Livent(LTHM) - 2023 Q1 - Quarterly Report

Glossary of Terms This section provides definitions for specialized terms used throughout the financial report Part I - FINANCIAL INFORMATION This part presents Livent Corporation's unaudited condensed consolidated financial statements and management's discussion and analysis for the period Item 1. Financial Statements This section presents Livent Corporation's unaudited condensed consolidated financial statements for the three months ended March 31, 2023 and 2022, including statements of operations, comprehensive income, balance sheets, cash flows, and equity, along with detailed notes on accounting policies, revenue recognition, investments, debt, equity, and other financial instruments Condensed Consolidated Statements of Operations This statement details Livent Corporation's revenues, costs, and net income for the three months ended March 31, 2023 and 2022 | Metric (in Millions, Except Per Share Data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $253.5 | $143.5 | | Cost of sales | $87.5 | $83.6 | | Gross margin | $166.0 | $59.9 | | Selling, general and administrative expenses | $16.3 | $11.8 | | Research and development expenses | $1.0 | $0.9 | | Restructuring and other charges | $1.9 | $1.0 | | Separation-related costs | $— | $0.1 | | Total costs and expenses | $106.7 | $97.4 | | Income from operations before equity in net loss of unconsolidated affiliates and other gain | $146.8 | $46.1 | | Equity in net loss of unconsolidated affiliates | $8.1 | $2.2 | | Other gain | $— | $(14.0) | | Income from operations before income taxes | $138.7 | $57.9 | | Income tax expense | $23.9 | $4.7 | | Net income | $114.8 | $53.2 | | Net income per weighted average share - basic | $0.64 | $0.33 | | Net income per weighted average share - diluted | $0.55 | $0.28 | | Weighted average common shares outstanding - basic | 179.6 | 161.7 | | Weighted average common shares outstanding - diluted | 209.2 | 191.4 | Condensed Consolidated Statements of Comprehensive Income This statement presents Livent Corporation's net income and other comprehensive income or loss components for the specified periods | Metric (in Millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income | $114.8 | $53.2 | | Other comprehensive income/(loss), net of tax: | | | | Foreign currency translation gain/(loss) arising during the period | $1.5 | $(1.0) | | Total foreign currency translation adjustments | $1.5 | $(1.0) | | Unrealized hedging gains, net of tax | $0.2 | $0.1 | | Total derivative instruments | $0.2 | $0.1 | | Other comprehensive income/(loss), net of tax | $1.7 | $(0.9) | | Comprehensive income | $116.5 | $52.3 | Condensed Consolidated Balance Sheets This statement provides a snapshot of Livent Corporation's assets, liabilities, and equity as of March 31, 2023, and December 31, 2022 | Metric (in Millions) | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | ASSETS | | | | Cash and cash equivalents | $194.1 | $189.0 | | Trade receivables, net | $112.9 | $141.6 | | Inventories, net | $184.1 | $152.3 | | Prepaid and other current assets | $67.5 | $61.1 | | Total current assets | $558.6 | $544.0 | | Investments | $453.3 | $440.3 | | Property, plant and equipment, net | $1,040.0 | $968.3 | | Total assets | $2,180.3 | $2,074.2 | | LIABILITIES AND EQUITY | | | | Accounts payable, trade and other | $64.7 | $81.7 | | Accrued and other current liabilities | $36.2 | $37.4 | | Total current liabilities | $132.1 | $148.7 | | Long-term debt | $242.3 | $241.9 | | Total current and long-term liabilities | $619.3 | $631.2 | | Total equity | $1,561.0 | $1,443.0 | | Total liabilities and equity | $2,180.3 | $2,074.2 | Condensed Consolidated Statements of Cash Flows This statement outlines Livent Corporation's cash inflows and outflows from operating, investing, and financing activities | Metric (in Millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Cash provided by operating activities | $102.9 | $10.8 | | Cash used in investing activities | $(98.1) | $(55.4) | | Cash (used in)/provided by financing activities | $(0.1) | $0.1 | | Effect of exchange rate changes on cash and cash equivalents | $0.4 | $— | | Increase/(decrease) in cash and cash equivalents | $5.1 | $(44.5) | | Cash and cash equivalents, beginning of period | $189.0 | $113.0 | | Cash and cash equivalents, end of period | $194.1 | $68.5 | - Cash payments for income taxes, net of refunds, were $1.9 million in Q1 2023 and $2.4 million in Q1 2022. Cash payments for interest were $5.5 million for both periods. Capitalized interest expense was $3.9 million in Q1 2023 and $4.0 million in Q1 2022[23] Condensed Consolidated Statements of Equity This statement details changes in Livent Corporation's shareholders' equity for the three months ended March 31, 2023 | Metric (in Millions) | Balance as of Dec 31, 2022 | Net Income | Stock Compensation Plans | Exercise of Stock Options | Shares Withheld for Taxes | Net Hedging Gains | Foreign Currency Translation Adjustments | Balance as of Mar 31, 2023 | | :------------------------------------------ | :------------------------- | :--------- | :----------------------- | :------------------------ | :-------------------------- | :---------------- | :--------------------------------------- | :------------------------- | | Common Stock, $0.001 Per Share Par Value | $0.1 | $— | $— | $— | $— | $— | $— | $0.1 | | Capital In Excess of Par Value | $1,160.4 | $— | $1.9 | $0.1 | $(0.5) | $— | $— | $1,161.9 | | Retained Earnings | $334.4 | $114.8 | $— | $— | $— | $— | $— | $449.2 | | Accumulated Other Comprehensive Loss | $(51.0) | $— | $— | $— | $— | $0.2 | $1.5 | $(49.3) | | Treasury Stock | $(0.9) | $— | $— | $— | $— | $— | $— | $(0.9) | | Total Equity | $1,443.0 | $114.8 | $1.9 | $0.1 | $(0.5) | $0.2 | $1.5 | $1,561.0 | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1: Description of the Business Livent Corporation manufactures a diverse range of lithium products, primarily for lithium-based batteries, specialty polymers, and chemical synthesis. The company anticipates significant growth driven by the increasing adoption of electric vehicles (EVs) and other energy storage applications, with major market growth in Asia, Europe, and North America - Livent manufactures lithium products for lithium-based batteries, specialty polymers, and chemical synthesis applications[31] - A major growth driver for lithium is the increasing adoption of electric vehicles (EVs) and other energy storage applications[31] - Significant market growth for lithium chemicals is occurring in Asia, followed by Europe and North America, primarily due to lithium-ion battery development[32] 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. The unaudited interim results are not indicative of full-year performance and should be read in conjunction with the 2022 Annual Report on Form 10-K - Financial statements prepared in accordance with SEC interim reporting requirements and U.S. GAAP[33] - Certain notes or financial information are condensed or omitted as permitted for interim reporting[33] - Unaudited interim results are not necessarily indicative of full-year results and should be read with the 2022 Annual Report on Form 10-K[33] Note 3: Recently Issued and Adopted Accounting Pronouncements and Regulatory Items For information regarding recently issued and adopted accounting pronouncements and regulatory items, readers are directed to Note 3 of the company's consolidated financial statements in its 2022 Annual Report on Form 10-K - Refer to Note 3 in Part II, Item 8 of the 2022 Annual Report on Form 10-K for more information on recently issued and adopted accounting pronouncements and regulatory items[34] Note 4: Revenue Recognition Revenue is disaggregated by geographical area and product category, showing significant growth in Asia Pacific and North America, and strong performance in Lithium Hydroxide and Butyllithium. The company has a high customer concentration and substantial multi-year take-or-pay supply agreements Disaggregated Revenue by Geographical Region (in Millions) | Geographical Region | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------ | :-------------------------------- | :-------------------------------- | | North America | $51.9 | $21.3 | | Latin America | $1.8 | $— | | Europe, Middle East & Africa | $32.8 | $14.7 | | Asia Pacific | $167.0 | $107.5 | | Consolidated Revenue | $253.5 | $143.5 | - For Q1 2023, China, the U.S., South Korea, and Japan were countries with sales exceeding 10% of consolidated revenue, totaling $88.4M, $50.2M, $35.1M, and $33.4M respectively[35] - Two customers accounted for approximately 25% and 19% of consolidated revenue in Q1 2023, and the top 10 customers accounted for approximately 68% of consolidated revenue[36] Disaggregated Revenue by Major Product Category (in Millions) | Product Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Lithium Hydroxide | $152.7 | $67.5 | | Butyllithium | $76.3 | $33.7 | | High Purity Lithium Metal and Other Specialty Compounds | $15.0 | $13.4 | | Lithium Carbonate and Lithium Chloride | $9.5 | $28.9 | | Consolidated Revenue | $253.5 | $143.5 | - The aggregate amount of revenue expected to be recognized related to multi-year take-or-pay supply agreements is approximately $1.8 billion over the next six years[42] Note 5: Inventories, Net The company's net inventories increased to $184.1 million as of March 31, 2023, from $152.3 million at December 31, 2022, primarily driven by an increase in semi-finished goods Inventories, Net (in Millions) | Inventory Category | March 31, 2023 | December 31, 2022 | | :----------------- | :------------- | :---------------- | | Finished goods | $49.8 | $44.6 | | Semi-finished goods | $100.7 | $57.1 | | Raw materials, supplies, and other | $33.6 | $50.6 | | Inventories, net | $184.1 | $152.3 | Note 6: Investments Livent holds a 50% equity interest in Nemaska Lithium Inc., a non-public mining company developing the Nemaska Lithium Project. The investment is accounted for using the equity method, resulting in a higher net loss from unconsolidated affiliates in Q1 2023 due to project-related costs - Livent owns a 50% equity interest in Nemaska Lithium Inc. (NLI), a non-public mining company developing the Nemaska Lithium Project in Québec, Canada[45][46] - The investment is accounted for as an equity method investment on a one-quarter lag basis[46] Equity in Net Loss of Unconsolidated Affiliates (in Millions) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Equity in net loss of unconsolidated affiliates | $8.1 | $2.2 | | Carrying amount of equity interest in Nemaska Lithium | $449.3 (as of Mar 31, 2023) | $437.1 (as of Dec 31, 2022) | Note 7: Restructuring and Other Charges Total restructuring and other charges increased to $1.9 million in Q1 2023 from $1.0 million in Q1 2022, primarily due to higher severance-related and exit costs Restructuring and Other Charges (in Millions) | Charge Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Severance-related and exit costs | $1.7 | $0.5 | | Environmental remediation | $0.1 | $0.1 | | Other | $0.1 | $0.4 | | Total Restructuring and other charges | $1.9 | $1.0 | Note 8: Income Taxes The company determines its interim tax provision using an estimated annual effective tax rate (EAETR) methodology. Income tax expense significantly increased in Q1 2023 to $23.9 million, resulting in an effective tax rate of 17.2%, compared to $4.7 million and 8.1% in Q1 2022 - Interim tax provision is determined using an Estimated Annual Effective Tax Rate (EAETR) methodology[48] Income Tax Expense and Effective Tax Rate (in Millions) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Income tax expense | $23.9 | $4.7 | | Effective tax rate | 17.2% | 8.1% | Note 9: Debt Livent's long-term debt remained stable at $242.3 million as of March 31, 2023, primarily consisting of 4.125% Convertible Senior Notes due 2025, which are now convertible at the option of holders. The company also maintains a $500 million Revolving Credit Facility with $485.1 million available and is in compliance with all debt covenants Long-Term Debt (in Millions) | Debt Instrument | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | 4.125% Convertible Senior Notes due 2025 | $245.8 | $245.8 | | Transaction costs - 2025 Notes | $(3.5) | $(3.9) | | Total long-term debt | $242.3 | $241.9 | - Holders of the 2025 Notes have the option to convert all or any portion of their notes through June 30, 2023, due to the common stock price exceeding 130% of the conversion price[53] - The company has a $500 million senior secured revolving credit facility, with $485.1 million available funds as of March 31, 2023, and was in compliance with all debt covenants (maximum first lien leverage ratio of 3.5, minimum interest coverage ratio of 3.5)[55][56] Note 10: Equity Livent's total equity increased to $1,561.0 million as of March 31, 2023, driven by net income and stock compensation plans. The company does not expect to pay dividends in the foreseeable future Common Stock Issued and Outstanding | Metric | Balance as of Dec 31, 2022 | RSU Awards | Stock Option Awards | Purchases of Treasury Stock - NQSP | Balance as of Mar 31, 2023 | | :------------------------------------------ | :------------------------- | :--------- | :------------------ | :--------------------------------- | :------------------------- | | Issued | 179,652,125 | 53,374 | 10,273 | — | 179,715,772 | | Treasury | (103,575) | — | — | (1,898) | (105,473) | | Outstanding | 179,548,550 | 53,374 | 10,273 | (1,898) | 179,610,299 | Accumulated Other Comprehensive Loss (in Millions) | Metric | As of Dec 31, 2022 | Other Comprehensive Losses Before Reclassifications | As of Mar 31, 2023 | | :------------------------------------------ | :----------------- | :-------------------------------------------------- | :----------------- | | Foreign currency adjustments | $(51.0) | $1.5 | $(49.5) | | Derivative Instruments | $— | $0.2 | $0.2 | | Accumulated other comprehensive loss, net of tax | $(51.0) | $1.7 | $(49.3) | - The company paid no dividends for the three months ended March 31, 2023 and 2022, and does not expect to pay any in the foreseeable future[62] Note 11: Earnings Per Share Basic earnings per common share increased to $0.64 in Q1 2023 from $0.33 in Q1 2022, while diluted EPS rose to $0.55 from $0.28. The calculation includes dilutive share equivalents from share-based plans and 2025 Notes, with certain stock options being anti-dilutive in Q1 2023 Earnings Per Share Calculation (in Millions, Except Share and Per Share Data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income | $114.8 | $53.2 | | Weighted average common shares outstanding - basic | 179.6 | 161.7 | | Dilutive share equivalents from share-based plans | 1.5 | 1.6 | | Dilutive share equivalents from 2025 Notes | 28.1 | 28.1 | | Weighted average common shares outstanding - diluted | 209.2 | 191.4 | | Basic earnings per common share | $0.64 | $0.33 | | Diluted earnings per common share | $0.55 | $0.28 | - Options to purchase 182,109 shares of common stock at an average exercise price of $23.33 per share were anti-dilutive in Q1 2023 and excluded from diluted EPS calculation[67] Note 12: Financial Instruments, Risk Management and Fair Value Measurements Livent uses derivative financial instruments, primarily foreign exchange forward contracts, to manage currency risk exposures in various foreign currencies, excluding the Argentine peso. The company applies hedge accounting for cash flow hedges and recognizes fair value changes for non-designated derivatives in earnings. The fair value of debt is significantly higher than its carrying amount, and financial instruments are categorized into a three-level fair value hierarchy - The estimated fair value of the company's debt was $675.8 million, while the carrying amount was $242.3 million as of March 31, 2023. The 2025 Notes are classified as Level 2 in the fair value hierarchy[72] - The company uses foreign exchange forward contracts to reduce the effects of fluctuating foreign currency exchange rates, primarily for the Euro, British pound, Chinese yuan, and Japanese yen. It does not hedge Argentine peso risks[75] - As of March 31, 2023, the company had open foreign currency forward contracts in Accumulated Other Comprehensive Loss (AOCL) with a net after-tax gain position of $0.2 million designated as cash flow hedges[77] - Open forward contracts not designated as cash flow hedging instruments had a U.S. dollar equivalent of approximately $112.2 million as of March 31, 2023[81] Pre-tax Gain or (Loss) Recognized in Income on Derivatives Not Designated as Cash Flow Hedging Instruments (in Millions) | Derivative Type | Location of Gain or (Loss) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------ | :------------------------- | :-------------------------------- | :-------------------------------- | | Foreign Exchange contracts | Cost of sales | $2.1 | $(1.6) | | Total | | $2.1 | $(1.6) | Note 13: Commitments and Contingencies Livent is involved in various legal proceedings, including customs and tax audits in Argentina, for which a reasonable estimate of potential loss cannot currently be determined. The company's operating leases have a weighted average remaining term of 7.3 years and total future minimum lease payments of $6.7 million (undiscounted) - The company is a party to various legal proceedings, including customs audits (2015-2019, 2021, 2022) and transfer pricing audits (2017, 2018) by Argentine authorities related to Lithium Carbonate exports[94][96][97] - A range of reasonably possible liabilities for Argentine customs and tax matters cannot be currently estimated[97] - All leases are operating leases, with a weighted average remaining lease term of 7.3 years and a weighted average discount rate of 5.2% as of March 31, 2023[98][102] Maturity Analysis of Operating Lease Liabilities (Undiscounted Cash Flows in Millions) | Period | Undiscounted Cash Flows | | :--------------- | :---------------------- | | Remainder of 2023 | $1.0 | | 2024 | $1.4 | | 2025 | $1.4 | | 2026 | $0.6 | | 2027 | $0.3 | | Thereafter | $2.0 | | Total future minimum lease payments | $6.7 | | Less: Imputed interest | $(1.1) | | Total | $5.6 | Note 14: Supplemental Information This note provides detailed breakdowns of prepaid and other current assets, other assets, accrued and other current liabilities, and other long-term liabilities, highlighting significant items such as Argentina government receivables and deferred compensation plan obligations Prepaid and Other Current Assets (in Millions) | Category | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Tax related items | $18.7 | $22.0 | | Prepaid expenses | $10.1 | $11.6 | | Argentina government receivable | $7.2 | $6.7 | | Bank Acceptance Drafts | $18.8 | $6.9 | | Derivative assets | $0.3 | $— | | Total | $67.5 | $61.1 | Other Assets (in Millions) | Category | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Argentina government receivable | $81.7 | $80.3 | | Advance to contract manufacturers | $20.2 | $17.2 | | Long-term raw materials inventory | $1.6 | $1.6 | | Tax related items | $3.9 | $3.7 | | Capitalized software, net | $1.4 | $1.4 | | Other assets | $13.4 | $12.2 | | Total | $122.2 | $116.4 | Accrued and Other Current Liabilities (in Millions) | Category | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Accrued payroll | $13.2 | $19.8 | | Restructuring reserves | $2.9 | $3.1 | | Retirement liability - 401k | $0.7 | $2.6 | | Environmental reserves, current | $0.6 | $0.6 | | Severance | $— | $0.1 | | Other accrued and other current liabilities | $18.8 | $11.2 | | Total | $36.2 | $37.4 | Other Long-Term Liabilities (in Millions) | Category | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Deferred compensation plan obligation | $6.2 | $5.1 | | Contingencies related to uncertain tax positions | $6.1 | $5.7 | | Self-insurance reserves | $1.5 | $1.5 | | Asset retirement obligations | $0.2 | $0.2 | | Other long-term liabilities | $4.1 | $3.4 | | Total | $18.1 | $15.9 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Livent's financial condition and results of operations for the three months ended March 31, 2023, highlighting significant revenue and net income growth driven by higher pricing and lithium hydroxide sales volumes. It also discusses critical accounting estimates, business outlook, liquidity, capital resources, and market risks, while acknowledging global economic uncertainties and operational challenges SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION This section provides important cautionary statements regarding the forward-looking nature of certain information presented in the report - The report contains forward-looking statements identified by words like 'will likely result,' 'expect,' 'believe,' 'anticipates,' 'predicts,' 'forecasts,' 'estimates,' 'projects,' 'potential,' or 'intends'[114] - These statements are based on current views and assumptions and involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[114] - Investors are cautioned not to place undue reliance on forward-looking statements, and the company is under no duty to publicly revise or update them[116] APPLICATION OF CRITICAL ACCOUNTING ESTIMATES This section discusses the significant judgments, assumptions, and estimates inherent in the company's financial reporting - Financial statements require management judgments, assumptions, and estimates that can materially impact financial condition and results of operations[117] - Critical accounting estimates, involving significant measurement uncertainty and subjectivity, are reviewed with the Audit Committee[118] - Despite global economic uncertainties (inflation, rising interest rates, Ukraine conflict), the company is not aware of specific events requiring an update to estimates or materially affecting asset/liability carrying values as of the report date[119] OVERVIEW This section provides a high-level introduction to Livent Corporation's business, products, and strategic focus - Livent Corporation is a pure-play, fully integrated lithium company with approximately 80 years of production experience[120][121] - Primary products include battery-grade lithium hydroxide, lithium carbonate, butyllithium, and high purity lithium metal, critical for EV and energy storage battery markets[120][122] - The company's strategy focuses on supplying high-performance lithium compounds to the rapidly growing EV and broader energy storage battery markets[120] First Quarter 2023 Highlights This section summarizes Livent Corporation's key financial and operational achievements for the first quarter of 2023 Q1 2023 Financial Highlights (in Millions) | Metric | Q1 2023 | Q1 2022 | Change (%) | | :-------------------- | :------ | :------ | :--------- | | Revenue | $253.5 | $143.5 | 76.6% | | Net income | $114.8 | $53.2 | 115.8% | | Adjusted EBITDA | $157.4 | $53.3 | 195.3% | - The lithium market remains strong, driven by increased EV adoption and energy storage applications, despite global economic challenges like inflation, high energy costs, and supply chain disruptions[123] - Operations in Argentina face unique challenges including high inflation, a weakening currency, political uncertainty, and foreign currency restrictions impacting imports for operations and expansion projects[125] - Key matters management is monitoring include global expansion efforts, the Nemaska Lithium Project, lithium supply/demand balance, changing lithium prices, inflation, interest rates, currency fluctuations, recession prospects, and global supply chain issues[128] 2023 Business Outlook This section outlines Livent Corporation's expectations for its business performance and market conditions in 2023 - For 2023, Livent expects higher volumes, particularly in the second half due to new production units ramping up, and higher average pricing across its lithium products[129] - Higher profitability is anticipated versus 2022, with the outlook increased after achieving higher realized prices in the first quarter[129] - Higher costs are also expected compared to the prior year, mainly related to royalties, the ramp-up of new production units, and general inflationary pressures[129] RESULTS OF OPERATIONS This section provides a detailed analysis of Livent Corporation's financial performance for the three months ended March 31, 2023 and 2022 Consolidated Results of Operations (in Millions) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $253.5 | $143.5 | | Cost of sales | $87.5 | $83.6 | | Gross margin | $166.0 | $59.9 | | Selling, general and administrative expenses | $16.3 | $11.8 | | Research and development expenses | $1.0 | $0.9 | | Restructuring and other charges | $1.9 | $1.0 | | Separation-related costs | $— | $0.1 | | Total costs and expenses | $106.7 | $97.4 | | Income from operations before equity in net loss of unconsolidated affiliates and other gain | $146.8 | $46.1 | | Equity in net loss of unconsolidated affiliates | $8.1 | $2.2 | | Other gain | $— | $(14.0) | | Income from operations before income taxes | $138.7 | $57.9 | | Income tax expense | $23.9 | $4.7 | | Net income | $114.8 | $53.2 | Non-GAAP Reconciliation (in Millions) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net income | $114.8 | $53.2 | | Add back: Income tax expense | $23.9 | $4.7 | | Add back: Depreciation and amortization | $6.8 | $6.4 | | EBITDA (Non-GAAP) | $145.5 | $64.3 | | Add back: Argentina remeasurement losses | $4.1 | $1.0 | | Add back: Restructuring and other charges | $1.9 | $1.0 | | Add back: Separation-related costs | $— | $0.1 | | Add back: COVID-19 related costs | $— | $0.8 | | Add back: Other loss | $5.9 | $1.6 | | Subtract: Blue Chip Swap gain | $— | $(14.0) | | Subtract: Argentina interest income | $— | $(1.5) | | Adjusted EBITDA (Non-GAAP) | $157.4 | $53.3 | Revenue This section analyzes the drivers and changes in Livent Corporation's revenue for the first quarter of 2023 - Revenue for Q1 2023 increased by $110.0 million, or approximately 77%, to $253.5 million, compared to $143.5 million in Q1 2022[133] - The increase was driven by higher pricing across all products and higher lithium hydroxide sales volumes, partially offset by a decrease in lithium carbonate sales volumes[133] Gross margin This section examines the factors influencing Livent Corporation's gross margin performance in the first quarter of 2023 - Gross margin for Q1 2023 increased by $106.1 million, or approximately 177%, to $166.0 million, compared to $59.9 million in Q1 2022[134] - The increase was primarily due to higher pricing across all products and higher lithium hydroxide sales volumes, partially offset by decreased lithium carbonate sales volumes and higher raw material and other operating costs[134] Selling, general and administrative expenses This section details the changes and primary drivers of Livent Corporation's selling, general, and administrative expenses - Selling, general and administrative expenses for Q1 2023 increased by $4.5 million, or approximately 38%, to $16.3 million, compared to $11.8 million in Q1 2022[135] - The increase was primarily due to higher professional fees and employee compensation[135] Equity in net loss of unconsolidated affiliate This section explains the increase in Livent Corporation's equity in net loss from its unconsolidated affiliate - Equity in net loss of unconsolidated affiliate increased by $5.9 million to $8.1 million in Q1 2023, compared to $2.2 million in Q1 2022[136] - This increase is attributed to project-related costs incurred by Nemaska Lithium as it finalizes late-stage engineering work[136] Income tax expense This section analyzes the changes in Livent Corporation's income tax expense and effective tax rate - Income tax expense increased to $23.9 million in Q1 2023, compared to $4.7 million in Q1 2022[137] - The increase was primarily due to higher income from operations and fluctuations in foreign currency impacts in Argentina ($2.5 million in Q1 2023 vs. $(4.3) million in Q1 2022)[137] Net income This section details the significant increase in Livent Corporation's net income and its contributing factors - Net income for Q1 2023 increased by $61.6 million, or approximately 116%, to $114.8 million, compared to $53.2 million in Q1 2022[138] - The increase was primarily driven by higher pricing across all products and higher lithium hydroxide sales volumes, partially offset by decreased lithium carbonate sales volumes, higher raw material and operating costs, increased equity in net loss of unconsolidated affiliates, and higher income tax expense[138] - Q1 2022 included a $14.0 million gain from the sale of Argentina Sovereign U.S. dollar-denominated bonds[138] LIQUIDITY AND CAPITAL RESOURCES This section discusses Livent Corporation's cash position, cash flow activities, and available funding for operations and investments - Primary sources of cash are operations and borrowings under the Revolving Credit Facility[139] Cash and Cash Equivalents (in Millions) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $194.1 | $189.0 | | Cash held by foreign subsidiaries | $32.7 | N/A | Cash Flow Activities (in Millions) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Cash provided by operating activities | $102.9 | $10.8 | | Cash used in investing activities | $(98.1) | $(55.4) | | Cash (used in)/provided by financing activities | $(0.1) | $0.1 | - The increase in cash from operating activities was driven by higher net income and decreased trade receivables, partially offset by increased inventories and decreased accounts payable[142] - The increase in cash used in investing activities was primarily due to a $20.2 million investment in Nemaska Lithium and the absence of $14.0 million proceeds from bond sales in Q1 2022[143] - Remaining borrowing capacity under the Revolving Credit Facility was $485.1 million as of March 31, 2023[145] - Estimated 2023 total capital spending is in the range of $325 million to $375 million[146] - The company believes available cash, cash from operations, and borrowing availability will provide adequate liquidity for the next 12 months[150] Commitments and Contingencies This section refers to detailed information on Livent Corporation's various commitments and potential liabilities - Refer to Note 13 of the condensed consolidated financial statements for detailed information on commitments and contingencies[151] Contractual Obligations and Commercial Commitments This section confirms no significant changes to Livent Corporation's contractual obligations since the last annual report - There have been no significant changes to contractual commitments during the period ended March 31, 2023, compared to those disclosed in the 2022 Annual Report on Form 10-K[152] Climate Change This section directs readers to the company's annual report for a comprehensive discussion on climate change-related matters - A detailed discussion related to climate change can be found in Part II, Item 7 of the 2022 Annual Report on Form 10-K[153] Off-Balance Sheet Arrangements This section confirms that Livent Corporation has no material off-balance sheet arrangements impacting its financial condition - The company does not have any off-balance sheet arrangements that are material to investors or are reasonably likely to have a current or future effect on its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[154] DERIVATIVE FINANCIAL INSTRUMENTS AND MARKET RISKS This section discusses Livent Corporation's exposure to market risks and its strategies for managing them using derivative instruments - The company's earnings, cash flows, and financial position are exposed to market risks from fluctuations in commodity prices, interest rates, and foreign currency exchange rates[155] - A controlled program of risk management, including derivative contracts with major financial institutions, is used to minimize exposure[155] - As of March 31, 2023, the net derivative financial instrument position was a net asset of $0.3 million[157] Foreign Currency Exchange Rate Risk This section details Livent Corporation's exposure to foreign currency fluctuations and its hedging strategies, excluding the Argentine peso - The company is exposed to currency risk from sales, purchases, expenses, and intercompany loans denominated in currencies other than the U.S. dollar, primarily the Euro, British pound, Chinese yuan, Argentine peso, and Japanese yen[158] - Foreign currency debt and forward foreign exchange contracts are used to reduce net asset exposure and hedge firm/highly anticipated foreign currency cash flows, but the company does not hedge Argentine peso risks due to limited availability and high cost of suitable derivative instruments[158] Sensitivity Analysis: 10% Change in Foreign Currency Exchange Rates (in Millions) | Metric | Net asset position as of March 31, 2023 | Net liability position with 10% strengthening | Net asset position with 10% weakening | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------ | | Net asset/(liability) position | $0.3 | $(3.3) | $3.2 | Interest Rate Risk This section describes Livent Corporation's exposure to interest rate changes on its debt portfolio - The company's debt portfolio includes fixed-rate (2025 Notes) and variable-rate (Revolving Credit Facility) debt[162] - As of March 31, 2023, there were no outstanding balances under the Revolving Credit Facility[162] - The company can use interest rate swap agreements to manage interest rate exposure, but had none as of March 31, 2023[161] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the 'Derivative Financial Instruments and Market Risks' discussion within Item 2 for all required quantitative and qualitative disclosures regarding market risk - Information required by this item is provided in 'Derivative Financial Instruments and Market Risks' under Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations[163] Item 4. Controls and Procedures Management, with the participation of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023. No material changes in internal control over financial reporting occurred during the quarter - The company's disclosure controls and procedures were evaluated and concluded to be effective as of March 31, 2023[164] - No changes in internal control over financial reporting occurred during Q1 2023 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[165] Part II - OTHER INFORMATION This part includes information on legal proceedings, risk factors, equity sales, and exhibits for Livent Corporation Item 1. Legal Proceedings Livent is involved in routine legal proceedings, and based on current information and reserves, no material adverse effect on financial position, liquidity, or results of operations is expected. This section incorporates by reference relevant details from Note 13 of the condensed consolidated financial statements - The company is involved in legal proceedings in the ordinary course of business, including workers' compensation matters[167] - Based on currently available information and established reserves, no material adverse effect on financial position, liquidity, or results of operations is expected from known legal proceedings[167] - This section incorporates by reference information from Note 13 to the condensed consolidated financial statements[167] Item 1A. Risk Factors This section directs readers to review the comprehensive risk factors detailed in Part I, Item 1A of the company's 2022 Annual Report on Form 10-K, noting that additional, currently unknown or immaterial risks could also adversely affect the business - Readers should carefully consider the risk factors discussed in Part I, Item 1A of the 2022 Annual Report on Form 10-K[168] - Additional risks and uncertainties not currently known or deemed immaterial may also adversely affect the business, financial condition, or future results[168] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section summarizes the repurchases of Livent's common stock for the three months ended March 31, 2023, which were conducted by the trustee of the Livent Non-Qualified Savings Plan (NQSP) for employee investments, with no publicly announced stock repurchase programs Repurchases of Common Shares (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------------------------------------ | :------------------------------- | :--------------------------- | | January 1 through January 31, 2023 | 220.4 | $28.18 | | February 1 through February 28, 2023 | 336.8 | $29.50 | | March 1 through March 31, 2023 | 1,341 | $27.81 | | Total Q1 2023 | 1,898.2 | $28.15 | - Shares were reacquired by the trustee of the Livent NQSP for investments by employees in the company's common stock[172] - The company has no publicly announced stock repurchase programs[172] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including interactive data files, the compensation policy for non-employee directors, and certifying statements from the CEO and CFO - Exhibits include Interactive Data File (101), the cover page in Inline XBRL (104), Livent Corporation Compensation Policy for Non-Employee Directors (10.1), and Certifying Statements from the CEO and CFO (31.1, 31.2, 32.1, 32.2)[173][174] SIGNATURES This section contains the formal certification and signing of the quarterly report by an authorized officer - The report was signed on behalf of Livent Corporation by Gilberto Antoniazzi, Vice President and Chief Financial Officer, on May 4, 2023[177]