Neo Performance Materials Reports First Quarter 2024 Results
Key Takeaways
-
Strong Start to the Year Confirms Outlook: Despite the decline in rare earth prices, with
$10.8 million of Adjusted EBITDA(1), Neo is off to a strong start to fiscal year 2024 and is on path to meet its outlook for double-digit percentage growth in Adjusted EBITDA(I) for fiscal year 2024, as compared to fiscal year 2023. -
Strong Cash and Liquidity Position: Neo's maintains a strong cash position as at
March 31, 2024 with$101.7 million of cash and$170.6 million of inventory. -
Rare Metals Performance Bounces Back Quarter Over Quarter and Confirming Outlook: The Rare Metals business unit bounced back from Q4 2023 results with Adjusted EBITDA(I) on path to exceed 2023 Full Year results. -
Silmet Rare Metals Operational Transformation Bearing Fruit: The closure of the midstream hydromet process for tantalum and niobium at Silmet, completed in Q4 2023, shows initial positive results as transformation continues with shift to operational improvements and opportunities for higher value sales. Neo expects to reduce inventories by the end of the year.
-
Closure of Separation Operations at
Zibo : InZibo, China , Neo closed the light rare earth separation operation inApril 2024 . This closure is expected to improve Return on Capital Employed ("ROCE"), reduce earnings volatility and decrease the concentration risk in China. The closure is not expected to have a negative impact on Adjusted EBITDA(1) going forward, and is expected to benefit overall cash. -
Rare Earth Separation Gross Margins Negative but Significant Positive Margins in Downstream: The rare earth separation business continued to be adversely affected by the declining rare earth price environment. The downstream segments of Neo report strong positive margins where Neo's margin are driven by high value-add operations.
-
Major De-Risking ofNAMCO Plant Construction — Almost Complete & Under Budget: Neo's new relocated and modernized manufacturing plant for specialty materials for automotive emissions control catalysts is now almost complete. Continuing customer qualifications and expecting to be running full production again by the end of the year. Expected to be completed$5.0 million under budget. -
Europe Sintered Magnet Plant Construction — On Time & On Budget: Neo is about halfway into the construction and the project continues to be within the original budget. -
Additional Outside-of-China Feedstock Partnerships: Neo executed a Memorandum of Understanding ("MOU") with Meteoric Resources for rare earth supply to Neo's European midstream facility and to support Neo's sintered magnet facility in
Europe .
Q1 2024 Highlights
(unless otherwise noted, all financial amounts in this news release are expressed in
- Neo's Q1 2024 revenue was
$122.1 million , vs Q4 2023 revenue of$128.7 million ; vs Q1 2023 revenue of$135.5 million . - Operating income for Q1 2024 was
$5.9 million , vs Q4 2023 operating loss of$5.5 million ; vs Q1 2023 operating loss of$4.0 million . - Adjusted Net Income(1) for Q1 2024 was
$0 .4 million, or$0.01 per share, vs Q4 2023 of$0.9 million or$0.02 per share; vs Q1 2023 Adjusted Net Loss of$9.0 million or$0.19 per share. - Adjusted EBITDA(1) for Q1 2024 was
$10 .8 million, vs Q4 2023 of$3.1 million ; vs Q1 2023 of$0.8 million . - Neo's cash balance was
$101.7 million , after spending$16.0 million on capital projects, distributing$3.1 million in dividends to Neo's shareholders, and repurchasing$2.3 million of common shares under the normal course issuer bid. - A quarterly dividend of Cdn$0.10 per common share was declared on
May 8, 2024 for shareholders of record onJune 18, 2024 , with a payment date ofJune 27, 2024 .
"Neo began the year in a strong position, considering the underlying pricing environment," said
On strategic initiatives,
________________________ |
(1) Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin" and "EBITDA". Please see information on this and other non-IFRS measures in the "Non-IFRS Measures" section of this news release and in the MD&A, available on Neo's website at www.neomaterials.com and on SEDAR+ at www.sedar plus . ca . |
HIGHLIGHTS OF FIRST QUARTER 2024 CONSOLIDATED PERFORMANCE
($000s, except volume and per share information) |
|
Three Months Ended |
||
|
|
2024 |
|
2023 |
Volume |
|
|
|
|
Magnequench |
|
1,213 |
|
987 |
C&O |
|
1,802 |
|
1,849 |
Rare Metals |
|
87 |
|
98 |
Corporate / Eliminations |
|
(20) |
|
— |
Total Volume |
|
3,082 |
|
2,934 |
|
|
|
|
|
Revenue |
|
|
|
|
Magnequench |
|
$ 45,480 |
|
$ 55,165 |
C&O |
|
40,513 |
|
51,289 |
Rare Metals |
|
$ 37,278 |
|
$ 29,076 |
Corporate / Eliminations |
|
(1,176) |
|
— |
Consolidated Revenue |
|
$ 122,095 |
|
$ 135,530 |
|
|
|
|
|
Operating Income (Loss) |
|
|
|
|
Magnequench |
|
$ 3,384 |
|
$ 955 |
C&O |
|
(2,104) |
|
(6,126) |
Rare Metals |
|
8,800 |
|
5,832 |
Corporate / Eliminations |
|
(4,132) |
|
(4,658) |
Consolidated Operating Income (Loss) |
|
$ 5,948 |
|
$ (3,997) |
|
|
|
|
|
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") (1) |
||||
Magnequench |
|
$ 6,112 |
|
$ 3,256 |
C&O |
|
(380) |
|
(4,562) |
Rare Metals |
|
9,238 |
|
6,164 |
Corporate / Eliminations |
|
(4,210) |
|
(4,071) |
Consolidated Adjusted EBITDA |
|
$ 10,760 |
|
$ 787 |
|
|
|
|
|
Net Income (Loss) |
|
$ 849 |
|
$ (10,700) |
|
|
|
|
|
Earnings (Loss) per share attributable to equity holders of Neo |
||||
Basic |
|
$ 0.02 |
|
$ (0.23) |
Diluted |
|
$ 0.02 |
|
$ (0.23) |
|
|
|
|
|
Cash spent on property, plant and equipment and intangible assets |
|
$ 15,979 |
|
$ 3,512 |
Cash taxes paid |
|
$ 7,513 |
|
$ 5,261 |
Dividends paid to shareholders |
|
$ 3,084 |
|
$ 3,379 |
Repurchase of common shares under Normal Course Issuer Bid |
|
$ 2,250 |
|
$ — |
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
2023 |
Cash and cash equivalents |
|
$ 101,689 |
|
$ 86,895 |
Restricted cash |
|
$ 52 |
|
$ 3,357 |
Current & long-term debt |
|
$ 49,400 |
|
$ 25,331 |
Neo's consolidated revenue for the three months ended
As of
________________________ |
(1) Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin" and "EBITDA". Please see information on this and other non-IFRS measures in the "Non-IFRS Measures" section of this news release and in the MD&A, available on Neo's website at www.neomaterials.com and on SEDAR+ at www.sedar plus . ca . |
MAGNEQUENCH
Magnequench revenue in the three months ended
CHEMICALS & OXIDES ("C&O")
For the three months ended
RARE METALS
Rare Metals revenue improved by 28.2% in the three months ended
Q1 2024 UPDATE ON STRATEGIC INITIATIVES
NAMCO Relocation, Upgrade and Modernization
Project nearing completion with
Neo has almost completed the relocation, upgrade and modernization of its environmental emissions catalyst manufacturing facility to a newly built site in an industrial park, equipped with advanced infrastructure, transportation, and wastewater treatment capabilities. The nearly completed facility began quality assurance testing for customer samples in the first quarter and, pending customer approval, is expected to achieve full production by the second half of 2024. Neo's initial budget for the expansion, upgrade, and relocation of the facility was
Sintered Magnet Plant in
Project continues to be on time and on budget
Neo is advancing a manufacturing facility in
Impact of Rare Earth Prices on Separation Gross Margins
In the first quarter of 2024, rare earth prices continued to decrease, with neodymium and praseodymium prices falling by about 20% and dysprosium and terbium prices by around 30%. These sharp declines adversely affected profit margins, primarily in the C&O rare earth separation business which delivered a gross margin loss of
Operational Footprint Change in
Delivery of manufacturing transformations to improve ROCE and reduce earnings volatility
Neo ceased production of its light rare earth separations in
Sourcing and Rare Earth Supply Strategy
Neo is recognized globally for its diverse rare earth value-add operations, with separation and manufacturing facilities both inside and outside of
- On
May 1, 2024 , Neo and Meteoric Resources ("Meteoric") entered into a non-binding MOU for offtake of 3,000 tonnes rare earth oxide per year fromMeteoric's Caldeira Project inMinas Gerais, Brazil , to supply Neo's sintered magnet manufacturing plant inEurope . This annual offtake could supply Neo with as much as900 MT of Nd-Pr oxide and 30 MT of Dy-Tb oxide, combined, to supply Neo's sintered magnet plant inEurope , currently under construction.
CASH ALLOCATION HIGHLIGHTS
- As at
March 31, 2024 , Neo had$101.7 million in cash,$0.1 million in restricted cash, offset by$49.4 million drawn from its EDC facility credit facility, resulting in net cash of$52.3 million . Neo repaid$1.5 million of term loan facilities atSG Technologies Group Limited and its wholly-owned subsidiaries (collectively referred to as "SGTec") in the three months endedMarch 31, 2024 . - Cash from operating activities was
$11.3 million for the three months endedMarch 31, 2024 . Cash generation was driven by working capital performance, specifically, reductions of inventory as Neo continued to convert its higher-cost rare earth feedstock; as well as release of strategic inventory held to support contracted hafnium volumes in the first quarter of 2024. - Neo invested
$16.0 million in capital expenditures for the three months endedMarch 31, 2024 , compared to$3.5 million for the three months endedMarch 31, 2023 . Of this amount,$8.6 million was related to NAMCO relocation, upgrade and modernization,$1.1 million of borrowing costs related to the EDC credit facility, and$6.0 million for the establishment of the sintered magnet manufacturing plant inEurope . - Neo has shown strong commitment to returning capital to shareholders. For the three months ended
March 31, 2024 , Neo repurchased and cancelled 398,871 shares for$2.3 million , completing the normal course issuer bid program which began inJune 2023 . In addition, Neo paid dividends to its shareholders of$3.1 million for the three months endedMarch 31, 2024 .
2024 OUTLOOK
- With the first quarter consolidated Adjusted EBITDA(I) of
$10.8 million , Neo had a strong start to the year, despite declining rare earth prices in the first quarter. - Neo maintains an outlook for double-digit percentage Adjusted EBITDA(I) growth for fiscal year 2024 as compared to fiscal year 2023.
CONFERENCE CALL ON
Management will host a teleconference call on
NON-IFRS MEASURES
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 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 months ended
TABLE 5: CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($000s) |
|
|
|
|
ASSETS |
|
|
|
|
Current |
|
|
|
|
Cash and cash equivalents |
|
$ 101,689 |
|
$ 86,895 |
Restricted cash |
|
52 |
|
3,357 |
Accounts receivable |
|
64,587 |
|
67,643 |
Inventories |
|
170,603 |
|
197,453 |
Income taxes receivable |
|
558 |
|
744 |
Other current assets |
|
31,123 |
|
22,542 |
Total current assets |
|
368,612 |
|
378,634 |
Property, plant and equipment |
|
133,051 |
|
118,918 |
Intangible assets |
|
37,058 |
|
38,511 |
|
|
64,453 |
|
65,160 |
Investments |
|
15,551 |
|
17,955 |
Deferred tax assets |
|
6,939 |
|
6,760 |
Other non-current assets |
|
962 |
|
1,066 |
Total non-current assets |
|
258,014 |
|
248,370 |
Total assets |
|
$ 626,626 |
|
$ 627,004 |
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
Current |
|
|
|
|
Bank advances and other short-term debt |
|
$ — |
|
$ — |
Accounts payable and other accrued charges |
|
56,718 |
|
71,984 |
Income taxes payable |
|
7,332 |
|
9,207 |
Provisions |
|
771 |
|
823 |
Lease obligations |
|
2,074 |
|
1,664 |
Derivative liability |
|
37,480 |
|
36,294 |
Current portion of long-term debt |
|
4,667 |
|
2,230 |
Other current liabilities |
|
916 |
|
692 |
Total current liabilities |
|
109,958 |
|
122,894 |
Long term debt |
|
44,733 |
|
23,101 |
Employee benefits |
|
101 |
|
108 |
Derivative liability |
|
1,322 |
|
1,082 |
Provisions |
|
26,525 |
|
26,197 |
Deferred tax liabilities |
|
12,483 |
|
14,294 |
Lease obligations |
|
2,471 |
|
2,425 |
Other non-current liabilities |
|
1,257 |
|
1,592 |
Total non-current liabilities |
|
88,892 |
|
68,799 |
Total liabilities |
|
198,850 |
|
191,693 |
Non-controlling interest |
|
3,117 |
|
3,164 |
Equity attributable to equity holders of |
|
424,659 |
|
432,147 |
Total equity |
|
427,776 |
|
435,311 |
Total liabilities and equity |
|
$ 626,626 |
|
$ 627,004 |
See accompanying notes to this table in Neo's Interim Condensed Consolidated Financial Statements for the three months ended |
TABLE 6: CONSOLIDATED RESULTS OF OPERATIONS
Comparison of the three months ended
($000s) |
|
Three Months Ended |
||
|
|
2024 |
|
2023 |
Revenue |
|
$ 122,095 |
|
$ 135,530 |
Cost of sales |
|
|
|
|
Cost excluding depreciation and amortization |
|
94,748 |
|
116,621 |
Depreciation and amortization |
|
1,930 |
|
2,168 |
Gross profit |
|
25,417 |
|
16,741 |
Expenses |
|
|
|
|
Selling, general and administrative |
|
14,642 |
|
14,871 |
Share-based compensation |
|
(96) |
|
850 |
Depreciation and amortization |
|
1,728 |
|
1,766 |
Research and development |
|
3,195 |
|
3,251 |
|
|
19,469 |
|
20,738 |
Operating income (loss) |
|
5,948 |
|
(3,997) |
Other income (expense) |
|
3,679 |
|
(478) |
Finance cost, net |
|
(1,340) |
|
(4,012) |
Foreign exchange loss |
|
(722) |
|
(580) |
Income (loss) from operations before income taxes and equity income of associates |
|
7,565 |
|
(9,067) |
Income tax expense |
|
(4,341) |
|
(1,610) |
Income (loss) from operations before equity loss of associates |
|
3,224 |
|
(10,677) |
Equity loss of associates (net of income tax) |
|
(2,375) |
|
(23) |
Net income (loss) |
|
$ 849 |
|
$ (10,700) |
Attributable to: |
|
|
|
|
Equity holders of |
|
$ 873 |
|
$ (10,454) |
Non-controlling interest |
|
(24) |
|
(246) |
|
|
$ 849 |
|
$ (10,700) |
Earnings (loss) per share attributable to equity holders of |
|
|
|
|
Basic |
|
$ 0.02 |
|
$ (0.23) |
Diluted |
|
$ 0.02 |
|
$ (0.23) |
See Management's Discussion and Analysis for the three months ended |
TABLE 7: RECONCILIATIONS OF NET INCOME (LOSS) TO EBITDA, ADJUSTED EBITDA AND FREE CASH FLOW
($000s) |
|
Three Months Ended |
||
|
|
2024 |
|
2023 |
Net income (loss) |
|
$ 849 |
|
$ (10,700) |
Add back (deduct): |
|
|
|
|
Finance cost, net |
|
1,340 |
|
4,012 |
Income tax expense |
|
4,341 |
|
1,610 |
Depreciation and amortization included in cost of sales |
|
1,930 |
|
2,168 |
Depreciation and amortization included in operating expenses |
|
1,728 |
|
1,766 |
EBITDA |
|
10,188 |
|
(1,144) |
Adjustments to EBITDA: |
|
|
|
|
Other (income) expense (1) |
|
(3,679) |
|
478 |
Foreign exchange loss (2) |
|
722 |
|
580 |
Equity loss of associates |
|
2,375 |
|
23 |
Share-based compensation (3) |
|
(96) |
|
850 |
Transaction and project startup costs (4) |
|
1,250 |
|
— |
Adjusted EBITDA (5) |
|
$ 10,760 |
|
$ 787 |
Adjusted EBITDA Margins (5) |
|
8.8 % |
|
0.6 % |
Less: |
|
|
|
|
Capital expenditures (6) |
|
$ 17,477 |
|
$ 5,016 |
Free Cash Flow (5) |
|
$ (6,717) |
|
$ (4,229) |
Free Cash Flow Conversion (5) |
|
(62.4 %) |
|
(537.4 %) |
Notes:
(1) |
Represents other (income) expenses resulting from non-operational related activities, including provisions for damages for outstanding legal claims related to historic volumes. In addition, other income for the three months ended |
|
|
(2) |
Represents unrealized and realized foreign exchange losses that include non-cash adjustments in translating foreign denominated monetary assets and liabilities. |
|
|
(3) |
Represents share-based compensation expense in respect of the Omnibus LTIP and the LTIP. |
|
|
(4) |
These represent primarily legal, professional advisory fees and other transaction costs related to sintered magnet start-up cost, as well as transition cost during qualification start-up of NAMCO facility and the winding down of ZAMR. Neo has removed these charges to provide comparability with historic periods. |
|
|
(5) |
Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin", "Free Cash Flow" and "Free Cash Flow Conversion". Please see information on this and other non-IFRS measures in the "Non-IFRS Measures" section of this news release and in the MD&A, available on Neo's website www.neomaterials.com and on SEDAR+ at www.sedarplus.ca. |
|
|
(6) |
Includes cash and non-cash capital expenditures of |
TABLE 8: RECONCILIATIONS OF NET INCOME (LOSS) TO ADJUSTED NET (LOSS) INCOME
($000s) |
|
Three Months Ended |
||
|
|
2024 |
|
2023 |
Net income (loss) |
|
$ 849 |
|
$ (10,700) |
Adjustments to net income (loss): |
|
|
|
|
Foreign exchange loss (1) |
|
722 |
|
580 |
Share-based compensation (2) |
|
(96) |
|
850 |
Project start-up & transition cost (3) |
|
1,250 |
|
— |
Other items included in other (income) expense (4) |
|
(3,048) |
|
407 |
Tax impact of the above items |
|
716 |
|
(118) |
Adjusted net income (loss) |
|
$ 393 |
|
$ (8,981) |
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of Neo |
|
$ 417 |
|
$ (8,735) |
Non-controlling interest |
|
$ (24) |
|
$ (246) |
|
|
|
|
|
Weighted average number of common shares outstanding: |
||||
Basic |
|
41,831,695 |
|
45,196,921 |
Diluted |
|
42,494,125 |
|
45,196,921 |
Adjusted income (loss) earnings per share (5) attributable to equity holders of Neo: |
||||
Basic |
|
$ 0.01 |
|
$ (0.19) |
Diluted |
|
$ 0.01 |
|
$ (0.19) |
Notes:
(1) |
Represents unrealized and realized foreign exchange losses that include non-cash adjustments in translating foreign denominated monetary assets and liabilities. |
|
|
(2) |
Represents share-based compensation expense in respect of the Omnibus LTIP and the LTIP. |
|
|
(3) |
These represent primarily legal, professional advisory fees and other transaction costs related to sintered magnet start-up cost, as well as transition cost during qualification start-up of NAMCO facility and the winding down of ZAMR. Neo has removed these charges to provide comparability with historic periods. |
|
|
(4) |
Represents other (income) expenses resulting from non-operational related activities, including provisions for damages for outstanding legal claims related to historic volumes. In addition, other income for the three months ended |
|
|
(5) |
Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin", "Free Cash Flow" and "Free Cash Flow Conversion". Please see information on this and other non-IFRS measures in the "Non-IFRS Measures" section of this news release and in the MD&A, available on Neo's website www.neomaterials.com and on SEDAR+ at www.sedarplus.ca. |
About Neo Performance Materials
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
Cautionary Statements Regarding Forward Looking Statements
This news release contains "forward-looking information" within the meaning of applicable securities laws in
SOURCE