Arcadium Lithium : Q1 Earnings 2024 Transcript

Arcadium Lithium

First Quarter 2024 Earnings Call Script

May 7, 2024

As Prepared for Delivery

Q1 2024 Conference Call

Introduction - Daniel Rosen

Thank you, Mark, and thanks to everyone for joining Arcadium Lithium's first quarter 2024 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

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participants on the call today, we would 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 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 a 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.

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Highlights

Slide 3: Paul Graves

Thank you, Dan and hello everyone. This marks the first completed quarter for Arcadium Lithium as a combined company following the closing of the Livent - Allkem merger in early January of this year. Since closing, we have taken a number of important initial steps to create a truly new company. These changes will allow us to deliver on the significant benefits of the merger that we have previously discussed. As a result of multiple integration steps taken, including headcount reductions, procurement re-negotiations and organization re-alignments, we are on track to achieve our targeted $60 to $80 million of realized synergies and cost savings in 2024.

We began as a new company with solid first quarter results, delivering $109 million in Adjusted EBITDA. As we will discuss, our multi-year customer relationships and the wide range of high-quality lithium products we produce allow us to reduce the overall volatility of our earnings

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while maximizing the value per unit of lithium sold. You can see the benefits of these factors in the pricing we achieved in our lithium specialty products businesses and in our combined hydroxide and carbonate average realized pricing in the quarter. We will discuss this more shortly.

The Company is bringing online significant additional production capacity this year, in line with our previously announced plans, and is expecting a 40% increase in combined lithium hydroxide and carbonate sales volumes for the full year. Beyond the production coming online this year, we will provide additional details on the next phase of our expansion projects that will result in an increase of our total capacity to 170,000 metric tons on an LCE basis in 2026. This is over four times our production levels at the end of 2023.

I will now turn the call over to Gilberto to discuss our first quarter performance.

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Reported Financial Results

Slide 4: Gilberto Antoniazzi

Thank you, Paul. Starting on slide 4, Arcadium reported first quarter revenue of $261 million dollars, Adjusted EBITDA of $109 million dollars and adjusted earnings of 6 cents per diluted share. Volumes in the first quarter were down versus the prior quarter, driven primarily by a decline in spodumene sales due to lower production at Mount Cattlin in Australia. Prices were slightly higher across most lithium products versus the prior quarter due to an initial improvement in market conditions, although were down compared to the beginning of 2023. Despite a weaker pricing environment compared to most of last year, the Company achieved an Adjusted EBITDA margin of 42%, demonstrating our leading low-cost position in Argentina and the earnings power of our business at various stages of the market cycle.

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Breakdown by Product

Slide 5: Gilberto Antoniazzi

Turning to slide 5, we provide further detail on first quarter performance from our key lithium product groups. Lithium hydroxide and lithium carbonate together make up the core of our business, comprising roughly three-quarters of total revenue. On a combined product ton basis, we sold roughly 9,300 metric tons at an average realized price of $20,500 per metric ton. We believe this is higher than what would have been achieved had we pursued a fully spot market-based sales strategy. We benefitted from both floors and fixed prices in place on a portion of our lithium hydroxide volumes, as well as a lagging price index effect on some legacy carbonate contracts. As a reminder, we have multi-year agreements, all with pricing floors, with a select group of core customers on roughly two-thirds of our total hydroxide volumes. In addition to pricing floors, there are also firm annual volume commitments over the life of the agreements.

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Other factors impacting our overall realized pricing, both positively and negatively, are the portion of technical grade carbonate volumes that we sell, which are typically contracted at lower prices versus battery grade material, and the lag of as much as a quarter on a subset of our carbonate and hydroxide volumes which are priced against market reference indices.

We were pleased with the performance of our production assets in the quarter, with the low-cost at our carbonate operations at both Fénix and Olaroz in Argentina helping to drive strong margin performance. The operating costs of the two remained fairly consistent with prior year levels with no inputs driving a material change to begin the year.

Butyllithium represents the substantial majority of the revenue in our other lithium specialty businesses, which have wide-ranging product applications. Most of these products, including butyllithium and high purity lithium

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metal, are vertically integrated within our operations and are based on lithium metal which is made from very high purity lithium chloride produced at Fénix. While representing a smaller portion of overall volumes, you can see that these businesses combine to deliver high value for their underlying lithium content. Quarterly volumes in these businesses tend to stay fairly consistent, and while pricing did come down on a year-over-year basis, it did not do so by the same magnitude as some of our other products. This too helps to reduce the overall volatility in our portfolio over time.

Finally, for spodumene we sold roughly 30,000 dry metric tons in the quarter, all out of our Mount Cattlin operation in Western Australia, at an average grade of 5.4%. This was lower than quarterly volumes throughout 2023 and is due to the reduced mining and production plan for the year that we discussed on our fourth quarter earnings call. We achieved average realized pricing of ~$920 per dry metric ton on a SC6 equivalent basis, which is up versus Q4 but

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still down meaningfully versus the rest of 2023. The cash operating cost of production at Mount Cattlin in the quarter was just under $700 per metric ton.

I will now turn the call back to Paul.

Market Conditions

Slide 6: Paul Graves

Thank you, Gilberto. I would like to provide some observations on what we see in the broader market for lithium, as set out on slide 6. The year began with a notably bearish tone around lithium and energy storage demand from pretty much everyone. This was driven in part by negative headlines from various OEMs, especially those focused on the US market, as well as the typical seasonal slowdown seen leading into the Lunar New Year holiday. Now that we are through the first quarter, we can say that market demand for lithium was actually quite strong, and certainly not reflective of some of the

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doomsday scenarios floated in the first few months of the year.

Global EV sales were up over 20% year-to-date through the first quarter. To keep this in perspective, and to make sure we are talking in numbers that reflect actual market size and not just growth percentages, global EVs sold in the first quarter of 2024 were equivalent to the total amount of EVs sold in all of 2020, according to data from the IEA.

The story in China, where so much of global lithium and energy storage demand continues to reside, was even stronger. First quarter sales of EVs in China were around 2 million units, that's up 32% from the prior year, and March marked the second consecutive month with penetration rates above 30%. Expectations for EV sales are even higher in the second quarter, spurred by new economic incentives announced by the Chinese government in April, and evidenced at the recent Beijing

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