Albemarle Corporation (NYSE:ALB) Q1 2024 Earnings Call Transcript

Albemarle Corporation (NYSE:ALB) Q1 2024 Earnings Call Transcript May 2, 2024

Albemarle Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: 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.

Meredith Bandy: 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.

Kent Masters: 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 Energy Storage segment highlighting the demand growth in the segment and our ability to capture it. We also ramp 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.

Neal Sheorey: 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 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 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 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 adopting to changing market condition 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.

Kent Masters: 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 exercise 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 allow us to efficiently operate large-scale assets and drive down operating cost. 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.

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Q&A Session

Operator: [Operator Instructions] Our first question is from Aleksey Yefremov at KeyBanc Capital.

Aleksey Yefremov: 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?

Kent Masters: Yes. So — well, 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 — the 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.

Aleksey Yefremov: 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?

Kent Masters: Yes. So if prices stayed where they were today, you’d see us ramping CapEx down. It takes us a little bit of time. So it’s not — we have a run rate that we think is kind of a minimum CapEx level of about — to maintain assets about $1 billion a year. We wouldn’t get there in ’25, but kind of a run rate in line with that toward the end of ’25, we could if we felt prices were going to stay where they are today.

Operator: Our next question is from Arun Viswanathan of RBC Capital.

Arun Viswanathan: 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.

Netha Johnson: So let me start — I’ll start with that Eric can give you a little bit more detail on inventories. But I mean, you described the situation reasonably well. We’ve seen, as we expected, some production come offline, [indiscernible] in China and some higher cost spodumene resources. And we’ve seen price respond to that marginally, I would say, 15% or so change in price as a result of that. But that’s what we thought the market would do. We don’t really see it running dramatically up, and we still expect to see other resources coming off if prices stay where they are. So it’s going to balance as the market kind of figures out exactly what price is doing and how production responds to that. So I think you’ll see new projects that are planned coming off and struggling to get capital if we stay at prices like they are.

So I think we’re in a balancing mode at the moment. And we do expect to see additional resources come out. Eric, you want to talk about inventories?

Eric Norris: Sure. First of underneath that the other factor as important is demand. China stands as a market and start — first of all, the majority of demand in the world, over 60% of the demand and start contrast to the U.S. or Europe with very strong growth you may have seen reported even in April growth that was quite significant for various automotive producers, BYD being up 49%. So there’s very strong growth in China coming off of very low inventory levels. And that’s obviously a favorable indicator for price in light of the pressure on producers at these price levels that Kent described. And the inventory more specifically, what we’re seeing is inventory is pretty much at very low levels, ending in March, relatively speaking.

So less than 2 weeks from a lithium producer standpoint, and about a week for downstream cathode company. That’s in China. It’s a little higher for battery producers — or excuse me, for battery inventories. But again, at levels that are very low compared to the average we saw in 2023. So that, coupled with this demand signal we’re getting from China, we see it as a positive signal for price going forward. And obviously, we’ll have to — we don’t know for sure, but we’ll watch that carefully. And should that happen, that will benefit our earnings going forward.

Arun Viswanathan: And I know there’s going to be a lot of other questions about lithium. So maybe I’ll ask one on specialties. Do you see any risk maybe to given we’re geographically where some of your resources are in Jordan, I know there’s been some activity there, obviously. So — maybe you can just give us your thoughts on — is that part of what’s leading you to the lower end of guidance for specialties? Or what else would you cite, I guess?

Netha Johnson: 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.

Operator: Our next question is from David Deckelbaum at TD Cowen.

David Deckelbaum: 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 I guess, 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?

Kent Masters: So the — look, 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 kind of 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.

David Deckelbaum: 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? .

Neal Sheorey: 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.

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

Rob Hoffman: 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.

Kent Masters: So I think we’re using the $280 million and as we forecast that out. It’s still early in the year. We’re probably a little ahead of schedule, but not ready to call it and build into our forecast that will beat that. But we’ll be — we’re optimistic. We’re comfortable with the program and the target is a pretty big target for us across the organization, and we feel pretty good on a run rate that we can meet that or maybe beat it, but we’ve not built that into our forecast.

Neal Sheorey: 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 onetime 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.

Rob Hoffman: 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?

Eric Norris: 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?

Rob Hoffman: Why volume go down.

Eric Norris: Oh, I’m sorry. Yes, I think — fair enough. You wouldn’t — it’s all a factor of ramp of plants. Right, what it comes down to — we have a plant in China Meishan that’s ramping at a faster speed than the plant in Australia, and that has to do with operating experience. But if you look at this over a long-term basis, ultimately, we will — our intention is to be fully integrated and to take all the available resources and convert them with company-built assets as opposed to tolling assets. Increasingly, those — we would target those to be outside of the U.S., we have a considerable basis, as you know, today in China. But again, depending upon the speed with that, tolling always remains a flywheel, an option for us to go on the speed of branch to go to another alternative. But you’re right, I mean, in time, that’s why there’s a plus/minus on that, it should come down. The [indiscernible] for the most part is a bridging strategy for us, sorry.

Operator: Our next question is from Andres Castanos at Berenberg.

Andres Castanos: 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.

Kent Masters: 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, the health transparency in the marketplace, price discovery to really 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 more transparency in the market, 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 a different value, a different product at a different value in the marketplace. So if there are dislocations, we can take advantage of that.

Andres Castanos: 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?

Eric Norris: 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.

Operator: Our next question is from John Roberts at Mizuho Securities.

John Roberts: 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?

Neal Sheorey: John, so this is Neal. We would have to check your numbers. One of the big adjustments we made in the fourth quarter was that LCM, which really collapsed the gap that we previously had, that sort of 6-month lag that we had in the spodumene cost and how it rolls through cost of goods sold. Now even after taking the LCM, we did still — prices did still come down as we started the first quarter. So we did still have a little bit of higher-priced spodumene that rolled through our P&L. But I think the numbers you’re referring to maybe are before we took the LCM adjustment, and we collapsed a lot of that gap with that adjustment.

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

Neal Sheorey: I would — no, I would say. But look, we’re — we’ve said it’s not a core business for us. So we would look to divest that at some point. But — and we went through a process, which we talked quite a bit about didn’t get the value wanted. So we’re doing a turnaround. That program is going pretty well, but we would still anticipate doing a transaction on that business when the timing is right.

Operator: Our next question is from Christopher Parkinson at Wolfe Research.

Harris Fein: 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 is 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?

Kent Masters: 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.

Harris Fein: 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?

Neal Sheorey: 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 and the back half of this year and into 2025. So I do anticipate our cash conversion to get better.

Eric Norris: Yes. And just a little finer point on Neal’s point, I mean we are those — the new plants that are ramping will be as we grow, our business grows, they become a smaller part of the portfolio. So we’ll still be building new plant and ramping over time, but they become a smaller percentage of the portfolio. And then at the moment, we have a lot of plants ramping in that particular phase. I didn’t necessarily plan it that way, but that’s how it’s worked out. We’ve got, I think, 4 plants actually ramping now at the same time. And that’s not the plan. Going forward, it won’t be that many. And if they were, it would be a smaller part of the portfolio just because we’ve grown.