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Text: Joining me on the call today are Kent Masters, our chief executive officer; and Scott Tozier, our chief financial officer; Raphael Crawford, president of Catalyst; Netha Johnson, president of Bromine Specialties; and Eric Norris, president of Lithium, are also available for Q&A.
Please also note that some of our comments today refer to non-GAAP financial measures.
Scott will provide more detail on our results, outlook, and guidance.
We reported another solid quarter with net sales of $831 million and adjusted EBITDA of $218 million.
Sales improved by 11% on a year-over-year basis, while adjusted EBITDA was relatively flat compared to the third quarter last year.
Excluding FCS from our third quarter 2020 results, our net sales were 19% higher and EBITDA was up 14%.
Scott will get into more detail on our financials in a few minutes including favorable revisions to our guidance.
During our recent Investor Day, we did a deep dive into our accelerated growth strategy and provided color on how we think about the near-term expansion of our Lithium business as well as our disciplined investment approach.
Since that event in early September, we are pleased to have announced several updates on those efforts.
This includes signing an agreement to acquire Guangxi Tianyuan New Energy Materials, or Tianyuan, which owns a recently built conversion plant near Qinzhou.
We are totaling to ensure the plant operates as advertised and expect to close this transaction in the first quarter of next year.
This puts us on track for first sales from this plant in the first half of next year.
In addition to this plant, we have signed two recent agreements for investments in China to support two greenfield projects, each initially targeting 50,000 metric tons per year.
These projects position us for initial added conversion capacity of up to 150,000 metric tons of lithium hydroxide on an annual basis to meet our customers' growing demands.
In addition, our MARBL joint venture announced the restart of the Wodgina Lithium Mine in Western Australia.
On Slide 5, you will see the objectives we set for 2021.
When we set these goals, we did so with the intent of challenging ourselves with plans that were aggressive, but achievable.
As we approach the end of the year, I'm excited by the significant progress and proud of the effort our team has put into achieving these goals.
As you see on this slide, we have accomplished the vast majority of what we set out to do.
For example, we are successfully progressing high-return, fast payback Bromine projects at both Magnolia and JBC.
These projects will increase our capacity and improve the efficiencies of our operations.
We've also made significant progress on our lithium growth projects.
First, at La Negra III and IV, our team continues to execute to plan.
I'm excited to announce that we recently completed a major milestone by achieving first lithium carbonate production in late October.
Initial production volumes will be used to qualify the plant and the material with our customers to ensure we are meeting their requirements.
This qualification process is proceeding on track with first sales expected in the first half of next year.
In Western Australia, the ongoing labor shortages and pandemic-related travel restrictions have continued to significantly impact virtually all companies in that region and show no signs of easing in the near term.
Despite these efforts and with Herculean efforts, our team has managed to hold Kemerton I construction completion to year-end 2021.
We now expect Kemerton II construction completion in the second half of 2022.
While we are facing challenges at these projects, our strategy to consolidate resources and prioritize the first train continues to mitigate additional risks.
On Slide 7, I'll highlight the progress we've made on our Wave III program since we last spoke to you at our Investor Day.
At the end of September, we announced an agreement to acquire Tianyuan for $200 million, including a recently built conversion plant near the port of Qinzhou designed to produce up to 25,000 metric tons of lithium per year with the potential to expand to 50,000 metric tons per year.
We expect this acquisition to follow a similar path as our acquisitions of Xinyu and Chengdu facilities back in 2016.
Following the close of the transaction, which is expected in the first quarter of next year, we plan to make additional investments to bring Qinzhou plant to Albemarle standards and ramp to initial production of 25,000 metric tons.
This acquisition enables us to accelerate conversion capacity growth and leverage our world-class resource base.
Together with our partner, we agreed to restart operations at the Wodgina Lithium Mine in Western Australia.
Initially, Wodgina will begin one of three processing lines, each of which can produce up to 250,000 metric tons of lithium spodumene concentrate.
This resource will be critical as we ramp our conversion capacity in Western Australia with our Kemerton sites.
We also signed agreements to invest in two greenfield conversion sites in China at Zhangjiagang and Meishan.
We plan to build identical conversion plants with initial target production of 50,000 metric tons of battery-grade lithium hydroxide at each site.
These investments offer additional optionality for future growth and have expansion potential.
Investing in China offers capital-efficient, high-return growth with proximity to our low-cost Australian spodumene resources and many of our major cathode and battery customers.
We continue to explore global expansion of our conversion capacity as the battery supply chain shifts west.
Turning to Slide 8 for a review of our global project pipeline.
As you can see, Albemarle is executing a robust pipeline of projects all around the world.
For example, our bromine business is pursuing incremental expansions in Jordan and the United States.
These high-return projects leverage our low-cost resources and technical know-how to support customers in growing and diverse markets, like electronics, telecom and automotive.
In Chile, the Salar Yield Improvement Project allows us to increase lithium production without increasing our brine pumping rates utilizing a proprietary technology to improve efficiency and sustainability.
In Australia, we continue to progress study work on additional Kemerton expansions to leverage greater scale and efficiency with repeatable designs.
Finally, in the United States, we are expanding our Silver Peak facility in Nevada to double lithium carbonate production.
This is the first of several options to expand local U.S. production.
In Kings Mountain, North Carolina, we continue to evaluate restarting our mine.
And at our bromine facility in Magnolia, Arkansas, we're evaluating the process technologies to leverage our brines to extract lithium.
We'll continue to update you periodically on our pipeline.
I hope this gives you a sense of the diversity and optionality Albemarle has as a global lithium producer.
Let's begin on Slide 9.
During the third quarter, we generated net sales of $831 million, an 11% increase from the same period last year.
This improvement was driven by strong sales for our lithium and bromine segments.
Adjusted EBITDA was essentially flat on a year-over-year basis, resulting from the sale of FCS and increased freight and raw material costs.
The GAAP net loss of $393 million includes a $505 million after-tax charge related to the recently announced Huntsman arbitration decision.
While we continue to assess our legal options, we have also initiated discussions with Huntsman regarding a potential resolution.
Excluding this charge, adjusted earnings per share was $1.05 for the quarter, down 4% from the prior year.
Third quarter adjusted EBITDA of $218 million increased by 14% or $27 million compared to the prior year, excluding the sale of FCS.
Higher adjusted EBITDA for lithium and bromine was partially offset by a $13.5 million out-of-period adjustment regarding inventory valuation in our international locations, impacting all three GBUs.
Lithium's adjusted EBITDA increased by $25 million year over year, excluding foreign exchange.
Adjusted EBITDA for bromine increased by $5 million compared to the prior year due to higher pricing partially offset by increased freight and raw material costs.
Volumes were flat given the chlorine constraints in the quarter.
And Catalyst adjusted EBITDA declined $4 million from the previous year.
This was due to lower sales and cost pressures, partially offset by higher-than-expected joint venture income, which included a favorable tax settlement in Brazil.
Slide 11 highlights the company's financial strength that is key to our ability to execute our growth plans over the coming years.
Our net debt to EBITDA at the end of the quarter was 1.7 times and is below our targeted long-term range of two to 2.5 times.
This provides us with capacity to fund growth while supporting modest dividend increases.
We don't expect the recent arbitration decision to impact our current growth plans, but it could temporarily reduce our flexibility to take advantage of upside growth opportunities.
Turning to Slide 12, I'll walk you through the updates to our guidance that Kent mentioned earlier.
Higher full year 2021 net sales and adjusted EBITDA guidance reflects our strong third quarter performance.
Net cash from operations guidance is unchanged due to the timing of shipments to customers and increased raw materials and inventory costs.
Capital expenditures were revised higher related to the continuing tight labor markets and COVID-related travel restrictions in Western Australia, as well as accelerated investments in growth.
Turning to Slide 13 for a more detailed outlook on each of our GBUs.
Lithium's full year 2021 adjusted EBITDA is now expected to grow in the mid- to high teens year-over-year.
That's up from our previous guidance due to higher volumes and pricing.
The volume growth is driven primarily by tolling.
And our full year average realized pricing is now expected to be flat to slightly higher compared to 2020.
As a reminder, most of our battery-grade lithium sales are on long-term contracts with structured pricing mechanisms that are partially exposed to the market.
We also benefit from stronger market pricing on shorter-term technical grade sales and on spot and tolling sales of battery-grade lithium.
Full year 2021 average margins are expected to remain below 35% due to higher costs related to the project start-ups and tolling partially offset by productivity improvements.
Bromine's full year 2021 adjusted EBITDA growth is now expected to be in the low double digits.
That's also up from previous guidance due to the continued strength in demand and pricing for flame retardants.
Our bromine volumes remain constrained due to sold-out conditions and a lack of inventory.
The outlook for chlorine availability has improved since last quarter, but the market remains tight and the impact of higher chlorine pricing is expected to be felt more in 2022 than in 2021 due to the timing of inventory changes and shipments.
Year-to-date, higher bromine pricing has mostly offset higher raw material and freight costs.
Catalyst full year 2021 EBITDA is now expected to decline between 20% and 25%.
That's also an improvement from our previous guidance, owing to the higher-than-expected joint venture income.
The year-over-year decline in adjusted EBITDA is primarily due to the impact of the U.S. Gulf Coast winter storm earlier in the year, product mix and the previously disclosed change in our customers' order patterns.
Catalyst fourth quarter margins will also be impacted by product mix, including a greater proportion of lower-margin FCC and CFT resid orders.
FCC demand continues to improve with increasing global fuel demand, while HPC orders continue to be delayed.
Overall, market conditions are improving but volumes and Catalysts are not expected to return to prepandemic levels until late 2022 or 2023.
In total, we expect EBITDA margins to be lower in the fourth quarter due to higher raw materials, energy and freight costs across all 3 of our businesses.
We are closely watching several key risk factors, including global supply chain disruptions, global impacts of the energy rationing in China and chip shortages.
Supply chain and logistics challenges are the most immediate.
Our teams are working day and night to navigate these port issues, the lack of drivers and upstream supply disruptions to ensure our customers get their orders on time.
We also continue to monitor the global situation with regard to chip shortages.
We recognize that the auto industry has been struggling with those shortages.
But to date, we have not seen a direct impact on either our lithium or bromine orders.
And with that, I'll hand it back to Kent.
As Scott mentioned, we are disappointed by the outcome of the Huntsman arbitration decision.
But regardless of the ultimate outcome of that dispute, Albemarle will continue to focus on the execution of our growth strategy.
As we highlighted during our Investor Day in September, we have a well-thought out and focused operating model that we are implementing across our businesses.
This model, the Albemarle Way of Excellence, provides us with a framework to execute our objectives effectively and efficiently and will help us to remain on target as we pursue significant growth opportunities ahead.
And as we pursue these opportunities, we will be disciplined in our approach to capital allocation.
Our primary capital priority is accelerating high-return growth.
This means that we will invest not just to get bigger but to create tangible shareholder value and maintain financial flexibility to take advantage of future opportunities.
Utilizing this approach with our low-cost resources, we believe our annual adjusted EBITDA will triple by 2026.
Finally, at the core of all of this is sustainability.
As one of the world's largest lithium producers and innovators, we were able to work closely with our customers to create value and drive better sustainability outcomes for all stakeholders.
I'll hand over to the operator.

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compname reports third-quarter sales growth of 11% and increases guidance.
q3 adjusted earnings per share $1.05 excluding items.

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