Neo Performance Materials Reports 2019 Year End Results
2019 Highlights
(unless other noted, all financial amounts in this news release are expressed in U.S. dollars)
- $407.5 million in revenue
- Net income of $23.1 million, or $0.59 per share
- Adjusted Net Income(1) of $24.1 million, or $0.62 per share
- Adjusted EBITDA(1) of $53.8 million
- Year-end closes with $84.7 million of net cash after paying $11.5 million in dividends to the shareholders and re-purchasing $16.9 million of stock under its Normal Course Issuer Bid Program.
- A quarterly dividend of Cdn$0.10 per common share was declared on March 10, 2020 for shareholders of record at March 18, 2020, with a payment date of March 27, 2020.
TORONTO, March 12, 2020 /CNW/ - Neo Performance Materials Inc. ("Neo", the "Company") (TSX:NEO) released its fourth quarter 2019 financial results. The financial statements and management's discussion and analysis ("MD&A") of these results can be viewed on Neo's web site at www.neomaterials.com and on SEDAR at www.sedar.com.
HIGHLIGHTS OF 2019 YEAR END CONSOLIDATED PERFORMANCE
For the year ended December 31, 2019, consolidated revenue was $407.5 million compared to $454.2 million in 2018; a decrease of $46.7 million or 10.3%. Net income totaled $23.1 million, or $0.59 per share. Adjusted Net Income (1) totaled $24.1 million, or $0.62 per share.
In the fourth quarter of 2019, Neo generated $94.6 million in revenue, compared to $109.4 million in Q4 2018; a decrease of $14.8 million or 13.5%. Net income totaled $4.5 million, or $0.12 per share. Adjusted Net Income(1) totaled $6.1 million, or $0.17 per share.
In 2019, Neo further strengthened its financial position, reporting cash and cash equivalents of $84.7 million as of December 31, 2019, compared to $71.0 million as at December 31, 2018, after paying $11.5 million in dividends to its shareholders in the year ended December 31, 2019, re-purchasing $16.9 million of stock under its Normal Course Issuer Bid Program, and completing a $9.5 million acquisition of Anhui Asia Magnets Co., Ltd. ("SAMAG") in August 2019. Neo has approximately $6.2 million available under its credit facilities with no amount drawn from the revolving line of credit.
(1) Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin" and "EBITDA". Please see information on this and other non-IFRS measures in the "Non-IFRS Measures" section of this new release and in the MD&A, available on Neo's website at www.neomaterials.com and on SEDAR at www.sedar.com. |
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SELECTED FINANCIAL RESULTS
TABLE 1: Selected Consolidated Results |
||||
Quarter-over-Quarter |
Year-over-Year ("YoY") |
|||
Q4 2019 |
Q4 2018 |
2019 |
2018 |
|
Volume (tonnes) |
3,371 |
3,439 |
13,599 |
14,083 |
($000s) |
||||
Revenue |
$94,553 |
$109,361 |
$407,464 |
$454,195 |
Operating income |
$7,014 |
$6,224 |
$37,502 |
$42,888 |
EBITDA(1) |
$10,745 |
$11,342 |
$53,467 |
$69,674 |
Adjusted EBITDA(1) |
$12,480 |
$13,235 |
$53,756 |
$67,113 |
Adjusted EBITDA %(1) |
13.2% |
12.1% |
13.2% |
14.8% |
(1) Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin" and "EBITDA". Please see information on this and other non-IFRS measures in the "Non-IFRS Measures" section of this news release and in the MD&A. |
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For the year ended December 31, 2019, revenues were 10.3% lower than in 2018. The Magnequench segment led the decline in revenues as volumes were adversely affected by slower economic activity in various regions globally, including in the automotive industry, and by customer inventory adjustments. The C&O segment continued to see growth in three-way vehicle catalyst sales, although revenues were negatively impacted by the softening of certain commodity prices in 2019 and the continued market slowdown in diesel vehicles. The revenue decline in the Rare Metals segment was driven by the continued decline in pricing for tantalum-based products and lower volume in gallium-based products.
Operating income was $37.5 million in 2019, a decline of $5.4 million compared to 2018. 2019 net income totaled $23.1 million, or $0.59 per share, and 2019 Adjusted EBITDA was $53.8 million; a decrease of $13.4 million compared to 2018.
The Magnequench segment was adversely affected by lower volumes, foreign exchange costs and the timing effect of the input cost pass-through. Improved performance in the C&O segment was driven by increased gasoline auto catalyst sales, increased spot sales, and no premium freight costs in 2019. The Rare Metals segment benefitted from higher hafnium sales but was adversely impacted by lower tantalum selling prices with higher inventoried costs, as well as impairment and other charges related to the closure of its plant in Utah. Rare Metals' net income for the year ended December 31, 2018 was $9.8 million higher due to the partial settlement of the insurance claims from the fire affecting Neo's Silmet facility in 2015, offset by a retro-duty charge, which Neo had recorded in other income.
Neo continues to see longer-term growth in demand for many of its key products driven by several global macro trends, including increased electrification of automobiles, which increases the need for Neo's functional materials on a per-vehicle basis; greater demand for precision and efficient motors across multiple sectors, which encourages higher utilization of Neo's magnetic materials; growth in hybrid and electric vehicles; more stringent government regulation with respect to air and water emissions; and trends toward greater utilization of lighter-weight materials in industries such as aerospace and consumer electronics. Neo's advanced industrial materials are integral to technologies in all these end markets.
MAGNEQUENCH SEGMENT RESULTS
TABLE 2: Selected Magnequench Results |
||||
Quarter-over-Quarter |
Year-over-Year |
|||
Q4 2019 |
Q4 2018 |
2019 |
2018 |
|
Volume (tonnes) |
1,387 |
1,446 |
5,584 |
6,128 |
($000s) |
||||
Revenue |
$42,748 |
$47,210 |
$173,800 |
$213,712 |
Operating income |
$7,207 |
$6,670 |
$28,987 |
$41,957 |
EBITDA(1) |
$9,374 |
$8,447 |
$37,027 |
$49,301 |
Adjusted EBITDA(1) |
$9,545 |
$9,051 |
$37,053 |
$50,483 |
(1) Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin" and "EBITDA". Please see information on this and other non-IFRS measures in the "Non-IFRS Measures" section of this news release and in the MD&A. |
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2019 revenue in the Magnequench segment was $173.8 million, compared to $213.7 million in the prior-year period, a decrease of $39.9 million or 18.7%. In the fourth quarter, Magnequench revenue was $42.7 million, compared to $47.2 million in the prior-year period, a decrease of $4.5 million or 9.5%. 2019 volume decreased to 5,584 tonnes, compared to 6,128 tonnes in 2018, a decrease of 544 tonnes or 8.9%.
In the quarter, volume decreased to 1,387 tonnes compared to 1,446 tonnes in the prior-year period, a decrease of 59 tonnes or 4.1%. In general, Magnequench volume declines occurred mostly in its legacy and longer running programs, due to the slowdown in auto sales and slower economic performance in certain sectors. However, Magnequench continues to see growth related to newer products including traction motors for hybrid and electric vehicles as well as programs that are still ramping up volumes to full production levels. Exclusive of the legacy EPS program, Magnequench volume in automotive applications grew by approximately 9% year-over-year, despite the slowdown of the automotive industry generally. This growth includes the traction motor application, used in hybrid and electric vehicle drivetrains, where volumes grew by approximately 45% year-over-year.
Generally, the differing rates of change for revenue and volumes are primarily attributed to changes in commodity input material prices and, to a lesser extent, product mix. Magnequench has material pass-through agreements with the vast majority of its customers, which enables Magnequench to pass through changes in material input costs into selling price on a lagged basis.
2019 operating income was $29.0 million, a decrease of $13.0 million over 2018. In the quarter, operating income was $7.2 million, compared to $6.7 million in the corresponding period in 2018, an increase of $0.5 million or 8.1%. Adjusted EBITDA was $9.5 million, an increase of $0.5 million compared to the same period of the prior year. For the year ended December 31, 2019, Adjusted EBITDA in the Magnequench segment was $37.1 million compared to $50.5 million in 2018; a decrease of $13.4 million.
CHEMICALS AND OXIDES ("C&O") SEGMENT RESULTS
TABLE 3: Selected C&O Results |
||||
Quarter-over-Quarter |
Year-over-Year |
|||
Q4 2019 |
Q4 2018 |
2019 |
2018 |
|
Volume (tonnes) |
1,940 |
1,843 |
7,841 |
7,611 |
($000s) |
||||
Revenue |
$33,650 |
$38,207 |
$158,226 |
$161,422 |
Operating income |
$2,898 |
$3,101 |
$18,354 |
$12,934 |
EBITDA(1) |
$4,277 |
$4,179 |
$23,429 |
$17,388 |
Adjusted EBITDA(1) |
$4,417 |
$4,569 |
$22,872 |
$18,483 |
(1) Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin" and "EBITDA". Please see information on this and other non-IFRS measures in the "Non-IFRS Measures" section of this news release and in the MD&A. |
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2019 revenue in the C&O segment was $158.2 million, compared to $161.4 million in 2018; a decrease of $3.2 million or 2.0%. In the quarter, C&O revenue was $33.7 million, compared to $38.2 million in the prior-year period; a decrease of $4.6 million or 11.9%.
2019 operating income increased to $18.4 million from $12.9 million in 2018; an increase of $5.4 million or 41.9%. Operating income in the fourth quarter was $2.9 million compared to $3.1 million in the same period in 2018; a decrease of $0.2 million or 6.5%. 2019 Adjusted EBITDA was $22.9 million, compared to $18.5 million in 2018; an increase of $4.4 million or 23.7%. In the quarter, Adjusted EBITDA was $4.4 million compared to $4.6 million in the prior-year period; a decrease of $0.2 million or 3.3%.
Gasoline auto catalyst volumes continued to show growth in 2019 (approximately 8%) year-over-year despite a general slowdown in automotive markets throughout the year. This was offset by a decline in diesel catalyst products, which declined approximately 45% year-over-year. With declining diesel volumes in the past several quarters, overall product mix between three-way and diesel catalysts for Neo is now more reflective of market mix considerations. The C&O segment did not incur premium freight costs in 2019, as opposed to $4.2 million of premium freight costs incurred in 2018.
With respect to C&O's rare earth separation business, the continuing decline of rare earth commodity prices led to a lagging impact of higher cost inventory relative to current selling prices and this has had a negative impact of margins for rare earth separation in the three months and year ended December 31, 2019. This was partially offset by increased spot sales in 2019 compared to 2018.
Since launching its wastewater treatment business several years ago, the C&O segment achieved commercial success in 2019 with sales volumes growing greater than 70% and revenues growing greater than 130% compared to the prior year. While these specialty chemical products made up a small portion of Neo's consolidated revenues, they have potential to grow into a more meaningful business in the future.
RARE METALS SEGMENT RESULTS
TABLE 4: Selected Rare Metals Results |
||||||||
Quarter-over-Quarter |
Year-over-Year |
|||||||
Q4 2019 |
Q4 2018 |
2019 |
2018 |
|||||
Volume (tonnes) |
128 |
227 |
534 |
650 |
||||
($000s) |
||||||||
Revenue |
$21,564 |
$27,309 |
$90,622 |
$93,789 |
||||
Operating (loss) income |
$(15) |
$438 |
$(384) |
$4,578 |
||||
EBITDA(1) |
$1,072 |
$1,630 |
$4,160 |
$9,433 |
||||
Adjusted EBITDA(1) |
$1,181 |
$1,702 |
$5,132 |
$9,754 |
||||
(1) Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin" and "EBITDA". Please see information on this and other non-IFRS measures in the "Non-IFRS Measures" section of this news release and in the MD&A. |
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2019 revenue in the Rare Metals segment was $90.6 million compared to $93.8 million in the prior year; a decrease of $3.2 million or 3.4%. In the quarter, revenue was $21.6 million, compared to $27.3 million in the prior year period; a decrease of $5.7 million or 21.0%.
Operating loss for the year ended December 31, 2019 was $0.4 million, a decrease of $5.0 million, compared to operating income of $4.6 million in 2018. 2019 Adjusted EBITDA was $5.1 million, compared to $9.8 million in 2018; a decrease of $4.6 million or 47.4%. In the quarter, Adjusted EBITDA was $1.2 million, compared to $1.7 million in the same period in 2018; a decrease of $0.5 million or 30.6%.
The operating loss for 2019 was driven by the continued decline in pricing for tantalum-based products and by a general slowdown in gallium trichloride-related markets. The Rare Metals segment had considerable material in the production system, so when material prices change, there is a lead-lag impact into current period results as the operation is processing and selling material on hand purchased in a prior period. The inventory in the system at the beginning of 2019 was particularly high and, given the price decline in finished products throughout the year, the lead-lag impact was particularly strong in 2019. As at the end of 2019, there is considerably less inventory in the system and both raw material inputs and finished goods prices have been relatively stable since July 2019. The Rare Metals segment continues to develop new products and focus on value-added margins to mitigate short-term variations in its earnings due to input material price volatility.
The segment recorded a $1.0 million impairment of assets affecting operating income related to the closure of NRM Utah in the year ended December 31, 2019. In addition to this impairment, the segment also had recognized restructuring and other costs of $0.8 million. Subsequent to the closure, a substantial portion of NRM Utah's business will be transferred to the segment's operation in Peterborough, Ontario, which already houses the balance of the segment's gallium business, resulting in additional synergies and efficiencies. Neo expects to complete the transfer and closure activities around mid-year of 2020 and expects to see immediate operating and financial benefits after the transfer is complete. The NRM Utah facility was a modest-sized facility with $3.2 million in annualized sales and nominal EBITDA.
CONFERENCE CALL ON THURSDAY, MARCH 12, 2020 AT 10 AM EASTERN
Management will host a teleconference call on Thursday, March 12, 2020 at 10:00 a.m. (Eastern Time) to discuss the fourth quarter 2019 results. Interested parties may access the teleconference by calling (647) 427-7450 (local) or (888) 231-8191 (toll-free long distance) or by visiting http://cnw.en.mediaroom.com/events. A recording of the teleconference may be accessed by calling (416) 849-0833 (local) or (855) 859-2056 (toll-free long distance), and entering pass code 9758778# until April 12, 2020 or by visiting http://cnw.en.mediaroom.com/events.
NON-IFRS MEASURES
This news release refers to certain non-IFRS financial measures such as "Adjusted Net Income", "EBITDA", "Adjusted EBITDA", and "Adjusted EBITDA Margin". These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS, and may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS financial measures by providing further understanding of Neo's results of operations from management's perspective. Neo's definitions of non-IFRS measures used in this news release may not be the same as the definitions for such measures used by other companies in their reporting. Non-IFRS measures have limitations as analytical tools and should not be considered in isolation nor as a substitute for analysis of Neo's financial information reported under IFRS. Neo uses non-IFRS financial measures to provide investors with supplemental measures of its base-line operating performance and to eliminate items that have less bearing on operating performance or operating conditions and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. Neo believes that securities analysts, investors and other interested parties frequently use non-IFRS financial measures in the evaluation of issuers. Neo's management also uses non-IFRS financial measures in order to facilitate operating performance comparisons from period to period. For the operating segments, Neo also uses "OIBDA" and "Adjusted OIBDA", which reconciles to operating income. Neo uses Adjusted OIBDA and Adjusted EBITDA interchangeably as the use of adjustments in each measure provides the same calculated outcome of operating performance. For definitions of how Neo defines such financial measures, please see the "Non-IFRS Financial Measures" section of Neo's management's discussion and analysis filing for the three and nine months ended September 30, 2019, available on Neo's web site at www.neomaterials.com and on SEDAR at www.sedar.com.
TABLE 5: CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($000s) |
December 31, |
December 31, |
|||
ASSETS |
|||||
Current |
|||||
Cash and cash equivalents |
$ |
84,735 |
$ |
71,015 |
|
Restricted cash |
4,185 |
1,650 |
|||
Accounts receivable |
44,297 |
49,544 |
|||
Inventories |
112,891 |
136,350 |
|||
Income taxes receivable |
1,460 |
343 |
|||
Other current assets |
14,230 |
20,554 |
|||
Total current assets |
261,798 |
279,456 |
|||
Property, plant and equipment |
94,490 |
86,963 |
|||
Intangible assets |
65,475 |
66,721 |
|||
Goodwill |
98,841 |
99,365 |
|||
Investments. |
8,985 |
8,605 |
|||
Deferred tax assets |
805 |
1,079 |
|||
Other non-current assets |
837 |
834 |
|||
Total non-current assets |
269,433 |
263,567 |
|||
Total assets |
$ |
531,231 |
$ |
543,023 |
|
LIABILITIES AND EQUITY |
|||||
Current |
|||||
Bank advances and other short-term debt |
$ |
54 |
$ |
3,970 |
|
Accounts payable and other accrued charges |
56,138 |
57,942 |
|||
Income taxes payable |
4,756 |
6,566 |
|||
Lease obligations |
1,660 |
— |
|||
Derivative liability |
11,833 |
9,525 |
|||
Other current liabilities |
85 |
777 |
|||
Total current liabilities |
74,526 |
78,780 |
|||
Employee benefits |
2,031 |
2,125 |
|||
Provisions |
5,670 |
4,717 |
|||
Deferred tax liabilities |
15,894 |
17,730 |
|||
Lease obligations |
2,953 |
— |
|||
Other non-current liabilities |
1,524 |
2,494 |
|||
Total non-current liabilities |
28,072 |
27,066 |
|||
Total liabilities |
102,598 |
105,846 |
|||
Non-controlling interest |
3,997 |
4,758 |
|||
Equity attributable to equity holders of Neo Performance Materials Inc |
424,636 |
432,419 |
|||
Total equity |
428,633 |
437,177 |
|||
Total liabilities and equity |
$ |
531,231 |
$ |
543,023 |
|
See accompanying notes to this table in Neo's Consolidated Financial Statements for the Year Ended December 31, 2019, available on Neo's website at www.neomaterials.com and on SEDAR at www.sedar.com. |
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TABLE 6: CONSOLIDATED RESULTS OF OPERATIONS
Comparison of the three months and year ended December 31, 2019 to the three months and year ended December 31, 2018:
($000s) |
Three Months Ended |
Year Ended |
|||||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||||||
Revenue |
$ |
94,553 |
$ |
109,361 |
$ |
407,464 |
$ |
454,195 |
|||||||
Costs of sales |
|||||||||||||||
Costs excluding depreciation and amortization |
66,072 |
81,700 |
293,912 |
324,361 |
|||||||||||
Depreciation and amortization |
2,656 |
2,352 |
9,965 |
9,741 |
|||||||||||
Gross profit |
25,825 |
25,309 |
103,587 |
120,093 |
|||||||||||
Expenses |
|||||||||||||||
Selling, general and administrative |
12,007 |
13,898 |
41,935 |
49,948 |
|||||||||||
Share-based compensation |
401 |
(222) |
778 |
3,436 |
|||||||||||
Depreciation and amortization |
2,062 |
1,716 |
8,032 |
6,978 |
|||||||||||
Research and development |
4,341 |
3,693 |
14,326 |
16,843 |
|||||||||||
Impairment of assets |
— |
— |
1,014 |
— |
|||||||||||
18,811 |
19,085 |
66,085 |
77,205 |
||||||||||||
Operating income |
7,014 |
6,224 |
37,502 |
42,888 |
|||||||||||
Other (expense) income |
(1,027) |
723 |
(1,492) |
10,660 |
|||||||||||
Finance (costs) income, net |
(266) |
(945) |
(2,310) |
649 |
|||||||||||
Foreign exchange gain (loss) |
50 |
(382) |
(920) |
(565) |
|||||||||||
Income from operations before income taxes and equity income (loss) |
5,771 |
5,620 |
32,780 |
53,632 |
|||||||||||
Income tax expense |
(1,278) |
(1,948) |
(10,085) |
(12,465) |
|||||||||||
Income from operations before equity income (loss) of associates |
4,493 |
3,672 |
22,695 |
41,167 |
|||||||||||
Equity income (loss) of associates (net of income tax) |
(10) |
709 |
380 |
(28) |
|||||||||||
Net income |
$ |
4,483 |
$ |
4,381 |
$ |
23,075 |
$ |
41,139 |
|||||||
Attributable to: |
|||||||||||||||
Equity holders of Neo Performance Materials Inc. |
$ |
4,639 |
$ |
4,285 |
$ |
22,920 |
$ |
40,795 |
|||||||
Non-controlling interest |
(156) |
96 |
155 |
344 |
|||||||||||
$ |
4,483 |
$ |
4,381 |
$ |
23,075 |
$ |
41,139 |
||||||||
Earnings per share attributable to equity holders of |
|||||||||||||||
Basic |
$ |
0.12 |
$ |
0.11 |
$ |
0.59 |
$ |
1.02 |
|||||||
Diluted |
$ |
0.12 |
$ |
0.11 |
$ |
0.59 |
$ |
1.01 |
|||||||
See Management's Discussion and Analysis for the Year Ended December 31, 2019, available on Neo's website at www.neomaterials.com and on SEDAR at www.sedar.com. |
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TABLE 7: RECONCILIATION OF NET INCOME TO EBITDA, ADJUSTED EBITDA AND FREE CASH FLOW
($000s) |
Three Months Ended |
Year Ended |
|||||||||
2019 |
2018 |
2019 |
2018 |
||||||||
Net income |
$ |
4,483 |
$ |
4,381 |
$ |
23,075 |
$ |
41,139 |
|||
Add back (deduct): |
|||||||||||
Finance costs (income), net |
266 |
945 |
2,310 |
(649) |
|||||||
Income tax expense |
1,278 |
1,948 |
10,085 |
12,465 |
|||||||
Depreciation and amortization included in costs of sales |
2,656 |
2,352 |
9,965 |
9,741 |
|||||||
Depreciation and amortization included in operating expenses |
2,062 |
1,716 |
8,032 |
6,978 |
|||||||
EBITDA |
10,745 |
11,342 |
53,467 |
69,674 |
|||||||
Adjustments to EBITDA: |
|||||||||||
Equity loss (income) in associates |
10 |
(709) |
(380) |
28 |
|||||||
Other expense (income) (1). |
1,027 |
(723) |
1,492 |
(10,660) |
|||||||
Foreign exchange (gain) loss (2) |
(50) |
382 |
920 |
565 |
|||||||
Impairment of long-lived assets (3) |
— |
— |
1,014 |
— |
|||||||
Share and value-based compensation expense (recovery) (4) |
443 |
782 |
(830) |
5,345 |
|||||||
Other non-recurring costs (recoveries) (5) |
305 |
2,161 |
(1,927) |
2,161 |
|||||||
Adjusted EBITDA |
$ |
12,480 |
$ |
13,235 |
$ |
53,756 |
$ |
67,113 |
|||
Adjusted EBITDA Margins |
13.2% |
12.1% |
13.2% |
14.8% |
|||||||
Less: |
|||||||||||
Capital expenditures (6) |
3,742 |
4,760 |
20,983 |
13,511 |
|||||||
Free Cash Flow |
8,738 |
8,475 |
32,773 |
53,602 |
|||||||
Free Cash Flow Conversion (7) |
70.0% |
64.0% |
61.0% |
79.9% |
|||||||
Notes: |
|
(1) |
Represents other expenses resulting from non-operational related activities. Other income primarily relates to cost and insurance recoveries as a result of the fire at the Silmet facility. These costs and recoveries are not indicative of Neo's ongoing activities. |
(2) |
Represents unrealized and realized foreign exchange losses (gains) that include non-cash adjustments in translating foreign denominated monetary assets and liabilities. |
(3) |
The $1.0 million impairment in the Rare Metals segment represents impairment of property, plant and equipment and other assets related to the closure of NRM Utah that will not be utilized as a result of the closure. |
(4) |
Represents share and value-based compensation expense in respect of the Legacy Plan, the LTIP and the long-term value bonus plan, which has similar vesting criteria to the share-based plan and is settled in cash for non-executives and non-North Americans where implementation of a share settlement plan would have been prohibitively expensive in terms of administration and compliance. Value-based compensation expense/(recovery) of $43 and $(1,606) are included in selling, general, and administration expenses for the three months and year ended December 31, 2019, respectively, and expense of $1,003 and $1,909 are included for the three months and year ended December 31, 2018, respectively. Neo has removed both the share and value-based compensation expense from EBITDA to provide comparability with historic periods and to treat it consistently with the share-based awards that they are intended to replace. |
(5) |
These represents primarily legal, professional advisory fees and other transaction costs incurred/(recovered) with respect to non-operating capital structure related transactions. In 2019, this also includes some restructuring costs related to management team changes in one of Neo's subsidiaries and the purchase price fair value accounting adjustment related to the acquisition of SAMAG. Neo has removed these charges to provide comparability with historic periods. |
(6) |
Capital expenditures includes $9.3 million related to the assets acquired through a business combination. |
(7) |
Calculated as Free Cash Flow divided by Adjusted EBITDA. Free Cash Flow Conversion excluding capital expenditure on business combination would be 78.2% in 2019. |
TABLE 8: RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME
($000s) |
Three Months Ended |
Year Ended |
||||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||||
Net income |
$ |
4,483 |
$ |
4,381 |
$ |
23,075 |
$ |
41,139 |
||||||||
Adjustments to net income: |
||||||||||||||||
Foreign exchange (gain) loss (1) |
(50) |
382 |
920 |
565 |
||||||||||||
Impairment of long-lived assets (2) |
— |
— |
1,014 |
— |
||||||||||||
Share and value-based compensation expense |
443 |
782 |
(830) |
5,345 |
||||||||||||
Other non-recurring costs (recoveries) (4) |
305 |
2,161 |
(1,927) |
2,161 |
||||||||||||
Non-recurring items included in other expense |
905 |
(172) |
1,661 |
(9,763) |
||||||||||||
Tax impact of the above items |
31 |
(37) |
186 |
(524) |
||||||||||||
Adjusted net income |
$ |
6,117 |
$ |
7,497 |
$ |
24,099 |
$ |
38,923 |
||||||||
Attributable to: |
||||||||||||||||
Equity holders of Neo Performance Materials Inc. |
6,273 |
7,401 |
23,944 |
38,579 |
||||||||||||
Non-controlling interest |
(156) |
96 |
155 |
344 |
||||||||||||
Weighted average number of common shares outstanding: |
||||||||||||||||
Basic |
37,943,542 |
39,772,272 |
38,821,647 |
39,852,189 |
||||||||||||
Diluted |
38,021,176 |
40,172,359 |
38,963,015 |
40,368,007 |
||||||||||||
Adjusted earnings per share (6) attributable to equity shareholders of Neo Performance Materials Inc.: |
||||||||||||||||
Basic |
0.17 |
0.19 |
$ |
0.62 |
$ |
0.97 |
||||||||||
Diluted |
0.16 |
0.18 |
$ |
0.61 |
$ |
0.96 |
||||||||||
Notes: |
|
(1) |
Represents unrealized and realized foreign exchange losses (gains) that include non-cash adjustments in translating foreign denominated monetary assets and liabilities. |
(2) |
The $1.0 million impairment in the Rare Metals segment represents impairment of property, plant and equipment and other assets related to the closure of NRM Utah that will not be utilized as a result of the closure. |
(3) |
Represents share and value-based compensation expense in respect of the Legacy Plan, the LTIP and the long-term value bonus plan, which has similar vesting criteria to the share-based plan and is settled in cash for non-executives and non-North Americans where implementation of a share settlement plan would have been prohibitively expensive in terms of administration and compliance. Value-based compensation expense/(recovery) of $43 and $(1,606) are included in selling, general, and administration expenses for the three months and year ended December 31, 2019, respectively, and expense of $1,003 and $1,909 are included for the three months and year ended December 31, 2018, respectively. Neo has removed both the share and value-based compensation expense from net income to provide comparability with historic periods and to treat it consistently with the share-based awards that they are intended to replace. |
(4) |
These represents primarily legal, professional advisory fees and other transaction costs incurred/(recovered) with respect to non-operating capital structure related transactions. In 2019, this also includes some restructuring costs related to management team changes in one of Neo's subsidiaries and the purchase price fair value accounting adjustment related to the acquisition of SAMAG. Neo has removed these charges to provide comparability with historic periods. |
(5) |
Represents partial settlement of the insurance claims from the fire affecting Silmet in 2015 and other non-recurring transactions. Neo has removed this from net income to provide comparability with historic periods. |
(6) |
Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin" and "EBITDA". Please see information on this and other non-IFRS measures in the "Non-IFRS Measures" section of this new release and in the MD&A, available on Neo's website www.neomaterials.com and on SEDAR at www.sedar.com. |
About Neo Performance Materials
Neo manufactures the building blocks of many modern technologies that enhance efficiency and sustainability. Neo's advanced industrial materials - magnetic powders and magnets, specialty chemicals, metals, and alloys - are critical to the performance of many everyday products and emerging technologies. Neo's products help to deliver the technologies of tomorrow to consumers today. The business of Neo is organized along three segments: Magnequench, Chemicals & Oxides and Rare Metals. Neo is headquartered in Toronto, Ontario, Canada; with corporate offices in Greenwood Village, Colorado, US; Singapore; and Beijing, China. Neo operates globally with sales and production across 10 countries, being Japan, China, Thailand, Estonia, Singapore, Germany, United Kingdom, Canada, United States, and South Korea. For more information, please visit www.neomaterials.com.
Cautionary Statements Regarding Forward Looking Statements
This news release contains "forward-looking information" within the meaning of applicable securities laws in Canada. Forward-looking information may relate to future events or future performance of Neo. All statements in this release, other than statements of historical facts, with respect to Neo's objectives and goals, as well as statements with respect to its beliefs, plans, objectives, expectations, anticipations, estimates, and intentions, are forward-looking information. Specific forward-looking statements in this discussion include, but are not limited to, the following: expectations regarding certain of Neo's future results and information, including, among other things, revenue, expenses, sales growth, capital expenditures, and operations; statements with respect to current and future market trends that may directly or indirectly impact sales and revenue of Neo; expected use of cash balances; continuation of prudent management of working capital; source of funds for ongoing business requirements and capital investments; expectations regarding sufficiency of the allowance for uncollectible accounts and inventory provisions; analysis regarding sensitivity of the business to changes in exchange rates; impact of recently adopted accounting pronouncements; risk factors relating to intellectual property protection and intellectual property litigation; and, expectations concerning any remediation efforts to Neo's design of its internal controls over financial reporting and disclosure controls and procedures. Often, but not always, forward-looking information can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "continues", "forecasts", "projects", "predicts", "intends", "anticipates" or "believes", or variations of, or the negatives of, such words and phrases, or state that certain actions, events or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved. This information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. Neo believes the expectations reflected in such forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking information included in this discussion and analysis should not be unduly relied upon. For more information on Neo, investors should review Neo's continuous disclosure filings that are available under Neo's profile at www.sedar.com.
SOURCE Neo Performance Materials, Inc.
Information Contacts: Ali Mahdavi, Investor Relations, (416) 962-3300, Email: [email protected]; Jim Sims, Media Relations, (303) 503-6203, Email: [email protected]; Website: www.neomaterials.com
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