Neo Performance Materials Reports Strong Year-over-Year Results

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 Income¹ 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, March 12, 2018 /CNW/ - 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

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

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

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

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

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

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

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.

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.

SOURCE Neo Performance Materials Inc