Earnings call transcript: Neo Performance Q2 2025 earnings beat expectations

Neo Performance Materials Inc. reported its Q2 2025 earnings, showcasing a standout performance that exceeded market expectations. The company posted an EPS of $0.18, surpassing the forecasted $0.11, marking a 63.64% surprise. Revenue reached $114.7 million, above the expected $110.66 million. Following these results, Neo Performance’s stock rose by 3.16% in pre-market trading, reflecting investor optimism. According to InvestingPro data, the company maintains strong liquidity with a current ratio of 3.92, while operating with a moderate debt-to-equity ratio of 0.48.

Key Takeaways

• Neo Performance’s Q2 2025 EPS of $0.18 exceeded expectations by 63.64%.
• Revenue increased to $114.7 million, a 7% year-over-year rise.
• The company’s stock price increased by 3.16% following the earnings release.
• Full-year EBITDA guidance was raised to $64-68 million.
• The new European Sintered Magnet facility was completed in record time.

Company Performance

Neo Performance Materials demonstrated robust growth in Q2 2025, with significant increases across various segments. The company’s revenue grew by 7% year-over-year, driven by strong demand for rare earth magnets, particularly in the electric vehicle (EV) sector. Neo’s strategic initiatives and operational efficiencies have positioned it competitively in the rare earth materials market, with plans to expand its production capacity further.

Financial Highlights

• Revenue: $114.7 million, up 7% year-over-year.
• Adjusted EBITDA: $19 million, a remarkable 4,250% increase from the previous year.
• Adjusted Net Income: $7.8 million.
• Adjusted EPS: $0.19.

Earnings vs. Forecast

Neo Performance’s Q2 2025 earnings significantly outperformed forecasts, with an EPS of $0.18 against an expected $0.11, resulting in a 63.64% surprise. Revenue also exceeded expectations, coming in at $114.7 million compared to the forecasted $110.66 million. This performance highlights the company’s effective strategies and strong market demand.

Market Reaction

The positive earnings report led to a 3.16% increase in Neo Performance’s stock price, which reached $17.65 in pre-market trading. With a beta of 1.54, the stock shows higher volatility than the market average. Trading near its Fair Value according to InvestingPro calculations, the stock has caught analysts’ attention, with price targets ranging from $6.50 to $12.00. This performance contrasts with broader market trends, where many companies face challenges due to geopolitical tensions and supply chain disruptions.

Outlook & Guidance

Neo Performance has raised its full-year EBITDA guidance to $64-68 million, up from a previous estimate of $55-60 million. The company is targeting a production capacity of 20,000 tons annually and is exploring potential expansions in North America, Europe, and Southeast Asia. With a revenue CAGR of 10% over the past five years and analysts forecasting profitability this year, the company shows promising growth potential. Discover more detailed financial metrics and growth indicators with a subscription to InvestingPro. Neo expects continued growth across most business segments in 2026, driven by demand in AI, data centers, and industrial automation.

Executive Commentary

CEO Rahim Sullivan emphasized Neo’s strategic positioning, stating, "We are building Neo into a leading supplier of rare earth magnets and critical materials with localized production, strong customer pull, and a clear roadmap for growth." Sullivan also highlighted the supportive environment, noting, "The customer awareness is very supportive. Government involvement is very supportive."

Risks and Challenges

• Geopolitical tensions could impact supply chains and raw material availability.
• Market saturation in key segments may limit growth potential.
• Macroeconomic pressures, including inflation, could affect production costs.
• Dependence on EV sector growth for sustained demand.
• Potential regulatory changes in critical materials markets.

Q&A

During the earnings call, analysts inquired about the potential for U.S. government support similar to existing Department of Defense agreements. Neo’s management also addressed increased customer interest across various industries and the potential for a higher EBITDA run rate than previously estimated. The Narva facility is expected to contribute $15-20 million in EBITDA at its initial capacity.

Full transcript - Neo Performance Materials Inc (NEO) Q2 2025:

Conference Operator: Morning, and welcome to the Neo Performance Materials Second Quarter twenty twenty five Earnings Conference Call. For opening remarks and introductions, let me turn the call over to Marina Gudetsilva, Director of Investor Relations for NEO. Marina, please proceed.

Marina Gudetsilva, Director of Investor Relations, Neo Performance Materials: Thank you, operator, and good day, everyone. Today’s call is being recorded. A replay will be available starting tomorrow in the Investor Center on our website at newmaterials.com. Our call will be accompanied by a live webcast presentation. If you are joining us online, the slides will advance automatically as we progress through the discussion.

You can also download a copy of the presentation from our website to follow along or reference afterwards. On today’s call are Rahim Sullivan, NEO’s President and Chief Executive Officer and Jonathan Bash, NEO’s Chief Financial Officer. Please note that some of the information you will hear during today’s presentation and discussion will consist of forward looking statements, including, without limitation, those regarding revenue, EBITDA, adjusted EBITDA, product volumes, product pricing, other income and expense measures, cash returns, operational changes and future business outlook, including potential expansion plans and contracts. Actual results or trends could differ materially from those discussed today. For more information, please refer to the risk factors discussed in most recent financial filings, which were filed on SEDAR earlier today and also available on our website.

NIA assumes no obligation to update any forward looking statements or information which speak as of their respective dates. Financial amounts presented today will be in U. S. Dollars. Non IFRS financial measures will be used during this conference call, and information regarding reconciliation to the IFRS measures is set out in the financial statements and MD and A.

I will now turn the call over to Rashid.

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Good morning, everyone, and thank you for joining us today. We will start on slide four. This was another very strong quarter for Neo marked by continued execution on our strategic priorities, strong operational performance and financial results that exceeded expectations. First, we continue to execute our operational priorities with strong progress in our Magnetics and Catalyst businesses. We are on a clear strategic path forward anchored by our focus on rare earth permanent magnets as a key growth driver.

Construction of our European permanent magnet facility remains on schedule and on budget with the grand opening set for September. This marks a major milestone in building a leading global permanent magnets business. Momentum continues to build across our platform. We’ve seen a dramatic increase in customer interest driven by geopolitical shifts and the successful shipments of our first qualified magnets. This quarter, we secured a significant new award from another prominent European Tier one supplier for EV traction motors and another European OEM, further validating Neo’s leadership role as a trusted partner in delivering rare earth permanent magnets to the Western world.

As demand for secure and localized supply chains accelerates, Neo is exceptionally well positioned to enable that transition. Second, we are seeing strong operational performance across our broader portfolio with growth in volumes, new customer wins and continued success at our emissions catalyst facility. Rising aerospace and defense sector demand is expected to further benefit our hafnium and tantalum businesses and gallium remains a strategic material for the evolving technology landscape. And third, we delivered another quarter of financial outperformance with $19,000,000 of adjusted EBITDA. Our results once again exceeded expectations, which has prompted us to raise our full year EBITDA guidance to $64,000,000 to $68,000,000 up from 55,000,000 to $60,000,000 For the 2025, adjusted EBITDA totaled $36,000,000 This performance reflects the consistency and sustained growth we’ve built across the business even in a complex macro environment.

Let’s review our strategic progress on Slide five. As we turn to a discussion of our growth strategy, it’s important to highlight that Neo has entered a new phase, moving decisively from strategic review to focused execution. Following a comprehensive evaluation launched in June 2024, the Board concluded that the best path to maximize shareholder value is to accelerate the execution of Neo’s strategy. This process has reinforced what our recent performance is currently demonstrating. Neo’s strength lies in high growth downstream opportunities, a streamlined and focused portfolio and a disciplined capital allocation process.

Over the past year, we have simplified and optimized our businesses, divesting non core Chinese separation facilities at premium valuations, exiting lower margin assets and reallocating capital toward high growth opportunities. At the same time, we have enhanced our balance sheet, freeing up working capital, securing favorable financing and government support, and maintaining the flexibility to fund strategic growth and return capital to shareholders. The strategic review reaffirmed Neo’s vision to become a leading global supplier of rare earth magnetics and critical materials. Our strategy is clear, to localize the permanent magnet supply in regions where our customers operate and where demand is accelerating. We are already seeing this strategy translate into tangible progress.

Our new European Sintered Magnet facility was constructed in just five hundred days and is now producing customer qualified magnet samples to specification. This achievement underscores Neo’s disciplined and accelerated execution as well as our long history in producing rare earth magnetics. Phase 1a of the facility adds 2,000 tons of annual capacity. Phase 1b, what we used to call Phase two, will increase that to 5,000 tons. And we’re not stopping there.

Our long term roadmap targets 20,000 tons annually through future expansions in key regions, which may include North America, Europe, Southeast Asia, among other jurisdictions. This positions NEO to capture around 10% to 15% of the projected outside of China market for rare earth permanent magnets. We are also advancing our heavy rare earth separation pilot plant in Europe, and this remains on budget and on track. Completion is expected by the 2025. This facility will produce dysprosium and terbium, the key elements of permanent magnets, and could serve as a future supply for our European magnet operations.

More importantly, it positions Neo for future commercial scale production, helping build a fully localized and sustainable rare earth supply chain. The momentum is real. We are delivering customer qualified samples and ramping up production responsibly, on schedule and to spec. We are winning projects in the most technically demanding category traction motor magnets. We’ve already secured multiple commercial awards, including a new one this quarter from another prominent European Tier one supplier for EV traction motors to an additional major OEM.

This multi year platform is expected to generate $50,000,000 in cumulative revenue and highlights NEO’s growing recognition as a preferred partner in magnetics. Let’s move to slide six. Importantly, NEO’s permanent magnet facility has gained international recognition. President of the European Commissioner, Ursula von Deleien showcased our Made in Europe magnet at the G7 Leaders Summit. Our project was cited in the official G7 announcement as a model for resilient, transparent and sustainable critical material supply chains.

At the same time, recent actions by the US government, including the Department of Defense’s commitment to long term support for rare earth permanent magnet production, underscores the growing recognition of rare earth magnetics supply as a strategic global priority. This is where Neil’s unique history sets us apart. We are already an established rare earth separator, a metal maker, and a magnetics player with multiple facilities in multiple geographies. Our operating history and long held thesis of parallel and globalized supply chains for rare earth magnetics is now playing out for the world to see. This recognition and our commercial success highlights Neo’s leadership in enabling a more electrified, secure and sustainable future.

With strong customer pull, decades of magnetic materials experience and a globally diversified raw material base, we are executing with discipline and with urgency. And we’re just getting started. And all of that, while building on an existing growing and profitable rare earth and critical materials base that we have today. Turning to slide seven, let’s look at our financials this quarter. Neo delivered $19,000,000 in adjusted EBITDA in the 2025 and $36,000,000 of adjusted EBITDA year to date.

This is a 4250% increase respectively from the same periods last year and ahead of expectations. Given our strong performance in the first half of the year and the continued strength of demand across our end markets, we are raising our full year EBITDA guidance from 55,000,000 to $60,000,000 to 64,000,000 to $68,000,000 showcasing our confidence in the business and its ability to perform. Our balance sheet remains strong, providing flexibility to continue executing our growth strategy, while also returning capital to shareholders. Jonathan will speak to our financial performance in detail shortly. But before we get to that, I want to reiterate why we believe Neo remains a compelling long term investment.

Let’s move to slide eight. Our investment thesis is anchored by three pillars: exposure to end markets with tremendous growth opportunities the accelerating global need for localized and parallel supply chains and our unmatched track record in rare earth magnetics and critical materials. These pillars are reinforced by Neo’s ability to generate consistently positive EBITDA, a history of disciplined capital deployment and successful project execution, including bringing our European magnet facility to completion in just five hundred days. We operate from a position of financial strength with a healthy balance sheet and strong cash profile. Combined with our deep technical experience and vertically integrated platform, Neel is uniquely positioned to enable the clean energy transition and growth in physical AI and deliver long term value to shareholders.

With that, I’ll turn it over to Jonathan to walk through the financial results.

Jonathan Bash, Chief Financial Officer, Neo Performance Materials: Thanks, Raheem, and good morning, everyone. As Raheem highlighted, our second quarter results demonstrate the continued strength of our business. We delivered solid performance across all of our segments supported by resilient demand in key markets. Moving to slide 10, consolidated revenue for the second quarter was $115,000,000 up $7,000,000 or 7% compared to the same period last year. The growth was primarily driven by higher volume in Magnequench and improved product mix in rare metals.

These gains were partially offset by lower revenue in our Chemicals and Oxide segment, reflecting the divestiture of Jammer earlier this year. Neo delivered a solid adjusted EBITDA margin of 16.5% in the 2025 and fifteen point three percent through the 2025. This performance was supported by more favorable product mix and stronger operational execution, including meaningful improvements in conversion costs across the organization. These factors contributed to a year over year margin expansion of approximately 400 basis points in Q2, highlighting our continued focus on driving improved profitability. Moving to slide 11.

Adjusted EBITDA increased meaningfully to $19,000,000 in the 2025 and $36,000,000 through the 2025, representing a year over year increase of 4250% respectively, driven by strong contributions across all segments. This reflects continued execution in NEO strategic growth areas and increased customer demand, including some inventory restocking in response to geopolitical uncertainty and supply chain concerns. Magnequench delivered year over year growth in both Q2 and 2025, supported by increased sales of bonded magnets and powders. Chemicals and oxides maintained solid performance with automotive catalyst demand and improved mix driving margin expansion. Rare Metals delivered above expectations as steady demand in aerospace and electronics offset normalized hafnium pricing.

We delivered $7,800,000 of adjusted net income for the quarter, translating to adjusted earnings per share of $0.19 Moving to slide 12. Magnequench delivered another strong quarter in Q2 twenty twenty five, achieving its highest quarterly adjusted EBITDA since 2022. Segment volumes increased 31% year over year, with bonded magnet volumes up 36% and bonded powder volumes rising 30%. This growth reflects successful execution on our value chain advancement strategy, moving from powders into bonded magnets, as well as ongoing cost reduction initiatives and continued strength across key end markets, particularly traction motor applications and cooling solutions used in AI servers and data centers. We believe that a portion of the strong Q2 performance reflects a pull forward of customer orders as they navigate the current geopolitical environment, and we anticipate a return to more normalized shipment patterns in the coming quarters.

Adjusted EBITDA for the quarter grew 23% year over year to 7,600,000 supported by both volume gains and operating leverage. Commercial momentum also remained strong with additional customer wins and growing interest in our heavy rare earth free magnet technologies, particularly in light of evolving global trade restrictions. For the 2025, segment adjusted EBITDA totaled $14,000,000 an increase of 16% from the prior year. Magnequench continues to demonstrate margin durability, underscoring the value add nature of the portfolio. Moving to slide 13.

Chemicals and oxides continue to perform well in Q2 twenty twenty five with adjusted EBITDA increasing over 100 year over year to 5,400,000.0 This marks the segment’s second consecutive quarter of strong performance, reflecting both strategic repositioning and operational improvements. Following the divestiture of the Chinese separation assets and the successful commissioning of our new emission catalyst facility, the business is now more streamlined, focused and better positioned for quality growth. Emission catalyst volumes were up 11% in the second quarter, reflecting solid progress towards our previously stated goal of growing this segment by approximately 10% annually following the relocation of our new state of the art facility. The facility is gaining strong commercial traction supported by recent customer wins and differentiated capabilities. In parallel, we are realizing operational benefits from automation, improved plant layout and enhanced environmental systems driving higher margin and improved efficiency.

We remain confident in achieving our full year growth target. In wastewater treatment, volumes for the second quarter increased 23% year over year, supported by continued success in The U. S. Market. We’re seeing strong momentum in trial to contract conversion and high customer retention rates underscoring the effectiveness of our technical sales approach and the value of our rare earth based solutions.

For the 2025, adjusted EBITDA for the segment totaled $12,000,000 up approximately $10,000,000 from the same period last year. With a strategic milestone achieved, CNO is now positioned to deliver more stable, higher quality earnings and further margin expansion as process optimization continues. Moving to slide 14, rare metals posted strong results this quarter with adjusted EBITDA of $11,000,000 representing an increase of 22% over the same period last year. This performance reflects consistent operational execution across all facilities combined with continued market tailwinds across several critical material platforms amid rising geopolitical tensions. Within our hafnium portfolio, gross margin in the second quarter was down from the prior year as anticipated, given the normalization of hafnium prices from historical elevated levels.

However, this margin compression was offset by higher volumes, resilient end market demand and accelerated customer purchases in response to recent implemented U. S. Tariffs. As the largest haptium recycler in Europe, rare metals continues to secure long term contracts and spot sales at healthy margins. In our gallium business, we’re seeing strong pricing and sustained demand supported by Chinese export restrictions that are limiting global availability.

Neo remains one of the only gallium recyclers in North America, reinforcing our competitive position. For the 2025, rare metals generated adjusted EBITDA of $19,000,000 up 8% compared to the same period last year. While performance in the back half of the year may normalize as customers rebalance inventory following recent tariff driven acceleration, the business remains well positioned to benefit from strong end market fundamentals and our ability to navigate an increasingly complex regulatory and geopolitical landscape. Moving to slide 15, Neo’s financial position remains strong with continued capacity to fund operations and strategic initiatives. As of 06/30/2025, we held cash and cash equivalents of $80,000,000 For the six months ended 06/30/2025, we returned approximately $6,000,000 to shareholders through dividends.

We also invested approximately $12,000,000 in our new European sintered magnet facility and $5,000,000 in the NAMCO emission control catalyst plant. In addition, we continue to fund targeted capital upgrades at our Silmet facility, including our heavy rare earth pilot line with a focus on improving efficiency and supporting future growth. As part of our disciplined capital management, we recently launched a normal course issuer bid, enabling us to repurchase up to 10% of our public float over twelve months. Since the announcement of the program on 06/06/2025 and through 06/30/2025, Neo repurchased and canceled approximately 242,000 shares for an aggregate purchase price of $2,300,000 Returning capital in a disciplined way reflects our confidence in Neo’s platform strategy and long term value. We continue to evaluate capital allocation opportunities through a balanced lens prioritizing shareholder returns, financial prudence, and investments that advance NEO’s competitive edge in permanent magnets and other critical materials.

Moving to slide 16. We ended the quarter with $80,000,000 in cash on hand, approximately $45,000,000 in additional loan capacity, and access to up to $5,000,000 in government grant support in Europe. We continue to operate from a position of financial strength with ample flexibility to fund our strategic initiatives through internal resources and available credit, while maintaining disciplined capital allocation and a clear focus on long term shareholder value. With that, I’ll turn the call back to Raheem for closing remarks.

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Thank you, Jonathan. And moving to slide 18. In closing, Q2 was a quarter of focused execution. We advanced key strategic priorities, secured new commercial wins and remained on track with the commissioning of our European magnet facility, while maintaining the balance sheet flexibility and returning capital to shareholders. We’re building Neel into a leading supplier of rare earth magnets and critical materials with localized production, strong customer pull and a clear roadmap for growth.

Our team is energized, aligned and fully committed to delivering long term value for our shareholders. Thank you for your continued support. And with that, I’ll now open up the call for questions.

Conference Operator: Thank you, ladies and gentlemen. We will now begin the question and answer session. Your line is now open.

Ian, Analyst: Good morning, everyone.

Jonathan Bash, Chief Financial Officer, Neo Performance Materials: Good morning, Ian. How are you?

Ian, Analyst: I’m well. Thanks for asking. My first question relates to with everything that’s transpiring in The U. S. As it pertains to minimum floor pricing agreements with the DoD, I guess two parts to the question.

One, do you have any sense of whether you could see similar sorts of agreements or pricing arrangements in the jurisdictions to which you operate? And the second part of that question is, how does it make you think about the strategy going forward and perhaps pursuing a U. S. Growth plan a little earlier than you would have otherwise thought?

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Yeah, I think both good questions. I think the the key recognition that’s happening globally here of the importance of rare earths magnetics has really taken off frankly since going back to call it April 4, but certainly accelerated with the announcement and the DoD involvement in it. Whether that translates into similar types of agreements, I think that end markets, the customers and various governments around the world are very serious about the need for these localized and parallel supply chains, or I guess of these localized supply chains. And as you know, Neil has been focused on both parallel and localized supply chains so we can serve our customers everywhere in the world. I don’t know whether it’s I think that there are conversations on similar types of structures.

But I think that the theme here is the importance of supporting the supply base, the importance of committing business, and the importance of kind of this bifurcation or these parallel supply chains frankly as we go forward. And from Neil’s perspective, frankly the phone has been ringing off the hook. There’s more business out there and there’s more opportunities than any one company can handle in the current environment. Those opportunities are, I think, accelerated by the other dynamics that are happening and The US announcements. And we started the year off talking about we would commit to one to two new awards during the year.

As I stand today, frankly, don’t think it’s a meaningful commitment anymore. And it’s not about the one to two awards. We could have an order of magnitude more awards that we could announce at any point in time. I think the focus now is just focused execution on ramp plans and on growing the business, taking on the right business that actually matches your ramp plan. Because we’re an existing player, I think that we have a much different perspective on how much business one can take on and how one would launch those businesses over time.

So the environment is very supportive. The customer awareness is very supportive. Government involvement is very supportive. All of these point to more and more growth opportunities that we are seeing, whether it is in Europe, whether it is elsewhere in the world, including The United States. Certainly it has got everybody’s attention and certainly it is something that we’re considering, but we’ll comment on exactly what we’re going to do at the appropriate time.

For now, I would say we have our hands full with opportunities from customers.

Ian, Analyst: Understood. Maybe switching gears a little bit, you’ve obviously bumped the guidance this year. I’ve often thought about the business as being a $60,000,000 EBITDA business, but given changes in trade, things happening with gallium and haptium, I’m just curious, like at least if we’re working in this sort of environment, is the run rate EBITDA for the business a bit higher than that $60,000,000 moving forward and as we think about 2026 in particular?

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Yes, I think so. I think that there’s some pluses and minuses whenever we look at short term types of results. I mean, two years ago we were 37,000,000 of EBITDA and we said that that number was the wrong benchmark for people to work through. Now we’re running an LPM that’s probably closer to $7,075,000,000. But I think that there are always pluses and minuses in different markets that we’re participating in.

So I think that all of our businesses we would anticipate continuing to grow in 2026, with probably the exception of our hafnium business. And as Jonathan talked about, the pricing for hafnium has just been high for a long period of time. And that’s led to additional margins or excess margins, I would say. So I think we’re seeing more growth in all of the business and we’re just tempering it with the expectations on what happens around hafnium prices. We’ve seen hafnium prices stabilize now over the last six months.

So if this becomes a new run rate, I think it becomes a very healthy and continuing to grow business. But I think that that’s the reason why we’ve kind of tempered the expectation a little bit just because although all the other businesses are growing, we do think that the Hapne business comes back to not normal. I think a new normal is still higher than historical, but I don’t think it’s as high as to say the 2024 results.

Ian, Analyst: Understood. Switching gears to Estonia, just given everything that is transpiring in the market today, would you be willing to provide an update of where you think run rate EBITDA may be on that facility as you get to scale out into ’28 or ’29 perhaps if we use today’s pricing for products and a full throughput there on just the existing facility without the bolt on?

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Yeah, I think we’ve talked about that facility as a 15,000,000 to $20,000,000 EBITDA facility. I think we think of it the same way today. So I think that to your first question, there’s clearly additional support and additional need, and one might interpret that to convert into additional margin and additional price. I think that’s fair, but I think that we also deal with sophisticated customers who understand the dynamic. And we’re engaging in long term contracts with long term agreements and partnerships with customers that we think we’re going to grow through the 2,000 tons, the 5,000 tons and beyond.

So I think we’re at the higher end of our previous range. I don’t think we’re in the business of trying to jack up prices for short term gains. I think the programs we’re talking about are when we win a program, it’s one to five years. Sorry, it’s three to seven years in duration averaging five years of contract value. I think that the momentum we’re seeing is in volume and in opportunity.

Certainly that does translate into price and margin. So I think it raises the range in which where we sit within that range. It raises our confidence level on achievement from a customer perspective. And it really just makes us focus more on how do we execute this with the most cost competitive environment. I think we continue to believe that in the long run, you have to be cost competitive and you can’t rush into things because you’ll find that if you don’t build the facility the right way, if you don’t build the technology the right way, if you don’t build the execution the right way, in the long run you won’t be as competitive as you think you are just because there’s an existing drive.

So it’s careful balance, but we certainly believe in execution. We certainly believe in the project. The programs that we have won are in line with our expectations. We’re not buying business by any means. So we continue to feel really good about the project and we continue to feel good about the timeline of when we would start phase two.

Which we’re now as I think I mentioned, we’re calling phase 1B really because that’s really what it is. It is just the second half of what we should build 5,000 tonnes as a base business.

Ian, Analyst: The other interesting piece is the margins have shown a pretty steady improvement. And I’m just curious over the next twelve months as to whether there’s any intention or plan to continue to try and reduce the fixed cost base or try and optimize margins? Or is that do you think you’ve largely gone through that plan over the last call it twenty four months?

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: No, I think there’s still work to do. I think we have done tremendous amount of work in our Magnaquench facilities and in our new Catalyst facility. Both of those are probably our two largest facilities and both of those are running record low conversion costs. So I think that the team has done an outstanding job. I think the focus is really dialed in and I think as the focus is dialed in and as you continue to get better at where you are, we will have a getting better every day mentality to continue to drive those costs down.

And then I think there’s learnings that happen across facilities. So I think all of those things are still in play and we would certainly expect to see cost improvements in our separation facility in Europe, in our magnet facility in Thailand. And frankly, continuing cost improvements through automation. We’ve hired some data scientists in our business now. So I won’t use the word AI because everybody likes to, but the data scientists who are gathering a multi step manufacturing process and how do we embed learning and fully integrated feedback systems into our manufacturing process.

All of these things are leading to kind of lower cost conversion. I think we have very good headlights to more opportunities to do those things.

Ian, Analyst: Yeah, and maybe I’ll just sneak in one more here. One of the things I did note in this release is you did mention AI and data center opportunities. I can’t recall seeing that in prior MD and As or at least on an immaterial way. Can you maybe talk about what you’re pursuing there? You think Neo fits into that piece?

Is it direct exposure to these data centers and AI? Like it’s just curious and obviously very topical in the here and now.

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Yeah, look, think there’s a couple of different dynamics to it. So from the data center perspective, that’s when you’re looking at the core technology. The core technology from our perspective would be the semiconductors, the cooling fans, the dysprosium that goes into the MLCCs, a number of technologies that rare earths bring to the table as you get into the data centers and the big servers and those types of dynamics. So we’re seeing lots of healthy demand. And I think we’ve always seen demand there, but we’re seeing more and more demand in those businesses.

Us getting into magnets has been impactful in terms of capturing some of that demand there as well. I think what we’re now also kind of taking note of is I think the other areas where micro motors matter. And they’ve always mattered and they’ve always used kind of rare earth magnets, but their markets have been small. And they’re the things that are the things on the comp. So we talk about automotive as the general base and particularly we talk about traction motors that go in both hybrids and electric vehicles.

But that’s like kind of half the rare motors that go in automotive. There’s still all of the other micro motors that go into an automotive well. It’s just big and chunky. But when you think about what happens next, and I think it’s in the terms of things like physical AI, when you talk about the world of robotics, if you talk about the world of drones, if you talk about those types of dynamics, industrial automation, that we already participate in markets like industrial automation. As you look at the growth of those markets, they are driven again, they all require rare earth magnets.

So I think those opportunities become larger and larger and larger. So those markets have always existed. They’re always things that we focus on. I think our primary dialogue has been around traction motors in Europe, primarily because we were looking at it and you needed the customer to have a reason to have a parallel or localized supply chain. You saw that most in protecting the technology of automotive.

I think with new industry trends, as well as the increased geopolitical friction, the universe of applications that will face this pressure to have localized supply chain has just gone up astronomically. And I think that’s what we’re seeing as well in our plant in Europe. We’re seeing application requests and magnet requests meeting all different kinds of end markets and all different kinds of applications. So don’t know that I would say that those applications are new or rare earths are new. I think that the theme of localized supply chains for those applications are becoming more and more important.

Ian, Analyst: Got it. With that, I’ll turn the call back over. Thanks for taking all my questions.

Marvin Wolf, Analyst, Paradigm Capital: Thanks, Ian.

Conference Operator: Thank you. Your next question is from Marvin Wolf from Paradigm Capital. Your line is now open.

Marvin Wolf, Analyst, Paradigm Capital: Good morning and thanks for taking the questions and congratulations on a great quarter guys. Just wondering, you gave the number of 15,000,000 to $20,000,000 in EBITDA for the Narva plant. Was that on 2,000 tons a year or 5,000 tons a year?

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Oh, 2,000 tons, Marvin. So it’ll get much better and there’ll be some leverage when we get to five.

Marvin Wolf, Analyst, Paradigm Capital: And what capacity utilization do you see you being at that plant at the end of calendar 2027?

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Two different dynamics there because when you talk about capacity utilization, you’d be talking about parts out the door versus programs that we’ve won and we’re in the process of launching. So like I said, when we’re focusing on launching programs, we’re focusing on large we have been focusing, I guess, on larger and big programs that have multiple year run rates. So when we win a program, these are big deals. These are 50,000,075 million $100,000,000 of cumulative revenue type programs. So in 2027, I’m going have to think through the specific launch curves of every single program.

But I think we’re still at the early stages, frankly, in 2027. So I’m not at all worried about the facility being sold out. I’m not at all worried about how much business is out there and our ability to capture that business and for Neo to be the chosen preferred supplier to win more and more business. We are really just thinking through how many programs get launched and in what timeframe. So don’t have an exact number for you for the 2027.

Today, I’d say we’d be well on our path, but certainly the bottleneck is responsible ramp plan that we owe our customers and responsible execution. The limiting factor is not opportunities or ability to gain sales and to execute. It’s just managing a responsible ramp plan.

Marvin Wolf, Analyst, Paradigm Capital: So would 50% be too aggressive, do you think, just in general terms?

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: I think it’s within the range.

Marvin Wolf, Analyst, Paradigm Capital: Okay, very good. Thank you for that. What is your current debt to EBITDA ratio?

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Well, have $90,000,000 in debt plusminus and $85,000,000 in cash. I’m looking at Jonathan as I say it, can probably correct me as I say those things. So when you’re looking at a gross debt perspective, it’s one to one and a half. When you’re looking at a net debt perspective, we obviously have very little net debt. So it’s around a year.

Marvin Wolf, Analyst, Paradigm Capital: Okay. So there’s some capacity to add debt if you had to, especially over a shorter term period of time.

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Yeah, absolutely. I think there’s capacity to add debt. There is capacity. We are a cash flow generator. We didn’t generate as much cash here in Q2, frankly, because we chose to build some strategic inventory.

With all of the turmoil happening in the world, we just made the decision that we would take on additional inventory in areas where we thought it made sense. We thought we would hold some inventory in areas where we thought it made sense. I think that the current level of inventory that we’re holding today is outsized for inventory that we need to run the business. I think that those are just choices that we would have made. So I think we benefit from a lot of debt capacity that we already have, debt capacity that’s frankly being offered to us to be able to continue to grow as we have a much greater geographic footprint now and a large cash flow generation capability.

And then as I said, reserves and things like inventory that we could quickly convert to cash should we need it. So I’m not worried about a capital structure perspective. Obviously, when we talk about going to 5,000 tonnes and we talk about building up to 20,000 tons, certainly those things will take to take capital and they will require both debt and equity capital for us to do those things. But there’s not an imminent need. There’s not a liquidity concern.

I think we’re very healthy and we can continue to support our growth. And we’ll do so responsibly with finding the right balance of debt and equity.

Marvin Wolf, Analyst, Paradigm Capital: Yeah, I totally agree. The future looks very exciting here and you guys are handling the challenges very well. Thanks again for taking the call. Yeah, and we’ll be talking down the road. Very good.

Thanks, Mark.

Conference Operator: You. There are no further questions at this time. Please proceed.

Rahim Sullivan, President and Chief Executive Officer, Neo Performance Materials: Well, very good operator and everyone. I want to thank you very much for your time today and your support of NEO. As I mentioned in the call, I think we have a world of opportunity ahead of us. I think we’ve got this platform that we’ve built for thirty years that folks are seeing the value of seeing an experienced player in the rare earth and critical material space that can separate material, that can make metals, that can make magnets. This is obviously a very trendy area of the market today and Neo approaches this using our history, our capability, and a responsible approach to actually making and delivering on all of the promise that we meet.

So we thank you for your support and we look forward to talking more in the future. Goodbye now.

Conference Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.

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