Neo Performance Materials Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the Neal Performance Materials fourth quarter and full year 2020 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, you will need to press star then one on the telephone keypad. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Mr. Alex Caldwell, Corporate Secretary. Please go ahead.

Thank you, Operator, and good day, everyone. Today's call is being recorded. A replay will be available starting tomorrow in the Investor Center on our website, located at neomaterials.com. On today's call, we have NEO's President and CEO, Konstantin Karyanopoulos. Also on the call is Rahim Suleiman, NEO's Chief Financial Officer, who will provide detail regarding the company's fourth quarter performance. Then we will open the call to questions from analysts. Please note that some of the information you will hear during today's presentation and discussion will consist of forward-looking statements, including, without limitation, those regarding revenue, EBITDA and adjusted EBITDA, product volumes, gross margin, other income and expense measures, gross fee, cash returns, and future business outlook. Actual results or trends could differ materially from those discussed today. For more information, please refer to the risk factors discussed in NEO's most recent financial filings, which were filed on CDAR earlier today and are also available on our website. NEO assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. Financial amounts presented today will be in U.S. dollars. Non-IFRS financial measures will be used during this conference call. Further information regarding NEO's use of non-IFRS financial measures is available in NEO's Q4 2020 earnings press release, which was released earlier today and is available on CDAR and on our website. Let me now turn the call over to Constantine for opening remarks.

Thanks, Alex, and good morning, everyone. I'd like to spend my time this morning providing some context on our strategic initiatives as well as where we're going. But first, I'm pleased to share with you some highlights of NEO's fourth quarter and full year results. NEO reported sales of $110 million during the fourth quarter, an adjusted net income of $9.6 million, or $0.25 per share. We reported adjusted EBITDA of $12.3 million, and our top-line performance represented a substantial recovery relative to our performance at the start of the global pandemic. NIO's focus in 2020 was to protect our core business in the face of that global pandemic, as well as to set the stage for growth it will return to more normalized operations, and we continue to advance into new applications and markets. In spite of 2020's many challenges, both for us as well as our customers, I'm pleased to report that we have finished the year in great shape. Volumes and revenues accelerated their growth in the quarter, indicating a strong recovery of key magnetic and catalytic applications. Our facilities around the world are operating at near full capacity and have exceeded health and safety targets. We entered 2021 with product demand continuing to show upward momentum, and we are beginning to advance strategic initiatives aimed at accelerating the company's long-term growth. As the global pandemic continues, we're all maintaining a heightened sense of caution Favorable news related to COVID vaccines give us hope that there is light at the end of the tunnel. Yet, we're still concerned with the possibility of renewed lockdowns in many parts of the world. For example, case counts continue to trend unfavorably in Brazil, Central Europe, and India. Just last week, Paris returned to lockdown mode. The operational challenges associated with the pandemic have also proven to be a moving target. Fortunately, our operations have managed through recent supply chain shortfalls, overtax, shipping ports, and surge in demand. This is to say nothing of our most important and continuing mission, keeping our employees and their families as safe as possible from the virus. Despite these challenges, NIA was able to deliver one of our best quarters in years, one that was driven primarily by volume growth. The key for us has been maintaining flexibility and open lines of communication with all of our clients and customers. With multiple manufacturing facilities located across two different continents, our global footprint is critical in enabling us to continue supplying customers with the right products where and when they needed them and with exceptionally high quality. for which we are known. On this point, I'd like to give a shout-out to our Chemicals and Oxides team, which recently received the Top Supplier Quality Award by the Environmental Catalyst subsidiary of a major global automobile manufacturer in Japan. That award for superior product quality came in the middle of the global pandemic, and that says a lot about our team's resourcefulness, dedication, and commitment to excellence. As we enter 2021, I'm very encouraged by organic growth trends I see across our core business. In fact, the very positive volume and pricing trends for the chemicals and oxides and the magnet branch business units that we saw in the fourth quarter continued into the first quarter of 2021, which closed us next week. When we announced our first quarter results in mid-May, We expect that they will exceed current analyst consensus estimates of $84.9 million in revenue and $9.9 million in distributed tax, and will also be significantly higher than our fourth quarter 2020 results we announced today. Now, given the continued uncertainty we faced this year with a pandemic and other factors such as merit pricing, geopolitical development, and this will not, I think it is prudent to introduce some caution to go along with our optimism that these trends will continue for the balance of this year. That said, I'm excited about a number of near and midterm growth opportunities where I see us positioned to deliver innovative, advanced materials that are needed by new and more sustainable technologies. Capitalizing on these growth opportunities will take critical focus, discipline, and resolve. To help us get there, our global team is tapping into new entrepreneurial roots and culture while relying on our decades experience in this business. In a relatively short period of time, we have made very good progress in methodically executing our strategic priorities for growth. This is perhaps illustrated by the launch and successful commercialization of several new products this year, this past year rather. These include high-performance precision neomagnets for use in electric vehicle cooling, water pump motors, seat and trunk motors, laptop and tablet plan motors, and a host of consumer products for vacuum cleaners to massage guns. Our MagneQuench magnetic powders, are now being used in the traction motor and generator of one major automaker's second global hybrid car platform, a larger volume global model. Our highly engineered powders are manufactured into hot deformed rare permanent magnets by Daido Electronics in Japan. And what is amazing is that these magnets can perform in a vehicle drivetrain system while containing zero heavy layer of elements. This is an advanced material innovation, which was considered next to impossible only a few short years ago. We achieved this target in time for the 2020 model year, and we continue to improve on the performance of this technology. One area of perhaps unexpected growth for our magnetic powders was in the production of high torque magnets used in precision motors. or industrial robots. Our magnetic powders are helping semiconductor manufacturers expand their production capacity. This is a handsomely growing business for us, by the way, which is perhaps not surprising given the intense effort being made around the world to increase the production of these chips. In our chemicals and oxide division, we developed a new line of high-curity nanostructured dystrosium oxide. for use in dielectric formulations that help further shrink the size of multi-layer ceramic capacitor chips produced in Japan and Korea. There can be anywhere from 500 to 1,000 of these chips in a single smartphone. More than 1 trillion are made each year for a wide variety of electronic systems. In addition, our very busy and effective research and development teams are continuing to make progress on the development of a new family of innovative rare-based materials that demonstrate a wide range of performance characteristics, including superior catalytic, fire retardant, and antiviral properties. The potential applications for these new materials are very exciting. But our new goal encompasses more than a deep R&D pipeline and close development partnerships with our customers. For example, with a recent venture into magnet manufacturing through Magnet Quench Studio, we leveraged their years of experience in making high-quality, high-performance magnetic powders into producing compression molded magnets. The extension of the powder business into magnet manufacturing has been remarkably efficient, and the results have surpassed our expectations. Although the finished magnet side of our business is still relatively small, it exhibited growth of 28% year-over-year in the quarter. It also has expanded from its core electronics market focus into fully qualified magnets for demanding automotive motor applications. These tend to be larger magnets integrated in more complex motor assemblies. These early signs of success are what we seek in our extended approach to growth. We will continue to evaluate and look for capabilities that leverage our existing expertise and, when combined, will allow both our existing operations and new application areas to grow. Today, more than half of our MagnaQuest business is directly related to the automotive sector. This was a deliberate shift which we focused on more than a decade ago in order to diversify our customer base away from its primary focus on electronics at the time. And please don't get me wrong. PS5s, smartphones, and laptops, and tablets are all great markets for our business. Now, however, with concrete steps being taken by both industry and governmental bodies to encourage the rapid growth of electric and electrified vehicle manufacturing, a magnet wrench in CNO businesses, rather, are poised for a new era of growth. One primary area where we see demand rising rapidly is Europe, and I've talked about this before. Forecasts for EV production and demand in the EU continue to be revised upward. More importantly, public and private sector investment is flowing in increasingly large numbers. Tens of billions of euros have reportedly been committed the electric mobility sector alone, focusing in particular on securing supply chains and establishing manufacturing capacity for resilient drive train and battery supply chain. OEMs have been making major announcements on a seemingly daily basis as to how they will proceed on their own paths towards electrification. Needless to say, growing demand for the critical materials needed by these platforms because that's a massive opportunity for companies that can reliably supply them. With a decade of experience in producing high-quality, customized rare earth materials and the only rare earth production facility in Europe, Neil is positioned at the right time, the right place, and with the right expertise. We'll continue to capitalize on opportunities, for growth and innovation for new clean air and clean water products. And we will design a supply chain to operate synergistically with our customers. We'll increase customer pull for these products in Europe, the continent, and the primary geographic focus for our growth strategy. The U.S. Magnet Quest division has been operating in magnet markets for almost 40 years. in the chemical and oxide division in rare earth markets for almost 30. Our plant in Estonia has been operating for decades more. Over that time, we've seen a number of commodity cycles and supply-demand imbalances that have contributed to some very volatile, dynamic, and unpredictable pricing environments. Even those investors who are not intimately familiar with our industry are likely familiar with a massive rare earth pricing spike during the 2010-2012 period. Of course, our customers remember well what happened with rare prices back then. While there's some similarities in today's market, there are also aspects of the current pricing environment that are different. For one, pricing volatility in 2010-2012 was largely driven by Chinese government policy, rare export quotas to be exact. Today, higher prices are largely demand-driven and are more related, particularly, to specific rare earths, namely the magnetic rare earths neodymium, paleodymium, dysprosium, and terbium. These have all seen strong upward movement in pricing over the past six months. And while pricing was relatively modest through much of 2019 and 2020, an inflection point was hit last year in the third quarter due to concerns monsoon season flooding in southern China, as well as a more recent coup in Myanmar, which is a major source of supply for air concentrates in China. NIO experienced no supply disruptions, but these events did exacerbate supply imbalances due to the growth in demand fueled by a recovering manufacturing sector, pent-up consumer demand, and supply chain restarting. We prefer to stay out of the prediction game on how rare earth pricing evolves. Objectively, these magnetic materials are currently trading at the high end of the range seen in recent years. Now, we do not see panic in the market the way we did back in 2011. Our customers have a better appreciation for the potential price fluctuations of rare earths. They also have a strong confidence in the industry to bring additional supply to ensure a sustainable market. After all, two large industry suppliers, Linus of Australia and Empty Materials of California, reportedly produced more than 50,000 metric tons of rare raw materials and separated products last year. These supplies did not exist during the 2010-2012 time frame. NEO typically passes along a raw material cost on a regularly adjusted pricing formula in a customized specialty materials command evaluated premium on top of the underlying commodity price. The raw material pass-through is often priced on a one-quarter lag. As such, a fourth quarter 2020 results largely reflect third quarter market pricing. And Rahim will provide an overview of the LEED live applications for our MagnaQuench and CML businesses. Given that we're not a mining company, we're always working to improve the diversity of our raw material sources in order to power and secure our growth. This is why we were especially pleased to announce, jointly with Energy Fuel Resources, a new rare earth material supply chain project starting with byproduct mineral sands in the United States. This U.S. to Europe supply chain is pretty unique, environmentally oriented, and highly capital efficient. First, the Kimworth Company produces monazite as a byproduct of mineral sands in the southeastern United States. Colorado-based energy fuel then processes the monazite at its White Mesa facility in Utah. There, using available capacity, it extracts naturally occurring uranium for use in nuclear power generation from the monazite, as well as produces a mixed rare carbonate to our specifications. This material is an ideal feedstock for our air separation operations and fillment. NEO received as carbonate and SILMAT, our existing European processing plant in Estonia, to produce value-added rare earth materials, especially environmental catalyst precursors and magnetic rare earths. We're proud to operate Europe's only existing rare earth separation facility in Estonia. This is a highly strategic asset. I want to note how rapidly and effectively the team at Energy Fuels moved from concept to reality in this effort. Mark Chalmers, the CEO, and his excellent team there are well-versed in chemical processing and separation technologies. But this new process presented some unique challenges. They tackled this effort extraordinarily quickly and very effectively. In doing so, they have opened up new possibilities and growth opportunities for both NEO and Energy Fuels. Looking forward, we expect this collaboration to help NEO expand the production of separated rare earth products in Europe, improve the resiliency of European manufacturing, and enable greater supply of rare earths for the continent's rapidly growing EV manufacturing base. The supply chain is highly capital efficient. It utilizes the byproduct material from existing mining operations, The mixed rare earths are extracted using existing available capacity and skills, while in parallel generating uranium credits. NEO utilizes available processing capacity in Estonia, and by getting our plant to run at 100% capacity there, we will produce more rare earth materials in Europe, just as Europe's demand is increasing. The capital cost of implementing this phase of the energy fuel NEO supply chain is extraordinarily low. It is also an excellent example of how to build new critical material supply chains in a matter that respects environmental values and advances the model of a circular economy. The feedstock from this new supply chain will complement material that we now receive in Estonia from a highly valued supplier, SolarCams Magnesium Works in Russia. SolarCams has been a trusted supplier and partner for our European operations for more than 30 years and are currently running at maximum capacity. SolarCAMS just celebrated its 85th anniversary in business earlier this month. That's an exceptional achievement, and I would like to congratulate the entire SolarCAMS team for more than eight decades of successful operation. NIO looks forward to many more years and decades of cooperation with our friends and colleagues there. As the global economy continues to evolve into a more circular economy, the sourcing of raw materials required by new technologies and environmentally focused applications, such as EV, becomes a material concern to companies like ours, as well as to our customers and their customers. In fact, several of them have asked that we continually evaluate the procurement practices to incorporate as much recycled material as possible. For NEO, helping to build a more circular economy is driven both by our customers' desires as well by our approach to manufacturing our advanced materials. For example, our Magnet Quench division uses recycled rare earths to supply magnetic powders and magnets for one of the world's largest manufacturers of smartphones. You may see the announcements, their announcements rather. This allows the manufacturer to do something that no other major phone manufacturer has been able to do, at least to our knowledge, rely on recycled material for their air of madness in their phones. From a conservation and net emissions perspective, if the best source of material is a recycled loop, then the second best source is a byproduct. And many of the raw material inputs we use are derived from byproduct waste streams. For example, we produce high-curious rare metals such as gallium, indium, beryllium, niobium, and tantalum for both scrap and recycled feed materials. The rare earth concentrate supplied to me by SolarCAMS is a byproduct of magnesium and titanium production operations. The mixed rare earth carbonate we receive from energy fuels in the Utah is made from a byproduct of other mining operations. Mia's continuing focus on promoting ESG values and practices is a natural extension of our business model. To further enhance the sustainability of what we make and how we make it, we conducted external third-party reviews by EcoVadis, a well-known reviewer in this field, in 2019 and 2020 at four of our largest production facilities. Each received a silver medal in terms of its performance, and at present, Five of our facilities representing more than 90% of our revenues are going through the ecovirus process. We see this initiative as important, as very important, in helping us shape our environmental, social, and governance strategies going forward. Last, although I typically refrain from commenting on capital markets, It is important to note that our largest shareholder successfully completed two private secondary offerings in recent months. In coordination, we have made a concerted effort of reengaging new and historic shareholders. In conclusion, let me say that we feel very fortunate to be at the epicenter of critical materials discourse. or rather at the epicenter of the critical materials discourse, right on the cusp of a global energy transformation. Through the hard work and discipline of our employees around the world, we've been able to weather this pandemic so far and strategically position the company for new growth. As the global economy begins to return to a new normal, Governments around the world are also spending trillions of dollars in highly focused efforts to stimulate economies, restore and create jobs, and move the world onto a more sustainable and ecologically sound swimming. As I see it, those macro trends all point to very healthy growth opportunities for NEO and our customers, both organic and strategic. We will pursue those opportunities aggressively. And with that, let me turn the call over to Rahim.