Livent(LTHM) - 2023 Q3 - Quarterly Report

Glossary of Terms This section provides definitions for key terms and abbreviations used throughout the report, including financial instruments, company entities, and industry-specific terminology, to ensure clarity and consistent understanding - Defines key terms such as '2025 Notes,' 'Allkem,' 'EV,' 'Nemaska Lithium,' 'NewCo,' and 'Transaction' to aid in understanding the report[10] Part I - Financial Information This section presents Livent Corporation's unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022, along with management's discussion and analysis of financial condition and results of operations, market risk disclosures, and controls and procedures Item 1. Financial Statements This section provides the unaudited condensed consolidated financial statements, including statements of operations, comprehensive income, balance sheets, cash flows, and equity, along with detailed notes explaining significant accounting policies, revenue recognition, investments, debt, and other financial disclosures Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three Months Ended September 30) | Metric (in Millions, Except Per Share Data) | 2023 | 2022 | Change (YoY) | | :------------------------------------------ | :--- | :--- | :----------- | | Revenue | $211.4 | $231.6 | -$20.2 (-8.7%) | | Gross margin | $116.5 | $119.4 | -$2.9 (-2.4%) | | Income from operations before income taxes | $96.7 | $99.1 | -$2.4 (-2.4%) | | Net income | $87.4 | $77.6 | +$9.8 (+12.6%) | | Net income per weighted average share - basic | $0.49 | $0.43 | +$0.06 (+14.0%) | | Net income per weighted average share - diluted | $0.42 | $0.37 | +$0.05 (+13.5%) | Condensed Consolidated Statements of Operations (Nine Months Ended September 30) | Metric (in Millions, Except Per Share Data) | 2023 | 2022 | Change (YoY) | | :------------------------------------------ | :--- | :--- | :----------- | | Revenue | $700.7 | $593.8 | +$106.9 (+18.0%) | | Gross margin | $425.9 | $281.8 | +$144.1 (+51.1%) | | Income from operations before income taxes | $340.2 | $247.2 | +$93.0 (+37.6%) | | Net income | $292.4 | $190.8 | +$101.6 (+53.2%) | | Net income per weighted average share - basic | $1.63 | $1.13 | +$0.50 (+44.2%) | | Net income per weighted average share - diluted | $1.40 | $0.96 | +$0.44 (+45.8%) | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (Three Months Ended September 30) | Metric (in Millions) | 2023 | 2022 | Change (YoY) | | :------------------- | :--- | :--- | :----------- | | Net income | $87.4 | $77.6 | +$9.8 (+12.6%) | | Other comprehensive loss, net of tax | ($2.2) | ($5.9) | +$3.7 (+62.7%) | | Comprehensive income | $85.2 | $71.7 | +$13.5 (+18.8%) | Condensed Consolidated Statements of Comprehensive Income (Nine Months Ended September 30) | Metric (in Millions) | 2023 | 2022 | Change (YoY) | | :------------------- | :--- | :--- | :----------- | | Net income | $292.4 | $190.8 | +$101.6 (+53.2%) | | Other comprehensive loss, net of tax | ($1.1) | ($11.3) | +$10.2 (+90.3%) | | Comprehensive income | $291.3 | $179.5 | +$111.8 (+62.3%) | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (as of September 30, 2023 vs. December 31, 2022) | Metric (in Millions) | Sep 30, 2023 | Dec 31, 2022 | Change | | :------------------------------- | :----------- | :----------- | :----- | | Total current assets | $478.2 | $544.0 | -$65.8 | | Total assets | $2,361.1 | $2,074.2 | +$286.9 | | Total current liabilities | $138.3 | $148.7 | -$10.4 | | Total current and long-term liabilities | $620.5 | $631.2 | -$10.7 | | Total equity | $1,740.6 | $1,443.0 | +$297.6 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30) | Metric (in Millions) | 2023 | 2022 | Change (YoY) | | :------------------------------- | :--- | :--- | :----------- | | Cash provided by operating activities | $261.8 | $328.2 | -$66.4 (-20.2%) | | Cash used in investing activities | ($315.5) | ($225.7) | -$89.8 (-39.8%) | | Cash used in financing activities | ($21.5) | ($1.0) | -$20.5 (-2050.0%) | | (Decrease)/increase in cash and cash equivalents | ($76.4) | $98.6 | -$175.0 | | Cash and cash equivalents, end of period | $112.6 | $211.6 | -$99.0 (-46.8%) | Condensed Consolidated Statements of Equity Condensed Consolidated Statements of Equity (as of September 30, 2023) | Metric (in Millions) | Sep 30, 2023 | Dec 31, 2022 | Change | | :------------------------------- | :----------- | :----------- | :----- | | Common Stock | $0.1 | $0.1 | $0.0 | | Capital in Excess of Par Value | $1,166.7 | $1,160.4 | +$6.3 | | Retained Earnings | $626.8 | $334.4 | +$292.4 | | Accumulated Other Comprehensive Loss | ($52.1) | ($51.0) | -$1.1 | | Treasury Stock | ($0.9) | ($0.9) | $0.0 | | Total Equity | $1,740.6 | $1,443.0 | +$297.6 | - As of September 30, 2023, there were 179,729,437 shares of Common Stock outstanding, an increase from 179,548,550 shares as of December 31, 2022[5][68] Notes to the Condensed Consolidated Financial Statements Note 1: Description of the Business - Livent Corporation manufactures a wide range of lithium products, primarily for lithium-based batteries, specialty polymers, and chemical synthesis applications[29] - A major growth driver for lithium is the increasing adoption of electric vehicles (EVs) and other energy storage applications, with significant growth in Asia, Europe, and North America[29][30] Note 2: Principal Accounting Policies and Related Financial Information - The condensed consolidated financial statements are prepared in accordance with SEC interim reporting requirements and U.S. GAAP, with certain information condensed or omitted[31] - Livent entered into a Transaction Agreement on May 10, 2023 (amended August 2, 2023) with Allkem Limited and NewCo for a merger of equals, stock-for-stock transaction, expected to close by the end of calendar year 2023[32] - Livent's stockholders will receive 2.406 shares of NewCo for each Livent share, resulting in Allkem shareholders holding approximately 56% and Livent stockholders 44% of NewCo's shares post-transaction[32] - A $64.6 million termination fee may be payable by either party under certain conditions if the Transaction Agreement is terminated[32] - Livent realized a gain of $10.0 million and $21.4 million for the three and nine months ended September 30, 2023, respectively, from transferring U.S. dollars into Argentina via the Blue Chip Swap method[36] Note 3: Recently Issued and Adopted Accounting Pronouncements and Regulatory Items - Refer to Note 3 in the 2022 Annual Report on Form 10-K for information on recently issued and adopted accounting pronouncements and regulatory items[37] Note 4: Revenue Recognition Disaggregated Revenue by Geographical Region (in Millions) | Region | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North America | $31.9 | $46.8 | $124.5 | $109.3 | | Latin America | $0.1 | $0.7 | $1.8 | $1.8 | | Europe, Middle East & Africa | $15.6 | $30.1 | $72.0 | $76.8 | | Asia Pacific | $163.8 | $154.0 | $502.4 | $405.9 | | Consolidated Revenue | $211.4 | $231.6 | $700.7 | $593.8 | Disaggregated Revenue by Major Product Category (in Millions) | Product Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Lithium Hydroxide | $142.8 | $118.4 | $449.2 | $299.5 | | Butyllithium | $49.6 | $88.2 | $188.3 | $203.1 | | High Purity Lithium Metal and Other Specialty Compounds | $10.0 | $11.9 | $39.6 | $42.0 | | Lithium Carbonate and Lithium Chloride | $9.0 | $13.1 | $23.6 | $49.2 | | Consolidated Revenue | $211.4 | $231.6 | $700.7 | $593.8 | - For the three months ended September 30, 2023, two customers accounted for approximately 28% and 25% of consolidated revenue, and the top 10 customers accounted for approximately 78%[39] - The company has multi-year take-or-pay supply agreements with customers, with approximately $1.7 billion in expected revenue over the next six years[45] Note 5: Inventories, Net Inventories, Net (in Millions) | Category | Sep 30, 2023 | Dec 31, 2022 | Change | | :------------------------ | :----------- | :----------- | :----- | | Finished goods | $70.1 | $44.6 | +$25.5 | | Semi-finished goods | $88.6 | $57.1 | +$31.5 | | Raw materials, supplies, and other | $44.0 | $50.6 | -$6.6 | | Inventories, net | $202.7 | $152.3 | +$50.4 | Note 6: Investments - Livent holds a 50% equity interest in Nemaska Lithium Inc. (NLI), a non-public mining company developing the Nemaska Lithium Project in Québec, Canada[48][49] - The company recorded an equity in net loss of unconsolidated affiliate of $6.7 million and $22.0 million for the three and nine months ended September 30, 2023, respectively, related to NLI[49] - The carrying amount of the equity interest in Nemaska Lithium was $500.7 million as of September 30, 2023, up from $437.1 million at December 31, 2022[49] Note 7: Restructuring and Other Charges Restructuring and Other Charges (in Millions) | Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Severance-related and exit costs | $0.0 | $0.4 | $2.4 | $0.9 | | Costs related to the Transaction | $13.6 | $0.1 | $32.3 | $2.3 | | Bessemer City plant fire - gain, net of insurance recoveries | ($5.0) | $0.0 | $0.0 | $0.0 | | Environmental remediation | $0.1 | $0.1 | $0.4 | $0.3 | | Other | ($0.1) | $0.1 | ($0.4) | $1.1 | | Total Restructuring and other charges | $8.6 | $0.7 | $34.7 | $4.6 | - A fire at Livent's Bessemer City facility on June 26, 2023, destroyed a warehouse and its contents, resulting in a $5.0 million gain (net of insurance recoveries) for the three months ended September 30, 2023. Production lines for lithium hydroxide, butyllithium, and catalyst grade lithium metal resumed quickly, while pharmaceutical grade lithium carbonate resumed in October 2023, and high purity lithium metal is expected back online by year-end 2023[52][53] Note 8: Income Taxes Income Tax Expense and Effective Tax Rate | Period | Income Tax Expense (in Millions) | Effective Tax Rate | | :----------------------------------- | :------------------------------- | :----------------- | | Three Months Ended September 30, 2023 | $9.3 | 9.6% | | Three Months Ended September 30, 2022 | $21.5 | 21.7% | | Nine Months Ended September 30, 2023 | $47.8 | 14.1% | | Nine Months Ended September 30, 2022 | $56.4 | 22.8% | - The effective tax rate is determined using an estimated annual effective tax rate (EAETR) methodology, adjusted for discrete items, and can be volatile due to changes in income projections, tax laws, and audits[55][56] Note 9: Debt Long-term Debt (in Millions) | Debt Type | Interest Rate | Maturity Date | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------------- | :------------ | :------------ | :----------- | :----------- | | Revolving Credit Facility | 7.17% (SOFR) / 9.25% (Base) | 2027 | $0.0 | $0.0 | | 4.125% Convertible Senior Notes due 2025 | 4.125% | 2025 | $245.8 | $245.8 | | Transaction costs - 2025 Notes | | | ($2.7) | ($3.9) | | Total long-term debt | | | $243.1 | $241.9 | - Holders of the 2025 Notes have the option to convert their notes through December 31, 2023, and also from October 20, 2023, until 35 trading days after the effective date of the proposed Transaction with Allkem. The conversion rate is 114.4885 shares of common stock per $1,000 principal amount[60][61][62] - Livent was in compliance with all debt covenants (maximum first lien leverage ratio of 3.5 and minimum interest coverage ratio of 3.5) as of September 30, 2023[65] Note 10: Equity Common Stock Issued and Outstanding | Category | Issued | Treasury | Outstanding | | :---------------------------------------- | :------------ | :------------ | :------------ | | Balance as of December 31, 2022 | 179,652,125 | (103,575) | 179,548,550 | | RSU awards | 129,379 | — | 129,379 | | Stock option awards | 55,937 | — | 55,937 | | Purchases of treasury stock - NQSP | — | (4,543) | (4,543) | | Issuance of common stock - conversion of 2025 Notes | 114 | — | 114 | | Balance as of September 30, 2023 | 179,837,555 | (108,118) | 179,729,437 | - Accumulated other comprehensive loss (AOCL), net of tax, increased from ($51.0) million at December 31, 2022, to ($52.1) million at September 30, 2023, primarily due to foreign currency adjustments[70] - Livent paid no dividends for the three and nine months ended September 30, 2023 and 2022, and does not expect to pay any in the foreseeable future[72] Note 11: Earnings Per Share Basic and Diluted Earnings Per Share (Three Months Ended September 30) | Metric (in Millions, Except Per Share Data) | 2023 | 2022 | | :------------------------------------------ | :--- | :--- | | Net income | $87.4 | $77.6 | | Weighted average common shares outstanding - basic | 179.7 | 179.3 | | Dilutive share equivalents from share-based plans | 1.5 | 2.0 | | Dilutive share equivalents from 2025 Notes | 28.1 | 28.1 | | Weighted average common shares outstanding - diluted | 209.3 | 209.4 | | Basic earnings per common share | $0.49 | $0.43 | | Diluted earnings per common share | $0.42 | $0.37 | Basic and Diluted Earnings Per Share (Nine Months Ended September 30) | Metric (in Millions, Except Per Share Data) | 2023 | 2022 | | :------------------------------------------ | :--- | :--- | | Net income | $292.4 | $190.8 | | Weighted average common shares outstanding - basic | 179.7 | 169.3 | | Dilutive share equivalents from share-based plans | 1.5 | 1.8 | | Dilutive share equivalents from 2025 Notes | 28.1 | 28.1 | | Weighted average common shares outstanding - diluted | 209.3 | 199.2 | | Basic earnings per common share | $1.63 | $1.13 | | Diluted earnings per common share | $1.40 | $0.96 | - For the three and nine months ended September 30, 2023, 181,024 and 146,770 stock options, respectively, were anti-dilutive and excluded from diluted EPS calculation because their exercise price ($23.33 per share) was greater than the average market price[77] Note 12: Financial Instruments, Risk Management and Fair Value Measurements - Livent uses derivative financial instruments, primarily foreign exchange forward contracts, to mitigate currency risk from international operations (Euro, British pound, Chinese yuan, Japanese yen), but does not hedge Argentine peso risk due to limited availability and high cost[83][85] - As of September 30, 2023, the net derivative financial instrument position was a net asset of $0.3 million, with open forward contracts to buy, sell, or exchange foreign currencies with a U.S. dollar equivalent of approximately $12.4 million designated as cash flow hedges and $112.1 million not designated as cash flow hedges[87][91][93] - The estimated fair value of debt was $533.2 million, with a carrying amount of $243.1 million, as of September 30, 2023, classified as Level 2 in the fair value hierarchy[82] Note 13: Commitments and Contingencies - Livent is involved in various legal proceedings, including customs and tax audits in Argentina related to lithium carbonate exports from 2015-2022[104][108] - In June 2023, the company paid $21.7 million under protest for export duties and interest claimed by Argentine Customs Authorities for 2018-2022 exports, with cases remaining in discussion[116] Operating Lease Costs and Liabilities (in Millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease cost | $0.4 | $0.3 | $1.0 | $1.0 | | Short-term lease cost | $0.1 | $0.1 | $0.3 | $0.3 | | Total lease cost | $0.5 | $0.4 | $1.3 | $1.3 | | Cash paid for operating leases | $0.4 | $0.3 | $1.1 | $1.0 | - As of September 30, 2023, operating leases had a weighted average remaining lease term of 17.3 years and a weighted average discount rate of 6.5%. Total future minimum lease payments are $11.5 million[112][113] Note 14: Supplemental Information Prepaid and Other Current Assets (in Millions) | Category | Sep 30, 2023 | Dec 31, 2022 | Change | | :---------------------------- | :----------- | :----------- | :----- | | Tax related items | $25.4 | $22.0 | +$3.4 | | Prepaid expenses | $6.7 | $11.6 | -$4.9 | | Argentina government receivable | $5.7 | $6.7 | -$1.0 | | Other receivables | $9.5 | $7.4 | +$2.1 | | Bank Acceptance Drafts | $0.0 | $6.9 | -$6.9 | | Derivative assets | $0.3 | $0.0 | +$0.3 | | Other current assets | $5.2 | $6.5 | -$1.3 | | Total | $52.8 | $61.1 | -$8.3 | Other Assets (in Millions) | Category | Sep 30, 2023 | Dec 31, 2022 | Change | | :---------------------------- | :----------- | :----------- | :----- | | Argentina government receivable | $105.3 | $80.3 | +$25.0 | | Advance to contract manufacturers | $26.3 | $17.2 | +$9.1 | | Long-term raw materials inventory | $1.3 | $1.6 | -$0.3 | | Tax related items | $4.0 | $3.7 | +$0.3 | | Capitalized software, net | $1.2 | $1.4 | -$0.2 | | Other assets | $17.8 | $12.2 | +$5.6 | | Total | $155.9 | $116.4 | +$39.5 | - A judicial decision in Argentina allows the government to reimburse $34.8 million of U.S. dollar-denominated export tax receivables in Argentine pesos at historical exchange rates, potentially leading to a loss of up to $33.8 million, though Livent has appealed[117] Accrued and Other Current Liabilities (in Millions) | Category | Sep 30, 2023 | Dec 31, 2022 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Accrued payroll | $25.8 | $19.8 | +$6.0 | | Restructuring reserves | $2.2 | $3.1 | -$0.9 | | Retirement liability - 401k | $2.1 | $2.6 | -$0.5 | | Derivative liabilities | $0.0 | $0.0 | $0.0 | | Environmental reserves, current | $0.6 | $0.6 | $0.0 | | Severance | $0.0 | $0.1 | -$0.1 | | Other accrued and other current liabilities | $24.3 | $11.2 | +$13.1 | | Total | $55.0 | $37.4 | +$17.6 | Other Long-term Liabilities (in Millions) | Category | Sep 30, 2023 | Dec 31, 2022 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Deferred compensation plan obligation | $6.1 | $5.1 | +$1.0 | | Contingencies related to uncertain tax positions | $6.8 | $5.7 | +$1.1 | | Self-insurance reserves | $1.4 | $1.5 | -$0.1 | | Asset retirement obligations | $0.2 | $0.2 | $0.0 | | Other long-term liabilities | $2.9 | $3.4 | -$0.5 | | Total | $17.4 | $15.9 | +$1.5 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Livent's financial performance, including an overview of its business, key highlights for Q3 2023, a business update on market conditions and operational challenges, the 2023 business outlook, detailed results of operations, and an analysis of liquidity and capital resources. It also includes forward-looking statements and critical accounting estimates Special Note Regarding Forward-Looking Information - The report contains forward-looking statements about future financial performance, growth strategies, business trends, and the proposed transaction with Allkem, which are subject to known and unknown risks and uncertainties[121][122] - Investors are cautioned not to place undue reliance on these statements, and the company is not obligated to publicly revise or update them[124] Application of Critical Accounting Estimates - Financial statements require management judgments, assumptions, and estimates, particularly for revenue recognition, trade receivables collectability, impairment of long-lived assets, and income taxes[125][127] - Despite global economic uncertainty (inflation, rising interest rates, conflicts), the company is not aware of specific events requiring updates to estimates or materially affecting asset/liability carrying values as of the report date[127] Overview - Livent is a fully integrated lithium company focused on producing high-performance lithium compounds, especially battery-grade lithium hydroxide, for the rapidly growing EV and energy storage battery markets[128][129] - The company also supplies butyllithium for polymers and pharmaceuticals, and high purity lithium metal for aerospace and non-rechargeable batteries, leveraging 80 years of production experience and customer relationships[129][130] Third Quarter 2023 Highlights - Livent entered into a Transaction Agreement with Allkem Limited for a merger of equals, stock-for-stock transaction, expected to close by the end of calendar year 2023[131] Key Financial Highlights (Three Months Ended September 30, 2023 vs. 2022) | Metric (in Millions) | 2023 | 2022 | Change (YoY) | | :------------------- | :--- | :--- | :----------- | | Revenue | $211.4 | $231.6 | -$20.2 (-9%) | | Net income | $87.4 | $77.6 | +$9.8 (+13%) | | Adjusted EBITDA | $119.7 | $110.8 | +$8.9 (+8%) | - Revenue decrease was due to lower lithium carbonate and butyllithium pricing/volumes, partially offset by increased lithium carbonate volumes and higher lithium hydroxide pricing. Net income increased due to a $10 million gain from Argentina bond sales and lower income tax, despite lower gross margin and higher restructuring charges[132] Business Update - The global demand for lithium products remains strong, driven by EV adoption, but the company faces challenges from inflation, high energy costs, supply chain disruptions, global conflicts, and higher interest rates[135] - Argentina operations face unique challenges including high inflation, a weakening currency, political uncertainty, and foreign exchange restrictions impacting imports and expansion project delays[137] - EV market trends include record sales in China (with increased LFP and PHEV share), strong growth in the U.S. despite IRA tax credit changes, and some demand reduction in Europe. Global price reductions in lithium chemicals are creating commercial and financial pressures[138][139] - Management is monitoring key material matters including the Allkem transaction, global expansion, Nemaska Lithium Project development, political/economic instability in Argentina, lithium market volatility, inflation, interest rates, supply chain issues, IRA impact, energy costs, global conflicts, potential U.S. government shutdown, and cybersecurity risks[140] 2023 Business Outlook - Livent expects total volumes sold in 2023 to be roughly flat year-over-year due to commissioning delays in lithium carbonate expansion, but this is not expected to impact 2024 volumes[141] - The company anticipates higher year-over-year average realized pricing on a lithium carbonate equivalent (LCE) basis and lower costs (primarily raw materials and third-party purchases), leading to higher profitability compared to full year 2022[141] Results of Operations Consolidated Results of Operations (Three Months Ended September 30) | Metric (in Millions) | 2023 | 2022 | Change (YoY) | | :------------------- | :--- | :--- | :----------- | | Revenue | $211.4 | $231.6 | -$20.2 (-9%) | | Gross margin | $116.5 | $119.4 | -$2.9 (-2%) | | SG&A expenses | $13.2 | $15.0 | -$1.8 (-12%) | | Restructuring and other charges | $8.6 | $0.7 | +$7.9 (+1129%) | | Equity in net loss of unconsolidated affiliate | $6.7 | $3.5 | +$3.2 (+91%) | | Income tax expense | $9.3 | $21.5 | -$12.2 (-57%) | | Net income | $87.4 | $77.6 | +$9.8 (+13%) | | Adjusted EBITDA (Non-GAAP) | $119.7 | $110.8 | +$8.9 (+8%) | Consolidated Results of Operations (Nine Months Ended September 30) | Metric (in Millions) | 2023 | 2022 | Change (YoY) | | :------------------- | :--- | :--- | :----------- | | Revenue | $700.7 | $593.8 | +$106.9 (+18%) | | Gross margin | $425.9 | $281.8 | +$144.1 (+51%) | | SG&A expenses | $47.1 | $40.6 | +$6.5 (+16%) | | Restructuring and other charges | $34.7 | $4.6 | +$30.1 (+654%) | | Equity in net loss of unconsolidated affiliate | $22.0 | $8.4 | +$13.6 (+162%) | | Income tax expense | $47.8 | $56.4 | -$8.6 (-15%) | | Net income | $292.4 | $190.8 | +$101.6 (+53%) | | Adjusted EBITDA (Non-GAAP) | $411.6 | $259.1 | +$152.5 (+59%) | - The increase in net income for Q3 2023 was primarily due to a $10 million gain from Argentina bond sales and lower income tax expense, partially offset by a decrease in gross margin and higher restructuring charges related to the Allkem transaction[152] - The increase in net income for YTD 2023 was primarily due to higher gross margin ($144.1 million) and lower income tax expense, partially offset by higher restructuring charges ($34.5 million) and increased equity in net loss of unconsolidated affiliate ($13.6 million)[159] Liquidity and Capital Resources Cash and Cash Equivalents (in Millions) | Period | Cash and Cash Equivalents | | :-------------------- | :------------------------ | | Sep 30, 2023 | $112.6 | | Dec 31, 2022 | $189.0 | - Cash provided by operating activities decreased to $261.8 million for YTD 2023 from $328.2 million for YTD 2022, primarily due to increased inventories and decreased accounts payable, despite higher net income[162] - Cash used in investing activities increased to $315.5 million for YTD 2023 from $225.7 million for YTD 2022, driven by higher capital expenditures for expansion projects and increased investment in Nemaska Lithium[163] - Cash used in financing activities increased to $21.5 million for YTD 2023 from $1.0 million for YTD 2022, mainly due to a $21.7 million payment to Argentina Customs Authorities[164] - Livent has $479.2 million remaining borrowing capacity under its Revolving Credit Facility as of September 30, 2023, and estimates 2023 total capital spending to be $325 million to $375 million[165][166] - The company expects adequate liquidity for the next 12 months through available cash, cash from operations, and Revolving Credit Facility borrowings, despite challenges in expansion projects and increasing energy costs, inflation, and interest rates[169][170] Contractual Obligations and Commercial Commitments - No significant changes to contractual commitments have occurred during the period ended September 30, 2023, compared to those disclosed in the 2022 Annual Report on Form 10-K[172] Climate Change - A detailed discussion related to climate change can be found in Part II, Item 7 of the 2022 Annual Report on Form 10-K[173] Off-Balance Sheet Arrangements - Livent does not have any off-balance sheet arrangements that are material or reasonably likely to have a current or future material effect on its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[174] Derivative Financial Instruments and Market Risks - Livent uses derivative contracts to manage market risks related to commodity prices, interest rates, and foreign currency exchange rates, aiming to minimize cash flow exposure[175] - As of September 30, 2023, the net derivative financial instrument position was a net asset of $0.3 million, with foreign currency hedges placed for 2023 projected exposure[177] - The company is exposed to currency risk from operations in Euro, British pound, Chinese yuan, Argentine peso, and Japanese yen, but does not hedge Argentine peso risk due to limited availability and high cost[178] - A sensitivity analysis shows that an instantaneous 10% strengthening of hedged currencies would result in a net liability position of ($1.1) million, while a 10% weakening would result in a net asset position of $1.4 million[179][180] - As of September 30, 2023, Livent had no interest rate swap agreements and no outstanding balances under the Revolving Credit Facility[181][182] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the detailed disclosures on market risk, including derivative financial instruments and foreign currency exchange rate risk, provided within Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - Information on quantitative and qualitative disclosures about market risk is incorporated by reference from 'Derivative Financial Instruments and Market Risks' under Item 2[183] Item 4. Controls and Procedures Management, with the CEO and CFO's participation, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023. No material changes in internal control over financial reporting occurred during the quarter - As of September 30, 2023, the company's disclosure controls and procedures were deemed effective to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[184] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[185] Part II - Other Information This section covers legal proceedings, risk factors, unregistered sales of equity securities, other information including a 10b5-1 trading plan, and a list of exhibits filed with the report Item 1. Legal Proceedings Livent is involved in various legal proceedings in the ordinary course of business, but based on current information and reserves, no known legal proceeding is expected to have a material adverse effect on its financial position, liquidity, or results of operations - No known legal proceeding is expected to have a material adverse effect on the company's financial position, liquidity, or results of operations, based on current information and established reserves[187] - There are no material changes from legal proceedings previously disclosed in the 2022 Annual Report on Form 10-K, except as noted in Note 13 of the condensed consolidated financial statements[187] Item 1A. Risk Factors This section highlights risks related to the proposed merger with Allkem Limited, including uncertainties in closing conditions, potential regulatory impositions, the impact of termination, and disruptions to business operations. It also addresses operational risks such as cybersecurity breaches Risks Relating to the Proposed Transaction with Allkem Limited - The completion of the Allkem transaction is subject to numerous conditions, including shareholder and regulatory approvals, and may not be completed, or could be delayed, impacting anticipated benefits[189][190] - Regulatory entities may impose conditions (e.g., divestitures, restrictions) that could reduce the anticipated benefits of the transaction or prevent its closing[192][193][194] - Termination of the transaction could adversely affect Livent's business, stock price, and relationships, and may require a $64.6 million termination fee under certain circumstances[195][196] - The pendency of the transaction could disrupt business operations, affect relationships with stakeholders, divert management resources, and potentially lead to loss of personnel, customers, or suppliers[197] - Restrictions in the Transaction Agreement limit Livent's ability to pursue alternative business strategies or competing transaction proposals, potentially limiting value for stockholders[198][199] - Shareholder class actions or derivative lawsuits related to the transaction could result in substantial costs, divert resources, and potentially delay or prevent the transaction[200][201] Operational Risks - Cybersecurity breaches or disruptions to information technology systems (both internal and third-party Business Partners) could lead to data leakage, business disruptions, loss of assets (including trade secrets), litigation, regulatory violations, and reputational damage[202][203][204] - The company relies on Business Partners for security measures, and their failures could result in significant resource expenditure to mitigate impacts and prevent future incidents[204] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the repurchases of common shares by the Livent Non-Qualified Savings Plan (NQSP) trustee during the third quarter of 2023, noting that these are not part of publicly announced stock repurchase programs Repurchases of Common Shares (Three Months Ended September 30, 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------- | :------------------------------- | :--------------------------- | | July 1 through July 31, 2023 | 244.7 | $26.53 | | August 1 through August 31, 2023 | 297.3 | $21.75 | | September 1 through Sep 30, 2023 | 1,168.4 | $18.76 | | Total Q3 2023 | 1,710.4 | $20.39 | - Shares were reacquired by the trustee of the Livent NQSP through open-market purchases related to employee investments, not part of publicly announced stock repurchase programs[208] Item 5. Other Information This section discloses a Rule 10b5-1 trading plan adopted by the company's Vice President and Chief Financial Officer, Gilberto Antoniazzi, for the sale of 20,343 shares upon stock option exercise, effective from November 15, 2023, to December 29, 2023, or earlier termination conditions - Gilberto Antoniazzi, VP and CFO, adopted a Rule 10b5-1 trading plan to sell 20,343 shares upon stock option exercise, with sales commencing November 15, 2023, and terminating by December 29, 2023, or earlier under specified conditions[210] - No other directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2023[211] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including amendments to the Transaction Agreement, certifying statements from the CEO and CFO, and the Interactive Data File - The report includes exhibits such as amendments to the Transaction Agreement (dated August 2, 2023, and November 5, 2023), Certifying Statements of the CEO and CFO (pursuant to Sections 302 and 1350 of Sarbanes-Oxley Act), and an Interactive Data File (Inline XBRL)[214] Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q, confirming its submission on behalf of Livent Corporation by its Vice President and Chief Financial Officer, Gilberto Antoniazzi - The report was signed by Gilberto Antoniazzi, Vice President and Chief Financial Officer, on November 9, 2023, on behalf of Livent Corporation[216][217]