Albemarle Corporation 2026 Q2 Earnings Call

Thank you. Welcome everyone to Albemarle's second quarter 2026 earnings conference call. Our earnings were released after market close yesterday. You'll find the press release and earnings presentation posted to our website under the investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer, and Neal Sheorey, Chief Financial Officer, Mark Mummert, Chief Operations Officer, and Eric Norris, Chief Commercial Officer, are also available for Q&A. As a reminder, some of the statements made during this call, including outlook, guidance, expected company performance, and strategic initiatives, may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation. That same language applies to this call. Please also note that some of our comments today may refer to non-GAAP financial measures. You can find reconciliations in our earnings materials.

Now I'll turn the call over to Kent.

Thank you, Meredith. Our strong start to 2026 continued in the second quarter, supported by disciplined execution and improving conditions across our key markets. Second quarter net sales of $1.7 billion increased 31% year-over-year, driven by higher pricing and energy storage, and both higher pricing and volumes in specialties. Adjusted EBITDA more than doubled to $858 million, with our enterprise EBITDA margin expanding to 49%. Importantly, we converted that performance into cash. We generated $710 million of cash from operations, representing a more than 80% operating cash conversion, and $638 million of free cash flow in the quarter. We are also on track to reach the high end of our $100 million-$150 million full-year target for cost and productivity improvements. These results reflect a deliberate focus on operational excellence and cost discipline. We also benefit from globally diverse and resilient key end markets.

Global lithium consumption was up 45% year-over-year through May, tracking above our forecasted range, driven by continued strength in stationary storage and improving growth in electric vehicles. Needed supply increases are coming to market slower than demand growth due to limited spodumene availability, temporary disruptions in shipments from Africa, and slower than expected ramp-up of Chinese lepidolite mines. As a result, inventories are low and the physical lithium market remains tight. We are improving our 2026 outlook considerations, including raising our specialty sales and EBITDA outlooks due to a strong year-to-date performance and reducing expected capital spending, thanks to ongoing capital efficiency efforts. Beyond our 2026 outlook, we are also advancing resource options that can support sustainable growth through the cycle. On today's call, I'll focus on our efforts at the Salar de Atacama, where we're leveraging decades of brine processing expertise to advance direct lithium extraction.

We also have opportunities at our Australian hard rock joint ventures. Wodgina is outperforming on better-than-planned ore availability and recoveries. This is helping offset the impact of a fire at Greenbushes' CGP3 plant, which occurred on June 9th. CGP3 restarted on August 1st. I'll turn it over to Neal to discuss recent results and outlook. I will cover recent market trends and give more detail on our resources before we open the call for Q&A.

Thank you, Kent, and good morning, everyone. I'll begin with our second quarter results on slide five. Second quarter net sales were $1.7 billion, driven by energy storage pricing up 73%, while specialties pricing and volumes were up 11% and 8% respectively. Adjusted EBITDA for the quarter was $858 million, up 155% year-over-year, reflecting higher net sales and our ongoing cost and productivity improvements. Both segments contributed to this strong growth, with energy storage adjusted EBITDA up 229% and specialties up 61%. Net income attributable to Albemarle was $480 million, and we reported diluted earnings per share of $3.52. Turning to slide six, I'll walk through the key drivers of our year-over-year EBITDA performance. As I mentioned, second quarter adjusted EBITDA increased primarily due to higher pricing in both segments.

Due to higher lithium pricing, our cost of goods sold reflects increased Chilean commission payments and higher-priced spodumene inventory. The impact of higher spodumene pricing is offset by increased equity income from our Talison joint venture versus the prior year. Across both segments, cost and productivity improvements helped offset raw material and supply chain cost increases related to the situation in the Middle East. Corporate and all other reflects a reduction in adjusted EBITDA due to the Ketjen Refining Solutions divestiture, partially offset by favorable foreign exchange impacts. Turning to slide seven. We are maintaining our total company outlook ranges and expect to come in at the high end of the scenario ranges due to strong year-to-date performance and an increased specialties outlook. These factors offset modestly lower expected energy storage sales volume due to the fire at the CGP3 plant at the Talison joint venture.

Our outlook ranges continue to reflect the expected impact of supply chain disruptions related to the situation in the Middle East, which we still estimate at approximately $70 million-$90 million on an unmitigated basis for the full year. In specialties, we are increasing our outlook due to higher pricing and volumes, which I will cover in more detail on the next slide. The specialties segment delivered another strong quarter. Net sales were $424 million, up 20% year-over-year, and adjusted EBITDA was $118 million, up 61% year-over-year. Adjusted EBITDA margin was 28%, up 700 basis points from the prior year period. The solid performance in the second quarter was primarily due to higher pricing and volume and favorable product mix as a result of bromine market disruptions related to the situation in the Middle East.

As a result, we are increasing our full-year outlook ranges, raising net sales to $1.4 billion-$1.6 billion and adjusted EBITDA to $275 million-$325 million. This increase reflects strong year-to-date performance as our teams have worked to capture the upside of increased bromine pricing while mitigating Middle East-related supply chain disruptions through proactive cost management. Our second half outlook assumes stabilization of the bromine market as we've seen pricing normalize since reaching a peak in April, and it reflects continued uncertainty in the Middle East. As such, we expect third quarter net sales and EBITDA to be lower sequentially. Long term, we continue to see margin upside for the specialties segment as our business and asset diversity continues to deliver positives. Specialties benefits from diverse end markets, including electronics and semiconductors, building and construction, oil and gas, and pharmaceuticals.

Geographic diversity also complements the platform's end market diversity and adds resilience against regional volatility. Turning to energy storage on Slide 9. Net sales increased 78% year-over-year, and adjusted EBITDA increased 229%, both driven by higher pricing. Second quarter sales volumes were 65,000 tons lithium carbonate equivalent, or LCE, with an average realized price of approximately $20 per kilogram LCE. Realized price was approximately 15% below market pricing due to the dilutive impact of spodumene sales on an LCE basis and the three-month pricing lag for our long-term agreements. See Slide 24 in the appendix for additional information. For the third quarter, net sales and adjusted EBITDA are expected to decrease sequentially due to lower sales volumes and assuming that pricing is lower sequentially for the quarter as it stands today.

Additionally, energy storage margins are expected to decrease sequentially due to the timing of spodumene inventories and also assuming that today's pricing continues for the quarter. As a reminder, it takes approximately four months to ship and process spodumene purchased from the Talison joint venture. In a rising price environment, this creates a margin tailwind as we process lower cost inventory while benefiting from higher selling prices. In a declining price environment, that timing effect reverses and is dilutive to margins. For the full year, energy storage sales volumes are now expected to be in the range of 225,000-235,000 tons LCE or flat to down 4% year-over-year. This reflects the delay in the CGP3 ramp following the June 9 fire, partially offset by better-than-planned production at Wodgina. As Kent mentioned, CGP3 restarted last weekend and is now ramping back up. Turning to Slide 10. We continue to focus on converting earnings into cash, as evidenced by our performance over the last three years.

First half operating cash flow conversion is at the high end of our long-term target range of 60%-70%. In the second quarter, we benefited from increased Talison dividends and non-recurring working capital reductions driven by favorable inventory and accounts receivable. On a full year basis, we still expect cash flow to be impacted by $87.5 million of deferred revenue related to our 2025 customer prepayment, which benefits EBITDA but does not contribute cash, and approximately $100 million of spend related to idling Kemerton Train 1. Slide 11 highlights our continued focus on cost and productivity. Thus far, we have achieved approximately $100 million of run rate savings year to date.

This performance puts us on track to reach the high end of our $100 million-$150 million full year target. Across these gross improvements, roughly 40% has been driven by supply chain and back-office initiatives. The remaining 60% includes manufacturing cost out and incremental volumes and yield. Examples of these productivity improvements include debottlenecking projects at La Negra, JBC, and our lithium conversion sites in China. Importantly, these improvements continue to help us offset the supply chain disruptions and cost inflation related to the situation in the Middle East. I'll turn it back over to Kent to discuss the market outlook.