Hello and welcome to Albemarle Corporation's Q2 2023 Earnings Call. I will now pass it on to Meredith Bandy, Vice President of Investor Relations and Sustainability.

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

Thank you, Meredith. Our second quarter results continued the positive trend from last quarter, with net sales up 60% and EBITDA up 69% versus the same period last year. We have increased our energy storage outlook for 2023 based on current market prices. Of course, the long-term shift to electric vehicles is well established and growing. Automakers are planning ahead to accommodate that future growth. For example, we signed a strategic agreement with Ford to supply over 100,000 metric tons of lithium hydroxide over a 5-year period, starting in 2026. One of the reasons our customers choose Albemarle is our commitment to sustainability. In June, our Salar de Atacama site became the first lithium resource in the world to complete an independent audit and have its audit report published by IRMA, the Initiative for Responsible Mining Assurance. We achieved an IRMA 50 level of performance, and a third-party auditor verified that the Salar site met 70% of over 400 rigorous IRMA requirements, covering topics such as water management, human rights, greenhouse gas emissions, fair labor, and terms of work. Also during the quarter, Albemarle's growth and impact on the energy transition were recognized by inclusion in the Fortune 500 rankings and in the TIME100 Most Influential Companies list. We continue to invest in future capacity to meet long-term demand. The Salar yield improvement project reached mechanical completion on schedule, and the Meishan project in China is ahead of schedule, with mechanical completion expected in early 2024. Last month, we announced agreements to simplify and amend our joint venture with Mineral Resources. I'll update you on these activities later in the presentation. And for now, I'll hand it over to Scott to walk you through our financial results.

Thanks, Kent, and hello, everyone. On Slide 5, let's review our second quarter performance. Net sales were $2.4 billion, up 60% compared to last year. This nearly $1 billion increase was driven by energy storage as a result of both higher market pricing and higher volumes, which were up almost 40%. Net income attributable to Albemarle was approximately $650 million, up 60% compared to the prior year. Diluted EPS was $5.52, also up almost 60%, and adjusted diluted EPS of $7.33 was more than double last year. At the end of July, we reached agreements in principle with the Department of Justice on a matter that we initially disclosed in 2018 related to conduct in our catch-in business occurring prior to 2018. Our Q2 GAAP results include an approximately $219 million accrual to resolve this matter. Looking at Slide #6, second quarter adjusted EBITDA was over $1 billion, an increase of nearly 70% year-over-year, driven primarily by higher pricing as well as higher volumes in Energy Storage. Our Specialties business was down year-over-year due to lower volumes and pricing related to weakness in certain end markets such as electronics and insurance claim receipts and lower energy costs. Let's look at the updated total company outlook on Slide 7. We are raising our 2023 guidance for net sales and adjusted EBITDA to reflect current lithium market prices. As has been our practice, this guidance assumes recent lithium market price indices are constant for the remainder of the year. And as a result, we have increased the lower end of the range for net sales. We now expect 2023 total company net sales to be in the range of $10.4 billion to $11.5 billion. We expect third quarter net sales to be relatively flat sequentially, followed by an increase in fourth quarter net sales as we ramp energy storage volumes. We are increasing our adjusted EBITDA guidance to be in the range of $3.8 billion to $4.4 billion. This implies full year EBITDA margins in the range of 37% to 38%, also up from previous guidance. Our full year 2023 adjusted diluted EPS guidance is also increasing to a range of $25 to $29.50, reflecting a year-over-year improvement of about 25% at the midpoint. We expect our net cash from operations to be in the range of $1.2 billion to $1.8 billion. This is a decrease in outlook driven primarily by two factors. First, higher working capital related to the timing of our energy storage shipments. We now expect lithium sales volumes to be weighted towards the back half of the year, particularly in Q4, due to the timing of our growth projects and tolling volumes. This is expected to result in higher accounts receivable at year-end, which will convert to cash in early 2024. Second, this outlook assumes that the DOJ payment of approximately $219 million is made by year-end. Our CapEx guidance has increased to $1.9 billion to $2.1 billion. This increase reflects the revised agreements with Mineral Resources. Following these revisions, Albemarle will maintain 100% ownership of the Kemerton, Qinzhou, and Meishan lithium processing plants. Apart from this change, capital spending is in line with previous forecasts. Turning to the next slide for more detail on our outlook by segment. We're increasing our full year 2023 energy storage net sales guidance to be in the range of $7.9 billion to $8.8 billion. Energy Storage volume growth is expected to be at the higher end of the previous range of 30% to 40% year-over-year thanks to increased tolling and successful project execution. We also project average realized pricing increases to be at the higher end of the previous range of 20% to 30% year-over-year, assuming recent lithium market prices continue through the rest of 2023. Adjusted EBITDA for Energy Storage is expected to increase in the range of $3.5 billion to $3.9 billion. This 15% to 30% increase is due to higher net sales, which we expect to more than offset the timing impacts of higher-priced spodumene inventories. In Specialties, we continue to see pressure in our end markets. Weakness in consumer and industrial electronics and elastomers is only partially offset by strong demand in other markets like pharmaceuticals, agriculture, and oilfield services. Similar to other specialty chemicals companies, we are reducing our outlook for the full year 2023. Net sales are now expected in the range of $1.5 billion to $1.6 billion, and adjusted EBITDA is anticipated to be between $385 million and $440 million. Q2 is expected to be the weakest quarter of the year. We took advantage of the recent market slowdown to pull forward planned maintenance and reduce inventory to maximize efficiency and free cash flow in the second half of 2023. Ketjen's 2023 full year adjusted EBITDA is expected to be up 325% to 425% over the prior year. This increase in outlook is due primarily to insurance recoveries, which are not expected to recur, as well as ongoing recovery in refining prices and improved processing costs. As a reminder, most of our Energy Storage volumes are sold under long-term contracts with strategic customers. On Slide 9, we've updated our expected 2023 net sales mix to reflect recent lithium market prices. Due to the recent rebound in lithium pricing, our full year 2023 net sales mix is now expected to be 80% index referenced variable price contracts and 20% spot. There's been no other change to our contract philosophy or structure. Our strategy to deliver long-term growth remains on track.

Turning to Slide 10. We continue to expect year-over-year Energy Storage volume growth in the range of 30% to 40% in 2023. We anticipate coming in at the higher end of that range, primarily driven by the La Negra III/IV expansion, the acquisition of the Qinzhou conversion asset plus additional tolling. With additional conversion assets coming online in 2024, we still anticipate a 20% to 30% CAGR in Albemarle sales volumes between now and 2027. We remain on track to nearly triple sales volumes to more than 300,000 tonnes. Our revised Energy Storage outlook implies EBITDA margins of around 45% for 2023, up from the prior outlook based on higher market prices. As a reminder, year-over-year margins are expected to normalize from the very high level seen in late 2022 and early 2023, primarily related to spodumene inventory lags at our Talison joint venture. On average, it takes at least 6 months for spodumene to go from our mines through conversion to our customers. Last year, we saw dramatic increases in prices for lithium and spodumene. Due to the time lag on spodumene inventory, we realized higher lithium pricing faster than higher spodumene cost of goods sold. This year is the reverse. As prices decline, we are realizing lower lithium prices faster than lower spodumene costs, and we expect the majority of this impact is going to recur in the third quarter. The next item affecting margins is the accounting treatment of the MARBL joint venture.

Under the amended agreements with Mineral Resources, we expect to continue to market and toll Wodgina product during 2023. As a result, we will recognize 100% of the net sales from MARBL, but only our share of EBITDA. The result is about a 5% lower reported margin for 2023. Finally, our reported EBITDA margins are impacted by tax expense at Talison. Talison's net income is included in our EBITDA on an after-tax basis. If you adjusted Talison results to exclude tax, margins would be about 6%. Turning to Slide 12, we will continue to invest with discipline, allocating our capital and cash flows to support our highest return growth opportunities. Our primary use of capital remains organic growth projects to leverage our low-cost resources in Australia and the Americas. Beyond organic growth, we also consider a broad range of M&A opportunities primarily across three areas: lithium resources, process technology for our core business, and for new advanced materials, and battery recycling.

As previously disclosed in March, Albemarle submitted an indicative proposal to acquire Liontown Resources, our pre-production spodumene resource in Australia. To date, the Liontown Board has not meaningfully engaged in progressing the transaction. Another example of our strategy is the acquisition of the Western Lithium subsidiary of Lithium Power International that we completed in July in a cash transaction of just over $20 million. This purchase provides Albemarle with prospective exploration tenements near our Greenbushes spodumene mine, regarded as one of the world's best hard rock lithium mines. And this week, we announced an investment in Patriot Battery Metals. This investment provides a 4.9% interest in a prospective spodumene deposit located in Northern Quebec. We intend to maintain our track record of a disciplined M&A process to accelerate higher return growth while preserving financial flexibility and maintaining our investment-grade credit rating. Our balance sheet flexibility is a competitive advantage that allows us to grow both organically and through acquisition as well as support our dividend. And with that, I'll turn it back over to Kent for a market update and closing remarks.

Thanks, Kent. One of the reasons we can report strong financial results is our disciplined operating model. We call it the Albemarle Way of Excellence. Our four operating pillars are high-performance culture, competitive capabilities, operational discipline, and a sustainable approach. And these aren't just words, they are principles that guide our decision-making. Today, I'll highlight operational discipline, which includes business, manufacturing, and capital project excellence. Through initiatives and operational discipline, we've targeted $250 million in productivity benefits over this year and the next, and we are on track to exceed that goal. Our goal in manufacturing excellence is to drive best-in-class discipline and operating efficiency, with a target of $150 million of savings over the next two years.

Across our businesses, we realized value in our manufacturing operations through yield improvements and better utilization of raw materials and energy. Through Project AI, which we call Albemarle Intelligence, we're leveraging machine learning to optimize our manufacturing processes. Our global procurement team is strategically sourcing to pull purchasing and capture raw materials and logistics efficiency enhancements in real time. With continuous improvement, we are targeting $100 million of productivity benefits this year. Another execution principle under operational discipline is capital projects excellence. Our focus on capital project execution is paying off with four global projects progressing on time and on budget, including the Salar Yield Improvement Project, Meishan, Richburg, and Kings Mountain. As we continue to develop projects around the world, our objective is to build the structure, capabilities, discipline, and design approach that enable faster capacity growth at lower capital intensity. Turning to Slide 14 for an update on more of our capital projects. In Chile, I'm pleased to report that our Salar Yield Improvement Project recently achieved mechanical completion on time and has transitioned into commissioning. In Australia, Kemerton I continues to produce battery-grade products subject to customer qualification. While there have been challenges, particularly in light of the very tight labor market in Western Australia, we are proud of our Australian team as they commission that plant and deliver products to our customers. We are applying what we've learned to the construction of Kemerton II and Kemerton III and IV projects that have recently gated into execution. In China, Qinzhou is ramping up on budget and on schedule to nameplate capacity. The construction of Meishan is progressing on budget and ahead of schedule, with mechanical completion now expected in early 2024. As mentioned earlier in the call, we have agreed to amend the terms of the transaction signed earlier this year with Mineral Resources. Under the amended agreements, we will acquire 100% ownership of Kemerton and retain 100% ownership of Meishan and Qinzhou lithium conversion assets. Other key aspects of the February 2023 agreement remain in effect, including a 50-50 ownership of the Wodgina mine and an April 2022 economic effective date. The transfer of 10% interest in Wodgina is exchanged for 25% interest in Kemerton. Upon closing, we expect to pay Mineral Resources $380 million to $400 million. About half is related to the purchase of the remaining 15% ownership stake in Kemerton and about half relates to economic effective date settlements and other transaction costs. This transaction is anticipated to close later this year after we receive Australian regulatory approvals. On Slide 15, EV sales over the last quarter indicate 2023 global electric vehicle sales are on track for 40% growth. After a slower start to the year, EV sales have picked up with global sales up 41% and China up 45% year-over-year through June. China has regained growth momentum, with June representing the largest monthly EV sales since last December. In Europe, easing supply chain issues have lifted sales by about 20% year-to-date. Despite mixed macroeconomic conditions, the outlook for global full year EV demand remains resilient, driven by the introduction of new models, new incentives, and the expansion of charging infrastructure. Since May, we have seen a rebound in lithium market pricing driven by downstream restocking and strong EV and battery production. Customers are returning to the spot market after destocking to unsustainably low levels of inventory against the backdrop of growing demand, with lithium inventories decreasing in the supply chain over the last few months. Global lithium supply-demand remains relatively balanced, driven by increased EV demand as well as challenges in bringing on new projects. As we continue to expand our lithium capacity, our scale, global footprint, and vertical integration position Albemarle to sustainably meet growing customer demand. While we're pleased that the lithium market remains strong, we continue to focus on managing the things that are within our control for long-term value creation. We're delivering growth in both sales and earnings. We anticipate 2023 sales to be up 40% to 55% over last year, with healthy margins. While the EV market is clearly the star at the moment, we are a global leader in world-class long-term assets and a diversified product portfolio with broad opportunities in the mobility, energy, connectivity, and health markets. Our focus on sustainability is not only aligned to our values, it also aligns with our customers' values and creates an advantage for us in the marketplace. Our strategy is clear, our markets are growing, and our discipline in both how we operate and how we allocate capital gives us an edge across economic cycles. With that, I'd like to turn the call back over to the operator to begin the Q&A portion.

Your first question comes from the line of Josh Spector from UBS.

It's Chris Perrella on for Josh. Could you work through the timing and the cost impact of the spodumene sales on the third quarter and fourth quarter?

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

Your next question comes from the line of Patrick Cunningham from Citi.

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

Yes, we've been discussing a shift towards focusing on resources rather than a traditional M&A strategy. We also aim to engage with early-stage opportunities to capitalize on them before they become too costly. Although this approach carries some risk, we're opting for smaller investments to establish our presence. This strategy helps us collect valuable insights to assess the opportunity as it evolves, giving us the option to decide later on bigger investments. It’s also about the resources and their locations. When pursuing these opportunities, we evaluate the jurisdictions that are most advantageous for our business. Locations like North America, Canada, and Western Australia are familiar and geopolitically stable for mining. Canada is slightly more favorable than the U.S. in North America, but both are good locations for us. We're open to exploring resources in South America as well, while considering geopolitical stability, permitting, and other factors in our decision-making.

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

This is Harris Fein on for Chris. So now that you've basically bought MinRes out of your downstream assets, you have the Mega-Flex facility to be thinking about down the line. So how do you feel about your current resource footprint? And maybe it would be helpful if you could do a quick walk-through of how you're thinking about additions to the portfolio?

Yes. So look, a couple of years ago, we were talking about the acquisition of conversion facilities. We did that at Qinzhou and have been building those out organically. We've been talking about pivoting toward resources as we feel we're starting to utilize our resources with the conversion facilities that we have. We need to identify additional resources toward the end of the decade, so we're pretty much good to around that timeframe, but we need additional resources beyond that. The lead time to identify, qualify, and then bring a resource on is significant. We feel pretty balanced now. The difference now that we bought MinRes out is that we have full control of those assets, which simplifies operations. I don't think this was a major shift, and it's not a shift in our long-term strategy. We're still looking for those resources. We are in a good position for resource and conversion until the end of the decade, but after that, we need more resources.

Your next question comes from the line of Colin Rusch from Oppenheimer.

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

Yes, okay, Colin, can you clarify the second comment? I'm not sure I picked that up correctly.

Sure. Colin, this is Eric. Regarding OEM volumes, I would just say that the majority of OEM contracted volumes today are future-based; they are for mid-decade onwards. Much of the supply chain for their lithium needs is secured today through battery producers. We've seen very strong demand with over 40% growth in registered EV sales through June. Early data from China in July looks promising as well, so we're not seeing any pressure in this area. We've seen headlines suggesting that certain EV models in the U.S. may be slower, but I would argue that this is a small part of the market. The rest of the market and the demand we're seeing is quite strong.

As for the second question, I don’t know if you want to address that, Kent.

Yes, look, we have a lot of effort on R&D development, particularly around process chemistry and extraction. The autoclave process is one we’re investigating and I believe the industry is looking at, but it's down the road. We're focused on near-term operations, as we think there are significant productivity gains that we can realize from existing facilities over the next 10 years, and potentially beyond that as we improve our process chemistry. It's still early technology. It's been operated for quite some time, but scaling is still a challenge. New technologies around leaching agents and techniques like pressure with an autoclave are something we’re looking at, but it’s not expected to be in scale production in the next year or two.

Your next question comes from the line of David Deckelbaum from TD Cowen.

I wanted to ask, post the Mineral Resources restructuring and the MARBL JV, you're obviously allocating more capital to conversion assets that you're building out. Does that impact how you're managing your balance sheet over the next couple of years?

Yes, I don’t think it changes things dramatically. We are spending a little more capital than we had originally anticipated, but we need to be careful with our balance sheet and disciplined with our investments. We want to ensure that we are balanced going forward but do not miss out on opportunities. You will see us actively seeking resources and investing strategically.

And David, I'd just add, I mean, this is a huge competitive advantage for Albemarle. If you look across the competitive field, not many of our competitors have a robust balance sheet, providing us the flexibility to navigate market ups and downs and seize opportunities when they arise.

It is, Scott. Maybe just a little more granular on tolling volumes. Can you provide a sense of magnitude expected in the back half of the year versus the beginning?

Our tolling volumes overall for this year will be about twice what we did last year, largely due to two reasons. One is that it's a lengthy process to qualify and find the right tollers as we scale that volume, which will push it into the second half of the year. The second reason is that spodumene availability is also back-end loaded for the year. We were in a weak market in January and February, and we were not aggressively going after incremental volumes at that time. As we sit today, however, the market is strong, and we've seen over 40% growth in EV sales.

Yes. There’s a balance we have to maintain while building large conversion assets and ramping those up. We've been effectively balancing that with tolling, which proves to be beneficial.

As it pertains to tolling in China, it will be back-end loaded for both demand reasons and due to our established supply and relationships.

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

It seems like your inventory keeps building quarter-over-quarter here. What else is going on, or how should we think about how that will convert to cash?

Yes, that's a good question. We continue to see our inventory balances grow, driven primarily by two things: volume ramping and the increase in spodumene prices. If you review it by days basis, our days of inventory remain consistent, driven by volumetric growth and pricing impacts. Therefore, it's not an over-indexing of inventory, rather, it's on track with our expectations.

Okay. Your partner at MARBL made some comments around trade relationships and where it makes sense to have conversion assets. Do you think their perspective is misguided? Would it make sense to look to secure hard rock in a country with better trade relationships with Australia over time?

I'm not sure exactly what Mineral Resources has said, but we have different views on geopolitical risks between Australia and China. We are a U.S. company, and lithium is a significant business in China. We have a substantial footprint there, and our customers primarily operate there. We have discussed our pivot to the west, intending to serve the Chinese market while also investing in localizing the supply chain in the west.

Just to clarify, our resource base is in Australia and North America, specifically with Kings Mountain and Silver Peak. We also have interests in South America, mostly Chile. We focus on developing resources in favorable jurisdictions with a low-cost position.

I believe that we have the most diverse resource network within the industry, and we seek to continue building that.

Your next question comes from the line of Arun Viswanathan from RBC Capital Markets.

I have a question on guidance. You've adjusted to reflect more index-based contracts, but with the lithium prices being quite volatile, how do you feel about providing guidance with that in mind?

Right, so we have pivoted to be more index-based in our contracts. We decided to guide by not predicting lithium prices, but using current market indices to forecast for the remainder of the year.

Given our low-cost resources and operations, we expect to maintain reasonable margins throughout the cycle, which supports our guidance approach.

What else can we expect in terms of M&A? Are you contemplating any larger investments?

We aim to integrate resources from acquisition, which is fundamental to our strategy. We want to guarantee quality and production because of the resource quality, while also performing the conversion. We are currently exploring new opportunities to identify and own additional resources while remaining strategic about it.

Your next question is from the line of Kevin McCarthy from Vertical Research Partners.

Could you comment on how margins might change as you execute on the MARBL restructuring? Does the 5% drag go away completely or partially? Also, the press release indicated an acceleration of the Meishan project. Is that related to an experience curve where you have a greater capability to bring on conversion capacity more quickly?

Yes, as part of the restructuring of that joint venture, we'll continue to toll volumes out of Wodgina, meaning we will continue to experience that margin headwind until the middle of next year. After that period, we’ll see an improvement to our margin rate.

On the Meishan project, it comes down to good project execution. Our capabilities in China allow us to execute large projects without the labor issues we face in Australia. We’re getting better at executing projects, which is the key reason for the acceleration.

How does the experience at Meishan differ from what you would anticipate for Kemerton III/IV in terms of capital cost and speed of execution?

We are building significant capabilities that are miles ahead of where we were three or four years ago. We can execute projects on budget and schedule. However, these budgets and schedules will differ by location, so you cannot apply Meishan figures to projects in different regions directly.

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

Could you provide insight on Energy Storage for 2024? Any thoughts on the growth trajectory and how EBITDA might scale as well as pricing implications?

That's a bit far out for specific guidance, but next year will primarily focus on volume growth. Pricing will depend on contract structures, but we do expect the market to remain tight, driving significant demand and necessary supply growth.

Indeed, we believe the market will remain quite tight, and the expected demand growth will track closely with supply growth.

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

Can you discuss the seasonality of EV sales and how that might impact lithium prices moving forward?

On seasonality, demand is usually stronger in the second half of the year for both ICE vehicles and electric vehicles. There was a weak January market in China, but overall demand growth has remained strong, driven by significant sales growth in the U.S. and China.

Regarding the Salar Yield Improvement Project, we achieved mechanical completion and are transitioning into the commissioning phase. This improves our efficiency in lithium recovery per gallon of brine pumped, but it requires an 18-month lead time for products to start impacting our sales.

We expect to ultimately see a volume increase of 85,000 tonnes from this project, with the benefits materializing within the next 6 months.

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

First, on your Energy Storage guidance increase, can you bridge us from the previous guidance to the new midpoint of $3.7 billion?

Yes, David. It's really all about price indices. We've held our guidance flat overall, reflecting adjustments from the recovery of lithium prices since April.

I am interested in the potential for lithium production in Arkansas and your current thoughts on accessing those assets.

We have plans to exploit our lithium assets in Arkansas, specifically in the Smackover and Magnolia regions. We plan to utilize our bromine operations for lithium extraction, which requires new technology, and we are working on that with pilot plants. We have access to the brines and the necessary infrastructure to execute this strategy.

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

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

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