Executive Summary / Key Takeaways

• Albemarle is executing a strategic pivot, aggressively cutting costs and capital expenditures to enhance financial flexibility and compete effectively through the current downturn in lithium market pricing.
• Despite a significant year-over-year revenue decline in Q1 2025 driven by lower lithium prices, the company demonstrated operational resilience with improved gross profit and reduced operating expenses, reflecting the early benefits of restructuring efforts.
• Strong cash flow generation in Q1 2025, significantly boosted by a customer prepayment and working capital management, supports the company's expectation of achieving breakeven free cash flow for the full year 2025, even with reduced lithium prices.
• Albemarle is leveraging its world-class resources and process chemistry expertise, including advancements in Direct Lithium Extraction (DLE) and conversion optimization, to maintain a competitive edge and preserve optionality for future growth as long-term lithium demand is expected to more than double by 2030.
• The company faces ongoing risks from lithium price volatility and potential impacts from global trade actions, but management is focused on controllable factors and believes its global footprint and contract structure provide a degree of mitigation.

Albemarle: Adapting to a Dynamic Market Landscape

Albemarle Corporation stands as a global leader in transforming essential resources into critical ingredients vital for modern living, underpinning advancements in mobility, energy, connectivity, and health. The company's stated purpose is to enable a more resilient world, a mission increasingly relevant as it navigates a period of significant volatility within its core markets. Albemarle's history reflects a strategic evolution, marked by portfolio adjustments like the divestiture of Chemetall and the formation of key joint ventures such as MARBL Lithium, aimed at focusing its business and strengthening its position, particularly in lithium resources and conversion. This strategic shaping laid the groundwork for a period of ambitious growth investments, which have now been recalibrated in response to challenging market dynamics.

The industry landscape Albemarle operates within is currently defined by stark contrasts. While secular trends driving demand for its products, particularly the global energy transition and the proliferation of electric vehicles (EVs) and grid storage, remain robust, the near-term environment is pressured by a significant decline in lithium market pricing. Global EV sales continue to grow, with China seeing a 41% year-to-date increase in Q1 2025 and North America growing 17%, alongside strong growth in grid storage demand, which now accounts for nearly 20% of lithium demand. However, an oversupply situation, particularly in non-integrated conversion capacity and certain resource types, has driven prices well below levels needed to incentivize new supply investment.

Albemarle's overarching strategy is built upon foundational strengths: its world-class resource base, leading process chemistry, high-impact innovation, customer centricity, and commitment to sustainability. These pillars are intended to provide resilience and competitive advantage through market cycles.

Central to Albemarle's competitive positioning is its technological differentiation, particularly in process chemistry and resource extraction. The company leverages proprietary know-how across its operations, from optimizing brine yields at the Salar de Atacama in Chile, where the Salar yield improvement project is designed to enable up to 20% higher yield, to enhancing efficiency at bromine operations like Magnolia. In lithium conversion, Albemarle's expertise allows for the production of high-purity battery-grade materials. The company is also actively investing in research and development for next-generation technologies, including piloting Direct Lithium Extraction (DLE) solutions at both its Arkansas bromine operations (Smackover formation) and the Salar de Atacama. These DLE efforts, encompassing both proprietary and third-party technologies, aim to unlock greater resource recovery and improve sustainability, particularly critical for leveraging the lowest-cost resource in the Salar. Furthermore, R&D extends to advanced materials for battery components like silicon anodes and lithium metal anodes, targeting enhanced performance metrics for future battery technology. For investors, these technological capabilities represent a crucial competitive moat, potentially enabling lower operating costs, higher product quality, and access to future market segments, positioning Albemarle favorably against rivals whose technological capabilities may be less advanced or diversified.

In the competitive landscape, Albemarle faces direct competition from major players like SQM (SQM) in lithium and FMC (FMC) in specialty chemicals, as well as smaller, regionally focused companies like Piedmont Lithium (PLL) and indirect competition from integrated battery producers like BYD (BYDDY). While SQM benefits from cost advantages in brine extraction and FMC has a diversified specialty chemicals portfolio, Albemarle differentiates itself through its integrated global supply chain, advanced processing technology, and broader product portfolio spanning lithium and bromine. Albemarle's Q1 2025 performance, while showing a revenue decline (-21%) steeper than SQM's (-15%) or FMC's (+2%), demonstrated a significant improvement in gross profit (+301%) and net income (+196%), suggesting its cost reduction efforts are beginning to yield results that differentiate it from competitors facing profitability pressures. The company's focus on customer relationships and reliability of supply, underpinned by its diverse resource base, is a strategic counterpoint to competitors who may be more exposed to regional or single-resource risks.

Performance Reflecting Strategic Adaptation

Albemarle's financial performance in the first quarter of 2025 clearly illustrates the impact of the challenging market environment alongside the initial benefits of its strategic pivot. Net sales decreased by 21% year-over-year to $1.08 billion, primarily driven by the sharp decline in lithium market prices, which significantly impacted the Energy Storage segment's revenue despite stable volumes. However, the company's gross profit saw a dramatic 301% increase to $156.3 million, and the gross profit margin expanded significantly to 14.5% from 2.9% in Q1 2024. This improvement was largely attributable to lower average input costs, particularly for spodumene purchased from the Windfield joint venture, reflecting the pass-through of lower lithium market prices into raw material costs. Higher sales volume in the Specialties segment also contributed positively to gross profit.

Operating expenses saw notable reductions, with Selling, General and Administrative (SGA) expenses decreasing by 23% to $123.5 million and Research and Development (R&D) expenses falling by 40% to $14.1 million. These declines are direct outcomes of the company's cost reduction efforts and restructuring initiatives announced in the latter half of 2024 and early 2025. Restructuring charges and asset write-offs were also substantially lower in Q1 2025 compared to the prior year, benefiting from favorable adjustments related to asset write-offs and contract cancellations at the Kemerton facility.

Despite a net loss attributable to common shareholders of $0.34 million after preferred dividends, Albemarle reported net income attributable to Albemarle Corporation of $41.35 million for the quarter. Adjusted EBITDA for the total segments was $283.6 million, with the Energy Storage segment contributing $186.4 million (down 6% year-over-year), Specialties $58.7 million (up 30%), and Ketjen $38.6 million (up 76%). The Energy Storage segment achieved a strong adjusted EBITDA margin of 36% in Q1 2025, benefiting from lower input costs and a higher proportion of sales under long-term agreements, although this margin is expected to moderate in subsequent quarters as volumes ramp and a greater proportion of sales are tied to prevailing market prices.

The company's focus on enhancing financial flexibility and cash flow generation yielded significant results in Q1 2025. Cash flows from operating activities surged to $545.4 million, a substantial increase from $98.0 million in the prior year quarter. This was primarily driven by the receipt of a $350 million customer prepayment for future spodumene and lithium salts deliveries, alongside increased earnings from the Specialties and Ketjen segments and higher dividends from unconsolidated investments. Operating cash conversion exceeded 200% in the quarter, or 73% excluding the prepayment, demonstrating strong working capital management and operational discipline.

Albemarle's liquidity position remains robust, with $1.52 billion in cash and cash equivalents and $1.5 billion available under its revolving credit facility, totaling $3.1 billion in available liquidity at March 31, 2025. The company's net debt to adjusted EBITDA ratio stood at 2.4x at the end of Q1 2025. Proactive steps were taken in October 2024 to amend financial covenants in the credit agreement, providing increased flexibility to navigate potential impacts from lower lithium prices on earnings metrics. The company believes it is currently in compliance with all debt covenants.

Outlook and Strategic Path Forward

Albemarle is maintaining its full year 2025 outlook considerations, which are based on recently observed lithium market prices and incorporate the anticipated direct impact of announced tariffs. The company provides outlook scenarios based on average lithium carbonate equivalent (LCE) prices of approximately $9/kg, $12-$15/kg, and $20/kg, assuming flat market pricing across the year.

Under these scenarios, the Energy Storage segment's net sales and profitability are expected to decrease year-over-year in 2025 due to lower lithium market prices. However, sales volume is projected to be flat to slightly higher, driven by the ramp-up of production from facilities like Meishan and reduced reliance on tolling arrangements. The segment's adjusted EBITDA margin is expected to average in the mid-20% range for the full year and first half under the $9/kg LCE scenario. The Specialties segment is anticipated to see higher net sales and profitability in 2025, benefiting from a recovery in certain end markets and continued strong demand in others. The Ketjen segment's results are also expected to increase year-over-year due to higher revenues.

A key element of Albemarle's forward strategy is a significant reduction in capital expenditures. The company expects 2025 CAPEX to be between $700 million and $800 million, a decrease of over 50% compared to $1.7 billion in 2024. This disciplined spending prioritizes critical safety and maintenance projects, alongside investments that preserve resource advantages and optimize the conversion network, such as the ongoing Salar yield improvement project and the ramp-up of key conversion sites. This reduced capital intensity, combined with the strong operating cash flow outlook (exceeding 80% conversion in 2025, boosted by the customer prepayment), underpins the company's expectation of achieving breakeven free cash flow for the full year 2025.

The long-term demand outlook for lithium remains a core driver of Albemarle's strategy. The company anticipates global lithium demand growth in the 15% to 40% range in 2025, with a mid-20% growth rate seen as the most likely outcome. Looking further out, demand is expected to more than double from 2024 to 2030, fueled by the accelerating energy transition, particularly in EVs and grid storage. While supply has increased, management estimates that approximately 40% of global capacity is currently operating at or below breakeven, with only about one-third of this having come offline, suggesting that sustained low prices could eventually force more supply curtailments. The company maintains that incentivizing the necessary supply growth to meet long-term demand will require lithium prices well above current spot levels.

Risks to the outlook include continued volatility in lithium market pricing, which could further pressure financial results and potentially impact covenant compliance if prices deteriorate significantly. While direct impacts from announced tariffs are expected to be minimal due to diversification and exemptions for critical minerals, the full economic consequences of global trade actions remain uncertain. Supply chain disruptions and inflationary pressures on input costs also pose potential challenges to operational efficiency and profitability.

Conclusion

Albemarle is navigating a challenging, volatile period in the lithium market by executing a decisive strategic pivot focused on operational excellence, aggressive cost reduction, and disciplined capital allocation. While lower lithium prices impacted Q1 2025 revenue, the quarter's results demonstrated resilience with improved gross profit and reduced operating expenses, signaling the effectiveness of ongoing restructuring efforts. The company's strong cash flow generation, bolstered by a significant customer prepayment, supports its near-term financial stability and the expectation of achieving breakeven free cash flow in 2025, even in the current pricing environment.

The long-term investment thesis remains grounded in the robust demand growth driven by the energy transition, which is expected to more than double lithium requirements by 2030. Albemarle is leveraging its world-class resources, leading process chemistry, and innovation pipeline, including advancements in DLE technology, to maintain a competitive edge and preserve optionality for future growth. By focusing on controllable factors, enhancing financial flexibility, and optimizing its global asset base, Albemarle is positioning itself to compete effectively through the cycle and capitalize on the significant long-term opportunities in its core markets, underpinned by its unique competitive advantages.