Q2 2022 Livent Corp Earnings Call
Good afternoon, and welcome to the second quarter 2022 earnings release Conference call for <unk> Corporation.
All lines have been placed on listen only mode throughout the conference.
After the speaker's presentation, there will be a question and answer period I.
I will now turn the conference over to Mr. Daniel Rosen Investor Relations and strategy for <unk> Corporation. Mr. Rosen you may begin.
Thank you Dennis good evening, everyone and welcome to live in the second quarter 2022 earnings call. Joining me today are Paul Graves, President and Chief Executive Officer, and Youll, Burrito, and Tony <unk> Chief Financial Officer.
The slide presentation that accompanies our results along with our earnings release can be found in the Investor Relations section of our website.
Paired remarks from today's discussion will be made available after the call.
Following our prepared remarks, Paul and Gilberto will be available to address your questions given.
Given the number of participants on the call today, we are requesting limit to one question and one follow up per caller, we would be happy to address any additional questions. After the call.
Before we begin let me remind you that today's discussion will include forward looking statements and are subject to various risks and uncertainties concerning specific factors, including but not limited to those factors identified in our release and in our filings with the Securities and Exchange Commission.
Information presented represents our best judgment based on today's information.
Actual results May vary based upon these risks and uncertainties.
Today's discussion will include references to various non-GAAP financial metrics definitions of these terms as well as a reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP are provided on our Investor relations website and with that I'll turn the call over to Paul.
Yes.
Thank you Tom good evening everyone.
<unk> had a very strong second quarter performance with the business achieving record levels of profitability.
To provide some perspective license Q2, adjusted EBITDA of $95 million compared to $16 million, one year ago, or nearly six fold increase of $53 million last quarter.
And the exceptionally strong lithium market, we're seeing this year.
<unk> has continued to achieve higher realized prices across its entire product portfolio.
Given our expectations for the lithium market remains structurally tight at least into the first half of 2023 <unk> has raised its full year 2022 financial guidance.
With our realized volumes in 2022 still expected to be flat compared to 2021. This improvement is driven by higher pricing across all of our lithium products as well as increased confidence in our ability to navigate this environment of higher costs.
<unk> now expects 2022, adjusted EBITDA to be in the range of $325 million to $375 million or.
$13 million improvement at the midpoint from prior guidance.
Last week, <unk> and General Motors announced that we had entered into a long term supply arrangements. This is based on a six year agreement.
Lithium hydroxide to GM beginning in 2025 as part of this new relationship GM is providing a $198 million advance payment to ligand, which will be paid to us in 2022.
This payment reflects the giant commitment of license and general motors to build a long term supply relationship and establishes a strong foundation for expansion over time.
This contract is structured like all of our long term hydroxide agreements and that it pops responsibility on general motors to fulfill its obligations in the form of take or pay commitments and puts an equal responsibility on ligand to do what is needed to meet both the committed volumes and the ever tightening.
Qualifications being demanded by the next generation battery producers.
To be clear the prepayment is structured is exactly that.
Fixed amount per metric ton for supply committed by items, which will be credited over the life of the agreement.
It's delivered to general motors in its battery partners.
This is a real mutual commitment not a non binding Mou are similar and we believe these are the kind of commitments that can only be made between proven integrated lithium producers such as license and then iconic name in the automotive industry such as general Motors that has an advanced and credible plan to succeed.
And the transition to electrification.
This type of structure is important to ligand since it increases both our financial flexibility.
And our certainty as to how light on funds and executes its capacity expansion plans.
As we continue to scale customer prepayments allow us to accelerate our expansion capabilities and make it easier for us to make significant commitments to customers regarding future volumes.
Although our ongoing growth projects will result in significantly higher production volumes in the coming years, we know that we cannot sell to the entire market.
This is because we want to be a meaningful supplier to a core set of long term strategic customers and theyre battery supply chains.
But also because the lengthy timeline and challenges associated with the getting qualified in battery grade lithium hydroxide.
The need for longer dated agreements with firm commitments.
With all of that said entering into a new relationship with general Motors is a logical and straightforward decision alliance we.
We held a shared commitment to sustainable and responsible operations, we wanted to bring greater predictability to our supplier relationships and we have a strong desire to strengthen and localize electric vehicles supply chains in the western hemisphere over time.
Both companies also have complementary businesses and investment plans in Argentina, and in Quebec, Canada.
<unk> expects to continue to expand its Americas footprint over time, while also continuing to add to its capabilities in other key regions.
Starting on slide four I want to highlight the publication of our 2000 22021 sustainability report last month and talk briefly about why sustainability is so critical to the discussion of electric vehicles lithium ion batteries and the lithium industry.
At the heart of the EBIT evolution is the growing global agency for Decarbonization and climate change solutions, including reduced reliance on fossil fuels for transportation.
And the other days of electric vehicles, the comparative carbon benefits of Evs over gasoline powered vehicles seems limited to tailpipe emissions with lingering questions about overall carbon footprint advantages.
That debate has now been resolved the data is conclusive that Martin Evs have a significantly lower carbon footprint than gasoline powered vehicles on a total lifecycle basis. This includes the emissions from EV battery and battery materials production as.
As well as vehicle end of life and the well to wheel emissions. In fact 2021 analysis by the International Energy Agency determined that Evs currently avoid 50% of the total lifecycle emissions generated by the gasoline counterparts on the global average this is actually a conservative estimate on the capital.
Only widen as electricity grids become greener.
But at the same time, we expect that to be greater expectations, but we are a responsible investments and production across the EV battery and battery materials supply chain.
If you look at all the components of minerals that go into electric vehicles, there are clear opportunities for improvement.
This goes beyond just carbon footprint and extends to other environmental impacts, including water use and waste generation.
Well as the socio economic impact on the local communities near mining and manufacturing sites.
This is why sustainability is and will continue to be a top priority of alignment.
We believe we have a fundamental responsibility to operate in a safe ethical socially conscious and sustainable manner.
Youll see this commitment reflected in our sustainability report and describe the progress we continue to make across all aspects of ESG, including the key process technologies, and innovations, which differentiate live and sustainability profile plans to make our operations, even more efficient and less resource intensive going forward.
And our ongoing efforts to advance human rights and increase the growth benefits obtained by local communities.
A dual focus on growth and responsible operations is reflected in our various commitments to expand lithium production in a sustainable way these commitments and toured meaningfully meaningful reductions in our water use greenhouse gas and waste disposed intensities by 'twenty.
Establishing a path to using 100% renewable energy in our operations and achieving overall carbon neutrality by 2014.
Of course, there is no denying that all extractive and manufacturing processes have some environmental impact for that always to minimize them.
We address these challenges as we do with most things by using a data science led approach to assess local impacts and then finding solutions. This.
This is one of the reasons, we actively participate in responsible production this initiatives such as Irma as well as third party studies on sustainable water use our engagement in these initiatives expands and deepens, our understanding helps us to improve.
For similar reasons, we've been conducting a lifecycle assessment for <unk> of our key products with leading organizations, including vivo and Argonne National Labs.
Finding from these assessments and studies provide insights to drive further enhancements across our operations and more importantly, deliver on a broader commitments to growing responsibly.
Taken together, we believe all of these actions will further enhance our competitive position our sustainability continues to grow as a focus for our customers.
Turning that some market observations on slide five.
Despite short term disruptions from a near complete shutdown in key regions in China. During the second quarter due to zero tolerance COVID-19 policies lithium demand continued to be incredibly strong.
As we look back at the first six months of 2022, Chinese EV sales reached new highs of $2 6 million vehicles.
Roughly 150, 15% higher versus the prior year period.
The China Association of automobile manufacturers as increased its new energy vehicle production forecasts for the full year 2022 by 10%. Additionally, total battery installations in China through the first half of the year.
Up by even higher percentages.
With limited additional near term lithium supply coming online and continued long and complex qualification processes for certain products. The market has continued to be extremely tight.
What is even more clear is the forecast of the lithium demand growth, which shows no signs of slowing down continues to outpace any reasonable projections of supply growth in our industry over the foreseeable future.
That is not to say that they will not be some supply relief in the coming years, but it is hard to see a probable scenario, where the lithium market does not remain structurally tight to varying degrees.
So while the dramatic rise as seen across all lithium prices, particularly in China have started to stabilize we believe that it is unlikely that prices will decrease dramatically from current levels, Jeremy now our near term forecast period.
It is important right now even if recent historical highs in lithium prices, we see no evidence of a resulting slowdown in demand.
This is partly explained by the fact, the lithium prices realized across our industry due to different regional quality and contractual situations are not on average at the levels seen in the China price reporting data.
Conversely on the supply side, the little surprise and the increased number of expansion announcements given the apparent with clear financial justification.
Even the riskier.
Less attractive development projects.
However, as those who have followed this industry industry for a period of time understand making an announcement is not the same as bringing unusable supply.
And more projects pursuing the same scarce capital and human resources May in fact slowed down the pace at which new supply comes to market at a time when acceleration as needed.
Expected supply additions continued to be meaningfully delayed as has been well documented.
There are multiple reasons reasons for this ranging from permitting challenges to difficulties in procuring long lead time equipment with multiple competing projects to difficulties in finding sufficient experienced labor.
Expansion projects, and especially the Greenfield developments that are becoming more critical a very complex undertaking and a time intensive by their very nature.
On top of this the input cost for these necessary expansions I'm moving higher due to inflationary pressures and tight labor markets, especially in remote parts of the world, where most activities taking place.
Pressure from local communities to participate in these projects from decision, making processes through employment opportunities and royalty structures.
It means that a longer more extensive engagement is required before many of the greenfield projects to commence development.
Understandably in this environment and with a growing realization that that is a fundamental shortage of lithium available for at least the next couple of years. There was a higher focus from lithium consumers and particularly automotive Oems unsecured and battery grade lithium from proven suppliers.
As demonstrated by recent announcements, including now as a general Motors Oems are becoming much more involved in battery material procurement conversations and they are seeking signed commitments with an increasingly provide capital to battery materials suppliers.
Of course, all products and across all stages of development. However, we continue to believe that simply providing loan commitment signing non binding Mou use will do little to accelerate current projects and will not make a difference at all to the fundamental engineering or technical development challenges many of them face.
I will now turn the call over to Joe <unk>.
Thanks, Paul and good evening everyone.
Turning to slide six <unk>.
<unk> reported second quarter revenue of $219 million.
Adjusted EBITDA of $95 million and.
Earnings of 31.
Per diluted share.
This is a record quarterly financial performance for license and demonstrates our ability to execute in this strong market environment.
Versus the prior quarter.
Revenue was up 52% with slightly lower total LC volumes sold more than offset by much higher realized pricing across all of our products.
The lower LC volumes delivered was not a reflection of lower demand.
Rather was a function of customer timing.
As.
Some logistical challenges in China due to the Covid related lockdowns.
Second quarter, adjusted EBITDA was 78% higher and just last quarter.
And it was roughly six times higher than the prior year.
This was due to a meaningful step up in lithium prices across all products.
And our ability to take advantage of higher market price.
Costs were also higher versus the prior quarter.
Largely due to rising cost of feedstock materials, such as lithium metal for our future lithium business.
However, <unk> has been able to pass through most of this higher cost to customers.
We finished the quarter with $49 million of cash on the balance sheet and our $400 million of revolving credit facility remained undrawn.
We also ended the quarter with roughly $179 million.
Sorry, $179 million of common shares outstanding inclusive of the additional shares issued in conjunction within a mascot transaction, which we closed during the second quarter.
<unk> now has a 50% ownership interest in Moscow.
Through the first half of 2022 liter demand was.
Secondly, strong and published lithium prices in all forms moved higher reflect tight market conditions.
We expect these market conditions to remain through at least the rest of 2022.
And most likely into the first half of 2023.
License realized prices across all products were significantly higher sequentially in the second quarter.
And we're expecting prices to remain at similar levels in the remaining quarters. This year.
As a result liveliness further improve its outlook as we move through the second half of 2022.
As shown on slide seven.
This positive pricing impact, which has far exceeded our initial assumption.
This largely reflected.
And contracted portion of our business, which.
Which includes roughly one quarter of our hydroxide sales volumes in all of our carbonate sales.
It also includes future lithium and high purity metal.
Where we actively shifted price steady from annual to a more short term basis. This year.
This was done to address some of the more acute.
Input cost pressures, we're experiencing in those businesses.
Particularly which are metal.
As a reminder, we expect 2022 total volumes sold on a <unk> basis to be flat versus 2021.
As no meaningful volumes from our capacity expansions are expected to be commercial available until 2023.
The revised guidance does not assume any change in volumes compared to last guidance.
For the full year 2020 to live in our projects revenue to be in the range of 800 million to $860 million.
And adjusted EBITDA to be in the range of 325 million to $375 million.
At the midpoint this is a $35 million and $30 million.
Higher than prior guidance range, respectively.
Underpinned by the expectations for higher realized pricing across all of the two products.
As a fully integrated producer of lithium products with predictability around cost and security of supply.
He is able to build its core business around long term supply agreements with firm commitments and more predictable pricing, while still retaining the ability to take advantage of higher market prices.
This is supported by our position in key strategic markets and regions and our ability to deliver both lithium carbonate and hydroxide to customers provide us with a differentiated position and great operational flexibility.
<unk> has also increased its full year 2022 outlook for adjusted cash from operations to a range of $280 million to $340 million.
Which would mark a company record.
It is a significant increase in cash flow generation.
And as we look to the next few years it will be enhanced by additional production volumes online.
It's much improved cash generation position, coupled with the $198 million of diverse payment from general Motors provide <unk> with ample liquidity continued advancing and where possible accelerating its capital expenditures.
License projection for 2022 capital spending of $300 million to $340 million remains unchanged.
We spent $132 million through Q2, the pace of spending should increase in the second half of the year in line with our expectations heading into the year.
I will now turn the call back to Paul.
Yes.
Thank you you bet Joe.
I want to conclude with a few comments related to our ongoing expansion work and reiterate that we remain on schedule to deliver all of our announced capacity expansions.
Focusing on the near term the first 10000 metric ton expansion of lithium carbonate in Argentina will be mechanically mechanically complete by the end of this year and will commence commercial production during the first quarter of 2023.
The company is 5000 metric ton expansion of lithium hydroxide investment city will be mechanically complete by the end of September this year.
Commercial production the following quarter, although we do not expect meaningful sales from this unit until the start of 2023, given the nature of qualification processes and the timing of our additional carbonate production that will be used as feedstock coming online.
<unk> is on track to add another 10000 metric tons of lithium carbonate capacity in Argentina by the end of next year, which will nearly double license total available LTE from 'twenty to 'twenty one levels.
The company also expects to add another 15000 metric tons of lithium hydroxide capacity at our new location in China by the end of 2023.
Finally, <unk> is concluding all remaining work on its construction plan. This.
This is expected to be finalized by the end of the third quarter of this year and we plan to provide a more detailed update on the masco as part of our next earnings call.
As a reminder, <unk> will be a fully integrated asset located in Quebec, Canada with an expected 34000 metric tons of battery grade lithium hydroxide capacity and first production in the second half of 2025.
We look forward to keeping you updated on all of our progress in the coming quarters as we start to bring incremental volumes on line and further advance our longer dated expansion projects.
I will now turn the call back to Dan for questions.
Thank you Paul Dennis you May now begin the Q&A session.
Thank you if you would like to ask a question. Please press Star then the number one on your telephone keypad. Please limit yourself to one question and one follow up if you have additional questions you can jump back in the queue.
To withdraw your question. Please press star one again.
Well pause for just a moment to compile the Q&A roster.
And the first question is from the line of Christopher Parkinson with Mizuho. Please go ahead.
Great. Thank you good afternoon.
Simple question, just Paul obviously, you've been evaluating some of these potential contracts at the Oes for.
For quite some time can you just offer a little bit more color on the key variables that made gms such an attractive choice versus.
Versus your discussions with other customers.
Look I think it is.
You don't get to these these kind of commit.
Commitments quickly and so we've been on.
As for a long time and it gives us an insight into how that thinking has been developing in France. It gives them an insight into what our capabilities are and so.
I think it really starts with a long term engagement with the way you sort of figure out what does each of us want as I said in the call, Chris we comp sort of everybody. So looking for people who share our views as to how the supply chain can most responsibly evolve is really actually pretty important to us I mean, we've been pretty clear that.
We believe localization of supply chain.
<unk> is localization makes a lot of sense in general mantra shed that to you.
We also.
A very thoughtful and in many cases about what kind of commitments each of us are willing to make them and not have automotive company thinks of our commitment the same land and general Motors is certainly thank you for the long term here by making the advanced payment of prepayment.
Early indicators and giving us the movement that we were looking for because let's be clear so very much a commitment on our two we have to now make sure that we have both.
<unk> and frankly, the material qualified into a supply chain that today doesn't necessarily exist with as much visibility as either of us would like and so this is this is.
And engagement that requires us to be able to work together carefully and closely and of course, we look for senior level commitment from general Motors and just as they do from us.
We were able to get that as part of this process of getting to know them better. So lots of factors really go into it to manage crews.
That's helpful and just as actually as a corollary to that question Ironically part of your response.
If some of these upfront payments become more of the norm whether to you or other producers I mean is that ultimately open up other opportunities.
Diversify and look for other expansions or is there anything else to kind of add is this more about the asset or is this more about the producer and your ability to delivery deliver high quality products.
You would have to ask each cancer pie that we deal with each partner.
What their view of it is I think in publicly on safe ground by states in that.
Most most.
Multiple Oems who are still learning about the lithium industry is all about have more confidence committing capital committing just.
Commitment periods to somebody who has demonstrated over decades or more that they can do this it's a very different thing when you tend to somebody who has a hard rock mine in Australia.
Conventional resource somewhere else or even frankly, a new resource down in Argentina. It is a different commitment youre going to be willing to make.
Including our form of that commitment, whether that's an mou whether that alone versus a prepayment et cetera, I think to the extent that there are opportunities.
To partner with us to grow our asset base in a way that otherwise we might not be able to do I think people in general not just absolutely open to hearing about that.
Thank you.
Your next question is from the line of Chris Capps with loop capital markets. Please go ahead.
Yes, good afternoon. Thanks.
You made comments that you see the fundamentals that structurally tight sort of into the foreseeable future, but you also said.
On your revised guidance your outlook pricing just through.
Being shrunk just through the first half of 'twenty three so I'm just wondering if you could sort of reconcile those comments.
So on pricing outlook do you see hydroxide and carbonate prices remaining close to parity or diverging overtime.
Yeah.
Our ability to forecast fourth quarter that is not totally awful as an industry forecast prices and so given all of this I feel confident about forecasting the rest of this year. It's hard for me to see what makes it what makes some change in Q1 and Q2 of next year I'm not suggesting by the way at the end of Q2 next year. This environment is over I just don't know.
Willing to look much further than three or four quarters ahead.
And so the comment that extended to the end of 2022 I mean, that's why we were confident in moving our guidance up I just want to send the message that I don't know what changes in the next 345 months that makes the first half of 2023 field materially different to be perfectly honest.
So I think thats really sort of what where I'm coming from with that comment I'm sorry. Your second part of the question Chris again.
Just.
Now hydroxide and carbonate prices are sort of.
We're close to parity do you see those diverging overtime as more carbonate versus hydroxide are credible battery grade hydroxide come down.
No.
It's a hard one to answer the logic clients with why would you make hydroxide, it's just much more difficult to make.
It's much more difficult to get qualified qualification processes are not short term this market everybody predicted.
When supply gets tight let's see what qualifications by them, they've largely got long enough for us must qualification processes and up shortly.
Company commands a similar price today, I mean, making a decision honestly rationally why would you make hydro upside but of course, we know if that does happen you will create.
Like a supply tightness in hydroxide, especially as it grows just us quick if not quicker.
I'm, a smaller producer base, so I do expect hydro upside to maintain a premium.
We have seen in the past that it tends to be more stable because of the contracting nature in hydroxide.
That will be the case two items, you'll just get more volatility in carbonate pricing, having said all of that one thing we've discovered is that because of that.
Dominant way that most products made today at least theres always a knock on effect. When you have LTE is in some form somebody somewhat has to make a decision as to what to make of it we've seen in metal, particularly the challenges in and getting lithium metal prices down because absolute referenced against the decision should I just make that simple version of <unk>.
Company.
Yes.
It's why commitments from Oems is going to be needed to incentivize people to continue to invest in hydroxide and I think in return for that you will certainly get more stable and predictable pricing and hydroxide.
That's helpful. My follow up question was just on the GM agreement.
Just curious if no mask is contemplated in that partnership at this point or.
If not why not.
<unk> is still in independent and to just remember that right and so while there won't be any commercial agreements and the mascot hasnt contracted anything yet it's still too early in its development process to do that so this is not contemplated in that.
Look clearly forming the relationship with general Motors, we would be disingenuous, if we didn't look to Quebec, and what both of us doing that and see great opportunities to remain very close in that regard we have a partner in the masco and IQ who have just as long as I say as we do and so whatever decisions are made around <unk> will be made by and the mascot.
Will require the approval of both license and IQ and as I said.
Still a little too early to make those commitments on domestic as Paul.
Fair enough. Thanks, Paul.
Your next question is from the line of Steve Richardson with Evercore ISI. Please go ahead.
Hi, good afternoon.
Paul I Wonder if you could talk about.
As you have concluded the GM agreement just thinking about your other stable of customers and so I guess the question is as you know.
Your existing customers or seeing you lock up some of your volume growth.
Contractually does this create an opportunity to convert some of the shorter term agreements to term in the same way.
And again I guess.
Follow up to that is how many of these types of agreements do you think is the right number for the size of business Youll have in 'twenty, five and 26, considering the tonnage.
Hi, good really good questions and ones that we wrestle with ever single day look I think it's important to point out epicentral customer OEM that we have is at a different stage in the development that running different models about how that how and where and why they sourced factories that publicly running different mixes of carbonate and hydroxide based factors in different regions and somehow global strategist and some are regional strategies and so.
I don't think we have a one size fits all of our customers know what we want to I think we've said that we are looking to build a long term supply agreements are by definition that means that the supply agreements. We have today, we want to continue we want to continue to grow them and build them.
And we've put a lot of time and effort and investment into those customers and so we are.
Adding a couple more customers does not represent by any stretch of imagination, a change in strategy or tactics with our existing customers.
With regard to how many is enough.
You could certainly feasibly started three and still wish you a big in terms of what your market share will be at each of those customers I think it's going to be much more regional in the way we answer that question rather than taking a global perspective.
The addressable market of customers, it's going to be mobile regional question I would expect that we see.
Certainly will want to add over the next two to three or four years as we double in size and then hopefully double again in the future, but wanted out or at least a couple of more major relationships to be of a size that makes sense now I wouldn't forget by the way that behind that of a whole bunch of relationships that we do have with multiple cathode producers that we intend to continue to support away from there.
<unk> supply chains as well as industrial customers, we have a covenant business, which is obviously very different.
And then our butyl lithium and metals based businesses. So we'll continue to have diversification, even if we remain relatively concentrated in hydroxide.
Great. Thanks, if I could just slip in one more Paul I think it's important to address you know theres been some volatility.
Around headlines out of Argentina around the regulatory framework and I was wondering if you could just quickly address your relationships in the province, and that regulatory framework and the stability of that just in regards to some of the volatility we've seen with some of these headlines. Thank you and I'm not sure that's possible to be addressed quickly, but without some team it's complicated, but we've been there a long.
<unk> we have.
There are really two major areas.
Relationships federal and provincial and federal relationships Federal's complicated right now I mean, theres been enough changes around that economy administered today the structure a bit as the head of it what we put into it.
It creates noise and a lot of it bluntly is noise, we don't see a lot of near term or short term.
Impact on us for most federal actions.
Biggest relationship to really not just trying to participate expansions and ongoing operations of the provincial level in the province of past market is critical to us and we invest a lot of time in communities in Catamarca, we invest a lot of time, making sure we have complete transparency.
With both the government.
Now that the administration and the communities.
And it remains a constant dialogue that we have with them, which is very good is very solid, but we don't always agree with each other sometimes we have to agree to disagree a set of topics, but we're all trying to pursue the same thing which is increasing the economic benefits to Argentina to the province of capped market too responsible development of response.
Full operation.
Thank you.
Your next question is from the line of Kevin Mccarthy with vertical Research partners. Please go ahead.
Yes, good evening, Paul how would you describe the pricing mechanism that's embedded.
And your contract with GM for lithium hydroxide.
So probably didn't wait so long for that question Kevin.
But obviously, we're not going to disclose confidential commercial.
Details.
It's not appropriate to do so, but what I would say is I think a couple of the principles behind this work.
I think there was a desire to not attempt to try and predict future prices with too much accuracy. So.
Variable marketing based references.
<unk> involved in the way pricing will ultimately be set.
But at the same point I think we also wanted to avoid.
Either party being in any way economically disadvantaged by either.
We are incredibly this market. So we put in place mechanisms that help to protect license profitability in an environment, where pricing moves down significantly and to protect.
General monthly profitability in an environment, where prices move up significantly. So they were really important part of the conversation really important parts of the structure.
Bluntly, we both look at each other and say neither of US are smart enough to know what the price of lithium hydroxide is going to be in 2027, and 2028 and so we recognize that we have to keep engaging with each other to make sure that the partnership is delivering what both of US one pricing is only a piece of that but it's unemployment.
Thank you for that it makes sense.
As a second question I wanted to ask you about volume I think in your prepared remarks.
You affirm the view that volume will be about flat for this year as I look at your slide 10.
It appears as though volume declined sequentially in the quarter and I believe that was true of the first quarter as well.
If that's correct should we expect higher volumes in the back half of the year relative to the front half or how would you characterize.
The amount of volume that you have sold and we will sell.
That is absolutely helps map looks correct.
Thank you very much.
Your next question is from the line of Pablo Machado with Raymond James. Please go ahead.
Thanks for taking the question so a lot of bullishness.
But let me let me rain on the parade, a little bit what in your mind.
Caused a down cycle in the lithium market.
Sexually.
So, let's think about what underpins its structure.
We can all point to la <unk>.
Major global events that could change this particularly in China, particularly with given how much of the lithium closer to China. He can't help but look in that direction. It could get a major disruption over that of what appetite I don't know how to predict that all have to management business any differently around that one.
I think.
It's difficult to imagine that the pressures that are creating demand in China and Europe .
<unk>.
China has massive policy incentives in place to drive electrification to drive leadership frankly in the entire value chain of electrification.
We have very recently with some of their policies I think China is going to continue to be an amazingly important end market not just a manufacturing location, but the demand location.
See that fundamentally changing.
Europe is the same I think.
Whatever good or bad reason the policy change the policies and the other part really here to stay and I don't think anybody is expecting a sudden reversal away from them because they have lost driven by climate change commitments on that power, which is different to China.
I think the U S is creating a lot of demand right now a lot of demand expectation on platelet that may not be there.
It's much more difficult to predict F&B some of the acts that would be looked at kind of pass right. Now play to help you build that confidence I think consumers continue to look at electric vehicles in the U S favorably, but maybe there is a demand charge.
Shortfall of decline.
It's hard for me to though really see a single a single area, that's going to fundamentally change the demand side, so they'll need to send your question to somebody floods the market on the supply side I mean, we have total demand for lithium hydroxide and lithium sorry, NLC basis in 2022, probably up two of them.
200000 tons or more.
There's very few new projects come online that are bigger than 30 or 40000 tons or so.
Hard to flood the market on a single project is.
It's 30000 tonnes and we need six or seven of them a year just to deal with the growth.
Struggled to see where a bid for the supply comes from as well in the short term anyway. So.
You touched on this a minute ago.
But what are your thoughts are on these <unk>.
That's the content rules.
<unk> proposed in relation to the electric vehicle tax credit in the United States.
A lot of that domestic content would have happened anyway, maybe not as quickly and maybe it feels more certain now, but I think and people do understand post semiconductors. The challenge of the risks and the dangers of allowing such heavy concentration in a single a single country of all the manufacturing and so I think in our conversations with general Motors and others all reflected.
<unk> desire to diversify supply change for good economic and business reasons, they don't need legislation, but legislation helps for sure.
Thank you.
Your next question is from the line of Joel Jackson with BMO capital markets. Please go ahead.
Hi, good afternoon.
Just.
Just reviewing some of the disclosure and guidance you gave from the Q1.
You talked about having 29000 tons of LTE available for sale in 'twenty three.
84000 tons of LTE available in 2024.
I don't have those same set of slides in this deck.
Is that still the guidance or something better or worse.
At the moment Thats still the same to all of that changed.
At flex.
It reflects the timing on which product new capacity comes online on the ramp up time on qualification times and so I think as we get nearer to mechanical completion stop and we'll be in a better position to see how much will we actually add in 2020, a salable product. We know what we are adding capacity, but I think you know better than anybody the switch.
These things on.
Lithium carbonate or hydroxide spanning app, so the speed of which we can bring them on at the pace at which we can get individuals new units qualified will allow us to revisit those numbers closer to the time.
Thank you for that.
Bring up again the question of what to do with the mask, obviously partner with Nebraska won't go back.
Obviously, you know what.
What happened to ask last time, and they signed a bunch off takes with small amounts of money here $10 million no upfront capital Didnt really helped them raise over $1 billion. We've seen another OEM in the last couple of weeks go out and throw ammo.
<unk>.
Not with a lot of commitment at all a bunch of junior projects don't know what that means.
That partner and the mascot.
With IQ what will your kind of leaning would be would you be willing to sign an mou doesn't have paid upfront capital or maybe leaning to ideal I guess, you've got a couple of hundred million dollars that you did what you did what you did in existing spanning.
Joining us couple of million dollars to help.
Get some commitment from the OEM like what's sort of your leaning. So I think two things we have never been supports out.
What I'll loosely call.
It becomes a running joke with our conversations with customers or potential customers as we correct them every time that we self take these key kind of an off take agreement on lithium hydroxide. It assumes you delivered at the factory gate and nobody does that pop up.
Performance chemical supply agreements that require real engagement. So we don't sign Mou use and we don't see anything that looks like a free option for the purchase that we would not be supportive of that and that is what <unk> did last time. We also are not supportive of prematurely putting that onto the <unk> business. It clearly can support debt load at an appropriate time.
But we know that was taken down by an inappropriate debt load, we will work with with IQ to make sure we get the funding in place the right ways to have our number of customers that make a lot of sense for domestic given where their supply chains are being built and we and IQ sea compete the eye to eye on that which of them we choose to contract with will again just slightly.
Set with general Motors, I think be a function of what kinds of commitments those customers are willing to make today. When we recognize look it's a development project. It's not it doesn't have the broad network of assets that we have today that gives customers more comfort that they actually will get the product. So this is going to look different than <unk>, but I think a lot of.
What we talked about today and what we've been talking about frankly on calls for a couple of years now I think the masco lends itself very well to finding the right partners, making the commitments and working with them to get them, what they need while at the same time, giving the master what it needs.
Do you find strategics look at Quebec, a little more negative based on some of the history of it projects.
Compared to Argentina, while competitor, well, yeah, well compared to anywhere else, but go back to try to kind of bad luck at the last decade right. So I hope you get the opposite I gave a lot of people say incredibly good things about the way the Quebec government has put in places battery technology.
Policies in its infrastructure support I have to say at kind of seen the same thing I've heard this comment about Quebec somehow being disadvantaged in various ways.
I haven't seen it yet and maybe im not looking in the right places.
I think they have a very coherent policy.
With regard to go into who they are trying to attract I think they've been very successful in <unk>.
<unk> that assets not just the resources by hydroelectric power to empower physical location et cetera geographical reach very effectively I think Quebec, Quebec.
Probably one of the more favorable jurisdictions I hear customers being willing to be associated with.
Thank you.
Your next question is from the line of Alexia <unk> with Keybanc capital markets. Please go ahead.
Thanks, Good evening everyone.
Paul have you extended any contracts.
Further.
A long term contract portfolio during the quarter or have you renegotiated other terms such as price.
No more favorable.
So thats a pretty steady yeah. So if you look at the whole portfolio of contracts for 'twenty three.
How do you feel the pricing for those long term contracts.
Likely to behave maybe what percentage of them can have a meaningful update on price.
As that is a group that three quarters of hydroxide, that's under long term contracts, but what the ASP change could be I don't think they were trying to fill I am not expecting them to change at all because of the nature of those because there'll be that frankly will be a little bit of increase for a bunch of <unk>.
Minor reasons that I won't bore you with so they will go up a little bit on average for next year.
But no I'm not expecting major changes I mean I think.
Back to this idea of commitments to customers right unless it's a very good reason to renegotiate on both sides of these companies would desire to stay in place the way that they are.
I would say they will represent a smaller proportion of about revenue next year, because we have more volume coming online or none of that has been committed no will we committed before.
Before we go into next year so.
We will have more market exposure on a relative basis and on an absolute basis next year.
Makes sense, thanks, a lot.
Your next question is from the line of P. J <unk> with Citigroup. Please go ahead.
Hey, good afternoon, Paul and congrats on your GM announcements.
And or does it involve building.
Jim agreement does that involve building incremental conversion capacity in North America.
And sort of what are the commitments on building out new capacity to meet demands of GM.
We have made no specific commitments is entirely up to us as to how when.
What we do with regard to meet those commitments. We've clearly made commitments in those commitments include both a volume commitment and a regionalization commitment.
So we will absolutely meet those commitments, but we have not.
There is nothing specific we have complete freedom as to how we do that.
And what do you what do you mean by regionalization coming towards what does that mean.
Looking to have lithium hydroxide produced.
In very close proximity to where they produced a cathode materials and then ultimately where they produce the battery so as that chain of.
So.
But supply chain, if you will for that battery technology and then they would ask now a couple of cathode partners. Both of those capital partners have made commitments to both cathode material capacity in North America.
And one of the lithium hydroxide to also be produced in North America. They don't need the raw materials come from North America, but they want that the final production processing step into lithium hydroxide hydroxide to be in the same region.
Interesting. Thank you.
And a lot of people have talked about solid state batteries or silicon anode lithium metal batteries.
Have you seen any significant advances or all of these technologies are still a few years away.
No I'll tell you is that it's a lot more difficult to get excited about.
Solid state battery lithium metal bathroom in lithium metal is so expensive not right I mean, the economics with ticket twisted on solid state if you're not careful. So the question is do you get as much performance out of it relative to the extra cost of that with you.
You have to put it and that depends on the on the solid state technology I will tell you that.
Yes.
I don't expect solid state technology to materially incrementally move on a quarter by quarter basis, just not going to happen that quickly it so.
Can I ask me each quarter and I suspect it will feel the same while there may be changes taking place I don't see anything that suggests or any automotive OEM, having any kind of conversation that suggests.
Our expectation of Eminem.
Imminent shifts.
I would state.
Great. Thank you.
Your next question is from the line of Matthew Deyoe with Bank of America. Please go ahead.
Good afternoon, everyone.
Alright.
<unk> is on track to add 20000 metric tons.
At the end of next year right.
But clearly bullish right so why.
Is that production expansion not 30000, 40000 50000, right like what are the primary blocks to being more aggressive because some of your peers are taking much bigger swings at some of the expansions.
The easiest way I could answer that is to say why don't you come and visit our site in Argentina, and see how you feel about expanding at that pace.
Yeah.
Remote it has significant infrastructure that needs to be built the lead time on building that infrastructure is not six months and.
If I may remind people two or three years ago. When we started this project the market for lithium wasn't what it is today no doubt at some point in the future won't be.
It's not easy to commit to take.
Facilities.
These major I mean, hundreds and hundreds of millions of dollars of capital invested in it to grow at those rates to make that investment when you're getting $10 $11.
You're just not going to do it and Thats why we will email you and a half ago.
Will we be more aggressive if we can be yes, but theres only so much you can do in some of these locations that they are not.
And it's one of the key challenges that I think people just don't fundamentally understand these are not infinitely expandable mines as large as the resource maybe never really about the resource with the Brian .
Sure.
Driving me social Brian Operation, it's about all the above ground processing that requires infrastructure debt.
Just doesn't exist and so you've got to build it yourself and that can make meaningful difference to capital needs to timings of expansions and to frankly willingness to commit to large expansions without firm commitments on price.
I appreciate the context.
I guess on the guidance.
If we were to look at the lower end than the higher end.
Is it.
I guess, what would where it seems like the contract side is pretty firm, we have volume coming in in the second half of what.
What's assumed on the high end and low end do you need more price traction in.
China or Asia, China to get to the high end or what does that look like.
In this way, it's sort of a timing of shipments and a mix question I eh can move around pretty quickly.
Which customers what makes goes where.
In the volume in Q1, and Q2, largely driven by factors outside our control and ability to move stuff in and out of China. For example, occasionally inability to move stuff out of either Argentina, Chile, depending on what's going on that so don't have complete control over them and because a lot of this is now.
<unk> is moving at a reasonably high price doesn't take many tons for it to make a difference to EBITDA. So that's really what's driving the range.
Supply chain logistics unpredictability, particularly towards the year end.
Alright, thank you.
Your next question is from the line of Karen Blanchard with Deutsche Bank. Please go ahead.
Hey, good afternoon, everyone.
Lots of loans have been on maybe Joe.
Hi.
Do you have any view on the hydroxide side there is many upcoming Kermit facility.
Triadic, how do you view that we can compete but Australia with you and then this is Doug automobile historical view on some of the transaction any upcoming project.
You touched base.
The lack of infrastructure et cetera, and just just interested in hearing your view on those.
Yes look I think building hydroxide plants in Australia has not been a particularly successful process for new entrants, yes, I think there'll be a couple of big ones come on will be successful that owned and operated by very credible existing competitors Nevada.
No doubt they will be successful.
And that's great I mean, they naturally point at <unk>.
East Asia away from China, It's not one thing I will tell you is making lithium hydroxide for Korean or Japanese customer is generally more difficult.
The qualification Bob is higher the quality bar is higher so you are taking on a different commitment when you build those hydroxide plants there.
I think we've seen sort of an increase in what I'll loosely call synthetic production I E.
Spodumene producers maintaining control of the spodumene and having a Chinese converter totally important that'll be an interesting development because it's hard to know where that material goes in the end dependent on the quality of the product qualification demands up but it will certainly contribute to but I don't I don't view it as being I don't see that as being a massive competitive.
<unk> to what we're doing.
As we look to regionalize and the Americas I, just think it's far more natural that Australia will not Australian assets will point to southeast Asia.
I think in terms of Argentina luck every single Argentinean resources different they all require different technologies not all of them lend themselves to Pompe based systems, not all lend themselves to daily basis.
Some of them are selling incredibly remote.
Hard to know how in the end they get they get employees, having to get material on and off the mountain, but there are some big deep pocketed names chasing them and develop them.
And I think it would be nave of me to think that they don't have the in house capabilities in the end ultimately to succeed but it won't happen quickly.
<unk>.
Bear in mind, everything coming out of brightness carbonate as well and so it's going into a different market in my experience very few of them that are developing that are looking now to turn that carbonate somewhere into hydroxide.
The way it should stay kind.
Natural.
Marketing and Carbonite there'll be very low cost producers of company just as we are so I think it's going to sort of speak to a market while in many ways. It's similar today.
We looked very different a decade from now as you think about those new resources and new entrants in the market.
Alright, Thank you I appreciate it.
And our last question will come from the line of Lucas pipes with B Riley Securities. Please go ahead.
Hey, good afternoon, everyone. This is actually Matt key here asking a question for Lucas.
Most of my questions have already been addressed but I guess I would like to drill down a little bit on the updated outlook a little the new EBITDA guidance implies roughly $100 million per quarter.
Good how are you thinking about kind of the earnings cadence over the next two quarters should we expect that most of the flatter more front weighted.
Yes, I know, we don't give quarterly guidance as you know and so I'm going to do my best not to give you back the quarterly guidance, but clearly.
The guidance assumes $200 million of plus of EBITDA over the next two quarters.
Historically, our business has tended to be.
Reasonably even on a quarterly basis.
You do sometimes get.
More demand in the back half of the year from customers. We've also tend to find we have more production disruptions in the back half of the year, whether that's weather in the southern hemisphere as we go through all of this.
September or whether it's some of these shutdowns in China that have been imposed on us in parts of Europe .
Sure.
In the back half of DSO.
Allocating between those two quarters is going to be pretty difficult for me to do today.
But yes, your math is right we need an average.
Quarter two quarters.
That's very helpful. That's all from me best of luck. Thank.
Thank you.
This concludes the Q&A portion of today's conference call I will now return the call to Daniel Rosen for closing comments.
That's all the time, we have for the call today, we will be available following the call to address any additional questions. You may have thanks, everyone and have a good evening.
This concludes the live incorporations second quarter 2022 earnings release conference call. Thank you.
Please wait the conference will begin shortly.
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