Albemarle Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter and full year 2019 Albemarle Corporation earnings conference call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Mr. Dave Ryan, Vice President, Corporate Strategy, Investor Relations. Sir, you may begin.

Thank you, and welcome to Albemarle's fourth quarter and full year 2019 earnings conference call. Our earnings were released after the close of the market yesterday, and you'll find our press release, earnings presentation, and non-gap reconciliations posted on our website under the Investors section at www.albemarle.com. Joining me on the call today are Luke Kassam, Chief Executive Officer, and Scott Tozier, Chief Financial Officer. We also have Raphael Crawford, President Catalysts, Netha Johnson, President Bromine Specialties, and Eric Norris, President Lithium, who will participate in the Q&A portion of the call. As a reminder, some of the statements made during this conference call about our outlook, expected company performance, production volumes and commitments, as well as lithium demand may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about forward-looking statements contained in our press release. That same language applies to this call. Please also note that some of our comments today refer to financial measures that are not prepared in accordance with GAAP. A GAAP reconciliation can be found in our earnings release and the appendix of our earnings presentation, both of which are posted on our website. Now I'll turn the call over to Luke.

Thanks, Dave, and good morning, everybody. On today's call, I'll provide a recap of our 2019 strategic accomplishments and address the 2020 milestones that we'll be focused on to ensure we deliver on our vision. Scott will give you an update on the financials, our cost savings program, and our full year 2020 guidance. Despite a challenging back half of 2019, we grew fourth quarter and four-year revenues, adjusted EBITDA, and adjusted earnings per share year over year. That reflects our ability to address a dynamic market and to deliver solid results across our businesses. In addition, we achieved an adjusted EBITDA for the corporation margin of 29%. 2019 was another strong step toward our long-term visions. As you can see on slide six of our earnings presentation, we made significant progress on a number of strategic milestones. Importantly, we made significant improvements in our safety program. Lithium reduced its injury rate by 50% from 2018. Catalyst achieved its lowest recordable injury rate in four years, and bromine surpassed two years with no lost time injuries. Our OSHA injury rate in 2019 puts us in the top quartile of our peers. 2019 marked our 25th consecutive year of dividend increases, and we are now included in a select group of companies that comprise the S&P 500 Dividend Aristocrats Index. We've demonstrated our commitment to return cash to shareholders through increasing the annualized dividend from $0.10 in 1994 to to $1.47 in 2019. That's a 22% CAGR, and we'll continue that commitment well into the future. In 2019, we also conducted a materiality assessment to identify sustainability topics that support the execution of our strategy and ensure Albemarle maintains its strong financial position in a responsible manner for decades to come. As you can see from page eight of the investor presentation, we're focusing on four key areas, people, natural resources, community engagement, and our sustainable business model. In 2020, you'll see us establish baselines and long-term targets for improvement. We look forward to updating you on our progress. Consistent with our efforts to manage the portfolio and maintain a strong balance sheet, we announced last quarter our intent to divest the fine chemistry services and performance catalyst solutions businesses. The process for both businesses is going well. Our first priority for the use of proceeds from these transactions will be to reduce debt. Also last quarter, we announced a program to capture sustainable cost savings. This program is well underway, and we expect to deliver $50 million in savings this year and reach a run rate of over $1 million in annual savings by year-end 2021. The new ERP system we implemented last year will enable this program with better real-time visibility into all of our operations. Scott will provide more detail about the program in his session. To support our lithium growth plans, we continued to make progress on major capital expansion projects during 2019. We successfully commissioned our Xenu-2 lithium hydroxide unit in China with the startup and operating teams exceeding their 2019 targets and reaching full nameplate operating rates in less than 12 months. We also increased our lithium carbonate production in LINEGRA 1 and 2 by about 5%. The LINEGRA 3 and 4 lithium carbonate expansion in Chile is on schedule for commissioning by the first quarter of 2021. Finally, the Kemerton lithium hydroxide unit in Western Australia is targeted for commissioning during the latter half of 2021. We also continue to develop our best-in-class lithium resources. The Taliesin Joint Venture completed Phase II of the Greenbush's expansion in the fourth quarter, bringing their annual capacity for chemical-grade spodumene to approximately 160,000 metric tons on an LCE basis. Albemarle has rights to half of that production. In addition, Albemarle secured access to world-class watching the spodumene mine through our marble joint venture. This joint venture has the resources and ultimately will have the conversion assets to annually produce 100,000 metric tons on an LCE basis of battery-grade lithium hydroxide. Keep in mind that we are currently using less lithium than 25% of our available lithium resources, which gives us the ability to respond quickly to support the lithium demand growth for at least the next 10 to 15 years. Turning to our long-term lithium contracts, currently about 90% of our battery-grade carbonate and hydroxide volume is under contract. To date, we have reached agreements with all but one of our contracted customers on one-year price concessions for 2020, which results in a mid-teen percentage price reduction compared to 2019, with technical and battery-grade carbonate seeing higher reductions and hydroxide being generally lower. Otherwise, the basic structures of our long-term agreements remain unchanged. We will continue to manage these agreements to evolve with the individual needs of our customer. Each customer has unique value drivers that are critical to them. We remain committed to leveraging our world-class resources and low-cost conversion processes to meet the growing demand and deliver a differentiated value proposition to each customer. As we outlined at our investor day in December, while we are slightly adapting some aspects of our execution our strategy remains largely the same. Invest in growth and focus on cash generation in lithium through smart investments and our advantaged resource position. Maximize the earnings in cash of bromine and catalysts through sustainable cost savings and investments in systems, people, processes, and operational excellence. Assess our portfolio for opportunities to divest non-core businesses, and acquire or build lithium conversion assets at a lower capital intensity and take a thoughtful and disciplined approach to capital allocation while preserving financial flexibility. By executing that strategy, by 2024, Albemarle should generate revenue in the range of $4.7 to $5.3 billion, a five-year CAGR versus 2019 results of 6% to 9%. adjusted EBITDA of $1.5 to $1.8 billion, a carrier growth of 8% to 12%, adjusted EBITDA margin between 32% and 36%, a 300 to 700 basis points improvement, and $1 billion of annual sustainable free cash flow. In December, we also outlined the many inputs we used to build our lithium demand forecasts. These inputs include historical and forecasted technology advancements, cost projections, OEM model announcements, and a number of other factors. We continue to see the advancements of these variables, which further reduce impediments to wide-scale consumer adoption, namely range anxiety, infrastructure, and cost parity. the global average range of new EV models launched is expected to exceed 200 miles, with some models exceeding 300. To support mobility, there are now almost 1 million public EV charging connections globally, and the number will continue to expand, especially in Europe and China. And cost improvements through technology and scale are also accelerating. In their most recent survey, Bloomberg New Energy Finance reported that the average cost for a lithium ion BEV battery pack was in the range of $150 per kilowatt hour in 2019. The $100 per kilowatt hour milestone is now within reach in the 2022 to 2024 time period, well ahead of estimates just a year or two ago. In fact, Upfront purchase parity predictions are also being pulled forward into the 2022 timeframe. All of these trends are consistent with the projections of our model, leaving us even more confident in our demand expectations. I remain very confident in the lithium market demand we will see over the next four to five years and in Albemarle's ability to seize that opportunity. Albemarle has the best lithium resources in the world. Converting those resources into battery-grade carbonate and hydroxide cost-effectively will be absolutely critical to support that demand growth. Remember, there is no EV revolution without lithium. With that, I'll turn the call over to Scott to provide greater detail on fourth-core performance and full-year outlook.