Neo Performance Materials Reports Third Quarter 2018 Results

News provided by

Nov 14, 2018, 07:00 ET

Q3 2018 Highlights

(unless other noted, all financial amounts in this news release are expressed in U.S. dollars)

$114.2 million in revenue
Net income of $8.8 million, or $0.22 per share
Adjusted Net Income⁽¹⁾ of $8.7 million, or $0.22 per share
Adjusted EBITDA⁽¹⁾ of $16.7 million
Revenue, net income, operating income, EBITDA⁽¹⁾ and Adjusted EBITDA⁽¹⁾ are all higher year-to-date over the comparable nine-month period of 2017
Quarter-end closes with $69.3 million cash on hand after paying a $2.9 million dividend. In the nine months ended September 30, 2018, Neo paid $8.9 million in dividends to its shareholders.
A quarterly dividend of Cdn$0.095 per common share was declared on November 13, 2018 for shareholders of record at December 20, 2018.

TORONTO, Nov. 14, 2018 /CNW/ - Neo Performance Materials Inc. ("Neo", the "Company") (TSX:NEO), a global leader in the innovation and manufacturing of rare earth and rare metal-based functional materials, today released third quarter 2018 financial results. The financial statements and the 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 Q3 2018 CONSOLIDATED PERFORMANCE

In the third quarter of 2018, Neo generated $114.2 million in revenue, a slight decrease of 1.9% over Q3 2017. Net income totaled $8.8 million, or $0.22 per share. Adjusted Net Income⁽¹⁾ totaled $8.7 million, or $0.22 per share. Adjusted EBITDA⁽¹⁾ decreased 0.8% to $16.7 million, from $16.9 million in Q3 2017.

For the nine months ended September 30, 2018, consolidated revenue was $344.8 million, compared to $324.7 million for the same period in the prior year; an increase of $20.1 million or 6.2%. Net income totaled $36.8 million, or $0.92 per share, compared to $27.1 million, or $0.67 per share, in the comparable period of 2017. Adjusted Net Income totaled $31.4 million, or $0.78 per share. Adjusted EBITDA increased 3.0% to $53.9 million, from $52.3 million in the nine months ended September 30, 2017. Revenue and Adjusted EBITDA were $434.2 million and $67.9 million, respectively, for the full year ended December 31, 2017.


⁽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.

As of September 30, 2018, Neo reported cash and cash equivalents of $69.3 million, compared to $96.8 million as at December 31, 2017. The change in cash resulted from an increase in working capital associated with higher raw material inventory purchases, higher inventory in the auto-catalyst supply chain, increased inventory costs, and by certain cash costs related to the completion of the Initial Public Offering in December 2017. Neo has approximately $27.1 million available under its credit facilities with nominal amounts drawn. In addition, Neo paid $8.9 million in dividends to its shareholders in the nine months ended September 30, 2018.

"Growth trends in multiple sectors continued to drive demand across Neo's product portfolio," said Geoff Bedford, Neo's President and CEO. "Through the first nine months of 2018, we saw year-over-year growth in both our Magnequench and Rare Metals segments. In our Chemicals and Oxides segment we saw a return to prior-year run rate levels and an end to expedited freight cost in our auto-catalyst business. This helped to partially mitigate lower volumes and margins in our rare earth separation business in the quarter."

SELECTED FINANCIAL RESULTS

TABLE 1: Selected Consolidated Results
	*Q-over-Q Comparison*		*YTD-over-YTD Comparison*
	Q3 2018	Q3 2017	Q3 2018	Q3 2017
Volume (tonnes)	3,649	3,956	10,644	11,596
($000s)
Revenue	$114,216	$116,421	$344,834	$324,717
Operating income⁽¹⁾	$10,890	$11,423	$36,664	$30,109
EBITDA⁽²⁾	$16,677	$16,829	$58,332	$46,974
Adjusted EBITDA⁽²⁾	$16,732	$16,865	$53,878	$52,303
Adjusted EBITDA %⁽²⁾	14.6%	14.5%	15.6%	16.1%

⁽¹⁾

In accordance with IFRS 3 - Business Combinations and on completion of the reorganization in September 2016, Neo recorded the acquisition of its inventory at fair value. See details in Acquisition of Inventory at Fair Value section of this news release and in the MD&A.

⁽²⁾

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.

MAGNEQUENCH SEGMENT RESULTS

Magnequench continued to see growth in many of its end market applications, including traction motors for hybrid and electric vehicles and micro-motors for vehicles, factory automation, appliances and other motor applications. In the three-month and nine-month periods of 2018, revenue, operating income, EBITDA and Adjusted EBITDA were all higher in the Magnequench segment than in the corresponding periods of 2017, while volumes were marginally lower. In the three and nine months ended September 30, 2018, Adjusted EBITDA is up 23.9% and 19.3%, respectively, compared to the prior year, as Magnequench continues to positively grow earnings through its highly engineered value-add products that meet exacting specifications and drive efficiency in customer applications.

TABLE 2: Selected Magnequench Results
	*Q-over-Q Comparison*		*YTD-over-YTD Comparison*
	Q3 2018	Q3 2017	Q3 2018	Q3 2017
Volume (tonnes)	1,601	1,681	4,682	4,766
($000s)
Revenue	$54,539	$54,053	$166,502	$143,774
Operating income⁽¹⁾	$10,514	$8,385	$35,287	$28,155
EBITDA⁽²⁾	$12,265	$10,074	$40,854	$33,505
Adjusted EBITDA⁽²⁾	$12,549	$10,126	$41,432	$34,721

⁽¹⁾

⁽²⁾

CHEMICALS AND OXIDES ("C&O") SEGMENT RESULTS

Auto-catalyst production and profitability showed strong improvement in the third quarter compared to earlier in the year, and premium freight charges the Company was bearing as a result of production process upgrades in late 2017 substantially ended in the second quarter of the year, totaling $4.2 million year to date. Strong growth was seen for Neo's three-way vehicle catalyst products, which helped to offset a general market slowdown in demand for diesel catalyst products. The rare earth separation business recorded weaker results this quarter compared to the prior year and the first half of 2018 mainly due to the impact of certain spot purchases and the timing of product mix and production campaigns.

TABLE 3: Selected C&O Results
	*Q-over-Q Comparison*		*YTD-over-YTD Comparison*
	Q3 2018	Q3 2017	Q3 2018	Q3 2017
Volume (tonnes)	1,985	2,265	5,768	6,733
($000s)
Revenue	$41,361	$50,246	$123,215	$134,678
Operating income⁽¹⁾	$3,908	$6,689	$9,833	$15,887
EBITDA⁽²⁾	$4,995	$8,572	$13,209	$19,778
Adjusted EBITDA⁽²⁾	$5,214	$8,256	$13,914	$22,935

⁽¹⁾

⁽²⁾

RARE METALS SEGMENT RESULTS

The Rare Metals segment continued to see higher performance and growth trends in the tantalum, niobium and gallium segments. These gains were offset somewhat by lower customer demand for the segment's hafnium-based products. Volume and revenue increased by 46.1% and 33.2%, respectively, in the third quarter of 2018 as compared to Q3 of 2017, driven largely by the segment's higher production capacity in the Silmet facility and because of higher product pricing. For the nine-month period of 2018, volume, revenue, operating income, EBITDA and Adjusted EBITDA were all higher than in the corresponding period of 2017.

TABLE 4: Selected Rare Metals Results
	*Q-over-Q Comparison*		*YTD-over-YTD Comparison*
	Q3 2018	Q3 2017	Q3 2018	Q3 2017
Volume (tonnes)	149	102	423	324
($000s)
Revenue	$22,388	$16,807	$66,480	$56,287
Operating income⁽¹⁾	$501	$527	$4,140	$3,215
EBITDA⁽²⁾	$1,710	$2,053	$7,803	$7,206
Adjusted EBITDA⁽²⁾	$1,784	$1,996	$8,052	$7,172

⁽¹⁾

⁽²⁾

CONFERENCE CALL ON WEDNESDAY, NOVEMBER 14, 2018 AT 10 AM EASTERN

Management will host a teleconference call on Wednesday, November 14, 2018 at 10:00 a.m. (Eastern Time) to discuss the third quarter 2018 results. Interested parties may access the teleconference by calling (647) 427-7450 (local) or (888) 231-8191 (toll-free long distance) or by visiting https://www.newswire.ca/webcasts. 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 6339408# until December 12, 2018 or by visiting https://www.newswire.ca/webcasts.

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 nine months ended September 30, 2018, available on Neo's web site at www.neomaterials.com and on SEDAR at www.sedar.com.

ACQUISITION OF INVENTORY AT FAIR VALUE

In accordance with IFRS 3 - Business Combinations, and on completion of the Reorganization, Neo recorded the acquisition of its inventory at fair value, which included a mark-up for profit of $27,062. A portion of this inventory was sold in the three and nine months ended September 30, 2017 and impacted costs of sales by $(531) and $2,912, respectively. The mark-up has not been added back to operating income in the calculation of operating income. For the three months ended September 30, 2017, the $(531) consists of Magnequench nil, C&O $(418) and Rare Metals $(113). For the nine months ended September 30, 2017, the $2,912 consists of Magnequench $868, C&O $2,463 and Rare Metals $(419). There is no impact to operating income in 2018. For a full description, please refer to Neo's MD&A for the nine months ended September 30, 2018, available on Neo's website www.neomaterials.com and on SEDAR at www.sedar.com.

TABLE 5: CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

($000s)		September 30, 2018		December 31, 2017
ASSETS
Current
Cash and cash equivalents	$	69,336	$	96,805
Restricted cash		1,695		1,529
Accounts receivable		53,932		46,766
Inventories		133,596		104,534
Income taxes receivable		494		661
Other current assets		24,237		13,955
Total current assets		283,290		264,250
Property, plant and equipment		85,407		88,392
Intangible assets		67,709		72,769
Goodwill		99,295		101,893
Investments		7,896		8,633
Deferred tax assets		1,595		1,406
Other non-current assets		687		1,150
Total non-current assets		262,589		274,243
Total assets	$	545,879	$	538,493

LIABILITIES AND EQUITY
Current
Bank advances and other short-term debt	$	12	$	181
Accounts payable and other accrued charges		63,541		72,250
Income taxes payable		7,591		6,319
Other current liabilities		2,147		2,704
Total current liabilities		73,291		81,454
Employee benefits		2,199		2,437
Derivative liability		8,555		9,842
Provisions		4,706		4,665
Deferred tax liabilities		18,569		20,206
Other non-current liabilities		994		642
Total non-current liabilities		35,023		37,792
Total liabilities		108,314		119,246
Non-controlling interest		4,742		5,831
Equity attributable to equity holders of Neo Performance Materials Inc		432,823		413,416
Total equity		437,565		419,247
Total liabilities and equity	$	545,879	$	538,493



See accompanying notes to this table in Neo's Interim Condensed Consolidated Financial Statements for the Nine Months Ended September 30, 2018, available on Neo's website at www.neomaterials.com and on SEDAR at www.sedar.com.

TABLE 6: CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Comparison of the three and nine months ended September 30, 2018 to the three and nine months ended September 30, 2017:

($000s)	Three Months Ended September 30,				Nine Months Ended September 30,
		2018		2017		2018		2017
Revenue	$	114,216	$	116,421	$	344,834	$	324,717
Costs of sales
Costs excluding depreciation and amortization		82,607		79,511		242,661		221,504
Depreciation and amortization		2,404		2,678		7,389		7,610
Gross profit		29,205		34,232		94,784		95,603
Expenses
Selling, general and administrative		10,991		15,271		36,050		42,397
Stock-based compensation		1,478		860		3,658		5,841
Depreciation and amortization		1,658		2,435		5,262		5,831
Research and development		4,188		4,243		13,150		11,425
		18,315		22,809		58,120		65,494
Operating income		10,890		11,423		36,664		30,109
Other income (loss)		1,859		(284)		9,937		2,765
Finance income, net		128		155		1,594		180
Foreign exchange loss		(249)		(42)		(183)		(565)
Income from operations before income taxes and equity income (loss) of associates		12,628		11,252		48,012		32,489
Income tax expense		(3,975)		(2,587)		(10,517)		(6,654)
Income from operations before equity income (loss) of associates		8,653		8,665		37,495		25,835
Equity income (loss) of associates (net of income tax)		115		619		(737)		1,224
Net income	$	8,768	$	9,284	$	36,758	$	27,059
Attributable to:
Equity holders of Neo Performance Materials Inc	$	8,669	$	9,051	$	36,510	$	26,523
Non-controlling interest		99		233		248		536
	$	8,768	$	9,284	$	36,758	$	27,059
Earnings per share attributable to equity holders of Neo Performance Materials Inc.:
Basic	$	0.22	$	0.23	$	0.92	$	0.67
Diluted	$	0.21	$	0.22	$	0.90	$	0.66



See Management's Discussion and Analysis for the Nine Months Ended September 30, 2018, available on Neo's website at www.neomaterials.com and on SEDAR at www.sedar.com.

TABLE 7: RECONCILIATION OF NET INCOME TO EBITDA, ADJUSTED EBITDA AND FREE CASH FLOW

($000s)	Three Months Ended September 30,				Nine Months Ended September 30,
		2018		2017		2018		2017
Net income	$	8,768	$	9,284	$	36,758	$	27,059
Add back (deduct):
Finance income, net		(128)		(155)		(1,594)		(180)
Income tax expense		3,975		2,587		10,517		6,654
Depreciation and amortization included in costs of sales		2,404		2,678		7,389		7,610
Depreciation and amortization		1,658		2,435		5,262		5,831
EBITDA		16,677		16,829		58,332		46,974
Adjustments to EBITDA:
Equity (income) loss in associates		(115)		(619)		737		(1,224)
Other (income) loss⁽¹⁾		(1,859)		284		(9,937)		(2,765)
Foreign exchange loss ⁽²⁾		249		42		183		565
Stock and value-based compensation expense⁽³⁾		1,780		860		4,563		5,841
Acquired inventory fair value release ⁽⁴⁾		—		(531)		—		2,912
Adjusted EBITDA	$	16,732	$	16,865	$	53,878	$	52,303
Adjusted EBITDA Margins		14.6%		14.5%		15.6%		16.1%
Less:
Capital expenditures		2,517		3,169		8,751		7,472
Free Cash Flow		14,215		13,696		45,127		44,831
Free Cash Flow Conversion⁽⁵⁾		85.0%		81.2%		83.8%		85.7%


Notes:

(1)	Represents other income (expenses) resulting from non-operational related activities. Other income primarily relating to costs and insurance recoveries as a result of the fire at the Silmet facility and other costs that are non–recurring and have less bearing on Neo's operating performance. 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)	Represents stock and value-based compensation expense in respect of the Legacy Plan adopted upon the completion of the reorganization (please refer to the MD&A dated March 9, 2018), the LTIP which replaces the Legacy Plan after IPO, and the long-term value bonus plan, which has similar vesting criteria to the stock-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. The value-based compensation expense of $302 and $905 are included in selling, general, and administration expenses for the three and nine months ended September 30, 2018, respectively, and $nil for both three and nine months ended September 30, 2017, respectively. Neo has removed both the stock and value-based compensation expense from EBITDA to provide comparability with historic periods and to treat it consistently with the stock-based awards that they are intended to replace.

(4)	In accordance with IFRS 3 Business Combinations and on completion of the reorganization, Neo recorded the acquisition of its inventory at fair value, which included a mark-up for profit of $27,062. A portion of this inventory was sold in the three and nine months ended September 30, 2017 and had a $(531) and $2,912 impact, respectively, on net income. Neo has removed this from net income to provide a measure of operating performance without the non-cash, non-operational accounting change to the inventory and to provide comparability with historic periods.

(5)	Calculated as Free Cash Flow divided by Adjusted EBITDA.

TABLE 8: RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME

($000s)	Three Months Ended September 30,				Nine Months Ended September 30,
		2018		2017		2018		2017
Net income	$	8,768	$	9,284	$	36,758	$	27,059
Adjustments to net income:
Foreign exchange (gain) loss ⁽¹⁾		249		42		183		565
Stock and value-based compensation expense ⁽²⁾		1,780		860		4,563		5,841
Acquired inventory fair value release ⁽³⁾		—		(531)		—		2,912
Non-recurring items included in other income ⁽⁴⁾		(1,726)		—		(9,591)		(3,607)
Tax impact of the above items		(402)		(499)		(487)		(721)
Adjusted net income	$	8,669	$	9,156	$	31,426	$	32,049

Attributable to:
Equity holders of Neo Performance Materials Inc		8,570		8,854		31,178		31,444
Non-controlling interest		99		302		248		605

Weighted average number of common shares outstanding:
Basic		39,815,098		39,810,336		39,879,120		39,748,984
Diluted		40,371,620		40,305,960		40,440,416		40,199,728
Adjusted earnings per share ⁽⁵⁾ attributable to equity shareholders of Neo Performance Materials Inc.:
Basic	$	0.22	$	0.22	$	0.78	$	0.79
Diluted	$	0.21	$	0.22	$	0.77	$	0.78


Notes:

(1)	Represents unrealized and realized foreign exchange losses (gains) that include non-cash adjustments in translating foreign denominated monetary assets and liabilities.

(2)	Represents stock and value-based compensation expense in respect of the Legacy Plan adopted upon the completion of the reorganization (please refer to the MD&A dated March 9, 2018), the LTIP which replaces the Legacy Plan after IPO, and the long-term value bonus plan, which has similar vesting criteria to the stock-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. The value-based compensation expense of $302 and $905 are included in selling, general, and administration expenses for the three and nine months ended September 30, 2018, respectively, and $nil for both three and nine months ended September 30, 2017, respectively. Neo has removed both the stock and value-based compensation expense from net income to provide comparability with historic periods and to treat it consistently with the stock-based awards that they are intended to replace.

(3)	In accordance with IFRS 3 Business Combinations and on completion of the reorganization, Neo recorded the acquisition of its inventory at fair value, which included a mark-up for profit of $27,062. A portion of this inventory was sold in the three and nine months ended September 30, 2017 and had a $(531) and $2,912 impact, respectively, on net income. Neo has removed this from net income to provide a measure of operating performance without the non-cash, non-operational accounting change to the inventory and to provide comparability with historic periods.

(4)	Represents insurance proceeds on claims associated with the 2015 fire at the Silmet facility and other non-recurring transactions. Neo has removed these from net income to provide comparability with historic periods.

(5)	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 Performance Materials is a global leader in the innovation and manufacturing of rare earth and rare metal-based functional materials, which are essential inputs to high technology, high growth, future-facing industries. 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; 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: 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 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

Browse News Releases

News Releases Overview

Multimedia Gallery

Multimedia Gallery Overview

Trending Topics

Neo Performance Materials Reports Third Quarter 2018 Results

News provided by

Related Links

Organization Profile

Neo Performance Materials, Inc.

Contact Cision

Products

About

My Services