Neo Performance Materials Reports Strong First Quarter 2018 Results

Q1 2018 Highlights
(unless other noted, all financial amounts in this news release are expressed in U.S. dollars)

• $120.2 million in revenue
• Net income of $8.9 million, or $0.22 per share
• Adjusted Net Income⁽¹⁾ of $10.3 million, or $0.25 per share
• Adjusted EBITDA⁽¹⁾ of $19.3 million
• Quarter-end closes with $94.5 million cash on hand after paying a $3.0 million dividend
• A quarterly dividend of Cdn$0.095 per common share was declared on May 9, 2018 for shareholders of record at June 22, 2018.

TORONTO, May 14, 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 first quarter 2018 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 Q1 2018 CONSOLIDATED PERFORMANCE

In the first quarter of 2018, Neo generated $120.2 million in revenue, a 12.7% increase over Q1 2017. Net income totaled $8.9 million, or $0.22 per share. Adjusted Net Income⁽¹⁾ totaled $10.3 million, or $0.25 per share. Adjusted EBITDA⁽¹⁾ decreased 6.6% to $19.3 million, from $20.6 million in Q1 2017. Revenues and Adjusted EBITDA were $434.2 million and $67.9 million, respectively for the full year ended December 31, 2017.

As of March 31, 2018, the Company reported cash and cash equivalents of $94.5 million, compared to $96.8 million as at December 31, 2017. Neo has approximately $29.3 million available under its credit facilities with nominal amounts drawn. In addition, paid a $3.0 million dividend to its shareholders on March 29, 2018.

"We had a very good first quarter of 2018, supported by many of the global macro growth trends such as electrification of vehicles and more stringent air emission standards that we expect will continue to drive demand for our products," said Geoff Bedford, Neo's President and CEO.  "As we look ahead, our company is well positioned in the markets we serve with a strong balance sheet and robust free cash flow."

SELECTED FINANCIAL RESULTS

MAGNEQUENCH SEGMENT RESULTS

Magnequench continued to see growth in many of its end market applications, including micro-motors for vehicles and traction motors, and revenues were up by 17% in the quarter from the prior year largely due to the increased selling prices from higher rare earth input costs, which are subject to pass-through mechanics.  Volume declined 8% compared to the prior year period, largely driven by customers making adjustments to their quarterly purchasing patterns and inventory levels, which positively impacted the first quarter of 2017.  Sales into the automotive sector continued to be strong, driven by the increased use by manufacturers of permanent magnet motors across most vehicle lines to reduce vehicle weight and, increase fuel economy.  In particular, sales of Magnequench's  zero-heavy-rare-earth MQU magnetic powders for use in vehicle drive train motors is expected to see robust growth.  Adjusted EBITDA of $15.5 million, a 15% improvement from the prior year, was driven by continued strong operating performance, strategic purchases of other non-rare earth raw materials, and the impact of selling prices being adjusted on a lagged basis.

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

Neo's C&O segment reported a 5% increase in revenue in the quarter over the prior year, primarily driven by higher rare earth pricing.  Volume declined 12%, primarily attributable to quarterly variations in customer purchasing patterns and adjustment to inventory levels. Neo continues to incur additional premium freight costs in the first quarter of 2018 as the supply chain continues to be refilled following the implementation of the new wastewater treatment system at the Company's Zibo, China facility. These premium freight costs are expected to continue, at a steadily reducing rate, into the second quarter of 2018.  The impact of the additional premium freight costs plus potentially lost sales is estimated to be between $3 million to $4 million in the three month period ended March 31, 2018.  Strong demand continues to be seen for Neo's more highly engineered rare earth-based products, such as automotive emissions control catalyst materials.

RARE METALS SEGMENT RESULTS

The Rare Metals segment booked a strong quarter versus the prior year, with volume expanding 45%, revenue higher by 24%, operating income up 106%, and EBITDA and Adjusted EBITDA higher by 51% and 45% respectively.  Stronger results were largely driven by continued improvements realized at the Silmet facility, with increased volumes, higher flow-through margins, continued focus on higher margin programs and continued operational improvements.  The division's gallium trichloride business also saw sales sharply higher in the quarter as a key customer recovered from a 2017 fire.

CONFERENCE CALL ON MONDAY, MAY 14, 2018 AT 10 AM EASTERN

Management will host a teleconference call on Monday, May 14, 2018 at 10:00 a.m. (Eastern Time) to discuss the first quarter 2018 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 7687658# until June 11, 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 ended on March 31, 2018, 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, the Company 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 three months ended March 31, 2017 and had $2,935 impact on operating on costs of sales. The $2,935 mark-up (consisting of Magnequench $836, C&O $2,158 and Rare Metals $(59)) has not been added back to operating income in the calculation of operating income. There is no impact to operating income in 2018. For a full description, please refer to Neo's MD&A for the quarter ended March 31, 2018, available on the Company's website www.neomaterials.com and on SEDAR at www.sedar.com.

TABLE 5: CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

TABLE 6: CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Comparison of the three month period ended March 31, 2018 to the three month period ended March 31, 2017

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

TABLE 8: RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME

Notice of Shareholder Meeting

The Company will hold its Annual General Meeting of Shareholders on Monday, June 25, 2018 at 4:00 pm (Toronto time) at The Gallery, TMX Broadcast Centre, The Exchange Tower, 130 King Street West, Toronto, Ontario.

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