Neo Performance Materials Reports Second Quarter 2020 Results

Q2 2020 Highlights
(unless other noted, all financial amounts in this news release are expressed in U.S. dollars)

• $67.7 million in revenue
• Net loss of $63.4 million, or $(1.62) per share
• Adjusted Net Loss(1) of $5.6 million, or $(0.14) per share
• Adjusted EBITDA(1) of $1.2 million
• Cash balance of $78.7 million after distributing $5.5 million in dividends to the shareholders, $3.5 million to non-controlling interest partners and re-purchasing $1.3 million of stock under its Normal Course Issuer Bid Program during the first half of the year.
• A quarterly dividend of Cdn$0.10 per common share was declared on August 7, 2020 for shareholders of record at September 17, 2020, with a payment date of September 29, 2020.

TORONTO, Aug. 10, 2020 /CNW/ - Neo Performance Materials Inc. ("Neo", the "Company") (TSX: NEO) released its second quarter 2020 financial results. The financial statements and management's discussion and analysis ("MD&A") of these results can be viewed on Neo's web site at www.neomaterials.com and on SEDAR at www.sedar.com.

HIGHLIGHTS OF Q2 2020 CONSOLIDATED PERFORMANCE

For the three months ended June 30, 2020, consolidated revenue was $67.7 million compared to $101.7 million in the second quarter of 2019; a decrease of $34.0 million or 33.4%. Neo reported a net loss of $63.4 million, or $(1.62) per share. Adjusted Net Loss(1) totaled $5.6 million, or $(0.14) per share.

As of June 30, 2020, Neo had cash and cash equivalents of $78.7 million plus restricted cash of $3.9 million, compared to $84.7 million plus $4.2 million as at December 31, 2019. Neo paid $5.5 million in dividends to its shareholders and $3.5 million to its non-controlling interest partners and purchased $1.3 million of its shares under the Normal Course Issuer Bid program in the six months ended June 30, 2020. In addition, Neo has approximately $6.2 million available under its credit facilities with no amount drawn.

"While our processing facilities are all operational and ready to return to normal operating levels, our customers at large have remained cautious with orders and inventory management given the impacts of COVID-19," said Neo's President and CEO, Constantine Karayannopoulos. Despite these headwinds, Neo remained operationally profitable at the adjusted EBITDA line during what we would consider the peak impact of the pandemic. As we work through the coming quarters, our focus will be geared towards increasing operational efficiency, continuing to implement cost controls where necessary, and ensuring that we meet the complex needs of our global customers. At the same time, we will be opportunistic in pursuing strategies to further expand our global footprint, industrial knowledge, and capabilities. We also intend to advance our leadership position in the vehicle electrification, energy efficiency, and sustainable technology markets."

Mr. Karayannopoulos added: "We continue to hear from our customers that Neo's advanced industrial materials are even more important today, particularly in terms of empowering our customers' ability to successfully navigate and compete in a post-COVID world. The need for clean air, improved fuel economy, better and more sustainable technologies that can help address climate change, and strengthened regional supply chains has only accelerated."

SELECTED FINANCIAL RESULTS

Revenues for the three and six months ended June 30, 2020, were 33.4% and 24.7% lower, respectively, than in the corresponding periods of 2019. All three reportable segments experienced significant decreases in revenue as volumes were adversely affected by slower economic activities due to the COVID-19 pandemic.

Neo reported operating losses and net losses for the three and six months ended June 30, 2020, mainly from a $59.1 million impairment of assets in the C&O and Rare Metals segments. Operationally, the most significant impact to financial performance was from lower volumes across all three business segments, which can largely be attributed to COVID-19 and the impact to customer demand across the supply chain. All three business units engaged in various cost-cutting initiatives including shortening shifts, temporarily idling certain facilities, reducing project costs, and executing on other working capital reduction initiatives.

Aside from the volume impact driven by COVID-19, the Magnequench segment saw growth and progress in its strategy to increase magnet-making capability and sales. The C&O segment was adversely affected by lower spot sales, a LCM (lower-of-cost-or-market) charge on certain products where demand and pricing were adversely affected by COVID-19, and increased legal cost provisions for ongoing intellectual property legal disputes. The Rare Metals segment saw improved product margins in its Tantalum products having worked through much of the previous higher-cost inventory that was affecting previous results.

Neo recorded a $59.1 million impairment charge for the three and six months ended June 30, 2020, with $35.1 million attributable to C&O and $24.0 million attributable to Rare Metals. No impairment was recorded against Magnequench. The impairment charge against the C&O and Rare Metals segments was largely triggered by the economic impacts of COVID-19 on the future cash flows of the business segments causing the recoverable amount to be less than the pre-adjusted carrying values of certain business segments in the financial statements. This non-cash impairment charge largely relates to non-productive assets whose value was adjusted as a result of purchase price accounting applied in September 2016, upon emergence from bankruptcy of the predecessor company.

Adjusted EBITDA for the three and six months ended June 30, 2020 were $1.2 million and $10.8 million, respectively; a decrease of $10.8 million and $17.7 million compared to the same periods in 2019.

MAGNEQUENCH SEGMENT RESULTS

Magnequench volumes for the six months ended June 30, 2020, were adversely affected by extended customer shutdowns and slowing demand was seen across most applications. However, some improved stability was evident in the hard disk drive ("HDD") segment and other factory automation applications. Magnequench also continued to see growth in its magnet-making capacity and magnet sales, particularly with respect to sales from the magnet business purchased in 2019, where the current product line addresses laptop computers and consumer electronics, and has been on a growth trajectory and gaining market share over the past year. In addition, Magnequench benefited from various cost-cutting initiatives including reducing production shifts at its manufacturing locations .

For the three months ended June 30, 2020, Adjusted EBITDA was $5.6 million, a decrease of $2.7 million compared to the same period of the prior year. For the six months ended June 30, 2020, Adjusted EBITDA in the Magnequench segment was $13.3 million, compared to $19.2 million in the corresponding period in 2019; a decrease of $5.9 million. Sales volumes, and their impact on margins and overhead absorption, were the largest contributor to the decrease in Adjusted EBITDA with other impacts from mix, price reductions, timing of certain operational activities, changes in foreign exchange rates, and timing of pricing pass-through mechanics on material inputs.

CHEMICALS & OXIDES ("C&O") SEGMENT RESULTS

For the three and six months ended June 30, 2020, the C&O segment reported operating losses of $37.7 million and $34.8 million, respectively, compared to operating income of $3.7 million and $10.3 million, respectively, in the corresponding periods in 2019. The operating loss in the three and six months ended June 30, 2020 was mainly from the $35.1 million impairment charge recorded during the quarter.

Operationally, C&O was impacted by lower volumes and sales in the three and six month periods ended June 30, 2020, largely due to the COVID-19 pandemic, where most customers experienced interruptions and shutdowns causing impacts throughout the supply chain. These slowdowns impacted all major serviceable end markets, including auto-catalysts, rare earth separations, and water treatment. Water treatment in particular had slowed down after growing sequentially for the past several years. C&O recorded a LCM (lower-of-cost-or-market) charge in the quarter related to COVID-19 and the view on timing of recovery of certain products and pricing considerations. C&O did not record any meaningful spot sales in the quarter whereas the prior year periods had significant spot sales. In the three month period ended June 30, 2020, C&O recorded an increase in its SG&A costs related to potential legal costs associated with on-going patent disputes. In addition, C&O implemented cost-cutting initiatives, including successful efforts to reduce working capital and idling certain production facilities for a period of time.

RARE METALS SEGMENT RESULTS

For the three and six months ended June 30, 2020, the Rare Metals segment reported operating losses of $24.7 million and $24.9 million, respectively, compared to operating losses of $0.4 million and $0.2 million, respectively, in the corresponding periods in 2019. The operating loss in the three and six months ended June 30, 2020 was mainly due to the $24.0 million impairment charge recorded during the quarter.

Operationally, the Rare Metals segment was impacted by lower volumes and sales in the three and six month periods ended June 30, 2020 compared to the prior-year comparable periods. These lower volumes and sales were largely a result of the impact of COVID-19 impacting customer demand and the related supply chains. This decline was across most of the Rare Metals end markets; with the largest end market being aerospace applications. Apart from lower volumes and sales, the Rare Metals segment did see improvements in product margins, primarily in its tantalum products, supplemented by cost-savings initiatives such as head-count reductions, project cost savings, and temporarily idling some production centers.

CONFERENCE CALL ON MONDAY AUGUST 10, 2020 AT 10 AM EASTERN

Management will host a teleconference call on Monday, August 10, 2020 at 10:00 a.m. (Eastern Time) to discuss the second quarter 2020 results. Interested parties may access the teleconference by calling (647) 427-7450 (local) or (888) 231-8191 (toll-free long distance) or by visiting http://cnw.en.mediaroom.com/events. 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 8259239# until September 10, 2020 or by visiting http://cnw.en.mediaroom.com/events.

NON-IFRS MEASURES

This news release refers to certain non-IFRS financial measures such as "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 Adjusted OIBDA and Adjusted 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 and six months ended June 30, 2020, available on Neo's web site at www.neomaterials.com and on SEDAR at www.sedar.com.

TABLE 5: CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

TABLE 6: CONSOLIDATED RESULTS OF OPERATIONS

Comparison of the three and six months ended June 30, 2020 to the three and six months ended June 30, 2019:

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

TABLE 8: RECONCILIATION OF NET (LOSS) INCOME TO ADJUSTED NET (LOSS) INCOME

Notice of Shareholder Meeting

Neo will hold its Annual General Meeting of Shareholders on Thursday, October 22, 2020 at 4:00 pm (Toronto time) at the offices of the Company, 121 King Street West, Suite 1740, Toronto, Ontario.

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 Toronto, Ontario, Canada; with corporate offices in Greenwood Village, Colorado, US; Singapore; and Beijing, China. Neo 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 Neo. All statements in this release, 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 discussion include, but are not limited to, the following: expectations regarding certain of Neo's future results and information, including, among other things, revenue, expenses, sales growth, capital expenditures, and operations; statements with respect to current and future market trends that may directly or indirectly impact sales and revenue of Neo; 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; risk 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; 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 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. Neo 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 Neo, investors should review Neo's continuous disclosure filings that are available under Neo's profile at www.sedar.com.

SOURCE Neo Performance Materials, Inc.

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