Neo Performance Materials Inc.

Good morning and welcome to the NEO Performance Materials first quarter 2025 earnings conference call. For opening remarks and introductions, let me turn the call over to Irina Kuznetsova, Director of Investor Relations for NEO. Irina, please proceed.

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 at neomaterials.com. Starting this quarter, our call will be accompanied by a live webinar presentation. If you are joining us online, the slides will advance automatically as a request through the discussion. You can also download the copy of the presentation from our website to follow along or reference afterward. On today's call, Arahim Salama, NIA's President and Chief Executive Officer, and Jonathan Baksh, NIA's Chief Financial Officer, 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, bills regarding revenue, EBITDA, adjusted EBITDA, product volumes, product pricing, other income and expense matters, 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 NEO's most recent financial filings, which were filed on CDR earlier today and also available on our website. NEO assumes no obligation to update any forward-looking statements or information, which stick 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, and information regarding reconciliation to the IFRS measures is set out in the financial statement and in DNA. I will now turn the call over to Raheem.

Good morning, everyone, and thank you for joining us today. And today we will start on slide four. We are pleased to share NIO's Q1 2025 results, a quarter that once again highlights the strength, resilience, and strategic importance of our business within global supply chains. While the broader macroeconomic environment remains complex, with new tariffs and export restrictions reshaping worldwide trade flows, NIO continues to deliver. Our performance this quarter reinforces a few key themes. First, our financial results were ahead of expectations. showcasing NEO's ability to navigate volatility while remaining focused on execution. Second, we've made meaningful progress on our most important growth projects, including continued success in ramping up our rare earth permanent magnet production capabilities in Europe. And third, among a changing geopolitical landscape, NEO continues to demonstrate our thought leadership as a reliable partner in the global effort to localize rare earth supply chains. We are building a stronger, more diversified platform, one that is designed not just to respond to geopolitical shifts, but to lead through them. Before turning to our quarterly results, I would like to address our ongoing strategic review process. And as we have previously discussed, we are conducting a comprehensive strategic asset review across our geographic footprint, to consider strategic alternatives and opportunities to maximize value for our shareholders. The process remains active and is being managed under the leadership of NEO's Special Committee and financial advisors. While the review continues, we have continued to take steps to optimize NEO's business, including the divestment of non-core assets, executing improvements in operational performance, and progressing with major capital programs. 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. NEO does not intend to comment further unless it determines that further disclosure is necessary or appropriate. Okay, so moving to our first quarter results, let's turn to slide five. NEO delivered another strong performance during the first quarter, generating adjusted EBITDA of approximately $17 million, an increase of approximately 60% year-over-year and ahead of expectations. This is a direct result of solid execution throughout our business and a reflection of resilient demand for our products. Though macroeconomic uncertainties persist, I am pleased to report that at this time, we remain on track to achieve our full year guidance. Taking a closer look at our segments, our chemicals and oxide segment delivered its strongest EBITDA performance in recent quarters, with adjusted EBITDA of $7 million, an increase of $7 million year over year. MagnaQuence continued to perform, delivering strong EBITDA of approximately $7 million, up 9% compared to Q1 2024. And Rare Metals posted approximately $9 million in adjusted EBITDA, reflecting an anticipated step down in the exceptional results that we saw over the last two quarters. Jonathan will elaborate on the details of each BU in a few minutes. In addition to adjusted EBITDA growth, NEO amplified its financial strength. by completing the Jammer and Zammer divestitures with approximately $28 million in gross proceeds. Importantly, the company remains in a net cash position with ample liquidity. Our capital structure supports further growth, enabling disciplined investment in high-return transformational projects that will drive Neal's long-term shareholder value. Let's move to slide six. Building on this foundation, we are advancing strategic capital projects that strengthen our position as a critical supplier to the automotive, energy, and electronic sectors. Within the automotive sector, for example, we are innovating across both legacy and next-generation vehicle programs, and these initiatives support near-term cash flow as well as long-term growth. Our NAMCO Emissions Catalyst Control Plant is now fully commissioned and we've achieved full run rate capacity for re-qualified products. This highly automated, cost-efficient manufacturing facility enhances our competitiveness in the global auto catalyst market, where demand remains strong amid tightening emissions regulations. You can see some pictures of the NAMCO facility here, showcasing the control room and samples of automation in the facility. NAMCO is delivering meaningful EBITDA for our C&O segment, with production volumes showing growth and multiple new customer programs secured since launch. We are efficiently scaling the facility where we target double-digit annual growth while driving high cash flow conversion. Let's move to slide seven. NEO's permanent magnet facility in Europe remains firmly on track both on time and on budget as we progress from commissioning into early production milestones. You can see some pictures of the equipment and the facility here. As we've talked about previously, the building is essentially complete, and over 90% of the equipment is now installed and commissioned. Let's move to slide 8. Just a few weeks ago, we successfully produced and shipped 18,000 assembled sintered magnet pieces as pre-production samples for a Tier 1 traction motor customer. marking a critical step toward commercial scale production. This is a remarkable achievement as we only started commissioning equipment earlier this year. The extended and global team at Neo Magnet Clutch seamlessly executed a highly complex multi-stage production process from raw materials to final assembly, delivering a high performance magnet tailored to a specific traction motor platform. This marks a breakthrough achievement, and exemplifies NEO's advanced technical and operational capabilities. These are the fruits of a highly dedicated team in Estonia and globally, leveraging MagnaQuentia's 30 years of rare earth magnetics experience and some of the world's most advanced magnetics lab capabilities. Our team is driven and committed to delivering on this project's one of the most important critical materials projects for rare earth magnets in Europe and indeed the world. There is still much to be done in getting to PPAP, bringing it to mass production, servicing more customers and programs, but the accomplishment achieved a few weeks ago really can't be understated. The progress in our permanent magnet facility in Europe is merely one phase of a multi-phase growth strategy. that will see us expand our magnet manufacturing in Europe with phase two and then add phase three and eventually phase four elsewhere. This plan ultimately ties to one of the core investment drivers of NEO to provide global and parallel supply chains for rare earth magnetics and other critical materials for these rapidly growing and exciting end markets. Let's move to slide nine. The need for these parallel supply and local supply chains has never been more evident than now with recent geopolitical developments. As you are most likely aware, two major events are affecting our industry. One, the introduction of higher tariffs in the U.S., particularly with respect to China, and two, the recent announcement placing selected heavy rare earth elements under China's export control regime aimed at regulating dual-use applications. These additions to the export control list include the heavy rare earths needed for centered magnet manufacturing, as well as the permanent magnets themselves. Amid this evolving landscape, NEO is strategically positioned to win. Our vertically integrated, regionally diversified model allows us to remain flexible and resilient in the face of geopolitical uncertainty. And today, we are seeing the results of this strategy. While the full economic impact from geopolitical uncertainty and the new regulatory regime is still to be determined, NIO believes we will be a long-term beneficiary of these changing global dynamics. First, we'll talk about the impact of tariffs, and second, the impact of these heavy rare earth export restrictions. We evaluate tariffs through two lenses. First, our comparative advantage under relative tariff regimes between U.S., China, and Europe, And second, the extent of domestic capacity in the US. I will comment specifically on some of the larger impacts of tariffs on NIO's business. Our largest US-bound product is hafnium, which we recycle and refine in Europe. Hafnium represented about two-thirds of our total imports into the US last year. Tariffs on hafnium for Europe are significantly less than the tariffs on hafnium from China, which is where our largest competition would be. For hafnium, There is a little U.S. domestic capacity in the area of the supply chain where NEO fits. Our second largest import into the U.S. is for our emissions catalyst business. For these, we manufacture products both in Europe and in China. There has been a tariff on mixed oxides for catalysts from China for a number of years now, although current tariffs are clearly of a different scale. Our largest competitors have plants in China, but also have production capabilities in Europe, Japan, and some U.S. production. NIO is working closely with our customers to rebalance some of our US-destined products to come from Europe, although this will take some time as products have to be requalified and tested. These are all part of global programs for global customers, and the same programs will continue in China, in Europe, and in other parts of the world. The US-bound sales of catalysts from China represent less than 5% of NIO's consolidated sales. In Gallium, NIO is the only recycler and upgrader of semiconductor-grade gallium material in North America. Following China's 2024 dual-control export regulation, our Canadian refinery has become even more critical to the Western semiconductor ecosystem. NIO's exposure to U.S. tariffs on magnetic products remains minimal, as we currently ship almost no magnet volumes from China to the United States. Most non-China motor manufacturing today is concentrated in Europe, Japan, Korea, and Southeast Asia. Looking forward, with significantly higher tariffs on Chinese rare earth magnets than those produced in Europe, NIO's European permanent magnet facility offers a clear competitive advantage for customers seeking tariff-optimized solutions, and probably more importantly, a diversified supply base. This is not an exhaustive list, but it does represent the vast majority of our imports to the U.S., and as you can see, tariffs do not have a direct material negative impact on NIO and in fact may yield some benefits to NIO due to our globally distributed manufacturing footprint. What this doesn't speak directly to is what happens to our customer's customer as our products are ultimately consumed throughout the world. This dynamic is harder to quantify but remains top of mind for all as we watch the impacts of the economies of the world in general. Moving to slide 10, In response to U.S. tariffs, China has instituted new export controls from China on heavy rare earth elements, which have drawn renewed attention to the potential supply chain disruption. As noted earlier, these export controls not only apply to the heavy rare earths themselves, but to the permanent magnets that use them. This has become a key concern of all governments, OEMs, and motor manufacturers, as China is essentially the only meaningful source of heavy rare earths today. These concerns are real. and it is yet to be determined exactly how these export control restrictions will be applied. 99% of NIO's bonded magnet portfolio is heavy rare earth-free, a key differentiator from sintered magnets generally. NIO is continuing to ship its bonded magnets globally, albeit additional testing reviews from customs in China, as might be expected. And notably, NIO is the only company globally with a heavy rare earth-free magnet for automotive traction motors already in production, now on the road through programs with Honda and Dido. This forward-thinking product is a direct result of Honda, Dido, and NIO's long-term planning and technical depth. NIO owned and operated a heavy rare earth separator in China, JMR, that we sold earlier this year. This entity does ship heavy rare earth specialty products, to numerous international customers that are now subject to review by these export control groups. NIO's ownership is now 9% of this facility, but this also affects the international distribution agreement that we have in place with our partners. Our products do not go into restricted end products, and we hope to receive approval to ship these products in due course. NIO's team has a long history of operating in China, and is highly experienced in navigating complex export license processes, a capability we've proven during recent gallium restrictions. That experience, combined with our healthy inventory and long-standing customer relationships, gives us a practical edge in maintaining operational continuity. Looking ahead, NIO is uniquely positioned to address one of the most critical structural gaps in the global rare earth supply chain, the absence of heavy-rarer separation capacity outside of China. So let's move to slide 11. Prior to these announcements, NIO had already begun the engineering and design work for a pilot-scale heavy-rarer separation line in Estonia as a first strategic step building on our operational light-rarer separation base already in the same facility. NIO has 30 years of operational engineering experience with specialty heavy rare earth products in Singapore from our time operating JMR. The transfer of heavy rare earth separation technology outside of China is illegal, and NIO respects and obeys the laws of the regions in which we operate. Accordingly, NIO has not and cannot use rare earth separation technology from JMR. However, NIO has been supporting our customers globally with advanced and specialty heavy rare earth products which gives us unique exposure to the products and their characteristics. To support future scale-up, NEO is actively working with a growing pipeline of emerging rare earth mining projects across North America, Australia, Brazil, and Southeast Asia, many with a focus on heavy rare earths. Several of these projects already rely on NEO's in-house laboratory and engineering teams to help optimize their flow sheets, reinforcing our role as the preferred downstream partner and offtake counterparty as new supply comes online. We are also happy to see partners like Linus make tremendous steps in their journey towards separating heavy rarers, building on their vast experience and expertise in lighting and separating light rarers. It is critical that the industry works together to address the needs for more localized and parallel supply chains. We have been customers and partners with Linus for many years, and are impressed with the progress that they are making in this area. These efforts are increasingly important as recent trade policies and export controls reshape the industry, reinforcing the urgency of localized, rarer supply chains. Moving to slide 12. Once again, these trends validate the three pillars of NIO's investment thesis. End markets with tremendous growth opportunities, the need for localized and parallel supply chains, and NEO's unique and long history and expertise in rare earth magnetics and critical materials. We tie this together with a company that drives positive EBITDA, has an excellent record of executing on projects, and remains financially strong with a healthy balance sheet and cash flow profile. With that, I'd now like to turn the call over to Jonathan for a summary of our financial results for the quarter.