be in the range of $7.9 billion to $8.8 billion. Energy Storage volume growth is expected to be at the higher end of the previous range of 30% to 40% year-over-year thanks to increased tolling and successful project execution. We also project average realized pricing increases to be at the higher end of the previous range of 20% to 30% year-over-year, assuming recent lithium market prices continue through the rest of 2023. Adjusted EBITDA for Energy Storage is expected to increase in the range of $3.5 billion to $3.9 billion. This 15% to 30% increase is due to higher net sales, which we expect to more than offset the timing impacts of higher-priced spodumene inventories. In Specialties, we continue to see pressure in our end markets. Weakness in consumer and industrial electronics and elastomers is only partially offset by strong demand in other markets like pharmaceuticals, agriculture and oilfield services. Similar to other specialty chemicals companies, we are reducing our outlook for the full year 2023. Net sales are now expected in the range of $1.5 billion to $1.6 billion, and adjusted EBITDA is anticipated to be between $385 million and $440 million. Q2 is expected to be the weakest quarter of the year. We took advantage of the recent market slowdown to pull forward planned maintenance and reduce inventory to maximize efficiency and free cash flow in the second half of 2023. Ketjen's 2023 full year adjusted EBITDA is expected to be up 325% to 425% over the prior year. This increase in outlook is due primarily to insurance recoveries, which are not expected to recur, as well as ongoing recovery in refining prices and improved processing costs. As a reminder, most of our Energy Storage volumes are sold under long-term contracts with strategic customers. On Slide 9, we've updated our expected 2023 net sales mix to reflect recent lithium market prices. Due to the recent rebound in lithium pricing, our full year 2023 net sales mix is now expected to be 80% index referenced variable price contracts and 20% spot. There's been no other change to our contract philosophy or structure of these contracts. Our strategy to deliver long-term growth remains on track. Turning to Slide 10. We continue to expect year-over-year Energy Storage volume growth in the range of 30% to 40% in 2023. We anticipate coming in at the higher end of that range, primarily driven by the La Negra III/IV expansion, the acquisition of the Qinzhou conversion asset plus additional tolling. With additional conversion assets coming online in 2024, we still anticipate a 20% to 30% CAGR in Albemarle sales volumes between now and 2027. We remain on track to nearly triple sales volumes to more than 300,000 tonnes. Our revised Energy Storage outlook implies EBITDA margins of around 45% for 2023, up from the prior outlook based on higher market prices. As a reminder, year-over-year margins are expected to normalize from the very high level seen in late 2022 and early 2023, primarily related to spodumene inventory lags at our Talison joint venture. On average, it takes at least 6 months for spodumene to go from our mines through conversion to our customers. Last year, we saw dramatic increases in prices for lithium and spodumene. Due to the time lag on spodumene inventory, we realized higher lithium pricing faster than higher spodumene cost of goods sold. This year is the reverse. As prices decline, we are realizing lower lithium prices faster than lower spodumene costs, and we expect the majority of this impact is going to recur in the third quarter. The next item affecting margins is the accounting treatment of the MARBL joint venture. Under the amended agreements with Mineral Resources, we expect to continue to market and toll Wodgina product during 2023. As a result, we will recognize 100% of the net sales from MARBL but only our share of EBITDA. The result is about a 5% lower reported margin for 2023. Finally, our reported EBITDA margins are impacted by tax expense at Talison. Talison net income is included in our EBITDA on an after-tax basis. If you adjusted Talison results to exclude tax, margins would be about 6% [Technical Difficulty]. Turning to Slide 12, we will continue to invest with discipline, allocating our capital and cash flows to support our highest return growth opportunities. Our primary use of capital remains organic growth projects to leverage our low-cost resources in Australia and the Americas. Beyond organic growth, we also consider a broad range of M&A opportunities primarily across 3 areas

Operator:

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

Scott Tozier:

Chris. This is Scott. So we expect the impact of the spodumene cost to be most acute in the third quarter. We'll see a headwind in the fourth quarter that's very similar to what we saw in the second quarter. So again, it will be mostly in the third quarter, and then it will start to abate in the fourth quarter.

Patrick Cunningham:

Can you elaborate a little bit on the strategic rationale for the investments in early-stage hard rock assets in Australia and Canada? Should we expect these regions to be the focus of resource M&A going forward? Or is there anything on the table maybe in South America or the U.S.?

Operator:

Your next question comes from the line of Christopher Parkinson from company Mizuho.

Jerry Masters:

Yes. So look, we've -- few years -- a couple ago, we were talking about acquisition of conversion facilities. We did that at Qinzhou and we've been building those out organically. And we've been talking about pivoting toward resources as we feel like we -- starting to utilize our resource with the conversion facilities that we have. We need to identify additional resources toward the end of the decade, so we're pretty much good to about the end of the decade or so and we need additional resources beyond that. But the lead time given to identify, qualify and then bring a resource on, we need that kind of time. So we feel pretty balanced now. I mean look, the difference between now that we bought MinRes out, we've got full control of those assets. Operationally, it's simpler, it's better, but it wasn't a huge move between. We were probably a little short on conversion. Now we're a little long, but that gives us opportunities to -- if we find a resource, we can bring on quickly, we can process spodumene for our customers. We have some customers that have secured spodumene. We can process that and participate with them in that way. So I don't think it was a major shift and it's not a shift in our long-term strategy. We're still -- we're looking for those resources. We're good pretty much on resource and conversion with the current build program we have close to the end of the decade. But after that, we need more resources.

Colin Rusch:

I have a two part question. One, can you speak to how you're handling volumes that are going to fairly large OEMs in the U.S. and Europe that are a little bit slow in EV ramps? Where those volumes are ending up? And then the second question is around the viability of the pressure leaching process. How do you guys see that as a potential way to simplify supply chain logistics as you move into areas that have a little bit more intense environmental considerations from a compliance perspective?

Colin Rusch:

The potential for pressure leaching processes rather than basically eliminating the asset from the process. Yes.

Eric Norris:

Sure. Colin, this is Eric. With regard to OEM volumes, I would -- just the first comment I would make is that the vast majority of OEM contracted volumes today are future based. They're for mid-decade onwards. More of the supply chain for their lithium needs is secured today through battery producers. We've seen, through the middle of the year, very strong demand, over 40% demand growth in registered EV sales through June. Early data from China on July looks promising as well, so we're not seeing any pressure. We've certainly seen headlines that certain EV models in the U.S. potentially may be slower, but I would caution you that that's a small part of the market. The rest of the market and the demand we're seeing is quite strong. As for the second question, I don't know if you want to address that, Kent.

Operator:

Your next is from the line of David Deckelbaum from TD Cowen.

Jerry Masters:

Yes. I don't -- I mean it doesn't -- I mean, look, it is -- we're spending a little more capital than we had originally anticipated. But it's not -- it doesn't change it dramatically, but we do have to watch balance sheet carefully and be disciplined as we invest. But we need to make sure that we're balanced as we go forward, but we don't give up opportunities. So you see us looking for those resources and investing in those and the opportunities that are public and the ones we've just closed. So it's a combination of getting resources that are near term to the market and then investing for the long term as well. And we're -- we're trying to be very disciplined about this. We watch our balance sheet. We're very serious about that. But we don't want to miss opportunities as they come up.

David Deckelbaum:

It is, Scott. Maybe just a little bit more granular on tolling volumes. Can you give a sense of magnitude of tolling volumes expected in the back half of the year versus the beginning of the year? And was there a point, I suppose, in the first quarter where you might have been withholding tolled volumes just based on market conditions at the time?

Jerry Masters:

Yes. And there's a balance here between -- I mean we're building large conversion assets and ramping those up. We're expanding mines and resources, bringing those on, some with different techniques around that. So tolling is a way that we can balance some of that, and we've been able to leverage that effectively.

Operator:

Your next question comes from the line of Matthew DeYoe from Bank of America.

Scott Tozier:

Yes, so it's a good question. So we continue to see our inventory balances grow. It's really being driven by 2 things

Jerry Masters:

Yes, I'm not sure what -- exactly what Mineral Resources has said on their call, but we have different views of the geopolitical risk between Australia and China. They're an Australian company, we're a U.S. company, and we -- the lithium business is a significant business in China, and we've got significant footprint there and our customers all operate there for the most part. And then we've been very -- we've been public about our pivot to the West, so we plan to serve the Chinese market but also pivot and invest West so we can localize the supply chain in the West for both. And we'll continue to look for resource where we can find it. Australia is a -- I mean it's a stable economy. There's -- geopolitical risk is minimal, and it's a mining district. They understand mining. They understand tailings. It's just -- it's a good location to operate in from a mining standpoint, so we won't be shying away from that, from that standpoint. We'd love to diversify our resource base geographically more, but lithium is tight and where you find the good resource is where you end up going and then you end up having to manage the geopolitical aspects of that.

Jerry Masters:

Yes. And that's -- I think that is the most diverse resource network within the industry, and we would like to continue to build that.

Arun Viswanathan:

Great. Just had a question, I guess, on the guidance construct and the pricing. Obviously, when you move to more index-based contracts last year, definitely was a positive on the cash flow and balance sheet statement point of view. And Scott, you just kind of reiterated some of those benefits and competitive advantages. But obviously, we've also experienced quite a bit of volatility on the lithium price front. So I know it's not necessarily easy to forecast prices there, but that is a little bit more part of the Albemarle operating model now at this point, the lithium spot price environment. So I mean, is that an accurate statement? And how do you feel about providing guidance now with this volatility that we've experienced? So I guess, my concern would be prices again go back down to that $25,000 to $30,000 per ton level. Would you be required to kind of lower your guidance at that point? How do you just think about philosophically about the guidance construct at this point?

Scott Tozier:

The other thing just to remember is given our low-cost resources, our low-cost operations, it allows us to earn throughout the cycle. So we're going to have reasonable margins throughout the cycle, no matter where that price goes. And so I think that gives us more confidence in being able to take this guidance approach as well.

Jerry Masters:

I think if the question about integrating into the resource, I mean, that's fundamental to our strategy to be integrated from resource and conversion all the way to the customers. And we proved that we can guarantee the quality and the production because of the quality of the resource and then we actually do -- we do the conversion. So as requirements become more sophisticated and the lithium products become more sophisticated, we expect to be on the leading edge of that. So that's fundamental to our strategy. And I mean, from a resource standpoint, I mean as we said, we think we are pretty good until the end of the decade. But given the time it takes to develop resources, we need to be identifying and bringing and owning additional resources. We're working on that now. And you see us -- I mean, that's some of the activity that you see from us out there, and that -- we'll continue to do that.

Kevin McCarthy:

A two part question on MARBL, if I may. Scott, would you comment on how margins might change as you execute on the second version of the restructuring of that joint venture? In other words, does the 5% drag that you referenced on Slide 11 go away completely or partially? And then in that same press release 2 weeks ago, you also indicated an acceleration of the Meishan project, and wondering why that's the case? Is it, for lack of a better term, related to an experience curve where you now have greater capability to bring on conversion capacity more quickly than was the case in the past?

Scott Tozier:

Yes, I'll take the MARBL question and the impact on margins. So as part of the restructuring of that joint venture, we've agreed for a period of time to continue to toll volumes out of the Wodgina mine on behalf of MinRes. And so for a period of time, I believe it goes through the middle of next year, we'll continue to have that margin headwind. Once that period is over, we'll end up improving our margin rate ultimately. We'll change the dollars because the EBITDA dollars will be the same, but the margin rate will certainly improve by that 5 percentage points.

Kevin McCarthy:

I see. And as a brief follow-up, if I may. How is that experience at Meishan similar or different to what you would envision for Kemerton III/IV in terms of capital cost and speed of execution?

Operator:

Your next question comes from the line of Mike Sison from Wells Fargo.

Scott Tozier:

Yes, Mike, that's a little far out. It's certainly, given the way that we're giving guidance, it's going to be a volume story next year. Of course, pricing is going to be a question mark that we would have, and it's all based on the contract structures. We're not anticipating to have any big changes in the contract structures. So as that pricing moves, we'd expect to see that trailing kind of 3-month lag to what those indices are. I think scale becomes an important part of the story as well, so that will help on our fixed costs. So you'll see a little bit of improvement there. The operating margins will improve based on productivity. Kent talked about what we're seeing with our -- the Albemarle Way of Excellence and how that's translating into results, so we expect that to play a role in all of our businesses, ultimately. Eric, you have something...

Michael Sison:

Got it. And just a quick follow-up. As you add capacity through '27 or you scale up these projects. Your fixed cost, I think you sort of mentioned, did they go down as we get to the end of the decade?

Operator:

Your next question is from the line of Ben Isaacson from Scotiabank.

Eric Norris:

So Ben, this is Eric. On seasonality, indeed, whether it's ICE vehicles or electric vehicles, there is a crescendo in the year, I guess the demand is stronger in the second half seasonally than in the first. However, I would be careful to say that we had weakness in the first part of the year. We had a weak January, particularly in China, the market did, but that's really China and the timing of the New Year. What happened with price and why we talked about price coming down and the inventory correction was inventory correction was not demand growth. Demand growth has remained strong and has strengthened as the year has gone on. U.S. up over 50%, China, up 45% through the middle part of the year. The only market that hasn't been as strong up in the 20s percent range is Europe, and I think that has a lot to do with some of the macro and other headwinds that we all know about in Europe. But as we look across the year, we still see a 40% growth in the marketplace. So there are certainly lots of macro headwinds we can talk about, but despite these, we still see that secular shift supported by incentives in China. Grid storage has also been a big growth in China recently as well and continued growth outside of China for EVs. So, yes. I guess I'd say on the demand front, be careful to assume that we had a weak first quarter. It was not bad when it ended. Pretty strong actually. The next question, I think to you was -- Ben, what was your second question? Please repeat it.

Jerry Masters:

Salar Yield. Yes. So we've reached mechanical completion and we now -- we're in the process of commissioning that, so that is an efficiency. So we are able to recover more lithium for every gallon of brine that we pump. But one that we have to -- it has to work its way through the Salar system, so there's an 18-month lead time before that -- those products start hitting the sales register, so to speak. So we still use the -- we still use the pond system to concentrate that, and I don't -- I'm not sure the uplift, what would you estimate that at when we get there?

Operator:

And our last question will be coming from the line of David Begleiter from Deutsche Bank.

Scott Tozier:

Yes, David. It's really all price. I mean we got a little bit of extra volume, but it's all just driven by the price indices where they're sitting right now. Obviously, they've recovered off the lows that happened in April and have improved, and we've -- as we've mentioned on the -- in the prepared remarks, we've held them flat in our guidance as of the end of June.

Jerry Masters:

Yes. So we -- I mean we have plans to exploit that. So we have access to the lithium in the Smackover and Magnolia. So basically, everything we pump for bromine today, we would kind of -- an easy answer is that we process that for lithium. It requires different technology, DLE based, absorption based which we have been working on. We have proprietary technology around that. We're doing -- we're building pilot plants at the moment, and we'll be able -- and we plan to execute projects around that, but we want to run pilot plant. It is a new technology, and we're going to make sure that we do it right, but we have access to the brines. We've got the infrastructure at Magnolia. We're well positioned to take advantage of that.

Jerry Masters:

Okay. Thank you, Aisha, and thank you all for joining us today. We are confident in market opportunity and our disciplined strategy to achieve both short-term and long-term results. We are a global leader in minerals that are critical to a mobile, connected, healthy and sustainable future. We continue to work to be the partner of choice for our customers and investment of choice for both the present and the future. Thank you for joining us.

Meredith Bandy:

All right. Thank you, Forum, and welcome, everyone, to Albemarle's First Quarter 2023 Earnings Conference Call. Our earnings were released after the close of market yesterday, and you'll find the press release and earnings presentation posted to our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Scott Tozier, Chief Financial Officer. We also have Eric Norris, President of Energy Storage; Netha Johnson, President of Specialties; and Raphael Crawford, President of Ketjen available for Q&A. As a reminder, some of the questions -- some of the statements made during the call, including our outlook, guidance, company performance and timing of the expansion projects may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation, which also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. A reconciliation of which can be found in our earnings material. And I'll turn the call over to Kent.

Scott Tozier:

Thanks, Ken. And hello, everyone. Let's review our first quarter performance on Slide five. Net sales for the first quarter were $2.6 billion up 129% compared to last year. This is a $1.5 billion increase and was driven by Energy Storage as a result of both higher market pricing flowing through our variable price contracts and higher volumes. Net income attributable to Albemarle was $1.2 billion, up almost 390% compared to the prior year. Diluted EPS was $10.51 also up almost 390% which is another record quarter for Albemarle. Looking at Slide six. First quarter adjusted EBITDA was almost $1.6 billion, an increase of approximately 270% year-over-year. This $1.1 billion increase was almost entirely driven by higher net sales in Energy Storage. Our Specialties business unit was up due to increased pricing and some lower freight costs, which are partially offset by lower volumes. Ketjen declined slightly due to volumes associated with a winter freeze in Texas earlier in the quarter. And importantly, we saw year-over-year price increases more than offsetting inflation in the quarter. On Slide seven, we are adjusting our 2023 guidance to reflect current lithium market pricing. On average, lithium indices are down about 50% to 60% since the start of the year, based on our established guidance methodology, we're taking lithium market price indices as of mid-April, and holding them flat for the balance of the year. To be clear, we are not predicting lithium market pricing, we're simply taking the current price, holding it flat and running it through our contract structure. This is the same way we provided guidance last year. As a result, we now expect 2023 total company net sales to be in the range of $9.8 billion to $11.5 billion. This is up 45% over the prior year at the midpoint. We expect to see sales for the second quarter to be in line with Q1 and then see a sequential increase in sales in both the third and fourth quarters as ramping Energy Storage volumes more than offset sequential price declines. Adjusted EBITDA is expected to be between $3.3 billion and $4 billion reflecting a year-over-year growth of 5% at the midpoint. This reflects a full year EBITDA margin in the range of 34% to 35% for the total company. Our full year 2023 adjusted diluted EPS guidance is now in the range of $20.75 to $25.75, reflecting a year-over-year improvement of 8% at the midpoint. We expect our net cash from operations to be in the range of $1.7 billion to $2.3 billion. And our CapEx guidance remains at 1.7 to $1.9 billion. So we still expect to maintain positive free cash flow for the year. Turning to the next slide for more detail on our outlook by segment. The 2023 Energy Storage volume outlook remains unchanged, up 30% to 40% year-over-year. We now project average realized pricing to be up 20% to 30% for the full year. And note that our realized prices are expected to be up year-over-year in the first half, including in Q2 and then down in the second half. We see volume growth in all quarters. This leaves potential upsides and downsides as the market price shifts during the year. Adjusted EBITA for energy storage is expected to be between $2.7 billion and $3.4 billion, essentially flat compared to 2022. Beginning in the second quarter, we expect to see pressure on EBITDA margins, largely related to the timing of higher priced spodumene inventories. And the increasing impact of the MARBL joint venture. And I'll cover that more on -- I have more on that shortly. For Specialties, we're maintain their guidance range for adjusted EBITDA to be up 5% to 10% compared to the previous year. We expect to see pressure in the second quarter as customers work through their current inventories. However, we expect the second half of the year to be stronger with a recovery of end market demand, particularly consumer electronics. Ketjen’s 2023 full year adjusted EBITDA is expected to be up 250% to 400% over the prior year. This increase in Outlook is due to higher volumes and better pricing. When we look at lithium market prices, we need to remember that most of our volumes are sold under long term contracts with strategic customers. We've updated our expected 2023 sales mix to reflect the recent market pricing. And there haven't been any changes to our contract structures in Q1. We expect our Energy Storage sales to be about 10% on spot, and 90% on index reference variable price contracts. These contracts are typically two to five years and in duration, and are designed to ensure security of supply for our customers as well as to make our sales more predictable. These strategic customers include partnerships across the value chain, including major cathode, battery, and automotive OEM customers. We are more weighted towards the market than we have been in the past. However, we will still have less volatility than a true spot business. Because of the index reference structure of these contracts. They typically have a three-month lag and have some of them have caps and floors. As Ken said, our confidence in the long term lithium market is reflected in our ongoing investments in resources and conversion capacity. As we look at Slide 10, you can see we continue to expect year-over-year volume growth in the range of 30% to 40% in 2023. As we bring on new conversion assets, specifically Kemerton and Qinzhou, plus some additional tolling volume. We still anticipate a 20% to 30% CAGR in Albemarle sales volumes between now and 2027, allowing us to maintain our leadership position and keep up with accelerated market demand. All told, we expect to nearly triple sales volumes to more than 300,000 tons by 2027. Long term, we continue to expect normalize Energy Storage margins in the mid to high 40% range, in line with the outlook that we gave in January. We now expect Energy Storage margins to be about 40% in 2023, primarily based on revised lithium market pricing and the impact of spodumene inventory lags. Most of the year-over-year decline in margins is related to that spodumene inventory lag on average, it takes about six months for spodumene to go from our minds through conversion to our customers. Last year we saw dramatic increases in pricing for lithium and spodumene and due to that time lag on spodumene inventory we’ve realized higher lithium pricing faster than higher spodumene cost of goods sold. As a result, we had unusually strong margins in 2022. This year is the reverse as prices decline, we're realizing lower lithium pricing faster than lower spodumene costs. The next item affecting margins as the accounting treatment of the MARBL joint venture. We expect to report 100% of net sales, but only our share of EBITDA resulting in a lower reported margin rate on that portion of the business. And finally, our reported EBITDA margins are impacted by tax expense at our Talison joint venture. Talison net income is included in our EBITDA on an after tax basis. If you had adjusted Talison’s results to exclude tax margins would be about six points higher in 2023. Turning to Slide 12, we will continue to invest with discipline, allocating our capital and free cash flows to support the highest return growth opportunities. Our primary use of capital remains organic growth projects to leverage our low cost resources in Australia and the Americas. And Kent will speak more about these projects in a moment. Beyond organic growth, we continue to evaluate a broad range of inorganic opportunities to expand capacity to meet our customers' future needs. Our primary targets are in three areas, lithium resources, extraction and processing technology, and battery recycling. We intend to maintain our track record of a disciplined M&A approach that improves returns preserves our financial flexibility with our investment grade credit rating. In line with that strategy, and as previously disclosed Albemarle submitted an indicative proposal to acquire Liontown Resources, a development stage spodumene resource in Australia. We believe this potential transaction would be consistent with our long term growth strategy and disciplined approach to capital allocation. To-date, the Liontown Board is not meaningfully engaged in progressing the transaction, we will provide updates if and when we have more information. Our balance sheet flexibility is a competitive advantage that allows us the opportunity to grow both organically and through acquisition as well as support our dividend. And with that, I'll turn it back to Kent for a market update and closing remarks.

Operator:

[Operator Instructions] Our first question comes from the line of Colin Rusch with Oppenheimer. Colin, your line is now open.

Eric Norris:

Good morning, Colin, this is Eric. So you're talking about -- I didn't get your first part. You said order size and stock clearing, is that what you asked?

Eric Norris:

Yes. Well, look, I mean -- yes, I think what really transpired and what Kent referred to in his prepared remarks, we saw a significant destocking happened in China, which affected the spot market. Our contract customers around the world continue to buy at their contracted volumes, as Ken pointed out. We've seen close to 30% growth in EV sales in the first quarter across the industry and over 50% in the U.S., a little weaker in Europe. Overall, the markets are performing largely as we thought it would of a strong year with what we think will be a tight supply as well. But specifically in the first quarter, with that destocking, we saw the spot market be practically nonexistent at times during the quarter. There's very little activity going on as these stocks were drawn down. Stocks were drawn down the levels at the cathode level and battery level in China lithium stocks to -- and in some cases, below a week, clearly not in the long run, a level that's sustainable for sustained operation. To your question, what we've seen in the past couple of weeks, we've seen spot buyers return. We've seen -- and we believe that's partially what's affecting the price that is popped -- is leveled and then started to rise within China. And we can -- and we see no change in what our projected sales for the year in EVs of about 30% growth anticipated in China, closer to 40% for the overall market. I think the spot orders, it would be premature for me to say how large they are, but they are beginning as these cathode producers now start to restock and prepare for a more stable operation for the balance of the year.

Kent Masters:

Yes. I don't think we have visibility to that. So what we -- we've not seen -- I mean, the specs have not changed or whether people are getting qualified, taking longer to get qualified with some of this -- the newer facilities maybe that's some of the delays that we see, but we don't have visibility whether it's about qualification issues or just about production issues. I don't think we have visibility of that.

Colin Rusch:

Thanks so much, guys.

David Begleiter:

This is David calling here for Dave. Just going back to the spodumene costs, can you talk about where the lower cost spots coming from in Q1 and probably how much was the benefit to margins in Q1? And also, is that higher cost of spodumene from the -- or is it from Greenbushes?

David Begleiter:

Okay. And what was the final cost for Kemerton and I guess what will Kemerton III & IV cost?

David Begleiter:

Okay. Thank you.

David Deckelbaum:

Good morning, Ken, Eric and Scott. Thanks for taking my question today. I wanted to just ask about long-term planning, particularly for you, Scott, how you think about the move to be spending, I guess, about $4.2 billion in '27 versus $1.8 million this year? You point out obviously that your guidance always just illustrates pricing if you held conditions sort of flat today. You talked about this year spending within cash flow. I guess that these conditions obviously persist that you would be outspending cash flow if you followed that CapEx plan. How do we think about that planning cycle while you maintain sort of a long-term structurally bullish view on the market, You're expanding your conversion quite a bit to get to those CapEx numbers? I guess how do we think about that CapEx trajectory every year? And should we expect it to be governed by sort of the beginning of the year outlook for organic cash flows?

Scott Tozier:

Yes. And I would just add, Kent, that given our volumetric growth at these kind of pricing levels, we'll continue to be generating significant cash flow to be able to fund that kind of CapEx growth. So the Albemarle story is not really about the price, it's about the volumetric growth. And the cash generation that's coming from this is significant. So...

Kent Masters:

Yes. So I guess we were surprised by the announcement that came out of Chile. We knew they were moving in that direction. A couple of things we learned in that. But our plans around DLA and our discussions with the government about using that in the Salar are consistent now and before. We're working to progress that as quickly as we can, and we'll do it in a number of places, but there's an opportunity to utilize that in the Salar as well. So I guess our view is -- I mean, we -- our concession goes through 2043, where the government has gone out of their way to assure us that, that's valid. But expansions and getting additional concessions will probably require us to use new technology and probably partner with the government as well around that. So we see that as an opportunity beyond our current concession.

Operator:

Our next question comes from the line of Josh Spector with UBS. Josh, your line is now open.

Scott Tozier:

Yes. So Josh, with where spodumene prices are and the projection that we've made using the mid-April prices, we'll be below that kind of mid-40% range in the second quarter all the way through the fourth quarter. So it's really, again, the pressures coming from that price being lower as well as that spodumene price drop or cost drop that is putting the pressure on the margins. If you were to stabilize that, I think you'd end up being more at the long-term expectations of that mid-40s to low 50% range. So really, this just as a reminder and repeat it again, this margin pressure is really just driven by the velocity and the change in the spodumene price flowing through our P&L.

Scott Tozier:

Yes. So what we do is we're taking our current contract mix as of today or let's just say, mid-April. We're applying the market indices that are referenced in those contracts, flowing that through and that generates what we think -- what the revenue will be. And so as you look at that on a sequential basis, we'll see price reductions each quarter. And as you look at it on a year-over-year basis, our first half of the year, we actually see price increases. In the second half of the year, we're seeing price decreases on a year-over-year basis. And again, that's just really just reflecting how those contracts are structured and the lags that are built into them. And a couple of the contracts have caps and floors that we'll have to take into account.

Operator:

Our next question comes from the line of Mike Sison with Wells Fargo. Mike, your line is now open.

Eric Norris:

Hi, good morning, Mike. So this is Eric. The way I would qualify that as again that the destocking has happened specifically in one country, it's China. Now it happens to be the largest country in the market where almost all the spot volume activity is that's 10% of our mix, as we described on an annualized basis. All of our contracts are everywhere else around the world, including even some long-term contracts that are sourced into China are all operating according to the projected plan prior to beginning of the year prior to any destocking that happened in China, meaning the EV growth story is intact everywhere, all that's happening in China to destocking what's specifically there. And everywhere else, volume continues to flow. We're not seeing destocking as a widespread phenomenon just something in China and specific to the spot market.

Eric Norris:

This is -- everything that's happened and that we've talked about on destocking has to do with a temporal effect in China. It has nothing to do with fundamentally demand that we've seen. It is true. The year started out a little weak in China on demand. Recovered rapidly by the end of March. So we saw a weak start in Europe, but that's a hangover effect, we believe, from what has been expiring incentives largely in Germany and the U.S. started off with a bang for the year. All of that is consistent with our look, our view at the beginning of the year, our view now that we're looking at a 40% year-on-year growth in demand, our customers need the supply. And frankly, we see the market as still being tight for the balance of the year. So this is a market that's healthy in that regard. Independent of what's going on with price now, the supply-demand fundamentals are very favorable.

Mike Sison:

Thank you.

Arun Viswanathan:

Hey, thanks for taking my question. Appreciating that it's a very volatile market that's constantly evolving. Could you just kind of review some of the drivers that you think are influential on price lithium spot prices? And maybe just give some perspective on the market? The declines that we saw were very swift and would indicate destocking and very high inventory levels, especially in China. I know that there's been some other factors like discounting on ICE vehicles over there, but maybe you can just provide your own perspective on what you're seeing?

Eric Norris:

No. I mean I think the market is changing as well at the automotive level. I mean there's now more models, more vehicle producers, aggressive competition for share. So that's a dynamic that's going on within our customer base. But that's the industry rising up to meet the demand that's there for these vehicles. And it doesn't change the need for us to execute well in order to meet our customers' expectations. And as Kent said, the market for spot material is isolated largely to China. And so what you're seeing now is some dynamics playing out in China, which when you think about an inventory drawdown, it's temporal in nature with strong demand. We are going to pretty soon go to a point where many of -- much of the supply chain needs to start restocking in addition to just meeting its growth that move before it

Kent Masters:

Yes. I'm not sure we didn't -- we weren't talking about new capacity coming on that's been delayed. We were talking about converters in China that were shutting down because their math didn't work any longer between lithium prices and spodumene prices. So I'm not sure -- I'm not aware of anyone who's delayed a new project as a result of the current market pricing, although that could be the case, I'm not aware of that.

Operator:

Our next question comes from the line of Vincent Andrews with Morgan Stanley.

Scott Tozier:

Yes, Vincent, I think -- so a significant amount of that increase is due to price. So as the price has moved up, obviously, there's an impact on our -- on the value. Also, we've got increase in volume as we're ramping both the expansion at Greenbushes as well as Wodgina. So you're going to see increases coming from that. And to your point, we did have an accounting change where we've changed how we're recognizing the profit in inventory that now is reflected in our inventory line as opposed to our investment line. That reduces the effect. So those are kind of the muting pieces.

Scott Tozier:

No. It's the same methodology is based on that mid-April -- that mid-April cost. So we don't take -- we're not taking a position on what that's going to do.

Harris Fein:

This is Harris Fein on for Chris. So there's been an effort over the past few years to increase the variable portion of your lithium tons All of your expansion plans are still going forward. It seems in tracking in line with expectations, and you're still generating a lot of cash. But I guess in light of what's going on in the market, can you speak to how comfortable you are with having this level of volatility in your results? Thanks.

Eric Norris:

I also think that it's reflecting -- you can see in our performance that our low-cost resources and our low-cost operations benefits us. So we can handle this volatility better than many of our competitors, just given our cost position as well as our scale. So...

Kent Masters:

Yes. Look, that's speculation, but there's just a longer lag in the way that works its way through our P&L and through the industry. So we kind of rely on what happens in the market where prices get set. It's not that material for us because we're integrated all the way from spodumene into lithium salt. So the real impact it's timing and the tax impact from the joint venture that hits us. That's kind of why you see that volatility. So it's -- but I think it lags just because of the timing of how long it takes to adjust those prices and how long it takes to move that material through the supply chain.

Kent Masters:

There are no more questions?

Joel Jackson:

Meredith, can you hear me?

Joel Jackson:

A couple of questions. So -- and maybe this is simple. I want to make sure that I understand. So when you talk about mid-April market pricing is what you're using for the rest of the year, are you talking about spot indice prices in the market? Or are you talking about so where we were mid-April? Or are you talking about the realized price that was going through your book in mid-April with your lags? And then what is that price level in mid-April that you are referring to?

Joel Jackson:

Great. But that is the unlagged mid-April market indices price?

Eric Norris:

Of course, there will be different in China versus outside China as well is a point yes. But it's -- as you know, they're very

Eric Norris:

Yes. That's correct.

Kent Masters:

We don't look at it that way. We're in the lithium business, and we're fundamental from the resource through to the salts that we sell to the customers, and we think of that as one business. And if the margin moves from one part of the business to the other, there are both ours, it's not that relevant to us.

John Roberts:

Thank you. On your contracts that have caps and floors, do you expect to hit the floor on any contracts in 2023?

John Roberts:

Okay. And then second question. I know it's small, but can you remind us of the main limitations of sodium-ion batteries and why the range won't improve over time for them?

Operator:

Thank you, Mr. Roberts. The next question is from Chris Kapsch with Loop Capital. You may proceed.

Kent Masters:

Yes. So I think what -- I mean we're looking at the market as it is today or middle of April, right? And we're using those spot markets to guide us for the balance of the year by the different chemistry. So carbonate would inform -- the carbonate business and hydroxide would inform the hydroxide business. So we're holding them flat as they were in middle of April from an indices standpoint. And again, the index that are for our different contracts we talked about the main.

Scott Tozier:

That's right. Yes, we've got indices for the different products. You also have different countries, different regions, and some customers actually blend some of the indices. So it's a mix, right?

Eric Norris:

Well, generally speaking, Chris, what we view lepidolite producers is tending to be more integrated producers from mineral resource of lepidolite all the way through conversion. Our comments on what we're seeing and who we'd be tolling with are obviously those who consume spodumene and who have to buy spodumene in the market to run their business. That's where our comments were focused on.

Operator:

Our last question is from Ben Kallo with Baird. You may proceed.

Kent Masters:

Yes. So Eric can probably add details to this. But I would say, I mean we look at it and we think you should look at it our integrated producers are producers that are not integrated, and they probably set the marginal cost right, the ones that aren't integrated. So you spodumene price, you can see, for the most part, it's pretty transparent around that. And conversion on top of that to make a margin that -- those are the marginal producers when -- I guess it moves around depending on where spodumene sits, but you can see that and probably can determine that.

Kent Masters:

And then you see as new resources come on, right, and new technology comes to play, those could very well move out that cost curve as well as lower quality resources come to market with different technologies, that cost curve kind of it grows.

Kent Masters:

Yes. So yes, China is a big part of the market. And historically, it's kind of set that -- all of those -- that pricing historically. I think as the other regions grow and we start shipping volume into other regions, that's going to change. And it will start bifurcating and being different around the world. But I would say now, it's kind of one market. It's kind of -- it looks like it's wanting to separate a little bit, but I would call it one still.

Benjamin Kallo:

And so the IRA the intent of the RA to move supply chain out of China has started impacting the market pricing yet?

Operator:

That is all the time we have for questions. I will now pass it back to Kent Masters for closing remarks.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Meredith Bandy:

All right. Thank you, Glenn, and welcome, everyone, to Albemarle's fourth quarter and full year 2022 earnings conference call. Our earnings were released after the close of market yesterday, and you will find the press release and earnings presentation posted to our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer and Scott Tozier, Chief Financial Officer, Raphael Crawford, President of Ketjen; Netha Johnson, President of Specialties; and Eric Norris, President of Energy Storage are also available for Q&A. I'll note that today's call will be limited to 30 minutes shorter than our usual quarterly updates since we just held an in-depth update about three weeks ago. The replay of that webcast is available on our website. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance and timing of the expansion projects may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation that same language applies to this call. I'll also note that some of our comments today refer to non-GAAP financial measures. A reconciliation to GAAP financial measures can be found in our earnings release and the appendix of our earnings presentation. With that, I'll turn the call over to Ken.

Scott Tozier:

Great. Thanks, Kent, and good morning, everyone. Let's start on slide 5 to quickly review the fourth quarter 2022 performance. Net sales for the fourth quarter closed at approximately $2.6 billion, up 193% from last year, driven primarily by our Lithium segment, but we saw increases in bromine as well. Net income attributable to Albemarle was $1.1 billion for the fourth quarter. Diluted EPS for the fourth quarter was $9.60, which was a record for Albemarle. In fact, it easily beat our previous full year EPS record of $6.34 back in 2018. Turning to slide 6. Fourth quarter adjusted EBITDA was over $1.2 billion, up almost 5.5 times year-over-year. This $1 billion increase was primarily driven by higher lithium prices and increased volumes. As you can see on the slide, this high quarterly results also contributed heavily to our full year increase in adjusted EBITDA of nearly 300%. Our Bromine segment was up slightly. And as expected, our Catalyst segment came in lower in the quarter as higher sales volumes and favorable pricing were offset by a plant shutdown due to the winter freeze in Texas in December. Full year 2023 guidance is unchanged from our strategic update in January. We continue to expect strong sequential sales growth in 2023. And remember, we have assumed flat year-end 2022 lithium pricing throughout 2023. We expect our adjusted EBITDA to be approximately 20% to 45% higher than 2022, with positive trends in all three businesses. Additionally, we expect net cash from operations to rise between 10% and 25% over 2022. And this means we expect to remain free cash flow positive this year even after increasing our growth investments. On slide 8, we expect to see net sales increase sequentially quarter-to-quarter, as our volumes ramp up. We project that our adjusted EBITDA will be evenly split between the first and second halves of the year. And as a result, we anticipate that margin rates will moderate as we progress through the year, and I'll come back to that in a moment. All three of our business segments are looking at healthy growth rates during the year reiterating what we detailed in our January event. Since our webcast in January, a lot of the questions we've gotten are around margins and capital expenditures. So I'll provide some additional color and time on those two items, and then Kent will provide a market update. So let's turn to slide 9. Energy Storage EBITDA margins were 65% in 2022. And then in 2023, a lower impact of spodumene inventory, and increased impact of our JVs is expected to normalize our 2023 margins to around 46% to 47%. Most of that roughly 20 percentage point decline is due to spodumene inventory lags. It takes about six months for spodumene to go from our mines through conversion to our customers. Last year, we saw dramatic increases in pricing for lithium and spodumene. And due to that time lag on spodumene inventory, we realized higher lithium pricing from our customers faster than higher spodumene costs. And as a result, we had unusually strong margins in 2022, particularly in the second half. The next item affecting margins is the accounting treatment of the MARBL joint venture. We expect to report 100% of net sales, but only our share of EBITDA, resulting in a lower reported margin on that portion of the business. As this joint venture continues to ramp up, this accounting impact will increase. We are in active discussions with our partner about restructuring the MARBL joint venture and expect to have news on this soon. Finally, our EBITDA margins are impacted by tax expense at our Talison joint venture. Talison income is included in our EBITDA on an after-tax basis. If you adjust Talison results to exclude this, margins would be about 8% to 10% higher in 2023. Let's turn to our capital expenditures outlook on slide 10. We are investing with three goals in mind. First, to add conversion capacity and remain vertically integrated; second, to invest in new product technology to support battery advances; and third, to build and maintain our world-class resource base. To meet these goals, we expect capital investment to increase from about $1.7 billion to $1.9 billion in 2023 to about $4 billion to $4.4 billion in 2027. About half the increase in capital expense relates to geographic diversification to support customer demand for regional lithium conversion and supply. In 2023, we're investing in our conversion capacity in Meishan in Qinzhou. And as the EV market develops in other parts of the world, we will continue to invest. For example, we are planning investments in North America and Europe, where we estimate capital intensity to be more than double. Second, by mid-decade, we expect to invest more in technology to produce advanced energy storage materials for next-generation batteries. And lastly, we expect to invest in additional resource development. Across our capital spending, about 5% is linked to sustainability, including improvements to new and existing facilities. These investments are expected to generate strong returns, allowing us to continue to invest to support our customers while generating significant free cash flow. With that, I'll turn it over to Kent for a brief market update and closing remarks.

Operator:

Thank you. [Operator Instructions] Our first question comes from P.J. Juvekar from Citi P.J., your line is now open.

Kent Masters:

Okay. So, all right, interesting. So, I mean we are doing a lot of community outreach. It's not so much about the permitting process. It's just kind of how we're doing business when we go about a project like this. So, -- and we expect to continue to do that throughout the life of the mine as we do that and other mines and other sites as well. So, we're just -- we're changing a little bit how we do that, learning from some of the success that we've had in Lithium business, and we apply that to our other sites as well, whether we're mining there or not. But we'll continue to see that outreach. On the -- has the permitting process gotten easier since the IRA, I think there's a tension on it. We are hopeful that it may be a little bit easier and streamlined, but I can't -- we can't say that it's gotten that way yet. That's my view. And then some of the milestones in permitting, Eric, do you want to comment on that?

Kent Masters:

Yes. But even though we're not -- we're filing for permits this year, we've been doing work on gathering data for that process for almost two years, I think, I'm not exactly sure how long, but for quite some time, the data that's necessary for those permits, the history around everything that you have to report on to get the permits. So, it's a process that takes a little time. And even though we haven't formally filed yet, we've been working on that for a couple of years.

Operator:

Thank you, P.J. Your next question comes from David Begleiter from Deutsche Bank. David, your line is now open.

Eric Norris:

David, I would say it has a lot to do with what Kent described in his remarks. We've come off out of a period of time in 2022 of remarkable growth, that exceeded expectations in terms of EV production and was going at a pretty heady pace when the decision was taken to reopen the economy and then -- and of course, you know what happened thereafter. I mean the virus spread quite rapidly, and it did staff consumer demand at a time when seasonally, it was weak anyway because of the Lunar New Year. I think there's much been made about the subsidies as well rolling off, but those have been rolling off for several years. Some of them have been extended at the provincial level, and some of the more meaningful subsidies are at the state and local level anyway. So we don't think that, that's a big issue, and we've certainly seen that in prior years have initially a spike in demand immediately before the subsidy comes off, a drop in demand right after it comes off and then a rebound in demand. Our projection and our customers' view is that this year, particularly in the second half, we'll see that growth that's projected of close to 40%. In the meantime, people are buying under contracts, but not venturing into the spot market and bringing their -- in China, bringing their inventories down quite low, because we're in this post-holiday period with still some uncertainty in the very near term. We expect that to be short-lived though with the demand rebound later this year.

Scott Tozier :

Yes, I would expect that Q1 would be stronger than the second quarter. Again, it's really driven by that inventory lag that we're seeing ultimately as well as the strong prices in the fourth quarter that carry into the first quarter, ultimately. So, ultimately, I think the first quarter is a bit stronger than the second quarter.

Operator:

Thank you, David. We have our next question comes from Jeff Zekauskas from JPMorgan. Jeff, your line is now open.

Scott Tozier :

Yes, I'll take the equity income question and maybe, Eric, you can take the production question. So we'd expect -- if lithium prices stay flat, we'd actually expect the equity income out of Talison to increase. If you remember, the transfer price out of Talison is on a, at least historically been on a six-month lag. It's now shifted to a three-month lag. And so that -- the increases that have happened last year will start to flow through in the first half of 2023. So I'd expect it to be higher. Eric, do you want to talk about production?

Jeff Zekauskas :

Okay. Great. And you spoke of your first half and second half lithium EBITDA as being comparable. Given that there's so much more production coming out of Chile. Why would that be the case? Shouldn't your volumes be stronger in the second half of 2023?

Jeff Zekauskas:

Okay. Great. Thank you so much.

Stephen Richardson:

Hi. Good morning. I was wondering if you could dig in a little bit on the European strategy. It seems clearly, in China, you've acquired and built conversion capacity. And in the US, it looks like things are really centered at Kings Mountain. Could you talk a little bit about Europe in terms of how you're thinking about how this evolves? I know it's early, but -- is this an area where we would see you bring material from either Chile or Western Australia? And then do you envision yourself partnering or doing more of a greenfield as it comes to supplying on the continent?

Eric Norris:

Yes. So Stephen, it would be a greenfield site as there really are no brownfield sites for such capacity in Europe today. And we've gone through a site selection process and looked at numerous countries and haven't drawn that down close enough yet to make an announcement or to say anything publicly further about it. But that being said, it would be a plant that would be modeled very intentionally after what we've done here in North America or we want to do in North America, I should say -- around a plant that is able to process a variety of different feedstocks. I can't mention Chile. That would be a carbonate feed or spodumene or derivative of spodumene coming from Australia into Europe and also having the ability to have recycling. We very much view that kind of strategy being one that has an opportunity for a partner, whether that be an OEM or other producers in the battery supply chain in the region. And we don't have anything further we can say about that, but that's an effort that remains underway in terms of how we might partner to bring about that closed loop process in addition to the sort of the virgin lithium production we intend to put on the continent.

Kent Masters:

Yeah. So yeah, I would say – I mean, you're right. We're not committed to it. So we will look, as things evolve and go, that's our best view. We put a five-year plan out there. That's our best view – the best view of what we'd be doing over five years. So – but any capital that we'll be investing in 2027 will be for 2031, 2032 market. And it's a pretty long way to be able to predict that from here. So it's – we don't want to go past that five-year forecast that we put out there. It could level off. I mean, it just depends on what the market looks like, and we'll know a lot more in five years' time than we do today. But any capital we're spending in 2027 is that's for 2032 or 2031, whatever the time frame is around that. And then it's important to note that, our CapEx program becomes more resource oriented. I mean, it will be – it's been conversion in the near-term, because we've had the resource. It will be more balanced between conversion and resource as we get out into that time frame.

Operator:

Thank you, Stephen. We have our next question comes from Christopher Parkinson from Mizuho. Christopher, your line is now open.

Kent Masters:

Okay. So – and I guess, I mean, Qinzhou is operating, and it will ramp up. So there are make rights we have to do – we have to do there. So even we're operating today, we'll have to take it down to do those make rights to get additional volume, and there's a potential to expand at Qinzhou as well, but that's not a project that we're executing at the moment. So that's – we want to get up the speed and operating, but it's operating today, and we'll probably – it will ramp up over the next year, I think, to kind of the full capacity, acquisition capacity, which is around – we target at 25,000 tons. Kemerton is making product today, but we're not selling in the product because we need to get qualification from our customers. So we're – that's where we are. And then that will ramp over time – and we've – the strategy – originally, the strategy at Kemerton was to execute both train simultaneously. We've bifurcated that, because we struggled with labor during the pandemic and still, frankly, struggle with labor at Kemerton. So we're sequencing the commissioning and implementation. So Train 1 is operating and making product. Train 2 is not, and it's probably six months behind Train 1, I would say. And then that will ramp over time. We've always said, we ramp those projects, we planned those projects to ramp from start-up to full capacity over a two-year period. And I think that's probably the -- still the rule of thumb that we're following. And is there another part of the question?

Kent Masters:

Yeah. So probably nothing new since the call a few weeks ago. So we're still looking at the site selection for a conversion facility to convert the Kings Mountain or Silver Peak, we've expanded and it's operating at that expansion rate, maybe a little bit more ramp-up to do at Silver Peak, but it's operating at that higher rate. And then the other would be Magnolia or -- and that is a little bit further out, but we're making progress there and planning that project, but we've not kicked it off from an FID standpoint yet.

Operator:

Thank you, Christopher. And our last question comes from John Roberts from Credit Suisse. John, your line is now open.

Scott Tozier:

It's actually -- on the equity income, it actually goes up in the first half, through the first half. So -- and then we'll see volumetric increases out of that as well. So it actually increases through the year sequentially.

Kent Masters:

So not a real update. Scott had said in his comments that we continue to talk with our partners and that we expect to be able to announce something soon, but nothing for today.

Operator:

Thank you, John. Ladies and gentlemen, that's all the time we have for questions. I will now pass the floor back to Ken Master for closing remarks.

Operator:

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.

Meredith Bandy:

All right. Thank you, Alex, and welcome, everyone, to Albemarle's Third Quarter 2022 Earnings Conference Call. Our earnings were released after the close of market yesterday, and you'll find the press release and presentation posted to our website under the Investor Relations section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer and Scott Tozier, Chief Financial Officer, Raphael Crawford, President of Catalyst, Netha Johnson, President of Bromine and Eric Norris, President of Lithium, are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance and timing of expansion projects may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about forward-looking statements contained in our press release and presentation, that same language applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. A reconciliation to GAAP financial measures can be found in our earnings release and the appendix of our earnings presentation. Lastly, I would like to highlight that in January, we plan to host a webcast to provide our full year 2023 guidance and new five-year targets for our restructured businesses. With that, I will turn the call over to Kent.

Scott Tozier :

Thanks, Kent, and good morning, everyone. I'll start on Slide five. Diluted EPS for the third quarter was $7.61 dollar compared to a loss of $3.36 dollar in the prior year period. As a reminder, last year was negatively impacted by a settlement of a legal matter. Adjusted diluted EPS for the third quarter was $7.50 dollar, 7 times the prior year EPS of just over $1.00 dollar. This overall performance was driven by strong net sales and margin improvement for the total company. Albemarle generated third quarter net sales of $2.1 billion, up 2.5 times year-over-year due to ongoing momentum in the Lithium and Bromine businesses. Adjusted EBITDA margins improved from 26% to 57% this year. Let's turn to Slide six for more details on adjusted EBITDA. Third quarter adjusted EBITDA was up $1.2 billion, nearly 450% increase year-over-year. This strong growth continued to be driven by higher lithium EBITDA that was nearly $1 billion higher than last year. In fact, lithium's Q3 EBITDA was more than double what we generated in all of last year. This record performance for the Lithium segment was driven by higher realized pricing, which was up nearly 300% and higher volumes that were up 20% versus the prior year quarter. Lithium adjusted EBITDA margins of 74% were more than double the previous year. Margins are expected to moderate in the Q4 and into next year for several reasons. First, a spodumene shipment from Talison originally expected in the fourth quarter occurred in Q3, resulting in a $100 million benefit in equity income. This benefit is not expected to reoccur. Second, margins benefited from the timing of spodumene shipments and the rapid rise we have experienced in spodumene and lithium prices. It takes up to six months for a ton of spodumene to navigate our supply chain from the mine to the customer. This has given us above-average margins in 2022, particularly in Q3 because we are selling at higher lithium market prices, but cost of sales is based on lower-priced spodumene held in inventory. Note, we would not expect this benefit to repeat in 2023 unless we see a similar rise in spodumene and lithium prices from current levels. And third, as the MARBL joint venture starts to generate revenue and earnings, we anticipate some margin rate reduction. This is because the MARBL joint venture is being reported under a distributor model. Under this structure, we report -- Albemarle reports 100% of the revenue but only our pro rata share of earnings. We would expect overall, a return to more normal Lithium margin levels in the mid-50% range in Q4. Bromine was also up compared to the prior year, primarily due to higher pricing, up 18% and volumes up 10%. However, we are beginning to see softness in some bromine markets, which I'll talk about in a few minutes. Catalysts EBITDA declined versus the year ago quarter as higher sales volumes and pricing continue to be more than offset by cost pressures, particularly for natural gas in Europe and raw materials. Moving to Slide seven. We are tightening our ranges from the increased 2022 outlook we provided last quarter. This reflects the continued strength in execution in our lithium business and more modest growth in bromine while our Catalysts performance is in line with our expectations. We have narrowed the ranges for the full year 2022 guidance as follows, net sales of $7.1 billion to $7.4 billion, more than doubling versus last year, adjusted EBITDA of $3.3 billion to $3.5 billion, reflecting a year-over-year improvement of nearly 300%, and adjusted diluted EPS of $19.75 dollar to $21.75 dollar, up about 5 times from 2021. We still expect to have positive free cash flow for the full year. And assuming flat market pricing, we expect to continue to generate positive free cash flow in 2023, even with continued growth investments. Security of supply remains the number one priority for our customers and we continue to partner and work closely with them to meet their growth requirements. Let's look at the next slide for more detail on our outlook by segment. Lithium continues its stellar performance. We maintain our expectation for the lithium segment's full year 2022 adjusted EBITDA to be up more than 500% year-over-year as strong market pricing flows through our index referenced variable price contracts. Pricing growth is expected to be 225% to 250% year-over-year resulting from our previously renegotiated contracts and increased market pricing. We also continue to expect year-over-year volume growth in the range of 20% to 30%. The current guidance range for the lithium segment reflects the potential upside for spot price improvements and the potential downside of volume shortfalls for the remainder of the year. For Bromine, we are slightly modifying our full year 2022 EBITDA expectations with year-over-year growth at the lower end of our recent outlook of 25% to 30%, but that's still above the outlook we had earlier in the year. The modification in our expectations reflects emerging softness in some end markets, such as consumer and industrial electronics and building and construction. The slowing in construction is a natural consequence of higher interest rates. Full year volume growth is also projected to be at the lower end of previous guidance for a 5% to 10% volume increase. For Catalysts, we expect full year EBITDA to be down between 45% and 65% year-over-year. We noted earlier that this market is being affected by significant cost pressures primarily related to natural gas in Europe affected by the Ukraine war, certain raw materials as well as freight and is partially offset by higher sales volumes and pricing. We are beginning to realize some price increases associated with natural gas surcharges and inflation adjustments, and those are expected to ramp up in Q4 and going into next year. Turning to Slide nine for an update on our lithium pricing and contracts. This slide reflects the expected split of our 2022 lithium revenues. Battery-grade revenues continue to make up approximately 85% of our Lithium contracts. Our revenue and contract mix are unchanged from last quarter. We remain committed to long-term contracts with our strategic customers, and most of our volumes are sold under two to five year contracts. The market index structure of our contracts allows us to capture the benefits of higher market pricing while also dampening volatility. It also means that neither Albemarle nor our customers are too far out of the market. From the beginning of the year to today, market indices are more than 100% higher on average, moving from about $35 dollar per kilogram to over $70 now. After holding at these levels for the last six months, indices recently ticked up again, thanks to healthy EV-related demand, particularly in China and North America. If price indices remain where they are, we would expect to realize healthy double-digit percentage price increases in 2023. Slide 10 shows the expected lithium sales volumes, including technical-grade spodumene and tolling sales. In 2022, as I said, we are looking at volume improvement of 20% to 30%, largely due to the expansion at La Negra, additional tolling, and some Qinzhou volumes. Volume growth in 2023 is expected to be north of 30% as La Negra, Kemerton and Qinzhou continue to ramp plus additional tolling volumes. Based on current project time lines, we see room for further upside in 2025 from additional conversion assets such as our greenfield plant in Meishan. Turning to Slide 11. Our strong net cash from operations and solid balance sheet support continued organic growth and our ability to pursue acquisitions that complement our growth strategy. Our balance sheet includes $1.4 billion of cash and available liquidity of over $3 billion. Since last quarter, net debt-to-adjusted EBITDA improved to approximately 0.9 times and should end the year between 0.6 times and 0.7 times. These levels give us excellent flexibility. During October, we upsized and extended our revolving credit facility to reflect our larger scale and position us well in case of market turbulence. Over 90% of our debt position is at a fixed rate, which safeguards us against the impacts of a rising interest rate environment. Knowing that the economy is on everyone's mind, let's turn to Slide 12 for more on the macro environment. We expect all three GBUs to grow in 2023 even in the turbulent market environment. But it's going to look different for each of our businesses. For example, in lithium and bromine, our vertical integration and access to low-cost resources helps control our cost structure. While approximately 45% of our costs come from raw materials and services, 20% of those relate to our own spodumene. We continue to expect strong demand for lithium driven by the secular shift to electric vehicles, including OEM investments and public policy support. We are watching to see how rising interest rates impact luxury vehicle sales in the short term, but we expect EVs to continue to grow and gain market share just as we saw in 2020 during the peak of the COVID pandemic. Of the three businesses, Bromine and our Lithium Specialties demand is likely the most leveraged to global economic trends in consumer and industrial spending, automotive and building and construction. At the same time, they benefit from having diverse end markets, meaning they can allocate production to higher growth or higher margin end markets as needed. Bromine and lithium specialties also tend to rebound quickly after a recession. Finally, Catalysts demand is closely linked to transportation fuel demand. In a typical recession, Catalysts is relatively resilient. Think about it this way. Oil prices generally drop in a recession and that drives higher fuel demand, which equals higher catalyst demand for refining. And typically, the Catalysts business would benefit from lower raw material costs in a recessionary environment. Before I turn the call back over to Kent, I wanted to briefly reiterate our capital allocation priorities to support our growth strategy as seen on Slide 13. Investing in high-return growth opportunities remains our top capital allocation priority. We remain committed to strategically growing our lithium and bromine capacity in a disciplined manner. For example, the Qinzhou acquisition we just closed allowed us to accelerate growth and meet our return hurdles. Maintaining financial flexibility and supporting our dividend are also key priorities. As we saw during the COVID pandemic, maintaining an investment-grade credit rating and a strong balance sheet are key to executing our growth strategy and weathering temporary economic downturns. Now I'll turn it back over to Kent.

Operator:

[Operator Instructions] Our first question for today comes from P.J. Juvekar from Citi. P.J. Your line is now open.

Kent Masters :

Good morning. P.J. So, no, not 10 times. I wouldn't -- I mean it's going to be more expensive to build in the U.S. than China. So we -- but we built in Australia now, and we're building in China. So, we've got a good handle on that. So, we think North America will be something like Australia and say for, and that might be twice China, but nothing like 10 times.

Kent Masters :

Yes. So, we're building pretty aggressively, and we need both elements. We need the resource and then we need the conversion assets. So, I mean, between balancing those, we're keeping less in balance and moving pretty much with the market. We may be half a step behind. I don't know that we wanted to 3 or 4 facilities in the U.S., I don't think we could feed those. I'm not sure that would make sense. We would do -- I mean, our plan is we'll do this large facility that we're looking at in the conversion site in the U.S. That's going to be a big facility and probably do another one at that scale, but we have to have the resource defeated.

Kent Masters :

Yes, it's a good point. And that's probably will be a little smaller facility just because of the resource from the direct lithium extraction. But that is a slightly different time frame than the conversion facility in the Southeast.

Kent Masters :

What was the question? What is the site? We have [indiscernible] southeast...

Kent Masters :

Okay. Sorry. So, the size of -- we're planning 100,000 for a conversion facility of 100,000 tons. It will come in phases. But the idea is roughly 25% would be from recycled materials, 75% from virgin material.

Operator:

Our next question comes from Matthew Deyoe from Bank of America.

Scott Tozier :

Yes. So, if you look at IGO's report, they show Talison's full equity -- full net income for the quarter. One thing to remember is for Albemarle, once we buy spodumene, we have to inventory that profit until we actually sell it to the end customer. And so that adjustment is kind of the reconciling item. And one way to kind of look at it is because of that six-month supply chain that I talked about in the prepared remarks, you actually go back to first quarter of this year, and that amount versus the amount in the third quarter is about what that inventory adjustment is.

Kent Masters :

Yes. So that -- it's a good question. And what we are -- I mean you get lower capital, we referenced that kind of like half the capital to do that in China. The Qinzhou acquisition was good for us. So, we'll look at -- once we operate that for a while and get a good understanding, we'll look at expanding it. Probably, most likely, we'll expand that. And then we've got the Meishan project that we're doing there. And then we had a project that we were looking at Zhangjiagang, and that's another one that we think about, but we're -- as demand grows. So China is still the largest lithium market in the world, and their growth is quite significant. We've got demand growing in North America and Europe now. So, we're trying just to balance that, manage the opportunity and minimize the risk. So, I think that that's something that we look at all the time. Our plans -- our firm plans at the moment are -- we've done the Qinzhou acquisition, and we're building the Meishan project. And we're planning to do an expansion of the Qinzhou facility but we won't actually have to pull the trigger on that because we want to get a little bit of operating experience with that plant. And then change the design somewhat when we do the expansion. So, we look at it all the time and something that we just adjust to as to what's current.

Aleksey Yefremov:

Thank you and good morning every one. The lithium volume guidance for this year is 20% to 30% and you posted 20% year-over-year in third quarter, 18% in the second. So, is it fair to say if you're trending towards the lower end of this guidance for the full year at this point?

Eric Norris :

Aleksey, I'd just add that, that has always been the case, is that because of the nature of the ramp of our plants, both La Negra, Kemerton, Qinzhou coming into the full, we've always been back half loaded. The challenge we had in the third quarter was on the production side, mostly in tolling in China due to brownouts -- rolling brownouts in the region and how that impacted operating rates of our tollers ability to toll convert. As we go into the cooler time of the year where we don't expect and have not seen those, obviously, now with the weather being warmer, we expect higher production rates on the tolling side plus the continued ramp up these plants as Scott referenced, that our owned plants. So, we'd expect to get into the middle of that guidance with a strong volume performance in the fourth quarter.

Kent Masters :

Yes. I mean I don't know if we have specific thoughts on it, but we are always looking at lithium assets. We were kind of comb the planet for lithium assets. So, if they're interesting, we would be looking at them, but nothing to say on those particular assets today.

Arun Viswanathan:

Grate, thanks for taking my question. Congrats on the good results here. Just wanted to, I guess, maybe ask you guys to elaborate on some of the market movements you're seeing. You noted there's been some recent strong demand in EVs is moving prices higher. What's kind of the outlook as you look into the next couple of months? And could you also comment on potential elasticity impacts on EV demand, if there are any? What have you observed as far as demand trends kind of accelerating or decelerating on price increases?

Arun Viswanathan:

Okay. Great. And then just on the upstream resource side, we've been hearing reports that in some of the recently announced projects on the spodumene side may be difficult to move ahead just because of the increase in price and the capital that's required to develop those projects. Is that something that you're observing as well? And if so, what impact should that have, I guess, on spodumene and downstream hydroxide markets, if any?

Arun Viswanathan:

Yes, both. There is -- we've been hearing there's been some increase in spodumene costs, both the capital costs as well as the acquisition costs are prompting some recently announced projects to get delayed. I don't know if that's -- at least that's what we've been reading.

Scott Tozier :

Ultimately, it's another example of how lithium projects take time and effort and challenges to get through it. That's not an easy thing to go through.

John Roberts:

Thank you. Will the Megaflex plant be hydroxide or carbonate or both? And will the production trainer align campaign specific types of feedstock or -- and then switch back and forth? Or will it run a continuous blend of mixed feedstocks?

Eric Norris :

So that's where -- John, just to add. That's for some of the know-how and the process technology advantages that we have comes into play as we design that. But to go back to the first part of your question, the initial trains were targeting hydroxide at the moment. That's how it's -- we're looking at a 50,000-ton plant, and we're looking at what we've built in China, what we built in Australia. We're taking the learnings in the best and developing that into a plan for execution here. We'll watch the carbonate market development very carefully. With the recently passed IRA, it's very possible that more LFP capacity could come into the U.S. That being -- excuse me, cathode capacity. If that's the case, there could be a justification of future trains should be carbonate. We'll have to watch that carefully.

Scott Tozier :

Yes, John, we're still working through that. Likely, it will come through at cost, but we haven't sorted through all the details yet. So, we'll let us share that in our January meeting.

Vincent Andrews:

Thank you, good morning every one. Are you still looking to potentially change your relationship with Mineral Resources or the JV terms? And could you also provide an update on the Wodgina restart? And do you think that as debottlenecking opportunities or potential to operate sort of above prior nameplate?

Vincent Andrews:

What would be -- what's prohibiting you from going forward with the third train?

Operator:

Our next question comes from Kevin McCarthy of Vertical Research Partners. Kevin your line is now open.

Kent Masters :

So, has it been a couple of months? That's -- but it will -- I don't know that it directly impacts our economics, but it's changed the market a bit. I mean there's more requirement for local supply in the U.S. and then supply from countries with free trade agreements with the U.S. And actually, it works out, we're well positioned for that, and we had planned to have -- we were planning the Kings Mountain facility and conversion in the U.S., but that is accelerating that, I would say, trying to go as fast as we can. We did have plans already on the books before that happened, and this just kind of makes it more critical. So, I know -- now that you translate it specifically into our P&L, but it does drive demand toward North America and to localize supply to as much as possible, and I think it will accelerate EV demand in North America.

Eric Norris :

And finally, Kevin, that's immediate topic you asked, I'll just add that it has an impact on purchasing behaviors. We're seeing a real not surprising interest for those who have U.S. based production to preferentially put a premium in their view on sourcing from free trade countries or from the U.S. itself. So, we'll be carefully sort of segmenting our customer base and looking at how we create the right value for ourselves and for our customers in terms of how we go to market and bring that and price that product in the marketplace.

Scott Tozier :

Yes. So, when I said that it's really based off of market indices that are where they are today, so there's really two big effects happening as we go into next year. One is just the annualization of what we experienced in 2022. And then the second is we continue -- Eric and his team continue to work on those fixed price contracts and convert those to the index reference variable contracts. So that's going to have a benefit for us as well. And while we haven't provided specific guidance, the kind of ranges we are talking about are kind of healthy double-digit price increases next year. So again, contributing to what we're expecting to be another strong year of growth from Lithium. And we're seeing it from all three of our businesses, to be honest, even in the face of potential slowdowns.

Josh Spector:

Thanks, take my question. So just on the lithium contracts and some comments you made earlier. So your index references contracts used to be labeled a three to six-month lag. Now they're about three months. You talked about moving more fixed price over to those types of contracts. I guess the duration continues to get a bit shorter. I'm just wondering, should we expect that duration to approach less than three months, say, one month at some point in the future? Or is three months’ kind of the right range that you're finding customers want to two and four?

Josh Spector:

Okay, thanks. And just on the DOE grant that you guys received. Is there a potential for you guys to receive more than one of those? I don't know if there's a limit per company or something else we could consider about additional support if you were to build additional facilities in the U.S.?

Operator:

Our next question comes from David Begleiter from Deutsche Bank. David your line is now open.

Eric Norris :

Look, I think -- well, certainly, when we get into our January investor outlook for '23 and beyond, get into more details. But in the meantime, I apply the same rule of thumb we've applied all along, which is it takes up to two years to fully ramp to nameplate capacity. And you would expect that ramp to start with upon commissioning a six-month lag for qualification of the customer base. And in the first 12 months, getting to about half or slightly thereabouts of the capacity of any one of those plants. So -- we are -- just to put that into practical terms, we are now expect to sample for qualification Kemerton I this quarter, and we'd hope to early or during the first half of next year begin sampling for the second train and then you can apply those rules of thumbs I just outlined.

Eric Norris :

I don't -- it's very hard. I can only tell you, I think that the uptick of late has been a recovery in the market in China, in particular, from a demand perspective. And that has caused prices to -- they modulate -- moderated rather a bit in the middle part of the year and to come back up again. Where they go from here, David, hard to say. What we do know is as we look into next year, we still see a tight undersupplied market. So, the dynamics are going to be favorable for strong prices. What that means for a point estimate of Chinese spot prices is a tough one to come up with.

David Deckelbaum:

Good morning. Thanks, take my question. I wanted to just talk about IRA compliance. You highlighted, obviously, the fact that you have active production and conversion and free trade agreement countries. I just wanted to confirm whether it's your view that would you be selling qualifying materials from Kemerton or La Negra into the United States? Or would Kemerton be feeding U.S. customers? Or is that predominantly going to be feeding the Chinese market?

David Deckelbaum:

I appreciate the color there. Perhaps my follow-up, there's a lot to ask here. But with the January update on your '23 outlook in the context of some of the U.S. expansion, the Megaflex site, Kings Mountain, you highlighted, I think before, Kent, that you'd aim to have these perhaps online in '27. Is that specific to just the Megaflex site? Or would that include Kings Mountain as well? And do you expect to have a capital program for those assets envisioned in 2023, perhaps even in January with this announcement and start beginning the permitting process next year?

Operator:

Our next question comes from Joel Jackson from BMO Capital Markets. Joel your line is now open.

Scott Tozier :

Well, I mean, Joel, I'd say where the indices are today, that you'd have to say that they're better than what they were a quarter ago. However, recognize that there's room for movement either up or down from that depending on how those indices move.

Scott Tozier :

I got to think through the math there because there are a lot of different contracts with different caps on them that we've got an account. I don't know, Eric, have you got a gut feel for it or I have to get back to Joel.

Operator:

Our next question comes from Christopher Parkinson from Mizuho. Christopher your line is now open.