Shares of Livent (LTHM) dropped 3.2% in Tuesday's after-hours trading following the pure-play lithium producer's release of its third-quarter report.
The stock's decline is attributable to the quarter's revenue and earnings missing Wall Street's consensus estimate and management lowering its full-year 2023 guidance.
Demand for lithium has been strong in recent years, driven by the rapid adoption of electric vehicles (EVs), which are powered by lithium-ion batteries. However, lithium stocks have struggled this year because average lithium prices have come down from the record highs set late last year, along with the concern among some investors that too much production capacity might be coming online relatively soon.
Livent's key numbers
| Metric | Q3 2022 | Q3 2023 | Change |
|---|---|---|---|
| Revenue | $231.6 million | $211.4 million | (9%) |
| GAAP operating income | $99.1 million | $96.7 million | (2%) |
| GAAP net income | $77.6 million | $87.4 million | 13% |
| Adjusted net income | $85.1 million | $91.9 million | 8% |
| GAAP earnings per share (EPS) | $0.37 | $0.42 | 14% |
| Adjusted EPS | $0.41 | $0.44 | 7% |
Data source: Livent. GAAP = generally accepted accounting principles.
Wall Street was looking for adjusted EPS of $0.46 on revenue of $273.6 million, so the company fell short of both expectations, with the revenue miss a big one.
In the first three quarters of the year, Livent generated cash from operations of $261.8 million, down 25% year over year. It ended the quarter with $112.6 million in cash and cash equivalents and $243.1 million in long-term debt on its books.
For context, in the prior quarter (Q2 2023), revenue grew 8% year over year to $235.8 million, and adjusted EPS jumped 38% to $0.51.
What happened with Livent in the quarter?
- Lithium volumes sold were about flat with the year-ago period, while average realized prices were lower.
- With respect to its pending merger with Australian Allkem, it has received "all required pre-closing regulatory approvals ... with the exception of foreign investment screening by the Australian Foreign Investment Review Board (FIRB)," according to the earnings release. This deal, announced in May, is still expected to close by the end of this year.
- Along with the earnings release, the company announced Arcadium Lithium plc will be the name of the combined new company. Its shares will trade on the New York Stock Exchange (NYSE) under the ticker ALTM, and on the Australian Securities Exchange (ASX) as LTM.
- The company released a feasibility study for the upstream Whabouchi mine portion of the Nemaska Lithium project located in Quebec, Canada, of which it has a 50% interest and is the operating partner. It said the "study supports previously outlined expectations for the project."
What the CEO had to say
Here's what CEO Paul Graves said in the earnings release:
We are working closely with our customers to meet their growing lithium demand needs as we prepare to meaningfully increase production volumes from our capacity expansions beginning in 2024. Additionally, we remain on track to close our transformational merger with Allkem by around the end of this year and look forward to combining our teams, assets, and collective strengths to create a leading integrated global lithium company.
2023 guidance lowered
| Metric | 2022 Result | Initial 2023 Guidance | 2023 Guidance Issued in May | Current 2023 Guidance | Projected Change YOY |
|---|---|---|---|---|---|
| Revenue | $813.2 million | $1 billion to $1.1 billion | $1.025 billion to $1.125 billion | $890 million to $940 million | 9% to 16% |
| Adjusted EBITDA* | $366.7 million | $510 million to $580 million | $530 million to $600 million | $500 million to $530 million | 36% to 45% |
Data source: Livent. EBITDA = earnings before interest, taxes, depreciation, and amortization. YOY = year over year.
The primary reason for the reduction in guidance is that Livent now expects its sales volumes for 2023 to be roughly flat with 2022. That's because of a delay in its capacity expansion project in Argentina.
Management still expects notably higher year-over-year average realized pricing and lower costs to drive "significantly improved performance versus 2022." Indeed, this is evident in the adjusted EBITDA outlook, which is still strong even after the downward adjustment.
