Q1 2025 Albemarle Corp Earnings Call
Hello, and welcome to Albemarle Corporation, Q1, 2025 earnings call I will now hand, it over Meredith bandy, Vice president of Investor Relations and sustainability.
Thank you and welcome everyone to Albemarle first quarter 2025 earnings Conference call. Our earnings were released after market closed yesterday and you'll find the press release and earnings presentation posted to our website under the investors section at Albemarle Dot Com joined.
Meredith Bandy: Joining me on the call today are Kent Masters, Chief Executive Officer, and they'll share a chief Financial Officer, NASA Johnson, Chief Operations Officer, and Eric Norris Chief Commercial Officer are also available for Q&A.
Meredith Bandy: 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.
Meredith Bandy: Please note the cautionary language about forward looking statements contained in our press release and earnings presentation.
Meredith Bandy: It also applies to our call.
Meredith Bandy: Please also note that some of our comments today refer to non-GAAP financial measures reconciliations can be found in the earnings materials.
Kent: And now I'll turn the call over to Kent.
Kent: Thank you Meredith.
Kent: For the first quarter, we reported net sales of $1 1 billion <unk>.
Kent: Including increased specialties volumes and record lithium production from our integrated lithium conversion network.
Kent: Adjusted EBITDA was $267 million, reflecting strong year over year improvements in specialties and kitchen.
Kent: We generated $545 million in cash from operations, achieving an operating cash conversion rate exceeding 200%.
Kent: We are maintaining our 2020 outlook considerations based on recently observed lithium market prices.
These considerations include the anticipated direct impact of tariffs announced to date.
Kent: Note that the direct impact of tariffs is expected to be minimal.
Kent: Albemarle benefits from our global diversification and current exemptions, particularly for critical minerals, such as lithium salts and spodumene.
Kent: Neil will provide more details on this later in the call.
Kent: Regardless of shifts in the external market environment Albemarle remains focused on controllable factors to ensure competitiveness through the cycle.
Kent: To that end, we continue to act decisively across four key areas.
Kent: Optimizing our converged network.
Kent: Improving cost and productivity.
Kent: Reducing capital expenditure.
Kent: And enhancing financial flexibility.
Kent: For example through April we achieved approximately 90% run rate against the midpoint of our $350 million cost and productivity improvement target.
Speaker Change: <unk> team has identified opportunities to reach the high end of the $300 million to $400 million range.
Speaker Change: This includes incremental volume improvements as we ramp our new facilities and cost savings from placing our Chengdu site on care and maintenance.
Speaker Change: This quarter, we are also providing updated forecasts for global with the market demand and supply.
Speaker Change: We anticipate global lithium demand growth in the 15% to 40% range in 2025.
Speaker Change: Depending on tariff impacts policy changes and macroeconomic trends.
Speaker Change: Longer term, we expect the lithium demand outlook to remain robust more than doubling from 2024 to 2030 driven.
Speaker Change: Driven by the energy transition and global demand for electric vehicles and grid storage.
Speaker Change: Incentivising supply growth requires long term lithium pricing well above current spot prices.
Speaker Change: Now I'll turn it over to Neil who will provide more details on our financial performance and outlook considerations I'll conclude our prepared remarks with further details on our lithium market forecast before opening the call for Q&A.
Neil: Thank you Kent and good morning, everyone I will begin with a review of our first quarter financial performance on slide five.
Neil: We reported first quarter net sales of $1 1 billion, which were lower year over year, mainly due to lower lithium market pricing.
Neil: Pricing decline was partially offset by higher volumes in specialties Andrew.
Neil: Energy storage volume was flat year over year, as we optimized our own lithium conversion network and reduce the need for tolling volumes.
Neil: First quarter adjusted EBITDA was 267 million.
Neil: Down 8% year over year, as lower input costs, and ongoing cost and productivity improvements, partially mitigated the impact of lower lithium pricing and reduced JV pre tax equity earnings.
Neil: Our focus on cost is showing through in the improved quality of our business evidenced by our adjusted EBITDA margin improving by approximately 400 basis points year over year.
Neil: Earnings per share was breakeven in the first quarter adjusted diluted earnings per share was a loss of <unk> 18.
Neil: After preferred dividends and excluding discrete tax items and other nonrecurring factors.
Neil: Slide six highlights the drivers of our year over year EBITDA performance.
Neil: As I mentioned specialties drove the volume benefit while energy storage volume remained stable due to ramping conversion plants balanced by lower tolling volumes.
Neil: Q1, adjusted EBITDA was down slightly due to lower lithium pricing and pre tax equity income, partly offset by reduced cogs from lower cost spodumene.
Our SG&A costs were down more than 20% year over year due to our restructuring and cost savings initiatives.
Neil: Adjusted EBITDA increased by 30% and specialties, and 76% and kitchen year over year.
Neil: Corporate EBITDA declined due to a foreign exchange loss compared to last year's gain.
Neil: Turning to slide seven for an update on the recently announced tariffs.
Neil: The focus of our comments today will be on the direct impact of the tariffs that have been announced or amended as of this earnings release.
Neil: We estimate the direct impact of the tariffs in 2025 to be relatively modest at approximately $30 million to $40 million on an unmitigated basis.
This impact is mostly attributed to specialties and catching notably.
Neil: Notably the direct impact on our energy storage business is expected to be effectively zero as most of our lithium production is sold within Asia.
Neil: Additionally, we benefit from current exemptions for critical minerals, such as lithium salts and spodumene.
Neil: Our teams are actively working on mitigation to these impacts and we expect the mitigated impact could be significantly lower.
Neil: In some jurisdictions, we have inventories that helped to mitigate near term impacts and other cases tariffs present opportunities to increase sales in countries with lower tariffs for instance, we may be able to capitalize on our U S manufacturing footprint to sell more bromine products from Magnolia.
Neil: <unk> U S end markets.
Neil: While the full economic impact of the recently announced tariffs and other global trade actions is unclear we benefit from our global footprint and the current exemptions for critical minerals.
Neil: As a result, we're able to maintain our full year 2025 outlook considerations, even with the anticipated direct impact of tariffs announced to date.
Neil: Moving to slide eight as usual, we are providing outlook scenarios based on recently observed lithium market pricing.
Neil: And on this slide we have presented Albemarle comprehensive company roll up for each lithium market price scenario.
Neil: As I just mentioned these outlook considerations have not changed since we unveiled them last quarter.
Neil: As a reminder, we have provided modeling for three price scenarios, including <unk>.
Neil: Year end 2024 market pricing of about $9 per kilogram lithium carbonate equivalent or LTE.
Neil: The first half of 2024 range of $12 to $15 per kilogram LTE.
Neil: And the fourth quarter 2023 average of about $20 per kilogram LTE.
Neil: All three scenarios reflect the results of assumed flat market pricing across the year in conjunction with energy storage as current book of business with ranges based on expected volume and mix.
Neil: Turning to slide nine for additional outlook commentary by segment.
Neil: First in energy storage as a reminder, for 2025, approximately 50% of our lithium salts volumes are sold on long term agreements with floors.
Neil: Our contracts continue to perform in line with our forecast and we have no significant contracts up for renewal this year.
Neil: With these long term agreements plus other sales on contracts with volume commitments and market based pricing, we continue to expect volumes to be slightly higher year over year.
Neil: This is primarily due to the ongoing ramp of the Solara yield improvement project in Chile.
Neil: As production ramps at our conversion sites, which helps improved fixed cost absorption and result in reduced tolling volumes.
Neil: We realized a strong first quarter energy storage EBITDA margin of 36%, thanks to lower input costs and a greater proportion of lithium salts sold under long term agreements.
Neil: Second quarter margin is expected to be lower due to a lower proportion of lithium salts sold under long term agreements net net we continue to expect the full year and the first half of 2025 energy storage EBITDA margin to average in the mid 20% range, assuming our $9.
Neil: Per LTE price scenario.
Neil: In specialties, we continue to expect modest volume growth year over year.
Neil: We also expect to see revenue and pricing improvements mid year, partially due to steady demand and temporary industry supply disruptions.
Neil: Q2, EBITDA is expected to be lower primarily due to product mix.
Neil: Finally at kitchen, we expect modest improvements in 2025 related to product mix cost and productivity improvements and continued execution of our turnaround plan.
Neil: While revenue is expected to improve sequentially Q2, EBITDA is expected to be lower due to product mix.
Neil: These refer to our appendix slides in the deck for additional modeling considerations across the enterprise.
Neil: Advancing to slide 10.
Neil: We continue to progress broad initiatives designed to maintain our long term competitive advantages through market cycles.
Neil: Given the ongoing dynamic environment, we are consistently augmenting our playbook of potential measures to ensure timely adaptation as required.
Neil: In terms of optimizing our lithium conversion network, we achieved a record quarterly production at five sites across our company operated conversion network low <expletive> camera Tien Tsin, you Shinzo and May Shawn.
Neil: Meanwhile, since our announcement last quarter, we've shifted operations at our Chengdu facility, which is ramping down and preparing to go into care and maintenance.
Neil: These actions allow for lower cost to serve better fixed cost absorption and reduce tolling volumes.
Neil: Second improving costs and productivity.
Neil: We have moved rapidly on our $300 million to $400 million cost and productivity target and have already reached an approximately 90% run rate against the midpoint of the savings range in.
Neil: And Additionally, we have identified opportunities to reach the high end of the range and are already developing execution plans to drive those benefits.
Neil: These opportunities include further reductions to non head count spending supply chain efficiencies and further volume improvements at key manufacturing sites.
Neil: Third we remain on track to reduce capital expenditures by more than 50% year over year.
Neil: And finally, we remain focused on enhancing our financial flexibility and driving cash flow generation and cash conversion even in this uncertain market environment.
Neil: Evidenced by our more than 200% operating cash conversion in the first quarter driven by the receipt of the customer prepayment.
Neil: In summary, we remain focused on our deep and broad playbook of actions in our control and we continue to execute successfully across our planned operational and financial priorities.
Neil: Turning to our balance sheet and liquidity metrics on slide 11.
Neil: We ended the first quarter with available liquidity of $3 1 billion.
Neil: Largely made up of $1 5 billion in cash and cash equivalents and the full $1 5 billion available under our revolver.
Neil: The measures we've implemented to control costs capital spending and cash conversion have also enhanced our financial flexibility as a result of our proactive efforts to reduce costs and optimize cash flow. We ended Q1 with a net debt to adjusted EBITDA ratio of two four times.
Neil: Slide 12 highlights our commitment to effective execution and converting earnings into cash.
Neil: This is demonstrated by improved operating cash flow conversion, resulting from operational discipline and efficient cash management.
Neil: In the first quarter operating cash conversion exceeded 200% a large part of which was driven by the customer prepayment received in January.
Neil: However, even when excluding this prepayment first quarter operating cash conversion was 73% above our long range target.
Neil: Thanks to the timing of callison dividends enhancements in inventory and other cash management actions across our enterprise.
Neil: And just as important we delivered slightly positive free cash flow without the customer prepayment.
Neil: As we said last quarter, we anticipate that our 2025 cash dividends from the <unk> JV will be below historical average as tolleson completes its CGP three capital project at the Green bushes mine <unk>.
Neil: Nevertheless, we expect operating cash flow conversion to surpassed 80% in 2025 exceeding our long term target range driven by ongoing working capital improvements and the $350 million customer prepayment.
Neil: Combining that with our capital spending range of $700 million to $800 million, we maintain our expectation of breakeven free cash flow for the full year of 2025.
Kent: I'll now turn it back to Kent.
Kent: Thanks Neil.
Kent: Now I'll cover our long term lithium supply demand outlook.
Kent: Lithium is vital for the energy transition and our long term business drivers robust.
Kent: Beginning on slide 14.
Kent: 2025, EV demand growth is off to a strong start led by China with <unk> sales up 41% year to date, driven by subsidies for battery Evs and plug in hybrid.
Kent: China now represents approximately 60% of the overall market demand.
Kent: Europe also had a strong start to the year with sales up 19% in January and February thanks to a step change in regulatory emission targets.
Kent: Finally, North America grew 17% year over year with U S trends, improving due to greater model availability and affordability.
Kent: Overall these trends reinforce confidence in the industry's long term growth potential and continue to highlight that the regional dynamics are important factors to consider as the industry expands.
Kent: Turning to slide 15.
Kent: We expect lithium demand more than double from 2024 to 2030, driven primarily by stationary storage and electric vehicle demand.
Kent: Near term, we expect 2025% demand growth in the range of 15% to 40%.
Kent: A wider than usual range, reflecting uncertainties around tariffs and other trade actions and their impact on the macro economic environment.
Kent: We feel confident in the ability to reach the low end of the range given year to date performance revised EU emission targets and even modest growth in China.
Kent: The high end of the 2025 outlook range assumes strong grid installations, particularly in China and South Asia.
Kent: Plus Europe, and China, EV sales growth continuing closer to the year to date trend.
Kent: For what we know today, we see the most likely outcome being a growth rate in between these two extremes in the mid 20% range or similar to the growth rate in 2024.
Kent: These figures include the anticipated impact of tariffs announced to date under current macroeconomic conditions. However, they do not include the impact of a global economic recession.
Kent: We expect lithium supply to remain relatively balanced over the forecast period, given recently announced an ongoing project curtailments and delays.
Kent: Incentivising supply growth to meet long term demand requires prices well above current levels.
Kent: Okay.
Kent: The global energy transition is undoubtedly progressing as a matter of how fast not yet.
Kent: Globally electric vehicle market penetration or share of vehicle production is expected to exceed internal combustion engines by the end of the decade.
Kent: And China EV production is expected to overtake ice's production by as early as this year.
Kent: European EV penetration is driven by the EU C O two emissions targets and is expected to reach 65% by 2030, assuming the current policies remain in effect.
Kent: The U S market is earlier in its development with a range of outcomes, primarily reflecting uncertain policy impacts.
Kent: On the supply side, there have been several amounts curtailments, both upstream and downstream.
Kent: Non integrated hard rock conversion remains unprofitable and large integrated producers are facing pressure.
Kent: As prices have declined we now believe that about 40% of global capacity is currently either at or below breakeven.
Kent: Of which only about one third has come offline.
Kent: In a growing market all of that supply and more is required to meet long run demand.
Kent: In fact, we estimate lithium supply must double by 2030 to keep pace with demand.
Kent: As a result, we continue to expect that prices well above current levels are required to support the necessary investment.
Kent: In summary on slide 18.
Kent: Albemarle delivered solid first quarter performance, while continuing to act decisively to preserve long term growth optionality and maintained the company's industry, leading position through the cycle.
Kent: We are maintaining our full year 2025 company outlook considerations building on the progress we've made to drive enterprise wide cost improvements and strong energy storage project ramps.
Kent: We are progressing broad based comprehensive actions to manage controllable factors and generate value across the cycle.
Kent: I am confident we are taking the necessary steps to maintain our competitive position and capitalize on the long term secular opportunities in our markets.
Kent: With that I'll turn the call back over to the operator to begin the Q&A portion.
Kent: We will now move to our Q&A portion.
Speaker Change: We'd like to ask a question. Please press star five to raise their hand as a reminder, that is star size to raise your hand also please bear in mind that this Q&A session is limited to one question and one follow up per person.
Rob Hoffman: Our first question comes from Rob Hoffman with Bank of America.
Speaker Change: Your line is open.
Speaker Change: We're already one third done with the year.
Speaker Change: We speak a little more to the different scenarios, which make it.
Speaker Change: Demand to lower the higher end of that guidance, 15% to 40% into that growth in 2025.
Speaker Change: Yes, so I guess, okay. So that's right were about a third and but it's a pretty uncertain environment at the moment.
Speaker Change: So that reflects the range that we put out that why it is as wide as it is and we said in our comments we thought.
Speaker Change: For lack of another number I mean, the middle of the range is kind of what we think is reasonable at the moment.
Speaker Change: The TUI extreme for kind of the downside and the upside so either everything going the wrong way or everything going in the right direction, our best view at the moment.
Speaker Change: It's in the 20% mid 20% range Thats, our view, we're off to a good start so it was stronger than that and we know that some of that was pulled from last year, a little bit. So our best guess is mid twenties.
Speaker Change: Okay.
Speaker Change: Thank you and just as a follow up can you speak a little more to the progress and your productivity initiatives and.
Speaker Change: Given you're already 90% of the way through.
Speaker Change: The midpoint in other words roughly at $3 15.
Speaker Change: Run rate is there upside to that $400 million high end either in 2025 years thereafter.
Speaker Change: Yes. So we will we're we're kind of fighting to get to the top end of that range, but that's kind of a one off program. We look at productivity in those type benefits.
Speaker Change: And that we constantly do so.
Speaker Change: We think we can get to the top end of the range, we've gotten to kind of 90% of it at the moment to the at least the midpoint.
Speaker Change: And we think we'll get to the top into that range, but then we'll we'll keep working on that.
Speaker Change: Activity is kind of a constant bank. It is not something thats going to add one. This program is over and we'll continue to look for opportunities around that.
Speaker Change: Our next question comes from John Roberts with Mizuho Securities.
Speaker Change: It is now open.
Speaker Change: Back to the range on our lithium demand forecast do you have an opinion on how hard or easy it would be for U S and European EV makers to copy some of the recent Chinese breakthroughs and sell pack design.
Speaker Change: Okay.
Speaker Change: How how easier how hard I think but we are still early in the technology curve around.
Speaker Change: Lithium ion batteries and other batteries.
Speaker Change: Similar space right. So we are still early either on the ones that are more mature like the high nickel and LSP I think we're still early in that cycle. So youre going to still see advancements youre going to see them from <unk>.
Speaker Change: Global players, regardless of what geography, they're in so I think there's still a lot to play out around.
Speaker Change: Energy storage and whether it's lithium ion or sodium for example, we're still early in that technology curve. So there is a lot of room for improvement and from a variety of different players.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Colin Rusch with Oppenheimer.
Speaker Change: Your line is now open thanks, so much.
Speaker Change: Thanks, so much guys.
Speaker Change: For for Neil I mean, as you look at the industry now that we've seen some deeper rationalization. How are you thinking about cross cycle cash management return on investment.
Speaker Change: Think about a three to five year time period around those stockpiles.
Speaker Change: Yes, hi, there collyn good morning, so look.
Speaker Change: From a cash management standpoint, or maybe more.
Speaker Change: More importantly, I think where I go to first is thinking about the cash conversion of this company obviously for the work that we're doing around our cost savings ramping our assets and so on if I look over the next three years, we've set a range of 60% to 70% kind of cap.
Speaker Change: Cash conversion as our benchmark and that's that's what's turned up as we've done benchmarking with similar companies and so that's something that we want to strive for not just performing that way in a single year, but really being able to do that in a more consistent way and I think as we lined out our assets and.
Speaker Change: Get through our cost savings and work on the productivity initiatives that Kent mentioned I think that we can get there and we can do that in a in a ratable way.
Speaker Change: Look we've also said from a.
Speaker Change: This kind of ties into the cash management piece from a from a leverage standpoint, obviously, we want to.
Speaker Change: Be lower than where we are today, we've always said that less than two five times across the cycle is our target. We're not there today. So we're going to keep working on that and you've seen the things that we've done to enhance our financial flexibility and make sure that we have we're moving in the right direction on that front.
Speaker Change: So look I don't think Theres, a big change in our long term targets, but I hope what you hear from our comments today and the performance that we've had over the last several quarters is that we are very focused every day on ensuring that we're driving to those targets or better.
Speaker Change: Kind of using this benchmarking mindset to guide our actions.
Speaker Change: Thanks, So much and then just on the lithium contracting strategy I. Appreciate the comments that you don't have any major contracts rolling off this year as you see the landscape evolving a little bit and we start to see autonomous vehicles start to drive more EV adoption.
Speaker Change: Is there another cycle, where you guys will have a little bit more leverage around contract negotiations and pricing assumptions really start to attack the autonomous vehicle market here by the end of the decade.
I think from just from our contracting strategy I think ultimately it doesn't change it evolves and I think look I think our customers. If they want to have long term security of supply for the contracting element as part of that different markets have different.
Speaker Change: Preferences from a contracting or not contracting standpoint, so the Chinese market.
Speaker Change: For the most part spot.
Speaker Change: A lot of the OE.
Speaker Change: Oems.
Speaker Change: Players within the industry, particularly in the west like to have a contract they liked that security of supply they know that they've got.
Speaker Change: That supply lined up for them. So I think we'll continue to do that.
Speaker Change: Around the autonomy, where its autonomous or not in that market I'm not sure that changes our contracting strategy I think it will evolve over time.
Speaker Change: Depending on the way the industry evolves, but I still see us having a.
Speaker Change: Our mix and we always talk about the portfolio. We have so we have a certain amount of our portfolio and spot we like having a certain part of that we like having the piece in contracts, we see that it allows us to play in various parts of the market and mitigate risk and certain contractual strategy. So you'll I think you'll always see us what that portfolio it will probably shift a little bit over.
Speaker Change: Time, depending on the market.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Patrick Cunningham with Citi. Your line is open.
Speaker Change: Hey, good morning business rates author Patrick.
Speaker Change: Very helpful view on lithium demand.
Speaker Change: How much of the strong <unk> in that year to date with you here.
Speaker Change: Sure.
Speaker Change: <unk>.
Speaker Change: Any concerns on the SaaS high risk right yes.
Speaker Change: Sure.
Speaker Change: Yeah, I'm not I'm not sure much of it was tariff pre buying.
Speaker Change: So much as it was.
Speaker Change: I mean, we do know that some of our customers have told us they shifted volume from the end of last year into this year more about regulatory issues in Europe than than anything else.
Speaker Change: It was a it was a strong start to the year not sure. We can defined exactly what that was what it was but we didn't have as weak or a period around lunar new year as we normally do.
Speaker Change: So it was a little stronger on that I don't think it was tariff related but with regulatory in Europe and to be honest I'm not sure why it was stronger than it was in China, but it was.
Speaker Change: Okay, that's very helpful.
Speaker Change: On the supply side.
Speaker Change: And the supply curtailments that we've continued to see that supply response.
Speaker Change: China.
Speaker Change: Do you think that a particular region, where you expect to see some hybrid or any large project cancellations.
Speaker Change: Yes.
Speaker Change: Yes, I think what you're going to it's going to be non integrated hard-rock conversion right. So either the resource hard rock resource or that conversion is that they are in the difficult part on the cost curve.
Speaker Change: So thats, probably where we see that and probably frankly, we see it more in western players than we would in.
Speaker Change: Chinese players.
Speaker Change: Our next question comes from.
Speaker Change: It's key for us with Keybanc Your line is open.
Speaker Change: Thanks, Good morning, just to stay with the lithium market.
Speaker Change: You are forecasting demand to grow around 200 to 600 kilowatt hours. This year, how much do you think the upstream capacity will be added.
Speaker Change: This year as well.
Speaker Change: So I think so youre basically saying supply demand right.
Speaker Change: The market growth, we see how much comes on so there is room to absorb that but there is still some capacity that will come on.
Speaker Change: No exactly but our view of supply demand is it essentially stays more or less the same throughout the year unless significant amount comes off.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Your feedstock costs, we saw the cost of mining salad wajid.
Speaker Change: I don't know if you really saw the benefit of that this quarter or expect to see later this year, but could you also broadly talk about your outlook for mining costs.
Speaker Change: Both large and very English maybe.
Maybe one.
Speaker Change: As your volumes ramp in Chile.
Speaker Change: Yes so.
Speaker Change: But I guess you'd have to go through each of those but greenbush is cost I mean look we're driving greenbush is theres pretty mature we've got a lot of initiatives around that where we're getting more focused on the mining. So we do see being able to drive cost from that.
Speaker Change: <unk> will be the next big step there in that program comes on later in the year, So youll get a little bit more scale, which will help us from a cost standpoint.
Speaker Change: What do you know where we're working through.
Speaker Change: A difficult part of the mine at the moment.
Speaker Change: Remove material and get to the best or are there. So it's higher at the moment, but we expect to get better cost position. There and then la Negra is one of the lowest.
Speaker Change: From a Florida at a comparable on the lowest sources lowest cost sources resource in the world. So we continue to drive.
Speaker Change: Productivity and operations there the Solara yield project is ramping up we had.
Speaker Change: Record production at La Negra, and this particular quarter, so, that's all going well, which which drive the marginal cost down slightly incremental improvements.
Speaker Change: But.
Speaker Change: They move to drive the cost down as we leverage the fixed cost over more volume.
Josh Spector: Thank you. Our next question comes from Josh Spector with UBS, Josh Your line is open.
Chris Perrella: Alright, Chris Perrella on for Josh Good morning.
Chris Perrella: I wanted to follow up on.
Chris Perrella: The margins within energy storage.
Chris Perrella: How is that.
Chris Perrella: How much lower I guess, our contract sales and <unk>.
And how did the volumes ramp over the course of the year to sort of come out to your mid 20% margin target for the full year.
Chris Perrella: Yeah.
Chris Perrella: Yes, Hi, there Chris this is Neil maybe I can give you a little bit of color here. So the first thing to highlight about the first quarter is historically just in general from a seasonality perspective. The first quarter is usually a slower volume quarter for energy storage and I think you can see that in our deck, we provided our production.
Chris Perrella: Energy storage it was around 40 kt in the quarter and that's less than 25% for the year and so what you should expect is that there will be our higher volume months tend to be in the second and the third quarter and usually what those higher quarter months. What that means is that there is more volume that is.
Chris Perrella: Going to be sold off of our long term agreements. So those are going to be at prices a little bit more like current market prices at current spot prices. So that's why we say from an energy storage perspective, it's more of a mix as the volume ramps up over the next.
Chris Perrella: A couple of quarters and that's why we see the volume or sorry, the margin ticking lower in the second quarter versus versus the first quarter.
Chris Perrella: Alright, and just a follow up question with the cutback in Capex.
Chris Perrella: And the ramping or the Remixing of your production or optimizing of your conversion network, where do you guys see maintenance capex on a go forward basis.
Chris Perrella: When everything settles out over the course of this year.
Chris Perrella: When youre asking the question I was thinking about a longer term answer rather than this year. So I think it's going to be a little longer term, but look.
Chris Perrella: We're trying to get to about <unk> <unk>.
Chris Perrella: 6% of revenue from a capital standpoint, and we kind of say that at a mid cycle price. So we and we use 15, we just say $15, we would aspire to get to 6%.
Chris Perrella: And we could we're a bit above that now prices are a little lower than that.
Chris Perrella: That includes some include.
Chris Perrella: They include some small capital projects that get us productivity incremental benefit cost out type programs.
Chris Perrella: In that.
Chris Perrella: That's kind of where we're driving and if we get to that point, then we'll reassess and see if we can do something differently, but thats were above that at the moment, but thats.
Chris Perrella: Where we are headed yes, and Chris This is Neil maybe just to give you a little bit of color. We actually provided a chart. We didn't provided this quarter because nothing has changed about it but if you look at our last quarter earnings deck, we provided a chart with a little bit of that breakdown of our capital spending as you can imagine because of the reductions we've made.
Chris Perrella: Very little capital that we're spending on incremental growth right now most of it is going into regulatory maintenance capital of those kinds of things and it wouldn't surprise me. If you go back and look at that chart Youll, probably come to a number in the call it four or $500 million kind of range.
Chris Perrella: Thats in that sustaining bucket.
Chris Perrella: Our next question comes from Joel Jackson with BMO.
Joel Jackson: Good morning, everyone.
Joel Jackson: First question, there's tons of imports over the last week or so that's one chemical conversion plants chemical plant in China broke along some contract broke floor pricing.
Joel Jackson: That nothing gets reset this year I think some need reset next year in your own book are you starting to see some discussions with your customers asking question does the lithium price keeps sort of eroding slowly here.
Speaker Change: So I'm not exact sure the question, Joe what you're what you're getting at so let me let me start okay.
Speaker Change: So Kevin a chemical plant in China broke its long term contracts and broke explorers are you seeing any discussions from customers on asking if they can break those floors too.
Speaker Change: I would say no not any different than we have for the last three years right.
Speaker Change: We talk about this our contracts are evolve over time, but.
Speaker Change: Adjusted them. So we did have contracts in the last cycle that.
Speaker Change: Florida did not hold and we've adjusted the nature of the contract and who we contract with so that's why you see US go more to the spot market in China, but our contracts are holding and.
Speaker Change: Doesn't mean, though we don't renegotiate them overtime, if our customer wants something we want something if we can find the middle ground, we adjust we've done that.
Speaker Change: Over time, and we see that that's how it goes.
Speaker Change: How this market worked overtime, but.
Speaker Change: I think our our contracts are holding in doing what we expect them to do.
Speaker Change: And then.
Speaker Change: It's kind of a two part and my second question, but I mean would you first agreed at what's cost of marketed off guard last couple of years is not demand demand has been fine. It's been just supply and then following up on that in a prior question was asked on this call.
Speaker Change: You have a very granular demand outlook.
Speaker Change: Supply outlook or comments, you gave looks even more high level do you not worried that the supply there it's hard to see it coming.
Speaker Change: And.
Speaker Change: Even with great demand growth.
Speaker Change: A lead to a tough market.
Speaker Change: Because there is so much supply out there it's hard to see.
Speaker Change: Look it is it is difficult to understand the supply side I think the demand side as well, but theres more people external people looking at it and people report on that so it's a little easier to get your head around it.
Speaker Change: Supplies a little different.
Speaker Change: It's stickier things that we are pretty sure are losing cash are still operating.
Speaker Change: <unk>.
Speaker Change: To understand that how long people can hold onto that so so there will be pluses and minuses that we don't necessarily see coming on the supply side, but I think what gives us. Some comfort is that long term that marginal cost that is required to get the volumes that are necessary to meet demand means prices have to.
Speaker Change: We hire or those investments will happen.
Speaker Change: No.
I think that that's the best way I can answer that question.
Speaker Change: Thank you. Our next question comes from Vincent Andrews with Morgan Stanley.
Vincent Andrews: Thank you and good morning, Neil can I ask you the $3 50 of deferred revenue that came in it's obviously cash on your balance sheet now, but it's also a deferred liability on your balance sheet. So I'm wondering does the credit rating agencies. When they look at your metrics do they give you a complete credit for the $3 50, and our net debt to EBITDA calculation.
Vincent Andrews: Or do they haircut it by some amount because ultimately.
Vincent Andrews: You have to deliver on that revenue and their costs associated with doing such.
Vincent Andrews: Yes, hi, there Vincent.
Vincent Andrews: Yes look.
Vincent Andrews: Without getting into maybe the specifics of our discussion with the rating agencies, yes, they do give us credit for for that prepayment and it has to do with the way in which we've structured that prepayment.
Vincent Andrews: But I think more and more importantly, the discussion with the rating agency Hasnt just been about the prepayment its about been about really the collective series of actions that the company has done to.
Vincent Andrews: Ensure that we have the financial flexibility and keep working our leverage down and get it under control. So I think outside of the prepayment even <unk> been very happy with the focus that we've had as a team on ensuring we've got the right the right metrics going forward.
Speaker Change: Okay, and just as a follow up on cash flow from financing this year last year you.
Speaker Change: You had about $350 million of outflows most of which was the common and the preferred dividend, but I think there was about 50 or $60 million of other items in there, which would you anticipate a similar amount of that this year.
Speaker Change: 50, or would it be less than that or a little bit more any thoughts there.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Vincent Andrews: I'm trying to remember sort of where we where we sit right now on all those miscellaneous items, that's probably a good assumption for now Vincent I can always have the IR team get back to you but I.
Speaker Change: I don't expect a lot of noise in that in that part of the cash flow statement outside of the dividend payments that we have.
Vincent Andrews: Okay.
Speaker Change: Thank you. Our next question comes from David <unk> with TD Cowen.
Vincent Andrews: Your line is open.
Speaker Change: Thanks for taking my questions guys.
Speaker Change: Neil maybe for you I just wanted to clarify as you think about maybe the nine.
Speaker Change: $9, a kilo scenario.
Speaker Change: If that persists in the.
Speaker Change: 26, given all of the cost cuts that you guys have succeeded on so far.
Speaker Change: As guided on the EBITDA margin for the second quarter, and obviously highlighted the strength in the first quarter. How do you sort of think of the normalized EBITDA margin for the energy storage business exiting this year and sort of a $9 a kilo world.
Speaker Change: Yes interesting question so look.
Speaker Change: I think there are a couple of things the energy storage business, obviously is generating healthier margins and we talked about this in the prepared remarks that the quality of the business and of the company has improved because of the cost savings as you roll over into next year. I think there are a couple of things that are at flat pricing, there's a couple of things that.
Speaker Change: Our working in our favor here, obviously as we get into 2026 number one is our assets will be further ramped.
That's the <unk> yield improvement project, that's may Shawn camera, 10, et cetera, so that should help with our fixed cost absorption and obviously incrementally improve the energy storage margins.
Speaker Change: I think another.
Speaker Change: Piece of this also is that you.
You will have more production coming out of green bushes with the CGP three.
Speaker Change: Investment then coming online. So that's obviously not only a benefit for that JV, but that also means that we can push more of that green bushes spot through our own operations and even maybe leverage some of our tolling network as well to increase our volumes in the market to so look I think net net.
Speaker Change: <unk> not counting on price I think that we still have some some tailwind that can be beneficial to the energy storage business, even going into 2026 and by the way I forgot to mention then you have a full year also of the cost savings. So not only do we this year. Obviously, we are ramping into the cost savings and we're continuing to.
Speaker Change: <unk> that we hope to be at a pretty high run rate by the end of this year. Then next year you, obviously get the full benefit of that through the entire company, but of course, the energy storage business benefits from that as well.
Speaker Change: I appreciate the color there.
Speaker Change: And as my follow up just maybe for Ken just.
Speaker Change: A higher level question.
Speaker Change: And the outlook you talked about.
Speaker Change: That the industry is obviously operating below incentive price levels now.
Speaker Change:
How do you think about.
Speaker Change: If pricing were to move to incentive levels, what is sort of the incentive price for Albemarle to begin spending growth Capex again, and I guess just given.
Speaker Change: Some of the.
Speaker Change: The recent focus on the balance sheet, and obviously on margin and cost savings.
Speaker Change: How long would you need to see a price response back to incentive levels before looking to get out of maybe maintenance level and start investing for long term growth versus perhaps shoring up the balance sheet.
Speaker Change: Yes, so look our part of our priorities now is we are shoring up the balance sheet, making sure. We're in the right position there.
Speaker Change: The prices move I mean look the incentive price for different projects are all going to be different and depends on where they are what it is.
Speaker Change: Whether it's resource from a resource perspective or conversion, they're all at different prices.
Speaker Change: Whether it bounces back and the prices bifurcate by market would be another indicator of that.
Speaker Change: So those would be some of the things we would need to see and we.
Speaker Change: We're not going to we got a little price movement, we're not going to jump toward kind of big investments, we're going to be a little bit cautious here and as you say sure up the balance sheet is a priority at the moment to make sure that we can manage this business through the cycle. So we do think they're going to be cycles, both up and down and we have to make sure. We're in the right position for that and balance that with the growth because we want to make.
Speaker Change: The investments in the right place.
Speaker Change: We do have access to resources World class resources that we can invest behind that.
Speaker Change: Thats, probably where you see us go first.
Speaker Change: Our next question comes from Erin is Swanson with RBC. Your line is open.
Speaker Change: Thanks for taking my question congrats on the new.
Speaker Change: One performance.
Speaker Change: I guess I'm just curious.
Speaker Change: Two things so first off you mentioned.
Speaker Change: The potential for grid storage too.
Speaker Change: Drive, maybe some slightly better than expected volumes or maybe the upper end of that range.
Speaker Change: Could you just discuss maybe some more of your efforts there.
Speaker Change: Or maybe even within the industry have you seen.
Speaker Change: Any further commercialization, there and whats the Albemarle participation there.
Speaker Change: Yes, so I mean.
Speaker Change: Fixed storage or a grid storage, we tend to call it fixed storage, but it.
Speaker Change: It's the same thing it has over the last few years been about renewables and then balancing that with storage. So there was a regulations in China that you did renewables you're required to put storage with that renewable at but at the same location.
Speaker Change: Regulation has changed so now, but you're still required to do fixed storage, but it can be done centrally so thats a little bit of a shift in the regulation, but the incentives are still there and that's a that's a growing space now is becoming a little bit more about grid stability around AI data centers and things like that those same application interestingly enough we sell.
Speaker Change: It's the same customers, we sell to the same location.
Speaker Change: But they are selling into different segments and we've spent a few years ago, we had trouble understanding where the volume was going into right, whether it was fixed storage or mobility or evs and we've spent some time trying to understand that a little better we have a better handle on it that we did but even today we sell to.
Speaker Change: The same customers and they go that goes into the EV market or to the fixed storage market based on their book of business.
It's opportunistic.
Speaker Change: And it's been.
Speaker Change: It's been a good space for US frankly, a couple of years ago. We didn't think it was a place for lithium to play that it would be a minor spot VIX stores now is getting close to 20% of the demand for lithium and last year. It grew more than evs marginally, but still it was growing there so it's gonna be unimportant.
Speaker Change: <unk> of our portfolio over time.
Speaker Change: Great. Thanks for that and I guess last year, we did see some curtailments over the summer you noted that.
Speaker Change: Several other competitors in the lithium space maybe.
Speaker Change: In an economic territory. So do you expect some similar curtailments this year as you move into the summer.
Speaker Change: And similarly, do you expect her tablets based on environmental regulations or.
Speaker Change: Maybe you can just comment a little bit about supply.
Speaker Change: Given you have.
Speaker Change: I already commented on demand.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: We don't have a way of saying what everybody in the industry is going to do right. So it's.
Speaker Change: We would we know that theres pressure because of the cost position and where prices are there'll be pressure on people and how long they hold out and operate at breakeven or less is hard to say, we have seen some assets to higher cost at high floods, we know have come out of the market.
Speaker Change: And we don't see them coming back in the near term and there'll be pressure for others to come out of the market, but I can't say when and if they do it.
Speaker Change: <unk>.
Speaker Change: It's impossible to call Alright, and then environmental pressure around Lepidolite in China, assuming thats, what youre talking about.
Speaker Change: We haven't.
Speaker Change: Don't have great insight into that.
Speaker Change: Our next question comes from Laurence Alexander with Jefferies.
Dan Rizzo: Hi, This is Dan Rizzo on for Laurence I, just have one question and thanks for taking it.
Speaker Change: How does your strategy shift if government subsidy subsidies.
Dan Rizzo: Supply keeps places at the lower end of the range.
Speaker Change: I'm, sorry say that again can you just.
Speaker Change: I'm, sorry, I spoke too fast how does your strategy shift if governments subsidized supply and keep prices at the lower end of the range.
Speaker Change: Yes, so I mean.
Speaker Change: I guess our strategy is make sure that we are kind of cost position in <unk>.
Speaker Change: Competitive at the bottom of the cycle wherever that is right and so and we have.
Speaker Change: What gives us confidence we can do that is the quality of the resources that we have that allows us to participate.
Speaker Change: At the very bottom of the cycle and don't think it can stay there forever. So there will be opportunity, but it is the the strategy really is the same as to leverage the quality of the resources, we have and to make sure that we are very cost efficient.
Speaker Change: Thank you. Our next question comes from Pete Australian with Trust.
Pete Australian: Hey, good morning, Thanks for taking the questions.
Pete Australian: First just wanted to ask a clarification on the mix impact driving the energy storage Martin margin guidance Youre expecting 50% of volumes on the LTA is for the year. What percentage are you expecting to be sold under LTA is in the second quarter.
Speaker Change: Yes, hi, there Pete look we don't give that level of specificity by by the quarters.
Pete Australian: <unk>.
Pete Australian: Like I said I think I will lean back on my answer earlier on the call, which is in the first quarter, we had lower volumes and a little bit more of our mix was on those LTA as you think about the second quarter.
Pete Australian: Think about.
Pete Australian: As a percentage wise there'll be less volume on the <unk> and more as we ramp our volumes more will be on those other contracts that we have that are more tied to current market prices our current spot.
Pete Australian: So that's that's the mix point that we're trying to make here is that as we ramp those volumes there will naturally be more volumes on those kinds of contracts and that will lead to the margin being a little bit lower in Q2 versus Q1.
Speaker Change: Alright understood just as a follow up I also wanted to ask about recent news that theres going to be some new derivatives contracts for battery materials, including lithium being launched in June and what impact do you think that this could have on your lithium contracts I mean, do you get any sense from customers that whether its duration or pricing in terms of how you are.
Pete Australian: Contract mix would evolve if theres additional pricing transparency in the market.
Speaker Change: Yes, I would say it is.
Pete Australian: It won't have much of an impact initially.
Pete Australian: It could over time once.
Pete Australian: If they take hold and there is more volume in this space or are there other financial instruments out there now that you can hedge but they're they're not significant from a volume standpoint, so really not allowed it doesn't.
Pete Australian: Impact us on a material basis, but I think that's going to that would be the same way at least in the near term now if they take hold and we anticipate they will over time and they become a larger piece that our customers could hedge and we can hedge and do things a different way, but that volume is not available today.
Speaker Change: Thank you. Our final question comes from Entre Castagna with Dan Burke. Your line is now open.
Speaker Change: Thank you very much my question will be on bromine piece have you noticed any changes in a situation of bromine and bromine derivatives from the USA to China.
Speaker Change: Hi.
Speaker Change: So how has this impacted bromine pricing engine at all or at least maybe some decoupling in two regions.
Speaker Change: <unk>.
Speaker Change: So I don't know that we've seen a change right. So they have they do move in that direction they have over time.
Speaker Change: No that we've seen a significant change in.
Speaker Change: And derivatives from bromine moving to China.
Any comment.
Speaker Change: Eric.
Speaker Change: We haven't seen any change in that.
Speaker Change: Tariffs have played a role in a potential role, but there's been some exemptions as well it is allowed.
Speaker Change: No.
Speaker Change: Hasnt been any real material change in flow.
Speaker Change: Alright, and maybe the biggest the biggest short term changes in response to maybe.
Speaker Change: The shortage supply in the industry that move prices over the last month from $3 a kilogram.
Speaker Change: $5 14, sinter kilogram, but that since come back down to between a range of $3 and $3 29.
Speaker Change: Let's move through the system already.
Speaker Change: Thank you that's super helpful.
Speaker Change: Thank you that's all the time, we have for questions I will now pass it back to Kent Masters for closing remarks.
Speaker Change: Okay. Thank you operator.
Speaker Change: And to wrap up Albemarle strong operational execution, and strategic framework positioned us to effectively navigate market conditions and maintain our long term competitive advantages, including our world class resources process chemistry expertise and our customer centric market approach.
Speaker Change: We are dedicated to delivering value for our stakeholders and driving sustainable growth.
Speaker Change: For joining us today, and we look forward to seeing you face to face at the upcoming events, you'll see on the next slide listed on slide 20.
Speaker Change: Stay safe and thank you.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: No.