Operator: Hello, and welcome to the AMG Q1 2024 Earnings Call At this time, all parties are in a listen-only mode. Later, you will have an opportunity to ask questions. [Operator Instructions] Please note that this call is being recorded, and I will be standing by should you need any assistance. I would now like to turn the call over to Michele Fischer, Senior Vice President of Communications. Please, begin.
Michele Fischer: Welcome to AMG's first quarter 2024 earnings call. Joining me on this call are Dr. Heinz Schimmelbusch, the Chairman of the Management Board and Chief Executive Officer; Mr. Jackson Dunckel, the Chief Financial Officer; and Mr. Eric Jackson, the Chief Operating Officer. AMG's first quarter 2024 earnings press release issued yesterday is on AMG's website. Today's call will begin with a review of the first quarter 2024 business highlights by Dr. Schimmelbusch. Mr. Dunckel will comment on AMG's financial results, and Mr. Jackson will discuss operations. At the completion of Mr. Jackson's remarks, Dr. Schimmelbusch will comment on strategy and outlook. We will then open the call to take your questions. Before I pass the call to Dr. Schimmelbusch, I would like to expressly refer you to our statement on forward-looking statements and the meaning thereof, as we have used at all previous occasions, and we will use at this earnings call and which explanatory statement has been published as part of our financial presentation and on our website, all in connection with the earnings call. I will now pass the floor to Dr. Schimmelbusch, AMG's Chairman of the Management Board and Chief Executive Officer.
Heinz Schimmelbusch: Thank you, Michele. Marketplaces for our products in our portfolio weakened during Q1 2024 compared to the same period last year. The decrease in adjusted EBITDA compared to Q1 2023 was largely driven by the global decline in lithium and vanadium prices. The average quarterly prices of lithium carbonate and ferrovanadium, which are the material prices that impact our financial results more than any others, decreased 76% and 33% respectively compared to the average Q1 2023 pricing. However, Q1 2024 adjusted EBITDA of $31 million is on track to meet our guidance for the year. Our lithium expansions remain on schedule. In Brazil, the expansion of our lithium concentrate plant from 90,000 tons per annum to 130,000 tons is progressing as planned, and we expect to reach full nameplate capacity in Q4 this year. In Bitterfeld, Germany, our lithium hydroxide refinery first 20,000-ton module is on schedule, both in its advanced commissioning and product qualification process. We plan to ship production batches to clients in Q3 2024. Our low-cost position allows us to endure the current market conditions and prosper considerably at more normalized price levels. AMG vanadium continues to execute its global satellite roasting strategy through the implementation of our recently acquired TTI technology. The vanadium electrolyte plant of AMG Titanium in Nuremburg is in the final stages of completion. We expect to have nameplate capacity available by the second half of this year as part of our vertical integration to LIVA batteries. Last month, we formed NewMOX SAS in France to service the nuclear fuel market. NewMOX is a subsidiary of ALD Vacuum Technologies GmbH, which is based in Hanau, Germany. ALD, our engineering subsidiary focused on vacuum furnace technology includes sintering furnace systems, enabling the production of commercial nuclear fuel from plutonium and depleted uranium, named MOX. ALD's MOX technology has been applied in Germany, United States, France, Belgium and the United Kingdom. And recently, ALD has been delivering such systems to China. AMG LIVA is engaged in the execution of several battery projects to optimize the energy management of industrial plants and incorporate renewable energy sources. In June 2024, we will celebrate the opening of a 4.5 megawatt per hour energy storage system shifting and solar energy for a major industrial client. This system enables 80% self-sufficiency and is also used for peak shaving, process heating and cooling, EV charging and grid services. I will now pass the floor to Jackson Dunckel, AMG's Chief Financial Officer. Jackson?
Jackson Dunckel: Thank you, Heinz. I'll be referring to the first quarter 2024 investor presentation posted yesterday on our website. Starting on Page 3 of the presentation, on the top left, you can see that revenue for the quarter decreased by 21% to $358 million. Q1 2024 adjusted EBITDA was $31 million, compared to $118 million in the same period last year. As Dr. Schimmelbusch mentioned, this decrease was primarily driven by the global decline in metal prices within our portfolio, predominantly the lithium price which saw declines of 76% compared to Q1 2023 pricing. Net loss attributable to shareholders for Q1 2024 was $16 million, compared to a net income of $56 million in Q1 2023. While most of this decline was due to lower profitability in the current quarter, it was exacerbated by three non-recurring items, totaling $12 million. As disclosed in our press release, these were a $7 million intercompany foreign exchange loss, a $3 million lower of cost or market inventory adjustment, and a $2 million one-time-cost incurred during the expansion of our Brazilian spodumene plant. The remainder of the net income loss was driven by our strategic project costs which represent the ongoing investment into our battery-grade lithium hydroxide business and our LIVA battery growth plans. Now I'm going to review our three segments, and I'll start with AMG Lithium, which is shown on Page 4 of the presentation. On the top left, you can see that Q1 2024 revenues decreased 68% versus Q1 2023 to $42 million. This was driven mainly by lithium prices which decreased 76% in the quarter. Q1 2024 gross profit decreased 94% from Q1 2023, due mainly to the decline in lithium price in addition to the unabsorbed fixed costs incurred during the construction of our spodumene expansion project in Brazil. EBITDA for the quarter came in at $6 million. The quarterly CapEx shown in the bottom left of $20 million mainly reflects our investment into the battery-grade lithium hydroxide plant in Bitterfeld, Germany, as well as the expansion of our lithium concentrate capacity in Brazil. Turning now to Page 5 of our presentation, which shows the AMG Vanadium segment. AMG vanadium's revenue for the quarter decreased 15% to $165 million compared to Q1 2023 due to lower sales prices in vanadium and chrome metal, which were partially offset by increased volumes in vanadium. Q1 2024 gross profit was $9 million lower than Q1 2023, due largely to the lower prices. Q1 2024 adjusted EBITDA decreased 29% compared to Q1 2023 to $14 million due to the lower prices versus last year. On a sequential basis, however, it should be noted that Q4 2023 benefited from a $10 million dividend as well as the full year $6 million production credit from Section 45X of the Inflation Reduction Act. Please note, we are accruing the benefit of 45X by quarter during 2024. Moving on to AMG Technologies on Page 6. Starting on the top left, you can see that Q1 2024 revenue increased by $26 million or 21% versus Q1 2023. This improvement was driven by strong revenues in our engineering unit as well as higher sales volumes of silicon. Adjusted EBITDA was $11 million during the quarter compared to $8 million in the prior year. The increase was primarily due to higher profitability in engineering driven by remelting and induction furnace sales and a stronger performance in the aftersales and service division. AMG silicon began operating two of its four furnaces in March, and we plan to run two of the four furnaces for the remainder of the year, although the results remain excluded in EBITDA. Turning now to Page 7 of the presentation. On the top left, you can see that AMG's Q1 2024 SG&A expenses were $45 million versus $40 million in Q1 2023. The variance was largely attributable to higher personnel costs driven by increased hiring in our Lithium, Engineering and LIVA businesses. AMG's net finance cost in Q1 2024 was $15 million compared to $7 million in Q1 2023. The increase was largely driven by a $7 million non-cash intercompany foreign exchange loss that I mentioned at the start of my comments. AMG recorded an income tax expense of $3 million in Q1 2024 compared to $36 million in Q1 2023. This variance was due to lower profitability in the current quarter relative to the same period in the prior year, marginally offset by non-cash deferred tax expenses related to derecognition of certain tax assets. These tax assets were associated with our interest expense carryforwards in our U.S. business as well as loss carryforwards in our German and Dutch entities. AMG paid taxes of $8 million in Q1 2024 compared to tax payments of $21 million in Q1 2023. The reduced cash payments in the current period were largely a result of the decrease in profitability year-over-year, offset by tax payments due in Brazil related to positive results in Q4 2023. Turning to Page 8 of the presentation. You can see on the top left that cash used in operating activities was $15 million in Q1 2024 compared to cash from operating activities of $93 million in the same period in 2023 due to lower profitability in the current quarter. AMG ended the quarter with $381 million of net debt. And as of March 31, 2024, we had $285 million in unrestricted cash and $200 million available on our revolving credit facility. As such, we had $485 million of total liquidity at the end of the quarter. And if you include the $100 million term loan expansion, which closed on April 15, we have close to $600 million in total liquidity. It's worth noting that we fixed our interest rate on the new issuance and now have a blended fixed rate of 5.7% across our bank debt and a blended fixed rate of 5.4% across our entire debt portfolio, including our municipal bond. Given today's interest rate environment, in which three-month U.S. treasury bills yield 5.4%, our low fixed rate interest cost is a huge advantage. That concludes my remarks. Eric?
Eric Jackson: Thank you, Jackson. Although falling prices for lithium and vanadium products negatively impacted our financial performance in the quarter, all of our operating units are performing exceptionally well and as planned. We continued our cost reduction and efficiency programs in the first quarter of 2024 and the execution of our strategic growth projects remains on schedule. Our Brazil lithium operation delivered 15,652 metric tons of lithium concentrate in the first quarter. The average realized sales price was $1,163 per ton CIF China and the average cost was $616 per ton CIF China. Our lithium concentrate plant expansion from 90,000 tons to 130,000 tons is on schedule and ramping up. Second quarter shipping volumes and costs will be similar to the first quarter due to unabsorbed costs during the ramp-up. However, we expect to produce at full 130,000 ton annualized capacity in the fourth quarter, with costs returning to the low $500 per ton area of CIF China. We believe net of co-product credits we are and will continue to be at or near the bottom of the global lithium concentrate cost curve which is an important building block for our lithium vertical integration strategy. AMG's lithium battery-grade lithium hydroxide refinery in Germany is in advanced stages of commissioning and product qualification for the first 20,000-ton module. We will ship production batches for qualification to clients early in the third quarter of this year. AMG vanadium's operations in Ohio continued to perform exceptionally well. Our operational and financial performance far exceeds the performance of our publicly listed competitors as today's market prices are below many of their operating costs. This further validates the value of our environmentally focused recycling business model and is a leading factor in AMG's global lithium strategy. AMG vanadium is presently focused on delivering and executing a global satellite roasting strategy with the implementation of our recently acquired TTI technology. This process technology further diversifies our ability to accept a variety of vanadium bearing materials and supports our vanadium electrolyte expansion in Germany as well as our ferrovanadium operation. The vanadium electrolyte plant is in the final stages of completion. This facility will process spent catalysts to vanadium oxides and further on to vanadium electrolyte. The target capacity is 6,000 cubic meters of vanadium electrolyte, the equivalent of approximately 100 megawatt hours and a vertical integration into our AMG LIVA's batteries. In terms of our Technology segment, AMG Engineering signed $82 million in new orders during the quarter, 8% higher than the first quarter of 2023. This order intake level was driven by strong orders of remelting and turbine blade coating systems as well as spare parts and the service division. We had an order backlog of $300 million as of the end of the quarter, driven by the strong aerospace market and geographic diversification of supply chains. Our overriding objective continues to be the lowest cost, highest quality and most environmentally responsible producer of all of our products, ensuring strong cash flow and profitability even at these cyclical low prices. I would now like to pass the floor to Dr. Heinz Schimmelbusch, AMG's Chief Executive Officer.
Heinz Schimmelbusch: Thank you, Eric. Regarding 2024 outlook, low prices continue for both lithium and vanadium. Utilizing today's price levels, we reiterate that AMG's 2024 adjusted EBITDA will be approximately $130 million. AMG's lithium projects are progressing on schedule, and we expect that they will have a substantial positive impact as market conditions improve. Regarding AMG's five-year guidance, utilizing a variety of price and quantity assumptions with a lithium carbonate equivalent price of $25,000 per ton, we guide to an EBITDA of $500 million or more in five years or earlier. Operator, we would now like to open the line for questions.
Operator: Thank you. At this time, we will open the floor for questions. [Operator Instructions] And we will take our first question from Martijn den Drijver with ABN AMRO.
Martijn den Drijver: Yes, good morning gentlemen. Thank you, operator. I have three questions, if I may. This one is for Eric first. How should we view the phasing of the capacity in Brazil to the nameplate capacity? Will that be linear in Q2, Q3, Q4? Will that be more back-end loaded? Could you share a bit more on that phasing, please?
Eric Jackson: No. As I mentioned, Q2 volumes will be similar to the first quarter and then ramping up reasonably quickly in the third quarter to full capacity in the fourth quarter.
Martijn den Drijver: Okay, clear. And then on the additional $100 million term loan, and then specifically related to the lithium resource development statement, what do you have in mind with regards to that $100 million? What are you going to spend that on? Can you share a bit your thoughts on those plans?
Heinz Schimmelbusch: Well, it's a general observation that when prices are very low, opportunities surface. And we don't have any specific target, but we want to be prepared to react if such things occur.
Martijn den Drijver: And so that includes the whole pallet including a takeover partnership, commercial partnership just on production? Is it – does it run the full gamut of options? Or do you have a specific…
Heinz Schimmelbusch: There is no limit to fantasy here.
Martijn den Drijver: Okay. Thank you. And then the third question with regards to the medium-term guidance. You've given the assumption on the lithium carbonate price $25,000. But is it still including the Brazilian conversion plans and the second train in Germany? Or has there been a change in that scope as well?
Heinz Schimmelbusch: Yes, it does. But this project in Brazil is technically in on a very good shape, highly prepared. What is still optimized is certain site considerations. And of course, that has an impact on timing. But other than that, it is in the five-year plan.
Martijn den Drijver: Okay. And just a small question on AMG lithium. You've given the sales volume and the price, so that's roughly $18 million, $19 million in revenue. You had a bit of tantalum based on a normal quarterly production. That's another $5 million. This is just roughly, I get to $24 million, but you reported $42 million. So what am I missing here? Maybe you can help me out.
Jackson Dunckel: I don't think you're missing anything. I'll go – well, I'll do the numbers and get back to you offline, but I think you're bang on. In terms of 42%, it's 100% accounted for by our Brazilian sales of spodumene plus tantalum. But I'll tie the numbers for you after the call.
Martijn den Drijver: Thank you, Jackson. That's it from my side.
Operator: Thank you. Our next question comes from Krishan Agarwal with Citibank. Mr. Agarwal, your line is open.
Krishan Agarwal: Can you hear me?
Jackson Dunckel: Yes.
Krishan Agarwal: Yes. Thanks a lot for taking my question. I have two, if I may. So the $130 million guidance, I mean, should we assume that the Q1 EBITDA is supposedly across EBITDA because the prices in the spot market has improved somewhat 20%, 25%? So how much of that improvement in the prices is likely to underpin outperformance into the EBITDA guidance or later this year? That's number one. And number two, can you also touch upon the net debt position? I mean, how should we see the progression from here given supposedly the peak of the CapEx would have been already there into the net debt number? How should we look the net debt by year-end? Thanks.
Heinz Schimmelbusch: For the first question as regard to price assumptions, we don't assume any price increase in our 2024 guidance. Noting that the present spot prices are sort of slightly above our price assumptions.
Jackson Dunckel: So the increase is all volume in the back-end of the year. And then in terms of net debt, I think you know we're targeting $125 million of capital expenditures this year, and we are targeting working capital expenditures for our Bitterfeld startup. So we would expect net debt to increase slightly versus today.
Heinz Schimmelbusch: And that is, of course – if there is an acquisition.
Krishan Agarwal: If I can ask a follow-up. So $400 million net debt probably is the highest and obviously understandable because you are into the peak of project execution. Do we see – or is there any kind of a net debt-to-EBITDA target you want to set once the projects are already done in the – let's say, from 2025 onwards? Is there any kind of a thought process going on within the organization as a way to guide the market?
Jackson Dunckel: No. Because obviously, net debt-to-EBITDA is dependent upon lithium price. So we don't actually put out a target for net debt-to-EBITDA. What we have told the market is the maximum net debt-to-EBITDA that we will incur is 2.5x over the medium-term. So we've told that to the rating…
Krishan Agarwal: That's normalized rating?
Jackson Dunckel: Yes. But it's not a target, it's a max.
Krishan Agarwal: Okay. And then there are no covenants as such on your Cambridge loan, the municipal bonds you have or any other loans?
Jackson Dunckel: We have one covenant. It's on our revolving credit facility, and it is a net debt-to-EBITDA covenant of 3.5x. We have no covenants on our municipal bond.
Krishan Agarwal: But rolling 12 months or trailing 12 months?
Jackson Dunckel: Yes, trailing 12 months net debt-to-EBITDA of 3.5x. And that's – I should point out that is net senior secured debt only. So it's only the bank debt, not the municipal bond.
Krishan Agarwal: Okay. Understood. Thanks a lot.
Jackson Dunckel: You're welcome.
Operator: Thank you. [Operator Instructions] And our next question comes from [Vigo Salvasti] with ING.
Unidentified Analyst: Hello. Good morning. And thanks for taking my question. It's Vigo Salvasti from ING on behalf of Stijn Demeester. So I have a few questions. The first one would be whether you can provide some further color on the qualification process of lithium Germany? So did I understand correctly that first test batches will go to customers in Q3? And whether you can then tell how the process will progress from there on and what's the schedule?
Heinz Schimmelbusch: Well, as you know, the qualification process of battery-grade lithium products hydroxide is a very staged and highly disciplined process. We have said that we, in the third quarter will do batches, then the batches are going to the customer. While that happens, the plant is resting. Then if any corrections are necessary, they are being implemented and then the plant is starting full based on the qualification results. So I think that's all we want to say. We have certain assumptions, and that has been specified that we will be reaching full production in the fourth quarter.
Unidentified Analyst: What – full production in the fourth quarter?
Heinz Schimmelbusch: We will reach depending on this qualification. We will reach – we don't say which week we will reach our production. In the first quarter full production will be reached.
Unidentified Analyst: Okay. Thank you. And then just to confirm, on your longer-term guidance of $500 million or more adjusted EBITDA, so does this guidance include one, two or more modules in Brazil – sorry, in Germany?
Heinz Schimmelbusch: It includes two modules.
Unidentified Analyst: Perfect. Thank you very much.
Heinz Schimmelbusch: So the first and the second one.
Unidentified Analyst: Yes. And the final question from my side would be, what was the price assumption – Or can you share what was the price assumption of your previous longer-term guidance of $650 million EBITDA?
Heinz Schimmelbusch: It was somewhat higher than the – it's very easy to bridge. It was – we were – when we gave the guidance of $650 million, we were in a different stratosphere as regard to lithium prices. So we were a little bit optimistic. And when you connect that, then you come to the present guidance.
Unidentified Analyst: Perfect. Thank you very much. That’s all from my side.
Operator: Thank you. There are no more questions at this time. [Operator Instructions] It appears we have no further questions at this time. I'd like to turn and control of the conference back over to our presenters for any additional or closing remarks.
Michele Fischer: Thank you, everyone, for joining the call. Our AGM will be today at 1:00 p.m., and it will be available later, full webcast on our website if you're not able to join. Thank you.
Operator: Thank you, everyone. This concludes today's conference. We appreciate your participation. You may disconnect at any time.
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