Ladies and gentlemen, thank you for standing by. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to Auburn Mall Corporation's Q3 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I will now hand it over to Meredith Brandy, Vice President of Investor Relations and Sustainability. All right.

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

Thank you, Meredith. Before we begin, I'm sure most of you have seen that this will be Scott's last quarterly call as CFO. Scott is transitioning roles to become a strategic advisor, while Neil Shorey will join the company as executive vice president and chief financial officer on November 6th. Scott has had a positive impact on the company since he joined in 2011. With his leadership, we've advanced Albemarle's growth strategy and maintained our commitment to operating with people and planet in mind. In this new role, Scott will provide strategic advice into our long-range plans and will also be on hand to assist with Neal's transition. I know you'll join me in thanking Scott for his contributions to Albemarle over the past 13 years. Our third quarter results reflect strong operating performance and continued volumetric growth in a challenging macro environment. Our net sales were up 10% in the third quarter versus the same period last year. However, adjusted EBITDA was down due to softer lithium market pricing and timing impacts of spodumene inventory from our JV-owned assets. Based on current market prices, we have revised our 2023 outlook, which still contemplates an increase in net sales between 30% and 35% year over year. We remain bullish about Albemarle's long-term growth, our role in enabling a more resilient world, and our strategy to deliver enduring value. In the third quarter, we made significant progress advancing these efforts. During the quarter, we signed agreements with Caterpillar to collaborate on solutions to support the full circular battery value chain and sustainable mining operations as part of the partnership we will purchase an all-electric mining fleet for kings mountain and make our north american produced lithium available for use in caterpillar battery production we will also explore opportunities to collaborate with caterpillar on r d of battery cell technology and recycling techniques. With this collaboration, we and Caterpillar will be both customers and suppliers of each other with shared goals to pioneer the future of sustainable mining technology and operations. We also received a $90 million grant from the U.S. Department of Defense to help support the expansion of domestic mining and production of lithium for the nation's battery supply chain. The grant will be used to purchase a fleet of mining equipment in support of the King's Mountain Restart. Earlier this month, we finalized simplified commercial arrangements related to our joint venture transaction with mineral resources. Under the revised agreements, Albemarle will take full ownership of the Kimberton lithium processing facility and 50% ownership of the Wajinospodumine mine in Australia, and retained full ownership of the Chemzou and Mayshan lithium processing facilities in China. I'll now hand it over to Scott to walk through our financial results.

Thanks, Kent, and hello, everyone. On slide five, let's review our third quarter performance. Net sales were $2.3 billion, up 10% compared to last year. This increase was driven by higher energy storage volumes thanks to expansion of our mining and conversion assets. Net income attributable to Albemarle was approximately $303 million, down 66% compared to the prior year. Similarly, the looted EPS was $2.57, down 66%. Higher net sales were more than offset by higher cost of goods sold, primarily due to inventory timing. And I'll discuss these timing impacts more in a moment. Our year-to-date results reflect the strong performance and significant growth we've achieved this year, despite recent softer lithium pricing. For the nine months ended September 30, net sales are up 55% year-over-year, and net income is up 42%. Looking at slide six, third quarter adjusted EBITDA was $453 million, a decrease of 62% year-over-year, driven primarily by softer lithium market pricing and timing impacts of spodumene inventory and energy storage. The specialties business was also down due to continued lower volumes and pricing related to softness in certain end markets. For the first three quarters of 2023, adjusted EBITDA was more than $3 billion, up 38% against last year. Again, energy storage growth reflects the majority of that increase, with both volumes and prices up year over year. On slide 7, as Kent mentioned, we are lowering our total company outlook for 2023. As has been our practice, this outlook assumes recent lithium market price indices are constant for the remainder of the year, and as a result, we have decreased the range for net sales. Under this methodology, 2023 total company net sales would be in the range of $9.5 to $9.8 billion. This range represents an increase in net sales of 30% to 35% over the prior year, driven by the ramp of our energy storage volumes. Our adjusted EBITDA outlook is expected to be in the range of $3.2 to $3.4 billion. This implies full-year EBITDA margins of 34% to 35%. Our full-year 2023 adjusted EPS outlook has also been adjusted to a range of $21.50 to $23.50. We expect our net cash from operations to be in the range of $600 to $800 million. The decrease in adjusted EBITDA and net cash from operations reflects current lithium market prices and lower expected sales volumes at our Taliesin Joint Venture. Our partner at Taliesin elected not to take their full allocation in the second half of this year, and this has impacted our equity income for the period. Our CapEx guidance remains in line with previous forecasts at $1.9 to $2.1 billion, which, as a reminder from last quarter, reflects 100% ownership of our conversion assets with the completed revised agreements with Mineral Resources. We expect to provide our full-year 2024 outlook on our fourth-quarter call in February. Turning to the next slide for more detail on our outlook by segment. Assuming recent lithium market prices remain constant through the rest of the year, we expect energy storage 2023 net sales in the range of $7 to $7.2 billion and adjusted EBITDA to be flat to slightly down on the year as timing impacts of higher-priced spodumene more than offset higher net sales. We are projecting that full-year average realized pricing increases will be in the range of 15% to 20% year-over-year and energy storage volume growth in the range of 30% to 35% year-over-year. We continue to expect Q4 to see stronger production volumes as a result of project ramps. In 2024, volume growth is anticipated to continue as Kemerton, Chinjiao, and Lanega ramp to meet the expected demand from continued strong EV production. In specialties, we now expect net sales to be approximately $1.5 billion, with adjusted EBITDA expected to be down 40% to 45% year-over-year the full year. This is due to continued softness in consumer electronics and elastomers, partially offset by strength and demand in other specialties and markets, including pharmaceuticals and oil field. We continue to monitor the situation in the Middle East and any impact at our operations in Jordan. Currently, JBC is operating as usual without disruption to our supply chain. Macroeconomic and geopolitical uncertainties will impact market visibility in this business well into 2024. Ketchum's 2023 full-year adjusted EBITDA is now expected to be up 250% to 325% year-over-year due to higher pricing and volumes, as well as productivity improvements. During the quarter, we saw higher volumes driven by high refinery utilization. We also saw benefits of higher contract pricing, primarily for FCC products, which is expected to continue through 2023 and into 2024. We are encouraged to see inflation in material and energy costs moderating and expect this trend to continue through 2024. On slide 9, we have an experienced team that knows how to operate in a variety of price environments. Maintaining our disciplined growth mindset, we are taking a comprehensive review of actions that will support our near-term profitability and cash flow. As we've done in the past, we're reviewing our project spend and sequencing of our projects to preserve cash. We're also implementing cost and efficiency improvements across our business. For example, we've reduced non-critical travel and are reducing discretionary spending. Our Albemarle way of excellence is the standard by which we choose to operate. Slide 10 provides an update to the targets we've made in manufacturing and procurement. We're on track to exceed our goal of $170 million in productivity benefits in 2023. In manufacturing, improvements to our overall equipment effectiveness to improve yield and utilization are expected to exceed $70 million in benefits. In procurement, we've strategically sourced to capture lower raw material pricing. In 2024, we expect to increase these initiatives, targeting additional benefits across manufacturing, procurement, and back office. Lowering operational costs in our business is critical to our success as we orient towards sustainable growth. As a reminder, most of our energy storage volumes are sold under long-term contracts with strategic customers. Our expected 2023 sales mix on slide 11 remains unchanged from last quarter and reflects recent lithium market prices. Turning to slide 12, we expect year-over-year energy storage volume growth to be in the range of 30% to 35% in 2023. This is driven by successful execution and ramping new capacity, as well as additional tolling. With additional conversion assets coming online in 2024 and beyond, we still anticipate a 20% to 30% CAGR in Albemarle sales volumes between now and 2027. And we remain on track to nearly triple our volumes to more than 300,000 tons. Slide 13 is the updated bridge for our energy storage adjusted EBITDA margins. Full-year 2023 margins are expected to normalize in the 40% range from the very high rates we saw in 2022. As always, Taliesin equity income is included in our adjusted EBITDA on an after-tax basis. That tax drag impacted EBITDA margins by about 7% to 10%. The other impacts on the chart are relatively small and are offsetting. Higher lithium pricing is offset by other items. This year we had a 5% negative impact from MarbleJV accounting that goes away next year with the closure of the restructured MarbleJV. That leaves the largest impact to our margins, a 20% spodumene inventory lag. We understand that inventory lag is complicated and can be difficult to forecast, so I want to spend a little bit more time on that. Through the Taliesin Joint Venture, Albemarle has access to one of the world's best lithium resources. Greenbush's is a large, high-grade, and therefore low-cost spodumine mine. We recognize our 49% share of Taliesin earnings in equity income and cash dividends. Our 50% share of TALIS and offtake also flows through inventories and cost of goods sold based on market pricing. The timing of inventories and sales can often drive short-term margin variations. Excluding these timing impacts, we expect energy storage adjusted EBITDA margins to be in the range of 30% to 40%, even at today's prevailing market pricing for lithium and spodymy. Turning to slide 15, in the Taliesin joint venture, we recognize profit associated with our partner's offtake immediately. We recognize profit associated with our offtake when the product is converted and sold, which typically takes about six months from when we first extract spodumine from the ground. Throughout 2022 and the first half of 2023, Callison pricing on partner shipments was higher than that realized on our own shipments. Timing differences between the recognition of our profit on our partner's offtake and our offtake resulted in about $800 million of benefit to EBITDA during that period. As spodumene market prices decreased, we expect this effect to reverse as we recognize higher-priced spodumene in cost of goods sold and lower prices in equity income. However, we expect this timing-related impact to be temporary, with no impact to adjusted EBITDA at steady market prices. Again, assuming today's market prices are held constant, we expect energy storage adjusted EBITDA margins to average in the range of 30% to 40%. Turning to slide 16, Albemarle's capital allocation priorities remain unchanged. First, investing in high-return organic and inorganic growth. Second, maintaining financial flexibility and our investment-grade credit rating. And lastly, funding our dividends. Planned expansions to deliver volumetric growth continue to progress across the company's global portfolio. Although, as I mentioned before, in this softer market, we are taking a hard look at the level of our CAPEX spending and the sequence of our projects. As it relates to inorganic opportunities, we announced a few weeks ago that we decided not to pursue a binding agreement to purchase Lyontown and formally withdrew our non-binding offer. While we had productive engagement with Lyontown, and as we learned more, we decided that moving forward with the acquisition at this time was not in Albemarle's best interest. This reflects our disciplined capital allocation and M&A approach. As we look forward, we continue to evaluate a broad range of M&A opportunities. However, in the current environment, the scale of those opportunities are not as big. And we have many options available across three areas, lithium resources, process technology for our core business and for new advanced materials, and battery recycling. Turning to slide 17, our balance sheet flexibility is a competitive advantage that allows us to grow both organically and through acquisition, as well as support shareholder returns. As of year-end 2023, we expect our leverage ratio to be 1.2 to 1.3 times net debt to EBITDA. And with that, I'll turn it back over to Kent for a market update and closing remarks.

Thanks, Scott.

On slide 18, we highlight the continued growth in EV sales that reinforces our long-term growth opportunity. Year-to-date through September, EV sales remain on track for 40% year-on-year growth and show in-market demand to be resilient. While the U.S. and Europe make up only about a third of total EV production in 23 and 24, near term we see potential challenges for EV growth in those regions related to economic softness and higher interest rates. We are monitoring any economic impacts to the seasonal acceleration in EV sales at the end of the year. Our long-term view of secular growth continues to be supported not only by the adoption of EVs, but transformations across mobility, energy, connectivity, and health. Slide 19 provides a view of lithium inventories across the value chain. Both upstream and downstream producers have continued destocking with very low levels of lithium inventory at cathode producers. Cuts to higher cost supply have continued as some lipidolite producers and merchant converters have reduced production. Turning now to slide 20, we remain on track to achieve strong net sales growth up 30 to 35 percent year over year. This reflects our continued growth investments and the strength of our portfolio that have enabled us to overcome the near-term pricing challenges. We are disciplined in both how we operate and how we allocate capital, providing an edge across economic cycles. Albemarle is a global leader with world-class assets and a diversified product portfolio positioned to supply key growth sectors. We have a competitive advantage with vertically integrated assets and innovative advanced solutions designed to meet our customers' needs. The actions we took this quarter, including our collaboration with Caterpillar and the restructuring and simplification of the Marble joint venture, help us build on this advantage. The long-term growth trajectory of our end markets remained strong, including continued growth in electric vehicles. Our strategy is clear to capitalize on this opportunity with a disciplined operating model to scale and innovate, accelerate profitable growth, and advance sustainability. With that, I'd like to turn the call back over to the operator to begin the Q&A portion.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Also, please bear in mind, this Q&A session is limited to one question and one follow-up per person. We will pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Patrick Cunningham with Citi.

Patrick, your line is now open.

Hi, good morning. So, one of your JV partners is not taking the full allocation at Greenbushes, and do you still plan to take your full volume allocation, And do you see any risk of production cuts in the first quarter, perhaps since concentrated stockpile?

So our partners, they've made decisions into the fourth quarter, not to the first quarter yet. So we'll wait and see that, and we'll make our allocation at a later time as well. So I think things are changing, and as we look at our inventories, we'll decide what we do on that allocation. So it could be that we pull back on the mine, but that's something we'll have to decide with our partners when we see their allocation and when we make ours.

That's helpful.

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

Yeah, so we're going through that at the moment.

So we're not prepared to really give guidance for next year's capital plan, but we're taking a look at that, everything we can do to cut capital, but without really impacting the long-term growth trajectory or the growth projects that we've developed out there. So there's some flexibility around sequencing, and we'll be able to push some projects out slightly without really changing the long-term profile for that, and that's the work that we're doing now, and we'll be able to give guidance on that in the February call.

All right, thank you.

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

Hi, thanks for taking my question. I guess first I wanted to ask on kind of lithium pricing, specifically the realized pricing for Alvomaral, and just kind of thinking about a scenario where, you know, a spot goes less than $20, let's say $18 a kilogram. what happens to the other 80% of your contract? You've talked about floors. You've indicated that they're above or at the high end of the cost period. But what really does that mean? In that scenario, I guess, what does Alphamon realize in terms of pricing?

Good morning, Josh.

As you know, we don't give precise price guidance for our overall portfolio. But let me try to help give you some perspective around this. First off, obviously, a spot price realized in China will look different as you look at other market pricing around the world. There is most of the supply or a lot of the supply comes from China. There are transactional and VAT considerations that would translate that to a higher price, oftentimes outside of China. We have floors on our 80 percent of our index reference contracts. We have a variety of different floors. We don't disclose that, but it's designed to give us protection so that we can continue to operate well, continue to pursue growth capital in the near term, and to sustain the margins that Scott was talking about. And as we look forward, I mean, we are, I'd have to admit, a little bit perplexed as to why price is where it is. These are levels that for a great number of the higher-cost projects, we would expect supply to come off should prevail. We'd expect to see potentially other resources or other projects be slowed down. From our perspective, though, we have a growth plan. It's double-digit growth next year. We feel comfortable with the protection our contracts give us, and importantly, the low-cost position we have going forward in our portfolio.

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

Yeah, I think the difference, Josh, is that, you know, when we made those mid-kind of 40% comments, we were thinking about a mid-cycle type of pricing. As we look at this 30% to 40% that I commented on today, that's really at today's prevailing prices. And, again, it's based on constant pricing as opposed to some of the volatility, which is going to distort our margins either higher as prices go up or lower as prices come down.

Okay.

Your next question comes from the line of Joel Jackson with BMO Capital Market. Joel, your line is open.

Good morning. Eric, maybe Kent. So I think, Eric, you just said you were perplexed how low prices have come down to maybe low 20s here at LCE. So you're considering reinvestment economics. So maybe you could talk about why you think prices have gone down to where they are. Is it lapidolite? Is it African spodgymene? Is it something else? What do you think?

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

Okay, thank you for that. If I can follow up on then, I think it was Kent who said a few minutes ago, you know, you're going to look at maybe ratcheting back your growth plans a little, like slightly. So slow down a little bit, sequencing, but not changing anything in your longer term plan. Okay. So what if you're not right about your lithium price view here, and what if prices are lower, and the returns aren't as good as you think, and you're going to go full steam ahead on a lot of this growth that ends up not being needed, how do you balance the risk of overspending and driving negative free cash for a long time with making sure you are supplying enough volume for the market over time and maintaining your market share?

Yeah, so that's the balance, right?

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

Thank you.

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

Hey, guys. Scott, great working with you over the last decade or so. So for 2024, can you still do or do you still expect demand to support sort of that 200,000 KTs that you're expecting to expand to? And if you do, I guess at these pricing levels, you could do 30% to 40% EBITDA margin?

Why don't I comment on the demand first?

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

Yeah, thanks, Eric. So I think the way you should think about this is kind of illustrated on slide 15 of our deck. We're going to continue to see some level of the spodumene inventory lag affecting us in the first half of next year, and then by the second half we'll be in that kind of normalized 30% to 40% range that I talked about. So the full year is likely to be lower than that. However, we'll get to normalized margins by the second half of the year. Again, assuming if prices remain constant through that period and we don't see the price volatility that causes these ups and downs.

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

Well, look, this industry is still early in the industry, so it's difficult to say. So we were anticipating some of the volatility coming out in this cycle, but that didn't really happen. So it's difficult to say exactly, you know, how quick it responds, where it goes, and where it comes back to. We anticipate over time the highs and lows in that volatility coming out, but the question is, what is that period of time?

Got it. Thank you.

Our next question comes from the line of Jeff with J.P. Morgan. Jeff, your line is open.

Thanks very much. Your cash flow through the first nine months was $1.45 billion, and you're expecting cash flow for the year of $600 to $800. 100. Why is the cash flow in the fourth quarter negative six or negative eight? Is that one time? Is it all going?

What do you make of that?

Good question. So I think a couple of things are doing that. Of course, we've got lower EBITDA in the fourth quarter. As we look at our sales patterns, we're back end loaded in the quarter. So we have increased working capital as a result of that. And then we've got some one-time items, including the DOJ and SEC settlement that we did that flows through our operating cash flow. So those are the key drivers. And then right now our CapEx is on track to be about the same as what it was in the third quarter. So those are kind of the moving pieces in our cash flow. for them.

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

Yeah, so Jeff, this is important because our strategy is to be an integrated producer. That means we're going to make money throughout the chain from the mine all the way through the chemical conversion into the salt business. Given where the prices are today and how they've dropped, the JV is making the joint venture, and we'll just focus on Taliesin, but the same is happening at Wajina. The JV is making a significant amount of our operating income. And as those high-cost spodumene inventories being processed in the quarter and the second half of this year, primarily in China, we're actually seeing losses, as you commented, on that conversion. That's really just being driven by the timing of that spodumene inventory being processed. If you were to normalize, and again, in a flat rate and flat price environment, you would see normal margins in both the core business as well as the joint venture, ultimately. And so, again, I think as you look at the geography of our P&L, that's the effect that we've been talking about with that inventory spodumene lag happening.

Your next question comes from the line of Alexi with KeyBank Capital Market. Your line is now open.

Thanks, and good morning, everyone. On your fourth quarter guidance for lithium, if I look at your slide 15 and sort of take the difference between your expected fourth quarter margin for the segment and your expected normalized margin of 35%, I get about $300 million to $400 million EBITDA impact. of this timing difference just in the fourth quarter. Does this sound about right to you as a dollar impact for this phenomenon?

Yep, that's pretty close, Alexi.

Great. And another question is that you mentioned the impact of, you know, lower equity income because your partner chose not to take their full allocation. Can you talk about the size of that impact in the fourth quarter And also, you know, if you can't talk about it directly, maybe you can speak about your equity income expectations in general in Q4.

Alex, hey, it's Eric Norris.

It obviously, you know, because of that curve that you referenced on slide 15, it would vary at any point in time. But in the fourth quarter itself, it's over $100 million, going to that $100 million, $200 million range.

Thanks a lot.

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

Thank you. You referenced Sponjamine producers or lapilla producers in trying to shut down, as well as maybe some non-integrated producers. When did you start to see these shutdowns occur, and how much is being shut down in your view?

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

Eric, did you mention that 24 volumes in energy storage should be up around between a 20% and 30% range? Is that you're a guy in two longer term?

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

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

He's amazing, guys. I wanted to just ask maybe a non-lithium-related question. I'd say I guess upwards of a year ago you guys were looking strategically at perhaps divesting the catch-in business. We've seen a rebound in that business. It seems like the outlook is fairly robust for the fourth quarter. Considering the balance with the energy storage side right now, is this potentially a strategic time of divesting that business or putting it under review, or should we think of this as part of the going concern?

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

I guess just, you know, maybe a question for Eric. Eric, on the energy storage side, you know, talked about the Talus and JV and partner electing not to take shipments in the fourth quarter. We've seen some other of your peers building inventory in the fourth quarter here. Do you anticipate doing that on any of your assets or advocating for incremental inventory stocking or slowing down at any of the other assets in Australia?

The best way to answer that, and you're right, every supplier has a different situation. and the situations for our partners at Taliesin, that they have unique issues and challenges that are different, perhaps, than ours. When we look at our rate of capacity addition downstream for conversion, and that includes Chinso coming up, and it includes Kemerton 1 and 2 coming up in that part of the world, and continuing to run Jinyu and our Chengdu facilities at full capacity, and then look at ramping Maison later in the year next year, We see demand for more spodumine to obviously serve that growth. We haven't given precise guidance on what that volume growth is for next year. We'll do that in three months' time. But as I said, I think earlier, it's a double-digit type growth we're expecting again, which has a demand on spodumine. Our mandate is to run efficiently in this environment, right, because cash preservation to support our growth is critical. So we're not in a mode of trying to carry working capital that we aren't going to put into convert into cash in a reasonable time frame. So building inventories is less of a strategy than ramping production to match the conversion demand downstream. And, again, we'll get more guidance on all of that in a number of months.

It sounds like you guys aren't going to be coming back to the market with an update like you did last January that we should wait until February with the fourth quarter earnings.

Now, the thinking at the moment is that we'll do that on a normal course to be the February earnings. Thank you all for the answers.

Your next question comes from the line of Kevin McCarthy, a vertical research partner. Kevin, your line is open.

Thank you, and good morning. On slide 11, you indicate that a $10 per kilogram change in market indices would equate to a change of $5 to $7 per kilogram in your realized pricing for this year. My question is, would that sort of rule of thumb apply to 2024 as well, or might it be different?

Kevin, so that should apply.

And just as a reminder, that's on a full-year basis. So it has to move by $10 over the full year, and that full year impacts that kind of five to seven range. It's a little bit confusing because you can have moves up and down like we did this year that make it a little bit harder to track through that. But that ratio can carry forward into 2024.

Yeah, so the only exception to that is if you were to get into the contract floors. So that number is kind of, when we put that out there, it was a higher number.

It wasn't anywhere near the floor.

Thank you for that. And then coming back to slide 15, and maybe the subject of the spodgamine concentrate inventory flow through, attempted to ask, Scott, you know, how do you see the quarterly margin pattern progressing? or put differently, which do you think would be the trough margin quarter as you digest the expense of spodumene? Might it be the first quarter of next year, the second quarter, or is it difficult to tell at this point?

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

Okay. Thanks so much.

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

Thank you.

Can I ask you on On the balance sheet, philosophically, you know, if we think back a couple of months with Liontown, you know, you're going to debt finance that acquisition. And if I recall correctly, in the slide deck, you know, you had a range of outcomes on price, and I think the bear case was about $15,000. So how did you think about or how do you think about, you know, using the balance sheet for M&A versus your growth CapEx plans? because I'm just thinking about your comments from earlier that you might push things, you know, change the sequencing or so forth. And I guess I'm also wondering, you know, are you less interested in debt financing, organic growth versus acquired growth? And as you think about the next couple of years, you know, do you need to be free cash flow positive? Are you willing to let the leverage come up a little bit if that's what happens?

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

Okay.

And then, Eric, if I could ask you on the Chinese converters or the non-integrated converters, I kind of referenced this earlier that, you know, at current spodumene prices, some of them are backing off. But, you know, at least on our calculation, spodumene prices could still go down quite substantially, and most spodumene producers would still be quite profitable. So is there a reason why that won't happen, that those spodumene producers won't just lower price to keep their customers operating so that they can make sales and generate cash? Or is there something in that market dynamic that's not obvious to me?

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

I appreciate it.

And congratulations, Scott, on retirement. I appreciate all your help over the years. Thanks, Vincent.

Your next question comes from Collin with Oppenheimer. Collin, your line is open.

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

So, Colin and Eric, on your first question, I don't know that we have a good answer for that.

It's because it's perpetually operated, particularly if you look at Chinese gas that produces that levels, which are less than a week. Just, you know, contrast that with our supply chain and this inventory lag that is one of the most popular and understandably popular questions being asked today. The reason we have that is it takes six months to go from mine to product on our side. And if there's any disruption in the supply chain, five days of supply at a cathode producer isn't going to be enough. So it doesn't feel sustainable, but they've been able to operate that way throughout the year. So there are some question marks we would have about what's a sustainable and responsible way as a company to operate your supply chain for security purposes. And I just – I've got to believe that it's got to be higher downstream at some point than it is, but I don't think we know exactly what it could be. And then in terms of the global OEM sort of concern on security supply, there is no letup from OEMs on interest and long-term offtake and securing supply. Yes, it is true. There's some OEMs who have announced some changes to their or expressed some concerns about their targets. But I think if you look at the larger players in the EV space, Keeping in mind that that isn't necessarily the companies that are now announcing that they're pushing out their targets. Those larger producers are going to continue to increase their output, whether they're here or in China or in Europe. And they're continuing to demand security supply because they realize they cannot fulfill the large investments they're making downstream in electric vehicles without lithium. So I think that demand, that dynamic is still there with the OEMs.

Our final question comes from the line of Stephen with Bank of America. Stephen, your line is open.

I just wanted to ask you whether you have been looking at any new technologies to extract more lithium out of the brine deposits in Argentina, anything that you think could bolster your production there at a more capital-efficient way, and any of these technologies in development that you see could potentially lower the reinvestment economics?

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

Very good.

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

Okay, thank you. Thank you all for joining us today, and I apologize for the technical difficulties. I think we've got the line on the speaker side muted for a period of time. I apologize for that. Albemarle leads the world in transforming essential resources into the critical ingredients for modern living with people and planet in mind. We're confident in the market opportunity and our disciplined strategy to achieve both short-term and long-term results. We continue to work to be the partner of choice for our customers and the investment of choice for both the present and the future.

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