Albemarle - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $1.08B with adjusted EBITDA of $267M; adjusted diluted EPS was ($0.18). Results reflected lower lithium pricing offset by cost actions and Specialties volume growth; FY25 outlook ranges were maintained despite newly announced tariffs.
• Versus Wall Street consensus (S&P Global), ALB missed revenue but delivered a meaningful EPS and EBITDA beat: revenue $1.08B vs $1.16B*, adjusted EPS ($0.18) vs ($0.68), and adjusted EBITDA $267M vs $206M; Q1 EBITDA margin expanded to 24.8% from 20.4% in Q4.
• Energy Storage net sales fell 35% YoY on pricing (-34%), but Q1 EBITDA margin reached 36% on lower input costs and long-term contracts; management expects Q2 margins to be lower on mix, with H1 and FY25 averaging mid-20% assuming $9/kg LCE.
• Cash from operations was $545M (204% OCF conversion); excluding a $350M customer prepayment, conversion was 73% and free cash flow was slightly positive; liquidity was ~$3.1B and net debt/adj. EBITDA at ~2.4x.
• Board declared a $0.405/share quarterly dividend (annualized $1.62), marking the 126th consecutive dividend; payable July 1, 2025 to holders as of June 13, 2025.

What Went Well and What Went Wrong

• What Went Well

  • “Our business continues to perform in line with our outlook…first-quarter adjusted EBITDA of $267 million with strong year-over-year improvements in Specialties and Ketjen” — CEO Kent Masters.
  • Reached ~90% run-rate against midpoint of $350M cost/productivity target; identified opportunities to reach the high end of the $300–$400M range.
  • Energy Storage EBITDA margin was 36% in Q1, supported by lower input costs and a higher proportion of long-term contracts with floors.

• What Went Wrong

  • Net sales declined 21% YoY to $1.08B, driven by lower lithium pricing in Energy Storage; segment net sales fell 35% YoY.
  • Management guided Q2 Energy Storage margins below Q1 as mix shifts to more spot/market-priced volumes; H1/FY25 expected to average mid-20% margins at $9/kg LCE.
  • JV equity income declined YoY; corporate EBITDA impacted by FX loss versus last year’s gain.

Transcript

Operator (participant)

Hello, and welcome to Albemarle Corporation's Q1 2025 Earnings Call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.

Meredith Bandy (VP of Investor Relations and Sustainability)

Thank you, and welcome everyone to Albemarle's First Quarter 2025 Earnings Conference Call. Our earnings were released after market close yesterday, and you'll find the press release and earnings presentation posted to our website under the Investor section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer, and Neal Sheorey, Chief Financial Officer. Netha Johnson, Chief Operations Officer, and Eric Norris, Chief Commercial Officer, are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance, and strategic initiatives, may constitute forward-looking statements.

Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation. That also applies to our call. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in the earnings materials.I'll turn the call over to Kent.

Kent Masters (Chairman and CEO)

Thank you, Meredith. For the first quarter, we reported net sales of $1.1 billion, including increased specialties volumes and record lithium production from our Integrated Lithium Conversion Network. Adjusted EBITDA was $267 million, reflecting strong year-over-year improvements in specialties and catalysts. We generated $545 million in cash from operations, achieving an operating cash conversion rate exceeding 200%. We are maintaining our 2025 outlook considerations based on recently observed lithium market prices.

These considerations include the anticipated direct impact of tariffs announced to date. Note that the direct impact of tariffs is expected to be minimal, as Albemarle benefits from global diversification and current exemptions, particularly for critical minerals such as lithium salts and spodumene. Neal will provide more details on this later in the call. Regardless of shifts in the external market environment, Albemarle remains focused on controllable factors to ensure competitiveness through the cycle.

To that end, we continue to act decisively across four key areas: optimizing our conversion network, improving cost and productivity, reducing capital expenditure, and enhancing financial flexibility. For example, through April, we achieved approximately 90% run rate to get to the midpoint of our $350 million cost and productivity improvement target, and our team has identified opportunities to reach the high end of the $300-$400 million range. This includes incremental volume improvements as we ramp our new facilities and cost savings from placing our Chengdu site on care and maintenance.

This quarter, we are also providing updated forecasts for global lithium market demand and supply. We anticipate global lithium demand growth in the 15% to 40% range in 2025, depending on tariff impacts, policy changes, and macroeconomic trends.

Longer term, we expect the lithium demand outlook to remain robust, more than doubling from 2024 to 2030, driven by the energy transition and global demand for electric vehicles and grid storage. Incentivizing supply growth requires long-term lithium pricing well above current spot prices. Now I'll turn it over to Neal, who will provide more details on our financial performance and outlook considerations. I will conclude our prepared remarks with further details on our lithium market forecast before opening the call for Q&A.

Neal Sheorey (EVP and CFO)

Thank you, Kent, and good morning, everyone. I will begin with a review of our first quarter financial performance on slide five. We reported first quarter net sales of $1.1 billion, which were lower year-over-year, mainly due to lower lithium market pricing. The pricing decline was partially offset by higher volumes and specialties. Energy storage volume was flat year-over-year as we optimized our own lithium conversion network and reduced the need for tolling volumes. First quarter adjusted EBITDA was $267 million, down 8% year-over-year, as lower input costs and ongoing cost and productivity improvements partially mitigated the impact of lower lithium pricing and reduced JV pre-tax equity earnings.

Our focus on cost is showing through in the improved quality of our business, evidenced by our adjusted EBITDA margin improving by approximately 400 basis points year-over-year. Earnings per share was break-even in the first quarter.

Adjusted diluted earnings per share was a loss of $0.18 after preferred dividends and excluding discrete tax items and other non-recurring factors. Slide six highlights the drivers of our year-over-year EBITDA performance. As I mentioned, specialties drove the volume benefit, while energy storage volume remained stable due to ramping conversion plants balanced by lower tolling volumes. Q1 adjusted EBITDA was down slightly due to lower lithium pricing and pre-tax equity income, partly offset by reduced COGS from lower cost spodumene. Our SG&A costs were down more than 20% year-over-year due to our restructuring and cost savings initiatives.

Adjusted EBITDA increased by 30% in specialties and 76% in Ketjen year-over-year. Corporate EBITDA declined due to a foreign exchange loss compared to last year's gain. Turning to slide seven for an update on the recently announced tariffs.

The focus of our comments today will be on the direct impact of the tariffs that have been announced or amended as of this earnings release. We estimate the direct impact of the tariffs in 2025 to be relatively modest, at approximately $30 to $40 million on an unmitigated basis. This impact is mostly attributed to specialties and Ketjen. Notably, the direct impact on our energy storage business is expected to be effectively zero, as most of our lithium production is sold within Asia. Additionally, we benefit from current exemptions for critical minerals, such as lithium salts and spodumene. Our teams are actively working on mitigations to these impacts, and we expect the mitigated impact could be significantly lower. In some jurisdictions, we have inventories that help to mitigate near-term impacts. In other cases, tariffs present opportunities to increase sales in countries with lower tariffs.

For instance, we may be able to capitalize on our U.S. manufacturing footprint to sell more bromine products from Magnolia into U.S. end markets. While the full economic impact of the recently announced tariffs and other global trade actions is unclear, we benefit from our global footprint and the current exemptions for critical minerals. As a result, we're able to maintain our full year 2025 outlook considerations even with the anticipated direct impact of tariffs announced to date. Moving to slide eight, as usual, we are providing outlook scenarios based on recently observed lithium market pricing. On this slide, we have presented Albemarle's comprehensive company roll-up for each lithium market price scenario. As I just mentioned, these outlook considerations have not changed since we unveiled them last quarter.

As a reminder, we have provided modeling for three price scenarios, including year-end 2024 market pricing of about $9 per kilogram lithium carbonate equivalent, or LCE, the first half 2024 range of $12 to $15 per kilogram LCE, and the fourth quarter 2023 average of about $20 per kilogram LCE. All three scenarios reflect the results of assumed flat market pricing across the year in conjunction with energy storage's current book of business, with ranges based on expected volume and mix. Turning to slide nine for additional outlook commentary by segment. First, in energy storage, as a reminder, for 2025, approximately 50% of our lithium salts volumes are sold on long-term agreements with floors. Our contracts continue to perform in line with our forecast, and we have no significant contracts up for renewal this year.

With these long-term agreements, plus other sales on contracts with volume commitments and market-based pricing, we continue to expect volumes to be slightly higher year-over-year. This is primarily due to the ongoing ramp of the Salar Yield Improvement Project in Chile, plus production ramps at our conversion sites, which helps improve fixed cost absorption and results in reduced tolling volumes. We realized a strong first quarter energy storage EBITDA margin of 36%, thanks to lower input costs and a greater proportion of lithium salts sold under long-term agreements. Second quarter margin is expected to be lower due to a lower proportion of lithium salts sold under long-term agreements. Net-net, we continue to expect the full year and the first half 2025 energy storage EBITDA margin to average in the mid-20% range, assuming our $9 per LCE price scenario. In specialties, we continue to expect modest volume growth year-over-year.

We also expect to see revenue and pricing improvements mid-year, partially due to steady demand and temporary industry supply disruptions. Q2 EBITDA is expected to be lower, primarily due to product mix. Finally, at Ketjen, we expect modest improvements in 2025 related to product mix, cost and productivity improvements, and continued execution of our turnaround plan. While revenue is expected to improve sequentially, Q2 EBITDA is expected to be lower due to product mix. Please refer to our appendix slides in the deck for additional modeling considerations across the enterprise. Advancing to slide ten, we continue to progress broad initiatives designed to maintain our long-term competitive advantages through market cycles. Given the ongoing dynamic environment, we are consistently augmenting our playbook of potential measures to ensure timely adaptation as required.

In terms of optimizing our lithium conversion network, we achieved record quarterly production at five sites across our company-operated conversion network: La Negra, Kemerton, Xinyu, Qinzhou, and Meishan. Meanwhile, since our announcement last quarter, we've shifted operations at our Chengdu facility, which is ramping down and preparing to go into care and maintenance. These actions allow for lower cost to serve, better fixed cost absorption, and reduced tolling volumes. Second, improving cost and productivity. We have moved rapidly on our $300 to $400 million cost and productivity target and have already reached an approximately 90% run rate against the midpoint of the savings range. Additionally, we have identified opportunities to reach the high end of the range and are already developing execution plans to drive those benefits. These opportunities include further reductions to non-headcount spending, supply chain efficiencies, and further volume improvements at key manufacturing sites.

Third, we remain on track to reduce capital expenditures by more than 50% year-over-year. Finally, we remain focused on enhancing our financial flexibility and driving cash flow generation and cash conversion, even in this uncertain market environment, evidenced by our more than 200% operating cash conversion in the first quarter, driven by the receipt of the customer prepayment. In summary, we remain focused on our deep and broad playbook of actions in our control, and we continue to execute successfully across our planned operational and financial priorities. Turning to our balance sheet and liquidity metrics on slide 11, we ended the first quarter with available liquidity of $3.1 billion, largely made up of $1.5 billion in cash and cash equivalents, and the full $1.5 billion available under our revolver. The measures we have implemented to control costs, capital spending, and cash conversion have also enhanced our financial flexibility.

As a result of our proactive efforts to reduce costs and optimize cash flow, we ended Q1 with a net debt to adjusted EBITDA ratio of 2.4 times. Slide 12 highlights our commitment to effective execution and converting earnings into cash. This is demonstrated by improved operating cash flow conversion resulting from operational discipline and efficient cash management. In the first quarter, operating cash conversion exceeded 200%, a large part of which was driven by the customer prepayment received in January. However, even when excluding this prepayment, first quarter operating cash conversion was 73%, above our long-range target, thanks to the timing of Talison dividends, enhancements in inventory, and other cash management actions across our enterprise. Just as important, we delivered slightly positive free cash flow without the customer prepayment.

As we said last quarter, we anticipate that our 2025 cash dividends from the Talison JV will be below historical average as Talison completes its CGP3 capital project at the Greenbushes Mine. Nevertheless, we expect operating cash flow conversion to surpass 80% in 2025, exceeding our long-term target range, driven by ongoing working capital improvements and the $350 million customer prepayment. Combining that with our capital spending range of $700 to $800 million, we maintain our expectation of break-even free cash flow for the full year of 2025. I'll now turn it back to Kent.

Kent Masters (Chairman and CEO)

Thanks, Neal. Now I'll cover our long-term lithium supply demand outlook. Lithium is vital for the energy transition, and our long-term business drivers are robust.

Beginning on slide 14, 2025 EV demand growth is off to a strong start, led by China, with EV sales up 41% year-to-date, driven by subsidies for battery EVs and plug-in hybrids. China now represents approximately 60% of the overall market demand. Europe also had a strong start to the year, with sales up 19% in January and February, thanks to a step change in regulatory emission targets. Finally, North America grew 17% year-over-year, with U.S. trends improving due to greater model availability and affordability. Overall, these trends reinforce confidence in the industry's long-term growth potential and continue to highlight that the regional dynamics are important factors to consider as the industry expands. Turning to slide 15, we expect lithium demand to more than double from 2024 to 2030, driven primarily by stationary storage and electric vehicle demand.

Near term, we expect 2025 demand growth in the range of 15% to 40%, a wider than usual range, reflecting uncertainties around tariffs and other trade actions and their impact on the macroeconomic environment. We feel confident in the ability to reach the low end of the range, given year-to-date performance, revised EU emission targets, and even modest growth in China. The high end of the 2025 outlook range assumes strong grid installations, particularly in China and South Asia, plus Europe and China EV sales growth continuing closer to the year-to-date trend. For what we know today, we see the most likely outcome being a growth rate in between these two extremes, in the mid-20% range or similar to the growth rate in 2024. These figures include the anticipated impact of tariffs announced to date under current macroeconomic conditions.

However, they do not include the impact of a global economic recession. We expect lithium supply to remain relatively balanced over the forecast period, given recently announced and ongoing project curtailments and delays. Incentivizing supply growth to meet long-term demand requires prices well above current levels. The global energy transition is undoubtedly progressing. It is a matter of how fast, not if. Globally, electric vehicle market penetration or share of vehicle production is expected to exceed internal combustion engines by the end of the decade. In China, EV production is expected to overtake ICE production by as early as this year. European EV penetration is driven by the EU's CO2 emissions targets and is expected to reach 65% by 2030, assuming the current policies remain in effect. The U.S. EV market is earlier in its development, with a range of outcomes primarily reflecting uncertain policy impacts.

On the supply side, there have been several announced curtailments, both upstream and downstream. Non-integrated hard-rock conversion remains unprofitable, and large integrated producers are facing pressure. As prices have declined, we now believe that about 40% of global capacity is currently either at or below break-even, of which only about one-third has come offline. In a growing market, all of that supply and more is required to meet long-run demand. In fact, we estimate lithium supply must double by 2030 to keep pace with demand. As a result, we continue to expect that prices well above current levels are required to support the necessary investment. In summary, on slide 18, Albemarle delivered solid first quarter performance while continuing to act decisively to preserve long-term growth optionality and maintain the company's industry-leading position through the cycle.

We are maintaining our full year 2025 company outlook considerations, building on the progress we've made to drive enterprise-wide cost improvements and strong energy storage project ramps. We are progressing broad-based comprehensive actions to manage controllable factors and generate value across the cycle. I am confident we are taking the necessary steps to maintain our competitive position and to capitalize on the long-term secular opportunities in our markets. With that, I'll turn the call back over to the operator to begin the Q&A portion.

Operator (participant)

We will now move to our Q&A portion. If you would like to ask a question, please "press star five" to raise your hand. As a reminder, that is "star five" to raise your hand. Also, please bear in mind that this Q&A session is limited to one question and one follow-up per person. Our first question comes from Rock Hoffman with Bank of America.

Your line is open.

Rock Hoffman (Equity Research Associate)

We're already one-third done with the year. Could you speak a little more to the different scenarios which may get the demand to lower the higher end of that guided 15% to 40% lithium demand growth in 2025?

Neal Sheorey (EVP and CFO)

Yeah. I guess, okay, that's right. We're about a third in, but it's a pretty uncertain environment at the moment. That reflects the range that we put out there, why it is as wide as it is. We said in our comments, we thought, for lack of another number, the middle of the range is kind of what we think is reasonable at the moment. I mean, the two extremes are kind of the downside and the upside. Either everything going the wrong way or everything going in the right direction.

Our best view at the moment is in the 20%-mid-20% range. That is our view. We are off to a good start. It was stronger than that. We know that some of that was pulled from last year a little bit. Our best guess is in the mid-20% range.

Rock Hoffman (Equity Research Associate)

Thank you. Just as a follow-up, could you speak a little more to the progress in your productivity initiatives? Given you are already 90% of the way through the midpoint, in other words, roughly $315 million run rate, is there upside to that $400 million high end either in 2025 or thereafter?

Neal Sheorey (EVP and CFO)

We are kind of fighting to get to the top end of that range. This is kind of a one-off program. We look at productivity and those type benefits as something that we constantly do.

We think we can get to the top end of the range. We've gotten to kind of 90% of it at the moment to at least the midpoint. We think we'll get to the top end of that range, but we'll keep working on that. Productivity is kind of a constant thing. It is not something that's going to end when this program is over. We'll continue to look for opportunities around that.

Operator (participant)

Our next question comes from John Roberts with Mizuho Securities. Your line is now open.

John Roberts (Managing Director)

Back to the range on lithium demand forecast. Do you have an opinion on how hard or easy it would be for U.S. and European EV makers to copy some of the recent Chinese breakthroughs in cell pack design?

Neal Sheorey (EVP and CFO)

How easy or how hard? I think that we're still early in the technology curve around lithium-ion batteries and other batteries in the similar space. We are still early. Either on the ones that are the more mature, like the high nickel and LFP, I think we're still early in that cycle. You're going to still see advancements. You're going to see them from global players, regardless of what geography they're in. I think there's still a lot to play out around energy storage. Whether it's lithium-ion or sodium, for example, we're still early in that technology curve. There's a lot of room for improvement and from a variety of different players.

John Roberts (Managing Director)

Thank you.

Operator (participant)

Our next question comes from Colin Rusch with Oppenheimer. Your line is now open.

Colin Rusch (Managing Director)

Thanks so much. Thanks so much, guys. This one's for Neal. I mean, if you look at the industry now that we've seen some deeper rationalization, how are you thinking about cross-cycle cash management and return on investment if we think about a three to five-year time period around those stock calls?

Neal Sheorey (EVP and CFO)

Yeah. Hi there, Colin. Good morning. From a cash management standpoint, or maybe more importantly, I think where I go to first is thinking about the cash conversion of this company. Obviously, for the work that we are doing around our cost savings, ramping our assets, and so on, if I look over the next three years, we've set a range of 60% to 70% kind of cash conversion as our benchmark. That's what's turned up as we've done benchmarking with similar companies.

That is something that we want to strive for, not just performing that way in a single year, but really being able to do that in a more consistent way. I think as we line out our assets and get through our cost savings and work on the productivity initiatives that Kent mentions, I think that we can get there and we can do that in a ratable way. Look, we have also said this kind of ties into the cash management piece. From a leverage standpoint, obviously, we want to be lower than where we are today. We have always said that less than 2.5 times across the cycle is our target. We are not there today. We are going to keep working on that.

You have seen the things that we have done to enhance our financial flexibility and make sure that we are moving in the right direction on that front. I do not think there is a big change in our long-term targets. I hope what you hear from our comments today and the performance that we have had over the last several quarters is that we are very focused every day on ensuring that we are driving to those targets or better, kind of using this benchmarking mindset to guide our actions.

Colin Rusch (Managing Director)

Thanks so much. Just on the lithium contracting strategy, I appreciate the comments that you do not have any major contracts rolling off this year. As you see the landscape evolving a little bit and we start to see autonomous vehicles start to drive more EV adoption, is there another cycle where you guys will have a little bit more leverage around contract negotiations and pricing as folks really start to attack the autonomous vehicle market here by the end of the decade?

I think just from our contracting strategy, I think ultimately it does not change. It evolves. I think our customers, they want to have long-term security of supply. The contracting element is part of that. Different markets have different preferences from a contracting or not contracting standpoint. The Chinese market is, for the most part, spot. A lot of the OEMs and players within the industry, particularly in the West, like to have a contract. They like that security of supply.

They know that they've got that supply lined up for them. I think we'll continue to do that. Around the autonomous, where it's autonomous or not in that market, I'm not sure that changes our contracting strategy. I think it will evolve over time depending on the way the industry evolves. I still see us having a mix. We always talk about the portfolio we have. We have a certain amount of our portfolio in spot. We like having a certain part of that. We like having a piece in contracts. We see that it allows us to play in various parts of the markets and mitigate risk in certain contractual strategies. I think you'll always see us with that portfolio. It will probably shift a little bit over time depending on the market.

Operator (participant)

Thank you. Our next question comes from Patrick Cunningham with Citigroup.Y our line is open.

Hey, good morning. This is Rachel for Patrick. Very helpful view on the lithium demand. I guess, how much of the strong demand year to date would you attribute to tariff pre-buying and any concerns on data risk for ESS given the tariffs?

Kent Masters (Chairman and CEO)

Yeah. I'm not sure much of it was tariff pre-buying so much as it was about, I mean, we do know that some of our customers have told us they shifted volume from the end of last year into this year more about regulatory issues in Europe than anything else. It was a strong start to the year. Not sure we can define exactly what it was. We did not have as weak of a period around Lunar New Year as we normally do. It was a little stronger on that. I do not think it was tariff-related, but regulatory in Europe. To be honest, I'm not sure why it was stronger than it was in China, but it was.

That's very helpful. On the supply side, you've mentioned supply curtailment, but we've continued to see that supply response mainly from China. Do you think there are particular regions where you expect to see supply removed or any large project cancellations? Thank you.

I think what you're going to see is non-integrated hard rock conversion, right? Either the hard rock resource or that conversion is in the difficult part on the cost curve. That's probably where we see that. Frankly, we see it more in Western players than we would in Chinese players.

Operator (participant)

Our next question comes from Aleksey Yefremov with KeyBanc Capital Markets. Your line is open.

Aleksey Yefremov (Senior Chemical Equity Research Analyst)

Thanks. Good morning. Just to stay with the lithium market, you're forecasting demand to grow 200 to 600 kilotons this year. How much do you think the upstream capacity would be added this year as well?

Kent Masters (Chairman and CEO)

You're basically saying supply demand, right? Given the market growth, we see how much comes on. There's room to absorb that, but there is still some capacity that will come on. I don't know exactly. I mean, our view of supply demand is it essentially stays more or less the same throughout the year unless a significant amount comes off.

Aleksey Yefremov (Senior Chemical Equity Research Analyst)

Okay. Then about your feedstock costs, we saw that cost of mining fell with Wodgina. I don't know if you really saw the benefit of that this quarter or expect to see later this year. Could you also broadly talk about your outlook for mining costs at both Wodgina and Greenbushes and maybe La Negra as your volumes ramp in Chile?

Kent Masters (Chairman and CEO)

Yeah. I guess you'd have to go through each of those. Greenbushes costs, I mean, we're driving Greenbushes, they're pretty mature. We've got a lot of initiatives around that where we're getting more focused on the mining. I mean, we do see being able to drive costs from that. CGP3 will be the next big step there. That program comes on later in the year. You'll get a little bit more scale, which will help us on a cost standpoint. Wodgina, we're working through probably a difficult part of the mine at the moment to remove material and get to the best ore there.

It's higher at the moment, but we expect to get the better cost position there. La Negra is one of the lowest from the Salar de Atacama, one of the lowest cost sources resource in the world. We continue to drive productivity and operations there. The Salar Yield project is ramping up. We had record production at La Negra in this particular quarter. That's all going well, which should drive the cost down slightly. They're incremental improvements, but they move to drive the cost down as we leverage the fixed cost over more volume.

Operator (participant)

Thank you. Our next question comes from Josh Spector with UBS. Josh, your line is open.

Chris Parella (Equity Research Analyst)

Hi. It's Chris Perrella on for Josh. Good morning. I wanted to follow up on the margins within energy storage. How much lower, I guess, are contract sales in 2Q? How do the volumes ramp over the course of the year to sort of come out to your mid-20% margin target for the full year?

Neal Sheorey (EVP and CFO)

Yeah. Hi there, Chris. This is Neal. Maybe I can give you a little bit of color here. The first thing to highlight about the first quarter is historically, just in general, from a seasonality perspective, the first quarter is usually a slower volume quarter for energy storage. I think you can see that in our deck. We provided our production and energy storage. It was around 40 KT in the quarter. That is less than 25% for the year. What you should expect is that our higher volume months tend to be in the second and the third quarter.

Usually with those higher quarter months, what that means is that there's more volume that is going to be sold off of our long-term agreements. Those are going to be at prices a little bit more like current market prices or current spot prices. That is why we say from an energy storage perspective, it's more of a mix as the volume ramps up over the next couple of quarters. That is why we see the volume or, sorry, the margin ticking lower in the second quarter versus the first quarter.

Chris Parella (Equity Research Analyst)

All right. Just a follow-up question. With the cutback in CapEx and the ramping or the remixing of your production or optimizing of your conversion network, where do you guys see maintenance CapEx on a go-forward basis when everything settles out over the course of this year?

Kent Masters (Chairman and CEO)

When you're asking the question, I was thinking about a longer-term answer rather than this year. I think it's going to be a little longer term. Look, we're trying to get to about a 6% of revenue from a capital standpoint. We kind of say that at a mid-cycle price. We use $15. We just say $15. We would aspire to get to 6%. We're a bit above that now. Prices are a little lower than that. That includes some small capital projects that give us productivity, incremental benefit, cost-out type programs in that. That's kind of where we're driving. If we get to that point, then we'll reassess and see if we can do something differently. We're above that at the moment, but that's where we're headed.

Neal Sheorey (EVP and CFO)

Yeah. Chris, this is Neal. Maybe just to give you a little bit of color. We actually provided a chart. We did not provide it this quarter because nothing has changed about it. If you look at our last quarter earnings deck, we provided a chart with a little bit of that breakdown of our capital spending. As you can imagine, because of the reductions we have made, there is very little capital that we are spending on incremental growth right now. Most of it is going into regulatory maintenance capital, those kinds of things. It would not surprise me if you go back and look at that chart. You will probably come to a number in the, call it, $400 million-$500 million kind of range that is in that sustaining bucket.

Operator (participant)

Our next question comes from Joel Jackson with BMO Capital Markets.

Joel Jacksom (Managing Director and Equity Research Analyst)

Good morning, everyone. First question. There's been some reports over the last week or so that one chemical conversion plant or chemical plant in China broke a long-term contract, broke floor pricing. I know that nothing gets reset this year. I think some may be set next year in your own book. Are you starting to see some discussions with your customers asking questions as the lithium price keeps sort of eroding slowly here?

Kent Masters (Chairman and CEO)

I'm not exactly sure of the question, Joel, what you're getting at. Let me start on your point.

Joel Jacksom (Managing Director and Equity Research Analyst)

A chemical plant in China broke its long-term contract and broke its floors. Are you seeing any discussions from customers on asking if they can break their floors too?

Kent Masters (Chairman and CEO)

I would say no, not any different than we have for the last three years, right? We talk about this. Our contracts evolve over time, and we've adjusted them. We did have contracts in the last cycle that the floors did not hold, and we've adjusted the nature of the contract and who we contract with. That is why you see us go more to the spot market in China. Our contracts are holding. That does not mean that we do not renegotiate them over time. If our customer wants something, we want something. If we can find a middle ground, we adjust. We have done that over time. I see that is how it goes, how this market works over time. I think our contracts are holding and doing what we expect them to do.

Joel Jacksom (Managing Director and Equity Research Analyst)

It is kind of a two-part, my second question. I mean, would you first agree that what has caught the market off guard the last couple of years is not demand, demand has been fine. It has been just supply. Following up on that, in a prior question that was asked on this call, you have a very granular demand outlook. The supply outlook or comments you gave seemed more high level. Do you not worry that the supply there, it's hard to see it coming? Even with great demand growth, it's going to lead to a tough market because there is so much supply out there. It's hard to see.

Kent Masters (Chairman and CEO)

Look, it is difficult to understand the supply side. I mean, I think the demand side as well, but there's more external people looking at it and people report on that. I think it's a little easier to get your head around it. The supply is a little different. It's stickier. Things that we are pretty sure are losing cash are still operating. Difficult to understand that, how long people can hold on to that.

There will be pluses and minuses that we do not necessarily see coming on the supply side. I think what gives us some comfort is that long-term, that marginal cost that is required to get the volumes that are necessary to meet demand means prices have to be higher or those investments will not happen. I think that is the best way I can answer that question.

Operator (participant)

Thank you. Our next question comes from Vincent Andrews with Morgan Stanley.

Vincent Andrews (Managing Director)

Thank you. And good morning. Neal, can I ask you, the $350 million of deferred revenue that came in, it is obviously cash on your balance sheet now, but it is also a deferred liability on your balance sheet. I'm wondering, do the credit rating agencies, when they look at your metrics, do they give you complete credit for the $350 million and the net debt to EBITDA calculation, or do they haircut it by some amount because ultimately you have to deliver on that revenue and there are costs associated with doing such?

Kent Masters (Chairman and CEO)

Yeah. Hi there, Vincent. Yeah, look, without getting into maybe the specifics of our discussion with the rating agencies, yes, they do give us credit for that prepayment. It has to do with the way in which we've structured that prepayment. I think more importantly, the discussion with the rating agency hasn't just been about the prepayment. It's been about really the collective series of actions that the company has done to ensure that we have the financial flexibility and keep working our leverage down and get it under control.

I think outside of the prepayment, even they've been very happy with the focus that we've had as a team on ensuring we've got the right metrics going forward.

Vincent Andrews (Managing Director)

Okay. Just as a follow-up on cash flow from financing this year, last year you had about $350 million of outflows, most of which was the common and the preferred dividend. I think there was about $50 million or $60 million of other items in there. Would you anticipate a similar amount of that this year to $50 million, or would it be less than that or a little bit more? Any thoughts there?

Kent Masters (Chairman and CEO)

Yeah. I'm trying to remember sort of where we sit right now on all those miscellaneous items. That's probably a good assumption for now, Vincent. I can always have the IR team get back to you. I don't expect a lot of noise in that part of the cash flow statement outside of the dividend payments that we have.

Operator (participant)

Thank you. Our next question comes from David Deckelbaum with TD Cowen. Your line is open.

David Deckelbaum (Managing Director and Equity Research Analyst)

Thanks for taking my questions, guys. Neal, maybe for you, I just wanted to clarify. As you think about maybe the $9 kilo scenario, if that persists in 2026, given all of the cost cuts that you guys have succeeded on so far, you guys guided on the EBITDA margin for the second quarter and obviously highlighted the strength in the first quarter. How do you sort of think of the normalized EBITDA margin for the energy storage business exiting this year in sort of a $9 a kilo world?

Neal Sheorey (EVP and CFO)

Yeah. Interesting question. I think there are a couple of things. The energy storage business obviously is generating healthier margins. We talked about this in the prepared remarks that the quality of the business and of the company has improved because of the cost savings. As you roll over into next year, I think there are a couple of things that are at flat pricing. There are a couple of things that are working in our favor here. Obviously, as we get into 2026, number one is our assets will be further ramped. That is the Salar Yield Improvement Project. That is Mason, Kemerton, etc.

That should help with our fixed cost absorption and obviously incrementally improve the energy storage margins. I think another piece of this also is that you will have more production coming out of Greenbushes with the CGP3 investment then coming online.

That is obviously not only a benefit for that JV, but that also means that we can push more of that Greenbushes spot through our own operations and even maybe leverage some of our tolling network as well to increase our volumes in the market too. Look, I think net net, not counting on price, I think that we still have some tailwinds that can be beneficial to the energy storage business even going into 2026. By the way, I forgot to mention, then you have a full year also of the cost savings. Not only do we this year, obviously, we are ramping into the cost savings and we are continuing to deliver that. We hope to be at a pretty high run rate by the end of this year. Next year, you obviously get the full benefit of that through the entire company. Of course, the energy storage business benefits from that as well.

David Deckelbaum (Managing Director and Equity Research Analyst)

I appreciate the color there. As my follow-up, just maybe for Kent, just a higher-level question. In the outlook, you talked about that the industry is obviously operating below incentive price levels now. How do you think about if pricing were to move to incentive levels, what is sort of the incentive price for Albemarle to begin spending growth CapEx again? I guess just given some of the recent focus on the balance sheet and obviously on margin and cost savings, how long would you need to see a price response back to incentive levels before looking to get out of maybe maintenance level and start investing for long-term growth versus perhaps shoring up the balance sheet?

Kent Masters (Chairman and CEO)

Yeah. I think, I mean, look, our priorities now is we are shoring up the balance sheet, making sure we're in the right position there. The prices move, I mean, look, the incentive price for different projects are all going to be different. It depends on where they are, what it is, whether it's resource from a resource perspective or conversion. They're all at different prices. It's whether it bounces back and the prices bifurcate by market would be another indicator of that. Those would be some of the things we would need to see. We're not going to, we got a little price movement. We're not going to jump toward kind of big investments. We're going to be a little bit cautious here.

As you say, shore up the balance sheet is a priority at the moment to make sure that we can manage this business through the cycle. We do think there are going to be cycles both up and down. We have to make sure we're in the right position for that and balance that with the growth because we want to make the investments in the right place. We do have access to resources, world-class resources that we can invest behind. That's probably where you see us go first.

Operator (participant)

Our next question comes from Arun Viswanathan with RBC. Your line is open.

Arun Viswanathan (Senior Equity Analyst)

Thanks for taking my question. Congrats on the Q1 performance. I guess I'm just curious two things. First off, you mentioned the potential for grid storage to drive maybe some slightly better than expected volumes or maybe in the upper end of that range. Could you just discuss maybe some more of your efforts there or maybe even within the industry? Have you seen any further commercialization there? What's Albemarle's participation there?

Kent Masters (Chairman and CEO)

Yeah. I mean, the fixed storage or grid storage, we tend to call it fixed storage, but it's the same thing. It has, over the last few years, been about renewables and then balancing that with storage. There were regulations in China that if you did renewables, you were required to put storage with that renewable at the same location. That regulation has changed. Now you're still required to do fixed storage, but it can be done centrally.

That's a little bit of a shift in the regulation, but the incentives are still there. It's a growing space. Now it's becoming a little bit more about grid stability around AI data centers and things like that. Same application. Interestingly enough, we're selling it to the same customers, we sell to the same location, but they're selling into different segments. A few years ago, we had trouble understanding where the volume was going into, right, whether it was fixed storage or mobility or EVs. We've spent some time trying to understand that a little better. We have a better handle on it than we did. Even today, we sell to the same customers, and that goes into the EV market or to the fixed storage market based on their book of business. It's opportunistic, and it's been a good space for us.

Frankly, a couple of years ago, we did not think it was a place for lithium to play, that it would be a minor spot. Fixed storage now is getting close to 20% of the demand for lithium. Last year, it grew more than EVs marginally, but still, it was growing there. It is going to be an important component of our portfolio over time.

Arun Viswanathan (Senior Equity Analyst)

Great. Thanks for that. I guess last year, we did see some curtailments over the summer. You noted that several other competitors in the lithium space may be on economic territory. Do you expect some similar curtailments this year as you move into the summer? Similarly, do you expect curtailments based on environmental regulations? Maybe you can just comment a little bit about supply, given you have already commented on demand. Thanks.

Kent Masters (Chairman and CEO)

Yeah. I don't have a way of saying what everybody in the industry is going to do, right? We know that there's pressure because of the cost position and where prices are. There'll be pressure on people, and how long they hold out and operate at break-even or less is hard to say. We have seen some assets, the higher cost assets, the highest ones we know, have come out of the market. We don't see them coming back in the near term. There'll be pressure for others to come out of the market. I can't say when, and if they do it, it's impossible to call, right? Environmental pressure around lapidolite in China, assuming that's what you're talking about, we don't have great insight into that.

Operator (participant)

Our next question comes from Lawrence Alexander with Jefferies.

Dan Rizzo (Equity Research Analyst)

Hi, this is Dan Rizzo with Lawrence. I just have one question, and thanks for taking it. How does your strategy shift if government subsidies supply keeps prices at the lower end of the range?

Kent Masters (Chairman and CEO)

I'm sorry, say that again. Can you just

Dan Rizzo (Equity Research Analyst)

I'm sorry, I spoke too fast. How does your strategy shift if governments subsidize supply and keep prices at the lower end of the range?

Kent Masters (Chairman and CEO)

Yeah. I mean, I guess our strategy is to make sure that we are at a cost position and competitive at the bottom of the cycle, wherever that is, right? What gives us confidence we can do that is the quality of the resources that we have. That allows us to participate at the very bottom of the cycle. I don't think it can stay there forever. There will be opportunity, but the strategy really is the same: to leverage the quality of the resources we have and to make sure that we are very cost-efficient.

Operator (participant)

Thank you. Our next question comes from Pete Osterlund with Truist.

Pete Osterlund (VP and Senior Equity Research Analyst)

Hey, good morning. Thanks for taking the questions. First, just wanted to ask a clarification on the mixed impact driving the energy storage margin guidance. You're expecting 50% of volumes on LTAs for the year. What percentage are you expecting to be sold under LTAs in the second quarter?

Kent Masters (Chairman and CEO)

Yeah. Hi there, Pete. Look, we don't give that level of specificity by the quarters. Like I said, I think I will lean back on my answer earlier on the call, which is in the first quarter, we had lower volumes, and a little bit more of our mix was on those LTAs. As you think about the second quarter, think about, as a %-wise, there will be less volume on the LTAs and more. As we ramp our volumes, more will be on those other contracts that we have that are more tied to current market prices or current spot.

That is the mix point that we are trying to make here, that as we ramp those volumes, there will naturally be more volumes on those kinds of contracts, and that will lead to the margin being a little bit lower in Q2 versus Q1.

Pete Osterlund (VP and Senior Equity Research Analyst)

All right. Understood. Just as a follow-up, I also wanted to ask about recent news that there is going to be some new derivatives contracts for battery materials, including lithium, being launched in June. What impact do you think that this could have on your lithium contract? I mean, do you get any sense from customers that whether it's duration or pricing terms of how your contract mix would evolve if there's additional pricing transparency in the market?

Kent Masters (Chairman and CEO)

Yeah. I would say it won't have much of an impact initially. It could over time if they take hold and there's more volume in the space. I mean, there are financial instruments out there now that you can hedge, but they're not significant from a volume standpoint. Really not allowed. It doesn't impact us on a material basis. I think that would be the same way at least in the near term. Now, if they take hold, and we anticipate they will over time and they become a larger piece that our customers could hedge and we could hedge and do things a different way, but that volume is not available today.

Operator (participant)

Thank you. Our final question comes from Andres Castaños with Berenberg. Your line is now open.

Andres Castanos (Equity Research Analyst)

Thank you very much. My question will be on bromine flows. Have you noticed any changes in the situation of bromine and bromine derivatives from the U.S. to China? If so, has this impacted bromine pricing in general or at least in maybe some decoupling in the two regions? Thank you.

Kent Masters (Chairman and CEO)

I do not know that we have seen a change, right? They do move in that direction. They have over time. I do not know that we have seen a significant change in derivatives from bromine moving to China. Any comments, Eric?

Eric Norris (Chief Commercial Officer)

No, we have not seen any change in that. Tariffs have played a role, a potential role, but there have been some exemptions as well that have allowed. There has not been any real material change in the flow. Right.

Neal Sheorey (EVP and CFO)

Maybe the biggest short-term change is just a response to maybe a shortage supply in the industry that moved prices over the last month from $3 a kilogram to a high of $5.14 a kilogram. That has since come back down to between a range of $3 and $3.29. That has moved through the system already.

Andres Castanos (Equity Research Analyst)

Thank you. That is super helpful.

Operator (participant)

Thank you. That is all the time we have for questions. I will now pass it back to Kent Masters for closing remarks.

Kent Masters (Chairman and CEO)

Thank you, Operator. To wrap up, Albemarle's strong operational execution and strategic framework positioned us to effectively navigate market conditions and maintain our long-term competitive advantages, including our world-class resources, process chemistry expertise, and our customer-centric market approach. We are dedicated to delivering value for our stakeholders and driving sustainable growth.

Thank you for joining us today, and we look forward to seeing you face-to-face at the upcoming events you see on the next slide listed on slide 20. Stay safe, and thank you.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.