FY 2017 Highlights
(Unless otherwise noted, all financial amounts in this news release are expressed in U.S. dollars)

  • $434.2 million in revenue, higher by 13.6% over 2016.
  • Net income of $25.4 million, or $0.62 per share.
  • Adjusted Net Income[1] of $40.2 million, or $0.99 per share.
  • Adjusted EBITDA1 of $67.9 million, an increase of 42.5% over 2016.
  • Year-end closes with $96.8 million cash on hand after paying a $24.9 million pre-IPO dividend.
  • A quarterly dividend of Cdn$0.095 per common share was declared for shareholders of record at March 22, 2018.


TORONTO, Canada, March 12, 2018 – 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 fourth quarter and full year 2017 financial results.  The financial statements and the management’s discussion and analysis (“MD&A”) of these results can be viewed on the Company’s web site at www.neomaterials.com and on SEDAR at www.sedar.com.


HIGHLIGHTS OF FY2017 CONSOLIDATED PERFORMANCE

In 2017, Neo generated $434.2 million in revenue, a 13.6% year-over-year increase. Net income totaled $25.4 million, or $0.62 per share. Adjusted Net Income totaled $40.2 million or $0.99 per share. Adjusted EBITDA increased 42.5% to $67.9 million, from $47.6 million in 2016.  The Company’s Adjusted EBITDA Margin1 rose to 15.6% from 12.5% in 2016.

As of December 31, 2017, the Company finished the year with cash and cash equivalents of $96.8 million compared to $79.4 million as at December 31, 2016.  Neo paid a $24.9 million dividend to its shareholders on November 7, 2017.  In addition, Neo has approximately $20.7 million available under its credit facilities with nominal amounts drawn.

Q4 2017 revenue increased 8.4% to $109.5 million from the prior-year period.  Adjusted EBITDA rose to $15.6 million in the quarter on a consolidated basis, a 13.2% year-over-year improvement.

“I am pleased with the improvement in our financial performance in 2017,” said Geoff Bedford, Neo’s President and CEO.  Demand growth in our target markets combined with new product development and operating efficiencies resulted in higher EBITDA across all three of our business segments. We see continued growth in the markets we serve and our strong balance sheet will enable us to capitalize on strategic opportunities.”


MAGNEQUENCH SEGMENT PERFORMANCE

TABLE 1:   Selected Magnequench Results
  Year-over-Year Comparison Q-over-Q Comparison
  2017 2016 Q4 2017 Q4 2016
Volume (tonnes) 6,305 5,369 1,539 1,439
($000s)
Revenue $202,905 $159,238 $59,131 $40,834
Operating income (loss)1 $40,986 $29,002 $12,831 $3,298
EBITDA2 $48,060 $31,005 $14,555 $6,045
Adjusted EBITDA2 $49,407 $38,131 $14,686 $9,537
Adjusted EBITDA % 24.3% 23.9% 24.8% 23.4%

____________________________________________

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 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.

Magnequench sales into the automotive sector were particularly strong in 2017, driven in large part by the industry’s continuing efforts to produce lighter and more fuel-efficient vehicles.  In 2017, Magnequench began selling its zero-heavy-rare-earth content magnetic powders into the automotive traction motor market, a major technological and market advance for such materials.  That market contributed $10 million of sales for Neo in 2017, representing approximately three times that sold in the prior year, and growth in this end market is expected to continue.

 

CHEMICALS AND OXIDES (“C&O”) SEGMENT RESULTS

TABLE 2:   Selected Chemicals & Oxides Results
  Year-over-Year Comparison Q-over-Q Comparison
  2017 2016 Q4 2017 Q4 2016
Volume (tonnes) 8,656 8,968 1,923 2,593
($000s)        
Revenue $170,890 $164,150 $36,212 $45,198
Operating income (loss)1 $16,892 $19,930 $1,005 $2,543
EBITDA2 $21,939 $12,816 $2,161 $4,021
Adjusted EBITDA2 $25,294 $24,516 $2,359 $10,203
Adjusted EBITDA% 14.8% 14.9% 6.5% 22.6%

____________________________________________

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 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.

The C&O segment continues to benefit from increased global demand for automotive emissions control catalyst materials, which increasingly involve sales of more highly engineered rare earth based products that often generate higher margins for the Company.  The separated rare earth business grew strongly compared to the prior year with increased selling prices, more value-add sales opportunities, continued customer confidence and operational improvements.

C&O was adversely affected by increased legal costs related to patent infringement suits filed by competitors and a planned temporary production slowdown at its Zibo facility in China, as a new wastewater treatment system was implemented to meet new environmental standards.  This new system is now operational and production has returned to normal levels, although the Company expects some premium freight costs to continue into the first quarter of 2018 as the supply chain is refilled with product.

 

RARE METALS SEGMENT RESULTS

TABLE 3:  Selected Rare Metals Results
  Year-over-Year Comparison Q-over-Q Comparison
  2017 2016 Q4 2017 Q4 2016
Volume (tonnes) 448 373 124 86
($000s)        
Revenue $76,009 $70,219 $19,722 $17,465
Operating income (loss)1 $3,935 $(3,960) $720 $(4,186)
EBITDA2 $9,110 $(4,071) $1,904 $(2,899)
Adjusted EBITDA2 $9,123 $954 $1,951 $(40)
Adjusted EBITDA% 12.0% 1.4% 9.9% (0.2)%

____________________________________________

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 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.

The Rare Metals segment generated higher revenue and higher volume in 2017 over 2016.  This was driven in part by the restoration and year-long ramp-up to full production capacity at Neo’s Silmet facility in Estonia, stronger demand in aerospace and medical imaging end markets, and by lower costs achieved through optimized headcount, reduced energy consumption and improved operational efficiencies.


SELECTED FINANCIAL RESULTS

TABLE 4:   Selected Consolidated Results
Year-over-Year Comparison Q-over-Q Comparison
2017 2016 Q4 2017 Q4 2016
Volume (tonnes) 15,085 14,392 3,4889 4,048
($000s)
Revenue $434,169 $382,130 $109,452 $101,008
Operating income (loss)1 $34,825 $28,844 $4,716 $(4,605)
EBITDA2 $54,653 $41,753 $7,679 $12,863
Adjusted EBITDA2 $67,896 $47,638 $15,593 $13,780
Adjusted EBITDA% 15.6% 12.5% 14.2% 13.6%

 

____________________________________________

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” and “Adjusted EBITDA”, ”Adjusted EBITDA Margin”, “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.

 

CONFERENCE CALL ON MONDAY, MARCH 12, 2018 AT 10 AM EASTERN

Management will host a teleconference call on Monday, March 12, 2018 at 10:00 a.m. (Eastern Time) to discuss the fourth quarter 2017 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 6085757# until April 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 “Operating Income”, “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 OIBDA and 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 quarter and year ended on December 31, 2017, available on the Company’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 in September 2016, 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 year ended December 31, 2016 (“Combined YE 2016”) ($24,150) and a portion was sold in the year ended December 31, 2017 (YE 2017”) ($2,912), impacting cost of sales.  The $2,912 mark-up (consisting of Magnequench $868, C&O $2,463, Rare Metals ($419) and Eliminations $0) for the YE 2017 has not been added back to the operating income in the calculation of operating income.  The $24,150 mark-up (consisting of Magnequench $7,126, C&O $11,700, Rare Metals $5,025 and Eliminations $299) for the Combined YE 2016, however, has already been added back to operating income in the calculation of the Combined YE 2016 and in the respective segments.  See the MD&A for a full description of the reorganization and the Combined YE 2016 presentation (included in Table 6 below).

____________________________________________

Table 5:  CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

($000s) December 31, 2017 December 31, 2016
ASSETS
Current
Cash and cash equivalents $ 96,805 $ 79,408
Restricted cash 1,529
Accounts receivable 46,766 39,168
Inventories 105,973 101,338
Income taxes receivable 661 1,321
Other current assets 12,516 17,283
Total current assets 264,250 238,518
Property, plant and equipment 88,392 87,818
Intangible assets 72,769 75,404
Goodwill 101,893 98,911
Investments 8,633 7,670
Deferred tax assets 1,406 3,209
Other non-current assets 1,150 2,221
Total non-current assets 274,243 275,233
Total assets $ 538,493 $ 513,751
LIABILITIES AND EQUITY
Current
Bank advances and other short-term debt $ 181 $ 7,925
Accounts payable and other accrued charges 73,177 57,387
Income taxes payable 6,319 4,823
Other current liabilities 1,777 937
Total current liabilities 81,454 71,072
Employee benefits 2,437 2,665
Derivative liability 9,842 9,654
Provisions 4,665 4,350
Deferred tax liabilities 20,206 21,310
Other non-current liabilities 642 604
Total non-current liabilities 37,792 38,583
Total liabilities 119,246 109,655
Non-controlling interest 5,831 6,260
Equity attributable to equity holders of Neo Performance Materials Inc. 413,416 397,836
Total equity 419,247 404,096
Total liabilities and equity $ 538,493 $ 513,751

______________________________________
See accompanying notes to this table in Neo’s Consolidated Financial Statements for the Year Ended December 31, 2017,
available on the Company’s web site at
www.neomaterials.com and on SEDAR at www.sedar.com


TABLE 6:  CONSOLIDATED RESULTS OF OPERATIONS
Comparison of the year ended December 31, 2017 to the years ended December 31, 2016 and December 31, 2015

        Calculation of Combined Period
($000s) Year Ended December 31, 2017 Combined Year Ended December 31, 2016 Predecessor Year Ended December 31, 2015 Period from January 1, 2016 to August 30, 2016 Period from April 5, 2016, to December 31, 2016 Less: Period from April 5, 2016 to August 30, 2016  Combination Adjustments   Combined Year Ended December 31, 2016
        Predecessor Successor Successor     Combined
Revenue $ 434,169   $ 382,130   $ 396,826   $ 246,818   $ 135,312   $   $     $ 382,130  
Costs of sales                  
Costs excluding depreciation and amortization 296,648   271,642   294,670   178,729   117,063     (24,150) (2) 271,642  
Depreciation and amortization 10,101   11,092   14,832   7,044   4,048         11,092  
Gross profit 127,420   99,396   87,324   61,045   14,201     24,150     99,396  
Expenses                  
Selling, general and administrative 63,222   49,298   45,419   30,953   18,345         49,298  
Stock-based compensation 6,241                  
Depreciation and amortization 7,418   7,702   18,913   5,151   2,551         7,702  
R&D 15,714   13,552   13,257   9,110   4,442         13,552  
Impairment of goodwill and other long-lived assets     203,928              
  92,595   70,552   281,517   45,214   25,338         70,552  
Operating income (loss) 34,825   28,844   (194,193) 15,831   (11,137)   24,150     28,844  
Other income (expense) 1,803   1,343   (8,326) 1,737   (394)       1,343  
Finance income (costs), net 152   (7,321) (8,347) (7,189) (132)       (7,321)
Foreign exchange (loss) gain (466) (4,826) 7,613   (4,117) (709)       (4,826)
Reorganization items   (2,471) (32,187) (2,471)         (2,471)
Income (loss) from operations before income taxes and equity income of associates 36,314   15,569   (235,440) 3,791   (12,372)   24,150     15,569  
Income tax (expense) benefit (11,893) (13,928) 9,980   (8,375) (423)   (5,130) (3) (13,928)
Income (loss) from operations before equity income of associates 24,421   1,641   (225,460) (4,584) (12,795)   19,020     1,641  
Equity income (loss) and impairment of associates (net of income tax) 972   69   (702) 238   (169)       69  
Net income (loss) $ 25,393   $ 1,710   $ (226,162) $ (4,346) $ (12,964) $   $ 19,020     $ 1,710  
                   
Attributable to:                  
Equity holders of Neo Performance Materials Inc. $ 24,620   $ 1,873   $ (223,842) $ (4,277) $ (12,645) $   $ 18,795     $ 1,873  
Non-controlling interest 773   (163) (2,320) (69) (319)   225     (163)
  $ 25,393   $ 1,710   $ (226,162) $ (4,346) $ (12,964) $   $ 19,020     $ 1,710  

See Management’s Discussion and Analysis for the Year Ended December 31, 2017, available on the Company’s web site at www.neomaterials.com and on SEDAR at www.sedar.com

 

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

($000s)   Year Ended December 31, 2017   Combined Year Ended December 31, 2016 (8)
Net income   $ 25,393   $ 1,710
Add back:            
Finance (income) costs, net   (152)   7,321
Income tax expense   11,893   13,928
Depreciation and amortization included in Costs of Sales   10,101   11,092
Depreciation and amortization   7,418   7,702
EBITDA   54,653   41,753
Adjustments to EBITDA:            
Equity income in associates   (972)   (69)
Other income (1)   (1,803)   (1,343)
Foreign exchange loss (2)   466   4,826
Reorganization items (3)     2,471
Stock and value-based compensation expense (4)   6,643  
Acquired inventory fair value release (5)   2,912  
IPO transaction costs (6)   5,997  
Adjusted EBITDA   $ 67,896   $ 47,638
Adjusted EBITDA Margins   15.6%   12.5%
Less:            
Capital expenditures   12,279   7,314
Free Cash Flow   55,617   40,324
Free Cash Flow Conversion (7)   81.9%   84.6%

NOTES:

  • Represents other income (expenses) resulting from non-operational related activities primarily relating to costs 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.
  • Represents unrealized and realized foreign exchange losses/(gains) that include non-cash adjustments in translating foreign denominated monetary assets and liabilities, primarily related to Canadian dollar denominated related party debt that were extinguished as part of the Reorganization in 2016. Please see the MD&A for a fulsome description of the Reorganization.
  • These costs are related to legal and other professional advisory fees pertaining to the voluntary petition for Reorganization under Chapter 11 of Title 11 of the U.S. Bankruptcy Code (the “Chapter 11 Cases”), and all adjustments made to the carrying amount of certain pre-petition liabilities reflecting claims allowed by the court. Neo adjusted this to provide comparability with historic and subsequent periods as these are not indicative of its ongoing costs and are not operational in nature.
  • Represents stock and value based compensation expense in respect of the Legacy Plan adopted upon the completion of the Reorganization 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 amount of $402 is included in Selling, general, and administration expenses for the three and twelve month periods ended December 31, 2017.  Neo has removed this from EBITDA to provide comparability with historic periods and to treat it consistently with the Share-based plan awards that they are intended to replace.
  • 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. This inventory was sold in the YE 2017 ($2,912) and Combined YE 2016 ($24,150), and had an impact on net income.  The amounts sold in Combined YE 2016 (with tax effect of $5,130) have already been added back to net income in the calculation of the Combined YE 2016 results.  Please refer to the table that illustrates the combination of the predecessor period from January 1, 2016 to August 30, 2016 and the successor period from August 31, 2016 to December 31, 2016 and the related adjustments.  See “Basis of Presentation” in Neo’s Management’s Discussion and Analysis for the year ended December 31, 2017, available on the Company’s web site at neomaterials.com and on SEDAR at www.sedar.com  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.
  • These costs are related to legal, professional advisory fees and other transaction costs incurred as a result of the Initial Public Offering (“IPO”) by way of Secondary Offering in the YE 2017. These charges were included in Selling, general and administrative expenses.  Neo has removed these charges from the YE 2017 OIBDA to provide comparability with historic periods.
  • Calculated as Free Cash Flow divided by Adjusted EBITDA.
  • Please refer to the table that illustrates the combination of the predecessor period from January 1, 2016 to August 30, 2016 and the successor period from August 31, 2016 to December 31, 2016 and the related adjustments. See “Basis of Presentation” in Neo’s Management’s Discussion and Analysis for the year ended December 31, 2017 available on the Company’s web site at 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 the Company is organized along three segments: Magnequench, Chemicals & Oxides and Rare Metals. The Company is headquartered in Toronto, Ontario, Canada; with corporate offices in Greenwood Village, Colorado, US; and Beijing, China. The Company 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 Jim Sims
Capital Markets and IR Media Relations
(416) 962-3300 (303) 503-6203
Email: a.mahdavi@neomaterials.com Email: j.sims@neomaterials.com
Website: 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 the Company.  All statements in this release, other than statements of historical facts, with respect to the Company’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 the Company’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 the Company’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.  The Company 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 the Company, investors should review the Company’s continuous disclosure filings that are available under the Company’s profile at www.sedar.com.

[1] Neo reports non-IFRS measures such as “Adjusted Net Income”,  “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.