Q1 2020 Highlights
(unless other noted, all financial amounts in this news release are expressed in U.S. dollars)
- $90.7 million in revenue
- Net income of $0.5 million, or $0.01 per share
- Adjusted Net Income(1) of $0.9 million, or $0.02 per share
- Adjusted EBITDA(1) of $9.6 million
- Quarter-end closes with $74.8 million of net cash after paying $2.8 million in dividends to the shareholders, $2.3 million to non-controlling interest partners and re-purchasing $1.0 million of stock under its Normal Course Issuer Bid Program.
- A quarterly dividend of Cdn$0.10 per common share was declared on May 12, 2020 for shareholders of record at June 17, 2020, with a payment date of June 26, 2020.
TORONTO, Canada, May 14, 2020 – Neo Performance Materials Inc. (“Neo“, the “Company“) (TSX:NEO) released its first quarter 2020 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 Q1 2020 CONSOLIDATED PERFORMANCE
For the three months ended March 31, 2020, consolidated revenue was $90.7 million compared to $108.5 million in 2019; a decrease of $17.8 million or 16.4%. Net income totaled $0.5 million, or $0.01 per share. Adjusted Net Income(1) totaled $0.9 million, or $0.02 per share.
As of March 31, 2020, Neo had cash and cash equivalents of $76.0 million plus restricted cash of $4.0 million, compared to $84.7 million plus $4.2 million as at December 31, 2019. Neo paid $2.8 million in dividends to its shareholders and $2.3 million to its non-controlling interest and purchased $1.0 million of its shares under the Normal Course Issuer Bid program in the three months ended March 31, 2020. In addition, Neo has approximately $6.0 million available under its credit facilities with $1.2 million drawn.
| TABLE 1: Selected Consolidated Results | ||||
| Year-over-Year Comparison | ||||
| Q1 2020 | Q1 2019 | |||
| Volume (tonnes) | 3,303 | 3,607 | ||
| ($000s) | ||||
| Revenue | $90,697 | $108,530 | ||
| Operating income | $5,007 | $16,239 | ||
| EBITDA(1) | $9,061 | $20,839 | ||
| Adjusted EBITDA(1) | $9,645 | $16,486 | ||
| Adjusted EBITDA %(1) | 10.6% | 15.2% | ||
_________________________
(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.
Revenues in the quarter of $90.7 million were 16.4% lower than in the same period of 2019. The Magnequench segment led the decline in revenues as volumes were adversely affected by slower economic activity in various regions globally, but most notably in China largely as a result of the COVID-19 pandemic. The C&O segment continued to see year-over-year growth in environmental automotive catalyst sales, despite the general economic slowdown in China and in automotive markets. This was offset by lower spot sales and lower prices generally in the separation business. The revenue decline in the Rare Metals segment was driven by the decline in pricing for tantalum-based products and lower volume in gallium-based products.
Adjusted EBITDA for the three months ended March 31, 2020 was $9.6 million; a decrease of $6.8 million compared to the same period in 2019. This decline was predominantly due to lower year-over-year spot sales, as well as to the general economic slowdown in China and other markets.
“The Neo team took active measures early in the progression of the COVID-19 pandemic to help protect the health and safety of our employees and keep our operations running. We are maintaining strict health and safety protocols at all of our facilities around the world,” said Geoff Bedford, Neo’s Chief Executive Officer. “These precautions include temperature screening, use of enhanced personal protection equipment, social distancing, plant disinfectant protocols, and remote working for office employees. I am very proud of how hard everyone has worked to protect one another from this virus while we continue to deliver advanced material products to our customers.”
“Our customers’ operations are being impacted by the pandemic and by the steps that various governments are taking to limit its spread,” Mr. Bedford added. “While the near-term outlook for many of our markets remains unclear, with our strong balance sheet we are well-positioned to navigate through this uncertainty.”
MAGNEQUENCH SEGMENT RESULTS
| TABLE 2: Selected Magnequench Results | ||||
Year-over-Year Comparison | ||||
| Q1 2020 | Q1 2019 | |||
| Volume (tonnes) | 1,271 | 1,445 | ||
| ($000s) | ||||
| Revenue | $38,526 | $47,555 | ||
| Operating income | $5,539 | $9,481 | ||
| EBITDA(1) | $7,752 | $11,423 | ||
| Adjusted EBITDA(1) | $7,715 | $10,929 | ||
_________________________
(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.
Volumes in the quarter decreased 12.0% compared to the first quarter of 2019. Revenues were down $9.0 million, due to lower volumes and lower material input commodity prices, and impacts related to the COVID-19 pandemic. Neo passes through these material input cost changes to most of its customers on a lagged basis. Volumes in the Magnequench segment decreased, mostly in its legacy and longer running programs, due to the slowdown in auto sales, slower economic performance in certain sectors, and impacts of the pandemic.
Adjusted EBITDA was $7.7 million for the three months ended March 31, 2020, compared to $10.9 million in the same period of 2019. Adjusted EBITDA was affected by lower volumes (both in margin and overhead absorption), changes in foreign exchange rates, and by timing impacts from Neo’s input cost pass-through mechanics. This pass-through mechanic, which updates selling prices on a lagged basis (generally monthly and quarterly) is a key feature of Neo’s strategic focus on value-add margins.
CHEMICALS AND OXIDES (“C&O”) SEGMENT RESULTS
| TABLE 3: Selected C&O Results | ||||
| Year-over-Year Comparison | ||||
| Q1 2020 | Q1 2019 | |||
| Volume (tonnes) | 1,935 | 2,135 | ||
| ($000s) | ||||
| Revenue | $33,538 | $43,573 | ||
| Operating income | $2,974 | $6,626 | ||
| EBITDA(1) | $4,358 | $7,790 | ||
| Adjusted EBITDA(1) | $4,413 | $6,988 | ||
__________________________________________________
(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.
In the three months ended March 31, 2020, environmental auto catalyst volumes continued to show growth year-over-year, despite general slowdown in the automotive market. Diesel catalyst sales showed growth year-over-year, as the previous two-year decline of legacy diesel product usage has largely ended while newer formulations of diesel catalyst products are driving new growth for the segment. For the three months ended March 31, 2020, C&O’s rare earth separation business was adversely impacted by the continuing decline of rare earth commodity prices which resulted in higher cost inventory relative to current selling prices. C&O also benefited from the timing of some high-value spot sales orders in the prior-year period, which did not repeat in three months ended March 31, 2020.
RARE METALS SEGMENT RESULTS
| TABLE 4: Selected Rare Metals Results | ||||
| Year-over-Year Comparison | ||||
| Q1 2020 | Q1 2019 | |||
| Volume (tonnes) | 142 | 118 | ||
| ($000s) | ||||
| Revenue | $20,450 | $21,531 | ||
| Operating (loss) income | $(177) | $157 | ||
| EBITDA(1) | $898 | $1,362 | ||
| Adjusted EBITDA(1) | $911 | $1,175 | ||
_________________________
(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.
Rare Metal’s operating loss of $0.2 million in the three months ended March 31, 2020 was driven predominantly by the selling of higher-cost historical inventory on hand for tantalum-based products. 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 majority of the higher-cost historical raw material has been used in production with a small amount remaining at the end of the quarter. In addition, the Rare Metals segment was impacted by a general slowdown in gallium trichloride volumes and by compressed margins.
CONFERENCE CALL ON THURSDAY, MAY 14, 2020 AT 10 AM EASTERN
Management will host a teleconference call on Thursday, May 14, 2020 at 10:00 a.m. (Eastern Time) to discuss the first quarter 2020 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://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 5625619# until June 14, 2020 or by visiting https://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 months ended March 31, 2020, 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) | March 31, 2020 | December 31, 2019 | ||||||
| ASSETS | ||||||||
| Current | ||||||||
| Cash and cash equivalents | $ | 75,964 | $ | 84,735 | ||||
| Restricted cash | 4,048 | 4,185 | ||||||
| Accounts receivable | 44,876 | 44,297 | ||||||
| Inventories | 110,744 | 112,891 | ||||||
| Income taxes receivable | 1,875 | 1,460 | ||||||
| Other current assets | 18,831 | 14,230 | ||||||
| Total current assets | 256,338 | 261,798 | ||||||
| Property, plant and equipment | 92,335 | 94,490 | ||||||
| Intangible assets | 63,728 | 65,475 | ||||||
| Goodwill | 98,232 | 98,841 | ||||||
| Investments | 8,927 | 8,985 | ||||||
| Deferred tax assets | 1,008 | 805 | ||||||
| Other non-current assets | 804 | 837 | ||||||
| Total non-current assets | 265,034 | 269,433 | ||||||
| Total assets | $ | 521,372 | $ | 531,231 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current | ||||||||
| Bank advances and other short-term debt | $ | 1,205 | $ | 54 | ||||
| Accounts payable and other accrued charges | 51,610 | 56,138 | ||||||
| Income taxes payable | 4,802 | 4,756 | ||||||
| Provisions | 2,020 | — | ||||||
| Lease obligations | 1,681 | 1,660 | ||||||
| Derivative liability | 10,575 | 11,833 | ||||||
| Other current liabilities | 41 | 85 | ||||||
| Total current liabilities | 71,934 | 74,526 | ||||||
| Employee benefits | 1,981 | 2,031 | ||||||
| Provisions | 3,134 | 5,670 | ||||||
| Deferred tax liabilities | 16,390 | 15,894 | ||||||
| Lease obligations | 2,830 | 2,953 | ||||||
| Other non-current liabilities | 1,517 | 1,524 | ||||||
| Total non-current liabilities | 25,852 | 28,072 | ||||||
| Total liabilities | 97,786 | 102,598 | ||||||
| Non-controlling interest | 4,145 | 3,997 | ||||||
| Equity attributable to equity holders of Neo Performance Materials Inc | 419,441 | 424,636 | ||||||
| Total equity | 423,586 | 428,633 | ||||||
| Total liabilities and equity | $ | 521,372 | $ | 531,231 | ||||
See accompanying notes to this table in Neo’s Consolidated Financial Statements for the Three Months Ended March 31, 2020, available on Neo’s website at www.neomaterials.com and on SEDAR at www.sedar.com.
TABLE 6: CONSOLIDATED RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2020 to the three months ended March 31, 2019:
| ($000s) | Three Months Ended March 31, | |||||||
| 2020 | 2019 | |||||||
| Revenue | $ | 90,697 | $ | 108,530 | ||||
| Costs of sales | ||||||||
| Costs excluding depreciation and amortization | 66,249 | 78,389 | ||||||
| Depreciation and amortization | 2,720 | 2,410 | ||||||
| Gross profit | 21,728 | 27,731 | ||||||
| Expenses | ||||||||
| Selling, general and administrative | 11,961 | 7,296 | ||||||
| Share-based compensation | (227) | (390) | ||||||
| Depreciation and amortization | 2,036 | 1,985 | ||||||
| Research and development | 2,951 | 2,601 | ||||||
| 16,721 | 11,492 | |||||||
| Operating income | 5,007 | 16,239 | ||||||
| Other expense | (194) | (126) | ||||||
| Finance cost, net | (945) | (1,382) | ||||||
| Foreign exchange (loss) gain | (450) | 93 | ||||||
| Income from operations before income taxes and equity income (loss) of associates | 3,418 | 14,824 | ||||||
| Income tax expense | (2,842) | (2,835) | ||||||
| Income from operations before equity income (loss) of associates | 576 | 11,989 | ||||||
| Equity (loss) income of associates (net of income tax) | (58) | 238 | ||||||
| Net income | $ | 518 | $ | 12,227 | ||||
| Attributable to: | ||||||||
| Equity holders of Neo Performance Materials Inc | $ | 363 | $ | 12,247 | ||||
| Non-controlling interest | 155 | (20) | ||||||
| $ | 518 | $ | 12,227 | |||||
| Earnings per share attributable to equity holders of Neo Performance Materials Inc.: | ||||||||
| Basic | $ | 0.01 | $ | 0.31 | ||||
| Diluted | $ | 0.01 | $ | 0.31 | ||||
See Management’s Discussion and Analysis for the Three Months Ended March 31, 2020, 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 March 31, | |||||||
| 2020 | 2019 | |||||||
| Net income | $ | 518 | $ | 12,227 | ||||
| Add back (deduct): | ||||||||
| Finance cost, net | 945 | 1,382 | ||||||
| Income tax expense | 2,842 | 2,835 | ||||||
| Depreciation and amortization included in costs of sales | 2,720 | 2,410 | ||||||
| Depreciation and amortization included in operating expenses | 2,036 | 1,985 | ||||||
| EBITDA | 9,061 | 20,839 | ||||||
| Adjustments to EBITDA: | ||||||||
| Equity loss (income) in associates | 58 | (238) | ||||||
| Other expense (1) | 194 | 126 | ||||||
| Foreign exchange loss (gain) (2) | 450 | (93) | ||||||
| Share and value-based compensation recovery (3) | (118) | (2,199) | ||||||
| Other non-recurring recoveries (4) | — | (1,949) | ||||||
| Adjusted EBITDA | $ | 9,645 | $ | 16,486 | ||||
| Adjusted EBITDA Margins | 10.6 | % | 15.2 | % | ||||
| Less: | ||||||||
| Capital expenditures | 1,502 | 2,665 | ||||||
| Free Cash Flow | 8,143 | 13,821 | ||||||
| Free Cash Flow Conversion (5) | 84.4 | % | 83.8 | % | ||||
Notes:
(1) Represents other expenses resulting from non-operational related activities. 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 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 $109 and $(1,809) are included in selling, general, and administration expenses for the three months ended March 31, 2020 and three months ended March 31, 2019, 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.
(4) These represent primarily legal, professional advisory fees and other transaction costs recovered with respect to non-operating capital structure related transactions. Neo has removed these charges 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 March 31, | |||||||
| 2020 | 2019 | |||||||
| Net income | $ | 518 | $ | 12,227 | ||||
| Adjustments to net income: | ||||||||
| Foreign exchange loss (gain) (1) | 450 | (93) | ||||||
| Share and value-based compensation recovery (2) | (118) | (2,199) | ||||||
| Other non-recurring recoveries (3) | — | (1,949) | ||||||
| Other items included in other expense (4) | 120 | — | ||||||
| Tax impact of the above items | (101) | 154 | ||||||
| Adjusted net income | $ | 869 | $ | 8,140 | ||||
| Attributable to: | ||||||||
| Equity holders of Neo Performance Materials Inc | 714 | 8,160 | ||||||
| Non-controlling interest | 155 | (20) | ||||||
| Weighted average number of common shares outstanding: | ||||||||
| Basic | 37,739,299 | 39,641,879 | ||||||
| Diluted | 37,819,678 | 39,964,500 | ||||||
| Adjusted earnings per share (5) attributable to equity shareholders of Neo Performance Materials Inc.: | ||||||||
| Basic | $ | 0.02 | $ | 0.21 | ||||
| Diluted | $ | 0.02 | $ | 0.20 | ||||
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 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 $109 and $(1,809) are included in selling, general, and administration expenses for the three months ended March 31, 2020 and three months ended March 31, 2019, 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.
(3) These represents primarily legal, professional advisory fees and other transaction costs recovered with respect to non-operating capital structure related transactions. Neo has removed these charges to provide comparability with historic periods.
(4) Represents certain other transactions that Neo has removed 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 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.
Information Contacts
Ali Mahdavi
Investor Relations
(416) 962-3300
Email: a.mahdavi@neomaterials.com
Website: www.neomaterials.com
Jim Sims
Media Relations
(303) 503-620
Email: j.sims@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; risk factors relating to national or international economies (including the impact of COVID-19), and other risks present in the jurisdictions in which Neo, its customers, its suppliers, and/or its logistics partners operate, 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.
