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Good day, and thank you for standing by. Welcome to the Neo Performance Materials Inc., Q1 2021 Earnings Announcement. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to hand the conference over to your first speaker today, Ali Mahdavi. Thank you. Please go ahead.
Thank you, operator, and good morning, everyone. As a reminder, today's call is being recorded and a replay will be available starting tomorrow in the Investor Center of our website located at neomaterials.com.On today's call, we have Neo's President and CEO, Constantine Karayannopoulos. Rahim Suleman, Neo's Chief Financial Officer will then provide additional detail regarding the company's first quarter performance. Then we will open the call up to questions from analysts only.Please note that some of the information you will hear during today's call and discussion will consist of forward-looking statements, including, without limitation, those regarding revenue, EBITDA and adjusted EBITDA, product volumes, product pricing, other income and expense measures, cash returns and future business outlook. 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 were filed on SEDAR earlier this morning 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. 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 2021 earnings press release, which is available on SEDAR and again, on our website at neomaterials.com.Let me now turn the call over to Constantine for opening remarks.
Thanks, Ali, and good day, everybody. I hope everyone is safe and well. We're pleased to report our first quarter results showing a very strong start to the year.Neo reported sales of $130.9 million in the quarter, adjusted net income of $15.1 million, adjusted EBITDA of $22.4 million, which more than doubled from the first quarter of last year. The momentum and trajectory that we described on our third and fourth quarter earnings calls have pretty well remained in force. The resulting aggressive product demand within our Magnequench and Chemicals & Oxides business units fueled our financial performance to record levels.Many of our production lines are operating at what is essentially full capacity, and we're carefully managing incoming order flow and production planning to ensure the reliable supply to our customers continues. In some of our key sectors, such as automotive, home appliances, consumer electronics, we anticipate this strong demand will likely remain at elevated levels for some time.Neo's growth this year is reflective of what has been reported in recent production manufacturing indices. PMI numbers out of the Eurozone have indicated the fastest pace of production growth in more than 20 years, particularly in Spain, Italy and Germany. Of course, all economies are rising from the figurative ashes of the worst global pandemic in a century, but the growth trajectories we are seeing are clearly and nevertheless, impressive.While some of this is due to our customers rebuilding inventory levels, we're also seeing new growth in new platforms and applications as well as in the underlying base business. That's particularly true in the automotive supply chain and especially in electric vehicles. For example, magnetic powders and magnets used in electrified vehicle traction motors and battery temperature-controlled pump motors saw very strong growth in the quarter. Likewise, our magnet sales doubled as compared to recent levels in our Magnequench unit, and it looks like we'll have to plan or start to expand our magnet production capacity again this year. These trends appear to be continuing into the second quarter.End consumer demand for durable goods remains at all-time highs with products backordered around the world. For example, as a consumer, if you want to purchase an electric power-assist bicycle, which contains rare earth permanent magnet technology, you'll be lucky to find a merchant willing to accept the deposit to reserve a bike to be shipped even by this time next year.Demand for the semiconductor chips integrated into products, such as automobiles, appliances, automation equipment and every conceivable electronic component or smart device, is also quite intense. We follow this sector closely as Neo produces a highly engineered form of nanostructured dysprosium oxide for use in multilayer ceramic capacitors, which are used in very large numbers and are integral to every circuit board where you normally find semiconductors.An unexpected positive effect for our business in this sector has been the increased capital investment in new semiconductor production capacity. Robotic systems are a big part of this expansion. And as a result, we have seen a significant increase in orders for magnetic products, specific to the precision motors used in this application.On a more macro level, the accelerating adoption of technologies for lightweighting, increased efficiency and reduced greenhouse gas emissions continues to be a key demand driver for many of Neo's products. Neo's dedicated team of very bright applications, R&D and product development scientists and engineers have been tirelessly developing exciting new products and applications.Many of these advanced materials result in new versions of legacy products. For example, sizable improvements have been made in the performance of cooling fan motors, which have renewed importance in both the automotive and technology sectors. Within automotive, demand continues to rise for electric motors that are a critical part of the battery thermal management system in electric vehicles. Growth of this application is becoming another key driver for our Magnequench business as the world continues to move forward with the electrification of vehicles.In fact, it's remarkable to see the dramatic shift in manufacturing that is underway now, especially in China and Europe, away from internal combustion engine vehicles to hybrid and electric vehicles. Every year, as automotive research firms announce forecast for hybrid and EV market share, these estimates are always revised upward. For example, the estimated collective market share of hybrid, electric and alternative fuel vehicles sold in Europe is recently estimated to be more than 60% of new sales by 2025. It's a massive shift compared to just years ago when that number was estimated to be 25%, and 25% was back then viewed as very aggressive.The acceleration into mass production of these EVs and hybrid drivetrains is a favorable outlet for Neo's more advanced and innovative products, including next-generation environmental catalyst materials, to meet emerging emission standards. This builds upon Neo's traditional environmental catalyst portfolio, which just -- which had -- just had one of its strongest quarters ever.Our Chemicals & Oxides units, mixed-oxide catalyst did very well in Q1, with volume growth across all drivetrains from gasoline to diesel to hybrid platforms. In fact, total volume growth exceeded the market growth in the automotive sector generally, as pent-up demand and inventory restocking took hold and key applications for our products outpaced the overall market growth rates.We will continue to innovate and invest in clean air and emission control products and materials technologies, particularly for hybrid platforms. We expect them to continue to serve a key role over the next 10 years on our collective path towards electrification and decarbonization.Within technology, the explosive growth of data mining and data storage requires more and more server farms, which are immensely energy-intensive and require more efficient cooling. Neo's advanced magnetic materials and magnets deliver improved motor energy efficiency and better durability in these cooling systems.A lower -- a reduced carbon footprint is also a welcome collateral benefit of greater energy efficiency in this application. An added benefit of the growth in server farms is that they're extending the useful life of hard disk drives for those of you who remember that technology. Hard disk drives provide reliable, low-cost data storage, which is a good business still for Magnequench, and it looks like it would be around for a while. So rumors of its demise appear rather premature.Similarly, higher performance magnetic powders and better magnets allow for additional lightweighting and efficiency, while at the same time, delivering increased precision and accuracy in applications across the board from sensors and actuators to smartphones, game consoles and robotic drive systems.Typically, capital investment in areas like factory automation are rather cyclical. Capital is flowing once again into automation systems for 3 key reasons. First, general manufacturing capacity is in relatively short supply, particularly as supply chains are being redesigned with more regional diversity and redundancies.Second, new technologies, such as electric vehicles, are being commercialized and placed into mass production, requiring new facilities and infrastructure. Manufacturing capacity for EV batteries is being created at unprecedented levels. EV drivetrain systems are following closely.And third, as capital continues to be allocated to emerging technologies, the manufacturing environment is shifting to a more efficient and sustainably focused operations. Neo is actively benefiting from all of these trends.Given that many pieces of our business are hitting high notes, which allow for operating efficiencies and a beneficial operating leverage, we are able to further invest across our innovation pipelines and strategic initiatives. I'm increasingly optimistic that several new product development efforts in our Chemicals & Oxides segment will move to commercialization over the next several quarters. These include a suite of nontoxic and environmentally friendly engineered materials that exhibit extraordinary antipathogen activity.Another set of rare earth based materials coming out of our labs is a family of fire retardant powders. We expect these products to find applications in textiles, functional fabrics and protective gear for first responders, composites for wiring, cable insulation and building materials, to name a few. These product families would open a number of new markets with significant growth potential for Neo. And we have only begun -- began to scratch the surface with these technologies.Now turning to Rare Metals. After a couple of negative quarters, our Rare Metals segment had a profitable quarter. Its core end markets of metals and alloys for the aerospace industry is starting to trend up, although recovery is expected to lag other sectors. Still, new aircraft deliveries from Airbus and Boeing are restarting after a full year of disruption. Notably, Airbus just asked its suppliers to prepare for an 18% increase in the production of its A320 family of jets during 2022. That would come on top of its existing production targets for this year.On the space side of aerospace, materials innovation continues to advance the frontier with satellite, space station and propulsion systems. In fact -- and this is reflective of the quality of the rare metals and alloys we produce. Our high-performance metals and -- high-performance and high-purity metals are used in the production of rocket engine nozzles for the SpaceX program.We anticipate the long-term demand for -- from aerospace to be quite favorable, but our teams are also actively engaged in the drive to diversify our Rare Metals portfolio beyond traditional aircraft engine components. We're gaining traction with tantalum and niobium in advanced electronic applications, which are often overshadowed by aerospace, but do have higher margins and can provide better returns.Last, I want to touch on the general rare earth markets, which remain highly fluid given the recent manufacturing tailwinds. We've seen commodity rare earth prices begin to soften slightly over the past few weeks, particularly for some of the heavier elements, such as dysprosium and terbium, which are off the recent highs. The same holds for neodymium, a key constituent in our magnetic products. We believe this is helpful in mitigating some pending anxiety across the industry and its supply chains. We remain operationally focused on pursuing diverse sources of raw material supply, and we continue to gain traction in terms of qualifying feedstocks with new suppliers.Our recently announced supply initiative with Colorado-based energy fuels continues to ramp up. This feedstock material, which starts as a byproduct from existing heavy mineral sands mining in the Southeastern U.S., will help diversify and expand the feedstock sourcing at our Silmet facility in Estonia. This is particularly important given that Silmet is Europe's only operating commercial rare earth processing facility, and demand for particularly magnetic rare earths is expected to rise significantly in Europe as a result of electric vehicle and other environmental technology initiatives.To close, the state of Neo's operations remains strong. COVID cases in most of the regions where our people and plants are located are abating, although we remain highly vigilant against resurgence. Some level of uncertainty remains with the future trajectory of the pandemic, of course, but I believe that our global teams have managed these impacts extraordinarily well over the past year, and we're prepared to adjust our operations as needed as things unfold. I'm very proud of our teams around the world for their dedication, admirable performance and astute judgment in the face of what has been a very challenging past 12 months.We'll continue to invest in our strategic initiatives, and we remain focused on how to best grow our business and provide strong financial performance for our shareholders.Let me now turn the call over to Rahim.
Thanks, Constantine, and good day, everyone. The powerful volume trend within Magnequench and Chemicals & Oxides continued throughout the first 3 months of this year and contributed to our strongest quarterly financial performance since becoming a public company again in 2017.We saw very strong demand in our magnetic powders, our compression-molded magnets, our environmental auto catalyst products, our gallium trichloride products and several other rare earth products generally tied to magnetic applications and semiconductor markets. As a result, our product volume shipped during the quarter set new records for both Magnequench and Chemicals & Oxides since Neo relisted as a publically traded company.Product volumes were supported by an increasing trend in pricing for rare earth elements in the global markets. This trend led to higher average selling prices in our Magnequench products and many of our Chemicals & Oxides products. As we noted in our Q4 2020 call, global prices for magnetic elements were up some 70% to 100% over Q3 2020 before retreating some 15% to 20% in recent weeks. The combination of higher volumes, higher prices, supported by positive mix attributes, benefits of lead lag on material costs and the benefits of better absorption from higher volumes all led to the stronger results achieved this quarter throughout our business.In this morning's overview of our results, I'll provide a comparison to both the prior year quarter and the recent sequential trend from the fourth quarter of 2020. Given the current state of recovery in many of our end markets, the sequential trend is likely more important to ascertain the current state of our business. It's worth noting that strong growth year-over-year is based upon a mixed first quarter from 2020. At that time, the adverse impact of COVID-19 was just beginning to be felt and was mostly limited to the specific geographies within China and Asia. Accordingly, our first quarter 2020 volume outcomes were mixed as the COVID epidemic transitioned into a full global pandemic.The second quarter of 2020 realized the full brunt of shutdowns and stay-at-home orders. And as such, in the second quarter of this year, as we begin to lap the worst period related to COVID, we expect to report extraordinary growth in our financials. However, our key expectations and targets is to continue to grow from other historically normalized quarters.Turning to the quarterly results. On a consolidated basis, during the first quarter, we reported $130.9 million in revenue compared to $90.7 million in the prior year period and $110.4 million during the fourth quarter of 2020. We reported net income of $7.6 million or $0.20 per diluted share. Our adjusted net income in the quarter was $15.1 million or $0.39 per diluted share. We reported adjusted EBITDA of $22.4 million, which compared to $9.6 million in the prior year period and $12.3 million in the fourth quarter of 2020.Layered on top of this fundamental strength in demand, innovation across many of our product portfolios is resonating with our customers. We believe we are continuing to gain increased market share in both magnetic and catalytic applications. This is evident in our Magnequench volumes, which reported a record 1,725 metric tons during the quarter. This compares to 1,271 metric tons in the prior year period and 1,626 metric tons during the fourth quarter of 2020.We have observed many of our customers working diligently to refill their inventory pipelines as general economic activity recovers. While this strength was almost across the board, I'd highlight the continued growth in automotive pumps, hot water circulation pumps, advanced electronics and home appliances.We continue to be encouraged by the progress made in electric motors across the automotive platform regardless of drivetrain. That said, our EV-specific product portfolio is trending in the upward direction. Traction motors and motors related to thermal management, such as active grill shutters and cooling pumps, have an important significance as electric vehicles continue to dominate the engineering bandwidth of the OEMs. I think it's worth pointing out that Magnequench powder solutions that are specific to hybrid and electric motor applications have grown tremendously over the past few years, even going through the COVID-riddled 2020 period.Our emerging magnet business continues to exhibit strength in electronics and has now been expanded to focus on additional automotive applications. As Constantine pointed out, our magnet business, albeit still relatively small, has more than doubled the volumes since Q1 2020, and we will continue to invest in further capacity to accommodate this continued growth that we see from a number of customers and across a number of applications.The long-term macro growth trends around electrification, lightweighting, increased use of sensors and actuators and improved performance remain long-term tailwinds for this business. Over the short term, we expect the recent pace of inventory restocking to temper, along with the potential adverse impact of the semiconductor shortage on the automotive sector. Regardless, we are encouraged to start the year with an aggressive showing.Shifting to our Chemicals & Oxides business unit. Revenues for C&O were $54.4 million in the first quarter compared to $33.5 million the prior year period and $48.4 million during the fourth quarter of 2020. The increase in revenue was driven by both improved pricing and improved volumes. Pricing across rare earth separations business was higher during the quarter compared to the prior year, again, as the magnetic and heavy elements continued the upward progression that we have seen since the fourth quarter of 2020 and continued through most of March. This general upward trend in pricing leaves more opportunity for margin in providing rare earth solutions to our customers as well as provides a lead lag benefit in the current quarter.Within our auto catalyst portfolio, our new innovative products continue to gain momentum with customers, and overall product volume outpaced the recovery trend in light-duty vehicle sales. While we encourage the adoption of electrified vehicles, the reality is that the next generation of emissions technology for hybrid vehicles will continue to have a significant share of the market for consumer vehicles over the next 10 years.The challenges of meeting emission standards when a hybrid internal combustion engine is in effect idle during part of the vehicle run time requires a much more complex catalyst emission system. We believe this is a key opportunity of growth within our catalyst portfolio, and we continue to develop innovative products to meet these needs.Many of our customers are working to rebuild inventory and safety stock amidst the challenging global supply environment. While we are carefully monitoring semiconductor shortage and plastics resin shortage, potentially delaying customers' orders, we have seen little impact on our orders to date.Our Rare Metals segment reported $16.7 million in revenue during the quarter, a decrease from $20.5 million in the prior year period and an increase from $12.1 million during the fourth quarter. A comparison to the prior year quarter here for Rare Metals is a little different than for Magnequench and Chemicals & Oxides. Rare Metal sells products primarily to customers outside of China and Asia and primarily into the aerospace industry, among other end markets. When COVID began to impact China and Asia markets in Q1 2020, this was less the case for Rare Metals. But the impact to Rare Metals occurred in later quarters and in a sense, was much deeper than Magnequench and Chemicals & Oxides.In the first quarter of 2021, we continued to see a slower aerospace market, although there are encouraging signs of recovery, as Constantine mentioned. Our nonaerospace markets have demonstrated more recovery trends as well, including for products going into advanced electronics industries and the health care space. Rare Metals reported adjusted EBITDA of $900,000, in line with the prior year results and an improvement from our fourth quarter results. The loss during Q4 was related to a lower of cost or market adjustment related to inventory purchases during the first half of 2020.When the full year 2021 prospects for Rare Metals will largely be influenced by the direction of the aerospace industry, our commercialization efforts to identify new products and applications is beginning to yield results. Rare Metals has made some key progress with expanding its customers and markets so that even for products that we traditionally focus at aerospace, those products are now being qualified with new customers that have growth exposures to nonaerospace markets. While this progress -- with this progress, we continue to see a path for our Rare Metals business that is not adequately conveyed by the current level of financial performance, and we look forward to seeing these key initiatives having some impact in future quarters.Returning back to our consolidated results. We reported SG&A expenses of $14.1 million, an increase from $12 million from the prior year period and a decrease from $16.1 million in the fourth quarter of 2020. There remains slightly elevated costs related to the secondary offering announced and completed during the quarter, and we incurred elevated legal defense fees in the quarter.In the first quarter, we took a charge of approximately $7 million, which is shown in the other expense line item on our income statement. This charge is our estimate of damages that could be awarded in the future because of a recent court decision in Germany to uphold a competitor's patent, which a lower court had previously invalidated. We have appealed the previous infringement ruling, which is still pending, and we intend to prosecute our appeal vigorously. The recent ruling will not have a material impact on future sales because Neo has not sold the affected products into the related markets for several years. These expenses were slightly offset by some restructuring benefits within the Rare Metals business.We closed the quarter with $55.6 million in cash, a decline from $72.2 million at year-end. And as noted, we anticipated a substantial investment in working capital, with a combined $27.4 million investment working capital balances. As we discussed earlier, we observed a substantial increase in rare earth costs and prices in the quarter, and these increases impact working capital requirements, both across accounts receivable and inventory. These higher inventory costs have started to work through the system, and we anticipate an appropriate flow-through in the cost of goods sold over the next several months.We invested $1.6 million into maintenance and growth related capital projects, and we also paid a dividend totaling $3.1 million during the quarter to our shareholders. Our free cash flow conversion was 92% during the quarter, and we remain confident that our cash balance and balance sheet provide ample liquidity to operate and to grow our business.With that, I'll open it up for questions.
[Operator Instructions] Your first question is from the line of David Ocampo from Cormark Securities.
I just wanted to zero in on your cost pass-through provisions here. Since we've heard from several other companies that they've moved to at-low pricing or even monthly pricing, just given the movements that they're seeing in raw material costs and freight costs. So with that said, are you starting to see any customers pushing back against that? Or are you pushing your customers to reduce the lag time that you may have in your contracts?
Let me start with that, Rahim, and I'll hand it over. David, the bulk of our business is on price adjustment formulas, whether monthly, quarterly, semiannually or even annually. So -- but most of our business is on relatively short-term price adjustments. We -- our customers are used to it. The markets are used to it. We haven't had any significant pushback. There's always growling and so on, but we've been able to put price adjustments through. And we've done so whenever we've seen volatility, and we've been quite successful. So I expect that situation to continue.So -- perhaps Rahim can provide some additional color on this.
I think that, that covers most of the counter unless David wants to go anywhere else. I mean maybe the only other thing that I'd add is kind of this has been strategically important for Magnequench for many years. The one difference, I would say, in Magnequench now is the magnet business, which, as you know, we acquired a small magnet business last year and that had grown that significantly.So for that business, it has been much more, as you've described it, where we are having to have more dialogue with our customers as the company that we bought didn't have pass-through provisions necessarily in all the parts. But our competitors are facing the same price dynamics that we are, and we have been successful at having frank discussions with customers. They understand the market. So it hasn't been an issue. But it's current -- it's always something that we have to focus on, we have to be mindful of, and we always work with our customers proactively and collectively on.
That's great. And then maybe just on the inventory that you moved this quarter, I imagine it's lower cost. Is it possible to parse out what the margin improvement was from that? I'm just trying to get a sense on what the sustainability of the dollar contribution per tonne is going forward.
Yes. I hear you, David. Honestly, it's quite a difficult exercise. I think that we're all acknowledging that there's a significant benefit of pass-through -- of the timing of the lead lag in the business. We don't quantify it specifically, quite honestly, because it depends on how old every piece of inventory that you had was, what particular customer and what particular region bought inventory. So for example, a sale in China is actually pretty quick in terms of the turnover of raw material, whereas the sale in Germany would be coming out of inventory for several months back.So we don't necessarily quantify the specific impact of lead lag. But I think that we watch the trends, and we watch the general movement, we understand the flow in our business. So it's a healthy contributor to the quarter, but we don't have a number.
And do you have a sense on how much of that low-cost inventory is left on your books? Is it largely done in the quarter?
Price increase happened actually throughout the quarter. So when -- even when we talk about prices that have come down in the magnetics and dysprosium and the like of 10% to 15%, maybe 20% since their all-time highs, the inventory we have in our books is not necessarily purchased at the time of the all-time high. So the inventory that we have in our books is at a lower average cost than the average selling price in Q1.So therefore, we actually do expect that we would still see some lead lag benefits, at least to the first part of this quarter, as we work through some kind of the average purchases in Q1. And then maybe as we get to the end of the quarter or into Q3, we'd probably start seeing a little bit more normalization there.
[Operator Instructions] Your next question is from Mark Neville from Scotiabank.
First off, great quarter. Maybe just to close the conversation on the margin. Just so I understand, again, the Q2, we'll see some compression, but the Q3 is probably when you see a more normalized number, is that correct?
It's plausible. Whether it's absolutely correct, I think directionally, it makes sense. But if the rare earth -- it all depends what rare earth and therefore, raw materials will do in the next couple of quarters. So -- but I think what you expect makes sense.
Sure. I guess I'm thinking directional because not really sure what normal is anymore, I guess.
We've been -- Mark, we've been notoriously unsuccessful in predicting what rare earth prices will do even in the short term. So we don't want to stick our necks up so far on this.
Yes, understood. I guess a couple of questions just around volumes. I guess, maybe just first on the semiconductor shortage. It actually doesn't sound like it's really hurt your business at all or you've seen any disruption. Actually maybe it sounds like an accelerator. Am I sort of hearing that right or reading that right?
Yes, the short-term effect appears to be almost contradictory to what you hear, what you read in the press. As I said, our factory automation segment has done really well with increased orders for those high-precision torque motors that go into the robotic arms, mostly in Japan and in Asia, of course. But also in almost a reverse way, the conversations we've had with our Tier 1 customers in the automotive supply chain have suggested that the OEMs facing a semiconductor shortage would probably end up shifting the available semiconductors to higher-end luxury models where they make more margins than the entry level sort of strip-down models.Well, the reason why this is -- this might have a reverse effect is, we sell a lot more magnets and magnetic materials and more catalysts for bigger engines in the higher-end models. So almost in a bizarre way, we may end up doing better in that application. However, let me not downplay the seriousness of this. If there's a 10%, 20% slowdown across the board in automotive output, I do expect that everybody, OEMs, Tier 1s, Tier 2s and the entire supply chains will see that effect. But within that context, it may not turn out to be as bad for us as it could be for a lot of other people.Rahim, I don't know if you'd like to add some more color on this.
Nothing to add, Constantine. Thank you.
That helps. That's super helpful. Maybe, I guess, just staying on the volumes. Obviously, it was a very strong Q1. I don't think there's a ton of seasonality in your business. But again, I appreciate there was some sort of inventory rebuilding. I'm just -- I'm curious just to hear your sort of thoughts on sort of what cadence of volumes through the year might sort of directionally look like, just so we don't get sort of too for ahead of ourselves here.
Sure. Let me say something about seasonality because historically, the first quarter of the year is not our best quarter. And there are 2 fundamental reasons. On the electronics side, supply chains are digesting Christmas, so they tend to be a little slower. And more importantly, on manufacturing across the board, you have 2 to 3 weeks of a shutdown in China and, to a lesser degree, in the rest of Asia over the Lunar New Year.Well, that didn't happen this year. Plants, by and large, ran pretty well flat out through the Lunar New Year for a number of reasons. Demand driven, of course, but also I think, in China, return of the workers back to their towns and villages for the Lunar New Year was discouraged. So they continued to work and they didn't take holidays because of COVID.So it was an unusual first quarter in that regard as well. So volumes -- yes, typically, at least in the electronic part of our business, as I mentioned, the first quarter is the slowest, second quarter is better, third quarter is the strongest as the electronic supply chains are running flat out to put smartphones and PS5s and the like on shelves for Christmas and then fourth quarter starts to slow down, hits bottom in the first and then it picks back up after that.So this clearly isn't what happened, but we had a multitude of impacts because of COVID, because of automotive demand and so on and so forth, that clearly masked all the things we would normally expect to happen in the quarter.
If I could just ask one last question. One last question just around CapEx. Look, it seems like there's growth coming from a lot of places here. I'm just curious for your thoughts around capital investment. And again, I think you mentioned sort of running at sort of full capacity. So just maybe thoughts around that.
Sure. The one area that we flagged that is probably more likely that we will make some CapEx investment decisions this year is expanding magnet capacity. We've already expanded that business a couple of times. We're running flat out. We're seeing a very heavy order book across the board, whether it's automotive or electronics or household goods. And by the way, next time, anybody is looking for a massage gun, go for the more expensive model because it's likely to have an electric motor that has one of our magnets in it.So this is really the area that hurts where we're managing our order book very carefully to match our capabilities to produce. We don't want to disappoint customers. So this is clearly an area that we will need to reevaluate our capital investment strategy there.On other issues, I mean we see perhaps the continuing product line diversification between China versus outside of China. So we could be making some modest investments in Thailand and in Silmet in Europe to continue to diversify, as I said, our capabilities there. But other than -- the most pressing need, though, as I mentioned, is magnet production.And these are not investments in the tens of millions. I mean we're talking about the low single million -- single digits in millions.
[Operator Instructions] There are no further questions at this time. Ladies -- apologies. We have -- sorry, the participant just dropped out.All right. There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you again for your participation, and have a wonderful day. You may all disconnect.
Thanks, everybody.
Thank you all.