Highlights
(unless otherwise noted, all financial amounts in this news release are expressed in
- Q3 2022 revenue of
$146.6 million , higher by 22.4% YoY. For the nine months endedSeptember 30, 2022 , Neo's revenue was$481.1 million , an increase of 24.7% YoY. - Operating income of
$2.2 million in the quarter, lower by 82.2% YoY. For the nine months endedSeptember 30, 2022 , operating income was$51.9 million , an increase of 10.0% YoY. - Adjusted Net Loss(1) of
$1.9 million in the quarter, or$(0.04) per share. For the nine months endedSeptember 30, 2022 , Neo's Adjusted Net Income(1) was$37 .4 million, or$0.91 per share. - Adjusted EBITDA(1) of
$7.0 million in the quarter, lower by 60.1% YoY. For the nine months endedSeptember 30, 2022 , Adjusted EBITDA(1) was$66.6 million , higher by 7.0% YoY. - Cash balance of
$123.9 million after distributing$9.9 million for the nine months endedSeptember 30, 2022 in dividends to shareholders. - On
August 16, 2022 , Neo entered into a loan agreement withExport Development Canada ("EDC") for a term loan of up to$75.0 million , to finance the relocation, expansion, and sustainability upgrades to one of its environmental emissions catalyst manufacturing facilities (the "NAMCO Project "). - On
August 22, 2022 , Neo announced its intent to acquire an exploration license from Hudson Resources Inc. to pursue development of theSarfartoq Carbonatite Complex in southwestGreenland , which hosts a mineral deposit enriched in neodymium and praseodymium. - On
August 26, 2022 , Hastings Technology Metals Ltd. ("Hastings") entered into a binding Share Purchase Agreement with an affiliate ofOaktree Capital L.P. ("Oaktree") to acquire common shares of Neo at Cdn.$15.00 per share. The transaction was completed onOctober 13, 2022 . - To supplement Neo's existing cash position, support working capital levels, and plan for future growth, Neo completed a bought deal treasury offering on September 16, 2022 at Cdn.
$15.00 per share, for net proceeds of approximately$47.7 million . - On
October 14, 2022 , Neo entered into a non-binding Memorandum of Understanding with Australian Rare Earths Limited ("AR3") to accelerate development of AR3's Koppamurra Rare Earth in westernAustralia , which is enriched in neodymium, praseodymium, dysprosium and terbium. - On
November 9, 2022 , Neo announced it has been awarded a grant of up to$18.3 million (€18.7 million) from the Government ofEstonia underEurope's Just Transition Fund ("JTF") for eligible project costs of up to$95.7 million (€98 million). The terms of the award are governed under the Government ofEstonia's regulations on general conditions for granting and using funds from the operational program of the EU cohesion and internal security policy funds for the period 2021-2027 and related regulations, and includes factors such as total eligible costs incurred, and employment created. The grant to Neo is the first such award to any critical materials company in the EU under the JTF program. - A quarterly dividend of
Cdn$0.10 per common share was declared onNovember 10, 2022 for shareholders of record atDecember 20, 2022 , with a payment date ofDecember 29, 2022 .
"Neo is very grateful to the Government of
"With regard to the quarter, while rare earth pricing remains attractive in absolute dollar terms, and is nearly double pre-pandemic norms, the retreat in pricing we have seen over the past six months placed short-term pressure on our margin levels, as higher cost inventory flows through our results of operations," he added. "This lead-lag volatility is normal in our industry and, of course, we reap the benefit in a rising price environment. More important, the strategic initiatives we are pursuing are designed to place Neo in a unique position to take full advantage of the long-term opportunities presented by the global energy transition."
HIGHLIGHTS OF Q3 2022 CONSOLIDATED PERFORMANCE
For the three and nine months ended
Operationally, Neo reported significant increases in revenue and earnings year-over-year. Magnequench saw weaker volume across the majority of its applications due primarily to customer slowdowns in
____________________________ |
(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. |
SELECTED FINANCIAL RESULTS
TABLE 1: Selected Consolidated Results | ||||
Quarter-over-Quarter | Year-over-Year | |||
($000s) | Q3 2022 | Q3 2021 | YTD Q3 2022 | YTD Q3 2021 |
Revenue | 146,627 | 119,841 | 481,130 | 385,837 |
Operating income | 2,239 | 12,558 | 51,887 | 47,161 |
EBITDA(1) | 5,460 | 14,695 | 66,068 | 51,305 |
Adjusted EBITDA(1) | 7,034 | 17,650 | 66,607 | 62,263 |
Adjusted EBITDA %(1) | 4.8 % | 14.7 % | 13.8 % | 16.1 % |
_________________________ |
(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. |
MAGNEQUENCH SEGMENT RESULTS
TABLE 2: Selected Magnequench Results | ||||
Quarter-over-Quarter | Year-over-Year | |||
Q3 2022 | Q3 2021 | YTD Q3 2022 | YTD Q3 2021 | |
Volume (tonnes) | 1,097 | 1,374 | 3,620 | 4,608 |
($000s) | ||||
Revenue | 67,402 | 60,063 | 219,828 | 192,856 |
Operating income | 4,897 | 8,130 | 27,995 | 31,805 |
EBITDA(1) | 6,345 | 9,773 | 35,814 | 39,240 |
Adjusted EBITDA(1) | 7,282 | 10,503 | 35,384 | 38,872 |
_________________________ |
(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. |
For the three and nine months ended
Margins per ton in the Magnequench segment remained strong in the quarter despite being lower than margins in the first half of 2022. Magnequench has pass-through pricing agreements on the vast majority of its sales contracts, and with rare earth magnetic prices having declined from
CHEMICALS & OXIDES ("C&O") SEGMENT RESULTS
TABLE 3: Selected C&O Results | ||||
Quarter-over-Quarter | Year-over-Year | |||
($000s) | Q3 2022 | Q3 2021 | YTD Q3 2022 | YTD Q3 2021 |
Revenue | 52,231 | 45,677 | 189,244 | 152,322 |
Operating (loss) income | (5,298) | 7,142 | 21,324 | 27,184 |
EBITDA(1) | (3,231) | 8,099 | 26,490 | 22,091 |
Adjusted EBITDA(1) | (3,863) | 8,059 | 25,710 | 29,712 |
_________________________ |
(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. |
The C&O segment continues to see strong demand for various rare earth products, particularly its magnetic-based products, although the segment was adversely affected by the rapid decline of rare earth prices while processing higher cost inventory (lead-lag impact). Rare earth prices are still more than 100% higher than prices in the 2-3 years prior to the third quarter of 2020. The outlook, both in demand and pricing, remains strong for rare earths, which is expected to lead to higher dollar value margins for C&O in the long term. The rapid decline in prices necessitated C&O to record
In C&O's environmental catalysts business, volumes were reasonably strong in the first nine months of 2022, although they were lower than the comparable period in the prior year, which benefited from customers refilling their supply chains. Volumes have seen less of an impact from the semiconductor chip shortage as occurred in Magnequench. C&O's environmentally protective water treatment solutions business continues to perform well with higher volume and new customer adoption, despite challenges in global shipping and logistics availability.
RARE METALS SEGMENT RESULTS
TABLE 4: Selected Rare Metals Results | ||||
Quarter-over-Quarter | Year-over-Year | |||
($000s) | Q3 2022 | Q3 2021 | YTD Q3 2022 | YTD Q3 2021 |
Revenue | 31,567 | 19,509 | 86,521 | 56,308 |
Operating income | 5,199 | 2,074 | 13,186 | 4,168 |
EBITDA(1) | 6,587 | 1,733 | 16,457 | 6,014 |
Adjusted EBITDA(1) | 5,797 | 2,715 | 15,312 | 6,080 |
_________________________ |
(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 Metals achieved record earnings in the first nine months of 2022, continuing the improvement that started in the fourth quarter of 2021. Rare Metals experienced strength in pricing for key products such as hafnium and tantalum while also benefiting from lower-cost inventory on hand. Hafnium prices, in particular, have increased rapidly starting in the fourth quarter of 2021 and the segment benefited by having lower-cost inventory on hand. In addition, the recycling purchases and activities of Rare Metals was particularly impactful to lowering its overall material costs as some of the material purchased in the quarter was not rising as fast as selling prices. While higher selling prices are leading to both lead-lag benefits as well as fundamental improvements in the margin spread between current raw material purchase costs and finished goods selling prices, this was partially offset by the segment not selling some of its niobium oxide products to customers resident in or with connections to
The Rare Metals business continues to make progress in several key strategic initiatives, including selling more products outside of the aerospace industry, expanding its customer base, and diversifying its total end-market exposure. Sales prices in a number of end markets have recovered and gallium-based products are exhibiting improved market demand.
CONFERENCE CALL ON
Management will host a teleconference call on
NON-IFRS MEASURES
This news release refers to certain non-IFRS financial measures and ratios such as "Adjusted Net Income", "EBITDA", "Adjusted EBITDA", and "Adjusted EBITDA Margin". These measures and ratios 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 and ratios 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 and ratios 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 and ratios 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 and ratios 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 definitions of how Neo defines such financial measures and ratios, please see the "Non-IFRS Financial Measures" section of Neo's management's discussion and analysis filing for the three and nine months ended
TABLE 5: CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($000s) |
|
| ||
ASSETS | ||||
Current | ||||
Cash and cash equivalents | $ 123,903 | $ 89,037 | ||
Restricted cash | 1,210 | 1,283 | ||
Accounts receivable | 81,226 | 65,209 | ||
Inventories | 199,802 | 200,954 | ||
Income taxes receivable | 498 | 1,667 | ||
Other current assets | 22,697 | 19,211 | ||
Total current assets | 429,336 | 377,361 | ||
Property, plant and equipment | 71,845 | 73,378 | ||
Intangible assets | 43,450 | 49,961 | ||
65,034 | 70,082 | |||
Investments | 17,145 | 13,759 | ||
Deferred tax assets | 9,372 | 6,638 | ||
Other non-current assets | 1,998 | 2,903 | ||
Total non-current assets | 208,844 | 216,721 | ||
Total assets | $ 638,180 | $ 594,082 | ||
LIABILITIES AND EQUITY | ||||
Current | ||||
Bank advances and other short-term debt | $ 15,219 | $ 6,502 | ||
Accounts payable and other accrued charges | 60,785 | 94,201 | ||
Income taxes payable | 11,140 | 7,059 | ||
Provisions | 643 | 5,560 | ||
Lease obligations | 1,082 | 1,589 | ||
Derivative liability | 17,206 | 14,704 | ||
Current portion of long-term debt | 683 | — | ||
Other current liabilities | 364 | 1,455 | ||
Total current liabilities | 107,122 | 131,070 | ||
Long term debt | 5,809 | — | ||
Employee benefits | 1,157 | 1,210 | ||
Provisions | 23,020 | 15,127 | ||
Deferred tax liabilities | 16,030 | 13,366 | ||
Lease obligations | 1,143 | 1,388 | ||
Other non-current liabilities | 1,335 | 1,405 | ||
Total non-current liabilities | 48,494 | 32,496 | ||
Total liabilities | 155,616 | 163,566 | ||
Non-controlling interest | 3,028 | 2,891 | ||
Equity attributable to equity holders of | 479,536 | 427,625 | ||
Total equity | 482,564 | 430,516 | ||
Total liabilities and equity | $ 638,180 | $ 594,082 |
See accompanying notes to this table in Neo's Consolidated Financial Statements for the Three and Nine Months Ended |
TABLE 6: CONSOLIDATED RESULTS OF OPERATIONS
Comparison of the three and nine months ended
($000s) | Three Months Ended | Nine Months Ended | ||||||
2022 | 2021 | 2022 | 2021 | |||||
Revenue | $ 146,627 | $ 119,841 | $ 481,130 | $ 385,837 | ||||
Costs of sales | ||||||||
Costs excluding depreciation and amortization | 120,137 | 83,330 | 356,249 | 268,830 | ||||
Depreciation and amortization | 2,279 | 1,980 | 7,045 | 5,771 | ||||
Gross profit | 24,211 | 34,531 | 117,836 | 111,236 | ||||
Expenses | ||||||||
Selling, general and administrative | 13,781 | 13,347 | 42,296 | 41,024 | ||||
Share-based compensation | 735 | 1,198 | 1,873 | 2,761 | ||||
Depreciation and amortization | 1,781 | 1,908 | 5,529 | 5,798 | ||||
Research and development | 5,675 | 5,520 | 15,956 | 14,492 | ||||
Impairment of assets | — | — | 295 | — | ||||
21,972 | 21,973 | 65,949 | 64,075 | |||||
Operating income | 2,239 | 12,558 | 51,887 | 47,161 | ||||
Other expense | (448) | (1,284) | (1,736) | (7,145) | ||||
Finance (cost) income, net | (1,437) | 999 | (4,143) | (674) | ||||
Foreign exchange loss | (723) | (755) | (175) | (1,844) | ||||
(Loss) income from operations before income taxes and equity income of associates | (369) | 11,518 | 45,833 | 37,498 | ||||
Income tax expense | (3,775) | (3,670) | (15,771) | (10,282) | ||||
(Loss) income from operations before equity income of associates | (4,144) | 7,848 | 30,062 | 27,216 | ||||
Equity income of associates (net of income tax) | 332 | 288 | 3,518 | 1,564 | ||||
Net (loss) income | $ (3,812) | $ 8,136 | $ 33,580 | $ 28,780 | ||||
Attributable to: | ||||||||
Equity holders of Neo | $ (3,719) | $ 8,036 | $ 33,238 | $ 28,442 | ||||
Non-controlling interest | (93) | 100 | 342 | 338 | ||||
$ (3,812) | $ 8,136 | $ 33,580 | $ 28,780 | |||||
(Loss) Earnings per share attributable to equity holders of Neo: | ||||||||
Basic | $ (0.09) | $ 0.21 | $ 0.81 | $ 0.75 | ||||
Diluted | $ (0.09) | $ 0.21 | $ 0.80 | $ 0.75 |
See Management's Discussion and Analysis for the Three and Nine Months Ended |
TABLE 7: RECONCILIATION OF NET (LOSS) INCOME TO EBITDA, ADJUSTED EBITDA AND FREE CASH FLOW
($000s) | Three Months Ended | Nine Months Ended | ||||||
2022 | 2021 | 2022 | 2021 | |||||
Net (loss) income | $ (3,812) | $ 8,136 | $ 33,580 | $ 28,780 | ||||
Add back (deduct): | ||||||||
Finance cost (income), net | 1,437 | (999) | 4,143 | 674 | ||||
Income tax expense | 3,775 | 3,670 | 15,771 | 10,282 | ||||
Depreciation and amortization included in costs of sales | 2,279 | 1,980 | 7,045 | 5,771 | ||||
Depreciation and amortization included in operating expenses | 1,781 | 1,908 | 5,529 | 5,798 | ||||
EBITDA | 5,460 | 14,695 | 66,068 | 51,305 | ||||
Adjustments to EBITDA: | ||||||||
Other expense (1) | 448 | 1,284 | 1,736 | 7,145 | ||||
Foreign exchange loss (2) | 723 | 755 | 175 | 1,844 | ||||
Equity income of associates | (332) | (288) | (3,518) | (1,564) | ||||
Share-based compensation (3) | 735 | 1,198 | 1,873 | 2,761 | ||||
Impairment of assets | — | — | 295 | — | ||||
Other costs (recoveries) (4) | — | 6 | (22) | 772 | ||||
Adjusted EBITDA (5) | $ 7,034 | $ 17,650 | $ 66,607 | $ 62,263 | ||||
Adjusted EBITDA Margins (5) | 4.8 % | 14.7 % | 13.8 % | 16.1 % | ||||
Less: | ||||||||
Capital expenditures | $ 1,734 | $ 2,374 | $ 11,098 | $ 6,631 | ||||
Free Cash Flow (5) | $ 5,300 | $ 15,276 | $ 55,509 | $ 55,632 | ||||
Free Cash Flow Conversion (5) | 75.3 % | 86.5 % | 83.3 % | 89.4 % |
Notes: | |
(1) | Represents other expenses resulting from non-operational related activities, including provisions for damages for outstanding legal claims related to historic volumes. 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-based compensation expense in respect of the Plan and the LTIP. |
(4) | These represent primarily legal, professional advisory fees and other transaction costs incurred with respect to non-operating capital structure related transactions and restructuring costs related to management team changes. Neo has removed these charges 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", "Free Cash Flow" and "Free Cash Flow Conversion". 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. |
TABLE 8: RECONCILIATION OF NET (LOSS) INCOME TO ADJUSTED NET (LOSS) INCOME
($000s) | Three Months Ended | Nine Months Ended | ||||||
2022 | 2021 | 2022 | 2021 | |||||
Net (loss) income | $ (3,812) | $ 8,136 | $ 33,580 | $ 28,780 | ||||
Adjustments to net (loss) income: | ||||||||
Foreign exchange loss (1) | 723 | 755 | 175 | 1,844 | ||||
Impairment of assets | — | — | 295 | — | ||||
Share-based compensation (2) | 735 | 1,198 | 1,873 | 2,761 | ||||
Other costs (recoveries) (3) | — | 6 | (22) | 772 | ||||
Other items included in other expense (4) | 520 | (260) | 2,014 | 6,162 | ||||
Tax impact of the above items | (76) | (43) | (473) | (1,341) | ||||
Adjusted net (loss) income (5) | $ (1,910) | $ 9,792 | $ 37,442 | $ 38,978 | ||||
Attributable to: | ||||||||
Equity holders of Neo | $ (1,817) | $ 9,692 | $ 37,100 | $ 38,640 | ||||
Non-controlling interest | $ (93) | $ 100 | $ 342 | $ 338 | ||||
Weighted average number of common shares outstanding: | ||||||||
Basic | 41,368,970 | 37,913,275 | 40,913,207 | 37,738,354 | ||||
Diluted | 41,368,970 | 38,228,888 | 41,353,231 | 38,084,902 | ||||
Adjusted (loss) earnings per share (5) attributable to equity holders of Neo: | ||||||||
Basic | $ (0.04) | $ 0.26 | $ 0.91 | $ 1.02 | ||||
Diluted | $ (0.04) | $ 0.25 | $ 0.90 | $ 1.01 |
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-based compensation expense in respect of the Plan and the LTIP. |
(3) | These represent primarily legal, professional advisory fees and other transaction costs incurred with respect to non-operating capital structure related transactions and restructuring costs related to management team changes. Neo has removed these charges to provide comparability with historic periods. |
(4) | Represents other expenses resulting from non-operational related activities, including provisions for damages for outstanding legal claims related to historic volumes. These costs and recoveries are not indicative of Neo's ongoing activities. |
(5) | Neo reports non-IFRS measures such as "Adjusted Net Income", "Adjusted Earnings per Share", "Adjusted EBITDA", "Adjusted EBITDA Margin", "Free Cash Flow" and "Free Cash Flow Conversion". 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
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