Neo Performance Materials Inc.

Good day and thank you for standing by. Welcome to the NEO Performance Materials Inc. Q1 2021 earnings announcement. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Ali Madavi. Thank you. Please go ahead.

Thank you, operator, and good morning, everyone. As a reminder, today's call is being recorded, and a replay will be available starting tomorrow in the Investor Center of our website located at neomaterials.com. On today's call, we have NEO's President and CEO, Konstantin Karianopoulos, Rahim Suleiman, NEO's Chief Financial Officer, will then provide additional detail regarding the company's first quarter performance. Then we will open the call up to questions from analysts only. Please note that some of the information you will hear during today's call and discussion will consist of forward-looking statements, including, without limitation, those regarding revenue, EBITDA, and adjusted EBITDA, product volumes, product pricing, other income and expense measures, 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 this morning 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 measures is available in NEO's Q1 2021 earnings press release, which is available on CDAR and again on our website at neomaterials.com. Let me now turn the call over to Konstantin for opening remarks.

Thanks, Ali, and good day, everybody. I hope everyone's safe and well. We're pleased to report our first quarter results showing a very strong start to the year. NEO reported sales of $130.9 million in the quarter, adjusted net income of $15.1 million, adjusted EBITDA of $22.4 million, which more than doubled from the first quarter of last year. The momentum and trajectory that we described on our third and fourth quarter earnings calls have pretty well remained in force. The resulting aggressive product demand within our MagnaQuench and chemicals and oxides business units fueled our financial performance to record levels. Many of our production lines are operating at what is essentially full capacity. And we're carefully managing incoming order flow and production planning to ensure the reliable supply to our customers continues. In some of our key sectors, such as automotive, home appliances, consumer electronics, we anticipate this strong demand will likely remain at elevated levels for some time. NIO's growth this year is reflective of what has been reported in recent production manufacturing indices. PMI numbers out of the Eurozone have indicated the fastest pace of production growth in more than 20 years, particularly in Spain, Italy, and Germany. Of course, all economies are rising from the figurative ashes of the worst global pandemic in a century, but the growth trajectories we are seeing are clearly and nevertheless impressive. While some of this is due to our customers rebuilding inventory levels, we're also seeing new growth in new platforms and applications, as well as in the underlying base business. That's particularly true in the automotive supply chain and especially in electric vehicles. For example, magnetic powders and magnets used in electrified vehicle traction motors and battery temperature control pump motors, so very strong growth in the quarter. Likewise, our magnet sales doubled as compared to recent levels in our magnet quench unit, and it looks like we'll have to plan or start to expand our magnet production capacity again this year. These trends appear to be continuing into the second quarter. And consumer demand for durable goods remains at all-time highs, with products backordered around the world. For example, as a consumer, if you want to purchase an electric power assist bicycle, which contains rare permanent magnet technology, you'll be lucky to find a merchant willing to accept the deposit to reserve a bike to be shipped even by this time next year. Demand for the semiconductor chips integrated into products such as automobiles, appliances, automation equipment, and every conceivable electronic component or smart device is also quite intense. We follow this sector closely as NEO produces a highly engineered form of nanostructure dysprosium oxide for use in multi-layer ceramic capacitors, which are used in very large numbers and are integral to every circuit board where you normally find semiconductors. An unexpected positive effect for our business in this sector has been the increased capital investment in new semiconductor production capacity. Robotic systems are a big part of this expansion, and as a result, we have seen a significant increase in orders for magnetic products specific to the precision motors used in this application. On a more macro level, the accelerating adoption of technologies for lightweighting, increased efficiency, and reduced greenhouse gas emissions continues to be a key demand driver for many of NIO's products. NIO's dedicated team of very bright applications, R&D and product development scientists and engineers have been tirelessly developing exciting new products and applications. Many of these advanced materials result in new versions of legacy products. For example, sizable improvements have been made in the performance of cooling fan motors, which have renewed importance in both the automotive and technology sectors. Within automotive, demand continues to rise for electric motors that are a critical part of the battery thermal management system in electric vehicles. Growth of this application is becoming another key driver for our MagniClench business as the world continues to move forward with the electrification of vehicles. In fact, it's remarkable to see the dramatic shift in manufacturing that is underway now, especially in China and Europe, away from internal combustion engine vehicles to hybrid and electric vehicles. Every year, as automotive research firms announce forecasts for hybrid and EV market share, these estimates are always revised upward. For example, the estimated collective market share of hybrid, electric, and alternative fuel vehicles sold in Europe is recently estimated to be more than 60% of new sales by 2025. This is a massive shift compared to just years ago when that number was estimated to be 25%. And 25% was back then viewed as very aggressive. The acceleration into mass production of these EVs and hybrid drivetrains is a favorable outlet for NIO's more advanced and innovative products, including next-generation environmental catalyst materials to meet emerging emission standards. This builds upon NIO's traditional environmental catalyst portfolio, which just had one of its strongest quarters ever. Our chemicals and oxide units mixed oxide catalyst did very well in Q1, with volume growth across all drivetrains from gasoline to diesel to hybrid platforms. In fact, total volume growth exceeded the market growth in the automotive sector generally, as pent-up demand and inventory restocking took hold and key applications for our products outpaced the overall market growth rate. We will continue to innovate and invest in clean air and emission control products and materials technologies, particularly for hybrid platforms. We expect them to continue to serve a key role over the next 10 years on our collective path towards electrification and decarbonization. Within technology, the explosive growth of data mining and data storage requires more and more server farms, which are immensely energy intensive and require more efficient cooling. NEO's advanced magnetic materials and magnets deliver improved motor energy efficiency and better durability in these cooling systems. A reduced carbon footprint is also a welcome collateral benefit of greater energy efficiency in this application. An added benefit of the growth in server farms is that they're extending the useful life of hard disk drives, for those of you who remember that technology. Hard disk drives provide reliable, low-cost data storage, which is a good business still for MagnaQuest, and it looks like it would be around for a while so rumors of its demise appear rather premature. Similarly, higher performance magnetic powders and better magnets allow for additional lightweighting and efficiency, while at the same time delivering increased precision and accuracy in applications across the board, from sensors and actuators to smartphones, game consoles, and robotic drive systems. Typically capital investment in areas like factory automation are rather cyclical. Capital is flowing once again into automation systems for three key reasons. First, general manufacturing capacity is in relatively short supply, particularly as supply chains are being redesigned with more regional diversity and redundancies. New technologies, such as electric vehicles, are being commercialized and placed into mass production, requiring new facilities and infrastructure. Manufacturing capacity for EV batteries is being created at unprecedented levels. EV drive train systems are following closely. And third, as capital continues to be allocated to emerging technologies, the manufacturing environment is shifting to a more efficient and sustainably focused New is actively benefiting from all of these trends. Given that many pieces of our business are hitting high notes, which allow for operating efficiencies and a beneficial operating leverage, we're able to further invest across our innovation pipelines and strategic initiatives. I'm increasingly optimistic that several new product development efforts in our chemicals and oxide segment will move to commercialization over the next several quarters. These include a suite of non-toxic and environmentally friendly engineered materials that exhibit extraordinary anti-pathogen activity. Another set of rare earth-based materials coming out of our labs is a family of fire retardant powders. We expect these products to find applications in textiles, functional fabrics, and protective gear for first responders, composites for wire and cable insulation, and building materials to name a few. These product families would open a number of new markets with significant growth potential for NEO. And we have only begun to scratch the surface with these technologies. Now turning to rare metals, after a couple of negative quarters, a rare metal segment had a profitable quarter. Its core end markets of metals and alloys for the aerospace industry is starting to trend up, although recovery is expected to lag other sectors. Still, new aircraft deliveries from Airbus and Boeing are restarting after a full year of disruption. Notably, Airbus just asked its suppliers to prepare for an 18% increase in the production of its A320 family of jets during 2022. would come on top of its existing production targets for this year. On the space side of aerospace, materials innovation continues to advance the frontier with satellite, space station, and propulsion systems. In fact, and this is reflective of the quality of the rare metals and alloys we produce, our high performance metals and high performance and high purity metals are used in the production of rocket engine nozzles for the SpaceX program. We anticipate the long-term demand from airspace to be quite favorable, but our teams are also actively engaged in a drive to diversify our air metals portfolio beyond traditional aircraft engine components. We're gaining traction with tantalum and niobium, in advanced electronic applications, which are often overshadowed by airspace, but do have higher margins and can provide better returns. Last, I want to touch on the general rare earth markets, which remain highly fluid given the recent manufacturing tailwinds. We've seen commodity rare earth prices begin to soften slightly over the past few weeks, particularly for some of the heavier elements such as dysprosium and terbium. which are off their recent highs. The same holds for neodymium, a key constituent in our magnetic products. We believe this is helpful in mitigating some pending anxiety across the industry and its supply chains. We remain operationally focused on pursuing diverse sources of raw material supply, and we continue to gain traction in terms of qualifying feedstocks with new suppliers. A recently announced supply initiative with Colorado-based Energy Fuels continues to ramp up. This feedstock material, which starts as a byproduct from existing heavy mineral sands mining in the southeastern U.S., will help diversify and expand the feedstock sourcing at our SILMET facility in Estonia. This is particularly important given that SILMET is Europe's only operating commercial rare earth processing facility. and demand for particularly magnetic rare earths is expected to rise significantly in Europe as a result of electric vehicle and other environmental technology initiatives. To close, the state of NEOS operations remains strong. COVID cases in most of the regions where our people and plants are located are abating, although we remain highly vigilant against resurgence. Some level of uncertainty remains with the future trajectory of the pandemic, of course, but I believe that our global teams have managed these impacts extraordinarily well over the past year, and we're prepared to adjust our operations as needed as things unfold. I'm very proud of our teams around the world for their dedication, admirable performance, and astute judgment in the face of what has been a very challenging past 12 months. We'll continue to invest in our strategic initiatives, and we remain focused on how to best grow our business and provide strong financial performance for our shareholders. Let me now turn the call over to Rahim.