Neo Performance Materials Reports Third Quarter 2020 Results

Q3 2020 Highlights
(unless otherwise noted, all financial amounts in this news release are expressed in U.S. dollars)

• $77.9 million in revenue
• Net income of $0.4 million , or $0.01 per share
• Adjusted Net income (1) of $1.3 million , or $0.03 per share
• Adjusted EBITDA (1) of $5.7 million
• Cash balance of $74.6 million after distributing $8.4 million in dividends to shareholders, $3.7 million to non-controlling interest partners and re-purchasing $2.1 million of stock under its Normal Course Issuer Bid Program for the first nine months of the year.
• A quarterly dividend of Cdn$0.10 per common share was declared on November 12, 2020 for shareholders of record at December 18, 2020 , with a payment date of December 30, 2020 .

TORONTO , Nov. 16, 2020 /CNW/ - Neo Performance Materials Inc. (" Neo ", the " Company ") (TSX: NEO) released its third 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 Q3 2020 CONSOLIDATED PERFORMANCE

For the three months ended September 30, 2020 , consolidated revenue was $77.9 million compared to $102.6 million in the third quarter of 2019; a decrease of $24.8 million or 24.1%. Neo reported net income of $0.4 million , or $0.01 per share. Adjusted Net Income (1) totaled $1.3 million , or $0.03 per share.

As of September 30, 2020 , Neo had cash and cash equivalents of $74.6 million plus restricted cash of $4.0 million , compared to $84.7 million plus $4.2 million as at December 31 , 2019. Neo paid $8.4 million in dividends to its shareholders and $3.7 million to its non-controlling interest partners and purchased $2.1 million of its shares under the Normal Course Issuer Bid program in the nine months ended September 30 , 2020. In addition, Neo has approximately $6.5 million available under its credit facilities with a nominal amount drawn as of September 30, 2020 .

"With the health and safety of our employees at top of mind during the pandemic, I am pleased that our global operations experienced no major disruptions during the third quarter, we operated profitably, and we saw customers start rebuilding inventory levels at a modest pace," said Constantine Karayannopoulos , Neo's CEO and Director. "In recent weeks, macroeconomic trends, and updates across our key end markets, have been consistent with the build-up of our order books. This demonstrates to me that customer demand is getting back on a path towards historical normalized levels. We have a lot of work ahead of us, and future impacts of the pandemic are impossible to predict, but I remain optimistic about the Company's organic growth prospects. In particular, I expect our long-term growth will be further fueled by the strategic opportunities we continue to explore and review."

SELECTED FINANCIAL RESULTS

For the three and nine months ended September 30, 2020 , revenues were 24.1% and 24.5% lower, respectively, than in the corresponding periods of 2019. All three segments experienced significant decreases in revenue as volumes were adversely affected by slower economic activities, largely due to the COVID-19 pandemic.

Neo reported operating income of $1.1 million and net income of $0.4 million for the three months ended September 30, 2020 . Operating loss and net loss for the nine months ended September 30, 2020 were mainly from the $59.1 million impairment of assets in the C&O and Rare Metals segments. Operationally, the most significant impact to financial performance is from lower volumes across all three business units, which can largely be attributed to COVID-19 and the corresponding 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 from COVID-19, the Magnequench segment saw growth and progress in its strategy to increase magnet-making capability and sales. The C&O segment saw consistent volumes in the auto-catalyst segment compared to prior year. A portion of these strong volumes is related to the economic recovery and a portion is related to refilling the supply chain. The Rare Metals segment saw improved product margins in its Tantalum products, having worked through much of the previous higher-cost inventory that was impacting previous results; however, it was adversely impacted by the decline in Rhenium prices.

Adjusted EBITDA for the three and nine months ended September 30, 2020 was $5.7 million and $16.6 million , respectively; a decrease of $7.1 million and $24.7 million compared to the same periods in 2019.

MAGNEQUENCH SEGMENT RESULTS

For the three months ended September 30, 2020 , Adjusted EBITDA was $5.2 million , a decrease of $3.1 million compared to the same period of the prior year. For the nine months ended September 30, 2020 , Adjusted EBITDA in the Magnequench segment was $18.5 million , compared to $27.5 million in the corresponding period in 2019; a decrease of $9.0 million . Sales volumes, and their impact on margins and overhead absorption, were the largest contributors to the decrease in Adjusted EBITDA with other impacts including product mix, price reductions, timing of certain operational activities, changes in foreign exchange rates, and timing of pricing pass-through mechanics on material inputs.

For the nine months ended September 30, 2020 , volumes in the Magnequench segment were adversely affected by customer shutdowns and slowdowns, primarily as a result of the continued impact of COVID-19. The slowdown of volumes was seen across most applications that utilize Magnequench's NdFeB magnetic powders. However, Magnequench saw increases in the production and sales of its NdFeB compression molded (" CM ") magnets, particularly with respect to sales from the NdFeB CM magnet business it purchased in 2019. The current magnet product line primarily serves laptop computers and consumer electronics and has been on a growth trajectory and has gained market share since the magnet business purchase by Magnequench. Certain programs and end markets that utilize Magnequench NdFeB powders and CM magnets began to recover in the latter half of the current quarter, partially due to some economic recovery and partially due to supply chains being refilled. In addition, Magnequench benefited from various cost-cutting initiatives including reducing production shifts at its manufacturing locations.

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

For the three months ended September 30, 2020 , the C&O segment reported operating income of $3.1 million , compared to $5.1 million in the prior year. For the nine months ended September 30, 2020 , operating loss of $31.6 million was reported, compared to $15.5 million operating income in the corresponding period in 2019. The operating loss in the nine months ended September 30, 2020 was mainly due to the $35 .1 million impairment charge recorded in the second quarter of 2020.

Operationally, for the three months ended September 30, 2020 , the C&O segment saw consistent volumes in the auto-catalyst segment compared to prior year, despite the continued impact of COVID-19 and its effect on the automotive end market. A portion of these strong volumes is related to the economic recovery and a portion is related to refilling the supply chain. Overall, for the nine months ended September 30, 2020 , the C&O auto-catalyst volumes have performed similar to the prior year despite the slowdown in automotive sales. In the rare earth separation end market, C&O benefited from an increase in the market price of certain products in the latter portion of the quarter. C&O did not record any meaningful spot sales in the quarter whereas the prior-year periods had significant spot sales. In the nine-month period ended September 30, 2020 , C&O recorded an increase in its SG&A costs related to potential legal costs associated with ongoing patent disputes. In addition, C&O implemented both cost-cutting initiatives and initiatives to reduce working capital including idling certain production facilities for a period of time.

RARE METALS SEGMENT RESULTS

For the three and nine months ended September 30, 2020 , the Rare Metals segment reported operating losses of $0.9 million and $25.8 million , respectively, compared to operating losses of $0.2 million and $0.4 million , respectively, in the corresponding periods in 2019. The operating loss in the nine months ended September 30, 2020 was mainly due to the $24 .0 million impairment charge recorded in its second quarter.

Operationally, the Rare Metals segment was impacted by lower volumes and selling prices in the three and nine month periods ended September 30, 2020 compared to the prior year comparable periods. These lower volumes and selling prices were largely a result of the impact of COVID-19 impacting customer demand and the related supply chains. This decline was seen across most of the Rare Metals end markets; with the largest end market being aerospace applications. The Rare Metals segment also recorded idle capacity charges in the quarter as it slowed down production in some facilities that primarily service the aerospace end market.

CONFERENCE CALL ON MONDAY NOVEMBER 16, 2020 AT 10 AM EASTERN

Management will host a teleconference call on Monday, November 16, 2020 at 10:00 a.m. (Eastern Time) to discuss the third 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 5829209# until December 16, 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 nine months ended September 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 nine months ended September 30, 2020 to the three and nine months ended September 30, 2019 :

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

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

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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