Neo Performance Materials Inc

TSX:NEO

Earnings Call Transcript 2019-Q1

[Operator]

Good morning, my name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Neo Performance Materials Inc, Q1 2019 Earnings Announcement. [Operator Instructions] Thank you. Ali Mahdavi, Investor Relations. You may begin your conference.

[Ali Mahdavi, Capital Markets & IR Executive]

Thank you, operator. Good morning, everyone. Today's call is being recorded. A replay will be available starting tomorrow in the Investor Center of our website located at neomaterials.com.Speaking first today will be Neo's President and CEO, Geoff Bedford. Rahim Suleman, Neo's CFO will then provide additional details regarding the company's Q1 2019 performance. Finally, we will open the call to questions from analysts only.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, volume, gross margin, other income and expense measures and future business outlook. Non-IFRS financial measures will be used during this conference call.Further information regarding Neo's use of non-IFRS measures is available in Neo's Q1 2019 earnings press release, which is available on SEDAR and on our website at neomaterials.com.Actual results or trends could differ materially from those discussed today. For a more information, please refer to the risk factors discussed in Neo's most recent financial information and annual information form, which have been filed on SEDAR and are also available 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.Let me now turn the call over to Geoff Bedford for opening remarks. Geoff?

[Geoffrey R. Bedford, President, CEO & Director]

Thanks, Ali. Welcome, everyone. First, let's briefly review our consolidated Q1 2019 results. Sales volume increased to 3,677 metric tonnes from 3,599 tonnes in the first quarter of 2018.Consolidated revenue was $108.5 million, which compares to revenue of $120.2 million in the prior year period, a 9.7% reduction. Operating income rose to $16.2 million, a 20.2% gain over operating income of $13.5 million in 2018. Adjusted net income was $8.1 million or $0.21 per share, that compares to adjusted net income of $10.3 million or $0.25 per share in the comparable period of 2018.On an adjusted EBITDA basis, the company netted $16.5 million, that was lower than the $19.3 million of adjusted EBITDA in the first quarter of 2018, but with an improvement over the $13.2 million of adjusted EBITDA in the fourth quarter of 2018. While adjusted EBITDA declined year-over-year in the Magnequench and Rare Metals segments, our Chemicals & Oxides unit saw an improvement in the quarter.Free cash flow conversion was 83.8% in Q1, and we closed the quarter with cash and cash equivalents of $76.1 million. The majority of the decrease in consolidated revenue in the quarter as compared to the prior year occurred in the Magnequench segment, where revenues declined $8.2 million or 14.7%. While some of this was attributable to continued slower activity in automotive sector as well as general slowing in the rate of growth in the Chinese economy, most was due to changes in underlying commodity rare earth prices.Magnequench has material costs pass-through agreements with its customers, and these results Magnequench passing through changes in rare earth costs into selling price on a lagged basis. While Magnequench did see volume decreases in some of its longer running and more established programs as compared to the prior year, largely due to slower market conditions, we were pleased to see continued growth in some of our newer technologies and products and platforms, most notably in MQU magnetic powders. They're increasingly integrated into vehicle traction motors.In end markets outside of China, we saw a greater stability in Magnequench volumes compared to past quarters. We continue to see exciting opportunities for Magnequench with the growing number of electric motors used in internal combustion, hybrid and electric vehicles that utilize our magnetic powders. The market for electric motors in the automotive sector was $30 billion in 2017, and that market is forecast to grow at a relatively robust 12.6% compound annual growth rate through 2022.We expect to see Magnequench benefit from long-term growth in the utilization of its magnetic materials on a per vehicle basis, as automakers continue to expand the use of efficient electric motors that can utilize our magnetic powders throughout a wide range of vehicle models.The Chemicals & Oxides segment saw strong improvement at its rare earth separation business in the quarter compared to prior year as it benefited from the timing of some high-value spot sales orders. Volumes, operating income and adjusted EBITDA in C&O were all higher on a year-over-year basis, while revenue declined marginally impacted by lower rare earth commodity prices.As with magnetic materials, the slowdown in the automotive market negatively impacted auto catalyst volumes on a year-over-year basis. However, gasoline engine catalyst business has remained relatively stable with majority of the decline compared to the first quarter of 2018 occurring in our diesel catalyst products.As we reported on our last call, we had several very important legal victories in China and in Germany regarding invalidation of the patents claimed by competitors in the first quarter of 2019. These victories continue to strengthen our position in the auto catalyst markets, which on a global basis are forecast to grow at an organic annual rate of 6% between 2019 and 2025, driven by the continued tightening of emission standards globally.Our Rare Metals segment was positively impacted in the quarter by stronger demand for hafnium-based products, where the segment was successful in qualifying and selling to new customers as well as securing sales from existing customers. However, this was offset by the impact of a rapid price decline in our tantalum-based products, which occurred in the fourth quarter of 2018 and continued through the first quarter of 2019. While the Rare Metals business can experience short-term variations in earnings due to material price volatility, we continue to seek to mitigate these impacts over the long term by developing new products and focusing relentlessly on strengthening value-added margins.With that, let me turn the call over to Rahim for additional detail on our Q1 2019 financial performance.

[Rahim Suleman, Executive VP & CFO]

Thanks, Geoff, and good day to everyone. In the Magnequench segment, revenue in Q1 of 2019 was $47.6 million compared to $55.7 million in the prior year period, a decrease of $8.2 million or 14.7%. Volume decreased to 1,445 tonnes compared to 1,527 tonnes in the same period in 2018, a decrease of 82 tonnes or 5.4%. Operating income in the quarter of $9.5 million was lower by $3.9 million or 28.9% and adjusted EBITDA of $10.9 million compares to $15.5 million in the prior year period.Aside from lower volumes, adjusted EBITDA in the Magnequench segment was lower largely due to the impact of the timing of pass-through rare earth pricing, as Geoff referenced. The rare earth raw material cost pass-through a mechanism, a key feature of Neo's strategy focus on value-added margins, update selling prices on a lagged basis, generally monthly and quarterly. A rapid change in rare earth costs in the latter half of 2017 had a lagging pass-through effect, which translated in the higher selling prices in the last quarter of 2017 and the first several months of 2018. In contrast, rare earth costs and the associated pass-through pricing have been relatively stable in the second half of 2018 and into the first 3 months of 2019.In the Chemicals & Oxides segment, revenue in Q1 2019 of $43.6 million was lower by 3.5% year-over-year, while operating income of $6.6 million was 213% higher than the previous year. Adjusted EBITDA of $7 million represented a 98.5% increase over the comparable period of 2018. This improvement was driven in part by the fact that $3 million of expedited freight costs incurred in Q1 of 2018 were not repeated in 2019. In addition, Neo recorded some higher value spot sales in Q1 2019, which did not occur in Q1 2018.As Geoff mentioned, auto catalyst volumes were down due to slower demand in the automotive market. In general, Neo's demand for three-way catalysts for gasoline engines has remained stable year-over-year, while diesel engine catalyst products have declined due to larger market dynamics impacting the sales of diesel engine vehicles in 2018.However, we remain bullish on the long-term growth prospects for these materials, given the rising demand by both government and consumers around the world for vehicles that emit less harmful air pollution into the environment.In our Rare Metals segment, revenue in the quarter was $21.5 million, a 5.4% decrease over revenue of $22.8 million in the prior year period. Operating income was $0.2 million compared to $2.5 million in 2018, a decrease of $2.3 million. And adjusted EBITDA of $1.2 million in the quarter compares to $3.8 million in the first quarter of 2018, a decline of $2.6 million. The rapid commodity price drop for tantalum that occurred in late 2018 impacted the Rare Metals segment because of the considerable amount of tantalum raw material that Neo had on hand in the quarter, which was previously purchased at the then higher prices. When material prices changed, there is a lead-lag impact into the current period results as the operations is processing and selling material on hand purchased in the prior period.There are some additional results and activities in the quarter to note. SG&A expense was $7.3 million compared to $13.1 million in the same period last year. Lower SG&A costs relate to several factors, a net recovery of $1.9 million for expenses Neo incurred related to the termination of Luxfer transaction, a recovery of value bonus expense is also related to the termination, lower legal costs associated with outstanding intellectual property disputes and some general timing variability of SG&A costs.R&D expense was $2.6 million compared to $4.1 -- $4.4 million in Q1 of 2018, a decrease of $1.8 million. Certain R&D costs were project-based and may be higher or lower in any given period. The company capitalized expenditures of $2.7 million in the quarter, which compares to $2.3 million in the prior year period, and the majority of these capital expenditures related to capital projects performed at our Zibo, Tianjin and Silmet facilities.Neo continues to have a strong financial position, and the company's ability to generate cash from its operation in the short- and long-term remain sound. As of March 31, 2018, Neo had cash and cash equivalents of $76.1 million compared to $71 million as of December 31, 2018. Neo paid $2.9 million in dividends to its shareholders and purchased 0.9 million of shares under its NCIB program in the 3 months ended March 31, 2019.In addition, Neo has approximately $7.9 million available under its credit facilities with $5.6 million drawn. Neo paid $1.9 million of cash taxes in the first quarter of 2019. A quarterly dividend of CAD 0.10 per common share was declared on May 9, 2019, for shareholders of record at June 21, 2019. And as part of the normal course issuer bid, Neo purchased and canceled 99,623 shares with an aggregate disbursement of $0.9 million in the quarter.In short, Neo's financial position remained strong, and our global team continues to improve operational efficiencies and a long-term demand trends across our products remain very good. Geoff?

[Geoffrey R. Bedford, President, CEO & Director]

Thanks, Rahim. Just a couple of closing comments before we open the call to questions. In recent quarters, both Magnequench and C&O have been impacted by slowing demand for our products going in the automotive markets and a slowing growth rate in China. Consistent with our experience in previous market cycles, we're also seeing customers reducing their inventory levels due to this change in demand and uncertainty. We currently expect these market conditions to extend through the second quarter of 2019 with further inventory corrections expected in Magnequench.Notwithstanding these current market headwinds, we continue to see sustainable long-term growth opportunities in all our major markets, driven by strong global macro trends. You'll hear us speak often global macro trends that are driving long-term demand for our products. One example is the rise of the consumer class across the developing world, which is driving demand for more of the high-tech products and technologies of our modern society. Whether it's consumer electronics, household appliances, money-saving lighting systems or fuel-efficient cars and trucks, these products and technologies require the types of materials that Neo produces to deliver the performance the consumers demand.Another example of the global macro trend that benefits are long-time sales growth are the ongoing efforts across the globe to reduce air and water pollution. If you look across Neo's product suite and into the many markets and applications where our advanced materials are key to the functionality of our customers' product, I believe you will see, as I do, the sustainability is the common threat that runs through the many different functional materials we produce.So much of what Neo makes is aimed at enabling systems to reduce or mitigate negative environmental outcomes. Whether it's automotive catalyst materials that cut harmful air emissions or products that reduce harmful phosphates in industrial and municipal wastewater discharges or superalloy additives that reduce fuel usage by light-weighting transportation systems.Much of Neo's product offering provides the key functionality of these pollution control technologies. We believe we are exceptionally well positioned to benefit from these and other macro trends and remain committed to our strategy of providing value to our customers through the unique combination of our technical and product development expertise, our global reach and scale and our cost competitive manufacturing infrastructure.With that, let's open the call for questions.

[Operator]

[Operator Instructions] Your first question comes from Mark Neville with Scotiabank.

[Mark Neville, Analyst]

Maybe if I can just start with the G&A expense, again down quite a bit this quarter. Again, you've, I think, adjusted for a recovery at least in the EBITDA sort of brings us back to the $9 million. But it's still, again, down a bit, I guess, from just a trend and just -- maybe just help us think sort of some of the fluctuations from quarter-to-quarter what's causing that, sort of where this might land on an annual basis against it's just bouncing around a bit and sort of hard to pin down?

[Geoffrey R. Bedford, President, CEO & Director]

Yes. Sure, Mark. I would say that -- yes, actually, we did -- the termination costs associated with the Luxfer transaction is one element. As we said, the -- there were also some value bonus, which is effectively stock-based style of compensation that was accrued up in December and then reversed in Q1. So both of those lowered the SG&A in Q1. As you noted, both of them were adjusted out of our EBITDA number. The quantum of those 2 numbers, it's top of my head, I think, it's $4 million in the quarter. So if you add that back to SG&A and you have our kind of prior year SG&A, you're probably in the range.

[Mark Neville, Analyst]

Yes. Okay. No, that actually helps. I didn't see the bonus number. Okay, that helps. Maybe if I can just -- and Geoff, you just touched on this, again, just on the longer-term trends, appreciate that, but you sort of talked about sort of slower auto, slower China sort of impacting your term and maybe some inventory reductions of customers. Just -- I guess, just thinking about volumes, and I don't know if this is holistically your Magnequench more specific, but sort of where you see them shaking out this year, and sort of where you're trending now with Magnequench? Or where you've been in the last couple of quarters, at least near term? Is that sort of what you're thinking near term for volumes?

[Geoffrey R. Bedford, President, CEO & Director]

Yes. So I think right now what we're hearing from our customers, particularly on Magnequench, is that we're going to see further sort of inventory corrections in the second quarter. So we would expect volumes to be lower Q2 than they were in Q1. But then again getting guidance at the second half will then be stronger. So that's sort of how we're thinking to shape the quarter at this point. I think on the C&O side and auto catalyst business, I think we're through the second quarter sort of the same as Q1, maybe slightly a little better, but again with people thinking that seeing recovery or stronger demand in the second half.

[Mark Neville, Analyst]

Okay. And maybe if I can just sneak one more, before I turn it over. Just some working capital. There was a big investment last year. There was another smaller investment this quarter. But just sort of thinking about that number and again if volume growth a little slower or if prices are lower, I think you said it that. Just thinking about if we might see a recovery in working capital in coming quarters or for the year, just -- again just trying to frame investment for this year and working capital?

[Rahim Suleman, Executive VP & CFO]

Yes. I would say, that certainly our plan, and we have strategic and tactical plans to execute that. So I would say, leaving rare earth price and volume aside, just on kind of an apples-to-apples basis, we anticipate that we would be successful in reducing inventory levels throughout the year. The Q1 inventory is actually made up of increases in some areas and decreases in other areas. And I think that the increases we see there quite honestly was tied to the campaign, as you know that we campaign some of our rare earth activity. So some of the change that was related to those activities, whereas we see kind of the path, the sustainable reduction in inventory is what we had seen elsewhere in the organization, and that's what we kind of see going forward.

[Operator]

Your next question comes from Yuri Lynk with Canaccord Genuity.

[Yuri Lynk]

Just curious in Magnequench, why you're not seeing the same type of slowdown and demand for the powders going into the traction motors as [ ER ] and the broader automotive applications?

[Geoffrey R. Bedford, President, CEO & Director]

So generally what we're seeing on the traction motors is because that program is still ramping. It continues to ramp, even though we're seeing a general slowdown in automotive. So that's the short answer. I will say that in the second quarter, we think that there will be a slight inventory correction for a couple of reasons. One is because I think our customers are getting more comfortable with the ramp, so they're going to carry less safety stock and also we've seen our customers' yields improve. So that's a bit of a short-term gain for long-term -- short-term pain for long-term gain for us, with their yields improving.

[Yuri Lynk]

Okay. Sticking with Magnequench, your gross margin per kilogram has been kind of bouncing around quite a bit, given the moving prices late in '17. How would you characterize where you are right now in terms of gross margin per kilogram and relative to your long-term target?

[Rahim Suleman, Executive VP & CFO]

Yes. I think that over the last couple of quarters, there's always going to be, I would say, stronger and weaker quarters and that could be related to mix, volume and a bunch of other factors. This is obviously a lower quarter -- a lower volume month for us. So -- but if I think about the reasonable range, I think we're kind of within the reasonable range. If you go back and look at 9 quarters, I think you'll find that there were kind of 2, maybe 3 that were kind of outliers because of the rare earth pricing impact. Where we are now, as we've talked about we've seen rare earth price or cost stability over the last kind of 6 to 9 months. So I think where we are now is within the reasonable rate, but these are lower volume numbers then we would hope to have longer-term.

[Yuri Lynk]

Okay. And last one from me. Anyway to quantify what the spot sales in the separation business boosted volumes by and/or revenue?

[Rahim Suleman, Executive VP & CFO]

I would say, that it was in the $2 million to $3 million positive impact to our -- to the business for the quarter. That's around margin.

[Yuri Lynk]

Sorry?

[Rahim Suleman, Executive VP & CFO]

That sort of the margin EBITDA impact of those sales relative to Q1 of last year.

[Operator]

Your next question comes from Scott Fromson with CIBC.

[Scott Douglas Fromson]

Just a quick question. Can you update your near-term views on the Chinese market, including the trade issues? Is there any sort of update on what's happening real time?

[Geoffrey R. Bedford, President, CEO & Director]

Yes. So I would say, as we talked about, when we look into the second quarter, we see these sort of market conditions continuing. I think that's what we're seeing in China and a lot of the impact in the automotive-related products for Magnequench are programs that we know are going into China -- into the China markets. So I would say that we continue to see the impact of these discussions or holding down some volumes that we otherwise would see.

[Scott Douglas Fromson]

Okay. And just on the Rare Metals section, is there any impact on what's going on in the aerospace industry, particularly with the 737 Max? Any impact there?

[Geoffrey R. Bedford, President, CEO & Director]

No, not for us. We haven't seen any impact on us related to that.

[Operator]

Your next question comes from Frederic Bastien with Raymond James.

[Frederic Bastien, MD & Equity Research Analyst]

I was wondering if demand for your auto catalyst business in Germany has actually improved following your patent victories?

[Geoffrey R. Bedford, President, CEO & Director]

So we see it improving, but it did not improve in this quarter. The victories happened in January of this quarter. So clearly, it opens up the market to us -- for the ability for us to move more volume into that region.

[Frederic Bastien, MD & Equity Research Analyst]

Are you seeing sort of the potential market gains, market share gains offsetting some of the slowdown you're seeing more broadly from the industry?

[Geoffrey R. Bedford, President, CEO & Director]

So again, I think, long-term, we definitely see the ability to move more product, but it's likely not going to happen in the second quarter that it just takes time to get back on platforms and get moving again. So I think in the short term, we would not expect that we would see kind of a share gain due to those pattern victories impacting Q2, but certainly longer term we think that, that definitely opens up the market for us.

[Frederic Bastien, MD & Equity Research Analyst]

Okay. Can you discuss the M&A landscape? Are you seeing more kind of tuck-in opportunities than you did when you went public? Or did that get -- did you get sort of distracted with the Luxfer proposal?

[Geoffrey R. Bedford, President, CEO & Director]

Well, look there is no question that when we were going through the Luxfer process that we put any sort of M&A-type efforts. We put them -- slow them down or put them on hold, but we're actively reengaging and looking for opportunities for M&A going forward.

[Frederic Bastien, MD & Equity Research Analyst]

And how does that compare to maybe a couple of years ago when -- or 18 years ago, when you went public?

[Geoffrey R. Bedford, President, CEO & Director]

I would say that as far as the opportunities and the things that are out there, I think, it's very similar. I would say that the difference being that we started with the longer list, and we've had a chance to look at a few of these opportunities and decided to pass on them, so -- but there's still a lot of opportunities as outlined out there.

[Operator]

Your next question comes from Stephen Harris with GMP Securities.

[Stephen C.A. Harris, Head of Research]

Just want to follow up a couple of things. First, a quick one on the spot sales and the $2 million, $3 million impact to EBITDA. Is that kind of viewed as a one-time thing? Do you expect some carry-on into the current quarter? Or what's the outlook there?

[Geoffrey R. Bedford, President, CEO & Director]

The spot sales, I would say, are not uncommon for our rare earth business generally. I mean it's -- look there's not a pristine definition of what a spot sale means, but when we look at [ EBITDA ] and we look at larger sales that may not be as regular or products are moving differently, so I would say, that they occur regularly but the quantum changes quarter-to-quarter, and there is a whole variety of them that we would experience.

[Rahim Suleman, Executive VP & CFO]

Yes. I'll just add to that what we will see at times is where a customer will be campaigning and needing our material. So it's not something that they take on a monthly or quarterly basis, but they might take it annually or every 18 months or every couple of years even.

[Stephen C.A. Harris, Head of Research]

Okay. Okay. And I wonder if you can give us some more color on what's going on with tantalum? And we've seen a price drop there, what's the outlook? How do you see that business unfolding over the next several quarters?

[Geoffrey R. Bedford, President, CEO & Director]

So I would say, the demand for tantalum continues, and we are sort of working through some inventory that we bought when prices were higher. I think we would expect that to continue into the second quarter. But then by the time we get into the back half of the year, we should be more normalized with our inventory versus selling prices.

[Rahim Suleman, Executive VP & CFO]

And if you look at it from fundamentally what we're trying to achieve is to manage the spread. And I think, we've seen -- the spread hasn't changed much. But so as we've talked about selling prices decreased sort of the cost of tantalum, but we're working through the higher cost stuff. So again it's -- in Rare Metals, we don't have contractual pass-through generally, but we do have to -- so we have to manage some of the timing, and we just got impacted by rather quick movement in tantalum pricing.

[Stephen C.A. Harris, Head of Research]

Okay. I understand. And finally just a follow-up on the acquisition question. Have you seen any movement in acquisition prices, given the relative weakness in some of your markets?

[Geoffrey R. Bedford, President, CEO & Director]

Yes. I would say, that we have although without having finally come to a conclusion on any particular transaction, it's hard to say definitely, but certainly when you look at the market today and some of the things that are happening, it would lead to lower valuations. And I also think that the question was about what's happened since we went public, we've also been able to sort of generate some cash and put cash on the balance sheet as well, which puts us in a better position for M&A.

[Operator]

Your next question comes from Mac Whale with Cormark Securities.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Just a quick question on the R&D in the quarter seems to be quite a bit lower, I'm just wondering if it's a one-time effect there? Or is this sort of a new level?

[Geoffrey R. Bedford, President, CEO & Director]

I think -- look there's always -- so when you have R&D, we do a lot of very progressive work in R&D, but the vast majority of our work is tied to customer endeavors and things that we are working on specifically with customers. And the vast majority of our costs are related to people, but there are one-time investments that we might make in R&D, sometimes we've incurred costs and then we get them recovered by a customer, these types of activities. So I think that the lower R&D costs in this quarter is not a statement of our commitment to ongoing R&D. I think it's just a lower quarter with projects that are closed out, but we would return to, I'd say, more historical levels going forward.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Okay. And then just following up from a year ago when we had the site visit and we saw some new lines being considered in the C&O business, and there were some downstream opportunities you discussed in Magnequench. What is the status of those initiatives that may have been completed or ramped or they delayed because of the slowdown in auto?

[Geoffrey R. Bedford, President, CEO & Director]

So the -- starting with the C&O side, so that line is complete, but I will say if you recall, we were adding capacity both in China but also in Estonia and Europe. And early sort of the middle of last year -- towards the end of last year, we were focused more on the European capacity, given some of the things that are going on globally. But both the Chinese line is now complete and the European capacity we expect will come on probably in the next quarter or 2. So those are moving ahead. And then on the Magnequench on the downstream sort of opportunity there, we are adding capacity in Tianjin for some of the compression molded magnet manufacturing and looking at some of the formidable tooling business, and this is specific to a customer that came to us and wanting to work a little closer with us and also some quality-control issues and being able to make sure that we were making the great quality control -- meeting the right quality control metrics for this customer.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Okay. And then on -- just following up on that line in the C&O business, how long would that -- how long will those investments sort of last until you get them up to like your capacity utilization gets maxed out? Like, what's the sort of time frame before you then work on the next incremental CapEx?

[Geoffrey R. Bedford, President, CEO & Director]

Well, it's certainly -- I mean, those lines certainly get us through '19 and '20, and I think we would want to be looking at sort of where our volumes were in the middle of '20 to sort of thinking about when the next phase might come in.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Okay. And is that similar -- and is it sort of an 18-month time frame? Like if everything goes as you expect on the Magnequench initiative, is there a follow-on? Does that -- or would those investments be all you would expect from the customer?

[Geoffrey R. Bedford, President, CEO & Director]

No. I mean we would like to think that there would be additional business from that customer, and we're building capacity to allow for some additional business. And again, I think, this would be something that we will be thinking about in the middle of 2020 to try to think about what the next phase would look like.

[Operator]

[Operator Instructions] Your next question comes from Scott Fromson with CIBC.

[Scott Douglas Fromson]

Just a quick question on staffing levels. Have you made any expenses? Have you made any changes to staffing levels in any particular region or in R&D, like you had mentioned the cost-related R&D?

[Geoffrey R. Bedford, President, CEO & Director]

Nothing material. We've added a couple of people in our Singapore office that our R&D/operations focus, but there really hasn't been anything -- any real material changes in people.

[Operator]

There are no further questions queued up at this time. I'll turn the call back over to Ali Mahdavi for closing remarks.

[Ali Mahdavi, Capital Markets & IR Executive]

Great. Thank you. On behalf of the Neo team, I would like to once again thank you for joining us this morning for the call. We look forward to speaking with you again during our second quarter conference call. That concludes today's call, and have a great day.

[Operator]

This concludes today's conference call. You may now disconnect.