Neo Performance Materials Inc.

and welcome to the NEO Performance Materials Inc. Second Quarter 2021 Earnings Announcement. Today's conference is being recorded. At this time, I would like to turn the conference over to Ali Madhavi, Senior Vice President, Corporate Development and Capital Markets. Please go ahead.

Thank you, Operator. Good morning, everyone, and thanks for joining us this morning. Just 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. I am joined by NEO's President and CEO, Konstantin Karyanopoulos, and NEO's Chief Financial Officer, Rahim Shaliman, this morning. Rahim will follow up on the back of Konstantin's commentary regarding the company's second quarter performance, and then we'll open the call to questions from analysts only. 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, 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 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 measures is available in NEO's Q2 2021 earnings press release, which is also available on CDAR. and on our website at neomaterials.com. Let me now turn the call over to Konstantin for opening remarks.

Thank you, Ali, and good morning, everyone. We're pleased to report pretty strong financial and operating results over the last quarter. NEO booked a record $135 million-plus of revenue with very strong profitability. Adjusted net income was $14.1 million. in adjusted EBITDA was $22.2 million. When you look at the business, purchase orders are pretty high, and many of our plants are operating at near-record production levels. Dialogue with existing and new customers and product innovation remain very active as we continue to collaborate on the next generation of our products and their products. As some of you may have noticed in the recent press release we issued with energy fuels, we are continuing to diversify our sources of rare earth feed materials to include material source from North America. Our research and development pipelines are full. Recent market dynamics have created a premium pricing environment that in the first half of the year helped strengthen our financial performance. Our talented teams around the world have diligently managed their operations. And we're winning new business because of our product innovation partnerships with customers, our extraordinary customer service, and the geographic diversity of supply chains we can offer. We always knew that climbing out of last year's shutdowns would provide ample demand growth. It's no surprise that our product volumes have increased 60% year over year, given that the second quarter of 2020 bore the brunt of COVID's direct impact. As CEO, of course, I keep this stellar performance in perspective. Unusual and complex, supply chain factors remain for every industry where we sell our engineering materials. Over the past six to nine months, we have observed outpaced demand as our customers attempt to refill supply chains. and then customers in Greater China, North America, and Europe are clamoring for goods. Often, our customers earmark news materials for inventory safety stock, only to have those units placed into production ahead of time. Those same dynamics also influence commodity spot input pricing, which has been running near five-year highs for select rare earth materials, primarily neodymium and praseodymium for our MagnaQuench division. The increase in our net working capital for the third consecutive quarter is reflective of that higher price environment. It's not a simple matter to juggle expanding production against the global shipping crisis, semiconductor shortages, extreme weather events wreaking havoc in localized geographies, and the resurgence of COVID in many jurisdictions. We've just recently started to feel these impacts in the back half of Q2, Some of this see-saw demand flow is reflected in the second quarter numbers, as evidenced in sequentially lower volumes for MagnaQuench. In addition to the inventory pipelines refilling in the first quarter, this was also driven by the semiconductor shortage and further exacerbated by other global issues, such as shipping and weather impacts. While we anticipate much of these volatility trends to continue in the second half of the year, Our Tier 1 customers and OEMs are indicating that demand will likely eventually increase to make up for some of the recent shortages tied to the semiconductor availability problems. Our customers do not expect to see any significant permanent loss of demand from this temporary shortfall. From a strategic perspective, what I continue to think about is the fact that NIO's innovations sit atop supply chains that are continually changing. Our teams, our materials, and our mode of operations must also change to meet these demands. It's a topic that we discuss regularly, and it informs our strategic vision to first protect and grow our core business. The advanced materials we manufacture and sell today are meeting the challenges of clean air, clean water, and more efficient motor and energy processes. Our execution of this strategy has led to outpaced growth as the global manufacturing environment finds its footing. We've observed this increased demand across our MagnaQuench business unit for thermal management of electronic devices, such as 5G stations, servers, laptops, and gaming devices. Factory automation remains on the upswing as a megatrend. The consumer appliance business remains strong and is seeking higher performance materials. which has led to the business successfully winning new product lines. And despite the semiconductor issue within automotive, we continue to see substantial order volumes for auto pumps, sensors, thermal management systems, and ancillary motors such as trunk motors and seat motors for both internal combustion and electric vehicles. On a mid-term outlook, we remain in the middle of a global economic recovery. And while production manufacturing indices remain in expansion mode, we're far from a typical operating environment. In another 12 to 18 months, we anticipate that much of the current volatility will subside. Over that timeframe, we expect semiconductor supply chains will be reconfigured with these decentralized regional production centers. And we're hopeful that increasing vaccination rates will help starve COVID of the conditions it needs to flourish. A major competitive advantage at NEO is our flexibility to procure diverse raw material inputs. We value our long-term supply relationships with strategic sources around the world. Rather than being tied to a specific ore body or held to a single source supply for critical materials, we've built an extensive portfolio of relationships. We are continuing to build upon those. The addition of a new critical material supplier requires methodological discipline, and we're pleased with the progress made by our development partners in Colorado-based energy fuels. We expect to receive commercial quantities of monazite-derived rare earth feedstock to our European-based processing facility in Sillame, Estonia, in the third quarter. We see this fueling growth of our processing capacity for our global customers. Ensuring the responsible sourcing of all key raw material inputs has always been the assured practice at NEO. More recently, we have noticed increased interest from global customers attesting to those statements, as well as investors. While we have a significant successful experience related to our Tandalum programs and ensuring that we do not process any conflict materials, we're encouraged to see similar interest and initiatives related to all of our key materials. Our separated rare earths business continues to perform strongly with multi-year high-order volume at all locations. This volume strength is further aided by higher pricing related to strong demand for magnetic applications and short-term interruptions from a supply perspective. These higher-cost raw materials have begun to flow through our working process and finished goods inventory, directionally tightening our margin profile in that business as expected. Underlying trends indicate strength across automotive, consumer electronics, and healthcare, all of which continue to show favorable demand. Our specialty mixed oxides business continues to outpace the general automotive trend, as our newest products and strong customer service continue to gain market share. We have observed some near-term impact of the semiconductor shortfall, although, again, We see that as a temporary condition that should not lead to permanent loss of demand. Our specialty water treatment business is building momentum, and we have sold record volumes into the strategic growth arm within chemicals and oxides. Our air metals business has seen strong performance in its specialty materials, and we have also observed a directional improvement in a traditional aerospace business. Although this is growing at a slower rate related to automotive and consumer electronics, the restart of the industry is an encouraging sign. Equally, if not more important, our strategic decision to further diversify beyond the aerospace sector is starting to yield favorable results. Our teams are diligently working on expanding operating capacity to help accommodate new market development, particularly premium applications within our existing core product portfolio. And our electronic materials business continues to outperform our expectations. A couple words on climate and sustainability. Longer term, we continue to be optimistic about NIO's growth prospects. At the end of 2022 and into 2023 and beyond, we expect to be much further along on the massive industrial transformation in response to climate change. We all saw in the headlines from this week's release of the United Nations Intergovernmental Panel on Climate Change Sixth Assessment Report renewed emphasis on decarbonization. Electric vehicles, alternative energy generation, and energy efficiency will continue to drive demand for our products at increasingly higher rates. With these sobering IPCC conclusions in mind, NEO's board recently approved our commitment to continuously pursue the advancement of the United Nations Sustainable Development Goals and make them part of the company's strategy, culture, and day-to-day operations. NEO has always taken a responsible approach to ensure that our teams and our facilities are on the leading edge of environmental practices. We are proud of our sustainability track record. In order to more effectively communicate our contributions to sustainability, I'm pleased to report that we're working toward our inaugural sustainability report. On behalf of our board's health, environment, safety, and sustainability committee, I'm proud of our team's efforts to methodically approach this massive undertaking in a thoughtful way. Sustainability is truly in our company's DNA, and more formally incorporating best sustainability practices further into our operating culture will become a new norm. We already see the benefits internally, and we look forward to sharing more information with you. On the electric vehicle front, the climate change trajectory we now face tells us that macro trends, such as the growth in electrified vehicles, will only accelerate. And the bottom-up actions from industry around the globe are more telling than the headlines. With $270 billion already committed to electrification efforts by the major OEMs, The direction has been set through both public policy and industry objectives. The major questions that remain in consumers' minds, price parity with internal combustion engines, the EV charging infrastructure, and range anxiety are falling away. NIO's innovative product portfolios are currently under testing and qualification for several new electrification platforms, both with magnetic applications and next-generation emissions platforms. We agree with many analysts' views that 25% to 30% of new passenger vehicles produced and sold will be pure battery electric vehicles at the end of the decade. And those estimates are before the most recent policy proposals this summer, such as the European Union's recent Fit for 55 campaign to revise CO2 emissions targets and the recent executive order from the U.S. targeting 50% EV penetration by 2030. While formal targets have not been set for greater China, current actions suggest that China will continue its aggressive transition to electrified transportation. Irrespective of the precise figure of EVs at the end of the decade, one thing is clear. More efficient electric motors will be required to propel both electric and next-generation hybrid vehicles. These vehicle platforms are anticipated to require nearly eight times the amount of permanent rare earth magnets. NIO's technical development teams are intimately familiar with the trajectories and goals of our customers. This type of trusted development partnership is critical to successfully commercializing our advanced performance materials into OEMs and motor manufacturers. Interestingly, public policy proposals in the US and elsewhere are also catching up to the increased demand trends for magnetic materials. with an emphasis on localized production to help de-risk some of the global supply chain impacts we have observed over the past 18 months. As a leader in rare earth and rare metal performance materials, we're very familiar with the benefits of having diverse production facilities located across Asia, Europe, and North America. Our customer service model and innovation for next generation products are unmatched. and we will further utilize our diverse geographic asset base to meet our customers' demands. While the trend for more electrified vehicles is positive for NIO, it's worth noting that a majority of all vehicles in 2030 will likely still contain emissions catalysts. The catalysts of 2030 will be more advanced and complex to achieve emerging emission regulations. As the final iterations of a Euro 7 regulation, set of emission standards take shape, we're actively qualifying new materials to achieve improved performance and overcome design challenges. The electrification, light weighting, and improved efficiency of electric and alternative fuel vehicles continue to paint an improved picture for NIO's core business. In summary, as we enter the back half of the year, there are some clear signals for short-term volatility. We feel the impact of the semiconductor shortage, and there may be more timing uncertainty in the next several quarters. But the longer-term trend with automotive is very favorable through both the general economic recovery and the acceleration to electrify dry drains. Similarly, continued high demand for consumer electronics is now relenting, and it will bring further pressures upon tight supply of integrated circuits. Our team is ideally situated to manage and grow through short-term volatility, as we have successfully done for many years. Our emphasis on innovation will take advantage of long-term megatrends and position NIO to grow through the next major industrial transition to a more decarbonized global economy. Operationally, we will leverage our unique technical capabilities to further grow our core business and expand our product portfolio over that timeframe. we will continue our focus on developing new products and innovations that take advantage of macro trends throughout the remainder of the decade. This disciplined approach to managing our business generates robust free cash flow, and we will continue to invest in our business to pursue further growth. As we align our strategic initiatives with those of our customers, our supply chains, and the megatrends of the coming decades, we will also opportunistically continue to evaluate partnership and acquisition opportunities to strengthen our core product offering and accelerate our technical know-how. In short, with the organic growth we're seeing across all business units, the significant macro tailwinds boosting the entire rare earth sector, and a number of strategic growth opportunities on the radar screen, we remain confident in the sustainability of our long-term vision and growth strategy. I'll now turn the call over to Rahim for a detailed review of our financial performance in the quarter.