ALBEMARLE CORP Q3 FY2024 earnings call

• Kent Masters discussed the new operating structure transitioning to a fully integrated functional model to deliver cost savings and maintain competitiveness, targeting $300 to $400 million in further cost and productivity improvements, reducing global workforce by 6%-7%, and cutting 2025 capital expenditures by at least $800 million (50%). • Neal Sheorey provided financial results: net sales of $1.4 billion, loss attributable to Albemarle of $1.1 billion, adjusted diluted loss per share of $1.55. Highlighted balance sheet and liquidity metrics, with available liquidity of $3.4 billion at the end of Q3, net debt to adjusted EBITDA of 3.5 times. • Discussed lithium market conditions, with supply side having curtailments and demand side showing growth in grid storage and EV registrations.

Adjusted EBITDA by operating segment: Specialties saw improved year-over-year profitability due to productivity improvements and better end market demand. Catch in EBITDA also improved year-over-year as they continued to execute the turnaround plan. Energy storage had volumetric growth. Net sales were $1.4 billion in Q3 2024 compared to $2.3 billion in the prior year quarter, a decline of 41% driven by lower pricing, particularly for lithium. Energy storage had volumetric growth, and specialties had stronger end market demand. Revenue contribution details were not explicitly broken down by percentage in the provided transcript but focused on segment performance in terms of EBITDA and volume.

• Maintaining full-year 2024 corporate outlook considerations. • Energy storage full-year volume growth expected to be more than 20% year-over-year. Fourth-quarter volumes expected to be down sequentially due to timing of spodumene sales, reduced tolling, and planned outages, but margins expected to be slightly higher sequentially. • Specialties and kitchen expected modest sequential improvements in the fourth quarter due to better end market conditions and productivity benefits. • Full-year 2024 net sales expected near the lower end of the $12 to $15 per kilogram scenario primarily due to weaker second-half lithium pricing, offset by contract performance. Full-year 2024 adjusted EBITDA expected in the middle of the $12 to $15 per kilogram scenario range.

• Market volatility affecting lithium pricing. • Supply chain issues such as fragmented supply in the lithium market and delays in project completions. • Potential impact of regulatory changes, especially regarding tariffs and EV subsidies, which are uncertain given political developments.

Q: Was lower fixed cost next year and some volume growth, can you keep your EBITDA at least flat if prices do not change? Or do you expect an increase or decline?

A: Neal Sheorey mentioned they are working through 2025 outlook, but noted pricing below 2024 average is a headwind and equity earnings from Taliesin JV won't repeat in 2025. Fixed costs will come down but it's premature to say EBITDA will be flat, up, or down.

Q: On slide eight in that fourth quarter improved margin guidance for energy storage, what are you assuming for Talos and equity income in the fourth quarter? And what's the Talis and CapEx for 2024 and 2025?

A: Neal Sheorey said equity income assumption for fourth quarter is similar to third quarter given flat spod pricing, but CapEx budget for 2025 is premature to discuss and Taliesin's CGP3 asset will finish in 2025 and start up towards end of 2025.

Q: You've received some questions on the impact of the CapEx cuts on your long-term growth profile. The reduction of that $800 to $900 million as you go through this strategic review, is that where we should think of approximately maintenance capital or as we get into 2026 and beyond, could we see numbers quite a bit below those levels?

A: Kent Masters said they are targeting 4%-6% of net sales for maintenance capital on a normalized basis, currently above that due to lower pricing, and growth capital for high return projects, with CapEx cuts not significantly impacting 2025 volume forecast but affecting longer-term growth rate.

Q: This is Apurva on for Ben. So my question for you is that so you've discussed your leverage covenant providing substantial offer. We thought kind of two x spread in Q3. Is there any color that you can provide on the shape of those limits as they evolve through to 2026? Moving specifically at Q2 and Q3 2025 where that lever the covenant limit rises to kind of 5.75 times. So any color there?

A: Neal Sheorey said the covenant waiver is shaped based on trailing twelve month EBITDA and how they look backwards at 2024 EBITDA generation to shape the waiver accordingly.

Q: During your cost structure review, what new processes did you learn from benchmarking lithium peers? And how do you plan to implement those at Albemarle?

A: Kent Masters said it's more about broad corporate cost structure benchmarking rather than specific lithium peer processes, and the functional model announced will lead to cost-saving and simplification opportunities, with existing back offices to be used more efficiently.

Q: This is Harris Fine on for Chris. Thanks for taking my question. For my first one, it'd be helpful to hear some of your thoughts on the implications from the election how you're thinking about tariffs and EV subsidies, and maybe how you're adapting strategy for that kind of environment. Thanks.

A: Kent Masters said it's early to speculate on Trump administration's actions, but the energy transition is global, and they are positioned globally to take advantage, with plans to adjust to any changes once known.

Q: For my second one, in slide seventeen, you mentioned, potential upside actions. Accelerating productivity and reducing capital intensity even more. I guess maybe could you provide a little more detail to what's on the table right now? Anything you can share as to what that might entail? Thanks.

A: Kent Masters said they are working through the range of $300 to $400 million in cost improvements, covering overhead, R&D, manufacturing, and capital expenditures, and will narrow the range as they execute, but didn't specify exact details of potential upside actions yet.

Q: I wanted to follow-up on the contract outlook for lithium next year. I know it's two-thirds under contract, for this year, what are your expectations for the mix in 2025? And then I had a follow-up on use of cash in the fourth quarter.

A: Kent Masters said mix won't change materially, with growth coming on as spot volumes, possibly under contracts but not with the same floors as current contracts. Neal Sheorey discussed use of cash in fourth quarter, noting no expected dividend from Taliesin JV, payments related to working capital and cost reduction actions, with cash outflows in the tens of millions and $40 million to $50 million range respectively.

Q: On the 2025 CapEx guide, can you walk us through the actions you guys taken to bring down CapEx and what is contemplated? And are there any assets under consideration that could potentially go into care and maintenance? Thank you.

A: Kent Masters said they have taken out growth projects, tightened others, and been more rigorous with maintenance capital, targeting 4%-6% of net sales for maintenance capital, and will look at assets including Wajina for decisions on number of trains operated, depending on joint venture partner agreements.