Sarge name Livent (LTHM) released the firm's second quarter financial results on Tuesday evening. Those results were strong. Again.
For the three month period ended June 30th. Livent posted adjusted EPS of $0.37 (GAAP EPS: $0.31) on revenue of $218.7M. Top and bottom line results both beat Wall Street while on a year over year basis, earnings grew 825% and revenues grew 114%. Adjusted EBITDA landed at $95M, up 78% sequentially and up six-fold over the year ago comp.
General Motors Agreement
Last week, Livent announced a supply deal with General Motors (GM) . The firm addressed the deal almost right away in last night's earnings related press release. The agreement is set to last six years, which will deliver lithium hydroxide starting in 2025 and bring with it a $198M advance payment from GM to be made at some point this calendar (2022) year. This increases certainty for Livent as the firm funds and plans capacity expansion. Livent CEO Paul Graves commented: "Auto OEMs are becoming more focused on securing reliable lithium supply to support their own aggressive electrification plans."
On That Note...
... We turn to capacity expansion. The firm announced that it remains on schedule to deliver its previously announced plans. Livent says that it will complete the first 10K metric ton expansion of lithium carbonate in Argentina by year's end 2022, with plans to add another 10K metric tons of capacity by the first quarter of 2023. The firm also sees 5K metric tons of lithium hydroxide capacity out of its North Carolina site at some point during Q4 2022. Beyond that, Livent expects to bring 15K metric tons of new capacity on line out of China by the end of CY 2023.
Outlook
Livent has increased guidance for the full year 2022. The firm raised its revenue outlook to $800M to $860M from $755M to $835M. Most of Wall Street seems to have been between $800M and $820M on this metric. The firm also increased its outlook for adjusted EBITDA from $290M to $350M to $325M to $375M. At the midpoints, the new guidance would amount to revenue growth of 97% and adjusted EBITDA growth of 404% over the full year 2021.
Balance Sheet
Livent ended the quarter with a net cash position of $49M, which is down significantly over the past six months. That said, the firm now has $421.3M worth of investments on the balance sheet. Not short-term investments, which I include in net cash, but long-term investments, which can not be included as a current asset. This $421.3M is up from $27.2M just six months ago.
Where were we? Oh, current assets... Receivables and inventories ($156.3M) were both higher over six months, leaving current assets at $386.3M, which is largely in-line with year's end 2021 despite having made large investments. Current liabilities amount to $148.8M. This puts LTHM's current ratio at a quite robust 2.60. Ex-inventories, the firm's quick ratio comes to 1.55. Still outstanding.
Total assets add up to $1.721.4B dominated by property, equipment and those already mentioned investments. There is no entry for intangible assets of any kind. None. Ooh-stinkin'-rah. Total liabilities less equity comes to $441.3M. Of that, $241.2M is related to long-term debt. I would normally recommend reducing debt in relation to cash, but we already know what the firm is doing with their cash and approve. This is a very strong balance sheet.
My Thoughts
Readers should know that I am long this stock and have been impressed with this company for quite some time. Maybe I'm biased. That said, the performance is I think plain to see. Demand for lithium, I can say is inelastic but is probably going to be at least somewhat durable as all things, but mostly automobiles are still in the early innings of trying to go green. Before you ask, the stock trades at an above market, but I think reasonable 21 times forward looking earnings.
Looking over the past year, readers will see that this stock has traded in a tight range. Support has presented at the $20 level or just below, repeatedly. Resistance has been much less regular, but has apexed in the low $30's.
Zooming in a bit, readers will see that LTHM has been trying to form a cup pattern, and has retaken its 50 day and 200 day SMAs this week. Should the stock be able to hold these lines that could be the catalyst that brings more professional investors on board.
As of June, LTHM had 602 funds invested in the name. Competitor Albemarle (ALB) , which is more diversified and more well known (reports tonight) has a rough 1,752 funds on board, so we know there are more professionals out there invested in this business that are not yet in LTHM.
My price targets have been, and remain $30 for a pit stop and then $39, which would be a loose 20% run past the highs of may. Panic? If you must, a break of that $19/$20 level below.
