Neo Performance Materials Inc.

Good morning, ladies and gentlemen, and welcome to the Neo Performance Materials Inc. 3rd Quarter 2024 Earnings Conference Call. At this time, all lines are in a listen-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 0 for the operator. This call is being recorded on Thursday, November 14, 2024. I would now like to turn the conference over to Irina Kozlitsova, Director of Investor Relations. 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 are Rahim Suleiman, NEOS President and Chief Executive Officer, and Jonathan Bach, NEOS Chief Financial Officer. Please note that some of the information you will hear during today's presentation and discussion will consist of the forward-looking statements, including, without limitation, those regarding revenue, EBITDA, adjusted EBITDA, product volumes, product pricing, other income and expense measures, cash returns, operational changes, and future business outlook, including potential expansion plans and contracts. Actual results or trends could differ materially from those discussed today. For more information, please refer to the risk factors discussed in NIA's most recent financial filings, which were filed on CDAR earlier today and are also available on our website. NIA 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. Let me now turn the call over to Rahim.

Thank you, Irina, and good morning, everyone, and thanks for joining the call. Today, we are pleased to report another strong quarter as we continue advancing our strategic goals and implementing substantial changes across our business. I'll start by sharing some key highlights. For Q3 2024, we delivered solid financial performance, underscoring our resilience and commitment to growth. Adjusted EBITDA came in at approximately $20 million for the quarter, about a 50% increase compared to Q3 2023. And on a year-to-date basis, adjusted EBITDA is approximately $44 million, a 28% increase over the prior year. As Jonathan will discuss, we have seen strong growth in both our MagnaQuench segments up 23% over the prior year, and our rare metals segment, up 30% over the prior year. These gains were offset by lower performance in C&O, which is mainly due to the lower rare earth separation business and lower rare earth prices. Given our robust results for the quarter, we increase our outlook for the full year 2024 adjusted EBITDA from a range of $45 to $50 million up to $52 to $55 million. we slightly improve and increase our outlook for 2025 to be in the range of $53 to $58 million. Bear in mind that we also announced the sale of three of our manufacturing facilities earlier this year, earlier this quarter, sorry, our QAPOC gallium trichloride facility, our light rare earth facility in China, and 86% of our heavy rare earth facility in China. Notwithstanding these planned dispositions, Our outlook for 2025 remains in this improved range. We will also collect more than $30 million in cash from these dispositions. We expect these divestitures to lower the volatility of our business, improve our geographic footprint, and create a better focus as a company. Look even farther into the future. We are very excited to show investors what happens next. We have now seen some stabilization in the existing market dynamics for Magnet Clench and are anticipating even further growth from centered magnets in Europe. We also expect growth from our efforts to get into more magnet assemblies, including the benefits of adding SG Technologies to our portfolio. Our new NAMCO facility is expected to be firing at full speed in the near future, along with the new automation, the new capacity, and the lower cost profiles. we will have improved our risk exposure in rare earth separations to reduce the potential impact of negative rare earth price trends, which have severely encumbered our business over the past two years, creating much of the volatility in our earnings that has made it harder for investors to see the true value-add nature of our business. We expect our rare metals business to normalize a little bit after several quarters of exceptional happy in pricing and doing a lot of the heavy lifting for our company. We talked previously about how we would simplify our business, focus more on downstream value-add businesses, and focus on new growth initiatives in high-growth segments. I think we are well on the way on that journey, and I'm glad that our financial results are showing just the beginning of what comes next. To repeat, in a year in which rare earth prices are down, our earnings are up almost 30%. Moving on to our strategic initiatives, we continue to make significant progress in key areas that will drive long-term value. As we announced one year ago, we began a comprehensive strategic asset review across our geographic and operating footprint. Our stated goals, including increasing our focus on downstream and value-add operations, improving our return on capital employed and reducing earnings volatility. With these in mind, we are pleased to have entered into mutually beneficial agreements to sell both of our rare earth separation plants in China. These separation facilities are world-class assets supported by top tier employees, rigorous operating procedures and an industry leading environmental practices. That said, The industry has shifted significantly over the past two decades. Today, our plants operate at smaller scale facilities focused on midstream rare earth processing. And with industry consolidation, it has become increasingly challenging for a multinational foreign investor to grow its position, particularly with respect to assets and feedstock. At the core, we had to ask ourselves whether this business aligns with NIO's strategy and if NIO is the best possible owner and operator for these assets. We found a terrific partner in Shanghai Resources, who we believe can help grow these businesses in a manner that NIO simply cannot, given the growing restrictions on access to raw materials in China. These actions are expected to reduce earnings volatility, improve our return on capital employed, improve our geographic distribution, and importantly, allow us to deliver on the high margin value at downstream businesses. It is important to note that NIO will remain a minority partner in Jammer and be the exclusive international distributor for heavy rare earth specialty products outside of China for an initial term of five years. This will allow us to continue to service our global customer base while significantly reducing our exposure to the working capital requirements. NEO will continue its rare earth separation operation in Europe. This capability is a strategic asset, and we are committed to sustaining and expanding our presence in this space. We are not exiting rare earth separation. In fact, we remain one of the few commercial-scale midstream processing facilities outside of Asia. Rare earths, and particularly rare earth magnetics, are on almost every country's critical material list. There are more mining projects coming online throughout the world, and NEO's separation capabilities in Europe will continue to become a more and more strategic global asset. In addition, we continue to work towards closing the sale of our gallium trichloride facility in Quapaw, Oklahoma. As discussed in our last call, Quapaw is a relatively small operation for NEO, and we have decided to sell it to its original founder and current general manager. We will continue to recycle gallium. at our Peterborough Canada facility. And as part of this transaction, we will supply some of that recycled gallium to Quapaw. This continues to simplify NIO's business, reduce our working capital, and focus on areas where NIO can grow its core operations. At a time when NIO may be viewed by investors as a deep value opportunity, the sales of these facilities represents about $1 Canadian per share in cash to NIO. without materially impacting our EBITDA outlook. From a different perspective, these transactions represent an approximately 11 times multiple on the average trailing five-year EBITDA of these facilities, ahead of the median across the material sector, and many, many turns higher than NIO's average trading multiple today. It may be just as important as those financial metrics. We said we would, and we did. I think our investors will find this to be a compelling mantra at NEO. These transactions are expected to close in Q4 2024. As previously disclosed, NEO announced the formation of a special committee of independent directors to lead a comprehensive strategic review process to consider strategic alternatives and opportunities to maximize shareholder value. The special committee has retained Barclays Capital and Paradigm Capital as independent financial advisors who are advancing the strategic review process. At the same time, in the context of the strategic review, we have continued to take steps to optimize NEO's business, including the divestment of non-poor assets, executing improvements in operational performance, and progressing with major capital programs, both on time and on budget. There can be no assurance that the strategic review process will result in any transaction or any alternative, nor any assurance as to its outcome or timing. There is no timetable for the completion of this process, and NEO does not intend to comment further unless it determines that further disclosure is necessary or appropriate. From a major capital projects perspective, in September, we held the grand opening ceremony for our newly commissioned autocatalyst manufacturing plant, NAMCO. This facility will have improved process layouts, additional automation, and additional capacity relative to our former autocatalyst facilities. We have already requalified the majority of our products across our largest customers, remaining on track to meet full production levels in the fourth quarter of 2024, subject, of course, to winding down the inventory stockpile we produce to help manage the transition activities. We continue, and we will continue, to incur some of the cash portion of our CapEx against the project through mid-2025 as we run through the completion agreements for equipment through its first year of operations. We essentially finished this project on time and on budget. We said we would and we did. Our second large capital growth project, a centered magnet manufacturing facility in Europe is on track and on budget. We have recently completed the manufacturing building structure with equipment installation already started. All our critical equipment has been ordered and much of it has already arrived. We target manufacturing customer magnet samples in early 2025 from this production equipment for our customers, including our awarded traction motor business. I would like to note that there is a particularly large amount of interest in what we are accomplishing here, with having both rare separation and magnet making located right next to each other in Europe. There are few players, if any, outside of Asia that can boast the integration, the infrastructure, and the experience that NIO has in this value chain. Although there's much discussion on the slowing growth of battery electric vehicles, or BEVs, I would remind everyone that our facility will cater to all forms of electric vehicle traction motors, including HEVs and PHEVs in addition to just BEVs. For the most part, the magnetic content of these different variations are not materially different. We are also involved in other technologies and applications, including wind farms and other energy efficient motor applications. Our intended capacity is just a sliver of the total market opportunity, but it is meaningful in the context of outside of Asia capacity and supply chains. I am confident that there will be more exciting news and developments regarding this integrated rare earth separation and magnet strategy in Europe in the quarters to come. Taking a step back, one year ago, we announced our plans to pursue significant changes in our approach to managing our business. In that time, we have exited several businesses, shortened our working capital cycle, and have decreased our exposure to volatile, rarer cycles. We have more work to do, but we feel very, very good about our current trajectory. The foundation is set to build a powerful growth programs in the years to come. Despite lower ASPs and less absolute dollars on the top line today, we have created significant margin expansion and adjusted EBITDA growth over the past year. Part of that is the short-term outperformance in our rare metals business, but part of it is exiting a rare earth commodity cycle in a much stronger position than when we entered the cycle. This quarter's outcomes reinforce our confidence in our long-term goals. Moving forward, We will continue to focus on operational efficiencies, volume growth, and business optimization, enabling us to maintain momentum and deliver sustainable value to our shareholders. I'd now like to turn the call over to Jonathan for a review of the quarter.