Neo Performance Materials Inc.

Thank you, operator, and good day, everyone. Today's call is being recorded.

A replay will be available starting tomorrow in the Investor Center on our website at neomaterials.com. On today's call are Rahim Suleman, Neo's President and Chief Executive Officer; and Jonathan Baksh, Neo's Chief Financial Officer.

Please note today's presentation and discussion will consist of forward-looking statements, including, without limitations, those regarding revenue, EBITDA, adjusted EBITDA, product volumes, product pricing, other income and expense measures, cash returns, operational changes and future business outlook, including potential expansion plans and contracts. Actual results or trends could differ materially from those discussed today.

For more information, please refer to the risk factors discussed in Neo's most financial filings, which were filed on SEDAR earlier today and also available on our website. Neo assumes no obligation to update any forward-looking statements or information, which speaks as of their respective dates.

Financial amounts presented today will be in U.S. dollars.

Non-IFRS financial measures will be used during this conference call. I will now turn the call over to Rahim.

Good morning, everyone, and thanks for joining the call. Today, I'll focus on four key topics: first, our financial results, highlighting our strong EBITDA performance, working capital improvements and balance sheet strength.

Second, our execution and accountability in 2024, demonstrating how we delivered on our commitments to streamline our business and execute major projects on time and on budget. Third, our platform for long-term growth, which has been reinforced our industry-leading capabilities in permit magnets, mission catalysts and value-added metals.

Then I'll turn the call over to Jonathan for a deeper dive into the numbers before closing with our 2025 outlook and then opening up the call for Q&A. Before we get started, a quick comment on the strategic review process.

As we announced previously, we began a comprehensive strategic asset review across our geographic on our operating footprint to consider strategic alternatives and opportunities to maximize value for our shareholders. The strategic review process is continuing under the leadership of Neo's Special Committee and financial advisers.

In the context of the strategic review, we have continued to take steps to optimize Neo's business, including the divestment of noncore assets, executing improvements in operational performance and progressing with major capital programs. There can be no assurance that the strategic review process will result in any transaction or any alternative nor any assurance as to its outcome over time.

Neo does not intend to comment further unless it determines that further disclosure is necessary to our growth. Okay.

So, to begin, 2024 was an incredible year for you. We are pleased to report exceptional financial performance with adjusted EBITDA exceeding our guidance range.

Full-year EBITDA grew more than 70% year-over-year to $64 million, including $21 million in Q4. This growth was broad-based across our portfolio, with Magnequench delivering a full year adjusted EBITDA increase of 21% and Rare Metals more than doubled its EBITDA over the prior year.

Nearly all facilities contributed to the strong performance and our outstanding performance in 2024 has reinforced our momentum and positions us to continued success. In addition to EBITDA growth, we also achieved significant working capital improvements, generating $52 million of cash flow from operations.

Working capital efficiencies, along with tighter cost controls, strengthened our cash flow and helped fund key strategic projects, including our Permanent Magnet facility in Europe and our Emissions Control Catalyst facility. To maintain strong financial flexibility, we secured debt financing to optimize our capital structure while generating sufficient cash flow from operations, including working capital improvements.

Looking ahead, we see further opportunities to enhance cash flow and capital efficiency, supporting our ability to self-fund this pace of growth. Future funding decisions will be guided by our capital allocation priorities and the most advantageous options available to the company and our shareholders.

Our strong balance sheet remains a key core of our financial stability. We ended the year with $85 million in cash and ample liquidity, successfully executing our strategy to right size leverage while securing additional debt capacity to deliver our two major build projects.

This solid financial foundation positions Neo for accelerated growth as we execute our transformational projects that will define on our next phase of future growth. Secondly, we are proud to note that over the past year, we have delivered on every commitment we made at the end of 2023 and more.

Our focus on execution, efficiency and strategic transformation has strengthened our business, improved our profitability and positioned Neo for long-term growth. To give a quick overview of some of our accomplishments, we have launched our Emissions Catalyst Control facility requalified with our customers and achieve target run rate production for the facility.

We advanced our European Permanent Magnet plant, which is nearing completion and on track for launch this year. We streamlined our portfolio by divesting and closing noncore assets to sharpen focus on midstream and downstream magnetics and critical materials.

We won important new customer programs in a competitive marketplace. We diversified our rare earth supply by securing additional contracts with sources outside of China.

And again, we executed all of these things while focusing on cost controls, growing EBITDA, generating cash flows and preparing the company for further growth opportunities. A major highlight of the year was the successful execution of two critical growth of capital projects.

Our new Emissions Control Catalyst plant was completed on time and under budget and is now fully operational. This highly automated world-class manufacturing facility operating with a best-in-class cost structure, not only enhance our competitive positioning but also provides significant opportunities for future growth.

Meanwhile, our European Permit Magnet facility remains on track, with the core building completed, 90% of the equipment installed and commissioning well underway. We also secured a major Tier 1 automotive supplier award for our permanent magnets.

This is an important milestone in our growth strategy and a clear validation of a strong market demand. We secured a customer commitment even before the building was completed.

Beyond executing our growth initiatives, we have taken decisive steps to optimize our manufacturing footprint, simplifying our portfolio and sharpening our focus on higher-margin value-added businesses. We closed non-core operations, including the hydrometallurgical processing of Niobium and Tantalum, which immediately turned that portion of our Rare Metals business into profitability.

Additionally, we completed the sale of our gallium trichloride facility in Oklahoma in December of 2024. The sale of our two Chinese separation facilities, JAMR and ZAMR, continues to advance and are expected to close here in the first half of 2025, generating approximately $30 million in cash.

This transaction will strengthen our balance sheet, reduce earnings volatility, improve the return on capital employed and enhance our geographic footprint. In addition, we strengthened our supply chain through new MOUs for rare earth separation and secured multiple new customer agreements across key business segments, reinforcing our strategic positioning in Critical Materials.

With the heavy lifting of our transformation now largely complete, we are looking ahead to the next phase, one that is centered on higher profitability, stronger cash flows and unlocking new growth opportunities in the future. And as we look at future growth opportunities, we are proud to say that Neo has the most vertically integrated permanent magnet supply chain outside of Asia, including separation, metal making and magnet manufacturing.

This is a game-changing development for Western supply chains and the global critical materials independents. While China produces approximately 60% of the world's rare earth elements, it dominates over 90% of rare processing and magnet manufacturing.

This extreme concentration leaves industries vulnerable to geopolitical headwinds and adverse developments in regional trade policy. Our European Permanent Magnet facility is positioned to become one of the world's most impactful rare earth projects.

We are not just talking about it. We're getting it done, and we're getting it done quickly.

With our long history and strong relationships and securing materials from numerous rare earth upstream providers, we now have a facility that is fully built and backed by decades of operational expertise ensuring a complete, reliable and independent supply chain for high-performance permanent magnets that are used in electric vehicles and other advanced technologies. Our new Emissions Control Catalyst facility is also set to become a major driver of future growth.

As one of the most automated and cost-efficient plants in the industry, it minimizes sustaining CapEx, while maximizing cash flow. With tightening emission regulations globally, Neo is well positioned to drive its market share in auto catalysts on rental combustion, hybrid and alternative fuel vehicles.

In addition, Neo will expand its offerings of additional forms of specialty oxides for key target markets. Neo's recycling business remains a valuable cash flow generation, with strong demand and margins, in hafnium and gallium.

As sustainability and supply chain security gained importance, our expertise in recycling and refining these critical methods provides a competitive advantage. We operate the only gallium recycling and upgrading facility in North America.

We operate the only hafnium recycling facility in Europe with decades of experience, relationships and technology to be able to reprocess numerous forms of recyclable feedstock. With that, I'd like to turn the call over to Jonathan for a review on the quarter.

Thanks, Rahim, and good morning, everyone. As outlined in our press release earlier today, our fourth quarter and full year 2024 results highlight Neo's continued momentum across key segments.

Magnequench delivered meaningful volume growth supported by increasing demand for bonded powders, traction motor applications and permanent magnets across both automotive and industrial markets. Chemicals and oxides continue to underperform due to weakness in the separation business and the short-term impact of relocating the emission catalyst facility.

For bird metals had an outstanding year with robust demand for hafnium, niobium and gallium contributing to significant year-over-year growth. We reported revenue of $135 million for the quarter and $476 million for the following year, with adjusted EBITDA of $21 million and $64 million, respectively, exceeding our guidance range for the year.

Adjusted net income came in at $5 million for the quarter and positive $2 million for the year. Translating to a diluted adjusted EPS of negative $0.12 and positive $0.05 per share, respectively.

On a full year basis, revenue declined 17%, largely due to declining railroad prices, which was partially offset by higher prices and volumes in warehouse. As we've discussed before, the pass-through pricing model in many of our contracts helped stabilize profitability and substantially mitigate earnings impact from low rare earth prices.

We continue to see the benefit of this pricing mechanism in our 2024 financial performance, particularly in our Magnequench business. This, combined with operational improvements and tailwinds in our rare metals business drove a 900 basis point expansion in gross margins for the year.

Magnequench delivered strong volume growth in 2024 with sales increasing 1% in Q4 and 8% for the full year. The business grew volumes in all of its strategic growth areas, including magnets, heavy rare earth free powders introduction motors and bonded powder spot sales.

Levering decades of experience, the Magnequench business continues to innovate and adapt its product portfolio. Adjusted EBITDA for the fourth quarter and fiscal year 2024 with $7 million and $26 million, up 15% and 21%, respectively.

Adjusted EBITDA from margin expansion of 460 basis points was driven by lower input costs, higher yields process improvements and workforce optimization efforts. Magnequench remains a core pillar of Neo's growth strategy and further opportunities as we expand our footprint in the permanent magnets.

2024 was also a transformational year for our CNO business as we successfully completed the relocation of our emission control catalyst facility and executed our strategy to optimize our business. The expected sale of our rare earth separation facilities, ZAMR and JAMR, marks our exit from the legacy separation business in China, furthering our efforts to reduce earnings volatility, optimize working capital and focus on high-value downstream operations.

These investments are expected to be accretive or neutral to adjusted EBITDA, reinforcing our shift towards a more profitable and resilient business model. Volumes for the year were naturally impacted with the closure of ZAMR in Q2 '24 and relocation of our emission control catalyst facility.

However, the segment remains operationally efficient and where price stabilization helped offset some headwinds. Adjusted EBITDA for 2024 was approximately $5 million, reflecting these dynamics.

With the Emission Control Catalyst facility fully operational and most products we qualify, team is now focused on enhancing operational efficiency and gaining the full benefit of this new highly automated facility. This is expected to translate into improved margins and reduced inventory.

Demand for Emission Control Catalysts and hybrid and alternative fuel vehicles continues to strengthen. And with our industry-leading cost structure, CNO is set to drive sustainable growth and expanded margins in 2025 and beyond.

Transitioning to our Rare Metals segment, which delivered another exceptional year of strong performance across all facilities, particularly in our hafnium recycling business. Adjusted EBITDA grew by $28 million year-over-year driven by strong emerge demand, strategic inventory management and effective commercial execution.

While we expect some margin normalization as happening prices have stabilized, the segment's core fundamentals remain strong. With solid macro tailwinds driving the growing demand for critical materials and our operational execution, we are confident in the continued success of our metal business.

We ended 2024 with a strong cash position of $85 million, reflecting our disciplined approach to capital management while funding major growth projects. We generated over $50 million in cash operations and invested approximately $60 million in our new emission control catalysts and permanent magnet facilities.

With efficient time execution, these two large world capital projects are nearly behind us. Most importantly, there is minimal project construction and execution risk remain.

Our emission control catalyst facility is fully capitalized assets are in operation and the facility has ramped to full production. Our Permanent Magnet facility has received all major pieces of equipment and is currently going through the installation and commissioning process.

The remaining cash spend across both these projects is estimated at $36 million, most of which will be spent through the first half of 2025. Our working capital initiatives, including inventory optimization and strategic inventory releases contributed around $20 million in improvements, enhancing our cash flow and financial flexibility.

We're focused on generating additional cash flow, and we anticipate further benefit from working capital improvements of approximately $20 million in 2025. In addition, we expect to receive approximately $30 million of proceeds from the sale of our China separation assets, which is expected to close in the first half of 2025.

As we are nearing the end of a major capital cycle, we are transitioning into a phase of lower capital requirements with a modest sustaining CapEx of approximately $4 million to $8 million per year. This positions the company well to deliver strong free cash flow moving forward.

In 2024, we returned $12 million to new shareholders through dividends and completed our normal push issuer bid with over $2 million in share buybacks. Additionally, we drew $50 million from our EDC credit facility to support key strategic projects.

Our liquidity remains strong with an undrawn $25 million EDC credit facility, an undrawn Estonian government grants up to $10 million and total cash position of $85 million. Despite investing approximately $100 million over the last 2 years in transformational projects, we maintained a low leverage ratio of 1.1 times LTM adjusted EBITDA and remain in a net cash position.

With this financial flexibility and strong stewardship of our balance sheet, we see -- we look forward to continuing to execute our strategic growth initiatives in support of the business while maintaining a disciplined approach to capital allocation. Additionally, I'd like to note that Neo's CEO Europe received a court ruling on an intellectual property case, resulting in liability for approximately EUR10.3 million in damages plus interest an amount that is significantly lower than the original claim and is already accounted for in our financial statements, meaning there is no expected impact on our Q1 2025 or future earnings.

The ruling is subject to appeal, but importantly, the patent in question has expired and does not affect our current products sales or operations. Turning back to our financial performance, our ability to maintain a strong cash position while executing on strategic initiatives sets us apart in an industry where many peers face cash flow pressures.

As Rahim noted, our disciplined approach has driven EBITDA growth, reinforcing Neo's resilience and positioning us to continue investing in long-term value creation. As we enter 2025, we are well-positioned to sustain this momentum and deliver solid performance.

We anticipate delivering 2025 adjusted EBITDA of $55 million to $60 million, which is an increase to our previously communicated guidance of $53 million to $58 million. This forecast reflects the impact of lower have prices in 2025 and the sale of the three facilities we discussed earlier.

While we expect revenue to decline marginally, our diversified business model and strategic growth initiatives reinforce our confidence in the outlook. With that, I'll turn the call back to Rahim for closing remarks.

Thank you, Jonathan. Our confidence in the long-term growth and value creation driven by our strategic expansion in magnetics and critical materials.

Broadening our capabilities beyond bounded powders into magnets and assemblies and to capture new market opportunities and strengthen our position across the body. Magnequench has long been at the forefront of magnetic materials innovation.

Pioneer is the denim Magna technology and establishing a global leadership position in bonded magnetic powders. Over the years, we have expanded our expertise beyond powders, strengthening our position as a fully integrated supplier.

The acquisition of SG Tech in 2023, further enhanced our European presence and advance our capabilities to solve magnetic composites and ultra-high-density magnetics. Today, we are building on this foundation, with our move into sinter permanent magnets, a key next step in our growth strategy.

Our excitement for the growth prospects from permanent maintenance is very high, with customer sample qualifications beginning in 2025. interest from prospective customers is in orders, and we expect to secure additional awards over the coming years.

This, of course, is still Phase 1 of our Permanent Magnet strategy. Over time, we will share more about Phase 2 and Phase 3 as this market opportunity is measured in the billions of dollars.

And Neo is a leading candidate to win significant distress. In our Emissions Catalyst business, we are targeting double-digit growth.

driven by increased production volumes, cost efficiencies and new customer rates. Our new state-of-the-art facility is among the most automated and cost-efficient in the industry, ensuring high cash flow conversion and strong scalability.

New and existing customer interest is high, and we have numerous customer visits and new programs in the pipeline. Beyond these core growth areas, we are focused on operational efficiency and cost reductions.

Manufacturing cost savings will come not only from the Emissions Control Catalyst facility, but also from the ongoing optimization in all of our plants. In 2024, we achieved a 20% reduction in conversion costs at our largest Magnequench plant.

On the SG&A side, we are targeting a disciplined reduction of approximately 10% per year in each of the next 3 years, further improving efficiency and profitability. And in 2025, we have placed a renewed emphasis on media engagement, investor communications and shareholder awareness to ensure that our unique position in our growth trajectory are fully recognized by the market.

With a strong balance sheet, a clear vision and solid execution, we enter 2025 with confidence. We are building a business that is not only profitable today, but will continue to deliver long-term value for our shareholders.

With that, Joan, I'd like to open up the call for questions.

Thanks, good morning, everyone. Rahim, my first question is just on -- this is probably my first time hearing about a Phase 3 magnet facility.

Curious if that's all production that's going to come out of Narva or are you guys thinking another location outside of Estonia?

I think Phase 2 is likely to stay in Estonia, because it just makes sense to leverage the capital and leverage the infrastructure in place. Frankly in 2000 ton facility, we can do so much more and we would have originally thought of it as a 5,000 ton facility, and we just approached it incrementally.

So yes, but I do think that there is a Phase 3 and there's a Phase 4 and it's all likely to be outside of Europe into other jurisdictions. We won't be specific as to what that means just yet.

But I think that this market is enormously large and we remain extremely well positioned it's just about finding the right timing to execute those programs.

Okay. And I think you've spoken in the past about a steady ramp-up expected out of Estonia.

Just curious what we should be modeling in for '26? Is it 10%, 20%, 30% of the capacity and then full rent by '28 is still the target?

Well, the problem that we have would actually just launch at the end of 2026, we would expect to win another program or two here during the year 2025. Some of the things that we're looking at do launch in 2026, some launch there in 2027.

So, it's kind of hard to give you a specific number on what 2026 might look like in terms of the timing of that launch. But I do think that this facility will start ramping quickly, and I think that there's really a lot of customer interest and we will be stacking programs on top of each other as we execute.

And just the incremental orders that you are expecting to receive that -- is that mostly just because of the ongoing tariff vendor or is it just because you guys are getting closer to the finish line here now and you're opening up more of your order book?

Yes. No, I don't -- sorry, I think you said as a result of tariffs.

And I don't think it's a result of tariffs. I think it's a result of much more fundamental demand.

As you know, 90% of magnets are made in China. So, European critical raw materials act, that came into place in 2024.

But I'd say even independent of kind of the European for Raw Materials Act or tariffs in the U.S., I think it's customer behavior that is -- what we would consider to be the most indicative driver for growth. And the amount of interest we're seeing, the amount of tours were managing the amount of opportunities we're seeing.

It's just very large and very impressive.

Okay. Maybe asking it a different way.

Are you guys starting to see more of a premium getting reflected just because there is an uncertainty of whether these magnets will make its way out of China in a few years? Or it will be limited in some way or another?

Yes. Look, I think business is always competitive.

The automotive industry is competitive. So certainly, there's dialogues around premium because competing with the overcapacity in the installed base in China is difficult.

And I think customers value the integrated supply chain that would exist outside of China. The size of the quantum of those premiums are things that we don't generally talk about.

But look, the industry is competitive. But I think we have a significant advantage because of our experience and magnitude of trust we have with our customers and our integrated position.

Congratulations on a great quarter. Yes, and it's interesting to hear all this stuff about the magnets in Europe.

What I was wondering, there's a lot of bankable tariffs, but not a lot of specific if you will, out in the marketplace and from the main tariff proponent in the world. We know you don't have much exposure to tariffs.

People keep asking the question, will there be any because now, you've got the European stuff where if parts are coming in from Europe into the U.S., it could be a tariff for all that. Do you think most of these tariffs in your case can be passed on and will be actually work into the price of the product?

Or do you think it will make it tougher?

Yes. I think that there are two factors on how we think about tariffs.

And of course, sometimes they are not thinking has changed to date. But nonetheless, I think fundamentally, there's two factors that we think about.

One is the U.S., in particular, in this example, have an independent supply chain that would fill the gap. And two, the relative impact of tariffs jurisdiction.

So, in terms of those things, the three products probably that we ship into the U.S. would be recycled hafnium.

And I think the fact that it is a recycled hafnium product from Europe I think, has a set of, let's say, distinct advantages. The processes are not hafnium are in the U.S.

But I don't think that there's another company like ours that we're cycle happier at the volume or scale that we can process in Europe. So, in that universe, there's just not a domestic supply chain in that universe.

Our largest competition, we think, is China, and I think that there's more tariffs affecting China than there are Europe. Another product would be gallium.

And of course, we recycle and upgrade gallium in Canada for shipments in U.S. but also shipping in Asia and other places in the world.

And obviously, the U.S. doesn't have a source of gallium and China has put 96 as a restriction on gallium and is a dominant gallium provider in the world.

So, in that circumstance, if you want to grow the chip industry in the U.S., you're still going to need gallium. So, I'm not sure that, that's the tariff is a primary impact.

And then the third is we do ship some catalysts into the U.S., and there are other catalyst players who have footprints elsewhere in the world. But we ship most of our businesses on a global business.

We have a platform that runs in every jurisdiction of the world. So, we would have to have those dialogues with customers on the impact.

But I think generally, the majority of the products that we ship in the U.S. are actually coming from Europe, not on China.

Obviously, there'll still be tariffs in Europe. But I think, again, relative tariffs and an independent U.S.

supply chain would be the things that are most important to us. I think we're well-positioned on both accounts.

Okay, great. That adds some color in what is a very cloudy picture right now.

Thank you.