Livent Corporation (NYSE:LTHM) Q3 2023 Earnings Call Transcript

Livent Corporation (NYSE:LTHM) Q3 2023 Earnings Call Transcript October 31, 2023

Livent Corporation misses on earnings expectations. Reported EPS is $0.44 EPS, expectations were $0.46.

Operator: Good afternoon, everyone and welcome to the Third Quarter 2023 Earnings Release Conference Call for Livent Corporation. Phone lines will be placed on listen-only mode throughout the conference. After the speakers’ presentation, there will be a question-and-answer period. I will now turn the conference over to Mr. Daniel Rosen, Investor Relations and Strategy for Livent Corporation. Mr. Rosen, you may begin.

Daniel Rosen: Great. Thank you, Paul. Good evening, everyone, and welcome to Livent’s third quarter 2023 earnings call. Joining me today are Paul Graves, President and Chief Executive Officer; and Gilberto Antoniazzi, Chief Financial Officer. The slide presentation that accompanies our results, along with our earnings release, can be found in the Investor Relations section of our website. Prepared remarks from today’s discussion will be made available after the call. Following our prepared remarks, Paul and Gilberto will be available to address your questions. Given the number of participants on the call today, we would request a limit of one question and one follow-up per caller. We’d be happy to address any additional questions after the call.

A closeup of a Petrochemical product being inspected for quality assurance.

Before we begin, let me remind you that today’s discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including, but not limited to those factors identified in our Form 10-K and other filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today’s information. Actual results may vary based upon these risks and uncertainties. Today’s discussion will include references to various non-GAAP financial metrics. Definitions of these terms, as well as reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP, are provided on our Investor Relations website. And with that, I’ll turn the call over to Paul.

Paul Graves: Thank you, Dan. Good evening, everyone. I promise no bad Halloween jokes tonight. I promise. We reported third quarter results that were highlighted by adjusted EBITDA of $120 million, up 8% on a year-over-year basis, with a margin that was roughly flat versus the prior quarter and a nine percentage point higher margin than a year ago. We’re providing an update on progress with our multiple capacity expansion projects, including the impact on expected sales volumes over the remainder of 2023 and into 2024. We will touch on the recent feasibility study released for the Nemaska Lithium project in Quebec, which further underscores both the quality of Nemaska’s assets as well as its importance in serving growing supply chains in North America.

Finally, we will provide an update on our pending merger with Allkem, including the continued progress that has been made and what you can expect in the coming months as we move to meet the targeted close of around the end of 2023. Before providing some market perspectives and a live business update, I’ll turn the call over to Gilberto to discuss our third quarter performance, as well as our revised full year 2023 financial guidance.

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Q&A Session

Gilberto Antoniazzi: Thanks, Paul, and good evening, everyone. Turning to Slide four, Livent reported third quarter revenue of $211 million, adjusted EBITDA of $120 million, and adjusted earnings of $0.44 per diluted share. Volume sold were roughly flat, and lower average realized prices were offset by lower overall costs versus the second quarter of 2023 and the third quarter of 2022. Although revenue was down 9% on a year-over-year basis, we were able to increase adjusted EBITDA by 8% over the same period. Despite some of the recent declines seen in the retail market prices, Livent’s adjusted EBITDA and margin continue to be near all-time highs, reflecting the benefits of our commercial strategy, as well as the low-cost position of our resource in Argentina.

Third quarter volume sold were in line with our expectations, as we stated that any meaningful expansion volumes would only be available in the fourth quarter. On pricing, Livent’s average realized price in the third quarter were lower than the first half of this year, as anticipated, reflecting the continued price declines seen in the market since late Q2, particularly in China. Offsetting this was an improvement in overall costs. This was driven by a few factors. Most notably, lower royalties due to the decline in Argentina and Chile [ph] export reference prices, as well as lower input costs for our other specialty businesses, particularly for butyllithium. This resulted in adjusted EBITDA margins remaining unchanged compared to the second quarter of this year, and nine percentage points higher than a year ago.

Livent’s total capital spending year-to-date was $239 million, below adjusted cash from operations of $274 million. We expect spending to increase in the fourth quarter as we progress multiple expansions, and our estimate for 2023 total capital expenditures between $325 million and $375 million remains unchanged. Our balance sheet and overall liquidity remains very strong. We ended the quarter with $113 million in cash, and no draw under our $500 million revolving credit facility. The combination of our current cash position, a strong outlook for cash generation, and our ability to draw on the credit facility give us continual confidence in our ability to internally fund our capacity expansions. Moving to Slide five, you will see Livent has adjusted its guidance for full year 2023 financial performance.

Compared to the prior year guidance, this is driven primarily by lower expected volume sold, along with a smaller expected price increase year-over-year versus 2022. For volumes, the company now expects minimum incremental volumes from capacity expansion in the fourth quarter of this year, resulting in roughly flat volumes for the full year. This will result in higher volume growth in 2024, as we still expect a substantial portion of the 10,000 metric tons of new lithium carbonate capacity to be available. Paul will go into further detail on our expansions shortly. For pricing, we still expect meaningfully higher average realized prices per LCE versus 2022 with a year-over-year increase in the 10% to 15% range based on our guidance, following the roughly 130% increase we saw in 2022.

We also expect lower costs versus the prior year, primarily related to raw materials and third party purchases. The company now projects full year 2023 revenue to be in the range of $890 million to $940 million and adjusted EBITDA to be in the range of $500 million to $530 million. This still represents significant growth of 13% and 14% respectively at the mid points versus prior year. I will now turn the call back to Paul.

Paul Graves: Thanks Gilberto. With the significant downward moves we’ve seen in lithium market prices in recent months, I wanted to give you our perspectives on what we believe drove these movements and what we might be able to expect in the future. When looking at the main lithium indices, it’s clear that prices moved lower during the third quarter and we’ve seen that with our own market price based customers as well from data reported by others in the industry. However, when we look at the underlying demand and supply data points year to date, we don’t see strong evidence that either is meaningfully different to what we had previously expected. On the demand side, we can see that customer buying activity for lithium in Q3 was weaker than what end market demand indicators would imply.

For example, NEV battery installations in China were up 24% year-over-year for the third quarter and were 32% higher through the first three quarters of 2023. EV sales in China continue to reach new records during the third quarter. Globally, EV sales grew 25% in the month of September and are up 37% year-to-date, but it’s fair to say that in the third quarter we did not see demand for lithium at levels that are consistent with these numbers. On the supply side, the third quarter typically has higher seasonal production in China, but the amount of new supply that actually came to market was not meaningfully higher than most analysts forecasted. We continue to see production expansion delays globally and keep in mind that the increased sources of supply that most observers typically point to, namely African spodumene or Chinese lepidolite are much higher cost material on the global cost curve and certainly a higher cost than today’s indices are pointing to.