Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Neo Performance Materials Inc (NOPMF, Financial) reported $230 million in sales and $24 million of adjusted EBITDA for the first half of 2024, despite a 25% decline in revenue due to lower rare earth prices.
- The company's downstream businesses showed resilience, contributing to improved EBITDA and EBITDA margins.
- Neo Performance Materials Inc (NOPMF) has made significant progress in simplifying operations and improving business fundamentals, including discontinuing certain operations and selling non-core assets.
- The company won a substantial contract for its new Sintered Magnet plant in Europe, expected to generate significant revenue starting in 2026.
- Neo Performance Materials Inc (NOPMF) expects double-digit EBITDA growth for the full year 2024 and 2025, driven by strong performance in downstream businesses and strategic initiatives.
Negative Points
- Revenue declined by 25% in the first half of 2024 compared to the same period in 2023, primarily due to lower rare earth prices.
- The rare earth separation business continued to produce losses, negatively impacting overall profitability.
- The market environment for rare earth commodity pricing has been challenging, with magnetic demand remaining soft in nearly all geographies.
- The company's auto catalyst business faced demand softness and customer destocking, affecting sales.
- The rare earth separation business reported negative gross margins due to declining rare earth prices and slower demand for high-purity oxides.
Q & A Highlights
Q: My first one is just on the '25 guidance for the double-digit growth over 2024. I'm just trying to figure out what assumptions are baked into that projection. Can you guys still achieve that double-digit growth in the face of flat rare earth pricing? And any expectation on a regression of Rare Metals just given the profitability that you guys are seeing this year?
A: Yes. I think that there's several moving parts that cause us to get comfort around where we see the business going. I think we're going to see continued improvements from a number of the transformation projects with respect to our operations. You got to remember things like our niobium and tantalum transformation. This is the first year, right? We did it in 2023. So, it does take some time for us to see the full benefit of that transition. So, I think those things will continue to progress through 2025. I do think there will be a stronger market that we see for some of our end products. We'll be through our NAMCO relocation project. That facility will be more efficient than our existing operations. I think our Rare Metals business, some of the hafnium pricing that we've talked about has been longer-term spot sales, and I think we are benefiting from some of those. So there'll be some pluses and minuses, and I think on the Rare Metals side, there'll probably be a little bit of pressure on the hafnium margins. But I think that the rest of the business, the magnet business, the catalyst business and our separation business will all perform better than it's performing in 2024.
Q: Okay. That makes sense there. And then just curious, as we're thinking about your Sintered Magnet facility, you guys have sold out 35% of the order book before even commencing operations. Are you guys trying to keep some flexibility in there just in case the pricing environment or demand environment changes in a more favorable position as we get closer to first production?
A: Yes, I think -- but maybe I'll say it slightly differently. I don't think that it's about holding capacity for a pricing environment change. I think that we are -- we have an economic model. We do have a sense of where we think the market price is for the services that we offer, and that will remain our focus. Having said that, I think that the thought process is really just to be thoughtful about how to execute a launch plan responsibly. I think that it would not be something that I would promote for us to try to ramp every piece of business that we saw and try and ramp it into the building in the first 2 or 3 years of production. So, I do think there'll be -- I expect that there will be more awards for that business. I don't expect we'll announce every single award as they come into play. But I do think that we want to be thoughtful with respect to the number of programs, number of different parts, and the kinds of commitments that we're making for the first 3 years of the ramp curve. It's just -- my experience has been to ramp and launch automotive facilities on the other side of the world. And I think that the key to when you're ramping up new facilities is to do so in a responsible way. So, I think we will be tempered in how we fill the capacity, but I'm not worried about it from either a price perspective or a demand perspective.
Q: Okay. And just curious on your thoughts on Phase 2. Is that a decision that comes closer to '29 when you're running at full production? Or do you make a decision before then?
A: I think we make a decision before then. I won't give you the exact timeline, not because it's a secret, but because I think that there's so many other variables that are at play here. But, yes, I think it's not one where we are worried about there being ultimate demand. I think it's just one where there's a prudent aspect to how to do it.
Q: Okay, that's it for me. I'll hop back in the queue.
A: Thank you.
Operator: (Operator Instructions) There are no further questions at this time. Please proceed.
Ali Mahdavi: Thank you, operator, and thank you, everyone, for joining us today. Should you have any follow-up questions, by all means, feel free to reach out to myself, Ali Mahdavi. And this concludes today's call, and we look forward to speaking with you during our third quarter conference call. Have a great weekend.
Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
