MP Materials Corp.

Hello, and welcome to the MP Materials third quarter 2024 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. With that, I would like to turn the call over to Martin Sheehan, Head of Investor Relations. Mr. Sheehan, you may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the MP Materials third quarter 2024 earnings conference call. With me today from MP Materials are Jim Lutensky, founder, chairman, and chief executive officer, Michael Rosenthal, founder and chief operating officer, and Ryan Corbett, chief financial officer. As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation, earnings release, and in our SEC filings. In addition, we have included some non-GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings release and the appendix to today's slide presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA, and tons means metric tons. Finally, the earnings release and the slide presentation are available on our website. With that, I'll turn the call over to Jim. Jim? Thanks, Martin.

Hello, everyone. It's been an incredibly exciting week in America. And regardless of how you voted, we are all on the same team now. So let's get started on slide four. Put simply, I am extremely proud of the MP team's execution this quarter. We achieved a new upstream production record of 13,742 metric tons of contained REO. That is nearly 15% or over 1,700 metric tons higher than our previous best quarter. Let me repeat that. We produced 15% more REO this quarter than our previous best quarter ever. Michael will get into more details shortly, but we believe this signifies material progress towards the significant step function change in potential we have recently discussed for our upstream business. Upstream 60K optimizations drove improved recoveries, and alongside those higher recoveries, we maintained solid productivity with consistency in reliability and uptimes. As we have previously stated, our path towards upstream 60K will be lumpy, but these results clearly underscore the world-class technical capabilities of our team, the vast potential of our upstream operations, and our confidence in achieving upstream 60K. Needless to say, record production this quarter translated into strong concentrate sales volumes, despite pushing much more volume through the midstream circuits. Speaking of the midstream, and as significantly, we achieved record production of 478 metric tons of NDPR oxide in the quarter. This represents a 76% increase from the second quarter, well above our guidance for 50% sequential growth. I would remind you all that we completed an extended planned maintenance outage in October. We are also beginning to commission additional upstream 60K projects throughout the quarter. Given these planned disruptions, we expect Q4 NDPR oxide production to be roughly flat with Q3's 478 tons. We then expect a more significant acceleration in midstream production in Q1 of next year. The strong Q4 production allowed us to nearly triple our sales volume sequentially, highlighting strong momentum in the sell-through of our oxide and metal production. I would like to point out that we have seen a recent, notable uptick in customer inquiries for samples and potential orders. Assuming we meet our production targets and NDPR pricing holds at current levels, we expect to generate positive midstream gross margins as we exit Q1. Naturally, this comes with all the usual caveats of a complex ramp up, but we are very pleased to have line of sight to profitability in our refining operations, complementing the continued strong profitability of our upstream. We also received positive news in late October when the Treasury Department issued the final rules for the 45X Advanced Manufacturing Production Tax Credit, which grants a 10% credit on costs related to producing critical minerals, including NDPR oxide. Initially, the proposed rules excluded extraction costs and both direct and indirect material costs, limitations that would have reduced the policy's impact for companies like MP. However, the final rules now allow vertically integrated US minor refiners such as MP to include these extraction and material costs. This change is particularly significant for rare earth producers as chemical reagents make up a substantial portion of our overall cost structure. Moving on to our downstream magnetics business, we have begun commissioning our electrolysis cells for metal production in Fort Worth. By the way, we refer to the Fort Worth Magnet Facility internally as Independence, named for the road that it sits on and the mission that we strive to facilitate. Our team there is now about 100 people, and we are on track to deliver metal by year end. We will start externally using the official name, Independence, going forward. In addition, we also expect first production of on-spec magnets in our integrated prototyping facility at Independence by year end. This will allow us to begin the customer qualification process, another critical milestone on the path towards commercial magnet production by the end of next year. So in summary, this was just a tremendous quarter of execution across our business. We have a lot of work to do, but I am particularly proud of our team's resilience this year. I am further encouraged by the significant momentum we are building as we head into 2025. With that, I'll turn it over to Ryan to review our KPIs and financial performance. Ryan?

Thanks, Jim. Moving to slide six, on the far left of the slide, you can see that REO production of 13,742 metric tons increased 28% compared to last year and over 50% versus our more challenging Q2. As Jim mentioned, this led to very strong sales volumes as we sold 9,729 metric tons of REO, a 6% increase over last year and a 67% increase sequentially. On the middle left, you can see realized pricing remains pressured as average realized price for REO and concentrate was $4,425 per metric ton in the quarter, a 23% decline from last year, but a 6% increase sequentially. We saw some positive movement in market prices in September, which had a slight positive impact on our upstream realized pricing versus our guidance from last quarter. Moving to the midstream KPIs on the right side of the page, as Jim also mentioned, we produced 478 metric tons of NDPR oxide, a 76% increase over Q2 and nearly 10 times last year's initial production levels. NDPR sales volumes totaled 404 metric tons, nearly triple Q2's volumes. I would point out that most of the higher sales than originally expected is simply due to timing. Given the still relatively low production volumes, timing of shipping schedules and deliveries will potentially have a large impact on our relative sales volumes, particularly as we continue to ramp up our metal tolling channels. Looking year over year, production of refined products had just begun in last year's Q3, with our first sales not until Q4. Pricing this quarter came roughly in line with our expectations, down about $1 per kilogram compared to last quarter. Moving to slide 7. The impact of NDPR oxide and metal sales, as well as strong concentrate sales volumes, generated a 20% year-over-year increase in revenues, despite negative year-over-year compares in realized pricing. In addition, strong gross profit contribution from our concentrate sales, as well as continued cost reductions in NDPR oxide production, led to a $15.9 million sequential improvement in EBITDA results in Q3. Our improving cost profile as we benefit from fixed cost leverage resulting in us reducing our inventory reserve by $2.7 million in the quarter. The cumulative lower of cost of market inventory reserve at the end of Q3 now stands at $15.1 million. On the far right of the slide, the improving sequential EBITDA flowed through to adjusted diluted EPS, where we saw a 5 cent improvement versus Q2. As we have discussed over the last few quarters, our midstream operation continues to be subscale as we ramp production of NDPR and other separated products. That said, and as Jim highlighted, we have a line of sight to generating positive gross margin on our NDPR oxide sales as we exit Q1 of next year, driven in large part by the continued ramp in production volumes and as we make further headway in fine tuning and lowering the cost of our processes. I would note, however, that as we look forward to Q4, sequential concentrate production volumes will be down and NDPR production will be roughly flat. This is due to an extended planned outage we held in early October and the introduction of some upstream 60K initiatives and equipment, which in the very short term will likely result in additional downtime and unstable performance. This would also result in lower concentrate and NDPR sales volumes next quarter. And as for realized pricing, assuming current market prices hold for the remainder of Q4, we would expect concentrate prices to grow just under 10% sequentially, while NDPR pricing should increase approximately 5%, given the longer lag versus market pricing on NDPR. Moving to CapEx and the balance sheet, we have reduced our expectations for 2024 CapEx to be approximately $200 million, primarily due to the timing of cash costs. We are starting to do a deeper dive on our 2025 CapEx expectations, and we'll provide a more precise outlook on our 2024 Q4 call. But overall, I would expect much of the $50 million of lower 2024 spend to roll over into 2025. With this quarter as a prime example, we continue to find high return projects across our portfolio of assets, but remain steadfastly committed to maximizing long-term free cash flow while maintaining a fortress balance sheet. Importantly, we ended Q3 with approximately $866 million of cash and equivalents and approximately $94 million of net debt. This was after opportunistically repurchasing $24.3 million of MP shares in the quarter at an average price of $10.86. This brings our year-to-date repurchases to $225.1 million, or approximately 8.6% of the company. Moreover, along with buying back 8.6% of the company so far this year, we also enhanced our capital structure by extending the vast majority of our debt maturities to 2030. I would also remind investors that last quarter we shared that we expect to earn approximately $190 million in customer prepayments and tax credits by the end of 2025. In Q3, we received the first tranche of $20 million of tax credits, and we expect to receive most, if not all of the remaining $170 million over the coming five quarters. With that, let me turn it over to Michael to give you updates on the operations. Michael.

Thanks, Ryan. Turning to slide eight, you can see an overhead shot of our midstream assets and site utilities. We made tremendous progress throughout the operation in Q3, delivering all-time production records in both our upstream and midstream circuits and continuing to advance our downstream development. We are very pleased with the upstream performance, where a recent optimization initiative achieved better than expected results. Remarkably, our 28% year-over-year growth was achieved almost entirely from improved recovery with no change in feed rate, while uptime increased slightly year-over-year and was just above normal for a non-outage quarter. I'd like to recognize our metallurgists, metallurgy technicians, and mill operations teams whose work and creativity led to this incredible performance. We believe that the results are generally sustainable, though I would advise against immediately annualizing this. In particular, the more rapid improvement puts some pressure on other parts of the operation that may create intermittent uptime challenges. We will certainly overcome these. We continue to experiment with additional optimizations that may also result in temporary setbacks. but I believe we have achieved a step change improvement in our baseline upstream performance, which reinforces our confidence in our ability to sustainably unlock incremental value from the mountain pass ore body and assets. In the third quarter, we commissioned the first modest capital investment project of the upstream 60K initiative. This flotation equipment enhancement had a slight positive impact on production in Q3. However, it is not yet operating stably, full time, or at full scale. To prepare for continuous operation, we will implement improvements to the unit in Q4 that will, over time, enhance its availability and its benefit. In Q3, we also began pre-commissioning a significant improvement to our grinding circuit. As of today, some of this equipment has been placed into service and trial production has begun for additional components. As I mentioned last quarter, while we have very high expectations for this investment, it may initially cause instability and negatively impact the operation before driving incremental recovery in 2025. Our midstream business accelerated performance in the quarter as well. Improved availability again accounted for most of the improvement and nearly all the outperformance versus our prior directional guidance. Particularly in those circuits where mechanical or operational reliability had lagged, we saw a meaningful improvement in uptime. We've remained pleased with our NDPR oxide quality, as well as that of our NDPR metal, which saw a large increase in customer deliveries in the quarter. With uptime and product quality as a foundation, we feel increasingly optimistic about our ability to further increase throughput and efficiency. Every day, as one would expect, we encounter our share of operational challenges and setbacks. While these can be frustrating at times, overcoming them showcases the significant potential of our team and operation. As we address these issues one by one, we have more time to optimize reagent use and labor, enabling us to drive production costs downward towards world-class levels. As Ryan discussed, in the first half of October, we executed our semi-annual maintenance outage. Typically, we experience an uneven path to stability coming out of an outage, and this quarter was no different. But this is well behind us now. We do not expect to match Q3 concentrate production and Q4 due to lower uptime and the investments for future growth discussed earlier. But behind the headline figures, we do expect that the strong fundamentals will continue. In the midstream operation, we expect Q4 NDPR production to be roughly flat sequentially with much stronger performance in the first quarter of 2025. Our magnetics team continues to make incredible strides too. The expanded capital projects group is doing an excellent job driving design and execution on schedule and budget. There is enormous excitement and stress in the air as we transition from a design and construction project into the construction and operations phase. We are currently commissioning our first full-scale metal reduction furnaces and look forward to delivering quality metal by the end of the year. While not at full commercial scale, our prototype facilities operate at a representative scale and possess capability to process metal ingots into alloy flake, magnet powder, sintered block, and grain boundary diffusion, or GBD, machined and magnetized finished magnets. On slide 9, you can see examples of unfinished sintered ND-FEB magnet block produced in Independence's prototype facility. The quality of these magnets, while not yet perfect, is already well on the way to satisfying the current EV traction motor and other target application standards. Importantly, this facility gives us the opportunity to experiment, iterate, learn from mistakes, and ultimately succeed at a manageable scale and with rapid turnaround and feedback. With that, I will turn it back to Jim. Thanks, Michael.

Turning to slide 10, this is a nice shot outside our corporate offices in Las Vegas. In summary... I am proud to say that the MP team delivered an outstanding quarter across all aspects of our business. Today's results highlight our expanding upstream profit potential, the rapid scaling of our midstream operations with an anticipated shift to positive gross margin contribution, and our downstream operations at independence, which are poised for near-term transformative milestones. Additionally, we have significant near-term sources of cash outside our day-to-day operations, so we will remain well-positioned for opportunities, even amid a challenging pricing environment. Lastly, I anticipate some questions about the transformative political shift we witnessed in America this week, and I look forward to sharing my perspective. But here's the quick preview. Tuesday's results should translate into continued strong support for MP. Our mission to onshore one of America's critical supply chains aligns with the clear mandate from the American people. Companies like MP are crucial to our nation's future, and now, at this pivotal moment, our work really matters. With that, we're ready for Q&A. Operator?

At this time, if you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. Our first question will come from Lawrence Alexander with Jefferies. You may now unmute your audio and ask your question.

Well, good evening. This is Kevin Estak on for Lawrence. Are you able to hear me okay? Yes. Hey, Kevin. Okay, great. Yeah, I just wanted to know a little bit about what you're seeing or hearing in terms of demand for new robotics applications and maybe the level of interest from downstream customers in any magnetic optic agreements and maybe whether there's any price points that you would need to really spark discussions.

Thanks. Sure. This is Jim. So on robotics, what I would say is we are seeing a ton of action in company formation and venture capital. And, you know, what I would say is prototyping initial design. As far as mass production, it's still a bit early. You know, if you've heard me kind of the last couple of quarters, we've been talking about this is really heating up. And I really view this as, you know, sort of a few years out kind of thing where it's really going to create a step function change. But what I would say is that what we see is really accelerating. I think if you had asked us two years ago about robotics, we would have said, you know, this is a huge piece of demand that is coming in our space, but it's, you know, it's sort of out there. We don't know when. Post sort of the AI revolution, The, some of the advancements that we're that we're seeing and you obviously you you see it all out there yourself I'm sure are pretty incredible. And it seems to be accelerating, there was actually the other day we tweeted a really good if you get a chance a good. um youtube video with mark andreessen talking about the robotics and the robotics supply chain and how much this is um accelerating and so anyway that's a long-winded way of saying we see it developing a lot as far as when it will start to have a material impact on demand that's still a little bit unknown but what i would say is i do think that you'll start to see real change in the supply chain probably 18 months to two years before that inflection point, because people will need to get their supply chains ready. And the scale of demand for robotics, you may have heard me kind of talk about this before, but if you look at the actuators in humanoid robotics in particular, our estimation is to anywhere from two to five times the amount of magnetic content versus an EV. And so if you do believe sort of the Musk, et cetera, view of billions of robots, what you realize is that this market is substantially larger than the EV market and the content per unit is substantially larger. So, you know, we think it's a huge theme for us. And then the last thing I would just say, particularly given the fact that, you know, robots are in our homes and our factories, the national security element to this is pretty huge. And so, and in fact, that, that, you know, video, that webcast that we tweeted a few days ago from Andreessen talks a lot about this. But when we think about EVs and how much of that supply chain we lost, you know, in robotics, I think that there's a big push from people in the know to make sure that we have this supply chain here because of the national security importance. And so I think it will, as this heats up over the next year, I think it's going to really highlight the importance of what we're doing.

I understand. Thank you.

Ryan, one thing I'd add on that that I think is interesting is when we think about robotics, obviously there's commercial applications, but as we think about national security implications as well and applications, an important element to the development of the domestic market in the U.S. is DeFar's compliance. So, you know, a necessity for those that are in the defense supply chain to be purchasing magnets all the way back basically to the mine site that have been manufactured in the United States. And so there are very few companies that are positioned to execute on that the way that we are. And on top of that, I think the thing that we've seen develop across robotics and national defense applications is One of the benefits of our structure is we don't have sort of this innovators dilemma where we've got, you know, off the shelf product, you know, mixes that we need to sell into. We can work with the actuator and motor designers to maximize manufacturability and minimize cost of the magnets. And those are conversations that we have ongoing as we speak that I think position us very well to execute on this.

Okay, great. Thank you. And just my second question, I just wanted to get a sense of your team's maybe read on the political landscapes. I mean, just after this week's election, any change in the mix of senators or congresspeople that are more likely or less likely to engage in maybe critical materials and potentially a magnet bill after this week's election?

Sure. This is Jim. What I would say is I think this week's election, it's a really overwhelming mandate. I mean, I think the key takeaway from the election is that, you know, obviously the America First agenda is very focused on the American worker, on bringing, you know, on helping support the people who really build the stuff in this country. And so I think it was not only a sort of a very broad spectrum of people who've come together to really form what is now this, you know, America first approach and I think it's really, you know, historically both sides of the aisle are focused on, on, you know, jobs and onshoring. But I think now we have sort of the next piece of this, which is an overwhelming mandate from the American people. And so I think in particularly given that, you know, was a red wave. And so it is sort of a, you know, the House, the Senate and President Trump will be able to really drive an agenda. And I think it's hard to know what shape it's going to come in, because particularly with President Trump, he's very effective at you know, at negotiating these things and getting to an outcome, but you never know sort of where that's going to go. And so we don't know if it's going to be via tariffs. We don't know if it's going to be via, you know, tax policy. But there's absolutely no doubt that industry champions like ours, which are in the critical materials, national security supply chain, bringing jobs back to America, we are sort of in the center of exactly the type of companies that that people want to support. And what I would say is also we operate in, we have three main sites of operation. We operate in a blue state, we operate in a red state and in a purple state. And so our people are operators, electricians, maintenance workers, engineers. I mean, it really is sort of the center of what we're trying to get help. And then the last point I'll make on this is we've sort of said, repeatedly over the last few years. We like to compete against China. We think they're an incredibly tough competitor. We want to compete against them, but we want a level playing field. And I think the thing that has been missed in certain industries like ours specifically is that we don't have that. So this is not an academic argument about whether tariffs are good or not. This is we don't currently compete in a level playing field. And so to the extent that policy is driven to leveling that playing field for companies like us, I think it's going to be particularly awesome for our opportunity set in the coming few years.

Thank you.

Our next question will come from Matt Somerville with DA Davidson. Please go ahead.

Yeah, can you hear me? Okay, guys.

Yeah, we hear you.

Okay, cool. Sorry, it's the first time I've done a call on this format. Anyways, you mentioned some gross margin positivity, I believe, out of the refining business in Q1. Any sort of prognostication on when that business can become EBITDA positive, assuming a sort of similar pricing environment today?

Yeah, Matt, it's a great question. You know, I think the thing to think about is, you know, when you're comparing our results, you know, on a consolidated basis for the mountain pass assets, obviously the faster we go on the midstream, the more we're pulling away high gross margin concentrate from sales, right? And obviously significant gross profit that we generate from those sales. And so there is sort of the push pull, right? And the faster you go, you know, you're sacrificing those margins. I think the important thing that we saw this quarter with the growth in production and continued progress on cost structure is this line of sight that we guided to. Certainly if we're sort of messaging confidence in positive gross profit in exiting Q1, I would expect that positive EBITDA for that business is not too far behind it, but it just depends on all of the different factors that go into driving production growth and driving costs out of the system. You know, if you look at our EBITDA in totality, looking out for 2025, certainly, you know, if we're hitting our targets here for gross margin positive on the separation side, you know, we obviously will continue to have some amount of concentrate sales that continue to be very profitable. And then we will move into profitability on magnetics. And so you put all of that together and you look at a full year period. And we're pretty excited about the comparison we'll have in 25 versus 24.

Got it. And then as a follow up, I want to make sure I understand on a sequential basis, it sounds like there's going to be a pause or a flattish sort of quarter on quarter level of of NDPR production. I want to make sure I understand what's driving that. And then similarly, what's going to drive what Michael described as kind of a nice jump then in Q1. Thank you.

Sure, Matt. I'll do the finance side of it. And I'll let Michael explain the operations. But the simple answer is, it's really about uptime. We had one of our longest shutdowns in October, as Michael referenced. And so as we continue to hit our stride throughout the quarter in Q3, we necessitated a pause as we do our maintenance shutdown in October. And then, of course, when you come out of that, and in that shutdown process, we introduce optimizations. new pieces of equipment, et cetera, et cetera, into the operation. As we ramp back up, we introduce a bit of instability. And so it's one of those issues where, again, taking a snapshot in time of just a quarter always is difficult in a ramp like this. But I think behind those headline numbers are going to be proof points of progress. And that will show itself through much better in Q1, obviously. But Mike, any other specifics you'd add on to that?

One other thing to add is just as part of some of the shutdowns, we have to de-inventory part of the circuit. So we have to rebuild that whip to some extent when we restart. Overall, we're seeing better uptime, as I mentioned in the prepared remarks. We expect that to continue. And as we sort of stabilize that, we'll look to increase the throughput. I expect that to take more effect in the first quarter. As we address one issue previously underappreciated other issues, challenges emerge and we address those. But we're very confident that as we enter into the new year, we'll see a new highs. Understood. Thank you, guys.

Thanks, Matt.

Our next question will come from Greg Jones with BMO. Please go ahead.

Hi, good afternoon, everyone. Can you hear me? Yes. Hello. Great. So I had two questions. The first is regarding the 45 X production tax credit. Um, you know, obviously understanding the finalized rules were just recently announced. But do you have a view on what the potential annual dollar amount of the credit could be as you move into next year and beyond?

Sure, Greg, I'll take that. The short answer is significant. But the details are important, obviously, of the new final regs. And most importantly, one of the critical elements of this that is a bit unique is we need to utilize our tax cost of goods sold in the calculation, not our book cost of goods sold. And there are a tremendous number of nuances that often are not always calculated until a certain period of time, et cetera, et cetera. I think the high level is as follows. You've sort of seen the impact over the last couple of quarters in our filings on what the benefit has been. At a high level, we were estimating that the impact with the preliminary regs would effectively cut the impact in half. versus what the ultimate sort of 10% of production costs should look like. And so, you know, since we're not providing a COGS estimate or outlook right now, I think the simple answer is we expect it to be just about 10% of our cost of goods sold for, you know, the fully integrated operations of products that are qualifying IENDPR oxide. So, you know, a really important and beneficial change our view has always been on this type of production tax credit. It is something that I think works to really incentivize a lot of the things that Jim spoke about a few moments ago. And so as we move into new Congress, we're hopeful that as these things get looked at, frankly, we think there should be more. The best way to incentivize new production is to continue to drive these sorts of things that reward scaled producers like us and incentivize continued growth in the business.

That's great. Thank you. And the second question, more of a macro one. There's been some media reports around events that are happening in Myanmar and some of the issues that are going on in the country there that seem to be impacting supply chains and exports from the country. Do you see or experience any impact on your business or the potential for higher prices or increased demand for MP's products as a result?

Sure, Greg. So just to level set so everyone knows, Myanmar does represent a significant amount of supply that goes from the border region of Myanmar into China. There have been reports that some of the mining there has been shut down. There's an opposition group to the military junta that now controls that territory. There's obviously a lot of noise around that and any supply impact can certainly create volatility. I think something that is sort of more medium and longer term associated with that. Because of course, when it comes to kind of near-term prices, I'm always going to give you my answer of it's commodities prices, who knows. But I do think that given that the, that area of the country is more in the control of people from that area of the country, there is going to be a greater push for more environmental production because, and you can certainly Google this, the, the, production in that area is particularly bad, has caused particularly big health problems, and there's not much oversight there. And so to the extent that people of that area are getting more control of that, I do think that that will be a natural restriction on supply, particularly just illegal, bad for the world kind of supply that hurts people. And so I think it is certainly without a clue of kind of how that impacts markets in the short term, in the medium and long term, I do think It will create some upward pressure on pricing to be, you know, more normalized for what is the cost of real production. And the last thing I would say is pricing in these markets does tend to it's not like oil where there's a essentially a 24 seven market, you know, this is somewhat of an esoteric market and so sometimes you will see things like that and actually the price reaction um can occur in a month or two or three or or never um but but the point is is i think actually that my guess is that if there is sort of a material impact it's not certainly not in the price yet and and so that could be something in the near term that creates a lot of upward volatility um or it may be you know it may not i i have no clue but i think in in the medium term it's it's a bullish development for the space and and lastly obviously it highlights um the importance of of supply chain security once again. Thank you.

Our next question will come from Bill Peterson with JP Morgan. Please go ahead.

Yeah. Hi, good afternoon. And thanks for taking my questions. Maybe on the flip side of supply, I'm wondering if you can walk us through some of what you're seeing on the end markets in terms of demand. I guess the backdrop that, you know, pricing on NDPRs kind of been flat for about two months now. You know, we've heard of some green shoots and then, you know, restocking, destocking, try to get a sense of where you're seeing in terms of the end market demands.

Yeah, just as a reminder, when we think about demand in the space, remember that roughly 30% of demand is sort of high growth electrification, EVs, hybrids. And then the other 70% is our sort of standard old line, you know, correlated with Chinese manufacturing industries, power tools, HVAC, etc., What I would say is, certainly over the last 18 months, the Chinese macro situation has been very tough. You know, we've mentioned in very recent months, certainly it is stable. I mean, if you look at prices have been stable for a while, I think, you know, in our parlance, it's been kind of bouncing around the bottom for a number of months now. I think the big wild card will be, you know, in recent weeks, there's an enormous amount of stimulus that has been announced in China. Obviously, it's too soon to tell what the real impact of that will be. But again, not seeing it in the price yet, I don't think is determinant of whether or not it's a material impact, because I think that these things do tend to happen on a lag. And you may have heard us say this before, but With respect to rare earth prices, the joke in the industry is they're either going up or they're going down. Of course, we've been stable for about a year. But my guess is that if there is some shiny stimulus that works its way through the system over the coming months, there will be a moment where, you know, where there's just sort of a volatile upward reaction, but who knows. And then lastly, I would say, and I referenced this, if you caught this remark in the prepared remarks, but we have seen, and it's tough for me, I can't be too specific, but I would say there's been a few, you know, sort of recent reach outs, et cetera, that lead us to believe that there is kind of an uptick coming. But again, it's anecdotal and, you know, we wait and And I guess, for lack of a better way to say it, pray for higher prices, of course. But that's pretty much the background.

Yeah, thanks for that. I wanted to kind of double click on a comment you were talking about earlier about the number of customers requesting products from your midstream side. Is there any way to kind of quantify where these customers are requesting samples, what geographies they're coming from, what markets they represent? And I guess maybe importantly, are most of these engagements or customers outside of China?

So great question. You may have heard us mention this, but it's worth repeating for sure. You know, we now sell effectively directly to three of the five largest OEMs in the world, non-Chinese. So think of, you know, household names that you know, OEMs. And that was a really interesting development for us in sort of in the recent, you know, where if you recall kind of a few years ago, back when we went public, there was a lot of talk of, gee, when we were sort of in the height of the COVID supply chain issues, are the OEMs going to care? Are they going to reach up the supply chain? And we're seeing that. That is a real thing that is not just a real thing. It has happened, right? And so now we have direct relationships with companies the largest OEMs that you would know. And what I would say is those are material. And so I think that particularly given that we're, you know, been sort of bouncing around, you know, a down cycle in our space, the fact that those, you know, relationships have commenced is, you know, a good thing if we expect demand in electrification, hybrids, and ultimately robotics to pick up eventually, or just basic Chinese macro, you know, power tools are nice too. So, you know, it's a good development and that's already occurred.

Our next question will come from Ben Callow with Baird. Please go ahead.

Congratulations on all the progress. Jim, when you talk about your initial production at the magnet facility and then be able to provide samples, I might be confused, but I thought everything was sold to GM. Is it going to others or just samples, several different types of magnets going to GM, or are you looking for other customers as well?

Hey, Ben, it's Ryan. I'll take that. I think we've been clear the preponderance of our volumes are spoken for at this point. And so our main focus, of course, is executing for our foundational customer, which is General Motors. What I think is important, though, is, you know, some of the conversations that I mentioned earlier, you know, in, you know, various industries, not just automotive, you know, continue to go on. You know, I think Jim said it many times before, we are not demand constrained, we are supply constrained. And so, you know, from that perspective, You know, we continue to have, I think, very, very healthy dialogue across industries in terms of qualification and metal deliveries, etc. Our focus is certainly on General Motors for the moment, but we continue to engage with a lot of potential other customers.

And Ben, just Jim, just adding on to that. I mean, if you look, given that we get essentially no credit for the business currently, obviously, our first and foremost focus is on executing for GM, as it would be regardless. But longer term, some of these trends that we talked about, specifically around robotics and national security items, which I think are going to head into a fever pitch next year, particularly given the new mandate in government. I think what you'll see is that our facility is well positioned to kind of, and hopefully you'll come see it sometime soon. But, you know, we're well positioned there to be able to, you know, produce for a variety of customers over time to the extent that we want to grow the business.

Thank you. And Jim, on the policy front, you mentioned not being on a level playing field. As you talk to representatives in the administration, what is kind of on your wish list or how do you want to try to get on a level playing field if you had your wish? Thank you.

Sure. Yeah, sure. I mean, that's a tough question because regardless of the wish, I think that this will be a lot of iterations to how this plays out with respect to tariff and tax credits and, you know, however, however it shakes out, obviously. But to more directly answer your question, you know, for example, we If we're competing against a competitor on the other side of the world that doesn't have a cost of capital, that's a challenge. If it's in separation, we're competing against a competitor that doesn't have a cost of reagents, that's a challenge. It depends on where in the stream that you are to specifically target, but I think that You know, whether it's an enhancement of tax credits or tariff related policy or simply, you know, what Ryan mentioned earlier with, you know, with defense policy starting Jan 1 of 27, you know, we're going to be We are effectively probably the only, or if not the only, one of the only sources for a lot of the defense supply chain under the new requirements. And so there's a variety of things that I think are going to accelerate our business. My guess is, though, that... you know, that there's going to be, you know, some grand bargain of some kind that will drive something that will help our business. I just don't know what it is. So I don't even know. I don't even know what specifically to wish for.

Okay, good enough. Thank you. Yep.

This concludes the question and answer portion of today's call. I will now hand the call back to Mr. Lutensky for closing remarks.

Thank you. Well, thank you, everyone. Obviously, as the execution results show, this was just an outstanding quarter across the business. I'm really proud of the team. And so we will get back to work and look forward to seeing you all next quarter.