Albemarle Corporation (ALB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Virtual Fireside Chat with David Begleiter at Deutsche Bank. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. David Begleiter, Managing Director of Chemicals and Agriculture at Deutsche Bank. Sir, you may begin.

Thank you, and good morning. My name is David Begleiter of Deutsche Bank's U.S. Chemicals team. I'd like to welcome you to a virtual fireside chat with the management team of Albemarle. Joining us today from Albemarle is CEO, Luke Kissam; CFO, Scott Tozier; Meredith Bandy, who recently joined Albemarle as Vice President, Investor Relations and Sustainability; and Sharon McGee, Vice President, Investor Relations and Corporate Development. This call will last 45 minutes. While the call is open to the public, there is no public Q&A session. However, if you'd like to ask some questions, please e-mail them to me at [email protected]. With that, I'll hand over to Luke and Scott for some opening comments.

Hey, thanks, Dave. And thanks for hosting us this morning, and really appreciate all the folks on the phone joining us. Before we begin the Q&A, let me say that our thoughts are with all those around the globe impacted by the virus. Albemarle is managing the situation to protect our employees and the communities in which we operate. We've effectively implemented work-from-home protocols for nonessential employees at virtually all of Albemarle's sites around the globe. To date, we have not experienced any material negative impacts on operations because of the virus. All of our manufacturing units continue to operate as per our annual operating plan, but I'd caution everyone that a government action could change all that rapidly. Our focus is on controlling what is within our control. So we're monitoring our cash management daily. We're looking to accelerate our $100 million cost reduction program. We're keeping in close contact with our customers and our vendors. And we're making sure that our employees are safe, healthy and that they have the tools that they need to perform their task in this environment. I know that there is a keen focus on the crisis and the short and mid-term impact, but I want you to know that our 4-pronged long-term strategy remains intact. First of all, we're going to grow. We're going to invest in growth with a focus on cash generation in lithium through smart investments that leverage our advantaged resource position. We're going to maximize our earnings and cash from bromine and catalyst businesses through sustainable cost savings. We're going to continue to assess our portfolio for opportunities to divest non-core businesses and to acquire or build lithium conversion assets when the time is right. And finally, we're going to invest. We're going to take thoughtful and a disciplined approach to capital allocation while preserving financial flexibility. Now as we did when we solved the supply/demand of lithium, we changed our overall investment strategy, we altered it based upon the conditions. And we'll do that today. We're looking at our investments from a capital projects around the globe to ensure that it still makes sense to move forward or if it makes sense to move forward on a different time line. We want to maintain our financial flexibility and investment grade so that we have the opportunity in the future, when the time is right, to make strategic investments to accelerate our strategy. So we still feel great about our long-term strategy, we still feel like it's the right strategy. But we know, as we had in the past, we will alter and modify the execution of that strategy based on the conditions that we see in the short and midterm. With that, I'll turn the call back over to David for the Q&A.

Maybe, Luke, maybe first thing, you mentioned your businesses being impacted by coronavirus. How did they trend in the first 2 months of the quarter? How is the business impacted in China? And what are you seeing in March, specifically more in the U.S. and Europe?

Yes. So if we look at January and February, we saw -- the biggest impact on our business was logistic delays and the potential impact on deliveries to our customers and deliveries of raw materials through our facilities. We're managing that, but we're having to watch it closely. For instance, earlier this week -- or last week, I'm losing track of days, 2 big terminals at the Port of Houston was shut down for a period of time. So we're having to manage the logistics. In lithium, the major operations hurdles we had in the first couple of months where we were down. Some of our lithium plants at Chengdu and Xinyu, either the front end or the back end or both were down longer than we had anticipated because of the coronavirus and because of the operating restrictions. But to date, in lithium, we've experienced minimal order reductions from our customers and we've been able to produce what we need to fill the orders that we expected for the first quarter. In bromine, we've seen a little slowdown, a weaker first quarter in China. And dependent upon the continued outbreak, we could see that further on. But in the first couple of months of the year, what we saw, again, were logistics challenges. We had the orders. We had it produced. Could we get the -- could we get it shipped by the end of the first quarter? So it's not a demand issue, it's not a production issue, it was a logistical issue. In catalyst, what we've seen is lower fuel demand because of the shelter in place and the lack of travel that we've seen related to the pandemic. So since our earnings call, we've seen incrementally lower FCC volumes, and we're now also seeing refineries start to push out some turnarounds that could impact FCC order timing and mix? But it'll -- they will eventually have to turn around, it's just a matter of timing. So overall, we still expect the first quarter to be down around 25% year-over-year, in that range, somewhere like that, so not dramatically different than what we said on the call. And again, I'd say it's been more a logistics challenge than it has an order pattern or it has a production to date. And I think it's important to say, right now, today, all of our manufacturing assets are operating. Our nonessential employees are work-from-home protocoled, but our manufacturing sites are all still operating, accordance to the annual operating plan. And our major capital projects in Chile and Kemerton have not yet been impacted as a construction people having to go home. We are having issues relative to, particularly in Kemerton, some of the equipment that we had placed on order just needing time in the shop as China ramps back up. But I think that will take care over the course of the next few months.

And Luke, given some of the large-scale shutdowns occurring in the U.S. and Europe, any sense on your order books, at least for April, over the next, maybe 3 to 4 weeks?

Yes. I mean over the next 2 to 4 weeks, I mean in lithium and bromine, it still looks good. The one kind of area that could be a little weaker is in the specialty spot of lithium, the lithium alkyls and things like that, but that's -- we haven't seen anything in the battery space or in like energy storage, which would indicate over the next couple of months, we would see any diminution in our order books. I think because of -- you've all read about some of the OEM shutdowns in the automotive space. I think what we're watching is longer term, what impact will that have? And where will that impact come from? And in catalyst, in refining catalysts, on HPC particularly, because of those turnarounds, we're concerned and watching the delay of some of those turnarounds in HPC. And again, on FCC, we're seeing a lower volume than we would have anticipated because of the lower fuel demand per miles driven.

Very good. In today's slide deck, you mentioned in terms of guidance that 2020 guidance will be updated as the situation unfolds. So just to be clear, are you withdrawing guidance? Or is it being maintained for the time being?

I can't hear your question. I'm sorry, buddy.

I'm sorry. You said that 2020 guidance will be updated as the situation unfolds. So to be clear, are you withdrawing guidance or is it being maintained for the time being?

Yes. Right now, based upon the knowledge that we have today, our guidance is in place, but there's so much unfolding, David. So what we're seeing is, right now in the first quarter, we expect we're going to be down 25%, in that range. And then we'll update you on the call -- on our earnings call about what we're going to do for the full year. They're just -- it's rapidly evolving. Let me give you an example. In -- they passed -- they enacted a law in Jordan which essentially gives the Prime Minister rights to shut everything down. If they shut Jordan down and I can't export from the Port of Aqaba, then I have to move things to Magnolia and change things around. I don't -- they haven't done that, but that could happen. And if it does, we'll update you. In Chile, there's a 5 a.m. -- or 10 p.m. to 5 a.m. curfew. If they shut down La Negra, then we've got to move some things around. And I just don't know what's going to happen, David. So we're comfortable where we are for the first quarter. And give us time, let us get more of the information. And when we do our first quarter earnings call, we'll look to update you on the best knowledge we have then about what the year looks like. But we just don't know.

Got it. And look, just on Q1, the range did go from $20 million -- down $20 million to $25 million to down $25 million. It's about $10 million impact from the low to high. What segments is that being seen in, that $10 million?

It's mainly catalysts and bromine. And the bromine question is the logistics. It's not the orders and it's not the production, it's can we get it shipped? Can we get the vessels? Can we get the containers? And we're working like crazy to try and get it done, but so is everybody else. And so it's just a matter of can we get it shipped. So it's not -- it's a -- it's not a 2020 issue, it's a first quarter issue because I got till the 31st to get it all done, and I'm not sure we will. And we're trying to get that caution. In catalysts, it's FCC. It's an FCC issue on the volume. lithium still seems to be holding about where we thought it was going to be. And Fine Chemistry Services and PCs are about the same.

And I know you had given some first half guidance which implied Q2 will be up roughly $50 million versus Q1. As you mentioned before, a lot of uncertainty, but are you still looking at sequential growth Q1 to Q2? And is it -- is that roughly...

Yes. David, you're -- I know you're -- and I understand you guys are searching for as much certainty and predictability as you can. We don't know right now. So if you just give us till we do the next earnings call. I can sit here and speculate all day, but we need to be able to have real data and a little more data points to be able to point to. So if you just give us -- just bear with us until the earnings call, we will be as clear as we can.

Will do. You also mentioned in today's slide deck about -- on your cost actions, perhaps accelerating some of these cost savings. I believe you have $50 million of savings targeted in 2020 from $100 million program. How much more could you realize in 2020? Where are they coming from?

Well, they will come from the acceleration of some of the projects that we have. So if we were going to plan to do something in the third quarter, we're trying to pull them up to get them done in the second quarter. So it's an acceleration of the same buckets that Scott described on that first quarter earnings call. In addition to that, there are other projects that we're looking at. Obviously, some of them will be short term, David. If we get into a situation where we're -- we can't run a facility for either because of demand because of our -- our customer shutdown or because of demand, ultimately, then we got furloughs. We've got sites that -- we could shut down our highest cost production asset. We have the ability to do that around the globe because of our geographic diversity. We also are going to look at nonessential employees and do we have a rotating schedule. So everything -- we're pulling out the 2008, 2009 playbook. We're looking at everything that we did then that was successful and what wasn't. We're looking at various economic scenarios across the portfolio and having a plan to implement with objective criteria when we pull that trigger to be able to rip cost out as fast as possible so that we can maintain not only as much profitability as possible, but so that we can generate as much cash as we can even in a bad environment.

And Luke, on these other cost levers, you mentioned nonessential employees, furloughs, travel, et cetera, to mitigate the effects of this downturn. Any sense you can give us as to how large this bucket could be?

Well, look, if we told you that was $100 million that we were going to get in 2 years, I mean there's obviously another $50 million that we expect we can get by the end of '21. So how much could we accelerate into 2020? In addition to that, obviously, we said there was $100 million, but there's more on the list. It would be deeper cuts. But you just -- if we said it's a $100 million, you can rest assured we're working on more than that. So what I would say is there's more opportunity. But again, give us some time, and we'll be updating that number as appropriate as we look at guidance for the rest of the year as well.

Got it. And I was looking more at -- maybe more of temporary costs that would come back in as soon things improve. That...

Yes, I'm sorry. It depends 100% on demand. So if you look at -- if FCC demand really dropped, we've got 2 FCC units. We could furlough the highest cost. We've got 5 HPC units, they all make a different grade. We could shutter 1 of those units. So those are the kind of costs that I'm talking about. If operations aren't in running, if you don't have sales, you don't really need a whole lot of R&D. You don't need a whole lot of quality if you're not running your site. So there's, I think, in the event that we get into a recession, it's like '08 and '09, where demand dries up for an extended period of time, there is significant levers that we can pull. I'd remind you in 2008 and 2009, we shut down 1 of the brine fields in Magnolia, Arkansas. We've never done it before, but that's the kind of significant levers that we would have to -- that we have to pull. And we have the opportunity to do so if that's what the demand called for. Right now, again, we aren't seeing that from a demand perspective in lithium or in bromine. And we're not seeing it to the extent in catalysts, but I'm just -- I'm watching the miles driven demand, and we're watching that closely so that we have plans in place to address that if that stayed down for a significant period of time.

Very good. Maybe include -- I'll bring Scott into the conversation. Scott, [ there's ] a lot of focus in this environment on balance sheet and liquidity. Can you discuss Albemarle's balance sheet flexibility and your liquidity status today?

Yes, happy to, David. So we've got over $1 billion, about $1.3 billion, of liquidity available to us. We actually have a residual amount of the delayed term -- delayed draw term loan that we took out for the Wodgina transaction. Some of that's left over, and $1 billion on our revolver. So we're -- we feel like we're in pretty good shape. Our next bond maturity isn't until the end of 2021. And so far, the investment-grade market has been moving ahead okay. So at this point in time, we're, obviously, watching it carefully and staying very close to our banks. And treasury guys are talking to me daily in terms of what's coming at us and making sure we've got the cash and money and liquidity in the right spots around the world. So we'll keep on top of it and make sure we do the right things. But this is a time when investment-grade, our investment-grade status is really paying off. So a key reason why we wanted to maintain that investment-grade rating is showing up now.

Very good. And Luke and Scott, switching to CapEx and cash flow. Are you thinking about -- on CapEx, are you thinking about slowing down any of your CapEx spend in 2020, given the recent events? And is there CapEx you can actually cut this year without long-term implications to your growth rate?

Yes. So the majority of CapEx in 2020, as you know, is associated with the large projects that we have in La Negra and Kemerton. From a La Negra standpoint, we're bringing that mechanical completion later in the year, early next year. So it would be hard to stop it. You wouldn't get the significant amount of savings. You could stop it. And it may be from a Chilean government standpoint that they prohibit travel in such an extent that we have to shut it down. And if we do, we will and we can. But we need that volume for 2021, the second half of 2021. So we're working to be able to complete that project because it's so close to the end, all the major materials have now have been ordered, the equipment's there. It's just a matter of finishing the construction on some of the units. So we're working on that. I don't think it makes as much sense, but if we're forced to shut it down, we could do it. On Kemerton, a good deal of that commitment -- equipment, excuse me, we've already had to buy, so it's on the way. We still see the need for the volume as we bring that online in 2021. However, we continue to assess options to be able to slow that down, if necessary, in Western Australia. That is the one that -- Australia is about 50% of our CapEx for 2020, so that's where the significant number is. Again, we've ordered a good deal of that equipment and can't really slow that down because we've already entered into contracts. But there is the ability to limit what we could spend on that Kemerton project in 2020. That could push it out, the mechanical completion, further. In addition, we're looking at all the other spend that we have from a capital standpoint on sustaining capital, small projects and things such as that and looking to rank each one of those projects. If it's related to safety, it it's related to maintenance of an asset that we're going to need to operate consistently, we're certainly not going to cut that. But other capital, any other capital, any discretionary capital that we approved is back under review again.

Luke, in Australia, are you seeing restrictions on travel and work activity that could impact the pace of Kemerton?

Not -- well, we're -- all nonessential employees are working from -- are working from home now. The construction till -- still continues. We've been able to do that safely, but that could change. So we are monitoring it. We're following the World Health Organization and the CDC protocols and the local protocols in Australia. We believe we're still going to be able to operate, but you could see that. I'm more concerned about travel restrictions in Chile, quite frankly, than I am in Australia. The restrictions that we saw in Australia is going to be, can we get the equipment -- is on order from various parts of the world to the site in the time frame that we expected in order to continue the construction. Now what the team has done is made sure that we had the flexibility in that schedule to move the construction activities around so that we can be productive and efficient in that contract, in that construction, in spite of the fact that equipment may be delayed here and we may have to adjust what our schedule is. So I think they're doing a great job. It's just a matter of what equipment can get there when.

Very good. And Scott, if your EBITDA is down, let's say, pick a number, $100 million from the original guidance, is free cash flow down by the exact -- by the same amount? Or are there some offsets here?

No, there will be some offsets from working capital. So generally, when your revenue is down, you're going to liquidate some of your receivables from the balance sheet. So it won't be a one-for-one from a cash flow perspective. But obviously, it will be down. There's no way that you can offset the full impact of EBITDA dropping.

And could you walk from EBITDA to free cash flow this year from a high level perspective?

Yes, the big -- I mean obviously, the EBITDA, we'll see how that all plays out. But then you've got CapEx, it's in the $1 billion to a $1.1 billion range, assuming we don't do any other changes. That was our original guidance. Clearly, it could be lower than that given the changes that Luke just talked about. Our current view on working capital is that we'll end up being about flat in working capital. So really no hurt or no gain from working capital. Again, we'll see as the year progresses. And then we generally pay interest -- cash interest in the range of -- this year, it will be up in the $80 million to $90 million range, and cash taxes ends up being normally in the high teens on a percent of profit before tax. So those are the key movers.

Very good. And Luke, there is -- you do have a divestment process underway for Fine Chemistry and Performance Catalyst. Is that process continuing? And if so any update on when you might come to a conclusion on this process?

Yes, that process, the talks are continuing, they've been very positive, but we've put the process on right now. It's almost impossible to do the required due diligence and visits and things like that given all the travel restrictions and given just that people have been consumed on dealing with the coronavirus and the impact on their other businesses. So we've taken a pause on that, and we'll pick it back up at a point in time whenever everybody feels better about the coronavirus. And some time -- let's give it some time, and we'll pick it back up and go from there. But right now, it is on pause. And I can't predict when we would be able to have more detailed diligence reviews and things like that. But it had been going well before. So it's unfortunate, but it's the best path for us to take.

Got it. Maybe diving into the businesses. Luke, first on catalysts. You mentioned a lot of pressure on your refining customers, lower diesel, gasoline demand, narrower spreads, turnarounds being pushed out. Again, how is this manifesting itself in your catalysts business both in Q1 and perhaps going forward?

Well, I think in -- if you always think about it, any time that we've seen a oil price -- since we bought the business in '04, any time that you've seen an oil price below $30 a barrel, here's generally what happens. Crack spreads do okay, gasoline demand and diesel demand jump because miles driven jump. And that's good for FCC catalyst. You usually see a constant feed and a good volume of FCC catalysts. Here, what you see is you're not seeing the miles driven because people are sheltering in place. Jets aren't flying as much, they've had flights canceled. So you're seeing a reduction of demand for the end market fuels, which has that -- miles driven is what drives FCC catalyst. So we've seen a reduction in volume for FCC catalysts. And typically, what you see in HPC is, if it's below $30, particularly the integrated refiners, what you see is they push out that turnaround longer. And sometimes, they buy regenerated catalysts or rejuvenated catalysts, which we would sell through our joint venture. So -- but we're seeing them start to push out some of that demand. Now they can't push the turnaround out forever. Eventually, they may run to failure or run to a point that they have to turn it around, and we'll get to bid. But I think you're going to see a lower demand for FCC catalysts. What I will say is if the coronavirus or the travel restrictions ease up for summer driving or later this year for the driving, I think you're going to see a spike in demand for FCC catalyst because you'll see a spike in demand for fuel, in transportation fuel. So it's a short-term issue for, I think, FCC catalysts. If oil prices stayed down at this level for an extended period of time, you'll see even more lumpiness in the HPC catalysts because of the pushout of the turnouts.

Any concern over the overall health of your customers in the refinery industry?

No, not our customers. For the most part, our customers are the large units, and they're still running. And we're not selling that much into the shale, a bit. We're selling more into the bigger refineries, some national refineries. So I think we're going to be fine. I'm not concerned about that at all.

And if we do have a structurally lower oil price going forward, any changes you would make in your business to reflect that?

About, I guess, Scott, 5% to 10% of our overall raw material purchase are on that oil chain, Scott. So we ought to see some reduced...

[indiscernible]

Yes. Some reduced raw materials there. Our logistics probably go down because of fuel prices going down and natural gas would be down. So that would help us a little bit on the -- on the input side. On the output side, if we're going to see oil below $30 for the next -- if you tell me we're going to see that for the next 5 years, what I would tell you is that that would be great for FCC catalysts. I would expect to see the actual industry being -- operating on the lunatic fringe of capacity for the non-Chinese producers. In HPC, eventually, they're going to have to turn around. This has become a new normal for HPC. I don't see it has an impact on electric vehicles, if that's the question you're getting to. I think that, in our models and in the models that other people are talking about, it's more about regulatory-driven, miles per gallon, CAFE standards and things like that, than it is the actual price of gasoline moving that change to the EV. So I don't see it having much an impact overall in the EV demand going forward.

Got it. And last question, you mentioned in the slide deck today is raw material supply issues from China with -- you have sufficient supply into Q2. Just give a little more color on what happens if things don't improve in the next few weeks here.

Yes. I think if you look right now, China's pretty much open for business, particularly for the raw materials that impact us with the rare earth. We have some reliance on China for that. But right now, we don't -- it's less of a problem today than it was 3 to 4 weeks ago. So we're seeing that open up and not too concerned about that. And in the interim, we've worked through alternative plans that -- and we're doing that -- really, we talk about China, but we're having to do that across, just like everybody else is, across our portfolio, raw materials that we purchase in. Our purchases team has been making sure we're not single-sourced anywhere; we have options not only by companies, but geographic diversity of our raw materials that we can get in. Some of them is a penalty from a cost standpoint, but we'd be able to operate. And I'm comfortable in the plan that we've put out there that will allow us to get the raw materials we need, even a crisis situation. So even -- remember, even when you had the rare earth issue from China a few years ago, maybe a decade ago now, we were able to get the rare earth that we needed. So I'm confident we'll be able to do it.

Very good. Switching to lithium, Luke. It's been a tough Q1, obviously. Any impact from other -- industry shutdowns on the industry? And is that just being offset by lower EV demand? Or could it be some benefit from a supply/demand basis?

Yes. Well, I think we've got to be careful. I think you'd see that just recently in news, Orocobre and Livent have both ceased operations in Argentina. But that happened this week, so that impact hadn't happened. Tianqi announced they weren't starting up their lithium hydroxide plant in Kwinana, but that just got announced. So I don't think you've had it, the recent news, enough to ripple through the supply chain. Price has been about what we thought it was going to be. From our contracts, we told you we had set -- reached agreement on pricing and volume from all our customers, save one. That is still the case. And we are -- and they are operating under the terms of those agreements and have been complicit in those terms with the demand that they said they will take in the first quarter. So it hadn't really been impacted yet. Look, if we have an issue where the demand slows down, a lot of these juniors are going to not -- they not will be able to operate. I mean you can -- they're just not -- they're not financially going to be able to operate long term like that. And that's why it's so important for a company like Albemarle, where we're the low-cost producer in carbonate and in hydroxide, with the valuable resources that we have and the quality resources we have around the globe. So I think, ultimately, this is an opportunity for Albemarle in lithium and one that we'll emerge from all this much, much stronger in the lithium space than some of the others.

Very clear. Maybe just very short term, are you still seeing prices stable in China? And where do inventory stand amongst your customers and even your competitors?

Yes. I think price has been about what we expected it to be. I mean there was a little blip up in China pricing a couple of weeks ago, and that kind of -- it went up and it came back down after China started getting operating back to the -- about the level it was before. So we haven't seen any meaningful move in pricing in China on that market, with the exception of that one blip up. So.

And again, Chinese demand, is it -- how much -- is it back to normal levels? Is it still below what you were expecting at this time of the year?

Well, I mean you saw -- it's about what we expected, overall China demand and everywhere else. And so you remember, our earnings call, that was February 20-something. So it's only been 6 weeks or so. So it's about what we expected. We already had seen some of the coronavirus in China there. [ It rolled out ]. Again, David, short term, we haven't seen it. What I remain more concerned about is, in the latter stages of this year, when does the ripple effect come? Because there are automotive OEMs that are shut down. There are automotive OEMs who are reducing production, they're converting plants to produce other things other than automobiles. So we haven't seen the slowdown yet in the battery producers or the cathode producers buying the hydroxide or the carbonate. So eventually, I'm concerned about some time down in the process in the year, that there could be a buildup in that supply chain. But we haven't seen it yet, and our book of orders to date doesn't indicate that it's coming, but I'm worried about that. And worried about that. And we'll update you more on our earnings call at the end of the first quarter.

Got it. Maybe briefly and quickly on bromine. Luke, you mentioned the business is holding up pretty well, but you do have some exposure to oil through some completion fluids for high-pressure wells. What's your expectation for that business and its impact from a low oil price? And how big is this business? If you can remind people.

Yes. So Scott, remind them how big the completion fluids business is. I can't remember off the top of my head.

Yes, it runs somewhere between 10% and 12% of our volumes is in bromine. So.

So thanks, Scott. What we've seen to date is the order book has been strong. In fact, it's been much stronger than I anticipated. There's still some of these deepwater wells are -- they've already started them. So if you remember, '08 and '09, there's a tail on completion fluids. If they've already started drilling the wells, they got to continue. They continue. But if it's dragging a new rig somewhere and doing it deep water, sometimes that's -- so there's a tail. And right now, through everything that we're seeing, even with the low oil prices, they're still continuing to drill where they are. And it's usually about a 18-month tail, is what we experienced in '08 and '09. So I'm less worried about that. I'm, again, more in bromine about the logistics. And let's go back and look at '08 and '09 for a second. In '09, that bromine business essentially broke even for the first half of the year. And then it went on a trajectory because it had to build back up the inventory in the system. So 2010 and '11 were record years. One of those years, I can't remember whether it was '10 or '11, was we made more money In Bromine that year than we did in 2019, which was the second-best year we'd ever had. So it's a market that is -- you have to be able to respond rapidly, both going up and going back down. But it will recover. If it goes down -- if there's a recession and if bromine drops, it will recover rapidly.

And if I segue into my last section. Luke, if we are in a recession -- entering a recession that could last typically 12 -- 11, 12 months in average, how do you think about Albemarle's recessionary earnings power in this current environment?

Yes. So we talked a little -- I just talked a little bit about it there. I think in the '08 -- during the '09 recession, our bromine business EBITDA was right below 20%. And we had positive EBITDA for that year in 2009. And again, in 2010 and 2011, we had just great years. So we recovered very quickly. And there's better -- there's less production out of China than there was in '08, '09 in 2010. So to me, I think bromine, will there be an impact? Absolutely. It will still be profitable and we'll be able to recover quickly. Demand for catalysts is more closely tied to demand for transportation fuels and sulfur emissions. Like I talked about, in '09, we saw a slight decline in the HPC orders because they were delaying turnarounds but our FCC business wasn't impacted as much because miles driven remained pretty good during that period. But again, I'd remind you of the -- what we talked about, about the coronavirus. So but 2010 was a really good year for catalysts. So it popped back up again. Lithium, it's tough to look historically at lithium because if you go back and look at the records, lithium around the globe generally remained profitable during the 2008, 2009 recession. First quarter of 2009 was the worst quarter. And really, where the impact was, was specialties, showed earlier decline than did the energy storage applications. But it is much, much more difficult to make direct compressions in lithium than in the other business because the end market mix and the demand is so drastically different than it was in 2009. We're maintaining close contact with our customers. Our customers still indicate they intend to take the volume under the contracts. So I think we'll hold up about as expected, but we may need to push some volume into the next year, depending upon what the automotive OEMs do. So we've got to be smart there, and we will. So I think this business -- our goal is to structure our businesses so that we outperform in good times and in bad times. And I think we've learned from '08 and '09, we've learned from raw material crises like we saw with the rare earth epidemic that we had in -- about a decade ago out of China. So we are working to ensure that we put into practice plans for various scenarios with objective criteria that we can pull the trigger early -- earlier than we did in '08 and '09, so that we can meet our customers' demand yet still be as effective and efficient with cash and earnings as possible for Albemarle. So that's what we're working on today, David.

Great. Two last questions on the balance sheet, Luke and Scott. First, on covenants. Maybe, Scott, if you don't sell these assets or pause them, any issues with the covenants? And again, how -- what actions could you take for the balance sheet if EBITDA is less than you were expecting? And would you issue equity to stay investment grade?

Yes, as we look at our covenant, we do have one covenant on our revolver. It's a total debt-to-EBITDA limit that is at 4.0x. And that carries us through till the end of 2020, when it drops down to 3.5x. And obviously, we're looking at all the different possible options that we have out there to make sure that we meet that covenant. Like a lot of companies, we're talking to our banks about the potential for needing to have a waiver or some sort of renegotiation on that covenant as well. So that's what -- a lot of companies are doing that right now, we're doing the same. So those are the -- we'll look at that. We're looking at other possible options in terms of assets that we have on the balance sheet, like our receivables, that could be converted cash as well.

And to stay investment grade, would you consider equity at some point?

I don't think it's going to come to that, David. We're going to be okay. We're going to be okay. We're going to maintain our investment-grade rating. That is very critical for us and for our shareholders. And I -- we have pressure tested this through various doomsday scenarios, and in every eventuality, we have the ability with things within our control to be able to maintain the cash flow, to pay down the debt, to allow us to be investment grade. And that's our -- that's -- we're very committed to that. And I do not believe we will have to issue equity. We're in a much better liquidity position than that. And we do -- we would prefer not to do that. It would have to get -- I mean we'd have to have a prolonged, extended recession, much worse than '08 and '09, for us to get in that position.

Very good and very clear, Luke. With that, let me hand back to you for a couple of closing comments.

Yes. Hey, David, first of all, thanks a lot. I know these are uncertain times, and in uncertain times, people want specificity and predictability. We don't have that because we don't know what is in store for us around the corner. I want everyone to understand that we're working hard to control everything we can control. We're keeping our people safe. We're making sure we're talking to our vendors about raw materials, receivables and payables. We're talking to our customers to make sure we understand where they are. And we've got plans in place with -- under various economic scenarios so that we can be proactive in leading what we want to do and being intentional about the actions we take rather than having to react at the last second. That -- having said that, something is going to happen that none of us expect. And we'll deal with that with the resilience that we've always done. Our 4-pronged strategy, long-term, is in place. But as I said and as we've shown in the past, we will alter that based upon the conditions that we see in the market. So the path for the next 5 years hasn't changed, but certainly, some things could be delayed or things could move or we could be adjusted here or there from an execution, based on things that are going to have to take priority. We're going to be great stewards of cash. And we're going to focus, again, to be able to outperform our competitors through good times and through bad. And with that, I'd like to thank everybody. I hope everybody stays safe. And please, please take care of yourself, take care of your love ones, and let's get through this together. Thanks a lot, David. We appreciate it.

Thank you, guys, and thank you all for attending. Have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.