Albemarle Reports Second-Quarter Results

ALBemarle Corporation (NYSE: ALB) today announced its results for the second quarter ended June 30, 2021 .

Second Quarter 2021 Highlights
(Unless otherwise stated, all percent changes are based on year-over-year comparisons)

• Net income of $424.6 million , or $3.62 per diluted share, including a gain on the sale of Fine Chemistry Services (FCS) business
• Adjusted diluted EPS of $0.89 , an increase of 4%
• Net sales of $773.9 million , an increase of 1%; Net sales increased 5% excluding FCS
• Adjusted EBITDA of $194.6 million , an increase of 5%; Adjusted EBITDA increased 13% excluding FCS
• Full year 2021 outlook revised to reflect better than expected Lithium performance, lower interest expense and tax rates, offset by higher Bromine raw material costs and supply chain disruptions; guidance updated to reflect sale of FCS
• Completed the sale of FCS on June 1, 2021 , in a cash and stock transaction valued at ~$570 million
• La Negra III/IV commissioning stage in process, commercial production expected to begin in first half of 2022

" Albemarle delivered another strong quarter, generating $195 million in adjusted EBITDA, driven by continued strength in demand for our Lithium and Bromine products," said Albemarle CEO Kent Masters . "We are focused on executing our accelerated growth strategy. We are in the final stages of two lithium projects which are expected to double our nameplate capacity to about 175,000 metric tons, including La Negra III/IV where construction is complete and commissioning is progressing. We are firmly focused on advancing all our lithium projects to meet customer demand and accelerate profitable growth."

Outlook

The company continues to expect a modest improvement in operating performance compared to full year 2020, assuming continued global economic recovery. Full-year 2021 net sales guidance is improved compared to previous guidance primarily due to increased Lithium sales and improving Catalysts trends offset by reduced expectations for the Bromine business as a result of higher raw material costs and supply chain disruptions.  Revised EBITDA reflects higher net sales offset by higher corporate costs, primarily related to incentive compensation expense and foreign exchange.  Higher EPS and net cash from operations reflects lower interest expense and tax rates.  Net cash from operations is also expected to benefit from timing of working capital changes.  Capital expenditures are trending near the high-end of the range, due to tighter labor markets and COVID-related travel restrictions in Western Australia.  Pro forma revised guidance has been updated to reflect the sale of Albemarle's Fine Chemistry Services (FCS) business to W. R. Grace, which closed on June 1, 2021 .

COVID-19 Response

Albemarle's cross-functional Global Response Team continues to meet regularly to address employee health and safety and operational challenges. The company's priority is always the health and well-being of its employees, customers, and communities. The company continues to focus on building in the flexibility needed to adjust for regional differences and changing conditions.

Second-Quarter Results

Net sales of $773.9 million increased by $9.8 million compared to the prior year quarter, primarily driven by an increase in sales from the company's Lithium and Bromine business segments. Excluding the FCS business, net sales for the quarter increased 5% year-over-year.

Adjusted EBITDA of $194.6 million increased by $9.4 million from the prior year quarter based on higher sales and operating margins, partially offset by higher corporate expense primarily related to higher incentive compensation and foreign exchange. Excluding FCS, adjusted EBITDA was 13% higher when compared to the second quarter of 2020. Net income attributable to Albemarle of $424.6 million increased by $339.0 million , benefiting from a $429.4 million ( $331.6 million after taxes) gain on the sale of the company's FCS business.

The effective income tax rate for the second quarter of 2021 was 20.0% compared to 17.5% in the same period of 2020. The difference is largely due to tax expense recorded in the second quarter of 2021 for the gain on the sale of the FCS business. On an adjusted basis, the effective income tax rates were 17.5% and 18.9% for the second quarter of 2021 and 2020, respectively.

Business Segment Results

Lithium

Lithium net sales of $320.3 million increased $36.6 million (+13%) primarily driven by higher volumes (+17%) primarily related to accelerated orders under long-term agreements. Pricing in the quarter was slightly lower year over year (-4%) due to lower average pricing for carbonate and technical grade products. Adjusted EBITDA of $109.4 million increased $14.9 million primarily due to increased net sales and the impact of higher spodumene volumes at the Talison joint venture.

Current Trends: Full-year 2021 volume growth is expected to be in the mid-teens year-over-year due to North American plant restarts, productivity improvements, and tolling. Average realized pricing is expected to increase sequentially but remain flat compared to 2020. Full-year 2021 adjusted EBITDA is expected to grow between 10% and 15% year over year. Full-year 2021 average margin is expected to remain below 35% due to higher lithium costs related to project start-ups and tolling costs partially offset by efficiency improvements.

Albemarle's Wave 2 growth projects continue to progress.  La Negra III/IV is in the commissioning phase and Kemerton I remains on track for construction completion later this year. To mitigate risks related to labor shortages and COVID-19 travel restrictions in Western Australia , the company prioritized completion of Kemerton I, with Kemerton II construction completion now expected by the end of the first quarter 2022. Kemerton I and II are expected to reach commercial production in 2022 following an approximately six month commissioning and qualification period.

Bromine Specialties

Bromine net sales of $279.7 million increased $47.0 million (+20%) with improved pricing (+9%) and volumes (+11%) driven by higher demand across the portfolio.  Adjusted EBITDA of $92.6 million increased $19.6 million due to higher net sales. Cost savings initiatives and higher pricing helped offset raw materials cost increases.

Current Trends: The company expects full-year 2021 adjusted EBITDA growth in the mid-single digits year-over-year, below previous outlook primarily due to a force majeure declaration by our chlorine supplier in the U.S. The company continues to see strength in certain end markets, including electronics, and building and construction. Volumes are also expected to be lower in the second half due to inventory drawdown and reduced production related to the U.S. Gulf Coast winter storms in the first quarter of 2021. Cost savings and higher pricing partially offset inflation in raw materials and freight.

Catalysts

Catalysts net sales of $148.3 million decreased $48.7 million (-25%) compared to the previous year, primarily due to lower volumes (-25%) while pricing was flat. Clean Fuels Technologies (CFT) volumes decreased due to timing of shipments. Fluid Catalytic Cracking (FCC) volumes were down slightly versus prior year, as a change in order patterns from a large North American customer offset generally higher FCC demand.  Performance Catalyst Solutions (PCS) results improved due to product mix. Adjusted EBITDA of $21.2 million declined $1.6 million mostly due to lower sales. Also, second quarter 2020 results were understated by $12.0 million due to an out-of-period correction to cost of goods sold for inventory values.

Current Trends: The company continues to expect full-year 2021 adjusted EBITDA to decline by between 30% and 40%.  Market conditions are improving, but results are expected to be down from prior year primarily due to the impact of the U.S. Gulf Coast winter storm, product mix, and the previously disclosed change in order patterns from a large North American customer.

All Other

Other operations represents the company's recently sold FCS business. FCS net sales of $25.5 million declined $25.0 million and adjusted EBITDA of $8.4 million declined $10.2 million . Second-quarter 2021 results include only two months of performance following the sale of FCS on June 1, 2021 . Albemarle recorded a gain of $429.4 million ( $331.6 million after taxes) related to the sale of the FCS business.

Balance Sheet and Liquidity

As of June 30, 2021 , Albemarle had estimated liquidity of approximately $2.2 billion , including $823.6 million of cash and equivalents, the full $1.0 billion available under the company's revolver, $270.0 million remaining under its delayed draw term loan and $132.0 million on other available credit lines. Total debt was $2.0 billion , representing net debt to adjusted EBITDA of approximately 1.5 times.

Cash Flow and Capital Deployment

Cash from operations for the six months ended June 30, 2021 , of $385.9 million increased $177.9 million versus the prior year driven by working capital inflows and higher revenues in the company's Lithium and Bromine segments. Capital expenditures of $396.9 million decreased by approximately $22.0 million versus the prior year as the company nears completion of its Wave 2 Lithium expansion projects.

Albemarle's primary capital allocation priorities are to grow profitably, fund its dividend, and maintain its financial flexibility and our Investment Grade credit rating.

In May, the board declared a quarterly dividend of $0.39 per share, an increase over the quarterly dividend paid in 2020. This is Albemarle's 27th consecutive year of dividend increases. The share repurchase authorization remains in place; however, the company has no near-term plans to execute share buybacks.

Earnings Call

The company's earnings presentation and supporting material are available on Albemarle's website at https://investors.albemarle.com .

About Albemarle

ALBemarle Corporation (NYSE: ALB) is a global specialty chemicals company with leading positions in lithium, bromine and refining catalysts. We think beyond business-as-usual to power the potential of companies in many of the world's largest and most critical industries, such as energy, electronics, and transportation. We actively pursue a sustainable approach to managing our diverse global footprint of world-class resources. In conjunction with our highly experienced and talented global teams, our deep-seated values, and our collaborative customer relationships, we create value-added and performance-based solutions that enable a safer and more sustainable future.

We regularly post information to www.albemarle.com , including notification of events, news, financial performance, investor presentations and webcasts, non-GAAP reconciliations, SEC filings and other information regarding our company, its businesses and the markets it serves.

Forward-Looking Statements

Some of the information presented in this press release, the conference call and discussions that follow, including, without limitation, information related to the timing of active and proposed projects, product development, production capacity, committed volumes, market trends, pricing, financial flexibility, expected growth, anticipated return on opportunities, earnings and demand for our products, input costs, productivity improvements, surcharges, tax rates, stock repurchases, dividends, cash flow generation, costs and cost synergies, capital projects, future acquisition and divestiture transactions, expected benefits from proposed transactions, economic trends, outlook and all other information relating to matters that are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from the views expressed. Factors that could cause actual results to differ materially from the outlook expressed or implied in any forward-looking statement include, without limitation: changes in economic and business conditions; changes in financial and operating performance of our major customers and industries and markets served by us; the timing of orders received from customers; the gain or loss of significant customers; competition from other manufacturers; changes in the demand for our products or the end-user markets in which our products are sold; limitations or prohibitions on the manufacture and sale of our products; availability of raw materials; increases in the cost of raw materials and energy, and our ability to pass through such increases to our customers; changes in our markets in general; fluctuations in foreign currencies; changes in laws and government regulation impacting our operations or our products; the occurrence of regulatory actions, proceedings, claims or litigation; the occurrence of cyber-security breaches, terrorist attacks, industrial accidents, natural disasters or climate change; hazards associated with chemicals manufacturing; the inability to maintain current levels of product or premises liability insurance or the denial of such coverage; political unrest affecting the global economy, including adverse effects from terrorism or hostilities; political instability affecting our manufacturing operations or joint ventures; changes in accounting standards; the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs; changes in the jurisdictional mix of our earnings and changes in tax laws and rates; changes in monetary policies, inflation or interest rates that may impact our ability to raise capital or increase our cost of funds, impact the performance of our pension fund investments and increase our pension expense and funding obligations; volatility and uncertainties in the debt and equity markets; technology or intellectual property infringement, including cyber-security breaches, and other innovation risks; decisions we may make in the future; the ability to successfully execute, operate and integrate acquisitions and divestitures; uncertainties as to the duration and impact of the coronavirus (COVID-19) pandemic; and the other factors detailed from time to time in the reports we file with the SEC, including those described under "Risk Factors" in our most recent Annual Report on Form 10-K any subsequently filed Quarterly Reports on Form 10-Q. These forward-looking statements speak only as of the date of this press release. We assume no obligation to provide any revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

Albemarle Corporation and Subsidiaries
Consolidated Statements of Income
(In Thousands Except Per Share Amounts) (Unaudited)

Albemarle Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands) (Unaudited)

Albemarle Corporation and Subsidiaries
Selected Consolidated Cash Flow Data
(In Thousands) (Unaudited)

Albemarle Corporation and Subsidiaries
Consolidated Summary of Segment Results
(In Thousands) (Unaudited)

See accompanying non-GAAP reconciliations below.

Additional Information

It should be noted that adjusted net income attributable to Albemarle Corporation, adjusted diluted earnings per share, non-operating pension and OPEB items per diluted share, non-recurring and other unusual items per diluted share, adjusted effective income tax rates, EBITDA, adjusted EBITDA, EBITDA margin and adjusted EBITDA margin are financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the United States , or GAAP. These non-GAAP measures should not be considered as alternatives to Net income attributable to Albemarle Corporation ("earnings") or other comparable measures calculated and reported in accordance with GAAP. These measures are presented here to provide additional useful measurements to review the company's operations, provide transparency to investors and enable period-to-period comparability of financial performance. The company's chief operating decision maker uses these measures to assess the ongoing performance of the company and its segments, as well as for business and enterprise planning purposes.

A description of other non-GAAP financial measures that Albemarle uses to evaluate its operations and financial performance, and reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP can be found on the following pages of this press release, which is also is available on Albemarle's website at https://investors.albemarle.com . The company does not provide a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP, as the company is unable to estimate significant non-recurring or unusual items without unreasonable effort. The amounts and timing of these items are uncertain and could be material to the company's results calculated in accordance with GAAP.

ALBEMARLE CORPORATION AND SUBSIDIARIES
  Non-GAAP Reconciliations
  (Unaudited)

See below for a reconciliation of adjusted net income attributable to Albemarle Corporation, EBITDA and adjusted EBITDA, the non-GAAP financial measures, to Net income attributable to Albemarle Corporation ("earnings"), the most directly comparable financial measure calculated and reported in accordance with GAAP. Adjusted earnings is defined as earnings before the non-recurring, other unusual and non-operating pension and other post-employment benefit (OPEB) items as listed below. The non-recurring and unusual items may include acquisition and integration related costs, gains or losses on sales of businesses, restructuring charges, facility divestiture charges and other significant non-recurring items. EBITDA is defined as earnings before interest and financing expenses, income taxe expense, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus or minus the non-recurring, other unusual and non-operating pension and OPEB items as listed below.

See below for a reconciliation of adjusted EBITDA on a segment basis, the non-GAAP financial measure, to Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with GAAP (in thousands, except percentages).

Non-operating pension and OPEB items, consisting of mark-to-market actuarial gains/losses, settlements/curtailments, interest cost and expected return on assets, are not allocated to Albemarle's operating segments and are included in the Corporate category. In addition, the company believes that these components of pension cost are mainly driven by market performance, and the company manages these separately from the operational performance of the company's businesses. In accordance with GAAP, these non-operating pension and OPEB items are included in Other income (expenses), net. Non-operating pension and OPEB items were as follows (in thousands):

In addition to the non-operating pension and OPEB items disclosed above, the company has identified certain other items and excluded them from Albemarle's adjusted net income calculation for the periods presented. A listing of these items, as well as a detailed description of each follows below (per diluted share):