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Livent Corporation

First Quarter 2020 Earnings Call Script

May 11, 2020

As Prepared for Delivery

Q1 2020 Conference Call

Introduction – Daniel Rosen

Thank you, Tina. Good evening everyone and welcome to

Livent’s first quarter 2020 earnings call. Joining me today

are Paul Graves, President and Chief Executive Officer

and Gilberto Antoniazzi, Chief Financial Officer.

The slide presentation that accompanies our results, along

with our earnings release, can be found in the Investor

Relations section of our website. The prepared remarks

from today’s discussion will be made available after the

call.

Following our prepared remarks, Paul and Gilberto will be

available to address your questions. We would ask that

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any questions be limited to two per caller. We would be

happy to address any additional questions after the call.

Before we begin, let me remind you that today’s

discussion will include forward-looking statements that are

subject to various risks and uncertainties concerning

specific factors, including but not limited to those factors

identified in our release and in our filings with the

Securities and Exchange Commission. Information

presented represents our best judgment based on today’s

information. Actual results may vary based upon these

risks and uncertainties.

Today’s discussion will include references to various non-

GAAP financial metrics. Definitions of these terms, as well

as a reconciliation to the most directly comparable

financial measure calculated and presented in accordance

with GAAP, are provided on our investor relations website.

And with that, I’ll turn the call over to Paul.

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Livent Operational Response to COVID-19 Slide 3: Paul Graves

Thank you, Dan, and good evening everyone. There are a

few key topics we want to address today, all of which will

be discussed in the context of the novel coronavirus

pandemic and its current and potential future impact on

Livent. Before doing so I would like to give a special

thanks to all of our Livent employees around the world.

Their hard work and resilience have allowed us to

maintain a safe and healthy working environment, while

continuing to operate and serve our customers. We have

asked a lot of them, and truly appreciate their focus and

commitment during these challenging times for us all.

To begin, we are pleased to state that all of our production

facilities around the world are fully operational. Apart from

a two-week stoppage in Argentina due to a mandatory

national quarantine, and an extended lunar new year

break in China at the beginning of the COVID-19 outbreak,

all of our sites have continued to operate, albeit with

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additional health and safety protocols. Our ability to

operate through the pandemic has been a testament to

the strong and dedicated teams we have in place around

the world.

Second, as the coronavirus began to spread outside of

China, it became clear to us that the potential impact on

our business, as well as the broader market, would require

us to take a more disciplined approach to cash flow

management and liquidity. In March, we made the

decision to suspend all capital expansion work globally.

This action allows us to cut our forecasted capital

spending in 2020 by half, to approximately 115 million

dollars. While we remain fully committed to our long-term

capacity expansion plans, temporarily suspending all

capital projects was the prudent decision to take in the

current environment. In addition, we worked closely with

our relationship lenders to amend our credit facility and

increase our maximum allowed net leverage to 6 times

EBITDA through 2020, versus 3.5 times previously. We

believe this amendment to our revolver will provide ample

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liquidity through the challenging near-term environment.

Gilberto will provide more details in his comments.

And third, we will share our latest views on the lithium

market. Specifically, what the coronavirus pandemic has

done so far, what we expect the impact to be in 2020, and

potential longer-term implications.

Starting on slide 3 of our prepared slides, given Livent’s

presence in China, and Asia more broadly, we have been

addressing the coronavirus outbreak since early February,

when we formed a regional pandemic response team and

implemented various actions to keep our employees safe.

By taking decisive early steps and diligently monitoring the

situation, we were able to safely resume operations in

China following the extended lunar new year holiday. This

early start also meant we could react quickly and

confidently at our sites outside of China once it became

clear that we needed to do so. We maintain the same

safety protocols today and have been able to run without

any major issues in China since then. Even during the

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period when there were significant logistical challenges in

moving people and products across provincial borders in

China, we were able to leverage our global supply chain to

minimize disruption in delivering products to customers.

Informed by our experience in Asia, Livent was able to

quickly form a Global Pandemic Response Team in early

March when the worldwide spread and severity of the

virus became clear. Since then, we continue to prioritize

the safety and well-being of our employees, customers

and communities around the world.

We also took actions to safely keep all of our

manufacturing sites running. Many of the lithium products

we make are essential, not only in energy storage, but in

critical applications that the world needs now more than

ever – from pharmaceutical ingredients and industrial

disinfectants, to components used in vital medical

equipment. To ensure that we could continue operations

without compromising on health and safety, we worked

closely with local and national authorities and our

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employees to develop and institute strict procedures on a

site-by-site basis. These includes visitor and medical

screenings, essential person designations, split shifts and

social distancing measures.

Our collaboration with the provincial and federal officials in

Argentina during the mandatory countrywide quarantine

reflects Livent’s level of preparedness and commitment to

responsible operations. We worked closely with the

Argentine government to develop and administer a safe

and practical set of protocols to resume local operations

after only two weeks of downtime. Since then, we have

been operating at the salar and our processing facilities

without incident.

We have also used this pandemic as an opportunity to

further engage with and support our local communities.

From donating Personal Protective Equipment in the UK to

providing support for medical personnel and ambulance

services and essential air transportation in Argentina, we

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are grateful to be in a position to help those in our

communities.

COVID-19 Impact on Lithium Industry Slide 4: Paul Graves

Now on to the current impact of COVID-19 on the lithium

industry. I will attempt not to speculate too much, but will

instead focus on what we are actually seeing today. First,

there is reduced visibility in our ability to forecast near-

term lithium demand. And by this, I mean the remainder of

2020. A large part of this can be attributed to the broad

disruption to the auto market and the implications of

prolonged OEM plant shutdowns. World passenger

vehicle sales declined by 24% in the first quarter, and

while electric vehicle penetration rates have been notably

higher, total volumes were negatively impacted.

The timing, duration and overall impact of the coronavirus

has also varied greatly by region. For example, in the final

week of April, Chinese retail auto sales improved to

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roughly flat year-over-year after being down as much as

40 percent earlier in March. Further, China’s new energy

vehicle sales surged just over 300 percent month-over-

month to 53,000 units in March, despite being down

roughly 55 percent year to date versus last year.

Meanwhile, many OEM plants in Europe and the U.S.

remain shut down due to government restrictions, with the

second quarter expected to be the most impacted. Just as

important, the average consumer is clearly not spending at

anything like pre-COVID levels, and this is especially true

for larger items such as autos.

It is difficult to predict how quickly consumer spending will

rebound, or when manufacturing and supply chains will

return to prior levels of activity. While we remain in close

contact with customers regarding volume needs for the

remainder of this year, it is still unclear whether some

demand will be recovered in the second half of 2020 or

pushed out further. This is amplified in an environment

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where there is understandably more focus on managing

working capital than building inventory at our customers.

Delays in restarting manufacturing plants may result in

upcoming electric vehicle launches being delayed by

several months. However, from a fundamental standpoint,

we have not seen any evidence of OEMs pulling back

from their electrification objectives, or substantially altering

their line-up of EVs for launch. In fact, we have seen

certain OEMs use this as an opportunity to engage more

directly on key aspects of their electric vehicle supply

chain, from taking a greater interest in the location of

sourcing and manufacturing sites to setting more stringent

standards for quality and sustainability.

With a heightened focus on managing capital and R&D

spend, we are seeing OEM development efforts go

towards platforms that will be attractive and sustainable

over a long period of time. Put another way, we see

OEMs allocating their own scarce resources towards

future EV platforms rather than historical ICE technologies

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or projects with uncertain commercial models, such as

autonomous driving.

Moving to the lithium market, we entered this year in a

general state of oversupply, albeit with a wide range of

quality capabilities on the supply side. The near-term

slowdown in demand, driven by the coronavirus, put

additional downward pressure on pricing. This was

particularly evident in shorter-term uncontracted markets

such as China, which was fed by a continued oversupply

of spodumene concentrate, especially that shipped in prior

quarters which has been sitting in China waiting to be

processed. There was also little urgency from customers

to take their share of annual volume commitments in the

first quarter, or enter into new agreements, given the

broader market uncertainty. We expect this dynamic to

continue through the middle of this year as customers

resume production and work to assess the impact on their

own near-to-medium term end-market demand.

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Last quarter, we discussed industry-wide postponed or

cancelled lithium capacity expansion projects, as well as

announced output reductions as a result of weaker pricing.

This trend continues, with sustained lithium pricing

pressure and near-term demand weakness due to the

coronavirus. Production declines to date have still been

relatively modest, reflecting the incentive for many higher

cost producers to continue covering their cash costs in the

hopes of remaining in operation until the market improves.

However, we believe this is not feasible over an extended

period and we expect to see further reductions in

production in the coming months. Additionally, there have

been challenges for lithium projects already in

development, with coronavirus-related supply chain and

government restrictions further delaying the time expected

to bring them into production.

More importantly though, the growing number of cancelled

or postponed expansion projects will have broader

implications for the industry as we move beyond 2020.

These announcements have come from all geography and

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resource types, as well as new and established industry

players. In aggregate, we have seen over 400 thousand

tons worth of expansion delays or cancellations in both

lithium carbonate and hydroxide over the last few quarters.

Current lithium prices have severely challenged any

reasonable investment return hurdles, and several notable

distressed lithium assets have illustrated the limited to

non-existent financing options in today’s market.

While near-term lithium demand forecasts have

significantly widened due to the current uncertainty in the

market, positioning from governments and global OEMs

continues to support demand levels in 2022 and beyond

that have not materially changed from prior expectations.

So as demand picks up as the global business

environment normalizes and electric vehicle production

accelerates, we believe there will be a much more rapid

tightening of the supply-demand balance than we would

have predicted just a few months ago.

I will now turn the call over to Gilberto.

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Reported Financial Results

Slide 5: Gilberto Antoniazzi

Thank you, Paul, and good evening everyone. Turning

now to Livent’s first quarter performance.

For the first quarter of 2020 we reported revenue of $69

million dollars, Adjusted EBITDA of $9 million and adjusted

earnings per share of 2 cents. Our results reflected a

challenging operating environment for both Livent and the

lithium industry as a whole.

Q1 2020 vs. Q4 2019 Financial Bridges

Slide 6: Gilberto Antoniazzi

The decline in revenue was driven by lower sold volumes,

most notably in China, and lower average pricing. There

were some deferred purchases from customers as they

work to limit inventory build-up while assessing the impact

of the crisis on their end-market demand. Margins were

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impacted by lower pricing and hydroxide sales using third-

party purchased lithium carbonate. We expect the margin

impact from hydroxide sales using third-party purchased

carbonate to be notably higher in the first half of 2020 as

we work through the roughly 4,000 tons of hydroxide

inventory carried forward from 2019.

Reduced Capital Spending

Slide 7: Gilberto Antoniazzi

Moving now to Livent’s liquidity position. As Paul

mentioned earlier, when the coronavirus began to spread

outside of China, Livent recognized the inherent

uncertainty impacting the global economy and the need for

an increased focus on liquidity and cash flow

management. Our first public action was in March, when

we announced the suspension of all capital expansion

work globally. We cut projected capital spending for 2020

in half, to approximately 115 million dollars, reflecting the

decision to pause expansion work in both Argentina and

Bessemer City, North Carolina. Quarterly spending for the

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rest of the year will come down significantly from the first

quarter. The decision to halt expansion was not made

until well into the first quarter and since then we have

been focused on stopping key project items at strategic

points that will allow us to resume work as quickly and

cost effectively as possible. We remain confident in

continuing to fulfil orders from our customers in the interim

and remain committed to our long-term capacity

expansion goals. While we cannot currently provide a

specific date for when we intend to resume expansion, it is

unlikely that it will be before the industry returns to more

normalized conditions.

Enhanced Liquidity Profile

Slide 8: Gilberto Antoniazzi

With respect to our balance sheet, we worked closely with

our relationship lenders to amend Livent’s existing credit

facility to provide sufficient liquidity to support operations

during this time of uncertainty. We have increased the net

leverage covenant limit on our revolver, allowing for up to

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6 times EBITDA through 2020, versus 3.5 times

previously. This higher leverage limit provides a safeguard

against COVID-19 stress-case scenarios that we have

evaluated. We will also remain focused on reducing

spending in all non-essential areas while diligently

managing working capital.

Looking beyond 2020, we continue to work with our

lenders to evaluate alternative debt structures beyond our

existing 400 million dollar revolver maturing in 2023 that

better support Livent’s long-term capital requirements.

To conclude my remarks, I want to address the topic of

guidance. In light of the evolving impact of coronavirus

pandemic and the broader uncertainty in the global

economy, Livent withdrew its previously issued full-year

2020 guidance in early April. Following the two weeks of

stoppage in Argentina, we now expect lithium carbonate

production volumes to be flat in 2020 year-over-year. We

plan to sell all 4,000 tons of hydroxide inventory that we

carried into 2020, and will run our hydroxide operations

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this year with the intention of meeting all customer

demands while minimizing third-party carbonate

purchases. We will not look to build any inventory in

speculation of a rebound in demand. We intend to provide

an updated financial outlook once we have a greater

visibility.

With that, I will now turn the call back to Paul.

Longer-Term Market Outlook

Slide 9: Paul Graves

Thank you, Gilberto. I want to conclude by looking beyond

the near-term challenges to focus on some of the longer-

term themes that continue to hold true in our industry.

While there is uncertainty around near-term lithium

demand and the implications of a coronavirus-led

downturn on electric vehicle sales, there is no indication

that the longer-term push to electrification has

meaningfully changed. We do not believe the key

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fundamentals that are driving the shift to electric vehicles

have changed. These fundamental drivers include strong

regulatory support around the world – for cleaner air and

to fight climate change – as well as advancements in

battery technology and increased manufacturing scale that

will bring EVs towards cost parity with internal combustion

engine vehicles.

In another display of commitment to the industry, the

Chinese government recently announced that new energy

vehicles bought in 2021 or 2022 will be exempt from

federal purchase taxes. The government also extended

the NEV subsidy program through 2022 from its previous

2020 expiration, although it is stepping down subsidies

over that time frame. And in Europe, despite auto sales

being down significantly year-to-date, EV penetration rates

are at all-time highs as we move closer to CO2 emission

compliance dates.

The shift to increased use of lithium hydroxide also

continues, in both the cathodes of electric vehicles and

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energy storage more broadly. With respect to high nickel

cathode technologies, which require lithium hydroxide,

there has been an increased focus on chemistries beyond

NCM 811. Additional developments and success have

come from the use of NCA, NCMA and other blends

incorporating higher nickel content.

There have been recent announcements of several new

electric vehicle models in China using LFP-based

cathodes. However, higher use of this legacy cathode,

which can use carbonate or hydroxide, is in no way

contradictory to the trend of higher hydroxide demand.

We have always stated that not all energy storage

applications will have performance specifications requiring

high-nickel cathodes. This can include shorter-range and

commercial vehicles, mobile devices or stationary storage

applications, to name a few. As battery technology

continues to improve, and premier global OEMs roll out

larger electric vehicle platforms, we still project that

hydroxide demand will grow at a higher year-on-year rate

than carbonate and make up an increasing share of the

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energy storage market. With that said, we continue to

operate and plan under the assumption that both products

will be of critical importance for long-term energy storage

solutions.

Finally, given the significant reduction in announced

development and expansion plans, there is greater

uncertainty over where the supply of lithium to meet future

demand will come from over the medium to long-term.

While near-term demand uncertainty is the current issue

that most industry players are focused on, the debate will

ultimately be drawn back to supply. And this period of

depressed lithium pricing over the last few quarters has

made clear the challenges that the current industry-wide

business model is creating for the future of our industry.

As auto OEMs have become more directly involved in the

electric vehicle supply chain, there has been a heightened

focus on ensuring that not only are supply partners fully

integrated between lithium chemicals and resource, but

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that there is a path to increasing capacity to meet higher

qualified demand needs over time.

However, at current average market prices, and by that I

mean the blend of prices across all geographies, not just

the unsustainably low prices we see in the China market,

there are little to no lithium development projects out there

that can be considered economically viable when looking

for a reasonable return on invested capital. In fact, at

these prices the majority of lithium projects do not even

cover their cost of capital. In order to ensure that lithium

supply continues to grow and keep up with accelerating

future demand, there must be greater predictability in

pricing or firmer longer-term commitments from customers

before our industry can start to invest for growth again.

In addition, OEMs have placed greater importance on

where their lithium is being produced for a number of

reasons. The disruption to global supply chains from the

spread of the coronavirus has reinforced the importance of

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not being reliant on a single region to meet supplier needs

and the benefits of “localizing” parts of production.

China and greater Asia represent a significant portion of

the energy storage supply chain today, so the impact on

the lithium industry has been more visible from the onset

of the pandemic. Livent’s ability to serve customers with

lithium products from a global manufacturing network, with

hydroxide from both the U.S. and China, as well as the

security of supply that comes from our ability to use third-

party material in our hydroxide production, has been

particularly valuable to our customers. And while most

recent lithium compound production capacity has been

built in China due to lower capital cost, the importance of

alternate EV supply chains that do not run through China

is growing.

The localization element of OEM focus is also rooted in

sustainability objectives, and we expect this to be

magnified as EV models are rolled out on a larger scale,

and especially as the number of electric vehicles sold in

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Europe increases. And with carbon-conscious principles

in part behind the transition to electric vehicles, we believe

there will be a bigger push to reduce the carbon-intense

practice of shipping unfinished raw materials or

intermediate products to multiple locations around the

world. Livent has been sharply focused on its own global

footprint as a standalone company since the time of its

IPO. As part of these efforts, we will be launching our

revised sustainability program, as well as outlining our

broader ESG framework, as part of a series of releases to

be provided throughout this year.

In closing, as Livent looks beyond current market

conditions, we believe that our core advantages – the low-

cost and sustainable nature of our brine-based operations,

our partnerships with leading battery producers and

automotive OEMs, and our continued investment in

developing next generation engineered lithium products –

position us to be a prime beneficiary of the return to

improved lithium market dynamics.

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I will now turn the call back to Dan for questions.

Q&A Intro – Daniel Rosen

Thank you, Paul. Tina, you may now begin the Q&A

session.

Closing