Hello and welcome to Albemarle Corporation's Q1 2024 Earnings Call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.

Thank you. Welcome everyone to Albemarle's first quarter 2024 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 Investor Section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Neal Sheorey, Chief Financial Officer. Netha 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 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 that same language applies to this call. 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. During the first quarter, our team demonstrated its ability to navigate dynamic market conditions with actions that position Albemarle for profitable growth and deliver on the operational steps that we have set out to achieve this year. We recorded net sales of $1.4 billion and adjusted EBITDA of $291 million. We saw continued volumetric growth, driven by the Energy Storage segment highlighting the demand growth in the segment and our ability to capture it. We also ramped new conversion facilities, executed on our productivity plans, and strengthened our competitive position and financial flexibility. During the quarter, we delivered more than $90 million in productivity and restructuring cost savings consistent with our efforts to align our costs with the current market environment. We are on track to deliver more than $280 million in productivity improvements in 2024, demonstrating our excellent execution. To drive lithium market transparency and discovery, we held several successful bidding events for spodumene concentrate and lithium carbonate in March and April. We are encouraged by the results and level of participation to date and plan to continue these efforts. We continue to advance our in-flight growth projects that are near completion or in start-up to deliver near-term volume growth and cash flow. In particular, we've reached important new milestones at Kemerton I and Meishan. Finally, the year so far has developed as we expected and we are reaffirming our full year 2024 outlook ranges that are based on observed lithium market price scenarios that we included for the first time last quarter. Our operational and strategic playbook positions us well to serve our customers today and for the future. With our focused execution and our continued confidence in the elements we provide, Albemarle is well-positioned to drive sustainable growth and create value. I'll now hand it over to Neal to talk about our financial results during the quarter.

Thanks, Kent, and good morning, everyone. Beginning on Slide 5. Let's jump into our first quarter performance. In Q1 2024, we recorded net sales of $1.4 billion, compared to $2.6 billion for the prior year quarter, a year-over-year decline of 47%, driven principally by lower pricing, partially offset by volume growth. Adjusted EBITDA was $291 million, significantly down from the same period last year when pricing and margins across our Energy Storage and Specialties businesses were at peak levels. Diluted EPS was negative $0.08. Adjusted diluted EPS was $0.26, which excludes primarily restructuring charges and mark-to-market losses on public equity securities held or sold in the quarter. Our earnings decline was driven mostly by margin compression on lower pricing, especially within our Energy Storage segment. Additionally, we had some margin pressure due to the timing of higher cost spodumene flowing through cost of goods sold and reduced equity earnings at the Talison joint venture. These factors were partially offset by volumetric growth, primarily lithium carbonate and hydroxide, and we also recorded spodumene sales at favorable pricing. Also, the Ketjen business recorded increased net sales and EBITDA driven primarily by higher volumes. Looking at Slide 6, we'll break down the company's first quarter adjusted EBITDA by driver. Compared to the prior year quarter, the decline in EBITDA was $1.4 billion related to lower lithium pricing in both Energy Storage and Specialties, $90 million in cost of goods sold due to the timing of higher priced spodumene inventories built in prior periods and $270 million related to pretax equity income primarily from our Talison JV. Offsetting these declines were improvements of $251 million related to higher volumes as our Energy Storage projects continue to ramp as well as better Clean Fuel Technologies volumes at Ketjen, and $80 million of net improvements mainly due to restructuring and productivity benefits across multiple areas, including procurement, manufacturing and back office spend. This demonstrates our team's agility and focus on delivering higher volumes and productivity improvements in the current market environment. Turning to Slide 7. As we did last quarter, we are providing outlook ranges based on historically observed lithium market pricing scenarios. We are reaffirming our outlook considerations published last quarter. There are two notable updates here related to our tax rate and share count expectations. We are updating our adjusted effective tax rate guidance to reflect the range of lithium price scenarios as well as our updated expectations for geographic income mix. At the $15 lithium price scenario, we expect a modest tax expense benefit in our P&L. At higher pricing, we expect a more typical tax rate in the mid to high 20% range. We have also accounted for the adjusted change in the diluted share count to reflect our $2.3 billion public mandatory convertible preferred stock offering. Moving to Slide 8, where we provide some operating cash flow considerations. We had previously highlighted that our cash flow conversion would be constrained this year, and I want to provide some additional color on those drivers. As you see here, our cash flow conversion in 2024 is expected to be below historical averages for four reasons. First, Talison is progressing its chemical grade plant, or CGP3 expansion, resulting in lower dividends from the JV. Second, working capital release related to lower lithium pricing is expected to be mostly offset by increased working capital investments for our new plants at Kemerton, Meishan, Salar Yield, and Qinzhou. Third, cash tax is expected to be similar to last year, primarily reflecting jurisdictional mix. For example, we will pay Australian cash taxes in mid-year based on earnings estimates from the prior year period. Finally, we expect to have higher interest expenses year-over-year. Turning to Slide 9. I'll provide further details on trends in each segment's outlook. First, in Energy Storage, we continue to expect approximately two-thirds of our 2024 volumes to be sold on index referenced variable price contracts. The remaining one-third of the volume is still expected to be sold on short-term purchase agreements, including our recently announced bidding events, which Kent will discuss in a moment. Year-over-year energy storage volume growth is trending toward the high end of our expected 10% to 20% range, driven by timing of project ramps and spodumene sales. We continue to anticipate increased year-over-year volumes in the second half of the year due to the ramp of our expansions. All else being equal, we continue to expect improving margins through the year as lower cost spodumene offsets new facility ramp costs. However, we expect some quarterly variance in EBITDA and margin due to the timing of Talison shipments. Specifically, in Q2, we expect a lift to our EBITDA margin of about 10 points from higher offtake by our partners at the Talison JV. Next, on Specialties. Our outlook reflects continued softness in Consumer Electronics, partially offset by solid demand in Oilfield Services, Agriculture, and Pharmaceutical Applications. Furthermore, we are seeing higher costs for logistics as we manage through regional challenges, notably at our site in Jordan. We anticipate higher sales in the second half of the year, on the expectation of modest end market recovery and improved pricing in Bromine Specialties. Taking together, we now expect Specialties adjusted EBITDA to be toward the lower end of the outlook range. Finally, at Ketjen, we are seeing the building success of our turnaround program. We are optimistic about increased volumes driven by high refinery utilization. In Q1, we have seen end market strength primarily in clean fuel technology and expect higher volumes across each of the Ketjen businesses in 2024. Turning to Slide 10 and our financial position. As you know, during the quarter, we took action to maintain a solid investment grade credit rating and further enhance Albemarle's financial flexibility as we navigate this market down cycle. In March, we closed a $2.3 billion public preferred stock offering to fortify our competitive position and stay ahead of dynamic market conditions. Together, with the amended credit facility we discussed in February, these actions put Albemarle in a position to invest in and finish our last mile expansion projects, as well as capitalize on the secular growth trends we see in our core end markets of Mobility, Energy, Connectivity, and Health. Following the offering, we repaid our outstanding commercial paper resulting in improved leverage. We ended the quarter with a larger than normal cash balance and a primary of that cash will be to complete our in-flight capital project. Our balance sheet management highlights our focus on adapting to changing market conditions and controlling the things in our control. Finally, turning to Slide 11 for a reminder of our capital allocation strategy. This is a slide you've seen before and we're touching on it briefly to acknowledge that our capital allocation priorities have not changed. We'll continue to selectively invest in high return growth, but we'll be patient and disciplined. Our near-term focus remains on operational execution and you can expect that our actions will be aligned with driving cost and productivity improvements, ramping our assets to full contribution, and preserving our financial flexibility. While we believe current lithium prices are unsustainable for most of the industry in the long term, we are managing to the current environment. To support our ability to reinvest and grow for the future, we are taking the prudent steps to right size our capital spending and cost structure, focusing on ramping our plants to full contribution and volume growth capture and taking steps to boost cash flow and enhance our financial flexibility. With that, I'll turn it back over to Kent to provide more details on the proactive actions Albemarle is taking in the current market to preserve long-term growth and value creation.

Thanks, Neal. Moving to Slide 12. We continue to believe in the EV transition and the growth in lithium demand, as well as the opportunity it creates for Albemarle. Despite a downshift in demand growth in Europe and the United States, global EV sales were up 20% year-to-date, led by strong growth in China, which represents over 60% of the global EV market. We continue to anticipate 2.5x lithium demand growth from 2024 to 2030. Additionally, we see battery size growing over time, driven by technology developments and EV adoption. These factors all translate to significantly higher global lithium needs. To put all this in perspective, we expect that this industry needs more than 300,000 metric tons of new lithium capacity every year to satisfy this growth. This means we need more than 100 new lithium projects across resources and conversion between now and 2030 to support this demand. Moving to Slide 13. Albemarle is actively contributing to the progress of price discovery and efficiency in the lithium market. We have conducted four successful bidding events for chemical grade spodumene and battery grade carbonate. These events inform the market of real-time physical trading dynamics and promote greater transparency in the evolving lithium market. While the majority of our sales will continue to be on long-term agreements with our core strategic customers, bidding events give us another sales channel to expand our market access. We have partnered with Metals Hub, an industry-leading source-to-contract platform to host efficient and transparent bidding events. On the slide, you can see a few of the ways we've designed these events to promote transparency and efficiency while meeting customer needs, including zero cost to participate, sealed bids and better confidentiality as well as the winning price disclosed to all bidders following the events' conclusion. Going forward, you should expect that we will have a regular cadence of these bidding events, including additional products for sale in various jurisdictions. The primary reason for holding these bidding events is to drive fair and transparent price discovery, something that is good for all market participants. Looking at Slide 14. The Albemarle Way of Excellence remains our operational standard and continues to serve us well. Within the operating model, our focus continues to be on efficiency and ensuring our costs reflect the current environment. As I mentioned earlier, we remain on track to exceed our 2024 target of $280 million in productivity benefits through manufacturing, procurement and back-office initiatives. Recently, we've added cash management to our tracker to enhance cash flow with particular emphasis on optimizing our cash conversion cycle. Looking beyond our cost actions, we also remain focused on the other elements of our model. This quarter, we plan to publish our sustainability report and host our Fourth Annual Sustainability Day featuring key highlights of our sustainable approach and updates on our environmental targets. Moving now to Slide 15. We've said that our focus this year is on getting our in-flight projects to completion and full production, allowing us to drive near-term volume growth and cash flow. We're making solid progress on multiple fronts. The Salar Yield improvement project in Chile is ramping well and has achieved over 50% operating rates. This project allows us to increase lithium production while reducing carbon and water intensity through the application of innovative proprietary technology. It also allows us to capture the full benefits of the capacity expansion at the La Negra conversion facility. In Australia, the first 2 trains, Kimberton I and II are in start-up, ramp, and qualification phases. Kemerton I recently achieved a key milestone of 50% operating rates for battery-grade product, and that product is currently in qualification. The remaining capital spend for these facilities is modest and our focus is on continuing to ramp the facilities and get production qualified with customers. At train 3, we are progressing through construction in a prudent way. In China, the Qinzhou plant is ramping on schedule and is expected to achieve nameplate capacity by mid-year. Meishan marked its grand opening in April and is progressing through commissioning having achieved a 50% operating rate for battery-grade material. The remaining capital spend on Meishan is relatively small and related to the ongoing start-up activities. Looking at Slide 16. Our in-flight projects put us in a position to deliver volumetric growth of approximately 20% per year from 2022 to 2027. First quarter sales volumes were recorded at 40,000 tons LCE. We expect 2024 total volumes weighted toward the second half of the year due to demand seasonality and project ramp. We also have the flexibility to toll or sell excess spodumene to maximize economic returns depending on market conditions as we exercised that ability in the first quarter by selling some chemical grade spodumene. Moving on to Slide 17. It's important to highlight the unique advantages that Albemarle has today and how we see those advantages translating to significant margin expansion and earnings generation in the near term. It all starts with our high-quality, low-cost resource portfolio, including the Salar de Atacama, Greenbushes, Wodgina, and Kings Mountain. Our global portfolio is arguably the best in the industry. Large-scale, high-grade assets are also low-cost assets and the advantages they provide are not insignificant, as you can see on the left-hand side of this slide. Access to world-class assets is, in turn, one key factor to help us maintain robust energy storage margins across the cycle. For example, at the $15 per kilogram lithium price scenario, we estimate energy storage margins would normalize above 30% after adjusting for the temporal impacts from lower partner offtake at Talison and lower fixed cost absorption at our new plants. And that's before the tailwind of price upside. We estimate that every $1 per kilogram of LCE price improvement would translate to more than 200 basis points of margin expansion. We are also diversified across resource types and finished products, vertically integrated and able to source product from free trade agreement jurisdictions such as Australia, Chile, and the United States. Turning to Slide 18. Our comments today reflect the competitive strengths that position Albemarle for success. Beyond our world-class resource base, additional competitive advantages include our process chemistry knowledge and manufacturing expertise which allow us to efficiently operate large-scale assets and drive down operating costs. Our targeted innovations, product reliability and reputation for quality make us a trusted partner of choice for our customers and our people and stewardship are a point of pride and competitive strength. We have a proven management team that has operated through cycles and continues to lead with a disciplined mindset. On Slide 19, these factors give Albemarle a strong value proposition and position us to win in the market. Our strategy and path to capitalize on the opportunities align with attractive trends in mobility, energy, connectivity, and health is clear. We will continue to lead with discipline and to scale and innovate, accelerate profitable growth and advance sustainability to drive value for shareholders. I hope to see some of you face-to-face at these upcoming events listed here on Slide 20. And with that, I'd like to turn the call back over to the operator to begin the Q&A portion.

Our first question is from Aleksey Yefremov at KeyBanc Capital.

I just wanted to ask about your lithium volumes projection on Slide 16. If current prices don't change, can you get to these volumes and capacities, was that raising more equity or debt?

Yes. So we forecast for the year looking out for the year, so 10% to 20%, and we've said we'd probably be at the upper end of that and those volumes that we show are based on the capital program that the long-term volumes we show are based on the capital program that we have in place and the projects that we're executing currently and no need for additional capital for that.

And just as a follow-up, I mean you gave us scenarios for your EBITDA based on pricing. And I was hoping to get a similar idea for your medium-term CapEx. If say prices stay where they are today, would you be able to sustain your current level of CapEx in 2025? Or does CapEx need to come down to balance your cash needs?

Yes. If prices remain at their current levels, we would start to reduce our capital expenditures. It takes some time to make these adjustments. We estimate that our minimum annual capital spending would be around $1 billion. While we may not reach that in 2025, we could approach that level by the end of 2025 if prices remain stable.

Our next question is from Arun Viswanathan of RBC Capital.

I just want to get your thoughts on maybe fundamentals that you're observing in the lithium markets. These days, it sounds like there was some disruption in some spodumene production. There was some, I think, curtailments in China related to disposal waste altogether that has taken some production off the market and may potentially stabilize the price environment. Could you maybe highlight some of those issues for us and maybe describe the inventory side as well, what you're observing in both the downstream cathode manufacturers and upstream lithium producers.

Let me begin by saying that Eric can provide more details on inventories. You've accurately described the situation. We expected some production to come offline, especially in China and from higher-cost spodumene sources. In response, prices have changed slightly, around 15%, as we anticipated. However, we don't foresee a significant price surge, and we still expect other resources to come offline if current prices remain unchanged. The market will balance itself as it determines the price dynamics and production responses. New projects that are planned may struggle to secure capital if prices continue as they are, which indicates we're currently in a balancing phase. We do anticipate additional resources to exit the market. Eric, would you like to discuss inventories?

Certainly. A key point to consider is the demand in China, which accounts for over 60% of global demand and is experiencing strong growth, contrasting with the U.S. and Europe. For instance, in April, various automotive producers, including BYD, reported significant growth, with BYD increasing by 49%. This surge in demand is occurring from very low inventory levels, which is promising for prices amid the pressures faced by producers, as Kent mentioned. Furthermore, our inventory levels were quite low at the end of March, with less than two weeks' worth for lithium producers and about a week for downstream cathode companies in China. While battery inventories are somewhat higher, they still remain low compared to the averages seen in 2023. Coupled with the positive demand signals from China, we view this as encouraging for future price trends. We will continue to monitor the situation closely, as any favorable developments could enhance our earnings going forward.

I know there will be many questions about lithium, so I'll start with one related to specialties. Do you see any risks considering the geographic location of some of your resources in Jordan, especially given the recent activities there? Can you share your perspective on whether this is contributing to your guidance for specialties being on the lower end, or are there other factors at play?

Yes, I think it's a fair assumption. There's always risk in the Middle East. But in terms of our operational, we've seen limited operational impact year-to-date, but the logistics is where the challenge is and we are incurring additional costs to secure those logistics out of that part of the world. So that's what's impacting our business. But that's different than what it was last year. So yes, that's definitely a risk in the second half. As we move into that for specialties.

Our next question is from David Deckelbaum at TD Cowen.

I wanted to just follow-up on the outlook if prices were to stay the same. You've obviously seen the impact of lower near-term production at Greenbushes. And then obviously, you have CGP3 which is still under construction and ramping. We've heard from Wodgina with the third train kind of being deferred a bit. Do you anticipate any more corrective actions or responses under some of the JV spodumen facilities that you're involved with, if prices were to remain where they are today?

So the resources that we operate, and we have made adjustments just to the market condition, but I don't think we make further ones. These are world-class resources and the lowest cost position. So we still operate and make money at the pricing level there. These were investments that were happening in the near term when we had opportunities to adjust the execution profile as we have our own conversion assets as well, and our partners agreed to that. So we've made some adjustments. But long term, we still expect to exploit these resources because they are some of the best in the world.

I appreciate that. And I'm curious on the second question, just I think you've highlighted some EBITDA margin recovery in the second quarter with increased partner offtake at Talison and some variability there throughout the year. But as we think about your EBITDA margins in '24 versus '25, is there a ballpark range that you would estimate that commissioning new facilities has a sort of a drag on EBITDA margins this year versus next year?

Yes. David, this is Neal. Yes, absolutely. That's actually one of the reasons why we put that slide in the deck that showed that our range found that. I think that's Slide 17. So the way that we think about it, it's about a 500 basis point drag this year from the ramp-up of these new plants. Now you won't get all 500 basis points back in 2025 because obviously, we will still be working through the ramp of these facilities. But certainly, you can expect over the next couple of years as these facilities come up to full rate that you should start to see that margin expansion from those plants running full.

Our next question is from Steve Byrne, Bank of America.

Rob Hoffman on for Steve Byrne. Out of the $280 million productivity benefits goal that you have set for 2024, given that you're already, I guess, above of $90 million in Q1, is this faster pace of Ketjen results and guidance.

We are currently using the $280 million and, as we project, it's still early in the year. We are likely a bit ahead of schedule, but we are not ready to incorporate this into our forecast for a guaranteed increase. However, we remain optimistic. We are comfortable with the program, and the target is significant for us across the organization. We feel confident that we can meet or possibly exceed this target, but we haven't factored that into our forecast yet.

Yes. And this is Neal. To the point of, can you see it in the financials, maybe just one example I'll give you is if you look at our SG&A line. So just remember that on the face of the income statement, our SG&A line includes about $35 million of one-time charges that was related to our restructuring activities that we announced in the first quarter. When you back that out and then look at our SG&A line versus the fourth quarter versus where we ended 2023, you will see about a $20 million to $25 million decline in our SG&A costs. So that gives you an idea that we are starting to see some traction on the productivity and restructuring savings that we already announced.

That's helpful. And just a follow-up in terms of your longer-term volume growth chart here, why doesn't the potential tolling volume go down over time? Wouldn't you generate higher margins at your own conversion plants?

Actually your question, just to make sure I'm clear on it. This is Eric speaking. Why would we see tolling volume go down over time?

Why volume go down.

Oh, I'm sorry. Yes, I think that's fair enough. It's all a factor of how quickly the plants are ramping up. We have a plant in China, Meishan, that is ramping at a faster pace than our plant in Australia, which is due to our operating experience. However, if we look at this from a long-term perspective, our goal is to be fully integrated and utilize all available resources by converting them with company-built assets instead of relying on tolling assets. We would increasingly aim for these to be located outside of the U.S., as we already have a significant presence in China. However, depending on the speed of this process, tolling remains an option for us to accelerate our growth in exploring alternatives. You're right; over time, this is why there's a plus/minus aspect to it, and it should decrease. For the most part, tolling serves as a bridging strategy for us, my apologies.

Our next question is from Andres Castanos at Berenberg.

I wanted to understand better why are you running spodumene auctions now? And to have a sense on what is the percentage of volume that goes in these options? Are in deals with dollars somewhat impacted by this.

Yes. So I'm not sure that is the last part of the question. Let me start on the front and you catch that in the follow-up if I don't answer your question. So we're doing the auctions, both on spodumene and on salts, for transparency in the marketplace, price discovery to understand, make the market a little clearer, a little more transparent. We get good information for it. And then we've decided to include spodumene as part of that just for more transparency in the market, and more knowledge that we get around that. And it's an opportunity for us to participate in a different part of the value chain. So it's not a change in our strategy of being an integrated producer. We'll sell most of our products through these long-term agreements on a salt basis as we have historically. So that strategy didn't change, but it's just it's an adjustment to take to try and get more transparency in the marketplace and then to sell spodumene at a different value in the marketplace. So if there are dislocations, we can take advantage of that.

Right. So I think it's a small percentage of the total volumes that essentially the deals with the tollers are still in place and they take the majority of the excess spodumene. My second question would be on the level of cost of inventory that you have at the moment for spodumene for the ones you take on board from Wodgina? Can you comment on that more or less where you sit versus the index?

So I think the question was the cost of our spodumene inventory versus the index. So as we showed in our first quarter results, we are still working off a little bit of spodumene that went into inventory in prior periods, that is at a little bit higher cost than where it is today, and we documented how much of that was in our first quarter results in our EBITDA bridge. You can expect that there'll be a little bit more of that spodumene that we'll have to work off. But for the most part, you will start to see a spodumene costs rolling through our COGS that is consistent with what is in the market as we get towards the middle of the year and in the back half of the year. And that's built into the outlook scenarios that we've been publishing.

Our next question is from John Roberts at Mizuho Securities.

Last quarter, Slide 13 on Greenbush has discussed the lag and the lower cost of market issue. It projected a spodumene inventory cost for the March quarter of about $4,000 a ton. Does that play out the way you projected last quarter?

John, this is Neal. We'll need to review your figures. One significant change we implemented in the fourth quarter was the LCM, which greatly reduced the gap we previously experienced, particularly the six-month lag in spodumene costs and their impact on our cost of goods sold. Despite applying the LCM, prices still decreased as we entered the first quarter. Consequently, we had some higher-priced spodumene affecting our profit and loss statement. I believe the numbers you are mentioning might be prior to our LCM adjustment, which significantly narrowed that gap.

Yes. All right. And then have your thoughts on the role of catching in the portfolio changed at all since the last call?

I would say that we have indicated it is not a core business for us, so we plan to divest it at some point. We went through a process that we discussed and did not achieve the value we wanted. We are currently implementing a turnaround program that is progressing well, but we still expect to pursue a transaction for that business when the timing is appropriate.

Our next question is from Christopher Parkinson at Wolfe Research.

This is Harris Fein on for Chris. So I'm not sure if I'm reading too much into this. You left the EBITDA sensitivity unchanged, but also volumes seem like they're trending towards the high end of the guide. Is it wrong to think that EBITDA will trend to the higher end of those ranges as well, all else equal?

Yes. Actually, it's a fair assumption. Basically, the way that we constructed those EBITDA ranges reason their range is driven by that volume consideration that we have, the 10% to 20%. So I think all things being equal, that's a fair assumption to make.

Then for my follow-up, there are a lot of moving pieces in the cash flow guide. I guess when I look at the reasoning for the lower conversion rate this year, it doesn't seem like those things are necessarily going away after this year, like you'll always be ramping projects. So how are you thinking about the operating cash conversion going forward?

Well, actually, I have a little different viewpoint on that. I do think that our cash conversion should be improving in 2025 for a few reasons. Number one, as I mentioned or as we mentioned in the prepared remarks, our cash taxes are very similar this year to what we had last year, and that's primarily because of Australia, and we're paying taxes based on income from last year. If you assume that pricing is sort of flat for the rest of the year, I think you should assume that our cash taxes will be lower next year, all things being equal. The other part is that our facilities are so far, as you heard in Kent's remarks, ramping quite well. And so we would expect that those will start to contribute as we get into the back end of this year and into 2025. And as Kent mentioned, right now for where we are, the ramp that you see in our volume growth is just based on the projects that we are finishing up right now and are ramping right now. So we won't be ramping plants forever, that will most certainly come to an end and those plants will begin contributing in the back half of this year and into 2025. So I do anticipate our cash conversion to get better.

Yes. To elaborate on Neal's point, as our business expands, the new plants that are currently ramping up will represent a smaller portion of our overall portfolio. While we will continue to establish and ramp new plants over time, they will constitute a reduced percentage of the portfolio. At present, we have multiple plants ramping simultaneously, which was not part of the initial plan. Currently, I believe we have four plants ramping at the same time. This level of ramping is not expected to continue in the future, and if it were to happen again, those plants would represent a smaller share of the portfolio due to our growth.

Our next question is from Kevin McCarthy at Vertical Research Partners.

This is Matt Hettwer on for Kevin McCarthy. Regarding the spodumene and carbonate auctions that you just touched on, what does the customer feedback been like? And how has the auction participation rates trended?

Matt, this is Eric. We've seen strong participation, and we are still in the early stages of our process. We are implementing a qualification process to ensure that we invite individuals to these auctions who meet specific standards, and this is gradually improving. The participation rate we observed and the conversion of those invited into bidders has been robust. Consequently, there has been considerable interest, and the outcomes have been positively received. In relation to the market, particularly from the perspective of a price reporting agency, we have found that through our regular surveying process, the results of these bids have been incorporated into the price reporting agencies. Naturally, they determine how to utilize that information in their future calculations, but we expect they are incorporating it as well. When we look at our contracted customer base, they value our efforts to gain a better understanding of the drivers in what is still a developing market. As Kent mentioned, this includes various price categories, whether they pertain to domestic or international products or if they are IRA compliant versus non-IRA compliant, or whether they involve spodumene versus higher-grade carbonate. We are gaining better insights to help segment and comprehend the market dynamics, which is beneficial not only for us but also for our contract customers since it will reflect in the indices they use.

And then as a follow-up, I believe in the prepared remarks, you mentioned expanding the auctions to other geographies and products. What other geographies are you looking at? And in the future, might you include hydroxide in the auctions?

Yes. So I touched on a little bit when I talked about IRA compliant. But just as reference, almost actually all four auctions that we've done today have all been inside of China with available inventory on the ground there. We'll be looking for product outside of China shipped on a CIF basis, for example. We'll be looking at that certainly for our Australia product. We'll be looking at it for IRA compliance ship to the U.S. and across our product range, including hydroxide.

Our next question is from Ben Isaacson at Scotia Capital, Inc.

This is Apurva on for Ben. So we're heading into what has historically been a peak buying season in China just off of the earlier comments on demand, are you starting to see this restocking materialize?

Yes, this is Eric. As I mentioned, inventories were quite low at the end of March, and I believe part of the demand is driven by restocking in anticipation of the midyear and later seasonal needs for EVs. This makes it difficult to correlate Q1 EV sales with actual demand on the ground, as the EVs sold in the first quarter were likely from inventory sold late last year. I see this demand not only reflecting the fundamental increase in EV sales that we experienced in April and expect in May and June, but also as a result of the necessary restocking due to unsustainable inventory levels that posed a significant risk for operations to meet demand.

Great. And as my follow-up, looking back with your 10-K, you actually published an updated technical report on Greenbushes. With that report, we saw something of a step down in both grades and recoveries and concurrently, costs have moved upwards. Given those technical effects, where do you see the next phase of resource growth coming from for Greenbushes?

You're correct in referencing our report on SEC guidelines, which have different standards. It's common in mining for various global standards to differ, with some being more stringent in their execution, leading to the results you've mentioned. Even so, this report indicates that, on a relative basis, we have the best spodumene resource reported worldwide. Our goal is to move forward with our joint venture partners for the CGP3 expansion. There is long-term potential, although we haven't officially announced or committed to it yet, for further expansion of CGP4 and to maintain operations at the current grade for many years to come. We aim to maximize that resource given its low-cost potential.

Our next question is from Michael Sison at Wells Fargo Securities.

Good start to the year. You have a slide on sort of minimum capital and I think the line looks like a billion. So if hiking kind of stays here, is that where CapEx will go in '25? And what would that mean to your capacity potential in longer term if that has to be the case.

Yes, we have addressed this earlier. We view the billion as necessary maintenance capital to sustain our assets and ongoing operations. If prices remain stable, we could achieve this run rate by the end of 2025 or into 2026. The figure for 2025 might be slightly higher, but we anticipate reaching that run rate by 2025. However, this could affect our long-term growth if we were to settle at that level. Currently, our plans and the projects we are working on suggest a growth rate of about 20% through 2027. If we were to reduce our investment to those levels, it would significantly impact our growth potential beyond that point.

As a follow-up, your EBITDA margins for energy storage are quite impressive. I understand you believe the industry requires higher pricing. What price do you think lithium needs to reach to support the expected growth by the end of the decade? Additionally, do you have thoughts on the margins of other companies worldwide? While your margins are decent, they aren't as strong as they once were, but still reflect a good standing.

I'm not going to comment on other people's margins. However, if we maintain our current position, we could operate at approximately a 30% margin rate once we eliminate the noise from our financials, which includes the impact of elevated prices and certain spodumene costs. On a run rate basis, achieving around 30% while still growing our business is feasible. This aligns with the solid margins you're referring to. We've experienced even stronger margins in the past, and they would improve further if prices increase. The key issue regarding pricing is more about the returns on new investment projects rather than our existing business and the margins we can achieve. For new projects to generate the growth necessary to support the transition to electric vehicles, prices need to rise. I won't specify a number because it varies by project and location; each requires a different price to ensure returns over a 10 to 15-year horizon during the final investment decision phase. If I had a specific figure, I probably wouldn't disclose it, as they differ by geography, region, technology, and resource characteristics. It's quite varied, making it impossible to pinpoint a single number.

Our next question is from Joshua Spector of UBS.

It's Chris Perrella on for Josh. I just wanted to follow up on Neal, the 2Q Energy Storage EBITDA margin that you guided to, given the puts and takes, you have the higher cost spodumene inventory, which is maybe a $50 million drag in the second quarter, but you also have the one-off from Talison. So how does that bridge together to get to your 2Q margin? And then does it step down with the absence of the Talison one-off in the second half of the year?

Yes. Let’s discuss the second quarter first. Your numbers seem to be in the right range. If you do the math based on the first quarter and our prepared remarks, we anticipate about a 10-point increase in energy storage's EBITDA margin for the second quarter. This should lead to an approximate $100 million increase in EBITDA for Q2 compared to Q1. This expectation is mainly due to all partners taking their allotment from Talison, along with an additional 200,000 tons being sold in the second quarter. This is the basis for the 10 percentage point increase. Looking ahead, this will be a one-time boost. In the third and fourth quarters, we expect to see healthy margins, though not as robust as those in the second quarter. However, as our plants continue to ramp up and we begin to absorb fixed costs, we can expect some margin expansion compared to the first quarter as we close out the year.

That's perfect. And then a quick follow-up. Sequentially into the second quarter, do you expect volumes to be up? I'm just trying to bridge the seasonality to get to the 190 for the full year?

Yes, we will see some higher volumes in Q2 compared to Q1. Keep in mind that energy storage demand typically peaks in the third quarter, so we're working toward that peak. While Q2 won't be the highest quarter of the year, I do anticipate a slight increase in volume in Q2 relative to Q1.

Our next question is from Colin Rusch at Oppenheimer.

Given the dynamics around geopolitical positioning on manufacturing for batteries and some of the evolution of the tariffs that we're seeing on the solar side and other areas. Can you talk a little bit about the importance of refining and your thought process around that importance in North America as you enter into the balance of this year and next year?

Yes, that's an interesting question. Politics is significantly influencing the market, and we have an integrated strategy with a strong resource position diversified globally. We have established conversion capabilities in Chile and the U.S., though on a smaller scale for now, as well as in Australia and China. This global diversity allows us to plan for various market dynamics. Our aim is to enhance conversion scale in North America to meet market demands. However, we have temporarily paused this initiative due to concerns such as pricing and geopolitical factors. We will use this pause to better determine our next steps.

Okay. Great. And then in terms of some of the evolving cathode chemistries, obviously, we're seeing some activity around Delta LFP, and I'm assuming that the precursor materials are evolving a little bit. Can you talk a little bit about some of the specific adjustments that you're making around some of the refining processes to meet those cathode needs in a more tangible way as you go through the balance of this year and into next year?

Yes. I'll begin with that, and Eric can provide additional details. The main focus for us right now is balancing our primary products, specifically hydroxide and carbonate. As LFP has gained traction, there has been increased demand for carbonate, which has historically represented a larger portion of our portfolio. We have been expanding our hydroxide production, and balancing the two involves understanding their respective applications. In the long term, our focus will shift towards solid-state technologies, transitioning from a heavier emphasis on carbonate and hydroxide to lithium metal. However, this is a long-term perspective. Currently, we are focused on the carbonate and hydroxide developments in our ongoing asset projects.

Certainly, Colin. To provide some additional context, we still observe a more favorable market for hydroxide and high nickel outside of China compared to inside, where carbonate and LFP play a significant role. The innovations emerging primarily from China in LFP chemistries, focusing on higher energy density and efficiency as well as cost-effectiveness of that cathode, are becoming increasingly appealing to Western markets. We are confident that our position in Chile allows us to take advantage of this opportunity, which we will monitor closely. As Kent previously mentioned, we are temporarily pausing investments in the U.S. and North America to better navigate the uncertain market landscape and formulate our strategy. An important aspect of this will be evaluating LFP options in the U.S., which will factor into our decision-making.

Our final question is from Patrick Cunningham at Citi.

In the past, you've talked about the marginal cost of production being $20 and maybe new projects pushing that curve up over time. Do you still believe that to be the case given we've seen relatively tepid supply response at current prices?

Yes, it changes over time with volumes in the industry. However, most new projects that come online are likely to be at the higher end of the cost curve, pushing that up. We still think that the accuracy of that is within a $1 or $2. Fundamentally, we believe it is still about the target of marginal cost today.

Got it. And then just a quick follow-up. Did price floors play a meaningful impact with price levels in the low teens for a good part of the quarter?

I'm sorry, was your question about the impact of the price floor on our realized price for the quarter?

Yes, yes. Was there meaningful impact.

Let's put it this way. We don't disclose a lot of our price floors, and they tend to range because often based on age of contracts. At current prices, some of those floors, some are being tested, floors have held. And so we certainly are seeing the floors come into play for some of our businesses.

Okay. Thank you, and thank you all for joining us today. We continue to innovate, adapt and lead the world in transforming essential resources into the critical ingredients for modern living with people and planet in mind. We are focused on continuing 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.