Albemarle Corp (ALB) — Q4 2017 Earnings Call Transcript

Thank you, Lisa, and welcome to Albemarle's fourth quarter 2017 earnings conference call. Our earnings were released after the close of the market yesterday. You'll find our press release, earnings presentation, and non-GAAP reconciliations posted on our website under the Investors section at www.albermarle.com. Joining me on the call today are Luke Kissam, Chairman and Chief Executive Officer; Scott Tozier, Chief Financial Officer; Raphael Crawford, President, Bromine Specialties; Silvio Ghyoot, President, Catalyst; and John Mitchell, President, Lithium. As a reminder, some of the statements made during this call about the future reforms of the company may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about forward-looking statements contained in our press release; that same language applies to this call. Also note that our comments today regarding our financial results include non-operating, non-recurring, and other unusual items. GAAP financial measures and reconciliation from those to the adjusted numbers discussed today may be found in our press release and the appendix of our earnings presentation, both of which are posted on our website. Now, I'll turn the call over to Luke.

Thanks, Eric. I look forward to having you on the team. I also want to thank Matt Juneau for his many years of dedicated service to Albemarle and wish him all the best in retirement. Turning to the numbers. The fourth quarter of 2017 capped off a year in which Albemarle continued to deliver on our long-term strategy of growing revenue and EBITDA, generating cash, actively managing our portfolio, and investing in lithium. 2017 adjusted EBITDA from our three GBUs increased by $160 million or 19% compared to 2016. Lithium again delivered strong double-digit adjusted EBITDA growth of 56%, and Bromine adjusted EBITDA increased by 14%. Our adjusted diluted earnings per share grew by 29% compared to 2016. Strong segment cash flows coupled with the sale of the Chemetall Surface Treatment business late in 2016 enabled a significant deleveraging of our balance sheet while still affording us the opportunity to repurchase $250 million of stock and increase our dividend for the 23rd year in a row. Just last week, our board approved the dividend increase for 2008, extending that streak of increasing the dividend to 24 years in a row. At the end of 2017, our net-debt-to-EBITDA ratio stood at 0.9 times. During the fourth quarter, we announced that we entered into a contract to sell our polyolefin catalysts and components business to W.R. Grace for $416 million. This transaction should close in the next few months and will provide additional financial flexibility to support our growth strategies. Our capital spending in 2017 totaled $318 million, with the lion's share deployed in our Lithium business. We made substantial progress on our Wave One projects, and they are all on track. In addition, the Lithium business successfully integrated the Jiangxi Jiangli China asset acquisition and commercialized our La Negra 2 battery-grade production line in Chile. In summary, throughout 2017, we put ourselves in a very strong position to capitalize on the potential and competitive advantages of our Lithium business. As we look to the future, our plan to realize this potential is coming together. We are seeing a significant acceleration of demand and expectations for EV penetrations now range up to the high teens percentage of light vehicle sales by 2025. Our own view of 2025 EV penetration has risen to 12%. That would result in a global lithium market of over 800,000 metric tons, representing a CAGR of about 18% for the 2017-2025 period. We are already seeing this growth reflected in the volume requirements of our customers. In fact, our Wave One capacity additions, which will bring total capacity to 165,000 metric tons, are essentially committed through 2021. As a consequence, we are now at the point where it is critical for us to accelerate our investment in additional capacity ways to meet the needs of our customers while continuing to deliver value to our shareholders. With respect to our Wave One expansion plans, we remain on schedule and currently expect capital spending to be over $1 billion between now and 2021, with about half of that spend in 2018 alone. Projects in this wave include La Negra 3, a 40,000-metric ton carbonate expansion in Chile; Xinyu 2, a 20,000-metric ton hydroxide expansion in China; and a greenfield conversion plant in Western Australia. The first phase of this greenfield site will initially have 40,000 metric tons of conversion capacity, so we will build an infrastructure that is scalable for significant expansion. To address what would otherwise be an oversold position after 2021, we are now accelerating our Wave 2 plan, which will deliver approximately another 100,000 metric tons on an LCE basis early in the next decade. We have already commenced Wave 2 spending on clearly identified projects that include the yield enhancement technology in the Atacama, coupled with a further conversion expansion in Chile, and additional capacity at the Western Australia greenfield site that I just described in order to leverage the growth in hard rock capacity in that region. Finally, we are also in the very early stages of assessing Wave 3 opportunities, which are largely new resources including Kings Mountain, North Carolina; Antofalla, Argentina; and other prospective opportunities in our pipeline. These capital waves collectively imply a significant multi-year deployment of our free cash flow towards growth in Lithium, while maintaining the flexible, investment-grade balance sheet and enabling consistent growth in our dividend. Absent any corporate actions such as M&A or stock buybacks, we would expect to end 2018 at a net-debt-to-EBITDA ratio of around 0.9 times, essentially flat compared to the end of 2017. We are confident in our ability to execute this multi-year capital expansion and preserve the strength and flexibility of our balance sheet. Before I turn the call over to Scott, I want to stress three important points related to this capital deployment. First, we will only build out capacity to meet long-term commitments from our customers. We're not going to be in the business of speculating on demand that might materialize. Second, we have the flexibility to adjust the size and timing of future increments, giving us the ability to modulate the pace of expansion so that some change in demand that may materialize with our customers. Finally, we have the ability to produce both carbonate and hydroxide. Both markets today are growing strongly. But to the extent to which one outpaces the other, we will be able to adjust to meet that demand. Now, I'll turn the call over to Scott.

Thanks, Luke. We ended 2017 with strong performance and great momentum going into 2018. Let me give you some of these details. We reported adjusted earnings per share of $1.34 for the fourth quarter, an increase of $0.56 per share or 72% compared to the fourth quarter of 2016. All of our businesses performed well, providing about $0.50 of that growth. For the full year 2017, we reported adjusted earnings per share of $4.59, an increase of $1.02 or 29%. Growth in Lithium and Bromine accounted for all of that growth. Diluted GAAP earnings for 2017 were $0.49 per share; the largest adjustment to get to adjusted EPS was $3.20 taken during the fourth quarter for discrete tax items related to U.S. tax reform. Debt restructuring cost and acquisition and integration cost were the next largest contributors, totaling $0.54. During the fourth quarter of 2017, as a result of U.S. tax reform, we reported a provisional income tax expense of $429 million for the transition tax and an income tax benefit of $62 million for the reduced U.S. federal corporate tax rate on our existing deferred tax balances, netting to a charge of $367 million. The transition tax will be paid out over eight years. Our effective tax rate, excluding special items, non-operating pension, and OPEB items, ended 2017 at 18.8%. Operating and working capital, which was a use of cash in 2017 compared to 2016, improved to about 24% of sales at the end of the fourth quarter compared to 28% at the end of the third quarter of 2017. Several factors were at work. Net payables increased as capital spending continued to ramp up to support Lithium growth, and working capital related to polyolefin catalysts and components was reduced when this business was reclassified to assets held for sale. Capital expenditures ended 2017 at $318 million, ramping up from $197 million in 2016, reflecting growth capital deployment in our Lithium business. Before I report on our business unit performance, I'd like to remind you that, effective at the beginning of 2018, management of the PCS business was moved from Lithium and Advanced Materials into the Catalyst GBU along with Refining Solutions. I would also like to note that the divestiture of a portion of the PCS division, our polyolefin catalysts and components businesses, is treated as an asset held for sale and therefore will still be part of our reported earnings results through the closing date. And now, to the business results. Lithium and Advanced Materials ended the year with sales of $1.3 billion and adjusted EBITDA of $519 million, increasing by 35% and 43%, respectively, compared to 2016. Lithium full year sales increased by 52% and adjusted EBITDA increased by 56%, with adjusted EBITDA margins of 44%. Volume growth for 2017 was an impressive 24%, with prices improving by 28%, driven by the increasing demand from our contracted customers and the lithium price reset that started in 2016. The fourth quarter adjusted EBITDA margins of 41% marks three full years of consecutive quarters with margins above our guidance of 40%. Discussions with our key accounts to lengthen contract terms continue through year-end 2017, as the market gears up for long-term demand growth linked to EV launch plans and concerns over securing reliable, high-quality supply. PCS ended the year with annual sales of $289 million and adjusted EBITDA of $72 million, down mid-single digits from 2016. In Bromine, full year sales of $855 million and adjusted EBITDA of $259 million were up by 8% and 14%, respectively, compared to 2016. Full year adjusted EBITDA margin was 30%, 164 basis points above 2016. The market for flame retardants, especially in electronics and construction, remains healthy, reflecting the stronger local consumer trends during 2017. The demand for clear brine fluids, which are used for deepwater offshore oil well completions, was about flat compared to 2016. Higher selling prices across certain products resulted from production shortages, particularly out of China. Refining Solutions reported a strong fourth quarter with net sales of $238 million and adjusted EBITDA of $69 million, resulting in an EBITDA margin of 29%. Full-year Refining Solutions sales of $778 million increased by 6% compared to 2016. Adjusted EBITDA was $212 million, down 11%. Hurricane Harvey contributed five percentage points of that decline. During 2017, higher sales volumes in hydroprocessing catalysts, or HPC catalysts, were driven by good demand compared to the prior year. Higher sales to the traditionally lower-margin heavy resid segment, higher input costs, and higher logistics costs resulted in lower adjusted EBITDA for HPC than we saw in 2016. 2017 sales volumes for Fluid Catalytic Cracking, or FCC catalysts, were up with relatively flat pricing across customers and products compared to 2016. Adjusted EBITDA for FCC was negatively impacted by Hurricane Harvey, as well as the timing of customer trials in our max propylene product line during the first half of 2017. These headwinds were partially offset by strength in FCC volumes in North America, where lower margin BTO products are more prominent. Now, I'll turn to 2018. First, I'll frame the impact of tax reform on earnings, capital spending on our free cash flow, and key elements of our balance sheet. Then, I'll turn the call back to Luke to cover the business and our overall company forecast for revenue and earnings growth. While there are certainly long-term benefits to the recently enacted U.S. tax reform, we expect our effective tax rates to increase in 2018 as compared to 2017. There are several components at work. First, our operations in Chile will bear higher income and mining tax rates going forward. Second, we expect our projected geographic revenue mix to be slightly biased toward higher tax rate jurisdictions than in 2017. And finally, based on our current understanding, we anticipate the U.S. tax reform to push our domestic rates slightly higher. As a result of these factors, we currently expect our effective tax rate, excluding special items, non-operating, and pension and OPEB items, to be approximately 23% to 24% in 2018. As Luke earlier described, market demand and customer commitments have resulted in an acceleration of future capital waves to ensure Albemarle meets long-term customer commitments. In total, you can expect capital spending of $800 million to $900 million in 2018, resulting in breakeven to negative free cash flow generation once all other factors are accounted for. Net cash from operations is expected to exceed the $304 million of 2017, ranging between $660 million and $730 million in 2018. In addition to earnings growth, the increase in net cash from operations is expected to benefit from improved working capital and lower cash taxes. Finally, estimating the risk of foreign exchange movements is always challenging and seems even more so in the current global environment. Our 2018 guidance is based on rates close to today's FX rates, an average U.S. dollar to euro exchange rate of $1.23 and an average Japanese yen to U.S. dollar exchange rate of ¥109. Now, I'll turn the call back over to Luke.

Hey. Thanks a lot, Scott. Assuming the economy doesn't suffer a slowdown in 2018 and based upon the current exchange rates, we expect net sales in the range of $3.2 billion to $3.4 billion and adjusted EBITDA of between $955 million to just over $1 billion, a pro forma growth rate of 11% to 17% compared to 2017. This growth would result in adjusted diluted earnings per share between $5 and $5.40. This assumes a March 31, 2018 closing date on the sale of the polyolefin catalysts and components business. We currently expect the cadence of earnings to be slightly lower in the first half of the year versus the second half. Note that the normal fluctuation in our businesses, such as a large HPC order moving from one quarter to another, could have a significant impact on quarterly results. Turning to each of our businesses. With over 1.2 million vehicles sold worldwide, global sales of plug-in hybrids and battery electric vehicles in 2017 increased by 58% compared to 2016, with pure electric vehicles growing faster than plug-in hybrids. A similar growth rate is expected again in 2018. Based on the strong demand from our lithium customers, we expect lithium earnings to increase greater than 20% and adjusted EBITDA margins to average greater than 40% in 2018. We continue to see favorable pricing trends, with overall pricing in lithium expected to increase by high-single digits on a percentage basis relative to last year. Our volumes are fully committed for 2018 and are forecasted to grow at least 10,000 metric tons, driven by growth in battery grade applications. Nice growth is also expected in catalysts, which now includes Refining Solutions and the Performance Catalyst Solutions business. Despite anticipated cost inflation in refinery catalysts, adjusted EBITDA is anticipated to increase by the mid- to high-single digits on a percentage basis compared to 2017. Fluid Cracking Catalysts are forecasted to benefit from strong demand, high utilization rates, and improved product mix with increased sales of our max propylene product line. We also expect a similar trend in Clean Fuel Technology during 2018, with the product mix more skewed towards some of our higher-value products. Though less pronounced than in 2017, we currently forecast a somewhat stronger half of the year in Catalyst. But as always, timing of changeouts in the refineries could impact actual results. After a solid year in Bromine in 2017, we expect 2018 performance to be about flat compared to last year. Though we do expect modest growth in flame retardants, these gains are expected to be offset by higher costs for raw materials, freight, and distribution. As is the case with Lithium, in 2018, our volumes in certain of our Bromine derivatives are fully committed. In closing, our strategy is unfolding as we planned. We exceeded our operational and financial commitments in 2017. Lithium continues to deliver exceptional growth. Our Wave 1 projects are on track, and we're accelerating our Wave 2 and Wave 3 projects to meet the increasing demand from our existing customers. In addition, the steady cash generation in both Bromine Specialties and Catalyst, combined with our strong balance sheet, gives us the ability to generate growth that will deliver superior value for our customers and our shareholders. I have never been more excited about the opportunity that we see in front of us.

Operator, we are ready to open the lines for Q&A. But before you do so, I would remind everyone to please limit your questions to two per person at one time so that everyone has a chance and feel free to get back in the queue for follow-ups. Please proceed, Lisa, with the queue.

Hi. This is Dylan Campbell on for Bob. Good morning. Thanks for the question. On the BEV and PHEV penetration rates last year during an Investor Day, you noted 2.3% and 2.7%, respectively, of your revised outlook. How does your current estimate compare during this 2021 year?

Yeah. Hi, Campbell. This is John. It's a great question. The way we are building up our models right now is really by specific model. And so, we're really looking at the battery systems in each of the models that are announced. As we look at 2017, after 2025, we see the battery side increasing about 40%. So, there is a combination of technologies, as you know, coming out of the market. There have been a few hundred different models announced just in the last six months. So, rather than giving you a split of plug-in hybrids versus battery electric, you really need to break it down model by model. But what I can tell you is that from 2017 through 2025, the kilowatt hours per vehicle escalating in our model is about 40%.

Okay. Thank you. And then, you mentioned kind of EBITDA margins, I mean greater than 40%, which is helpful for 2018. But can you help us understand directionally whether you expect margins to be above or below 2017 levels or any puts and takes that we should be thinking about with the year-over-year bridge for Lithium?

Yeah. This is Scott. So, we're expecting that we'll be above 40%. Don't expect that we'd break 45%. So, again, we'll be in the lower part of that 40% range is what our expectation is right now.

Thank you.

Hi. This is Dan DiCicco on for Arun. Thank you for taking my question. If I could just go back to that first one and maybe ask it another way: your penetration target for 2025, I mean, if I'm correct, that now assumes 70,000 tons of average annual demand growth. And then, your previous forecast to 2021 was for 35,000 tons of average annual demand growth. So, has that accelerated at all, or has that number changed?

Yeah. That's a great question. And your math is right. Back during the Investor Day, our models were looking at incremental LCE growth over the next five years at about 35,000 metric tons per year. Our new demand model suggests it's about 70,000 metric tons per year over the next five years on average. It's an accelerating curve driven by a multitude of factors. The biggest one is really just all the new model announcements by the OEMs. I also want to just mention that from a grid storage perspective, we have very little, almost no incremental demand on the grid storage side in our model right now. So it's being driven by the electrification of the transportation system.

And this is Luke. If I could just add a little clarifying comment on that. Remember, we had said that we expected it on average to increase by about 35,000 metric tons from 2017 to 2021. We'd always said that it would be lower in the early years so that in the out years it would be higher. I think at the Investor Day, we said within those outer years, we'd expect it to be closer to 50,000. What we're saying is if you look at the average penetration rate by 2025, it would be 12%. You will continue on that curve. You ought not look at it as a straight line, but it will have a bell curve going out. So, consistent with what we said in our Investor Day last year, but with an accelerated penetration, thereby driving accelerated demand for our customers. Hope that helps.

Great. Thank you. And just as a follow-up: with you guys accelerating your Wave 2 and Wave 3 investments, does that mean we can expect volumes from these projects sooner? Could that potentially have a negative impact on prices down the road?

Yeah. We've not accelerated – we never said that Wave 2 or Wave 3 will be coming in before 2021, and you should not expect it. That is a post-2021 volume that would come online. And as always, we're going to marginalize it to bring it online to meet the demand of our customers. We're going to build it in 20,000 net ton increments, and we will be able to speed it and slow it based upon the demand that we see with our customers, so I don't see any impact at all on price.

Yes. Hi. Good morning.

Good morning.

So, you expect EV penetration to reach 12% by 2025. What is the cadence of that? Is that front-end loaded? And that's your forecast in demand from automakers. And between you and automakers or the battery guys, is there a choke point in the battery? I mean, is the battery capacity keeping up with the forecast that you have?

Yeah. P.J., this is John. We don't see any indication that there's going to be a choke point in the supply chain to be able to meet the 12% by 2025 right now. From a Lithium supply and demand perspective, when you look at the product that we sell to our end customers, we feel that supply and demand is going to remain in balance at least through the 2021 period.

Okay. And my second question is on Bromine. Can you talk about the Chinese lease parts? Was that related to environmental shutdowns and their starting back up? There was also the water level that rose in China that diluted a lot of production. So, what is going on with these restarts? And can you just give us a little bit more detail on this?

Sure, P.J. This is Raphael. We did see – as you've referenced, there were shutdowns mainly in the third quarter of last year that went into the fourth quarter. Overall, Chinese production was down in the second half of last year, and it was actually down about 10% from a total year-over-year basis. Some of the plants that were shut down for Bromine and actually some of the downstream plants from Bromine production have restarted. Most are expected to come back up by the end of March. That being said, we're watching it closely. We don't know if there's further environmental action that will be taken in China. We do know that overall rates of production in China for bromine, just bromine quality; the quality of the brine concentration has gone down. We are in a little bit of a wait-and-see mode as to what transpires over the year. We have benefited from increased prices for most of our derivative products because of the shortage in bromine supply.

So, this is more on the BFR side and not elemental bromine side? I just want to clarify.

Yeah. It's both. It's both on the elemental bromine side and the downstream on the flame retardants as well. There has been less elemental bromine production as well as downstream production as a result of the shutdowns. There's also, P.J., been less downstream production because the price of bromine has been higher than the historical level. The economics of producing those downstream derivatives competitively in China has shifted. So, it is both the environmental shutdown effect as well as the effect of just overall higher prices. Overall, for the Bromine business, we watch that closely. In the background, we're always working on our own competitiveness with productivity and efficiency to our plants. As it moves up and down, we want to stay competitive in our global markets.

Good morning, everyone. Thank you. Could you discuss your price expectations for lithium for 2018? And then, also if you could offer any view of 2019-2020 price changes?

Yeah. Sure. This is John. So, for 2018, I think it's in the prepared comments, we said that we expect high-single digit pricing for 2018. Longer-term, it was also mentioned previously, we don't see a negative impact on price, and I'll tell you why. At least from an Albemarle perspective, we are focused on long-term partnerships, long-term supply agreements. What the customers are buying from us is reliability and supply, the ability to grow with them to meet market demand, quality assurance that they can put our product into a battery system that's going to last 10-plus years. Based on all those characteristics, we are really bullish in terms of making sure that we're getting a fair value that we're supporting our customers for the significant growth that they have ahead of them. So, that's kind of how I would look at the long term.

Thank you. And then, as a follow-up. I'm just trying to understand the magnitude of CapEx in 2018. If I look at overall Albemarle CapEx, it's rising about $500 million in 2018. If I look on slide 14, Wave One entirely would cost around $500 million. So, maybe what percent of that 2018 Lithium CapEx is dedicated to Wave One versus Wave 2, Wave 3? And also, did you see any escalation in your CapEx costs and your expected manufacturing cost here?

So, the way you should read slide 14 is that the $450 million to $550 million is specific to Wave One build-out, which – our Wave One build-out is an incremental additional 100,000 metric tons. It gets us to 165,000 metric tons on an LCE basis. The $100 million to $125 million, that's CapEx dedicated to the development of Wave 2 and Wave 3 capacity, both on the mining side and also on the refining side.

Hey. Good morning. Luke and John, on the 10,000 tons of volume increase in 2018, will that all come from La Negra? And if it does, will that plant be fully sold out or fully up and running?

So, this is John. David, the incremental 10,000 metric tons—and that's a minimum, that's what we're hoping for—a big portion of that is going to be Chile-based, but there also could be some other volumes out of Asia, China, and Australia as well.

And in terms of...

Go ahead.

Okay. Go ahead. I'm sorry.

And I'm just going to say, in terms of your second question around will La Negra be sold out when we reach peak capacity, there's still some additional room in La Negra. So, we will not be at full capacity, but we're still ramping up to full capacity by the end of 2018.

That's our expectation. It may vary up or down slightly from that. But that's kind of the range that we're expecting right now. And as I look at the implications on the company, while we're expecting flat to slightly negative free cash flow this year, we expect with earnings growth in other initiatives that we'd go free cash flow positive in that timeframe as well, again, contributing to that flexibility of our balance sheet to take more strategic actions.

Yes. Good morning. With regard to your price forecast of a high-single-digit contribution in 2018, would you comment on where your weighted average contract price levels finished last year? Just wondering how much of that price uplift is from roll-through effects on existing contracts versus prospective market movements in pricing.

Well, you can assume that a lot of that, or the majority of that price movement, is based on our long-term agreements because a lot of the volume that we have on the sulfate is more than 80% of our volume based on long-term agreements. So, I think a good assumption is that a majority of the pricing we are getting is embedded in our long-term agreements or a part of our long-term agreements with customers. I think that's probably all I can say about pricing.

Okay. And then, Luke, I think you made a comment that your lithium supply is fully committed through 2021. Please correct me if I'm wrong about that. But I just wondered if you could comment on what that aggregate volume commitment is and in kilotons?

Well, I mean, if you look at it, what we said is we'll bring online. We expect to be at 165,000 metric tons on an LCE basis by 2021. As we build that out, we might not run at 165,000 in 2021 because we'll be ramping up, and we're bringing the last project online in 2021. But we're expanding this capital and spending this capital to meet customer orders. So, you should have anticipation when we bring it online and that we're essentially going to be sold out when we bring it online. We could place it.

Thank you very much. I just want to clarify what you said earlier, which was that you saw the market in balance through 2021. Did you mean to say that it might not be in balance thereafter? And I also heard your comments that you don't see any negative impact to you from price. So, I just wondered if you could just clarify those things to make sure that we all understand what you mean.

Yeah. Vincent, the question was did we have – how do we look at it through 2021, and we said we'd think it will be in balance through 2021. If you look out, we did not mean to imply that there will be an oversupply or an undersupply after 2021. So, please don't read that into it. Again, from our perspective, our long-term agreements allow us to bring this volume online and have the confidence that we're going to be able to place that volume under our existing contracts. So, when we look at it, we believe that the market is going to remain tight. If you look – that’s what the supply chain is saying. If you look at what our customers are willing to do, they’ve entered into long-term agreements and talked about even longer-term agreements. Our customers want the comfort of that reliable supply. If you've read articles in the press about the automobile makers and the OEMs trying to go directly to grab lithium, that tells you the automakers believe that the market is going to be tight, and they want the security in supply that they need to bring their electric vehicles online. What the supply chain is telling us, what the customers are telling us, and what we believe is that this market is going to remain tight for the foreseeable future.

Hey, guys. Nice end to 2017. When you think about your forecast through 2025 and the thought that demand and supply would remain balanced, how much of that supply will come from you and the majors, and how much supply will need to come from China, junior miners, and such?

So, this is John. I always try to put myself in the seat of our customer, and I think when they're building our capacity for the future, they're making commitments to the OEMs. I think they want to rely on a substantial company that has the financial, technical, and operating wherewithal to be able to supply them. Personally, I think that the major producers are going to play a significant role in the market. Not to say that other capacity won't come online, but I think that if I'm sitting in a battery company, I want to rely on those companies that have the capability, skill sets, and financial strength to be able to grow with me and provide me the right molecule at the right time.

Yeah. I mean, I think if you just look at where we are today and look at our 40% margin and you roll that out to somewhere with the volume we have – 40%-plus margin and you roll that out 165,000 metric tons, that's where I would think it would be at least 2 times at a minimum.

Thanks so much. Can you guys talk a little bit about the customer mix for these longer-term commitments from a geographic perspective and how many of them are from auto OEMs versus battery OEMs?

Hi. This is John. The basket of customers that we have are really in the cathode and battery space. Since most of the cathode and batteries are produced in Asia, you can expect that most of them are Asia-based. China, Japan, Korea make up the center and heart of the global battery industry right now. Over time, we see that diversifying into the Americas and into Europe, but that's the current basket. You can also make the assumption that these are the leading names in the space; these are the ones that the OEMs will rely on to advance the technology and be able to supply their new model launches.

Hi. This is Robin on for Joel. When do you guys expect to receive the increased extraction quotas from Corfo? Is there a risk to this considering the upcoming government change?

Hi. This is John. We have a great relationship with Corfo and the Chilean government. These negotiations and getting all the documents in order and following the process they have just take some time. Highly optimistic that we're going to come through with the additional quota. It just makes too much sense for the State of Chile. We are not pumping any more natural resource out of the ground. We're just using a technology to be able to improve yield and generate additional value for the State of Chile and for the community. This is a no-brainer, really. It just takes a little bit of time for us to get the papers in line. So, hopefully, we'll be back here shortly with some good news there.

Okay. Thanks. And just lastly, on Wave 3 expansion, is there a priority between Kings Mountain and Antofalla?

Yeah. We're still assessing that, and the priority will be when you look quantitatively at the resource and the returns that we get, and when you look qualitatively, the ease of getting there. It's a combination, but we haven't finished that assessment yet.

Thanks. Luke, you have a target of 50% of the industry growth in lithium. Do you think that's still the right way to characterize your growth target? Do you need to be more flexible depending on competitor plans? Or do you think it's more important so the competitors know exactly where you're going, so you signal to them exactly what you're going to do?

Yeah. I think that we laid out a target so we could have the growth back whenever we were looking at a much lower growth expectation through now through 2021. Our goal is to be the most profitable lithium business in the world. So, we're not going to chase volume at the expense of value for the company and the shareholders just so we can say we got 50% of the growth. We want to make sure that everybody understands that we have the balance sheet to meet the demands of our customers, and we're going to do it in a way that drives the valuation of the company for all of our stakeholders. So there's no magic number out there other than to be the most profitable lithium company in the world. If you look at our balance sheet, we don't have the need to do that. But we certainly have the flexibility to do it should we have to. We're always looking at our portfolio to understand how we can drive shareholder value. So, if we think we can divest something to drive shareholder value, we'll do it. But we have no need to do it in the short, medium, or long term to achieve our objectives.

I just want to thank everyone for their interest in Albemarle today. I'm sorry we've hit the top of the hour. We look forward to follow-ups and further discussions throughout the balance of the quarter. Thank you. And, Lisa, we can now end the call.