Neo Performance Materials Inc.

Good morning, ladies and gentlemen, and welcome to the NEO Performance Materials Second Quarter 2023 Earnings Conference Call. At this time, all lines are listed in only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, August 11th, 2023. I would now like to turn the conference over to Ali Madavi, Senior Vice President of Corporate Development and Capital Markets. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. Thanks for joining us for NIO Performance Materials' second quarter earnings call. Just as a reminder, a replay of this call will be available starting tomorrow in the Investor Center of our website at NIOmaterials.com. Joining me this morning are Raheem Sulaiman, NIO's Chief Executive Officer, and Jonathan Bech, NIO's Chief Financial Officer. Please note that some of the information you will hear during today's presentation and discussion will consist on forward-look statements, including, without limitation, Those regarding revenue, EBITDA, adjusted EBITDA, product volumes, product pricing, other income and expense measures, cash returns, and future business outlook, including potential expansion plans. 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 year-end earnings press release, which is available on CDAR and on our website at neomaterials.com. I'll now turn the call over to Ray.

Thanks, Ali, and good morning, everyone. We're excited to speak with you today and speak to our mid-year business update. For a quick roadmap, I'd like to first review some significant updates for NIO. Second, touch on some key industry and market dynamics. And third, revisit NIO's long-term strategy for growth. Jonathan will then provide an overview of our financial and operating results. So first, there's a couple of obvious changes in our conference room this morning. As Constantine retired as NEO's CEO last month, we'd again like to thank Constantine for his more than 30-year commitment to building NEO into the thriving company that it is today. His guidance, his leadership and vision will help continue to shape NEO's growth trajectory for the years to come. The other obvious change is that there's a new face, or at least voice, on the call today, as Jonathan Bakish has been in the CFO seat for nearly two months. We couldn't be more thrilled to have him on board. Jonathan is an accomplished operational CFO, most recently joining us from Celestica, where he was the divisional CFO of a $3 billion manufacturing business. Prior to that, he built a career with General Electric, with a number of financial leadership roles across capital-intensive and highly regulated industries. So turning to NIO. During the second quarter, NIO continued to operate strongly on all fronts. As a leading global rare earth magnetics company, with parallel supply chains inside and outside of China. It was a busy quarter with some notable highlights. One, we made demonstrable progress on our two large capital projects. First, in Narva Estonia, with the groundbreaking of our new European magnetics plant. And second, in Zibo China, where we continued our expansion and relocation of our emissions catalyst business and value-added rare earth business. We continue to navigate very challenging demand trends for magnetic materials and continued softness in rare earth pricing. Three, we achieved record-breaking results in our rare metals business, particularly for products where recycled material is a major input, and most notably our hafnium business. Four, we are continuing to methodically review our working capital employed, particularly as the dynamic pricing environment continues to evolve. to evolve, sorry, achieving a $34 million reduction in inventory balances compared to year end. Five, we made a strategic investment of $4.5 million in Neo North Star resources, taking a strong minority position with an offtake agreement for 60% of the available rare earth feedstock in the Greenland rare earth mining project that we've discussed previously. And six, we closed the acquisition of SG Tech, a premier European magnetics manufacturer in Europe. In terms of SG Tech, we are pleased to have completed the acquisition early in the second quarter, and we are currently in process of integrating our management teams and operations. We are very pleased with the commercial and technical cooperation between our magnetics teams, and the integration of SG Tech is tracking according to plan. On June 28th, we broke ground on our new magnet facility in Estonia, a first for Europe. We were proud to host high-ranking government officials from multiple countries along our supply chain, as well as customers, suppliers, and investors. A highlight of the event was the speech by the European Commission President. President von der Leyen commended the partnership between NIO and the government of Estonia for the fast issue of permits and the rallying of all local stakeholders behind this project. In her words, and I quote, The rare earth magnets that will be produced by NEO are indispensable to growth and innovation in sectors like electric mobility, wind energy, and microelectronics, unquote. We appreciate this specific recognition by the President of the European Commission, citing NEO by name, and we continue to stay the course of our growth strategy with our timeline to bring rare earth permanent magnets to the European supply chain. NIO has manufactured its rare earth magnetic products both inside and outside of China for decades, including our Thailand manufacturing facility, which has been operating for over 25 years, and our Center of R&D Excellence, located in Singapore. We continue to believe in the long-term success of localized magnetic supply chains, and our expanded manufacturing hub in Estonia will help address the growing need for rare earth magnetics within Europe. Taking a step back for an overview of the market environment, rare earth pricing continued to decline through the second quarter. Magnetic rare earth pricing for neodymium and presodymium are down approximately 35% from the start of the year and are down almost 50% compared to the same quarter last year. Terbium, a critical rare earth material also used in permanent magnets, is also down nearly 50% from just the start of this year. This is reflective of a sluggish demand environment for magnetics in nearly every geography and maybe offsetting some of the rapid price increases in 2020 and 2021. We've covered much of this dynamic in the past, but suffice to say, the magnetics industry is currently in a market lull, despite the favorable long-term trends. There are very consistent views across the rare earth industry and automotive industry that this is a short-term market lull, and nothing has fundamentally changed the long-term demand and requirement for more rare earth magnets. Rare earth magnetic elements remain high on the critical material list of just about every jurisdiction and remain a very high priority for customers to have options inside and outside of China for this material. This is also evidenced by the continued announcement of other players desiring to enter the rare earth magnetics space. a place where NIO has operated within for the past 25 years, understands well, and is complemented by NIO's rare separation business. The declining price environment has somewhat slowed over the past two months, although we believe that this is just a temperate demand recovery at present. On another market topic, we've received numerous questions about the global dynamics for Gallium after the announced regulatory changes within China. To be clear, our Gallium recycling business is located in North America across two operations in Canada and the US, and we do not have Gallium operations in China. To date, there have been no discernible impact on our Gallium business operations, and we do not source feedstock from China. Customer inquiries are clearly increasing, and we continue to seek additional waste streams that we can recycle into valuable material. Our galleon business is a relatively small component of our rare metals business and to NIO as a whole. Yet trade policies can change quickly, and this is a primary reason that we have mature, dual supply chains for NIO's rare earth magnetics and separated rare earth products inside and outside of China. This is a key competitive advantage for NIO that we will continue to build upon. Before I turn the call over to Jonathan, I've been getting a number of questions from shareholders and customers relating to my view of NIO's long-term vision and strategy. I've had the pleasure of working with our business units for the past six years, and my vision for NIO's future is fundamentally aligned with our core vision over those past six years, with some adjustments that will become evident in the periods to come. NIO is a global rare earth magnetics company with operations inside and outside of China, Our core values remain the same. Our core value proposition to our customers remains the same. And it grows with the expanding size and breadth of our business. Yet there are areas of opportunity upon which we intend to capitalize. In terms of our upstream raw material strategy, we will continue to focus on enlisting more suppliers with more geographic diversity. NEO already receives the most geographically diverse rare feedstock, and this will continue to grow. And we will continue to evaluate strategic partnerships for long-term cooperation. But you should not expect NIO to become a mining company. It is not part of our core business model. What you should expect is for NIO to continue to develop strategic relationships for additional supply outside of China. NIO has a unique capability of separating light and heavy rare earths and transforming that material into high-value products including magnetic materials. These high-value opportunities will remain the focus of the company. In terms of style, we will continue to invest in building a culture of continuous improvement and to have a defined focus to execute our key projects. Top of mind for me is executing our growth plans, and the European magnetic strategy is the first piece that puts NIO on the offensive. Developing keen awareness and forethought to ensure that the Estonian Magnetic Project comes to fruition is one of the highest priorities for our company, and it exemplifies the philosophy of ensuring that we allocate more resources to our top projects. I refer to this as having the right focus. And so having the right focus for each of our teams is where I have been and will be spending my time. That focus needs to be on the highest growth and highest value activities in front of us. And I believe We have a generational opportunity in things like rare earth magnetics, driven partly by the electrification of automobiles and other energy efficient applications. NEO is operating at the right time, in the right geographies, with the right technology and expertise in a market that is on the cusp of exploding. We will focus on executing our part toward making the world a more sustainable place and capitalize on the immense demand and growth opportunities that everyone believes is on the horizon. I will have more to share in terms of NEO's long-term roadmap, but in the meantime, you can expect us to operate our business profitably, execute key milestones on our growth projects, add data tools to improve operations and metrics, like the return on capital, and ultimately drive more shareholder value. With that, I'd like to turn the call over to Jonathan.