NEO Neo Performance Materials Inc

Q2 2023 Highlights

(unless otherwise noted, all financial amounts in this news release are expressed in U.S. dollars)

• Q2 2023 record revenue of $170.4 million, higher by 1.3% YoY.
• Operating income of $13.7 million in the quarter.
• Adjusted Net Income⁽¹⁾ of $2.5 million in the quarter, or $0.05 per share.
• Adjusted EBITDA⁽¹⁾ of $19.5 million in the quarter.
• Completed the acquisition of 90% of SG Technologies Group Limited ("SGTec").
• Investment of $4.5 million for 44% of Neo North Star Resources Inc. ("NNSR"), including an off-take agreement of 60% of the product produced.
• Cash balance of $126.9 million, after funding acquisitions and investments of $16.1 million, distributing $6.7 million in dividends to its shareholders, and repurchasing $1.2 million of shares under the Normal Course Issuer Bid (the "NCIB").
• A quarterly dividend of Cdn$0.10 per common share was declared on August 10, 2023 for shareholders of record at September 20, 2023, with a payment date of September 29, 2023.

TORONTO, Aug. 11, 2023 /CNW/ - Neo Performance Materials Inc. ("Neo", the "Company") (TSX: NEO) released its second quarter 2023 financial results. The financial statements and management's discussion and analysis ("MD&A") of these results can be viewed on Neo's web site at www.neomaterials.com/investors/ and on SEDAR at www.sedar.com.

"Neo reported record sales during the second quarter, driven by the strength of our Rare Metals business unit," said Rahim Suleman, Chief Executive Officer of Neo. "Despite the subdued market environment for rare earth magnetics, and continuing lead-lag pricing challenges that we must navigate, our top-line performance was helped by high volumes for value-added rare earth products outside of China. This performance generated healthy cash from operations and free cash flow, which allowed us to fund the acquisition of SG Technologies Group Limited, the investment in Neo North Star Resources, and the groundbreaking for our permanent magnet manufacturing plant in Narva, Estonia.  Neo continues to be well positioned to execute our future growth initiatives."

Mr. Suleman added, "As a leading global rare earths magnetics company, we are keenly focused on executing against our growth initiatives, and we look forward to expanding our parallel supply chains inside and outside of China."

For the three months ended June 30, 2023, consolidated revenue was $170.4 million compared to $168.2 million for the same period in the prior year; an increase of $2.2 million or 1.3%.  Neo reported net income of $0.3 million, or $0.01 per share, compared to $14.7 million, or $0.36 per share, in the same period of 2022.  Adjusted Net Income⁽¹⁾ totaled $2.5 million, or $0.05 per share, compared to $15.9 million, or $0.39 per share, in the corresponding period of the prior year.  Adjusted EBITDA⁽¹⁾ was $19.5 million, a decline of 26.1% compared to Adjusted EBITDA⁽¹⁾ of $26.5 million in the second quarter of 2022.

As of June 30, 2023, Neo had cash and cash equivalents of $126.9 million plus restricted cash of $3.3 million, compared to $147.5 million plus $1.2 million as at December 31, 2022.  For the six months ended June 30, 2023, Neo funded $11.6 million for the acquisition of SGTec, net of cash acquired of $0.8 million and $2.0 million of the proceeds held in escrow, invested $4.5 million in NNSR, paid $6.7 million in dividends to its shareholders and spent $1.2 million in shares repurchased under the NCIB.  Neo also repaid $24.3 million of its bank advances and its debt facility in the six months ended June 30, 2023. 

For the three and six months ended June 30, 2023, volumes in the Magnequench segment saw a decline with respect to the prior year period. The permanent magnet industry remains sluggish which has impacted volumes across all applications.  This has impacted markets in China, Japan and Europe and has also contributed to the general price weakness of rare earth magnetic elements.  In addition, with changing demand outlooks and excess inventory across supply chains, select customers have focused on destocking which has impacted Magnequench volumes in the short term. To address the economic impact of declining volumes in the short term, Magnequench conducted a rationalization of its work force and other cost savings activities in the first half of 2023. 

In the three months ended June 30, 2023, the C&O volume and pricing dynamics were mixed with rare earth pricing for neodymium and praseodymium elements continuing to face pricing headwinds offset by strong performance in high purity dysprosium.  The dysprosium volumes were related to the higher-value, multi-layer ceramic capacitor ("MLCC") market as opposed to the standard grade dysprosium which goes into the magnetics market.  C&O's environmental emissions catalyst business also showed strong volumes as China recovered from a slower first quarter of 2023.  The rare earth separation operations benefited from lead-lag (using historical cost inventory with current sales prices) in 2022; reversely, the decline in rare earth prices has negatively impacted lead-lag in 2023. 

Rare Metals continued its strong earnings trend in the first six months of 2023. In the three months ended June 30, 2023, the segment delivered record margin performance driven by strength in Hafnium pricing and demand. The upward trend in Hafnium prices which began in the fourth quarter of 2021 has continued in the second quarter of 2023 with an increase of over 30% during the three months ended June 30, 2023. The recycling purchases and activities of Rare Metals were particularly impactful to maintaining and growing margins as the scrap material purchased in the same quarter is not rising as fast as selling prices for finished goods.  

In July 2023, the Government of China announced export restrictions on gallium and germanium effective August 1, 2023. The Rare Metals segment is one of the only gallium recycling operations outside of China and presents an opportunity for companies to source high purity gallium outside of China.  The segment continues to seek sourcing additional gallium waste streams to support global market growth.

Management will host a teleconference call on Friday August 11, 2023 at 10:00 a.m. (Eastern Time) to discuss the second quarter 2023 results.  Interested parties may access the teleconference by calling (416) 764-8650 (local) or  (888) 664-6383 (toll free long distance) or by visiting https://app.webinar.net/m3qYLpRB9kM.  A recording of the teleconference may be accessed by calling (416) 764-8677 (local) or (888) 390-0541  (toll free long distance), and entering pass code 665836# until September 11, 2023.

This news release refers to certain non-IFRS financial measures and ratios such as "Adjusted Net Income", "EBITDA", "Adjusted EBITDA", and "Adjusted EBITDA Margin".  These measures and ratios are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS, and may not be comparable to similar measures presented by other companies. Rather, these measures and ratios are provided as additional information to complement IFRS financial measures by providing further understanding of Neo's results of operations from management's perspective. Neo's definitions of non-IFRS measures used in this news release may not be the same as the definitions for such measures used by other companies in their reporting.  Non-IFRS measures and ratios have limitations as analytical tools and should not be considered in isolation nor as a substitute for analysis of Neo's financial information reported under IFRS.  Neo uses non-IFRS financial measures and ratios to provide investors with supplemental measures of its base-line operating performance and to eliminate items that have less bearing on operating performance or operating conditions and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures.  Neo believes that securities analysts, investors and other interested parties frequently use non-IFRS financial measures and ratios in the evaluation of issuers.  Neo's management also uses non-IFRS financial measures in order to facilitate operating performance comparisons from period to period. For definitions of how Neo defines such financial measures and ratios, please see the "Non-IFRS Financial Measures" section of Neo's management's discussion and analysis filing for the three and six months ended June 30, 2023, available on Neo's web site at www.neomaterials.com and on SEDAR at www.sedar.com.

Comparison of the three and six months ended June 30, 2023 to the three and six months ended June 30, 2022:

Neo manufactures the building blocks of many modern technologies that enhance efficiency and sustainability.  Neo's advanced industrial materials - magnetic powders and magnets, specialty chemicals, metals, and alloys - are critical to the performance of many everyday products and emerging technologies. Neo's products help to deliver the technologies of tomorrow to consumers today.  The business of Neo is organized along three segments: Magnequench, Chemicals & Oxides and Rare Metals. Neo is headquartered in Toronto, Ontario, Canada; with corporate offices in Greenwood Village, Colorado, United States; Singapore; and Beijing, China. Neo has a global platform that includes 10 manufacturing facilities located in China, the United States, Germany, Canada, Estonia, Thailand and the United Kingdom, as well as one dedicated research and development centre in Singapore.  For more information, please visit www.neomaterials.com.

This news release contains "forward-looking information" within the meaning of applicable securities laws in Canada. Forward-looking information may relate to future events or future performance of Neo. All statements in this release, other than statements of historical facts, with respect to Neo's objectives and goals, as well as statements with respect to its beliefs, plans, objectives, expectations, anticipations, estimates, and intentions, are forward-looking information. Specific forward-looking statements in this discussion include, but are not limited to, the following: expectations regarding certain of Neo's future results and information, including, among other things, revenue, expenses, sales growth, capital expenditures, and operations; statements with respect to current and future market trends that may directly or indirectly impact sales and revenue of Neo; expected use of cash balances; continuation of prudent management of working capital; source of funds for ongoing business requirements and capital investments; expectations regarding sufficiency of the allowance for uncollectible accounts and inventory provisions; analysis regarding sensitivity of the business to changes in exchange rates; impact of recently adopted accounting pronouncements; risk factors relating to intellectual property protection and intellectual property litigation; risk factors relating to national or international economies (including the impact of COVID-19), geopolitical risk and other risks present in the jurisdictions in which Neo, its customers, its suppliers, and/or its logistics partners operate, and; expectations concerning any remediation efforts to Neo's design of its internal controls over financial reporting and disclosure controls and procedures. Often, but not always, forward-looking information can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "continues", "forecasts", "projects", "predicts", "intends", "anticipates" or "believes", or variations of, or the negatives of, such words and phrases, or state that certain actions, events or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved. This information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. Neo believes the expectations reflected in such forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking information included in this discussion and analysis should not be unduly relied upon. For more information on Neo, investors should review Neo's continuous disclosure filings that are available under Neo's profile at www.sedar.com.

SOURCE Neo Performance Materials, Inc.