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2026 earnings conference call. Following the presentation, we will conduct a question and answer session. [Operator Instructions] This call is being recorded. 2026. For opening remarks and introductions, let me turn the call over to Mr. [ Jim Fitzpatrick ], SVP of Investor Relations and Communications for NEO. Jim, please go ahead.

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 neomaterials.com. Our call will be accompanied by a live webcast presentation. If you're 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 afterward.

On today's call are Rahim Suleman, NEO's President and Chief Executive Officer, and [ Jonathan Batch ], NEO's Executive Vice President and Chief Financial Officer. Before we begin, I want to remind listeners that some of the information discussed today will include forward-looking statements within the meaning of applicable securities laws. These statements reflect current expectations, but involve risks and uncertainties that may cause actual results to differ materially.

We refer you to our filings on SEDAR and the investor section of our website for discussion of these risks. Financial figures are presented in U.S. dollars unless otherwise stated, and we will reference certain non-IFRS financial measures. Reconciliations are available in our financial statements and the MD&A. I'll now turn the call over to Rahim Suleman, President and CEO of NEO.

Good morning, everyone, and starting from slide 3. Coming off a strong first quarter, NEO delivered yet another record-breaking quarter in Q2, marked by strong operational performance, continued execution on our strategic priorities, and financial results that once again exceeded expectations. Adjusted EBITDA was $57 million, which is a new all-time quarterly high for the company, representing an increase of over 200% from the second quarter of 2025. To date, our adjusted EBITDA is $93 million, up 158% compared to the first half of 2025.

Exceptional performance reflects continued strength in volumes across all of our segments, strong improvements in our conversion costs, and a sustained favorable pricing environment. Magnequench delivered its strongest quarterly adjusted EBITDA in 4 years, driven by a 35% year-over-year increase in bonded magnet shipments. Chemicals and Oxides also had a very strong quarter, delivering a 56% year-over-year increase in adjusted EBITDA, driven by strong performance in our Emission Catalysts business. And Rare Metals had a record performance, delivering $45 million of adjusted EBITDA in the quarter, driven by healthy volumes and a sustained strong pricing environment.

Looking at the second half of the year, we are seeing continued end market strength in both pricing and volumes. Across all of our business units, we have increased contracted volumes through the remainder of 2026 and for some businesses into 2027, along with securing more inventory, particularly for hafnium, gallium, and tantalum. In early July, we increased our full-year adjusted EBITDA guidance to $140 million to $150 million. Today, we reaffirm the top end of this range with potential for us to exceed this. This would represent approximately double our full-year 2025 adjusted EBITDA.

Moving to slide 4. Turning now from our near-term outlook to our mid-term growth strategy, specifically two areas of investment for NEO: our European magnet operation, and our bonded magnet business. To help fund this growth, in May, we successfully completed a $115 million Canadian Treasury offering, a financing that reflects both the strength of investor confidence in NEO's strategy and the growth opportunities in front of us. This capital is largely earmarked for equipment for Phase 1B of our European permanent magnet facility, as well as for the expansion of our bonded magnet business.

These investments position NEO to meet the accelerating demand that we are seeing across the rare earth permanent magnets. And we intend to deploy this capital with the same discipline and strategic focus that has been our hallmark to date. Now, let's look at each of these in turn, starting with our European permanent magnet facility. Moving to slide 5. As you know, our European permanent magnet platform represents one of the first large-scale integrated rare earth magnet supply chains outside of China, supporting Europe's automotive, industrial, robotics, and clean energy segments.

Combined with our European rare earth separation capabilities, we have the most vertically integrated platform in Europe, and that positions NEO to capture long-term growth in permanent magnet demand. As we promised, we built this facility in under 2 years on time and on budget. We have won multiple program awards from three different Tier 1 motor manufacturers, including for traction motors. We have delivered qualifying samples to our customers for these programs made from this production equipment in Europe. And we continue to be on track to meet our commitment of launching 2 to 3 customer programs into commercial production by the end of this year.

We also continue to advance our Phase 1B expansion activities, which are expected to increase production capacity in Europe from 2,000 tons to 5,000 tons. These activities include advanced equipment purchasing, supply chain planning, detailed designing of the facility, as well as a layout for construction. And as I've shared on previous updates, our longer-term roadmap for magnet production targets 20,000 tons annually through continued global expansion. We anticipate that this amounts to approximately 10% to 15% of the projected rare earth permanent magnet market outside of China.

Moving to slide 6. Now, while we have been focused recently on the future growth of our sintered magnet business, our bonded magnet business is sometimes overlooked. And it's an important existing business for NEO, as well as an area of growth. The universe of rare earth magnets encompasses both bonded magnets and sintered magnets. Most of the new magnet projects you hear about today, including our project in Europe, are for sintered magnets, as it is the lion's share of the existing market for rare earth magnets. But bonded rare earth magnets are important too, and are growing just as fast, if not even faster.

The two types of rare earth magnets share the same underlying principles, the same concepts in physics, much of the same material composition, and the same goal of stronger magnets that drive more powerful and more energy-efficient micromotors. The core technologies are generally the same, the end markets are the same, the customers are the same. And importantly, the concerns around concentration risk are the same. China manufactures approximately 95% of the world's bonded magnetic powders and manufactures about 80% of the world's bonded magnets.

Although bonded magnets tend to be less powerful than sintered magnets, they also do not use Dy and Tb, heavy rare earths that are difficult to obtain outside of China. There is clearly growth in both types of rare earth permanent magnets. And as part of our long-standing leadership in rare earth magnetics, NEO has decades of experience in bonded powders and magnetics, including our factories in Thailand, the U.K., and in China. We have about 8,000 tons of installed bonded magnetic capacity, and we are the largest producer of bonded magnetic powders in the world. NEO produces the magnetic powder for the only heavy rare earth-free traction motor magnet in the world for Honda. We also shipped over 10 million bonded magnets for AI data centers last year.

Moving to slide 7. More broadly, NEO's magnetics platform, spanning both bonded and sintered magnets, serves several large and growing end markets. With industrial and automotive applications, decades of proven performance in bonded magnets, and deep customer relationships, NEO is an established and trusted supplier for rare earth magnets. In addition to the established areas for rare earth magnetic demand, there are several faster-growing markets driving additional demand. These include the electrification of vehicles, wind farms, robotics, drones, and AI data centers.

These applications rely on both bonded and sintered magnets, positioning NEO's full magnetics platform to benefit as these markets continue to scale. In fact, some of these drivers may create higher growth rates in bonded than sintered magnets. Let's spend a minute just talking about two of these markets, humanoid robots and consumer and commercial drones. I would note that these market forecasts reflect only humanoid robots and a segment of drones, not the full growing market for robotics and air mobility in general.

Moving to slide 8. The first is humanoid robotics, where movement is enabled by electric motors and sensors located throughout the machine's joints and subsystems. The largest, highest torque joints often use sintered magnets, and bonded magnets play a key role in the precision encoders, position sensors, and small actuators that give the robot smooth, accurate, and responsive movement. Although estimates can vary widely, a single humanoid robot can contain between 3 kilograms and 7 kilograms of rare earth magnets.

The market for humanoid robots is expected to grow dramatically over the next 10 years, with industry analysts suggesting over 52,000 metric tons of permanent magnets required. And while the current market share for bonded magnets is about 8% of the total permanent magnet market, some designs within humanoid robots may call for closer to 15% bonded magnets.

Moving to slide 9. The second segment is the drone segment, where lightweight, high-torque, energy-efficient motors depend on magnets to deliver longer flight times and more stable control. Again, both sintered and bonded magnets will be required here. Sintered magnets generally are supporting propulsion, and bonded magnets are supporting thermal stability and sensing. A single drone can contain up to 60 grams of rare earth magnets, and the segmented magnet market for consumer and commercial drones is projected to be approximately 21,000 metric tons by 2035. Again, while drone designs call for predominantly sintered magnets, bonded magnets are also growing with increased volume and increased share.

Stepping back, I think these trends bode very well for NEO in sintered magnets, in bonded magnets, and in our rare earth separation business. I expect to see further developments and growth opportunities in both sintered and bonded magnets in the coming quarters, and of course, in expanding our separation capabilities following our announcement earlier this year of the launch of our small-scale commercial production of heavy rare earths in Europe. With that, I will turn the call over to [ Jonathan Batch ] to walk through the financial results in more detail.

Thank you, and good morning, everyone. Moving to slide 11, as Rahim highlighted, NEO followed a strong Q1 with an exceptional second quarter. Revenue was $206 million, a nearly 80% increase from the second quarter of last year. We had another all-time high for adjusted EBITDA at $57 million, a 200% increase year-over-year. Adjusted earnings per share was $0.55 compared to $0.21 per share in the same quarter of last year. This performance reflects healthy underlying demand and sustained strength in pricing across all of our business segments.

Taking a closer look at each of our segments. Magnequench revenue increased 28% year-over-year to $64.3 million, driven by a 35% increase in bonded magnet shipments, with higher rare earth prices also contributing to growth. Demand remained healthy across a number of applications, including automotive, industrial automation, and advanced computing infrastructure. While bonded powder volumes declined 14% year-over-year, they remain modestly higher year-to-date. The quarter's variance primarily reflects timing of customer orders rather than any change in underlying demand, as customer volumes, margins, and overall business fundamentals remain strong.

Adjusted EBITDA for the quarter was $10.5 million, an improvement of almost 40% year-over-year, representing the segment's strongest quarterly EBITDA in over 4 years. These results reflect a combination of strong volumes and sustained strength in rare earth prices. Volumes, margins, and business fundamentals remain strong, and the business continues to see encouraging demand signals from customers seeking security of supply and geographic diversification.

Moving to slide 13, Chemicals and Oxides also delivered a very strong quarter. Revenue was $37.4 million, a 27% increase year-over-year. Adjusted EBITDA was $8.5 million, up 56% from the second quarter of last year. These results reflect solid performance in Emission Catalysts, higher volumes, and favorable rare earth pricing. Emission Catalysts volumes were up 7% year-over-year, reflecting continued solid commercial execution supported by improved cost performance. Our water treatment business advanced the development of a new process enhancement technology with initial units deployed to customers and commercial adoption expected to build in the coming quarters.

NEO remains well positioned for long-term growth, anchored by Silmet, one of the few non-captive separation facilities in the world, equipped with advanced laboratory capabilities and our newly commissioned heavy rare earth separation line.

Moving to slide 14, our Rare Metals segment delivered record performance in the quarter with revenue of $106 million, up almost 200% from prior year, and adjusted EBITDA of $44 million, up over 300% from prior year. This exceptional performance was driven by strong volumes amid tight global supply, as well as sustained elevated pricing. This strength reflects increasing emphasis on supply chain resilience and secure access to critical materials across end markets, including aerospace, industrial gas turbines, and semiconductors.

Hafnium volumes increased almost 40% year-over-year, while pricing held at record levels. As Rahim highlighted earlier, the business has secured additional contracted volumes through the rest of 2026 and into 2027, improving forward visibility. We're also seeing continued strong demand and pricing for gallium and tantalum amid tightening global supply driven by a combination of regulatory and structural demand factors.

Moving to slide 15, on the balance sheet, we ended the quarter with $96 million in cash and $157 million in total debt, giving us the flexibility to keep funding growth while managing risk prudently. Inventory levels increased in the quarter, largely through deliberate strategic hafnium scrap purchases, as well as the ramp of our European sintered magnet business.

As Rahim mentioned, in July, we increased our full-year 2026 adjusted EBITDA guidance to $140 million to $150 million, up from prior range of $100 million to $110 million. This increase reflects strong operating performance through the first half of the year, healthy demand across our business, as well as sustained higher-than-expected pricing. It also reflects the benefit of securing hafnium, gallium, and tantalum inventory alongside increased contracted volumes, giving us greater demand visibility with additional opportunities in spot sales.

As a result, we expect performance to be at the high end of our guidance range. The combination of stronger earnings, increased visibility, and a healthy financial position allows us to fund our highest priority investments while maintaining a disciplined approach to capital allocation. With that, I'll turn the call back to Rahim for closing remarks.

Thank you, Jonathan. In summary, this was an exceptional quarter for NEO. Another all-time high for adjusted EBITDA with strong growth in revenue and earnings per share. It reflects sustained demand across all three of our segments, disciplined execution, and a resilient pricing environment. Looking ahead, I'm confident in our raised guidance and our ability to land at the high end or potentially above the range.

We continue to invest in the capacity and capabilities that position NEO to meet the accelerating demand we're seeing across permanent magnets and critical materials. We remain excited about our growth projects and expect to provide updates on these projects in the near future. We have the assets, the experience, the customer relationships, and the balance sheet to capture this growth, and we remain focused on executing with the same discipline that's gotten us here. Thank you all for joining us this morning, and I'll now turn the call back to the operator for Q&A.

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. [Operator Instructions] And your first question comes from [ Daniel Harriman ] from [ Snowden Company ]. Please go ahead.

Obviously you're guiding now to the high end of that range, which roughly implies, you know, $57 million across the back half of the year compared to $57 million in the second quarter alone. Can you just give a little bit more detail on what assumptions are driving that shape and where would you say that conservatism sits right now? And then just curious about hafnium contracts in the 2027 and how that forward book developing relative to normal year at this point. And is that business being written right now at prices consistent with where we are today? Thanks so much and congratulations again.

Hey Dan, thanks for the question. So the first on our guidance range, so I just emphasize obviously the first half was really strong and that strength was across all of our segments. When you look to the second half, we see that strength continuing, but I think we've been intentionally measured in our approach to our hafnium outlook. So we do have contracted hafnium for the second half, but we've assumed minimal spot sales in the second half. And so the potential to outperform would come from spot sales. Obviously, the first half was really strong on spot sales. We see a lot of spot sales in the second half that would give us the potential to outperform.

When you look at next year, we have started to book contracts for 2027. That contract volume, as you said, is at accretive and beneficial prices. Obviously, prices are really high right now. So when we look at our long-term contracts, we do look to lock them in at these beneficial and accretive prices. So we are doing that today. I won't give you an exact percentage of how much coverage we have for next year, but I would say we're tracking pretty well in line with historical levels of contracted volumes entering a new year.

And your next question comes from Nick Boychuk from ATB Capital Markets. Please go ahead.

Appreciate the color that you shared on the bonded outlook related to both humanoid robots and also drones. Curious, when you're looking at that bonded capacity that you have right now in place, both geographically and size, how comfortable are you with that mix? And when you mentioned that you were making some investments from that treasury offering into bonded, any comments on that, on where those dollars are going or how it's going to be spent would be helpful.

Yes, great questions on both fronts. I think what we wanted to get across here is when we talk about permanent magnets as a general industry and growth in permanent magnets, we obviously continue to be very excited about the growth in our sintered magnet business. And I think we're going to continue to see progress and expansion in that area. But our bonded business just gets overlooked in that universe, right? We already have $240 million of LTM revenue driven primarily by the bonded. We have significant positive EBITDA driven by our bonded business, all of that kind of at market conditions. We compete with competitors around the world, and we win business on a competitive basis. Our cost structure is very good, and we're very disciplined in how we operate that business.

But at the same time, there is a significant amount of growth opportunity. We talk about the concentration in sintered magnets. We don't talk a lot about the concentration in bonded magnets. That same concentration risk exists. And NEO is the only company that has bonded magnetic powder capability at scale outside of China. So we offer the geographic diversity that customers are looking for. So we've been talking about the various elements of where that business will grow and the strength of that business. And we continue to be very confident in the growth curves of that business.

I think we'll give more details on exact growth plans later and how we see that kind of unwinding, say, in the next quarter or so. But today, really, we wanted to just reinforce the size of the market, the importance of the market, and that it's the same growth trends and kind of confirming that, look, our bonded business remains strong. The growth in the quarter is strong. Our financial growth is often, let's say, overshadowed by the pricing dynamic in our Rare Metals business. But we really wanted to talk about that there is strength in the other fundamental businesses as well, and we think other long-term growth opportunities in those businesses.

Okay, that makes a lot of sense. Thanks, Rahim. And on the sintered opportunity switching to Europe, there were a couple of interesting reports this week about Chinese automotive manufacturers taking over capacity for existing European players and how the shift of that whole supply chain is becoming a little bit more Southeast Asian focused just as European firms struggle. If you have any commentary around what you're seeing from your existing automotive partners as it relates to Phase 1A, as well as how you're thinking about Phase 1B, in the context of that shift that's seemingly happening towards more Chinese influence.

Well, I think what we're seeing there is a couple of things. We're seeing that the Chinese export control restrictions are getting more and more difficult, and that has led to a number of potential projects from Chinese suppliers to be delayed or to be pulled, quite frankly, in Europe. For us, in the range of the fact that Europe is currently importing 25,000 tons of magnets and it needs a global and diverse and resilient supply chain, it just means that the Chinese competitors that were going to set up shop in Europe look like they're not going to set up shop in Europe at present following Chinese regulation. But it means that the market is still open for us. We think that the market will continue to be dominated by Chinese suppliers, but we do think that there is a requirement for localized supply everywhere and a resilient supply chain everywhere. So frankly, these developments are positive things.

But it's actually, to be perfectly honest, not all that impactful because we already have demand that we can't actually meet with our capacity. So we keep moving forward, adding capacity, adding technology, adding products. And we just continue to have customers waiting for us to deliver more and more magnets. So the opportunity from a growth standpoint just continues to be extremely strong, and we continue to execute the way that we have outlined that we would execute. So none of this is different than what we had laid out originally. We had talked about we would deliver magnets in 2026, commercial magnets on real programs, including traction motor programs, and we continue to believe that that will be the case. So we haven't moved our timelines, and we continue to see the market being exceptionally strong.

Excellent, thank you, sir. Last for me, just Jonathan, coming back to the rare metal pricing dynamic. I just want to make sure I understand a little bit of the dynamic that's still kind of baked into H2 '26 when you commented that there's no spot pricing assumptions that you have baked in. I'm curious why that's the case, if that's an identical dynamic of customers have indicated to you that they have now restocked their inventory, or if that's just conservatism on your part?

Yes. The comment was minimal spot sales in the second half. We do have contracted volumes for the second half, and those would be at beneficial pricing. But we had a really strong first half, obviously, and we had a lot of spot sales in the first half. Customers haven't indicated to us that they're not buying at spot in the second half. But just given the strength of the first half, given we have line of sight to certain volumes in the second half, we took what I would say is a moderate or conservative approach in how we viewed spot sales in the second half.

I would make one more comment, which is, this stuff shifts quarter to quarter, but it's not like real demand destruction. If we don't see spot sales in a given quarter, it's just indicative of likely the coming quarters will be stronger because this is really just about demand shifting, not about demand being lost in any given quarter.

Yes, and I'll add to that as a comment to just be open and honest about it. I think we saw more spot sales in June than we would have originally anticipated. So when we gave the guide in early July, we had a view of what the spot sales were looking like. And then I think we saw just more demand in June. And then we're thoughtful that some of that demand we would have otherwise had planned for July. So it might just be shifting through the quarters. Either way, I mean, we're still talking about projecting our EBITDA to be double growth from the prior year. I think that the markets are strong.

So it's just a universe of, do we measure ourselves year by year, quarter by quarter, month by month, or day by day, right? And you'll get fluctuations. So it's not necessarily always linear, but the market is strong. There's nothing that indicates that the market doesn't continue to be strong. Factors continue to be really positive for us.

Thank you. And your next question comes from [ Max Erroll ] from BMO Capital Market. Please go ahead.

I wanted to ask a little bit on the bonded magnet margins. Now, we've seen the EBITDA margins per ton creep up over the past few quarters. I was wondering if you could talk about if this is more of a structural market shift you're seeing, or are these some internal cost improvement measures that are showing through? And then any read through to how we should think about the sintered magnet margin based on this. Thanks.

Yes, I think the bonded magnet improvements are coming from a number of different areas. So first, it's just volume. The volumes of bonded magnets and powders that we've been shipping every quarter have been going up over the last couple of years. Two is the mix of us making more magnets versus just making powders. Again, this was a move for us to get more value add from our business. And we've talked about the growth in our magnets portion of that business. So the magnets portion is growing very healthy. There's more margins in the magnet than there is in just making the powder.

Again, it's just one more step on the value-add curve. I think we have, as we've talked about consistently, seen cost improvements. I think our conversion costs are down 20% or so over the last couple of years. And volumes are also giving you more leverage. So I think all of those factors are beneficial for the bonded magnet business. And we're continuing to see customers require and desire more diversity in supply. And I think that is helpful for our business as well.

So every element that we look on that business, I think, is strong. And I think that it's clear we've talked about we wanted to get into more magnet making from the bonded powder side, and then we wanted to get into more assemblies. We're just going to continue to see more value add inside a growing market. So both volumes and additional margins. We're also benefiting a little bit from price and lead lag. Obviously, prices have remained high, and we bought a lot of inventory, call it 3 or 6 months ago. You can all see that our inventory balances are quite high.

We've been very strategic in the approach. And so I think our bonded business, the quarter's EBITDA is helped by some of the historical purchase costs of our inventory because we make strategic purchases, because we have a good view on where we think prices will go. As it translates over to sintered, I don't know that I see them as a direct translation to sintered, but I would say that the overall theme is the same, in that customers requiring diversification, lots of demand, and I think those things will continue to bode very well for our sintered business both in Phase 1A and in Phase 1B.

And we've talked about the margin profile in Phase 1B being much stronger than the margin profile in Phase 1A. Some of that is again volumes, some of that is leverage, some of that is cost and yield improvements after we get through our first 2 or 3 years of production. And of course, some of that is the nature of contracts that we will have taken on because some of the contracts that we were awarded in Phase 1A were really before a lot of the geopolitical dynamics happened presently. So I do think that Phase 1B, and when we get further into Phase 1A, we're going to see better margin on the sintered side as well, but I think the bonded magnets are on a consistently positive trend here with the one note, as I've just said, we did get some benefit from inventory pricing.

Thanks, Rahim. And then one more from me is, are you able to give a sense about how much of the current sales book is contracted versus available for spot pricing, and then how have your traders been able to source supply? Like, is there still constrained volumes or are you finding new sources of feedstock?

So I think it's different business to business. When we talk about what the backlog is in terms of orders, it's less of a backlog style issue for us. You're awarded platforms and then you operate on the customer forecasts. You have those platforms in place. So some people might define the entire platform that you've been awarded as a backlog. We don't kind of view it that way because the POs and the orders themselves can vary from quarter to quarter, from period to period.

So what I would say there is we continue to have very strong contracted programs, and we don't tend to lose any of the programs that we're contracted on, and then we win more programs. So the book of business is very healthy, but not in certain definitions of how one might define backlog. There's a little bit more of that backlog feel, let's say, in the Rare Metals business where there are more contracted volumes for longer periods of time versus, say, the Magnequench or even the Chemicals and Oxides business, tends to be we're on a program and then we receive orders against that program. And as I said, we don't define those orders as being backlogged per se.

In terms of the market, I think that there continues to be tight supply. So I think in that universe, prices continue to be higher. I think in all of our end markets, probably except for niobium, I think we're seeing continued strength in pricing. So we're seeing strength in pricing in hafnium, gallium, and tantalum. We're seeing strength in pricing in rare earths. So all of those things, I think, continue.

I don't see today major changes in the feedstock dynamic of any of those markets. I think that you can look at our inventory balances. We've been pretty proactive in securing inventory that we think is very cost-effective, that we think has been very opportunistic. So I think we have built our business to be able to take advantage of the pricing trends that we see. I think it's going to bode well for our margins for the rest of this year and next year and for periods to come.

Thank you. And your last question comes from Ian Gillies from Stifel. Please go ahead.

Following on some of the commentary on the guide for the remainder of the year. On the Rare Metals side, is your inventory position meaningfully more expensive on a unit basis heading into the back half of the year than the first half that drives some of the, I guess, conservatism?

So our inventory position is at cost, so what we purchased it for. Obviously, we've been adding to that inventory over the course of time and you've seen that inventory grow, including growing in this quarter. So the average cost of that inventory has risen, but not yet materially, and you've seen it in the costed inventory that you see today. So maybe said another way, there is a lot of potential embedded profits sitting in that inventory that's not valued. That would be, I guess, back to Max's question, available for spot sales if we see those spot sales come through.

Yes, if I can add to that, Ian, I think that costs have risen. So all of our inventory costs on a per unit basis are higher in line with the market. But average ASP has risen, and particularly with respect to the products that you're focused on or talking about here, we have contracted a certain amount of our volumes for like a 3-year period of time at what was at the time very good prices.

So the ASPs that we see actually flowing through our book are actually a combination of historical ASPs and current ASPs. And I think what we're going to see is this historical ASP contracts are diminishing, right? They're being fulfilled over time and it's being replaced with higher ASPs. So inventory costs are higher than they were like on a per unit basis, but I think ASPs are actually even higher.

Understood. On the hafnium side, are you able to disclose or provide goalposts on how much of that product is going into semiconductors right now?

Yes, so we don't supply the DRAM chip market. Our material, we produce metals going into the primarily super alloy market. So think about aerospace and industrial gas turbines. The product that goes into the semiconductor industry is actually not a metal, it's hafnium tetrafluoride. And yes, so as I said, we don't really supply to that market today. It is obviously a massive demand driver. So it does influence price, which is why we talk about it.

Understood. The other one, as your hafnium profitability has ramped up, how are you thinking about cash dividend payments that are going to have to go to your minority shareholder [ on bus and bus ] over the next 18 months?

Yes, it's challenging because we don't really forecast that out in a sense. The reality is that there's been a lot of reinvestment, as we've said, with inventory growing. Historically, we've generally done a dividend or payment annually. But as we sit here today, we're really monitoring the business, monitoring the performance and making decisions quarter by quarter. And with really strong prices, we think the right strategy is reinvest, contract volumes, and continue to capture that profitability. Right.

Okay, that's helpful. And then, Rahim, I tend to ask you this question every couple quarters. There seems to be more and more dollars flowing into the U.S. as they chase the critical mineral strategy. And as you sit here today and think over the next couple years, how are you feeling about NEO's pursuit of going into that market for even building assets in that market and the like?

Look, I congratulate a number of the companies and the progress that they're making with respect to building out their infrastructure in the U.S. And NEO's focus continues to be a global company. So we view all markets in the world as potential areas of expansion, including the United States. We look at the playing field in terms of government support, in terms of end market growth, in terms of cost competitiveness, and in terms of where the customers are and where the customers require support.

So I think we continue to be very much in the loop with a number of developments, not just in the United States, but elsewhere in the world. But I congratulate a number of United States players that are making progress. We need to see more players make progress. We need a stronger ecosystem and a stronger infrastructure for this industry. So I think it's a very positive thing for the industry in general. We may be a participant in that industry or in that particular region. But what I would say is we have a granular focus on where customers are, where we see long-term growth, where we see competitive pricing, and that's where we'll make our expansion decisions.

Understood. Thanks very much. I'll turn it back over.

Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation. You may now disconnect. Have a great day, everyone.

Good afternoon, ladies and gentlemen, and welcome to the Neo Performance Materials Inc. Annual General and Special Meeting of Shareholders Conference Call. [Operator Instructions] This call is being recorded on Wednesday, June 17, 2026. And I would now like to turn the conference over to Mr. Edgar Lee. Thank you. Please go ahead.

Thank you. Ladies and gentlemen, my name is Edgar Lee, and as Chair of Neo Performance Materials Inc., I welcome you to this Annual General and Special Meeting of Shareholders. The meeting will now come to order. I will chair the meeting and ask Karen Murray to act as Secretary. Shirley Tom of Computershare Trust Company of Canada, the company's transfer agent, has been appointed to act as scrutineer.

Notice of the meeting, including the management information circular, was mailed to shareholders on or about May 19, 2026. To facilitate broad shareholder voting and engagement, I have determined as Chair of the meeting to extend the proxy voting cutoff deadline for all shareholders to 8:00 a.m. on June 17, 2026. Accordingly, valid proxies received before that extended deadline have been accepted and counted by the scrutineer.

I have been advised by the scrutineer that prior to the meeting proxies were received from the holders of more than 25.4 million common shares or 60.6% of all shares entitled to be voted. As a result, we have a quorum for this meeting, and the meeting is properly constituted for the transaction of business. In view of the need to attend to a number of formal corporate matters, certain shareholders who are members of management have volunteered to move and second resolutions where required.

I am tabling a copy of the 2025 audited financial statements. Copies of the financial statements can be accessed online from the company's website and on SEDAR+. We now turn to the election of directors. 6 directors are to be elected and 6 nominees are named in the information circular for this meeting. Based on the proxies received by the scrutineer in advance of the meeting, each director nominated received votes in favor from a range of at least 81% to over 99% of votes cast. The Secretary will now read the names of the nominees.

The names of the nominees are Edgar Lee, Rahim Suleman, G. Gail Edwards, Hua Du, Jonathan Evans and Paul Mascarenas.

May I have nominations, please?

My name is Jonathan Baksh, and I'm a shareholder. I nominate the 6 persons whose names have been read to this meeting by the Secretary for election as directors of the company to serve until the next Annual Meeting of Shareholders to be held in 2027.

I declare the nominations closed. May I have a motion in favor of the individual election of each of the persons nominated?

I move that each of the persons nominated be elected individually as directors of the company until the conclusion of the next Annual Meeting of Shareholders or until his or her successor is duly elected or appointed or he or she otherwise ceases to hold office.

I second the motion.

The meeting will now vote on the election of directors. I propose to take the votes by way of show of hands. Will those in favor of the election of directors, please signify by raising your hands after his or her name is called. In favor of Edgar Lee.

[Voting]

Those withheld, if any?

[Voting]

In favor of Rahim Suleman.

[Voting]

Those withheld, if any.

[Voting]

In favor of G. Gail Edwards.

[Voting]

Those withheld, if any.

[Voting]

In favor of Hua Du.

[Voting]

Those withheld, if any.

[Voting]

In favor of Jonathan Evans.

[Voting]

Those withheld, if any.

[Voting]

In favor of Paul Mascarenas.

[Voting]

Those withheld, if any.

[Voting]

The next item on the agenda is the reappointment of the auditors of the company. I will now entertain a motion in this regard.

I move that KPMG LLP, chartered accountants, be reappointed auditors of the company to hold office until the next Annual Meeting of Shareholders at a remuneration to be approved by Board of Directors of the company.

Is there a seconder?

I second the motion.

A motion has been made and seconded to reappoint KPMG LLP as the company's auditors. The meeting will now vote on the motion based on proxies received in favor of management. If a ballot vote were conducted on this matter, less than 5% of the votes eligible to be cast at this meeting would be withheld from voting on the motion. Therefore, I propose to take the vote by way of a show of hands.

Will those in favor of the motion, please signify by raising your hands.

[Voting]

Those opposed.

[Voting]

The motion is carried. I declare that KPMG LLP have been reappointed as auditors of the company in accordance with the motion.

The next item on the agenda is the approval, ratification and confirmation of amendments to the company's Omnibus Long-Term Incentive Plan. A copy of the resolution approving, ratifying and confirming the amendments to the company's Omnibus Long-Term Incentive Plan is set out in the information circular dated May 13, 2026. I will now entertain a motion in this regard.

I move that the resolution approving, ratifying and confirming the amendments to the company's Omnibus Long-Term Incentive Plan as set out in the information circular be approved.

Is there a seconder?

I second the motion.

A motion has been made and seconded to approve, ratify and confirm the amendments to the company's Omnibus Long-Term Incentive Plan. In order to be passed, this resolution must be approved by a majority of the votes cast by shareholders present or represented by proxy at the meeting. The meeting will now vote on the motion. Based on proxies received in favor of management, if a ballot vote were conducted on this matter, less than 5% of votes eligible to be cast at this meeting would be voted against the motion. Therefore, I propose to take a vote by way of a show of hands.

Will those in favor of the motion, please signify by raising your hands.

[Voting]

Those opposed.

[Voting]

Motion carried. I declare that the resolution to approve, ratify and confirm the amendments to the Omnibus Long-Term Incentive Plan has been passed.

The next item on the agenda is the ratification, confirmation and approval of the Company's Second Amended and Restated Shareholder Rights Plan. A copy of the resolution ratifying, reconfirming and approving the company's Shareholder Rights Plan is set out in the information circular dated May 13, 2026. I will now entertain a motion in this regard.

I move that the resolution ratifying, reconfirming and approving the company's shareholder rights plan as set out in the information circular be approved.

Is there a seconder?

I second the motion.

A motion has been made and seconded to ratify, reconfirm and approve the company's shareholder rights plan. The meeting will now vote on the motion. Based on proxies received in favor of management, if a ballot vote were conducted on this matter, less than 5% of the votes eligible to be cast at this meeting would be voted against the motion. Therefore, I propose to take the vote by way of a show of hands.

Will those in favor of the motion, please signify by raising your hands.

[Voting]

Those opposed.

[Voting]

The motion is carried. I declare that the resolution to ratify, reconfirm and approve Shareholder Rights Plan has been passed. As all formal business has now concluded, it is appropriate to terminate the meeting now. May I have a motion to terminate this meeting?

I move that the meeting be terminated.

I second the motion.

Thank you. A motion has been received and seconded to terminate the meeting. I put the motion to the meeting. All in favor?

[Voting]

Contrary, if any.

[Voting]

The formal portion of the meeting is now concluded. Thank you for attending. I will ask the Secretary to close the line.

Operator, you can close the line now.

And this concludes today's call. Thank you for participating. You may all disconnect.

Good morning, and welcome to the Neo Performance Materials First Quarter 2026 Earnings Conference Call.

For opening remarks and introductions, let me turn the call over to Jim Fitzpatrick, SVP of Investor Relations and Communications for Neo. Jim, please proceed.

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 neomaterials.com. Our call will be accompanied by a live webcast presentation. If you're 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 afterward.

On today's call are Rahim Suleman, Neo's President and Chief Executive Officer; and Jonathan Baksh, Neo's Executive Vice President and 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 within the meaning of applicable securities laws, including statements regarding revenue, EBITDA, adjusted EBITDA, product volumes, product pricing, capital expenditures, operational plans, customer agreements, the ramp-up of our European permanent magnet facility, heavy rare earth separation and 2026 guidance. Actual results or trends could differ materially from those discussed today. For more information, please refer to the risk factors discussed in Neo's most recent filings, including the AIF and the audited financial statements and MD&A for the period ending March 31, 2026, available on SEDAR and our website.

Financial amounts presented today will be in U.S. dollars unless otherwise noted. Non-IFRS financial measures will be used during the conference call. Reconciliations to the nearest IFRS measures are included in our MD&A. Neo assumes no obligation to update any forward-looking statements, except as required by applicable law.

I'll now turn the call over to Rahim Suleman, President and CEO of Neo.

Good morning, everyone. Neo continued to deliver very strong financial results through the first quarter of 2026, building on the momentum we have demonstrated in 2024 and in 2025. The impacts can be seen financially, operationally and strategically across all of our business segments.

Revenue for the first quarter was $155 million, up 27% from the first quarter of last year. Adjusted EBITDA was $36.2 million, which is more than double the $17.1 million in the first quarter of 2025. This strong performance, which significantly exceeded expectations, reflects continued resilient demand across our core businesses, a disciplined operational execution across our global platform and a continued strong pricing environment.

This quarter's EBITDA is the highest in the company's history, led by a record-breaking quarter in our Rare Metals business, which I'll talk more about shortly. We also had strong results from Magnequench and Chemicals & Oxides. Magnequench delivered a 39% year-over-year increase in adjusted EBITDA with bonded magnets and powders showing meaningful increases. Chemicals & Oxides had its best quarter of earnings since the third quarter of 2023.

Our first quarter results benefited from elevated prices across the market, particularly for hafnium. During our last update in March, I shared that we didn't have the usual level of contracted volumes that we would typically see at that time of year. We talked about customers being a little hesitant to enter into contracts at those elevated prices and hafnium spot sales were very low in January and February. In March, spot sales nearly doubled those of January and February combined, driven by relatively smaller orders but across many customers.

Although contracted volumes are still not at the level we are used to seeing at this time of year, recently, we've seen an uptick in customers entering in contracts for volumes covering at least portions of the remainder of this year. With the strong Q1 behind us, and as we look forward to the rest of the year, we continue to see strength in all 3 business units. And with continued supportive price environment, we are increasing our adjusted EBITDA guidance for the rest of the year to be $100 million to $110 million, an increase from the $75 million to $80 million we provided earlier.

Moving to Slide 4. Today, I'd like to cover 4 main topics before turning it to Jonathan for more details on our financial performance. First, an overview of the larger elements of our Rare Metals business and trends we are seeing in the market and in pricing. Second, an update to the progress we are making on the production of rare earth magnets in Europe; third, an update on our heavy rare earth separation capability in Europe; and lastly, an update on our recent AI initiatives announcement.

So first, let's talk about our Rare Metals business on Slide 5. With the world increasingly focused on needing rare earth magnetics on a globally diversified basis, we sometimes overlook the Neo Rare Metals business. As you know, our Rare Metals business is comprised generally of 4 major metals, hafnium, gallium, tantalum and niobium, in addition to a number of smaller metals. All of these Rare Metals are considered critical materials on almost every government's critical materials list. That generally means that the materials are critical for future-facing applications, and there is some sort of supply risk attached to them.

In Neo's case, most of our Rare Metals are also on the China export control list. And with gallium and hafnium, China is the world's largest supplier. Most of our Rare Metals are supported by direct government involvement to create diversity and security, including initiatives like Project Vault in the U.S.

Let's look at 3 of these metals in a little bit more detail. On Slide 6, first, we'll talk about gallium. Gallium is used in many applications, including semiconductors, lighting and permanent magnets. China supplies 96% of the world's primary gallium and gallium is on the China export control list. In many senses, the future of the world of computing, AI, robotics and all related applications depend on semiconductors and gallium for their future growth.

Neo is a recycler and upgrader of gallium. We can upgrade primary gallium to semiconductor grade requirements or we reprocess scrap and waste gallium first into base gallium and then upgrade that to semiconductor grade requirement. We are the largest and most experienced gallium recycling and upgrading operation in North America. Demand for gallium is increasing dramatically as the Western world tries to create diversified supply chains for both semiconductors and permanent magnets. And as you can see, the dramatic growth in gallium prices as it's moved almost up 180% from $675 per kilogram in April '25 to almost $1,900 per kilogram in April of this year.

Moving to Slide 7. Neo is also a key provider of both hafnium and tantalum metal, which are primarily used in nuclear, space and aerospace industries. Neo is the only recycler and processor of scrap hafnium in Europe, and Neo can process both tantalum oxides and tantalum scrap into tantalum metal in Europe. Hafnium is also being used on DRAM chips necessary for both memory and AI applications. This has caused increased demand in a tight supply environment. Hafnium is also on the China export control list. The chart here shows the pricing trends of hafnium. Hafnium has moved from $3,700 a kilogram in April of last year to $13,500 per kilogram in April of '26, a 265% price increase.

Tantalum had previously seen volume and price declines in the Western world as a lot of tantalum was moved out of China a couple of years back in anticipation of future tariffs. Over the last year, this stockpile has diminished and Western customers are once again buying more tantalum metal from Western sources. The chart here shows the recent increase in tantalum metal prices. Tantalum metal pricing has increased from just over $300 a kilogram in April of last year to over $800 per kilogram in April of this year.

Let's move now to an update of our European permanent magnet facility on Slide 8. On my most recent visit to our European permanent magnet site in Europe, I saw firsthand that the momentum that the team has been building over the last several months is continuing as we ramp up and move closer to full production. The team achieved a major milestone in February with the production of our 1 millionth magnet. And overall, things are continuing to progress very, very well. As we have consistently laid out and reiterated in our 2026 priorities, we continue to be on track to launch 2 to 3 customer programs later this year.

The team is making great progress on ensuring the products we are producing are meeting customer specifications, and that includes tightening the distribution of magnetic specifications every day. As expected, we have more work to do to improve the product yield and throughput, but we have the necessary time and the necessary expertise before we get into full commercial production to improve in both of these areas.

We've also been progressing planning for our Phase 1b expansion, which will eventually increase production capacity from 2,000 tons to 5,000 tons. These planning activities include detailed engineering, long lead equipment assessments and supply chain planning. In addition to Schaeffler and Bosch, Neo continues to advance qualification programs and contract discussions with additional customers in the automotive, industrial and renewable energy sectors. Longer term, our road map targets 20,000 tons annually through future expansions in additional regions. We expect that this would position us to eventually capture around 10% to 15% of the projected outside of China market for rare earth permanent magnets.

Moving to Slide 9. In April, we announced the successful launch of our new small-scale heavy rare earth separation line in Europe. The operation recently produced separated terbium and dysprosium process solutions, precursor products for metal making, with all processing completed entirely in Europe. Neo, of course, has been a heavy rare earth separator for over 30 years, and our rare earth value chain spans both light and heavy rare earth processing, an important next step in our strategy to build the most vertically integrated rare earth magnetics value chain in Europe. This reinforces our position as one of the few companies with integrated capabilities across separation, metals and magnets and a globally diversified production footprint.

Moving to Slide 10. And lastly, let me shift the topic to artificial intelligence and provide some more context about the announcement we recently made, a multiyear research partnership with the Tallinn University of Technology in Estonia, which will help us accelerate our plan to embed artificial intelligence and machine learning across product development and manufacturing operations.

Neo sees great opportunities to meaningfully deploy AI in our operations as we have several key considerations that we believe are critical to operationalizing the AI opportunity. We have a defined opportunity, both product and process-driven with key goals that can be identified. We have existing and extensive operational data to build upon in our 30 years of experience as rare earth separators and magnetic producers. This is real-world operating data rather than just computer models and textbooks.

We have extensive domain expertise in rare earth chemistry, in physics and in magnetics. We combine domain expertise with both our data science team, along with the AI leadership capabilities of the TalTech team. And we have actual operating infrastructure and equipment upon which we can learn, test, modify and improve our AI models. We're well into our AI journey, and there are a number of projects that we have completed or are currently in process. We are excited to accelerate this journey to drive new product and process improvements across the organization with our partnership with TalTech University.

With that, I'll turn the call over to Jonathan to walk through the financial results in more detail.

Thank you, and good morning, everyone. Moving to Slide 11. As Rahim highlighted, Neo delivered a very strong first quarter. Revenue for the first quarter was $155 million, up 27% year-over-year. Adjusted earnings per share was $0.36, and adjusted EBITDA more than doubled year-over-year, reflecting the combined impact of improved pricing and operating discipline across the portfolio.

Moving to Slide 12 and taking a closer look at each of our segments. Magnequench revenue increased 46% year-over-year to $64.7 million on the back of 18% volume growth, reflecting strong end market demand in bonded magnets and powders for automotive and industrial applications. Adjusted EBITDA reached $9.2 million, up year-over-year by approximately 40%, representing the segment's strongest quarterly EBITDA since the second quarter of 2022. These exceptional results reflect a combination of rising rare earth prices, disciplined cost management and higher volumes across multiple products. Volumes of bonded magnets were up 17% year-over-year, driven by continued growth in server cooling fan applications for AI data centers.

Bonded powder volumes were up almost 19%, benefiting from both healthy downstream demand and customers continuing to manage their pipelines in response to heightened geopolitical and supply chain risk. Moving to Slide 13. Chemicals & Oxides delivered a strong quarter with adjusted EBITDA up 12% year-over-year to $7.7 million.

These results reflect a more focused, higher-margin portfolio, strong performance in emission catalyst and a more stable cost structure. Emission catalyst volumes were up 7% year-over-year, building on strong momentum from last year and solid commercial execution. As we've discussed previously, the C&O business is focused on higher-margin downstream businesses, including wastewater treatment solution. This reflects a business that is more focused with higher earnings quality. Rare earth separation performance benefited from rising rare earth prices during the quarter. Our European separation facility with its differentiated technical capabilities, a world-class laboratory and a newly commissioned heavy rare earth separation line positions the C&O segment for longer-term growth.

Moving to Slide 14. As Rahim shared earlier, Rare Metals significantly outperformed and delivered an outstanding quarter with revenue increasing 75% year-over-year and adjusted EBITDA reaching $23.9 million, up over 175%. Hafnium prices reached record highs during the quarter, driving significantly higher margins. Although contracted hafnium volumes remain below typical levels, spot market activity increased late in the quarter, enabling the Rare Metals segment to capture meaningful upside from the pricing environment. With substantial hafnium inventory on hand, the business is well positioned to meet customer demand and continue benefiting from favorable spot market conditions amid structurally constrained supply.

In our gallium business, we're seeing strong pricing and demand with the continued tightening of global supply, largely due to regulatory restrictions and limited supply outside of China. With gallium feedstock being constrained, our team has been focused on new sourcing arrangements and other strategic projects to secure more gallium supply.

Moving to Slide 15 and turning to the balance sheet. We ended the quarter with $42 million in cash and $154 million in total debt. The company continues to execute a disciplined capital allocation framework, balancing investment in attractive growth opportunities with prudent financial management while maintaining balance sheet flexibility. This includes actions such as strategic inventory purchases with inventory levels continuing to increase during the quarter, partly due to additional hafnium scrap purchases, reflecting a deliberate decision to secure attractive feedstock amid favorable end market pricing.

As Rahim shared, we're raising our full year 2026 adjusted EBITDA guidance to $100 million to $110 million, up from our prior range of $75 million to $80 million based on our strong first quarter performance, a healthy demand outlook and a continued favorable pricing environment. We continue to operate from a position of financial strength while maintaining disciplined capital allocation and a strong focus on long-term shareholder value.

With that, I'll turn the call back to Rahim for closing remarks.

Thank you, Jonathan. In summary, we delivered an exceptional first quarter and continue to see strong performance and additional growth opportunities in the future. We advanced a number of our strategic priorities, and we continue to see favorable market conditions in the upcoming quarters. By combining operational excellence, a commitment to innovation and strong financial discipline, we continue to be a trusted partner for high-performance critical material solutions for our customers.

Beyond 2026, Neo is strategically positioned to capitalize on the continued transformation of the critical material supply chain. Our growth trajectory is underpinned by 3 durable pillars: sustained exponential demand from a number of high-growth sectors, a global shift towards managing concentration of supply and supply chain localization, and Neo's unique competitive advantage based on 30 years of operational experience and technical depth in rare earth magnetics and specialty materials.

In closing, I'd like to thank our employee teams across the globe for their continued dedication and commitment, and I'd also like to thank our customers for their continued trust in Neo. And for those of you on this call, thank you for joining us today.

We will now open up the call for questions.

[Operator Instructions]

Your first question comes from Max Yerrill with BMO Capital Markets.

Are you still expecting the unwind of the hafnium and gallium inventory through 2026 and the start of 2027 as spot market activity picks up? And then maybe the second part to that is, is this the key driver of a free cash flow inflection this year? Or when are you thinking of a return to positive free cash flow?

Yes, Max, I think you're correct. It's Rahim here. Nice to talk to you today. I think you're correct on both sides. I do think that we would anticipate that we would unwind some of the inventory positions we've taken. But the inventory positions we've taken here have been very helpful. We obviously built more inventory this year when we saw opportunity to acquire more inventory at attractive prices. But I think the general theme would be our supply base is pretty full. So it's very healthy. So as we see some things settling down, I think we would return inventory to more normalized levels. But we'll always be opportunistic. When we have opportunities to buy, we will. But I think the general assumption should be inventory should return to more normalized levels, and that will obviously create lots of cash flow through the rest of this year.

Got it. That's helpful. And then one more for me. So with the revised and higher guidance, understanding that a lot of that is from the higher hafnium and gallium prices. But have you increased how you're thinking about the Magnequench or the C&O segment? Or is that revised guidance purely from the Rare Metals segment?

No, I think we're seeing strength across the board. So we're seeing strength in Magnequench. We're seeing strength in Chemicals & Oxides. I think Magnequench, we're always cautious on volumes to watch whether we think customers are building their supply chains or whether it's really native demand. But on the C&O side, one of the things that we're definitely seeing is higher NdPr prices, and that enables our Silmet operation, our Silmet SX operation to also generate more earnings. So that is an incredibly important asset, an incredibly valuable asset. It doesn't perform in terms of EBITDA just because volumes of feedstock are low and prices have been low. Prices are now healthier. And if more volumes come, there's a lot more opportunity that still exists in that facility. But even at current prices, that facility is now performing well.

The next question comes from Ian Gillies with Stifel.

Rahim, are you at a point yet where you can start putting up some goalposts on potential financial contribution from the heavy rare earth line in Estonia. It's been one of the more interesting projects you're working on, but harder to peg from how much could help the actual P&L.

Yes. So it's an excellent question. I think you're right. It's going to be a really important asset, and it's going to be a meaningful contributor. But I don't think that's what the actual outcome or goals are set for this small-scale commercial line. I think this small-scale commercial line, it will be a contributor. It won't be a massive contributor in that we've defined it as small scale.

The real objective of the small-scale commercial line was to get the expertise on the floor and in operations in Europe for folks to see it, for people to be aware of the capabilities that we have, for us ourselves to learn from the heavy rare earth separation in Europe. There's kind of different types of chemistries that one can deploy to do separation. We have experience in all of the various types of chemistries. So the real genesis and decision-making around putting up the small-scale separate heavy line in Europe was really to make decisions as we go forward to have the data available to us as we go forward to determine when we expand Silmet in time, whether we would choose to do that as, like, an integrated facility, whether we would choose that as parallel facilities, which chemistry we would apply and what all kind of the data and learnings we can have before we get into kind of the next phase of Silmet growth.

So I think the next phase of Silmet growth, both in our existing facility, but more particularly, we'll make investments to grow capacity in that facility. I think that will be a substantial contributor. But the existing heavy rare small-scale line will not be a substantial contributor, but it will be making heavy rare earths available in Europe for other downstream processes.

Okay. That's helpful. The other thing I was curious on with Europe now having, I guess, a carbon adjustment mechanism, are you seeing any change in customer behavior in which they're willing to accept higher pricing for your products in Europe now just because it's more expensive for product from China or elsewhere to come into the continent?

For sure. But I would say that in a rational way, our customers are highly sophisticated, right? I mean our customers are the largest motor makers in the world. They've been buying motors for a very long period of time. They understand what pricing and costing is like. They understand the availability of material, and they understand the supply chain risks that they have in their business and they seek to solve them. So I think we have kind of very pragmatic conversations with our customers in terms of price. I don't think that we live in a world of hostage pricing.

But I do think that -- I would say that Europe sees value. Our customers see value in what we're doing, and that ties to initiatives within Europe. It also ties to initiatives just around local for local supply chain. So there's a number of factors that come into play there.

But I would say that the world is a competitive place, and it remains a competitive place. So we need to ensure that we are most cost effective and we are bringing the appropriate technology and that the customer is understanding all of the value that we'll bring. And part of that value was absolutely enhanced by those things that you've talked about in terms of the carbon efforts within Europe as well as diversification. So I think you combine those 2 things is why we see the strength in our European business model.

Okay. Last one, energy costs are obviously rising globally. You have a wide range of assets. Can you maybe just talk about how you thought about higher energy costs that you put together in new guidance just because it's a very fluid situation?

Yes. Look, I think energy costs are definitely rising and energy probably sits outside of the bill of material probably sits within a top 3, 4, 5 cost element for us. So we absolutely do consider higher energy costs going forward, and our forecast would consider it for the forecast period. So we didn't just think it would end in 3 months or anything like that. So we've continued with a higher energy forecast over the period. And it's covered now by higher prices, but we've softened prices in our forecast going forward as well to find the right balance there. And even that still leaves us with tremendous opportunity of growth in earnings.

The next question comes from Daniel Harriman with Sidoti & Company.

Congrats on the continued progress and execution. I wanted to talk a little bit about bonded powder volumes. Obviously, those were up almost 19% in the quarter. But I'm curious if there's a scenario you see where powder volumes could soften in the back half of the year once customers feel that they've adequately built up their safety stock. And I was hoping you could talk a little bit more about gallium and maybe what the realistic ceiling is on volumes there and over what time frame you can meaningfully grow that business, understanding that right now, really the limiter is not demand, but availability of scrap supply. Really appreciate it.

Very good, Daniel. I think you're right on both counts. So I think you're right with respect to Magnequench bonded volumes. The reality is last year, our volumes were up 30%. Our volumes are running at that similar level here in Q1 2026. frankly, I don't think the end market has grown by 30 or 30-something percent, right? So I do think that they're seeing additional volume being put through the system as folks are being thoughtful about what their supply chains look like.

So I think that has 2 tentacles to it. One is, of course, there's a point when customers are comfortable, and then we'll see whether there's a kind of a reduction of volume to remove some of the stock in the system or whether it's just a return to normalized volumes levels in the long run. But I think that's also offset with the fact that we have bonded capability in multiple locations around the world. So I still think that there's opportunity in the world of diversity of supply for us to continue to get more and more business.

So -- but I think that the first comment is, yes, current volumes, I think, are outgrowing the end market. But I think that there's -- and we're thoughtful of that in our forecast. But I do think that there's long-term value here that still hasn't been realized in terms of volumes that will eventually come even further to Neo.

With respect to gallium, I also think your observations are absolutely correct. We are really not limited from a sales and a demand perspective. There's plenty of sales and demand available for our gallium. We are limited by supply. We are working more and more around the world to find additional sources of supply. We are working more with primary gallium suppliers with respect to the upgrading process.

I think that there'll be more gallium available under kind of 2 scenarios. One is there's more efforts going on to generate primary gallium in the Western world, and we're highly supportive and are part of a number of those discussions. And secondly, as we are producing more gallium -- sorry, more semiconductors and more gallium product, even magnetics in the Western world, by default, more supply will be available for us in the form of scrap. And of course, we're well positioned to receive it.

I'm not sure that, that's a 1-year phenomenon, although I do think we are seeing strength in both volume and price in our gallium business, but the strength around volume is coming from us identifying more opportunities for scrap, working more with others in the industry to find ways to capture more of their scrap to ensure that they have -- as a supply chain, we have all the right processes in place to ensure that no scrap -- no gallium usable scrap leaves the system. And I think there's high alignment with everyone in the supply chain to do that. So I think there's been great progress on identifying and capturing more scrap streams while we're waiting for more volume to also generate more opportunity.

We have reached the end of the question-and-answer session. This concludes today's conference, and you may now disconnect your lines. Thank you for your participation.

Good morning, and welcome to the Neo Performance Materials Fourth Quarter 2025 Earnings Conference Call.

For opening remarks and introductions, let me turn the call over to Karen Murray, General Counsel for Neo. Karen, please proceed.

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 neomaterials.com. Our call will be accompanied by a live webcast presentation. And 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 for reference afterwards.

On today's call are Rahim Suleman, Neo's President and Chief Executive Officer; and Jonathan Baksh, Neo's Executive Vice President and Chief Financial Officer.

Please note that some of the information you will hear during today's call and discussion will consist of forward-looking statements within the meaning of applicable securities law, including statements regarding revenue, EBITDA, adjusted EBITDA, product volumes, product pricing, capital expenditures, operational plans, customer agreements, the ramp-up for our European permanent magnet facility, heavy rare earth separation and 2026 guidance. Actual results or trends could differ materially from these discussed today. For more information, please refer to the risk factors discussed in Neo's recent filings, including the AIF, annual audited financial statements and MD&A for the year ended December 31, 2025, all of which are available on SEDAR+ and on our website.

Financial amounts presented today will be in U.S. dollars unless otherwise noted. Non-IFRS financial measures will be used during this conference call and reconciliations to the nearest IFRS measures are included in our MD&A. Neo assumes no obligation to update any forward-looking statements, except as required by applicable law.

I will now turn the call over to Rahim Suleman, President and CEO.

Good morning, everyone, and thank you for joining us today. The fourth quarter capped off a very exciting year for Neo and indeed the industry. We haven't seen so much change in the global rare earth industry since 2010, and we can attest to that because Neo was around in 2010. We adapted, we changed and we flourished. The changes this year are quite different than those changes. Neo has seen numerous cycles, numerous commodity price swings, numerous sets of geopolitical uncertainty, and we adapt, we change and we flourish. This is part of the benefits of having a 30-year history in this industry, a history like no other in the rare earth space.

We ended the year with $76 million in adjusted EBITDA, up from the $64 million in 2024 and increased our guidance range consistently throughout the year. This in a year of new tariffs, new export controls and a substantial decrease in hafnium prices and with 3 fewer manufacturing facilities, 2 of which were sold at the end of Q1 2025. Prices had a bit of a ride in 2025. Rare earth prices moved up in the second half of the year, gallium prices were up through most of the year and hafnium prices were stable for most of the year before increasing in the fourth quarter. But we focus our business on value-add margins, and we continue to strategically include rare earth pass-through provisions, particularly for our Magnequench contracts. So while commodity prices were generally very supportive, they are not the main driver of our increased results. We saw very strong volumes from our customers across our key product lines. Magnequench bonded powder volumes were up. Magnequench bonded magnet volumes were up. C&O emission catalyst volumes were up. C&O water treatment volumes were up and Rare Metals hafnium volumes were up. The increase in our emission catalyst volumes and results more than exceeded the 10% target for growth we laid out for the business a year ago. Across our businesses, Neo continues to benefit from the structural megatrends in robotics, AI infrastructure, electrification, aerospace and clean energy. At the same time, governments and customers are increasingly focused on secure and localized supply chains for critical materials.

Moving to Slide 5. Our operational discipline and conversion cost improvements played a major role in our improved results. Over the last 2 to 3 years, we have seen reductions in our conversion costs in the 20% to 30% range across several of our key products. In 2025, I think the most notable change was realizing the benefits of the new highly automated emission catalyst facility that we launched in late 2024. And this improved data-centric cost improvement process was not limited to emission catalysts. We executed incredibly forward-thinking data-centric projects in Magnequench and Rare Metals, linking the capabilities of our knowledge with data and AI tools to drive even further improvements for the future. I'm confident that you will hear more about these types of data and AI-based projects in the future.

Speaking of AI tools, as an aside and in a world of many milestones at Neo in 2025, we sold over 10 million rare earth bonded magnets to AI data centers. The breadth of what Neo does and our accomplishments in rare earth magnetics with over 10,000 metric tons of capacity for rare earth magnetics is often overlooked, but shouldn't be underestimated.

Moving to Slide 6. Strategically, it was a very exciting year indeed. I won't review all of the strategic accomplishments achieved throughout the year. Instead, I will just lay out a hit list of some of the key strategic accomplishments. We launched our emission catalyst facility in late 2024, so the facility ran for a full year in 2025, having qualified all of our products and moved them all to mass production stages with improved costs and improved ESG footprint. We sold 2 of our Chinese separation facilities in Q1 2025 and used that cash to drive further global growth projects. We simplified our portfolio and improved our overall return on capital metrics. We navigated through 2 important shock ways to the whole critical materials landscape, the new tariffs introduced by the United States and increasing export control restrictions introduced in China. We continue to serve our customers globally, well and responsibly. We settled all of our outstanding IP litigation against the company from the past decade related to the emission catalyst business. We announced and made significant progress toward beginning heavy rare separation in Europe. Neo, of course, has been a heavy rare separator for 30 years. We have the technology and experience, and we are now working to bring capacity online for the Western world.

Moving to Slide 7. The most important development, though, is the progress we have made to bring rare earth permanent magnets to Europe with our plant in Estonia. And for this, the milestones are numerous and impressive. We completed core construction in January 2025 and have the main sets of the magnet making equipment installed. In April 2025, we produced in-house our first set of EV traction motor magnets for an awarded customer program in Europe. In summer of 2025, we announced another award for an EV traction magnet from another Tier 1 customer and European OEM. In September of 2025, we had our grand opening of this European magnets plant. The grand opening was attended by major OEMs and government officials from around the world. And at the same time, we entered into a strategic multiyear framework agreement with Bosch, one of the largest Tier 1 motor makers in the world to continue to work closely together and to reserve capacity for future program opportunities and launches with Bosch and their customers. And we recently shipped our 1 millionth magnet produced from our European permanent magnet facility as we continue to develop new programs and prepare for program launches here in 2026.

Moving to Slide 8. And our efforts are being noticed and recognized globally. Our permanent magnets were presented and prominently referenced during the G7 meeting in Canada as a model for global cooperation on critical materials. In our resource EU, one of the European strategic initiatives around rare earths was announced at our facility in Europe. And in the grand scheme of things, this is just the beginning. But before we get into the growth plans and opportunities for 2026, I'll turn it over to Jonathan to review the financials.

Thank you, Rahim, and good morning, everyone. As you can see on Slide 10, for the fourth quarter, Neo generated $120.3 million in revenue and $20.4 million in adjusted EBITDA, reflecting solid execution across the business. For the full year 2025, adjusted EBITDA reached $75.6 million, exceeding our previously issued guidance range. This outperformance was driven by strong end market demand, a supportive pricing environment, improved product mix and disciplined cost management across our global operations. Quarter-over-quarter performance reflected higher Magnequench volumes and improved rare earth pricing, partially offset by the absence of revenue from the divested Chinese separation facilities and lower hafnium prices in Rare Metals.

Our margin profile remained resilient with adjusted EBITDA margin expanding year-over-year. This reflects the benefits of operational efficiencies, improved mix, portfolio simplification and continued use of pass-through pricing mechanisms in our customer contracts. While rare earth price movements can create short-term variability, our global platform and disciplined cost controls help manage volatility and support predictable performance.

Moving to Slide 11. I'll review performance by segment. Magnequench delivered solid volume and revenue growth in the fourth quarter, reflecting continued demand across automotive and industrial applications as well as improving rare earth pricing during the quarter. For the full year, Magnequench generated $204.6 million in revenue, up 16% with volumes increasing approximately 20% year-over-year. Full year adjusted EBITDA was $28.4 million, up 11% compared to the prior year, supported by higher volumes, improved pricing and continued operational discipline. While operating margin in the quarter reflected the impact of preoperational expenses associated with the European permanent magnet facility, underlying demand trends remain constructive. The segment continues to benefit from exposure to structural growth drivers, including electrification, automation, AI infrastructure and energy-efficient applications.

As you can see on Slide 12, the Chemicals & Oxides segment delivered improved profitability in the fourth quarter, reflecting the benefits of portfolio simplification and operational execution. For Q4, the segment generated revenue of $29.3 million and operating income of $5.3 million compared to the near breakeven operating results in the prior year period. The year-over-year improvement primarily reflects strong volume growth and cost reductions in the new emission catalyst facility, the divestiture of the lower-margin Chinese separation assets earlier in the year and a more favorable rare earth pricing environment. For the full year 2025, adjusted EBITDA reached $23.4 million, up significantly compared to the prior year. The business is now more focused on higher-value specialty materials, including emission catalysts and water treatment products. with a more stable cost structure and reduced earnings volatility. Overall, the segment enters 2026 with a strong earnings base, improved cost profile and greater strategic alignment with Neo's integrated platform.

Moving to Slide 13. Rare Metals continues to deliver solid performance with the segment generating fourth quarter revenue of $39.7 million and full year revenue of $147.7 million. This performance reflects lower average hafnium pricing in 2025 compared to the elevated levels seen in 2024. Full year adjusted EBITDA was $43.2 million, down year-over-year as anticipated due to the normalization of hafnium pricing conditions. While hafnium prices moderated through the first 3 quarters of 2025, it's worth noting that during the fourth quarter, hafnium prices broke out to new record highs, positioning the business favorably entering 2026. In addition, underlying demand remains constructive across aerospace, semiconductor and industrial applications, supported by continued global investment in advanced manufacturing and high-performance materials. Across all 3 businesses, our teams have demonstrated disciplined execution, maintaining operational stability in a dynamic market environment.

Turning to the balance sheet on Slide 14. Neo maintains a strong, well-structured financial position. We ended the year with $38.4 million in cash and total debt of $101.8 million, resulting in a net debt position of approximately $63 million. The total available liquidity was approximately $76 million, including available credit facilities and government grants. Our working capital levels were strategically managed during the quarter, including a deliberate increase in inventory to support customer commitments and navigate pricing dynamics. Despite these investments, leverage remains prudent and consistent with our long-term capital framework. We continue to balance investments in growth with shareholder returns. During 2025, we maintained our regular dividend while funding strategic capital expenditures, including the European permanent magnet facility. With 2025 adjusted EBITDA of $75.6 million, exceeding prior year guidance and 2026 guidance established at $75 million to $80 million, we are entering the new year with a strong operating base and a continued focus on efficiency, capital discipline and financial flexibility.

With that, I'll turn the call back to Rahim for closing remarks.

Thank you, Jonathan, and turning to Slide 16. As we close out 2025, Neo enters the new year from the position of strength, strategically, operationally and financially. Over the past year, we advanced key strategic initiatives to strengthen our platform and delivered results that exceeded our commitments.

Looking forward to 2026, we see another great year of exciting accomplishments. We intend to commission the heavy rare earth separation line in Europe with production-ready material as precursor materials for magnet making. We intend to launch 2 to 3 customer programs for magnets in Europe from PPAP to SOP to growing volumes later in the year. We expect to announce additional wins for more magnets in Europe and continue to fill out the launch curves for the years ahead. We will begin engaging in the planning activities related to Phase 1B and the expansion of our European magnet facility from 2,000 tons to 5,000 tons. We expect additional strategic projects to be announced, building upon and delivering robust, parallel and global diverse supply chains in critical materials. We expect to launch our first magnet assembly project, continuing down the value-add chain from bonded powders to magnets and soon to be assemblies. And we expect continued growth in other areas of the business like emission catalysts and water treatment. Together, these developments reflect the practical execution of Neo's integrated model, ,combining separation, advanced material processing and magnet manufacturing to support localized critical materials and supply chains.

And as Slide 17 highlights, Neo remains directly aligned with the structural shifts underway in the global critical material supply chains. We are operating at the intersection of 3 durable drivers: sustained demand growth from electrification, automation, AI, robotics, space and clean energy applications, government policy and customer initiatives, accelerating supply chain diversification and localization. And Neo's established asset base, technical depth and decades of operational execution in rare earth magnetics and specialty materials. Together, these forces create a long-term opportunity set that aligns directly with our capabilities. Our integrated platform enables us to serve customers across regions and technologies from advanced permanent magnets to emission catalysts and specialty Rare Metals. These markets are supported by structural demand trends rather than short-term cycles, contributing to a more resilient growth profile. And our teams continue executing complex initiatives across multiple jurisdictions with a strong focus on safety, operational discipline and long-term value creation. I want to recognize them for their continued dedication.

Thank you for joining us today, and we will now open the call for questions.

[Operator Instructions] The first question comes from Daniel Harriman with Sidoti.

Congratulations on the great quarter and the great year and the progress ahead. I have 2 questions that I'll start with. First, as we think about Magnequench, 16% annual growth in 2025 and above 20% year-over-year growth in the last 2 quarters. Based on current demand trends, how sustainable do you think that growth is heading into 2026? And then could you just update us and remind us of what still needs to happen at Narva before we start to see a real meaningful production ramp there in '26?

Sure thing. Thanks, Daniel, for your questions on both accounts. So in terms of Magnequench growth rates, I assume -- I don't know if you're referring to volume or profitability per se. But I think that -- look, these end markets are growing, these end markets growing by high single digits, low double-digit type opportunities here. So we do continue to see strength in those areas. And in particularl, when we talk about Magnequench's bonded business, which is the largest portion of its business today prior to launching sintered magnets, we see the same trends of customers needing diversification, and we are the only player outside of China who can provide bonded powders at this point in time. So I think that those trends of both end markets growing will remain strong. And I think that the need for diversification will remain strong. So we do continue to see good things for the Magnequench business in general in terms of its core existing business.

In terms of the second part of your question about our launch of sintered magnets in Europe, the launch is going extremely well. The facility is getting more and more ready. The equipment is coming in -- is already in, sorry. We've commissioned several programs. So we're in great shape. As we said, we will launch 2 to 3 programs in 2026, you'll start seeing growing volumes throughout the year. We'll launch a number of other programs in '27, and we'll continue to be launching programs into '28. Every magnet is individually designed and engineered to match the motor that it's going into. So these -- it takes time to engineer and launch every one of them. This is not a question of if, it's just a question of when in terms of the customer demand is there, the technology is there, but you just need to launch these responsibly.

These are our customers. They've been our customers for 20, 25 years. They have demanding requirements, and we intend to meet them all. We are an automotive supplier. We understand the issues around safe launch and how to do things the right way and to build all the contingencies into every single launch path. So that's why we approach our launches very, very cautiously, but very rigorously in our process. So I think we'll see more and more volumes. I mean, volumes will just start coming really at the end of 2026. And then we'll see more growth in '27, '28 and '29. So I think only good things will continue to happen on Magnequench on both sides.

The next question comes from Nicholas Boychuk with ATB Cormark Capital Markets.

First around the commentary in the MD&A about Phase 1B plans advancing. Can you just kind of comment a little bit around any changes that you're seeing that are giving you confidence in that? And just remind us what ultimately the plans are in terms of timing and what you would need to move ahead with that?

Yes. So I think we've been talking about -- we had always designed this facility to be a 5,000-ton facility. That was always our intent from the beginning, and we just wanted to lay out shareholders' capital in a in a responsible way that would match the launch curves and the demand curves that we're seeing. So I think it's still going to be in the planning phase. We'll do some things with certain portions of the business and certain portions of the equipment to plan around that. But I don't -- I think it is kind of -- again, it falls into the category of when and not if, and we just want to make sure that we spend the majority of our capital aligned with where we see new programs launching.

And the benefits of Phase 1B should be obvious in terms of the ramp curve and timing because I talked a lot about that in Phase 1A that, look, ramps are slower and you got to manage these correctly. But when we're launching Phase 1B, frankly, we're launching and ramping based on the equipment that already exists in Phase 1A. So the ramp curves and time lines for Phase 1B are much faster. But in terms of the planning activities, I don't think that we see -- we're not concerned about from a technology perspective. We're not concerned about it from a customer perspective. We're not concerned about it from a commercial perspective.

So it's just about how do we lay this out to be most efficient and most thoughtful to kind of have the right kind of transition between the 2 facilities coming together. They are, in fact, one facility, but nonetheless, the 2 portions of that facility coming together the right way. So again, I think we'll give more information later in the year. But for now, I'd say it's a really coordinated process.

Appreciate that. But I guess, the question was more so if you're seeing anything in the industry, be it from customers or anything else that is pushing you to do that? Like are you now having more confidence in making that decision?

Absolutely. But I think that if I were to back that out in terms of kind of like when we designed this facility 3 years ago, I think that, that's -- we've seen an absolute change in terms of those dynamics. When we designed the facility, we talked primarily about wind farms and traction motors as being kind of customer-driven events and customer-driven technology that needed that diversification. I think over the last 6 months, we've seen customers from every industry and every end market application looking for urgent solutions.

So I think we were confident in our business planning model then. I think we're extremely confident in customers. They are absolutely asking us in terms of things like the Bosch MOU that we talked about, it does contemplate volumes that are going far enough out that they would be using the volumes in Phase 1B. So there's absolutely a trend that customers are looking for the capacity, they're looking for the assurance and they're looking for the reliability of Neo to deliver.

Moving to the bonded side. Can you just kind of run us through a little bit, especially given your color around the number of magnets you're selling at the AI data centers, the capacity that you have to continue to produce bonded magnets as well as the powders?

So on the powder side, I would say we have plenty of capacity. We have 8,000 tons of capacity on the bonded side between the couple of facilities that we have.

In terms of magnet capacity, you'll remember when we kind of started this business, we purchased a very small business, what was it 5 -- maybe 6 years ago now. And they were doing 30 to 50 tons a year when we bought them, and we're doing over 1,000 tons of magnets today. So that gives you a sense of when we put an accelerator on to this, how we were growing with it and how we would kind of anticipate continuing to see us being able to capture more margin, more value add in our end goals. So capacity, we add capacity incrementally out kind of every month or every quarter as needed. A lot of the bricks and mortar are there for a good portion of our continued build, but we do need to add more equipment as we go, but we can do that quite easily. And again, we just time it with where we see demand. And frankly, it's been a regular thing. This type of equipment that we're adding for bonded magnets is not hugely expensive. So it actually would just blend into our CapEx normally.

I think when we've talked about our CapEx normally, we said it's kind of $4 million to $6 million in kind of the sustaining capital and another $4 million to $5 million in what we would call kind of normal growth CapEx. I think it falls into that normal growth CapEx category.

Understood. And then last for me on C&O. It seems like NAMCO is now really starting to ramp. Can you just remind us again on the capacity that you have there? How much incremental material could you be producing from NAMCO? And what are you seeing from your automotive customers there? Are they given demand for [ ICE ] engines, now willing to contract with you a little bit more pay a higher price? What are the metrics like coming out of that facility?

Well, I'd always love to ask customers to pay higher price. But I think that the market remains competitive. So I think what's happened here over the last 2 years is for Neo is 2 to 3 things, right? One is customers were concerned about launching business with us while we were relocating a facility. So that issue is now behind us, and we will be launching a couple of more programs this year with our customers. Two more and more customers have come to visit the facility and see the facility and they see the state-of-the-art quality metrics and analytics that are built into the line. So I think that they are, frankly, very impressed in terms of how all of those lines all work together, how we control the data and how we can make changes to our process instantly. So that's been a huge plus in terms of customers' perception.

And then, of course, our conversion costs are down, and we talked about that, right? So the combination of those 3 things and the fact that we didn't lose any customers, we didn't let any customers down. We didn't miss any shipments during the relocation, I think, are all 3 really important factors or 4 important factors, they're going to see us have continued confidence in our customer -- with our customers to grow forward.

The next question comes from Ian Gillies with Stifel.

I just -- I wanted to start on the guidance for 2026. So obviously, you guided to do a pretty strong year. But given more commodity prices are, should we be thinking about the way you said it is, you expect the first quarter and likely the second quarter going to be pretty robust. But given the volatility in commodity prices, maybe a bit more normalized back half of the year?

Yes and no. I don't know that we see so much as first half and back half being massive changes in that environment. I mean I think you're right that it takes time to work through the inventory. And when prices have moved dramatically, you have the opportunity to see more margins because as we're moving inventory through, that's more likely a first half impact.

But I think when you take a step back, we sold the 2 Chinese separators in Q1 2025. And our goal to sell the 2 Chinese separators was to get rid of the vast majority of our commodity price risk in the rare earth separation business. So the fact that NdPr prices have kind of doubled, let's say, in the last, I don't know, 8 months or so, it's not as impactful as it was in '21 and 2022 when we were getting a lot more commodity type profitability, right? So -- and that led to the high profits in kind of '21, '22 and the very low profits in '23 or remember '23, I guess, it was about $37 million of EBITDA. And now we're at $75 million, right? So we've doubled effectively from the $37 million. But as we said, the $37 million was never the right benchmark because of the impact of commodity prices. So we have strategically always wanted to move our value add. And Magnequench is all value add. Everything is on pass-through. So when prices change, yes, there's an inventory impact, but it's relatively small.

The largest portion of the commodity price movement was always in the separation business. We sold the 2 separation business to improve return on capital and simplify the business and move away from that commodity price and get more of the value add. So our European separation business absolutely will still have some benefits of the commodity price impact in 2026 here, but not to the same degree that we have seen commodity price impacts going forward. I think on the other side, which is on the Rare Metals side, you've heard us talk about how hafnium prices have moved and if happening. Normally, when we would do a forecast, we generally take the position of we don't forecast commodity prices, and therefore, we assume kind of hafnium prices where they are.

But frankly, in this environment, we've been a little bit more conservative. You're absolutely right in that assessment because we need to -- we just -- the hafnium prices are at record levels and have been record levels in here over the last 4, 5 months. We just need to see customers buying at the same volume levels that they have been in the past. So I think we have been a little bit conservative with respect to thinking that element of it through just because at these high prices, we're just watching to see how our customers behave in terms of securing more long-term contracts or securing more spot business as everyone's kind of seeing these hafnium prices as really quite high. So if they remain quite high, then we'll absolutely have the benefit of that because we have most of -- we have probably all of the inventory already to satisfy our 2026 demand. So no matter what, we're going to do extremely well in that business. It will just modulate on how many customers are issuing deals at what price point.

Okay. That's helpful. And you actually lead into my next question nicely. Can you talk a little bit about the inventory build in the fourth quarter? And is it planned? Does that have to do with Estonia? I'm just a bit curious there because the cash conversion was a little weaker than we would have thought.

Yes, you're absolutely right, Ian. And I always encourage people to go look at the promises that we've made publicly on all of our various calls and the one promise of the whatever, 12, 15 promises we've made over the last 2 years, the one promise that we're going to miss here is our inventory levels. We did say that we would reduce our inventory levels in 2025. And in fact, they've increased dramatically and further increased in Q4.

So it's a combination of things. One is customers are requiring more inventory to be available throughout the system, just given the geopolitical dynamics. Two is the costing. Rare earth prices are, as I said, double where they were 6 to 9 months ago. And third of it is we are holding more hafnium in the system generally with kind of seeing where prices are. I think that puts us in actually really good stead generally. And then lastly, we're holding a lot of inventory at MQPM as we are -- at our European sintered facility as we're kind of preparing for launch and running more and more products and more and more trials. So there is a lot of inventory in the system right now, both in terms of volume and in terms of price.

I think over time, at least some of those prices will normalize. But even if they don't, I think volume will actually -- will get volume levels back to more reasonable levels. But right now, geopolitical uncertainty, launch, and other elements to it just have us holding more inventory than normal. As it turns out, we're going to benefit from that because rare earth prices have been rising, but that would not be our goal in life.

Understood. The last one I wanted to touch on was the start-up costs at Estonia. I mean you're, I think, roughly $10.5 million this year, $16 million a year before. I'm just curious how much longer you think you're incurring those start-up costs for? And then as you move into Phase 2, should we expect a lower quantum of start-up costs just given you already have such a large -- you already have a large facility in place?

Absolutely. So I think the start-up costs will continue for a couple of years still until we get the facility at kind of a reasonable volume level. But even in that universe of what you'll see when we call this facility to be a reasonable volume level, it will ostensibly be staffed from an engineering, quality, back office leadership level, it will be staffed for the 5,000 tons already. Like that is the plan in terms of staffing.

So that is how we are building the facility. That's how we are building the engineering group and the development group and the quality group, particularly because we're just -- when you're launching, it's 4x the amount of workload on some of those groups, including the quality group. So we are continuing to hire. We're continuing to staff up. And so what you'll see in the first 2 or 3 years here is staffing that's equivalent to 5,000 tons ostensibly outside of direct labor.

Now our efficiencies and our yield rates have a journey to go on. But we have -- we're filling out the team for what we would perceive to be kind of a longer-term growth in the facility for the next 1, 2, 3 years so that we're prepared for that. So as I said, ramps, ramp curves will be faster. Once you're beyond the first kind of 2 years and the addition of kind of overall cost will be much lower because those costs are already being burdened today.

That's helpful. And I'll sneak in one last one. With respect to these minimum price floor contracts you've seen, we've obviously now seen 2 happen in the U.S. There's been one in Japan. And have you had any initial inquiries or any initial discussions that would lead you to believe that you -- that need may be in a position to obtain one of these contracts or at least be in discussions to get them at this juncture?

So a couple of dynamics attached to that. So one is the majority of the floor price contracts and the like are going to mining companies to encourage them to make mining economically efficient. For Neo, the NdPr and the rare earths themselves are all on pass-through with the customers. So they don't directly affect us in that way.

What they do, do is they provide confidence and certainty to customers in terms of feedstock and in terms of planning and a number of different elements in that universe. It challenges competitiveness in terms of customer dynamics and their alternatives to continue to buy from China, but I think the customers are over that, and they will have a certain amount of their portfolio outside of China. So I think that in those senses, it's a good thing to ensure that we get the feedstock into the system and available and it raise customers' confidence. As I said, it will challenge overall demand, but we're such a small portion of overall demand that any amount of diversification will be supported. So we don't worry about that too much from that perspective.

From our separation business perspective, given it is part of the value chain of a mining company to be able to get oxides to market, it is absolutely supportive to our separation business. But I don't know that, that means that we see it in the form of a floor price contract. What we see it in is economics for separation get better over time.

The next question comes from Max Yerrill at BMO Capital Markets.

When we look at the 2026 guidance, that implied growth versus the 2025 EBITDA. Could you provide a little bit more color on where that's coming from? Is that from the start of the sintered business, the growth at NAMCO? And then maybe how much is driven by price increase versus volume growth?

Yes. Great questions, Max, on all the different elements there. So it's not coming from the sintered business and that the sintered business will still be ramping up, and we'll still have kind of large start-up losses from that sensor business in '26. So where it's coming from is continued growth and continued cost improvements in all of the other businesses, including the hafnium business, including the Catalyst business and the like. So I think it will be reasonably well distributed.

We're seeing, as I said, more volumes across the board, and we're seeing better cost conversions across the board. So the growth rate from '25 to '26 is probably not maybe what people would have hoped for, but we did get some commodity price increase in '25 results that we're not counting on in 2026 results. But as I said, commodity prices, particularly hafnium to hold even reasonably close to where they are, I think we're going to see more growth than that. So I would say it's across the board in terms of strength of all areas of the business. And the real kicker is when the sintered business comes online. And when it does, that will actually hypercharge a number of different growth dimensions. But we just -- we need to give it a little bit of time here to get it seasoned and spiced and ready to go.

Got it. That makes sense. And then one more from me. On the Magnequench volumes, the bonded volumes, I was curious if you had a sense of how much of that growth is from growing end market demand versus potentially your consumers and customers stockpiling material?

Yes, that's an excellent observation. I got to say it's a bit of both. I don't know if I can give you like an exact metric of what that means. I think that the growth outstripped our expectations. So I do think that some of that is customers being thoughtful about what their supply chains look like and how are they managing that. Having said that, I'm not sure that the entire supply chain through the end customer has even yet realized what is to come and where their purchasing patterns exist.

I think on the sintered side of the business and our traction motors and those types of things, I think customers are infinitely aware of where their purchasing is and have absolutely executed strategies on how to get more geographically diverse purchasing. On the bonded side of the business, I'm not sure that we have seen -- we have seen customers increase their orders and the like, whether it's end market demand, whether it is building inventory, it's probably both. But the next stage of diversification of supply chain, I think, it's just more opportunity.

Got it. That's helpful. And I'll just squeak in one more. When you start to look at that magnet assembly and moving a little bit more downstream, any color you can provide on how that might improve the margins from the Magnequench segment?

Yes, I think it's early days. We have what we call a couple of lighthouse projects, which essentially say 2, 3, 4 projects that we're working on today to be able to do that. And they improve margins because, frankly, when you're making the magnet itself, it's a very high material cost component to it, and we don't really mark up material costs since it's on pass-through. So the only markup on material cost is really yield management. So when you get into more value add of the assemblies and those types of things, there's more conversion costs and there's more margins available.

But to give you specifics on how those margins will compare and how impactful they'll be to Magnequench, we're probably a little ways away from that yet. But if we look at the Magnet business, I think it's a good example of how they have been very accretive to Magnequench volumes and Magnequench margins overall.

The next question comes from Martin Wolff with Paradigm Capital.

Congratulations on a very good quarter and a very good year and a great outlook for '26. I had a quick question just on labor. How are you finding the labor situation in Estonia for ramping up the Narva facility? Is it one where the labor is pretty tight? Or is it hard to find qualified people? How much training do they take, et cetera?

So yes to all of that. So in terms of skilled labor, in Estonia, I think we're in great shape. I think Estonia is underrated in terms of the quality of education, the quality of talent and where we are with other changes in, let's say, the energy industry generally in the region of Estonia means that there's lots of qualified and high-quality people available as Estonia is going through its own energy transition to clean energy, and some of that means changes to some of their existing energy profile closer to where we are in Estonia. So there's been lots of talent that we've been able to get in touch with.

We have very close connections with the universities in Estonia. And given the size of Estonia, I mean, everybody says they have close connections to universities. But given the size of Estonia, close connections mean something different, like our involvement of designing programs, getting involved of telling folks that, look, here's the future of jobs available and how quickly they're reacting to changing programs to match those types of dynamics. I think we have an office that actually sits in the university -- Caltech University there as well. So in those dynamics, it's really strong. But we also are bringing in people from kind of around the world. So Estonia is Europe and people are happy to come to Europe. So there's been transfers from people from various different regions of the world. So it is a really multination or multinational group over there. That's a very tight knit group and doing quite well.

We have no further questions. I will turn the call back over for closing comments.

Well, again, I want to thank everyone for their time today and the great questions from everyone. I think we had a tremendous year in 2025, and I think we're going to see more and more exciting things to come for 2026. So thank you all, and have a wonderful day. Thanks, Joanna.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

Good morning, and welcome to the Neo Performance Materials Third Quarter 2025 Earnings Conference Call. For opening remarks and introduction, let me turn the call over to Karen Murray, General Counsel for Neo. Please go ahead.

Thank you, operator, and good day, everyone. Today's call is being recorded, and a replay will be available starting tomorrow in the Investor Center on our website at neomaterials.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. On today's call are Rahim Suleman, Neo's President and Chief Executive Officer; and Jonathan Baksh, 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, income and expense measures, cash returns, operational changes and future business outlook, including potential expansion plans and agreements. Actual results or trends could differ materially from those discussed today.

For more information, please refer to the risk factors discussed in Neo's most recent financial filings, which are available on SEDAR+ and on our website. Neo 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 the information regarding reconciliation to the IFRS measures is set out in the financial statements and MD&A. I will now turn the call over to Rahim.

Good morning, everyone, and thank you for joining us today. Let's move to Slide 4. The third quarter was another strong period for Neo, marked by continuing to execute our growth strategy in global rare earth magnetics, momentum across the business and end markets and solid financial results. We are advancing our strategic growth plans as an integrated rare earth magnetics and critical materials company. Our product platforms and technologies continue to benefit from megatrends in electrification, robotics, AI and clean energy. And the industry is accelerating its need for critical materials from both robust and localized supply chains. It's important to note that for Neo, we are well prepared to grow into this generational opportunity in rare earth magnetics. Neo, of course, has been in the rare earth magnetic space for 30 years and already has an integrated supply chain with rare earth separation in Europe for decades. Thanks to our operational history, we are extremely well positioned to capture more opportunities with the focus in critical materials to serve our long-standing customers as they need to be served.

Moving to Slide 5. Our new European Permanent Magnet facility held its grand opening in September, a major milestone for Neo and indeed, all of the critical materials space in Europe. The event drew senior government officials from the European Commission and customers from major automotive and technology OEMs from across Europe and North America. Our successful grand opening of this European magnet plant is a tangible demonstration of how industrial policy, customer commitment and private investment can converge to create a resilient and regionalized supply chain. Our partnerships with government and industry stakeholders in Europe underscore the strategic value of this project. It's not just a plant. It's the cornerstone of a European magnet ecosystem designed to support the transition to electrification, clean energy and digital technologies.

The early feedback from customers has been exceptional, with OEMs recognizing that Neo's European presence provides the reliability, transparency and ESG assurances, all increasingly required in critical material supply chains. This facility is designed as a scalable platform. Phase 1a establishes 2,000 metric tons of annual capacity, supporting both pilot production and initial customer programs for traction motors and eDrive systems. The next step, Phase 1b is already being planned and will expand the site to approximately 5,000 tonnes. Given overwhelming customer demand, Neo will also expand its product offerings and magnetic solutions toward additional applications, including accessory drive systems, wind turbines, robotics, drones and automation.

This endeavor will be one of the new largest integrated magnet facilities in the Western Hemisphere. Importantly, this growth can be achieved within the existing site footprint, providing an efficient pathway to scale as customer commitments, responsible launch time lines and policy incentives align. At the grand opening, Neo also showcased our European rare earth separation business, highlighting the integrated nature of Neo's existing business. We are in the process of installing a heavy rare earth separation line in Europe as well, building on the vast infrastructure, skills, technology and operational history that we already have. We expect to start separating heavy rare earth at small scale later in 2016 -- 2026.

Moving to Slide 6. Equally important this quarter was the signing of our expanded strategic partnership with Bosch, one of the world's most respected automotive technology leaders. This memorandum of understanding extends a long-standing relationship and formalizes collaboration on the supply of advanced rare earth magnetics for Bosch's next-generation e-motor platforms and other applications. The agreement provides a multiyear framework for magnet supply from our new European facility and underscores Bosch's confidence in Neo's technical capabilities, execution record and alignment with their commitment to resilient localized supply chains.

This MOU represents a pivotal commercial milestone and a clear validation of our strategy of investing in Europe. It directly connects Neo's new magnet capacity with another leading Tier 1 supplier. The multiyear nature of this agreement shows Bosch's desire to secure long-term capacity while reflecting one of the key mantras at Neo, it is about working together and managing responsible launch curves. In addition to Bosch and our first awarded customer Schaeffler, Neo continues to advance qualification programs and contract discussions with additional automotive, industrial and renewable energy customers.

These engagements are translating into providing long-term demand visibility and supporting our path to scale. I think what should be of particular interest to our shareholders and partners is the nature of Neo's awards and Neo's customers. These are firm awards for real multiyear programs with difficult technical specifications and for which we have already delivered samples. These programs are with some of the most advanced and largest motor manufacturers in the world. After all, to a magnet maker, the motor manufacturer, which is sometimes an OEM and sometimes a Tier 1 is the customer and Neo and Magnequench has served motor manufacturers for decades. These are our customers. They know us well, and we will continue to grow with them.

Shifting gears to Slide 7. We are making meaningful progress in simplifying our portfolio and focusing our capital allocation on the highest value segments. In 2025, we have continued to deliver steady EBITDA expansion driven by operational efficiencies, improved product mix and a disciplined approach to cost management. In our 2 largest manufacturing facilities, including the environmental catalyst facility we opened in 2024, we are seeing significant conversion cost savings with the introduction of new automation and advanced data analytic techniques applied to our established manufacturing processes.

We have also made advances in sustainability. Neo's rare metals business continues to expand its recovery and recycling capabilities, including gallium and hafnium supporting both environmental and economic goals. These capabilities not only reduce waste but also strengthen our supply chain security. From a liquidity standpoint, our balance sheet gives us the flexibility to advance Phase Ib of the European magnet expansion, invest in next-generation processing technologies and pursue additional opportunities that enhance our downstream value-add capabilities.

And as this Slide 8 illustrates Neo continues to be a pure-play beneficiary of the global shifts reshaping supply chains for critical materials. This is the convergence of 3 powerful forces. The macro demand for electrification, robotics, AI and clean energy technologies, public policy tailwinds and customers driving regionalization and our own unique asset base, technical experience and years of operational excellence. Neo is positioned at the center of these 3 key success factors.

Our differentiated platform enables us to meet customers' needs across geographies and technologies from magnetics to catalysts to rare metal recycling. These markets are supported by enduring macro trends rather than short-term cycles, which gives us the confidence in the durability of our growth plans. Our teams have done a remarkable job executing on complex projects across multiple geographies, maintaining safety, cost discipline and a long-term focus on profitability. I would like to thank them for their hard work and dedication. And with that, I will now turn the call over to Jonathan for the financial review.

Thank you, Rahim, and good morning, everyone. Moving to Slide 10. For the third quarter, Neo generated $122 million in revenue and $19 million in adjusted EBITDA, reflecting a resilient demand and strong execution across all 3 business segments. Year-to-date adjusted EBITDA stands at $55 million, up 27% compared to the same period last year. Given the solid results so far this year, we have raised our full year 2025 guidance to a range of $67 million to $71 million up from $64 million to $68 million when we last reported in August. Growth this quarter was driven primarily by increased magnet volumes up about 20% year-over-year, combined with solid contribution from emission catalyst and rare metals recycled.

Our margin profile remains resilient despite market volatility, reflecting the benefits of operational efficiency, pass-through pricing and previous portfolio actions to divest highly volatile assets. With that said, during the quarter, we experienced some benefit from customers pulling demand forward, along with favorable movements in rare earth prices. While we continue to use pass-through pricing mechanisms in our customer contracts, short-term margin impacts from price fluctuations may still occur. These dynamics underscore the importance of our disciplined approach to managing volatility and maintaining predictable performance.

Moving to Slide 11. I'll touch briefly on performance by segment. Magnequench delivered strong profitability and volume growth in the third quarter with volumes up 21% year-over-year and adjusted EBITDA rising 27% to $8.1 million. Year-to-date adjusted EBITDA reached $22.4 million, up 20% from last year, supported by higher volumes, operational efficiency and disciplined cost management. Growth reflected solid underlying demand and customer restocking activity amid evolving supply chain and geopolitical conditions. Bonded magnet shipments reached a record quarterly high up 38% year-over-year, driven by demand in automotive, AI data centers and energy-efficient applications while bonded powder volumes increased 18%, reflecting continued market share gains and healthy downstream demand.

Moving to Slide 12, the Chemicals & Oxides segment delivered another strong quarter with adjusted EBITDA up 213% year-over-year and 358% year-to-date, reaching $4.1 million and $16.4 million, respectively. These results are reflective of higher rare earth prices, portfolio transformation and continued operational discipline. Following the sale of the Chinese separation assets and the relocation of the emission control catalyst operation, the business is now focused on higher-margin growth areas, including emission catalyst and wastewater treatment solutions.

Demand remains robust with emission catalyst volumes up 20% in the quarter and wastewater treatment volumes up 42%, driven by global sustainability and environmental regulations. The segment also continues to strengthen its European capabilities, operating one of the region's few noncaptive separation facilities and advancing a new heavy rare earth separation pilot line, which remains on track and on budget as construction nears completion. Products continue to benefit from tighter environmental standards globally, particularly in Asia and Europe.

Moving to Slide 13. The Rare Metals segment delivered resilient financial performance with adjusted EBITDA of $11.5 million for the quarter and $30.9 million year-to-date, down 30% and 10%, respectively, from last year reflecting the anticipated normalization of hafnium prices after record highs in 2024. Despite this, end market demand remained strong across aerospace, industrial gas turbine and semiconductor applications supported by continued global investment in advanced manufacturing and clean energy technologies. While hafnium margins declined 41% year-over-year as pricing stabilized, the gallium business performed well, benefiting from solid performance and regulatory tailwinds. Neo also remains one of the only gallium recyclers in North America, a key competitive advantage that supports long-term growth and market resilience. Across all 3 businesses, our teams have executed extremely well in balancing near-term profitability with long-term growth priorities.

Moving to Slide 14 and turning to the balance sheet. Neo's financial position remains very strong. We ended the quarter with a net debt position of approximately $28 million and total liquidity exceeding $110 million, including credit facilities and government grants. Importantly, this includes a healthy gross cash balance of $61 million, reinforcing our strong financial position. Our disciplined approach to working capital and low leverage gives us the financial flexibility to fund ongoing growth projects and weather any near-term macro volatility.

We also continue to prioritize shareholder returns. During the quarter, we maintained our regular dividend and NCIB while continuing to invest in growth capital projects. As we move into the final quarter of the year, we expect to maintain steady momentum across our core platforms. Reflecting this confidence, we have raised our 2025 adjusted EBITDA guidance to a range of $67 million to $71 million underscoring our ability to deliver strong financial performance. And as we move into 2026, our priorities continue to center on operational efficiency and capital discipline. With that, I'll turn the call back to Rahim for closing remarks.

Thank you, Jonathan. And moving to Slide 16. As we approach the end of 2025, Neo is in a strong position, strategically, operationally and financially. We are executing on a long-term strategy to grow our industry-leading permanent magnet business, enabling supply chain diversity and robustness and supporting the global energy transition and technology advancements in multiple arenas. Our focus remains on operational excellence, delivering reliable, high-quality critical material solutions to our customers, investing in innovation and maintaining financial discipline. With our strong balance sheet, solid customer demand and a pipeline of long-term strategic growth projects, Neo is well positioned to deliver profitable growth and long-term value for our shareholders. Thank you for joining us today, and we will now open the call for questions.

[Operator Instructions] Our first question comes from Daniel Harriman with Sidoti.

Congratulations on the great quarter. I'll start off with 2, and then I'll get back into the queue. But starting off with Narva now online after the grand opening and export controls continuing to tighten, I'm wondering if you're hearing from interest from customers if they are explicitly requiring localized magnet supply? And if so, how do you think that's going to change the volume or quality of the programs you've been invited into. And then secondly, just with Magnequench and magnet volumes seemed exceptional in the quarter. Once again, I'm curious if you could kind of break down how much of that strength feels structural from traction motors, data center cooling and industrial automation versus maybe just short-term restocking from your customers. But I really appreciate it, guys.

Sure, thanks for both questions. So in terms of the first question with respect to the grand opening and the continued export controls, I think you're right in terms of we are seeing increased customer interest. Although I kind of break it into 2 pieces. I think there was already significant customer interest when we began the planning for this facility, and we did the groundbreaking of this facility, call that 2, 3 years ago, I think the customers already knew that they had a concentration risk issue that was important to them. I think with the restrictions that were put in place in early April, it absolutely ramped up that level of tension, that level of urgency and those requirements. Those requirements remain today. The grand opening facilitated more customers, more potential customers coming and asking for more agreements and more opportunities.

So the MOU that we have with Bosch raised more customers to come to the door to ask for similar type of contracts for alternative type of opportunities. But for us, the issue is never actually about customer demand. There is absolutely plenty of customer demand and our customers know our capabilities, and they trust us and they work with us. It's really just about time to launch. I think we're pretty darn confident in the sales funnel. We're pretty darn confident in our operational and technology capabilities, but we are also darn confident in understanding how a plant of this size gets launched and what a responsible way to do that is.

So from a demand perspective, there's really no issue. It is figuring out what the right launch curves is and how you bring each customer on board with all of the related PPAP documentation and kind of control mechanisms that we have. When you are an automotive supplier or another supplier on mass production levels. You put a lot of controls in place around your production process for every part. And every part that we win, remember, every platform, at least the traction motor platforms that we're winning, these are $50 million to $100 million cumulative revenue programs. When you launch them, you better be good, you better be right, you better have your costs in place, and that's the way that we approach that.

With respect to the Magnequench volumes, your second question extremely high quarter for Magnequench volumes, extremely impressive for us. And I think you pointed it out correctly. It's actually both. It is demand across virtually all of the applications, but we do think some of that is a response to geopolitical environments. The question that is in front of everyone will really be, is this resetting people's inventories pipelines so that people feel more comfortable on how much inventory they're holding? Or was this a temporary -- like is this a pull forward that will get reversed in a future quarter? I think it's more likely that the pipelines are being filled and that customers want to hold more inventory through the system.

So -- but I think we'll see if that means that some of these volumes unwind or volumes just return to normal or if there's kind of continued pipeline growth, but I think that the volume number of Magnequench was kind of above our forecast and expectations of what the normal business looks like. But the normal business continues to grow, traction motor business continues to grow even in the existing Magnequench segment, AI data centers continue to grow. So I think all of those elements of the business are performing extremely well. And I think that they'll continue to perform extremely well.

And the next question comes from Nick Boychuk with Cormark Securities.

Coming back to the Bosch partnership, and you mentioned that other partners are coming to you looking for similar deals. Can you give any update on how those negotiations are going? Expectations with Bosch to convert that into a formal order and your appetite to sign similar type contracts with other partners?

Yes. So when you say negotiations per se, really not negotiations in the traditional form. They're more -- everybody talks about what partnership means and the supply chain all needs to be partners, this, that and everything else. I'd say it's one of the first times in my career that I feel that this is a partnership-based conversation that we're having dialogues with our customers and for others that are coming to the door, and we're talking about, look, these are the reasonable launch windows we have available at this point. And this is what the development time line for any particular product would be and people are really understanding in terms of how do they fit into that development type pipeline and how do they fit into the launch curves.

I would say the factor here at play is not negotiating over price or negotiating over specifications or this, that or anything else. The factor here is saying, okay, in order for us all to be successful on this path, they require both a level of urgency, better level of reliability. And we require a level of cost certainty. So margin confidence as well as not putting other customers in jeopardy. And I think both sides appreciate the openness of our dialogue.

So the opportunities are there, and we'll pivot our pace depending on how launches go and depending on what types of programs. We're having conversations with customers on look, certain types of programs that have certain compositions are probably faster for us to also go through a development cycle for than compositions that are different. So we just kind of make choices with the customer, but we do it in a fairly transparent and open environment because everybody wants everyone to be successful here.

So just to clarify then, that in these development partnership conversations you're having, you're able to directly express the margin or the pricing that you need in order to justify investments and they're comfortable with that type of a negotiation or?

Yes. Look, we're not talking about specific prices at this point. Like when we talk about specific pricing those things, we have a sample developed, the composition established, the product flow established and all of those types of things. They understand that there is a difference between the Chinese cost and cost and manufacturing elsewhere in the world. I think we're fortunate and our manufacturing location is actually quite cost effective. I think our customers appreciate that, that cost effectiveness matters. But it doesn't mean that it's the same price or the same cost is producing it in Southeast Asia.

So Therefore, there is an open dialogue on the costs are not the same. It's not hostage pricing. It's dialogue around costs are not the same, margin expectations are not the same, new capital in place and return on capital expectations are not the same but let's work together to figure out how we solve the ultimate challenge, which is a diversified supply base. So they're very good conversations. There -- it's less about price negotiation more than it is about understanding what the requirements are and what that path to success looks like.

And what impact if any is that having on your thoughts around developing out Phase 1b? Is this potentially pulling that forward, giving you a little bit more certainty to make that investment maybe sooner?

Yes. I think it's about certainty and comfort on making the investment. I think that the investment will proceed on a time line that makes sense for the operation to -- it's not just about winning the programs, but each program has its own launch curve, too, right? So it's about finding the right time that matches all the various launch curves that we have of the programs that we have of those that we're onboarding and when that capacity will be required. Again, the factor is managing the launch curves and then just planning so that we're not spending capital unnecessarily and that we're just finding the right time line for it.

So certainly, huge visibility into demand. I guess if you were to -- I'd say it this way, when we started this project 3 years ago, and we evaluated financial risk, customer risk, technical risk, operationally, we evaluated a whole series of criteria for us to move forward on these. And then we had levels of confidence on each of those that ultimately led to the business decision to move forward with this. If you look at one of those criterias, which was customer acceptance, it's more than 100% now. If we were to look at what our criteria was our score on customer acceptance would be greater than 100%, but we still have to get through the time to launch.

[Operator Instructions] The next question comes from Ian Gillies with Stifel.

Could you talk a little bit more about the heavy rare separation expansion plans in Estonia, maybe a bit around ultimately how large you would like that to be, if possible, what you intend to produce? Do you expect it to be a material financial contributor and the like?

Sure. So what I'd say is on heavy rare earth separation, we also follow the same methodology of step by step. So what we are producing here is a mini production line. It's not a lab. We've done lab stuff all through our career. We have our Singapore lab that's been doing heavy rare earth related stuff for 30 years. We have one of the most advanced earth magnetic labs in Estonia already, obviously, and all the infrastructure attached to it. So this line is not lab line. It is -- but it is a mini production line. And the purpose of building the mini production line at first is to roll it out and see some of the dynamics to be able to separate for a while and get real-life experience on some of the time lines and some of the chemistry and some of the purity levels that we're going to get.

It will then lead to subsequent decisions on how do we integrate that with the existing light rare earth line and there's various points in time that one can make choices around how one would integrate it or whether one would build an expansion into the light rare earth line as well and whether one would do that on a parallel basis or an integrated basis. So there's lots of decisions and planning and engineering that we would still do again, and I would say that because we have the history, the knowledge and the technical expertise to make what I say is the best decisions, right, to make the right decisions, not to just run forward with whatever one thinks is the right thing to do.

We have the ability to play out different options and model different options and see how all of that comes together. So to get it back to your question, the scale remains small. We haven't said specifically what the scale of the product will be. It depends largely on the feed that we're receiving. So we have some heavy rare earths in our existing sets of feed, but not enough. So we'll be working through stockpiles while we're also receiving material from our feed for our existing feedstocks. We need more feedstocks of heavy rare earth generally in the world.

In terms of the availability of NDPR, like separate it into the 2 pieces, do we need more feedstock to support separation? Or do we need more feedstock to support magnets. Magnets can buy feedstock from other people like raw material as well and they do. So there isn't -- this isn't an issue that is tied to our ability to make magnets. This is just an opportunity that tie to our rare separation business of scaling that business to be larger. So we'll scale the heavy rare earth line in due course when we have better visibility to more rare earth feed, but we wanted to get this mini production line in place. A, it does provide some rare earth to Magnequench, not enough, but more particularly -- and it's never intended to be enough. We always want Magnequench to be multi-sourced. So we'll always partner with Lynas and MP and others in the industry for sourcing for Magnequench.

We've been partnering with them and Lynas in particular for a decade. So we'll continue to do that, but like there's no dialogue on us not continuing to partner with others in the rare earth industry and wanting supply. It really doesn't matter how much we build in our Silmet separation business, our philosophy will always be to be dual sourced or multisourced in those environments.

In terms of the actual economics, I think you have to wait to answer that question until we actually have a better view on what the largest and most likely form of next feedstock will be, what the exact heavy composition will be. In terms of what we will separate, I appreciate this getting to be a long answer now. In terms of what we will separate this is always to start by separating Dy and Tb because of the imminent need in magnetics for more Dy and Tb, but the reality is because we've been doing heavy rare separation for 30 years, we have customers around the world for all of the various different heavy rare earth elements. We have one of the largest global technical sales forces in rare earths. So we'll have opportunity to separate other materials as well, working with our customers to satisfy their demands. But we haven't made those decisions as yet. So as I said, we approach it on a step-by-step basis. Sorry for the long answer.

Understood. No, thoroughness is always appreciated. Similarly, around capital projects, one of the things that came up during the Estonia tour and the investor presentation, was a potential expansion of Korat in Thailand? Is that a formal project yet? Or is it a thought on the back of a napkin, like where would you define that potential opportunity at this point in time? Because it also seems like some promising.

Yes. It's certainly not a thought on a napkin, but it's also not yet and I think it's -- times are going to be measured in weeks here, not months or quarters where it will become an official project, which is to say I extensively believe it's already official project within the Magnequench planning team, but it still has to be reviewed and go through the appropriate approval process. So I'm very confident in the growth rate of magnets in general, very confident in having more capacity. So probably what's really the focus of the review process that are coming are things around capital efficiency more than opportunity. So it's likely going to happen, but it has to go to the right proof of processes and have the right metrics attached to it before we say yes or no.

Are you willing to disclose how much you think that debottlenecking could improve production by that facility?

Probably not yet. And I think what we would be doing in Thailand would be partially debottlenecking, but frankly, it would actually be adding gross capacity because there's just more business. And it would be the types of capacity and the types of programs that we would be focused on within the review process. But it would be like primarily volume and product related style capacity more than trying to solve an existing problem. Conversion costs and everything else are separate projects. There is capital that goes into conversion cost improvements, and it has its on return on capital metrics that we measure. Those things kind of continue in everyday life. Expansion capital goes through a different review process.

Understood. Listening to your remarks on Phase 1b of the Estonia expansion or Phase 2, however we choose to frame that. It sounded certainly a bit more optimistic even than a few months ago. A question I get often is why isn't the decision being accelerated from early '27? Like are you putting any thought to pulling that decision forward given what you're seeing?

Yes, I think so. But I mean, like I said, I think that there's a number of different decision criteria that go into whether we would pull that forward. The decision -- the limiting factor, as I said, is not customer interest, it's not demand. That is crystal clear that, that is not the limiting factor in our decision-making process. Our decision-making process, it's so much -- frankly, it's not even about an if, it's merely about when. And the when is merely tied to capital efficiency and ensuring the greatest returns on shareholder capital. It's like it's -- we haven't committed to it, so it's odd for me to say it's not an if decision. It obviously isn't if decision. It still need to see proper economics. We still need to go to the board. We still need to do a number of things.

But from a customer demand perspective and from what we know about our ability to make the magnets and ability to understand pricing and have customers like all of those things are well established for us by now. So again, the decision on -- I'll say, the decision is primarily one related to timing, and that's really just about capital efficiency and the greatest return on capital to shareholders.

Last one I'll ask. At this juncture, given your conversations with whether it be the EU or specific European governments, like do you get any sense yet as to whether any sort of similar pricing arrangements could happen in Europe similar to what's happened with the DoD in the United States?

So I'll break the question into 2, which is to say, unfortunately, we're not going to comment on specific conversations that we're having with various governments around the world. So we won't provide any specifics on those dialogues. But in terms of the general concept around price floors or price supports or this, that or everything else, let's bear in mind that for Magnequench, which is the magnet-making portion of this kind of supply chain and probably the most important element of the dialogue for us, the raw material is on pass-through. So it's less of an economic consideration for Neo in terms of Magnequench. It just affects the viability to the customers' side of things and provide certainty to a customer in terms of pricing, and I think those things are valid and -- but there's pros and cons to both.

In terms of the separation side of the business, I think it does have a bigger impact to the separation side of the business, but we're not a mining company, so it doesn't have that level of impact. So a couple of different dynamics to put into the mix. But as I said, we won't comment specifically on government conversations.

Fair enough. I had to try.

Absolutely. But we are everybody's favorite phone call these days.

Thank you. And I'm showing no further questions at this time. Ladies and gentlemen, thank you all for joining us. This now concludes today's conference call. You may now disconnect.