q2 2020 - neomaterials.com · measures in the evaluation of issuers. neo's management also...
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Corporate presentationFebruary 2020Investor Presentation
Q2 2020
Forward-Looking InformationThe following presentation contains “forward-looking information” within the meaning of applicable securit ies laws in Canada. Forward-looking information may relate to future events or future performance of Neo. All statements in this presentation, 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 presentation include, but are not limited to: expectations regarding certain of Neo's future results and information, including, among other things, revenue, expenses, revenue growth, capital expenditures, and operations; ; r isk 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; 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 sufciency of the allowance for uncollectible accounts and inventory
provisions; analysis regarding sensit ivity of the business to changes in exchange rates; impact of recently adopted accounting pronouncements; risk factorsrelating to intellectual property protection and intellectual property lit igation; 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 identif ied 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 negat ives 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. N e o believes the expectat ions reflected in such forward-looking information are
reasonable but no assurance can be given that these expectat ions 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 cont inuous disclosure filings that are available
under its profile at www.sedar.com. Information contained in forward-looking statements in this Presentation is provided as of the date hereof and N e o disclaims
any obligation to update any forward-looking statements, whether as a result of new information or future events or results, except to the extent required byapplicable securit ies laws.
Non-IFRS MeasuresThis presentation refers to certain non-IFRS financial measures such as “Operating Income”, “Adjusted Net Income”, “EBITDA”, “Adjusted EBITDA”, and
“Adjusted EB ITD A 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 three months ended June 30,
2020, available on Neo’s web site at www.neomaterials.com and on SEDAR at www.sedar.com
Disclaimers
2
Magnequench43%
Chemicals & Oxides
35%
Rare Metals22%
LTM Revenue by Segment
At A Glance
Exchange /
Ticker Symbol
Headquarters
Operational and
R&D footprint
Employees
Shares Outstanding
(as of 6--30-2020)
Market Cap
(as of 8-7-2020)
52-Week Range
(as of 8-7-2020)
Toronto Stock Exchange:TSX:NEO
Toronto, Canada
China, U.S., Germany, U.K., Canada, Thailand, South Korea, Singapore, Estonia
1,830
• 37,623,056• 38,781,768 (diluted)
C$361.7 million
C$5.55 – C$12.84
___________________________
1. Percentages shown after inter-segment revenue eliminations
$355.6million
Neo manufactures the building blocks of everyday
products and emerging technologies with a sustainability
focus. Our materials deliver a range of powerful
properties to the products in which they are used,
including magnetic, catalytic, luminescent,
electrochemical, thermal stability, and superconductive.
Quarterly Dividend of C$0.10/share and Strong Net Cash Balance of $78.7 Million
$382
$434 $454
$407
$356
$-
$10
$20
$30
$40
$50
$60
$70
$80
2016 2017 2018 2019 TTM
$-
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Ad
just
ed
EB
ITD
A in
US$
mill
ion
s
Re
ven
ue
in U
S$ m
illio
ns
Consolidated Revenue / Adjusted EBITDA
2016 - Current
Revenue Adj. EBITDA
LTM Revenue by Geography
3
Hybrid / Electric Automobiles
Macro Trends That Drive Demand for Neo’s Advanced Industrial Materials
Increased use of Micromotors in
Vehicles
Increasing Industrial
Automation
Expanding Health Care Diagnostics
& Imaging
Demand for Stronger, Smaller & Faster
Electronic Devices
Superalloy-Enabled
AerospaceApplications
Tighter Wastewater Treatment Standards &
Concern Over Algae Blooms
Growing Use of Renewable Energy
Growing Demand for Energy-Efficient Motors & Pumps
Increasingly StringentAir and GHG Emission
Standards
Neo’s Products Enable Better Energy Efficiency, Sustainability, and Performance.
4
Hybrid / ElectricVehicles
Residential Appliances
Industrial Automation
High EfficiencyMotors
Neo Products That Enable Customer Applications:Advanced Magnetic Materials
#1 MARKET LEADER of powders for
bonded and hot deformed magnets .
NdFeB magnetic mater ials that
enable more energy eff ic ient motors across mult iple markets.
5
Neo Products That Enable Customer Applications:Advanced Industrial Materials
TOP 3 GLOBAL PRODUCER of
mate r ia l s fo r env i ronmenta l emiss ion ca ta lys ts .
Advance d mate r ia l s tha t e nab le
ke y func t iona l i t y and susta inab i l i t y in mu l t ip le app l ica t ions .
Multi-Layer Ceramic Capacitors
WastewaterTreatment
Auto Catalysts Permanent
Magnetic
Materials
6
Neo Products That Enable Customer Applications:Superalloys / Electronic Metals
TOP 3 GLOBAL PRODUCER of
tanta lum for supera l loys .
Rare metals and compounds used in
superal loys, electronic, communicat ions, and other markets.
AerospaceApplications
Medical Imaging
Systems
MobileCommunications
High Efficiency
Lighting
7
At Neo, we make the bui lding blocks of modern technologies that enhance eff ic iency and sustainabi l i ty.
Our advanced industr ial materials – magnetic powders and magnets, specialty chemicals, metals, and al loys –
are cri t ical to the performance of many everyday and emerging technologies.
We make our customers’
products more eff ic ient and environmental ly sustainable, as wel l as stronger, smal ler, and faster.
Sustainable technologiesstart with Neo Materials.
Advancing Our Customers’ Sustainability Goals
More Energy-
Efficient Motors
Fewer Automotive
Emissions
More Efficient
Hybrid/Electric
Vehicles
Reduced Phosphorus
Discharge into Fresh
Water Bodies
Reduced Energy
Consumption from
Lighting
8
Neo’s Three Foundational Elements
R&D Investment andTechnical Expertise
Long-Standing Relationships
With Customers
Global Manufacturing
Footprint in Cost-Competitive Markets
1
2
39
Longstanding Relationships with Global Customer Base
• A balanced and well-diversified customer base that includes large industrial, consumer electronics and chemical processing companies.
• Significant portion of revenue contribution is from customers who have been with N e o for 10+ years.
• Provides significant value to its customers by being embedded within their supply chain and co-developing advanced, functional materials engineered to their needs .
• For example, Neo’s work in partnership with Daido and Honda on thecommercial ization of traction motors for hybrid electric and EVs, such as the HondaAccord, Insight, Fit, and Freed – that do not use heavy rare earths.
Representative Longstanding Customers
10
Global R&D Assets Support Integrated Product Development With Customers
.
Understand Customer
Requirements
Benchmark Motor
Performance
Motor Design
Magnet
Prototype
Sample Motor
Evaluation
Commercialization
“Compression Molded
MQ1TM Magnets”
Sillamäe, Estonia
Singapore
Abingdon, UKZibo, China
Integrated Process Development Example: Magnetic Materials
11
Unique Global Infrastructure with Cost Competitive Manufacturing
R&D centres and sales
offices located across
3 continents.
Production facilities
located in
cost-competitive
jurisdictions.
Corporate / Sales R&D Centres
12
Q2 2020 Financial Performance
Selected Consolidated Results:
Q/Q and YTD
ü Low CAPEX ($8 - 15M)
ü Scalability (70 – 80% capacity)
ü Efficient Global Tax Structure
ü Low Commodity Exposure
ü Minimal Debt
ü Dividend (C$0.10)
ü Strong Net Cash Balance ($82.6M)1
High Free CashFlow Conversion
Q-over-Q Comparison
US$ 000sexcl. Volume & EPS
Q2 2020 Q2 2019 YTD 2020 YTD 2019 TTM FY 2019
Volume (tonnes) 2,545 3,490 5,848 7,097 12,350 13,599
Revenue $67,734 $101,736 $158,431 $210,266 $355,629 $407,464
Net (Loss)/Income ($63,364) $2,293 ($62,846) $14,520 ($54,291) $23,075
Adjusted Net (Loss)/Income
($5,578) $5,234 ($4,709) $13,374 $6,016 $24,099
Adjusted EBITDA $1,191 $12,004 $10,836 $28,490 $36,102 $53,756
Basic EPS ($1.62) $0.05 ($1.61) $0.36 ($1.38) $0.59
Adjusted EPS ($0.14) $0.13 ($0.12) $0.34 $0.16 $0.62
Net Cash(including restricted cash)
$82,591 $70,229 $88,866
Cash Tax Paid $2,960 $4,258 $5,558 $6,159 $13,713 $14,314
CAPEX $1,527 $1,973 $3,029 $4,638 $10,114 $11,723
___________________________
1. Includes restricted cash
13
US$ 000s
Q-over-Q Comparison
YTD2020
YTD2019 TTM FY 2019Q2 2020 Q2 2019
Volume (tonnes) 1,024 1,367 2,295 2,812 5,067 5,584
Revenue $30,267 $41,473 $68,793 $89,028 $153,565 $173,800
Operating income $3,421 $6,164 $8,960 $15,645 $22,302 $28,987
Adjusted EBITDA $5,565 $8,255 $13,280 $19,184 $31,149 $37,053
Q2 2020 Financial Performance by Segment
14
• Lower volume and revenue
due to COVID-driven
shutdowns and softened
demand.
• Stability evident in hard disk
drive and factory
automation applications.
• Demand growth also seen
for Neo compression
molded magnets, used in
consumer electronics and
small electric motor
applications.
Selected Magnequench Results
Q2 2020 Financial Performance by Segment
15
Selected C&O Results
• Operating loss primarily due to a
$35.1 million impairment charge
recorded during the quarter.
• Lower volumes and sales driven
largely by pandemic-related
shutdowns and lower demand.
• Environmental catalyst sales
higher than general performance
of automotive sector.
• Cost-cutting initiatives helped to
lower working capital needs.
US$ 000s
Q-over-Q Comparison
YTD2020
YTD2019 TTM FY 2019Q2 2020 Q2 2019
Volume (tonnes) 1,466 2,053 3,401 4,188 7,054 7,841
Revenue $25,320 $38,534 $58,858 $82,107 $134,977 $158,226
Operating income ($37,748) $3,696 ($34,774) $10,322 ($26,742) $18,354
Adjusted EBITDA ($1,462) $4,924 $2,951 $11,912 $13,911 $22,872
Q2 2020 Financial Performance by Segment
16
Selected Rare Metals Results
• Operating loss primarily due to
$24 million impairment charge
recorded during Q2.
• Demand pushed out to future
quarters for high-temperature
metals for aerospace
superalloys.
• Despite COVID-related
headwinds in aerospace, RM
continues to regain traction in
both the healthcare and mobile
communication spaces.
US$ 000s
Q-over-Q Comparison
YTD2020
YTD2019 TTM FY 2019Q2 2020 Q2 2019
Volume (tonnes) 90 154 232 272 494 534
Revenue $13,529 $25,027 $33,979 $46,558 $78,043 $90,622
Operating income ($24,728) ($371) ($24,905) ($214) ($25,075) ($384)
Adjusted EBITDA $376 $1,813 $1,287 $2,988 $3,431 $5,132
Multiple Avenues for Growth
Continued Growth in Existing Products
Growth from New Product Development
Product Portfolio Acquisitions
§ Well positioned to supply materials within
broader magnetic, catalytic, electronic,
healthcare and aerospace markets
§ Strong competitive position due to:
Longstanding customer relationships
Product development and processing
know-how
Cost-competitive manufacturing
locations
Global reach with direct sales
channels
Geographic diversification of rare
earth manufacturing and raw material
supply
§ Working with customers to develop new
and next generation versions of current
products
§ Driven by key macro trends that require
the functionality that rare earths provide
§ Over 20% of current revenues come from
products not sold 5 years ago
§ Neo has been successful at innovating
new products for new markets demanded
by customers
§ Strong balance sheet and the financial
flexibility to selectively pursue strategic
acquisitions
§ Target companies or assets that would
benefit from Neo’s global reach,
customer relationships, cost-competitive
facilities and product development skills
§ Proven track record of integrating
acquired assets and replicating acquired
technology in new geographies
i.e. Growth of complex auto catalysts (hybrid vehicles)
and electric vehicles
i.e. Development of traction motors with Daido and Honda, recent
commercialization of wastewater treatment
i.e. Integration of Silmet facility,replication of Oklahomafacility in South Korea
17
Proven Leadership Team with Exceptional Track Record
Rahim Suleman
EVP & CFOEVP and CFO since 2017
Former CFO of Stackpole
International
Kevin Morris
EVP & COO8 years of experience at Neo1
EVP and COO since 2016
Greg KrollEVP Magnequench
19 years of experience at Neo1
Former SVP, Sales & Marketing,
at Magnequench
Jeff HoganEVP Chemicals & Oxides
20 years of experience at Neo1
EVP Chemicals & Oxides
since 2016
Frank TimmermanSVP Rare Metals
14 years of experience at Neo1
SVP Rare Metals since 2012
Constantine KarayannopoulosPresident, CEO & Director
26 years of experience at Neo.1
Served as President and CEO of
Neo before 2012.
Industry leaders with the expertise to deliver results, based on a combined 200+ years of experience
.
Claire Kennedy
Board Chair
Gail Edwards
Brook Hinchman
Constantine
Karayannopoulos
President, CEO & Director
Edgar Lee
Eric Noyrez
Greg Share
Board of Directors
18___________________________
1. Includes all years spent at Neo as well as its predecessors
For More Information:
Ali Mahdavi, Capital Markets and Investor Relations
(416) 962-3300
www.neomaterials.com
19
Research Coverage
►Canaccord Genuity Corp. (Canada)►CIBC Capital Markets►Cormark Securities Ltd.►RBC Capital Markets
►Scotia Capital Inc.►Raymond James Ltd.
Corporate presentationFebruary 2020APPENDIX SLIDES
20
Consolidated Statements of Financial Position(All figures in thousands of United States dollars)
21
See accompanying notes to this table in Neo's Consolidated Financial Statements for the quarter ended June 30, 2020, available on Neo's website at www.neomaterials.com and
on SEDAR at www.sedar.com.
Consolidated Results of Operations(All figures in thousands of United States dollars)
22
See accompanying notes to this table in Neo's Consolidated Financial Statements for the quarterended June 30, 2020, available on Neo's website at www.neomaterials.com and on SEDAR at
www.sedar.com.
Reconciliation to Net Income to EBITDA, Adjusted EBITDA, and Free Cash Flow
23
See accompanying notes to this table in Neo's Consolidated Financial Statements for the quarter ended June 30, 2020, available on Neo's website at www.neomaterials.com and on SEDAR at www.sedar.com.
Reconciliation of Net Income to Adjusted Net Income
24
See accompanying notes to this table in Neo's Consolidated Financial Statements for the quarterended June 30, 2020, available on Neo's website at www.neomaterials.com and on SEDAR at
www.sedar.com.