Hello, and welcome to Albemarle Corporation's Q2 2025 Earnings Call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.

Thank you, and welcome, everyone, to Albemarle's second quarter 2025 earnings conference call. Our earnings were released after market closed yesterday, and you'll find the press release and earnings presentation posted to our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Neal Sheorey, Chief Financial Officer. Netha Johnson, Chief Operations Officer; and Eric Norris, Chief Commercial Officer, 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 strategic initiatives may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation that 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. For the second quarter, we reported net sales of $1.3 billion, including strong volume growth in energy storage and specialties. Adjusted EBITDA was $336 million, reflecting year-over-year cost and productivity improvements in the energy storage product mix. As a result of this performance and cash actions we pursued in the quarter, we also improved our leverage metrics and strengthened our financial flexibility. We are maintaining our 2025 outlook considerations and now expect to achieve positive free cash flow in 2025. Both assume the current low lithium market pricing persists for the remainder of the year. This is largely due to our team's successful execution of measures to reduce operating and capital costs and preserve financial flexibility. For example, as of June, we achieved a 100% run rate of our $400 million cost and productivity improvement target, the high end of our initial target range. We are also further reducing our full year 2025 expected capital expenditures to the range of $650 million to $700 million, down about 60% versus last year. Finally, we enhanced our financial flexibility by redeeming preferred shares we held for an aggregate value of $307 million. On a relative basis, we see macro conditions stabilizing, and our end markets and operations have generally followed the trajectory we expected this year. Lithium demand continues to grow strongly with estimated global lithium consumption up about 35% year-to-date, including strong volume in stationary storage and EVs. We continue to expect the direct impacts of tariffs announced since April to be minimal on our enterprise, thanks to the exemptions and our global footprint. And finally, in the Middle East, our operations in Jordan have continued uninterrupted by the recent Iran-Israel conflict. We'll dive into these and other macro conditions later in the call. Now I'll turn it over to Neal, who will provide more details on our financial performance and outlook considerations. I will conclude our prepared remarks with an update on our macro and end market conditions, including further details on our lithium market forecast before opening the call for Q&A.

Thank you, Kent, and good morning, everyone. I will begin with a review of our second quarter financial performance on Slide 5. We reported second quarter net sales of $1.3 billion, which declined year-over-year, mainly due to lower lithium market pricing. The pricing impact was partially offset by higher volumes in energy storage and specialties. Second quarter adjusted EBITDA was $336 million, also down year-over-year. Lower input costs and ongoing cost and productivity improvements helped to mitigate the impact of lower lithium pricing and reduced pretax equity earnings. EBITDA improved sequentially, largely due to higher energy storage and specialties volumes and continued cost savings. Adjusted earnings per share was higher year-over-year, due primarily to a prior year charge related to asset write-offs and associated contract cancellation costs. Slide 6 highlights the drivers of our year-over-year EBITDA performance. Q2 adjusted EBITDA was down slightly due to lower lithium pricing and pretax equity income, mostly offset by reduced COGS related to the timing of Talison inventory flow-through as well as the benefits of our cost and efficiency improvements. The EBITDA impact of volumetric growth is primarily captured in the COGS impact, as our year-over-year volume growth enabled improved fixed cost absorption and reduced reliance on third-party tollers. Our SG&A costs were down more than 20% year-over-year due to our cost savings initiatives. Adjusted EBITDA increased by 35% in specialties year-over-year due to higher volumes and pricing, as well as reduced costs. Corporate EBITDA increased primarily due to cost reductions and foreign exchange gains. Moving to Slide 7. As always, we are providing outlook scenarios based on recently observed lithium market pricing. And on this slide, we have presented Albemarle's comprehensive company roll-up for each lithium market price scenario. All three scenarios reflect the results of assumed flat market pricing across the year in conjunction with Energy Storage's current book of business with ranges based on expected volume and mix. Our approximately $9 per kilogram scenario is based on Q2 average market pricing. For reference, the average lithium market price year-to-date was also just over $9 per kilogram LCE. And if we were to assume current pricing held for the balance of the year, the price would similarly be about $9 per kilogram LCE. As you see here, we are maintaining our outlook consideration ranges. In particular, the approximately $9 per kilogram range is expected to apply assuming recent pricing persists for the remainder of the year. We've been able to maintain our outlook ranges due to a combination of successful execution of our cost and productivity improvements, operational excellence, including energy storage project ramps, and strong first half 2025 demand from energy storage contract customers. Turning to Slide 8 for additional outlook commentary by segment. First, in Energy Storage, we now expect sales volume growth on an LCE basis to be near the high end of our 0% to 10% range, thanks to year-to-date record production from our integrated conversion network, plus improved mine performance at Wodgina and strong performance at the Salar yield improvement project. Energy Storage long-term agreements continue to perform in line with our forecast and we have no significant contracts up for renewal this year. We realized a strong first half Energy Storage EBITDA margin of about 30%, thanks to lower input costs and a higher-than-average proportion of lithium salts sold under long-term agreements. As a result, we experienced better-than-expected product mix in the second quarter. Second half margin is expected to be lower due to a smaller proportion of our lithium salt sales being under long-term agreements. Also, some spodumene sales that were previously expected in June shipped in July. Net-net, we continue to expect the full year EBITDA margin to average in the mid-20% range assuming our $9 per kilogram price scenario. In specialties, we continue to expect modest volume growth for the full year with Q3 net sales and EBITDA projected to be similar to Q2. Finally, at Ketjen, we expect modest improvements in full year 2025. We see Q4 being the strongest quarter of the year with higher volumes for both FCC and CFT. Please refer to our appendix slides for additional modeling considerations across the enterprise. Slide 9 highlights our strong focus on cash management actions. As a result of our commitment to effective execution and converting earnings into cash, we continue to expect full year operating cash conversion in excess of 80%. Additionally, we now expect to achieve positive full year 2025 free cash flow as a result of our operating cash flow generation and our reduced capital expenditure forecast, which we lowered to a range of $650 million to $700 million. Turning to our balance sheet and liquidity metrics on Slide 10. The measures we've implemented to control costs, reduced capital spending, enhance cash conversion and drive other cash actions have strengthened our financial flexibility. We ended the second quarter with available liquidity of $3.4 billion, including $1.8 billion in cash and cash equivalents, and the full $1.5 billion available under our revolver. At the end of the quarter, we closed on the redemption of our holdings, a preferred equity in a W.R. Grace subsidiary for an aggregate value of $307 million, including $288 million in cash received in June 2025. This transaction further contributed to our strong liquidity position. We continue to improve our leverage ratios, ending the quarter with a net debt to adjusted EBITDA ratio of 2.3x, well below the covenant limit. As a result of our cash performance and liquidity strength, we intend to utilize our cash for deleveraging. As a first step, we expect to repay our $440 million eurobonds with cash on hand as those bonds mature in November. With that, I'll turn it over to Kent.

Thanks, Neal. I'd like to start by covering more details on the end market and macro conditions, starting on Slide 11. First, I will cover our JV operations in Jordan, given the recent activity in the Middle East. That business continued to operate safely and uninterrupted and even achieved record production in the second quarter. This is thanks in part to our NEBO project, which provides both financial and sustainability benefits. NEBO leverages innovative proprietary technology to recycle a co-product stream into additional sellable product. The result is higher volumes, lower cost and improved energy and water efficiency. The project reached mechanical completion in March and continues to ramp on plan. Here in the United States, the OBBB was recently passed. It is a complex piece of legislation, and we are actively assessing its implications to Albemarle as rulemaking continues to take shape. For example, there are several corporate tax implications that appear to be neutral to positive for Albemarle. As expected, the act also amends certain aspects of the Inflation Reduction Act and reinforces the value of our global assets, especially lithium production in the United States and Chile. The 45x tax credit remains in place for U.S. production of batteries and critical materials with phaseout beginning in 2031 and ending in 2034. Albemarle continues to expect 45x tax credits for critical minerals production at Silver Peak and Kings Mountain. As with 30D, some customers may be willing to pay a premium for domestic or free trade agreement lithium production. Finally, on the product demand side, global lithium demand remained strong, thanks to strong demand for both stationary storage and EVs. Global stationary storage battery production was up 126% year-to-date through May, with strong growth in all three major regional markets. Turning to Slide 12 for more on global EV demand, 2025 EV demand growth continued its strong start led by China, where EV sales were up 41% year-to-date. Interestingly, Chinese BEV sales have been the strongest segment of the market, up 44% compared to PHEVs, up 38%. This is in part due to recent subsidies in China that made the net purchase price for entry-level BEVs very attractive for consumers. European EV sales continued to strengthen during the quarter with year-to-date sales up 27% through May, thanks to a continuation of the step change in regulatory emission targets. The outlook in North America is less certain, particularly in the United States due to the potential impact of tariffs and the removal of the 30D tax credit in September. North America is the smallest of the major regional markets with approximately 10% of global EV sales, which highlights its relatively low impact on global demand today. Strength in China and Europe more than offsets weakness in North America, reinforcing confidence in the industry's long-term growth potential and highlighting regional dynamics. Turning to Slide 13. We continue to expect lithium demand to be more than double from 2024 to 2030, unchanged from our previous outlook, driven primarily by stationary storage and electric vehicle demand. We are also maintaining our expected 2025 demand growth range of 15% to 40%, including the anticipated impact of tariffs announced to date in the OBBB. Slide 14 gives more detail on expected market balances. We estimate that the lithium market has been in surplus since late '22 as high pricing in '21 and '22 led to supply expansions. At lithium pricing in excess of $70 per kilogram, effectively, every project was able to secure funding. Now as pricing stays lower for longer, new project development has begun to slow, while demand continues to be robust. Year-to-date, lithium demand growth has outstripped supply growth by nearly 20%, thanks to strong stationary storage and EV trends, and supply curtailments announced over the last year. If current pricing persists, demand growth is expected to outstrip supply growth by up to 10% per year on average between 2024 and 2030. As a result, we expect that surpluses may peak as early as this year, with the market expected to be more balanced next year and potentially returning to deficits in '27 and beyond. This analysis assumes that recent pricing of $9 per kilogram does not support most new or greenfield projects. Low-cost projects, in particular, brownfield expansions of existing low-cost resources are assumed to progress. It is also worth noting that this analysis does not include any impacts from recently announced or prospective supply curtailments in China. We remain confident in the long-term outlook of the lithium industry and the energy transition. In the meantime, we will remain patient and disciplined. Advancing to Slide 15. As we shared before, we continue to progress broad initiatives designed to maintain our long-term competitive advantages along these four pillars: optimizing our conversion network; improving cost and efficiency; reducing capital expenditures and enhancing financial flexibility. We are building a culture of continuous improvement. Our results this quarter once again showcased that mindset. Slide 16 highlights our progress on these actions. In terms of optimizing our lithium conversion network, we started off this year targeting energy storage sales volume growth of 0% to 10%. Today, we expect that to be at the high end of the range, thanks in part to record year-to-date production across our integrated conversion network, allowing for better fixed cost absorption and reduced tolling volumes. Second, we have continued to progress our cost and productivity programs. We began the year with a target of $300 million to $400 million cost and productivity improvements by year-end. Today, we announced a 100% run rate against the high end of that initial range of $400 million. Over the past quarter, we've executed projects to capture further reductions to non-headcount spending, supply chain efficiencies and further volume improvement at key manufacturing sites. This isn't a one-time action. We're building the muscle and mindset to identify opportunities to achieve savings and efficiencies. Third, we began the year targeting 2025 CapEx down approximately 50% year-over-year. The team continues to identify additional opportunities to reduce capital expenditure by prioritizing only on the highest return, quickest payback projects and optimizing value and project scope on existing projects. As a result, we now expect CapEx in the range of $650 million to $700 million, down approximately 60% year-over-year. As a result of all these actions, plus our focus on enhancing financial flexibility and driving cash conversion, we initially expected to be at breakeven free cash flow for the full year. We now expect to achieve positive free cash flow. In summary, on Slide 17, Albemarle delivered solid second quarter performance, while continuing to act decisively to preserve long-term growth optionality and maintain our industry-leading position through the cycle. We are maintaining our full year 2025 company outlook considerations, building on the progress we've made to drive enterprise-wide cost improvements and achieve positive full year free cash flow. We are progressing broad-based, comprehensive actions to manage controllable factors and generate value across the cycle. I am confident we are taking the necessary steps to maintain our competitive position and to capitalize on the long-term secular opportunities in our markets. With that, I'd like to turn the call back over to the operator to begin the Q&A portion.

Our first question comes from Rock Hoffman with Bank of America.

Could you just go into why the 2H mix may change between contract and spot versus where you were in 2Q, and does this mix potentially extend beyond 2025, implying less than a 50-50 split between the two in 2026?

No. And it's probably not that exact. I mean, it's essentially about our customer demand, right? And they draw more on contracts at a certain period than others. Maybe it's a little different than we had forecast, but it's essentially our customers drawing more volume than we had anticipated in this quarter. And we don't see it moving around between quarters, which is why we have the comments that you see in our guidance.

I see. And just as a quick follow-up, given how volatile lithium pricing has been over the last handful of days, what numerically is your underlying assumption of flat pricing? And if pricing does fall off these current levels, how much can it fall before you risk kind of missing your low case guidance for EBITDA and free cash flow?

Yes. Our guidance indicates that the current price is within a certain range, and we haven't changed our perspective on that over the past month. This view is not influenced by recent price fluctuations in the last week or so. It reflects our understanding of the market situation. Does that clarify your question?

Yes. I guess any numerical detail on that assumption. Is it $9 per kg for 2H, which is assumed or...?

Yes, Rock, this is Neal. Yes, as we said in the prepared remarks, and you'll see it actually on our modeling consideration slide too. Maybe this is an important point that when I think some investors look at just one price in one region to calculate a market price, and that's not exactly the lithium market. So we take a basket approach here. So not only are we taking the price in China, we're taking the price in Asia, ex-China. We're also taking carbonate and hydroxide. But regardless, when you mix all of that together, basically, no matter how you slice it, it's been about $9 so far this year, and that's, therefore, the price effectively today, and that's what we're drawing forward as well.

Our next question will come from David Begleiter with Deutsche Bank.

Kent, can you discuss the current situation regarding lithium supply? How much of the global supply is currently unavailable? What is happening in China with both integrated and non-integrated producers on the spodumene and lepidolite fronts?

Yes, we still believe that more capacity needs to exit the market. It hasn't changed significantly this quarter compared to previous ones. A few operations in China have shut down, and the reasons for this are not entirely clear to us. We're monitoring the situation closely but don't think we can draw any major conclusions from it. Overall, it's not notably different from last quarter, with the only change being a couple of facilities going offline in China and the uncertainty around those closures.

Got it. And just back to the pricing question. Can you talk to what you think underlies the recent pricing volatility in China over the last, call it, months that we're seeing month to 5 weeks here?

Yes. I would say there is some uncertainty regarding supply as well as government policies. The market in China is very speculative. We are monitoring the situation closely, but we haven't drawn many conclusions from it.

Our next question will come from Laurence Alexander with Jefferies.

If that it takes several years to get back to tighter conditions, can you maintain free cash flow positive if we're at $9 per kilo on average in 2026, 2027, 2028, or can you walk through kind of what incremental adjustments or headwinds you would face in the next few years relative to 2025?

Yes, Laurence, this is Neal. Our goal is to continue making progress with our initiatives as we look ahead to 2026. I want to highlight that we have reached our target of a 100% run rate against the upper limit of our cost and productivity goals, achieving this six months ahead of schedule. As we transition into 2026, you will see the advantages of this. We are also expediting the ramp-up of our facilities to maximize their capabilities and reduce reliance on tolling, allowing us to process more of our own materials. This will be advantageous as we enter 2026. Regarding free cash flow, we are in a unique situation in 2025, particularly with our joint venture in Australia undergoing a growth phase. As this program concludes and capital expenditures decrease, it could lead to an increase in cash available for dividends, allowing us to return to a more typical dividend situation with our joint ventures. Additionally, we are focused on managing our own capital expenditures more efficiently, tightening our criteria on which projects move forward. You’ve seen our efforts to reduce our CapEx throughout the year, and we plan to maintain this approach moving forward. Depending on market conditions, we may be able to keep our capital expenditure levels steady for at least another year or longer.

Our next question will come from John Roberts with Mizuho.

At the current capital spending level, do you fall back to flat lithium volumes here at some point in the next few quarters? Or what's your volume growth outlook?

No. I think the investments we've made and the ongoing programs will provide us with growth for a significant period. Eventually, we will reach a limit, but that is not going to happen in the next few quarters; it will take years, not quarters.

Our next question will come from David Deckelbaum with Cowen.

Can I ask two questions about growth? First, Neal, could you provide some insight? Regarding the expenditures you have streamlined this year, as you approach next year and complete some growth projects in Australia, will the volume growth be exclusively dependent on Greenbushes in 2026 when considering the wider corporate portfolio?

No, I think we have more than just Greenbushes contributing to our growth. While it's the largest component and a significant investment, we also have capacity at Wodgina and the Salar de Atacama as we advance the Salar yield project, which will contribute additional output. We consistently aim to improve productivity in both costs and output at all our assets. So, while Greenbushes is the biggest piece, our growth is more expansive than just that.

Yes. Maybe, David, just to add to that too, is, obviously, lithium, those are the larger assets and bigger pounds. So you kind of tend to focus on that. But I do want to highlight that we are still pushing out incremental pounds from specialties. And in the prepared remarks, we talked about one example of that in Jordan, where we've started up a project that has great financial and environmental benefits, but it also is pushing out more pounds incrementally. So I think there are a few different avenues across the company where you'll continue to see growth.

I appreciate that, Neal. Maybe you can talk a little bit just about the cash deleveraging opportunities beyond the $440 million that's coming due in the fourth quarter this year. How should we think about how you're approaching the balance sheet in '26 is considering the cash balance that you have, but then also if we're going to stay in this sort of $9,000 a ton reference range. How do you think about the next goals in the balance sheet and pushes and pulls in '26 and '27?

Thank you for the question. We've consistently aimed for a leverage ratio of 2.5x or less, and we're pleased to report that we exited the second quarter at 2.3x. However, we are currently at the bottom of the cycle, which is why reducing leverage has become one of our top priorities for capital allocation. I want to address the maturity we have coming up in November, which I hope we clarified in our remarks today. Looking ahead, we are evaluating our options, but it's too early for me to specify our plans. That said, maintaining a focus on deleveraging is essential for us, particularly if pricing remains low for an extended period. It's important that we strengthen our balance sheet and prepare accordingly.

Our next question will come from Josh Spector with UBS.

It's Chris Perrella on for Josh. Could you just walk through the puts and takes of the energy storage margins going into the third quarter and then going into the fourth quarter, the assumptions there? And with the pull forward on volume, have you sold out, maxed out your contract tons in the first half of the year, and that would imply the balance of the year is mostly spot?

Chris, this is Neal. I'm glad to address your question. To start with the latter part of your inquiry, we have not exhausted our contract volumes. In the first half of the year, as Kent noted, we experienced increased demand on our contracts, resulting in a more favorable mix than anticipated. Additionally, we had spodumene sales that were expected to be shipped in June, but they ended up shipping in July, affecting the mix. Looking ahead, and speaking from July, we see a potentially softer demand for contracts in the third quarter, which may lead to a higher proportion of spot transactions. Conversely, we anticipate a stronger demand from contracts as we approach the fourth quarter. This is the current outlook, but it's still July, and conditions may change as they did in the first half of the year.

Yes. I want to clarify that our contracts are not fully satisfied in the first half; it's a mixed situation. Things have shifted a bit. We anticipate seeing more activity between the second and third quarters, and the fourth quarter should be more traditional.

Just to follow up, you mentioned that feedstock costs were expected to impact you in the second quarter. Will this now affect the third quarter, or are the higher costs of spodumene no longer a concern? What factors are further squeezing margins in the third quarter?

Yes. Chris, the way it's worked out. I think we did work through a little bit of it in the second quarter. But yes, you're right. It's primarily more of it's going to get worked off in the third quarter just based on how the inventory is flowing through the system.

Our next question comes from Aleksey Yefremov with KeyBanc CM.

I just wanted to follow-up on the second half guidance. Should we just think about this as the basis sort of, of the run rate for next year? Or is the mix maybe not representative, it's sort of not rich enough because it doesn't have enough LTAs in it. So really a question about second half as the basis to think about next year's EBITDA?

I think you might be overanalyzing it. There's a mix of customers shifting back and forth. Currently, about 50% of our mix has long-term agreements with floors, and that will continue into 2026. We do have a few contracts expiring in 2026, but as we've mentioned before, we don't anticipate those will actually end. We'll negotiate and extend those agreements. That's our outlook. Therefore, I wouldn't get too caught up in the differences between the first and second halves. The mix will remain the same and will fluctuate quarter by quarter.

Okay. That's helpful. And I think I remember earlier before you revised your CapEx lower for this year, you were signaling there would be additional opportunities to lower CapEx next year. Did you pull those opportunities forward? Or could you bring CapEx down even more after you just stepped it down?

We are concentrating on capital expenditures and operating costs, and we are actively working to reduce expenses across our entire portfolio, including CapEx. While we cannot specify what the CapEx rate will be for next year, our aim is to decrease it. As we prepare for next year, we will assess the situation more closely. We have adjusted our forecast for this year and have a solid history of meeting those targets. However, we are approaching a point where making significant reductions is becoming challenging, and further cuts will likely come in smaller increments. Nonetheless, we remain committed to this effort.

Next question comes from Joel Jackson with BMO.

Your joint venture partner mentioned at the end of the year is discussing CGP3, not the first concentrate. There is a subtle distinction there. Are we not expecting any volumes until maybe early to mid-2026? What are your thoughts on this?

Yes, I would say it's likely that we won't start seeing volume until early in '26, possibly not right at the beginning but rather early in '26.

Okay. And then also a bit of a different question. We obviously saw what happened with MP Materials over the last month or so. We know the DOE has been out there with programs, DOD has money, Lithium is not rare earth. But looking at Kings Mountain, is that a project that is strategic to the U.S. to the point where Albemarle want to start doing due diligence with different government organizations trying to get the profile of that project up and maybe trying to look at a way to be something like an MP Materials kind of importance for the country.

We are pleased with the attention the Trump administration is giving to critical minerals. While rare earth elements are a priority, lithium is also being considered. For some time, we have emphasized the necessity of public-private partnerships to establish a complete U.S. supply chain, particularly in conversion. It is noteworthy that the government is taking steps with companies like MP Materials to advance this in the rare earth sector. We have been in discussions with the government regarding the importance of these initiatives. Overall, we find this focus on critical minerals encouraging and are eager to engage in further conversations about it.

Our next question will come from Vincent Andrews with Morgan Stanley.

Just wanted to ask on the mix. Is there a production geography aspect of it too? In other words, do your contracts skew a little bit more towards Atacama volume? Or are they evenly split geographically in your production facilities?

I would say that it's distributed, not concentrated in one area. Most of our contracts are with Western players. This doesn't necessarily indicate the origin of the facility or the shipping destination. However, nearly all of our long-term agreements are with Western players.

Okay. And as a follow-up, obviously, a nice job reducing the CapEx. Could you just give us a sense of the most recent reduction, what is that coming out of? And also, do you have an updated maintenance CapEx number for us now that the CapEx number has moved lower again?

Yes. So we're not giving guidance on kind of maintenance versus growth capital, but it's coming out of a lot of small places, right? It's just focused on capital, pushing things out, tightening things up. And as we get into planning for next year, then maybe we can give you a little bit more detail on that. But at this point, we've lowered our guidance this year, and we would anticipate continuing to drive capital out of the plan, but it's getting harder, I would say.

Our next question will come from Colin Rusch with Oppenheimer.

I guess I have a two-part question. One, thinking about the government involvement with market dynamics on critical materials. Have you seen any indication that they might start setting pricing in the market? And then a secondary question is around refining capacity and technology. You guys had been kind of adjacent or involved in a project around dry processing. I just want to get an update on how you guys are thinking about potential technology evolution around some of that conversion of refining process technology in North America.

Okay. So I think there are two different questions here. First, regarding government involvement in pricing, we haven't seen that. The only relevant example is the MP Materials deal, where they made purchases from the Department of Defense and set a price, but I don’t view that as government involvement in the market. So we haven't observed any significant government influence. Regarding technology, we consider process chemistry a key advantage in our conversion efforts. This includes direct lithium extraction, which is our primary focus for new technology, as well as improving the technology in our hard rock conversion operations. I'm not sure what the reference to dry processing was about, as I’m not familiar with that technology.

Yes, that was a process that Tesla was working on in and around the San Antonio facility where they were doing that with a different closed-loop system. But I can take that offline. I guess the follow-up question here is around China policy. You guys have gone through a number of policy cycles around EVs. And obviously, that government is focused on short-term sales historically, then following up with incremental policy adjustments to kind of maintain market integrity. Can you just give us an update on your current thoughts on the evolution of the EV policy in China, and how you see that evolving over the next 2 to 3 years?

Yes, you're correct in observing that adjustments are being made to incentives. However, these changes are minor. The broader policy is significant for China; they view it as a way to dominate a segment and export globally. Considerable effort has been invested in research and development across the value chain, including electric vehicles, batteries, cathodes, and the lithium supply chain. They see this as a strategic area to boost exports and create jobs domestically. The recent changes in EV incentives seem more focused on maintaining market activity and integrity. I don't consider these short-term incentive programs to be deeply indicative of long-term strategies, but overall, this segment is viewed strategically by them.

Our next question will come from Ben Kallo with Baird.

I apologize for that. You mentioned contract renewals for agreements that are set to expire next year. I am curious about how these contracts are structured from the customer's viewpoint and how the current pricing is affected. Additionally, I would like to know about the prepayment you received last quarter. How does that contract compare to the current offerings? I believe that prepayments might be available at lower prices if there are benefits to prepaying.

Okay, Ben, that was a bit unclear. You were asking about contract structures and prepayment. There are two different aspects to consider. I don’t believe our traditional customers or those in the value chain would see a shift in our overall contract structure because the prepayment deal we had was somewhat unique. Perhaps Eric can provide insight on how our customers perceive our contract structure compared to the spot market.

And Ben, this is Neal. I want to return to your question about the prepayment. It sounded like you were inquiring about the pricing related to the prepayment. I want to emphasize that, as we mentioned when we finalized the deal in the first quarter, it is market indexed. I wasn't able to fully catch your question, but it seemed like you were wondering if it was outside of the market. The mechanics indicate that it is indeed linked to the market.

But I think the message we want to leave is that we are quite focused on it.

Our last question will come from Arun Viswanathan with RBC.

I would like to inquire about the guidance as well. It appears that the midpoint of your scenarios is still around $900 million, which suggests a relatively low EBITDA level for the second half. Could you elaborate on some of the dynamics regarding pricing and volume assumptions? Additionally, if there's anything else you would like to add, that would be great.

Arun, this is Neal. I can begin, and others can chime in if they wish. I find myself repeating some points from the Q&A. It truly is a mixed effect as we progress through the quarters of the year. The key takeaway is that we are still maintaining our modeling guidance ranges, even though pricing has slightly declined in the first half of the year. If we project pricing for the remainder of the year, we still expect to stay within that range due to all the initiatives we are pursuing. However, we've noticed that demand for our Energy Storage contracts has been stronger in the first half of the year. As we transition into the latter half, we may not see that same level of demand. Essentially, the volume has been higher in the first half compared to the second half. It's simply that.

Yes, I want to emphasize that the price has decreased since the beginning of the year, but we've maintained those ranges even at the current price level. In the second half of the year, approximately half of our business is exposed to the spot market. As that price continues to decline, it becomes more challenging, and our actions are meant to balance that situation. That's how I would explain it.

Okay. Apologies if I missed this earlier. You mentioned that you do think more capacity could come offline. I guess what do you expect to see there over the next 6 to 9 months? How much of the capacity to say, uneconomic? And are there any further comments on inventory levels that you could share as well?

Yes, we won't speculate on which companies may exit the market. That would be purely speculative. However, we do recognize that many companies are facing significant pressure, particularly those that rely on a single asset for cash generation and are currently not producing revenue. Start-ups that are struggling to meet their revenue expectations may also be at risk. But again, we're not going to speculate on specific companies.

Our next question will come from Kevin McCarthy with Vertical Research.

This is Matt Hettwer on for Kevin McCarthy. To maybe frame the supply question in a different way. Where would you estimate that global lithium operating rates were in the second quarter? And where do you think they would need to be to restore pricing power in a sustainable way?

We understand that in hard rock conversion in China, operating rates are around 50%, indicating significant overcapacity in conversion. This leads us to consider the resources being used. We're uncertain about the exact operating rates, but they are relatively high, and it’s essential for mines to function at those levels to avoid cash flow issues. Currently, hard rock conversion primarily occurs in China, and the known figure suggests an operating rate of about 50%. Consequently, there is notable overcapacity, indicating that we should examine the resource levels, which are likely operating at high rates.

Okay. And then, regarding your lithium demand forecast, you left it unchanged at 15% to 40% for this year. And given that more than half of the year is in the books, why did you decide to leave the estimate so broad? Other than tariffs, what's driving the uncertainty and that you didn't feel comfortable narrowing that range?

There is a considerable amount of uncertainty. While tariffs are a factor, there are also regulations across various jurisdictions to consider. The U.S. market has shown some weakness, whereas Europe and China have been performing stronger than expected. This was our outlook at the start of the year, and despite the ongoing uncertainty, it has not diminished; it may have even expanded. In this current environment, we believe this forecast still holds. The situation has been fluctuating; the U.S. appears weaker than we initially thought, but Europe and China are doing significantly better. Additionally, the energy storage market is much stronger than we had predicted earlier. Nonetheless, the uncertainty remains, leading us to keep the forecast range broad.

Our last question will come from Patrick Cunningham with Citigroup.

This is Rachael Lee actually on for Patrick. Can you dive deeper into the $400 million cost and productivity savings achieved? And what are expectations for incremental savings in the back half and into '26?

So regarding the cost savings, I wasn't sure I heard that correctly. Yes, we are largely aligned with the program we've outlined. Neal, would you like to elaborate on some of the specifics?

Yes, sure, sure. So first of all, a decent part of that. If you remember, it's not quite 50-50, but we had put out a target of a certain amount of this was going to be headcount-related, SG&A type of savings. And we went after that very, very quickly. And so that is something that we obviously worked on sort of rapidly as we were exiting last year. And then another chunk of that is a manufacturing cost and productivity set of actions. And that one, we have been progressing that really well. And obviously, now one quarter on and here through the second quarter, we're now getting a lot more traction around that. That's what's really allowed us to sort of push to the high end of this range. So we're just doing block and tackling around this, just working on all of the different things that we have in the pipeline around cost out and productivity and just going after those things. In terms of going forward, it's a little early for me to say where we go beyond $400 million. I think you heard Kent say earlier on the Q&A, we're not stopping here. We're continuing to look at what we can do from a cost standpoint, from a CapEx standpoint. A little early for me to give any commitments on that. But we're still looking at that obviously, in this environment.

Yes. I would say our process for tackling cost reduction and fostering a culture around it is quite developed in the manufacturing area, but less so in other departments. The broader supply chain related to manufacturing is not as advanced, and our back-office processes aimed at reducing costs are also less developed. We are continuing with improvements in manufacturing and need to enhance our capabilities in other areas. Currently, much of the cost savings have come from overhead and manufacturing, but we expect to shift more focus to other areas soon.

Got it. That's very helpful. Just another quick one, if you're now guiding to free cash flow positive. What are your expectations for working capital in the second half?

Look, generally speaking, as we get into the second half of the year, that's obviously a little bit of the higher season, particularly in the lithium business. And so I would expect working capital to be actually a tailwind to cash. You probably have seen so far this year; it's been a little bit of a headwind as we've been building up to the high season. So I think the combination of that plus, obviously, pricing is slightly lower too. So there could be a little bit of a release of working capital. So net-net, I do expect working capital to be a source of cash as we go into the back end of the year.

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

Thank you, operator. And as we conclude, I want to acknowledge our team's quick response and the ability to execute in this fast-changing market. These are the qualities that drove our strong results this quarter and the ones we'll lean on going forward and will help us sustain our long-term competitive advantages and preserve growth optionality as markets improve. Thank you for joining us today. We look forward to seeing you face-to-face at the upcoming events. I think those are listed on Slide 18. So thank you for joining us. Stay safe and take care.

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