Livent Corporation

Good afternoon and welcome to the second quarter 2022 earnings release conference call for Livent Corporation. All lines have been placed on listen-only mode throughout the conference. After the speaker's 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.

Thank you, Dennis. Good evening, everyone, and welcome to Livent's second quarter 2022 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 will request a limit of one question and one follow-up per caller. We would be happy to address any additional questions after the call. 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 release and in our 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 our 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.

Thank you, Dan. Good evening, everyone. Livent had a very strong second quarter performance with the business achieving record levels of profitability. To provide some perspective, Livent's Q2 adjusted EBITDA of $95 million compared to $16 million one year ago, or nearly six-fold increase, and $53 million last quarter. In the exceptionally strong lithium market we're seeing this year, Liven has continued to achieve higher realized prices across its entire product portfolio. Given our expectations for the lithium market to remain structurally tight at least into the first half of 2023, Liven has raised its full year 2022 financial guidance. With our realized volumes in 2022 still expected to be flat compared to 2021, this improvement is driven by higher pricing across all of our lithium products, as well as increased confidence in our ability to navigate this environment of higher costs. LIVEN now expects 2022 adjusted EBITDA to be in the range of $325 to $375 million, or a $30 million improvement at the midpoint from prior guidance. Last week, Livent and General Motors announced that we had entered into a long-term supply arrangement. This is based on a six-year agreement that delivers lithium hydroxide to GM beginning in 2025. As part of this new relationship, GM is providing a $198 million advance payment to Livent, which will be paid to us in 2022. This payment reflects the joint commitment of Livent and General Motors to build a long-term supply relationship and establishes a strong foundation for expansion over time. This contract is structured like all of our long-term hydroxide agreements in that it puts responsibility on General Motors to fulfill its obligations in the form of take or pay commitments and puts an equal responsibility on Livent to do what is needed to meet both the committed volumes and the ever-tightening qualifications being demanded by the next generation battery producers. To be clear, the prepayment is structured as exactly that, a fixed amount per metric ton for supply committed by Livent, which will be credited over the life of the agreement as product is delivered to General Motors and its battery partners. This is a real mutual commitment, not a non-binding MOU or similar. And we believe these are the kind of commitments that can only be made between proven integrated lithium producers such as Liven and an iconic name in the automotive industry such as General Motors that has an advanced and credible plan to succeed in the transition to electrification. This type of structure is important to Liven since it increases both our financial flexibility and our certainty as to how Livent funds and executes its capacity expansion plans. As we continue to scale, customer prepayments allow us to accelerate our expansion capabilities and make it easier for us to make significant commitments to customers regarding future volumes. Although our ongoing growth projects will result in significantly higher production volumes in the coming years, we know that we cannot sell to the entire market. This is because we want to be a meaningful supplier to a core set of long-term strategic customers and their battery supply chains, but also because the lengthy timeline and challenges associated with getting qualified in battery-grade lithium hydroxide dictates the need for longer-dated agreements with firmer commitments. With all of this said, entering into a new relationship with General Motors was a logical and straightforward decision for Libent. We hold a shared commitment to sustainable and responsible operations. We want to bring greater predictability to our supplier relationships. And we have a strong desire to strengthen and localize electric vehicle supply chains in the Western Hemisphere over time. Both companies also have complementary businesses and investment plans in Argentina and in Quebec, Canada. Liven expects to continue to expand its America's footprint over time. while also continuing to add to its capabilities in other key regions. Starting on slide four, I want to highlight the publication of our 2021 Sustainability Report last month and talk briefly about why sustainability is so critical to the discussion of electric vehicles, lithium ion batteries, and the lithium industry. At the heart of the EV revolution is the growing global urgency for decarbonization and climate change solutions, including reduced reliance on fossil fuels for transportation. In the early days of electric vehicles, the comparative carbon benefits of EVs over gasoline-powered vehicles seemed limited to tailpipe emissions with lingering questions about overall carbon footprint advantages. That debate has now been resolved. The data is conclusive that modern EVs have a significantly lower carbon footprint than gasoline-powered vehicles on a total lifecycle basis. This includes emissions from EV, battery, and battery materials production, as well as vehicle end-of-life and well-to-wheel emissions. In fact, a 2021 analysis by the International Energy Agency determined that EVs currently avoid 50% of the total life cycle emissions generated by their gasoline counterparts on the global average. This is actually a conservative estimate, and the gap will only widen as electricity grids become greener. But at the same time, we expect there to be greater expectations for responsible investment and production across the EV, battery, and battery material supply chains. If you look at all the components and minerals that go into electric vehicles, there are clear opportunities for improvement. This goes beyond just carbon footprint. It extends to other environmental impacts, including water use and waste generation, as well as the socioeconomic impact on the local communities near mining and manufacturing sites. This is why sustainability is and will continue to be a top priority for Livent. We believe we have a fundamental responsibility to operate in a safe, ethical, socially conscious, and sustainable manner. You'll see this commitment reflected in our sustainability report. It describes the progress we continue to make across all aspects of ESG, including the key process technologies and innovations which differentiate Liven's sustainability profile, plans to make our operations even more efficient and less resource intensive going forward, and our ongoing efforts to advance human rights and increase the broad benefits obtained by local communities. A dual focus on growth and responsible operations is reflected in our various commitments to expand lithium production in a sustainable way. These commitments include meaningful reductions in our water use, greenhouse gas, and waste disposed intensities by 2030, establishing a path to using 100% renewable energy in our operations, and achieving overall carbon neutrality by 2040. Of course, there's no denying that all extractive and manufacturing processes have some environmental impact, but there are ways to minimize them. At LIVEN, we address these challenges as we do with most things by using a data and science-led approach to assess local impacts and then finding solutions. This is one of the reasons we actively participate in responsible production initiatives such as IRMA, as well as third-party studies on sustainable water use. Our engagement in these initiatives expands and deepens our understanding and helps us to improve. For similar reasons, we've been conducting life cycle assessments, or LCAs, about key products with leading organizations, including Minvero and Argonne National Labs. The findings from these assessments and studies provide insights to drive further enhancements across our operations, and more importantly, deliver on our broader commitments to growing responsibly. Taken together, we believe all of these actions will further enhance our competitive position as sustainability continues to grow as a focus for our customers.