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Covia Announces First Quarter 2019 Results

May 09, 2019
  • Total volumes of 8.0 million tons, up 2% sequentially
  • Net loss from continuing operations of $52.2 million
  • Adjusted EBITDA of $34.9 million
  • Significant strengthening in March results across both segments with momentum continuing in April

INDEPENDENCE, Ohio, May 09, 2019 (GLOBE NEWSWIRE) -- Covia (NYSE:CVIA), a leading provider of mineral-based material solutions for the Industrial and Energy markets, today announced results for the first quarter ended March 31, 2019. As a result of the merger that closed on June 1, 2018, Covia’s 2018 reported results under U.S. generally accepted accounting principles (“GAAP”) include the consolidated financial results of both Unimin Corporation (“Unimin”) and Fairmount Santrol Holdings Inc. (“Fairmount Santrol”) for the seven months ended December 31, 2018, as well as the stand-alone results for Unimin for the five months ended May 31, 2018, including the high-purity quartz (“HPQ”) business reported as discontinued operations. Selected pro forma financial results, which reflect combined Unimin and Fairmount Santrol operations prior to the merger and exclude HPQ results, have been provided as exhibits with this release.

Covia separately announced today that it has appointed Richard Navarre, Chairman of the Company’s Board of Directors, as Interim President and Chief Executive Officer.

Richard Navarre, Chairman and Interim President and Chief Executive Officer, said, “It is a great honor and privilege to accept this role and lead an organization with such talented people. Combined with our strong asset base and customer relationships, I am confident that we will accelerate our strategy to optimize the performance of our assets, maximize free cash flow and reduce debt over the next several quarters.” 

Mr. Navarre continued, “Our first quarter results were in line with what we had communicated on our last call, however, I am confident that by leveraging our core strengths and executing on our strategy, we can achieve more. We are encouraged by the positive momentum as we exited the quarter with an improved cost position, improved pricing for Northern White Sand and stronger volumes. These factors, combined with our growing local sand volumes, seasonal growth in our Industrial segment and intense focus on optimizing the performance of our assets, are expected to be catalysts for improved second quarter results.”

First Quarter 2019 Results

  • Total volumes of 8.0 million tons, an increase of 2% sequentially with equal growth coming from the Industrial and Energy segments. First quarter 2019 total volumes decreased 13% compared to the first quarter of 2018 on a pro forma basis due to lower proppant demand.
  • Total revenues of $428.2 million, a decline of 3% sequentially. First quarter 2019 total revenues decreased 33% compared to the first quarter of 2018 on a pro forma basis due primarily to lower Energy volumes and pricing.
  • Selling, general and administrative expenses of $42.0 million, a sequential decrease of $3.9 million.
    • First quarter 2019 selling, general and administrative expenses include $2.8 million in non-cash stock compensation.
  • Net loss from continuing operations of $52.2 million, or $0.40 per share.
  • Adjusted EBITDA of $34.9 million compared to $43.9 million in the fourth quarter of 2018 and $148.8 million in the first quarter of 2018 on a pro forma basis.

First Quarter 2019 Segment Results

Industrial Segment Results

  • Volumes of 3.6 million tons, similar to the first quarter of 2018 on a pro forma basis. 
  • Revenues of $192.2 million, a decline of $1.3 million from the first quarter of 2018 on a pro forma basis. Revenues for Industrial products increased $2.7 million over the prior year pro forma period as a result of price increases which were offset by lower transportation-related revenues. 
  • Segment gross profit of $51.6 million, a decrease of $3.5 million from the first quarter of 2018 on a pro forma basis due in part to a shift in product mix toward lower margin products, as well as higher costs, particularly at hybrid plants, which produce for both Industrial and Energy markets and were negatively impacted by lower utilization.

Energy Segment Results

  • Volumes of 4.4 million tons, a 2% sequential increase driven by growth in local sand volumes and stable Northern White Sand volumes, partially offset by the elimination of volumes from the Voca, Texas facilities which are idled.
  • Revenues of $236.1 million, down 8% sequentially, driven primarily by a greater mix of local sand sales as well as lower local sand pricing.
  • Segment gross profit of $15.1 million, down $16.2 million sequentially, driven primarily by lower local sand prices, and higher costs from rail rate increases and harsh weather-related operating conditions. The Company implemented a modest price increase on Northern White Sand toward the end of the first quarter. 
    • Gross profit was negatively impacted by $2.1 million in losses at the Company’s idled Voca facilities and $2.1 million in non-cash charges related to the new lease accounting standard. 

Balance Sheet Update

  • Total liquidity of $225 million as of March 31, 2019, which is composed of $37 million in cash and cash equivalents and $188 million of availability on its revolving credit facility.
  • As of May 8, 2019, the cash balance had improved to approximately $90 million.
  • First quarter 2019 capital expenditures totaled $32.9 million, primarily related to completion of local sand facilities.

Outlook

The Company reaffirmed its previously provided second quarter and full year outlook.

Second quarter 2019 expectations are:

  • Industrial volumes of 3.8 million tons.
  • Energy volumes of 5.0 million to 5.3 million tons.

Full year 2019 expectations are:

  • 2019 selling, general and administrative expenses of $160 million to $170 million, which includes approximately $10 million in non-cash stock compensation.
  • 2019 capital expenditures are expected to be in the range of $80 million to $100 million.

Use of Certain Non-GAAP and Adjusted Financial Measures

Covia reports its financial results in accordance with GAAP. However, Covia’s management believes that certain non-GAAP financial measures help to facilitate comparisons of Company operating performance across periods. This release includes EBITDA and adjusted EBITDA, which are non-GAAP financial measures, including on a pro forma basis. Covia may also present other non-GAAP financial measures which are identified as “adjusted” results. A reconciliation of all non-GAAP financial measures to the most comparable GAAP financial measures is provided in exhibits attached to this release. Covia defines EBITDA as net income from continuing operations before interest expense, income tax expense, depreciation, depletion and amortization, and adjusted EBITDA as EBITDA before non-cash stock-based compensation, merger-related expenses, restructuring charges, asset impairments and certain other income or expenses. Covia defines pro forma EBITDA as net income from continuing operations before interest expense, income tax expense, depreciation, depletion and amortization for the combined Unimin and Fairmount Santrol operations for the periods reported and excludes HPQ results. Adjusted pro forma EBITDA is defined by Covia as pro forma EBITDA before non-cash stock-based compensation, asset impairments and certain other income or expenses. Pro forma financial results for 2018 and 2017, as shown in the exhibits attached to this release, include combined results of operations for Fairmount Santrol and Unimin for periods preceding the June 1, 2018 merger. Non-GAAP financial measures should not be considered a substitute for the financial results prepared in accordance with GAAP, but should be viewed in addition to the results as reported by Covia. Covia also believes pro forma EBITDA and pro forma adjusted EBITDA are useful because they allow management to more effectively evaluate the Company’s operational performance and compare the results of our operations from period to period without regard to the Company’s financing costs or capital structure.

Conference Call

Covia will host a conference call and live webcast for analysts and investors today, May 9, 2019, at 8:30 a.m. Eastern Time to discuss its financial results. Interested parties are invited to listen to a live audio webcast of the conference call, which will be accessible on the Investor Relations section of the Company’s website (ir.CoviaCorp.com). To access the live webcast, please log in 15 minutes prior to the start of the call to download and install any necessary audio software. An archived replay of the call will also be available on the website. The call may also be accessed live by dialing (877) 273-6113 or, for international callers, (647) 689-5399. The conference ID for the call is 8554668. A replay will be available on the website and can be accessed by dialing (800) 585-8367 or (416) 621-4642. The passcode for the replay is 8554668. The replay of the call will be available through May 16, 2019.

About Covia

Covia is a leading provider of mineral-based material solutions for the Industrial and Energy markets, representing the legacy and combined strengths from the June 2018 merger of Unimin and Fairmount Santrol. The Company is a leading provider of diversified mineral solutions to the glass, ceramics, coatings, foundry, polymers, construction, water filtration, sports and recreation markets. The Company offers a broad array of high-quality products, including high-purity silica sand, nepheline syenite, feldspar, clay, kaolin, lime, resin systems and coated materials, delivered through its comprehensive distribution network. Covia offers its Energy customers an unparalleled selection of proppant solutions, additives, and coated products to enhance well productivity and to address both surface and down-hole challenges in all well environments. Covia has built long-standing relationships with a broad customer base consisting of blue-chip customers. Underpinning these strengths is an unwavering commitment to safety and to sustainable development further enhancing the value that Covia delivers to all of its stakeholders. For more information, visit CoviaCorp.com.

About the Merger

On June 1, 2018, Unimin completed a business combination (“merger”) whereby Fairmount Santrol, now known as Bison Merger Sub I, LLC, merged into a wholly-owned subsidiary of Unimin and ceased to exist as a separate corporate entity. Immediately following the consummation of the merger, Unimin changed its name to Covia Holdings Corporation and began operating under that name. The common stock of Fairmount Santrol was delisted from the NYSE prior to the market opening on June 1, 2018, and Covia commenced trading under the ticker symbol “CVIA” on that same date.

Caution Concerning Forward-Looking Statements

This release contains statements which, to the extent they are not statements of historical or present fact, constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 (“PSLRA”), and such statements are intended to qualify for the protection of the safe harbor provided by the PSLRA. The words “anticipate,” “estimate,” “expect,” “objective,” “goal,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “may,” “target,” “forecast,” “guidance,” “outlook” and similar expressions generally identify forward-looking statements. Similarly, descriptions of the Company’s objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements relate to the expectations of the Company’s management as to future occurrences and trends, including statements expressing optimism or pessimism about future operating results or events and projected sales, earnings, capital expenditures and business strategy. Forward-looking statements are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Forward-looking statements are based upon management’s then-current views and assumptions regarding future events and operating performance. Although the Company’s management believes the expectations expressed in forward-looking statements are based on reasonable assumptions within the bounds of its knowledge, forward-looking statements involve risks, uncertainties and other factors which may materially affect the Company’s business, financial condition, and results of operations or liquidity.

Forward-looking statements are not guarantees of future performance and actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, but not limited to: changes in prevailing economic conditions, including fluctuations in supply of, demand for, and pricing of, the Company’s products; potential business uncertainties relating to the merger, including potential disruptions to the Company’s business and operational relationships, the Company’s ability to achieve anticipated synergies, and the anticipated costs, timing and complexity of the Company’s integration efforts; loss of, or reduction in, business from the Company’s largest customers or their failure to pay the Company; possible adverse effects of being leveraged, including interest rate, event of default or refinancing risks, as well as potentially limiting the Company’s ability to invest in certain market opportunities; the Company’s ability to successfully develop and market new products; the Company’s rights and ability to mine its property and its renewal or receipt of the required permits and approvals from government authorities and other third parties; the Company’s ability to implement and realize efficiencies from capacity expansion plans, and cost reduction initiatives within its time and budgetary parameters; increasing costs or a lack of dependability or availability of transportation services or infrastructure and geographic shifts in demand; changing legislative and regulatory initiatives relating to the Company’s business, including environmental, mining, health and safety, licensing, reclamation and other regulation relating to hydraulic fracturing (and changes in their enforcement and interpretation); silica-related health issues and corresponding litigation; seasonal and severe weather conditions; other operating risks beyond the Company’s control; the risks discussed in the Risk Factors section of the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 22, 2019; and the other factors discussed from time to time in the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the SEC. This release should be read in conjunction with such filings, and you should consider all of such risks, uncertainties and other factors carefully in evaluating forward-looking statements.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date thereof. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures the Company makes on related subjects in its public announcements and SEC filing.

 

               
Covia              
Condensed Consolidated Statements of Income (Loss)        
(unaudited)              
    Three Months Ended March 31,
    2019
  2018
         
    (in thousands, except per share amounts)
     
Revenues   $ 428,246     $ 369,821
Cost of goods sold (excluding depreciation, depletion,              
and amortization shown separately)     361,560       260,319
               
Operating expenses              
Selling, general and administrative expenses(A)     41,960       25,224
Depreciation, depletion and amortization expense     58,095       27,131
Restructuring charges     2,002       -
Other operating income, net     (6,859 )     -
Operating income (loss) from continuing operations     (28,512 )     57,147
               
Interest expense, net     25,603       2,298
Other non-operating expense, net     2,187       8,193
Income (loss) from continuing operations before provision (benefit) for income taxes     (56,302 )     46,656
               
Provision (benefit) for income taxes     (4,054 )     9,870
Net income (loss) from continuing operations     (52,248 )     36,786
Less: Net income from continuing operations attributable to the non-controlling interest     (3 )     -
Net income (loss) from continuing operations attributable to Covia Holdings Corporation     (52,245 )     36,786
               
Income from discontinued operations, net of tax     -       8,756
               
Net income (loss) attributable to Covia Holdings Corporation   $ (52,245 )   $ 45,542
               
Continuing operations earnings (loss) per share              
Basic   $ (0.40 )   $ 0.31
Diluted     (0.40 )     0.31
               
Discontinued operations earnings per share              
Basic     -       0.07
Diluted     -       0.07
               
Earnings (loss) per share              
Basic     (0.40 )     0.38
Diluted   $ (0.40 )   $ 0.38
               
Weighted average number of shares outstanding              
Basic     131,287       119,645
Diluted     131,287       119,645
               
(A) - Stock compensation expense of $2,767 for the three months ended March 31, 2019 is included within selling, general, and administrative expenses.  We did not have stock compensation expense in the three months ended March 31, 2018.
 

 

Covia                
Condensed Consolidated Statements of Cash Flows                
(unaudited)                
    Three Months Ended March 31,  
    2019     2018  
             
    (in thousands)  
Net income (loss) attributable to Covia Holdings Corporation   $ (52,245 )   $ 45,542  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                
Depreciation, depletion, and amortization     58,095       29,409  
Amortization of deferred financing costs     1,490       -  
Restructuring charges     2,002       -  
Deferred income tax benefit     (8,596 )     579  
Stock compensation expense     2,767       -  
Net income from non-controlling interest     (3 )     -  
Other, net     (1,852 )     (1,424 )
Change in operating assets and liabilities, net of business combination effect:                
Accounts receivable     (44,525 )     (30,490 )
Inventories     2,785       (4,607 )
Prepaid expenses and other assets     7,703       (281 )
Accounts payable     (6,364 )     (13,323 )
Accrued expenses     (16,339 )     (3,264 )
Net cash provided by (used in) operating activities     (55,082 )     22,141  
                 
Cash flows from investing activities                
Capital expenditures     (32,881 )     (46,253 )
Capitalized interest     (3,283 )     -  
Proceeds from sale of fixed assets     -       334  
Other investing activities     -       (52 )
Net cash used in investing activities     (36,164 )     (45,971 )
                 
Cash flows from financing activities                
Payments on Term Loan     (4,125 )     -  
Payments on term debt     -       (328 )
Payments on other long-term debt     (87 )     -  
Payments on finance lease liabilities     (1,120 )     -  
Proceeds from share-based awards exercised or distributed     (24 )     -  
Tax payments for withholdings on share-based awards exercised or distributed     (333 )     -  
Net cash used in financing activities     (5,689 )     (328 )
                 
Effect of foreign currency exchange rate changes     97       373  
Decrease in cash and cash equivalents     (96,838 )     (23,785 )
                 
Cash and cash equivalents:                
Beginning of period     134,130       308,059  
End of period   $ 37,292     $ 284,274  
                 

 

Covia                
Condensed Consolidated Balance Sheets                
(unaudited)                
    March 31, 2019     December 31, 2018  
             
    (in thousands)  
Assets                
Current assets                
Cash and cash equivalents   $ 37,292     $ 134,130  
Accounts receivable, net     312,052       267,268  
Inventories, net     160,466       162,970  
Other receivables     28,273       40,306  
Prepaid expenses and other current assets     25,388       20,941  
Total current assets     563,471       625,615  
                 
Property, plant and equipment, net     2,800,885       2,834,361  
Operating right-of-use assets, net     422,897       -  
Deferred tax assets, net     8,068       8,740  
Goodwill     131,655       131,655  
Intangibles, net     92,931       137,113  
Other non-current assets     23,526       18,633  
Non-current assets of discontinued operations     -       -  
Total assets   $ 4,043,433     $ 3,756,117  
                 
Liabilities and Equity                
Current liabilities                
Current portion of long-term debt   $ 15,700     $ 15,482  
Operating lease liabilities, current     73,305       -  
Accounts payable     125,428       145,070  
Accrued expenses     103,833       130,161  
Total current liabilities     318,266       290,713  
                 
Long-term debt     1,611,201       1,612,887  
Operating lease liabilities, non-current     315,841       -  
Employee benefit obligations     53,349       54,789  
Deferred tax liabilities, net     256,108       267,350  
Other non-current liabilities     83,336       75,425  
Non-current liabilities of discontinued operations     -       -  
Total liabilities     2,638,101       2,301,164  
                 
Equity                
Common stock     1,777       1,777  
Additional paid-in capital     386,585       388,027  
Retained earnings     1,595,714       1,647,959  
Accumulated other comprehensive loss     (95,342 )     (95,225 )
Treasury stock at cost     (483,956 )     (488,141 )
Non-controlling interest     554       556  
Total equity     1,405,332       1,454,953  
Total liabilities and equity   $ 4,043,433     $ 3,756,117  
                 

 

Covia                            
Pro Forma Segment Information                      
(unaudited)                            
(in thousands)                            
    Three Months Ended March 31,  
    2019     2018  
    Covia, As Reported     Covia, As Reported   Fairmount Santrol
Pre-Merger(1)
  Covia Pro Forma
Combined(2)
 
Volumes (tons)                            
Energy     4,432       2,976     2,636     5,612  
Industrial     3,565       2,971     578     3,549  
Total volumes     7,997       5,947     3,214     9,161  
                             
Revenues                            
Energy   $ 236,075     $ 207,461   $ 242,182   $ 449,643  
Industrial     192,171       162,360     31,156     193,516  
Total revenues     428,246       369,821     273,338     643,159  
                             
Segment gross profit(3)                            
Energy     15,064       65,495     76,114     141,609  
Industrial     51,622       44,007     11,146     55,153  
Total segment gross profit   $ 66,686     $ 109,502   $ 87,260   $ 196,762  
                             
    Three Months Ended
December 31,
                 
    2018                  
    Covia, As Reported                  
Volumes (tons)                            
Energy   4,354                  
Industrial   3,483                  
Total volumes   7,837                  
                             
Revenues                            
Energy $ 255,611                  
Industrial   185,719                  
Total revenues   441,330                  
                             
Segment gross profit(3)                            
Energy   31,252                  
Industrial   50,544                  
Total segment gross profit $ 81,796                  
__________                            
                             
(1) Fairmount Santrol Pre-Merger financial results for the three months ended March 31, 2018 are for Fairmount Santrol Holdings Inc. ("Fairmount Santrol"),  as previously reported by Fairmount Santrol.  
                             
(2) The unaudited Covia Pro Forma Combined financial results include the aggregate results of operations for legacy Fairmount Santrol and legacy Unimin for periods preceding the June 1, 2018 merger.  
                             
(3) In the three months ended March 31, 2019, Energy segment gross profit was negatively impacted by the $2.1 million of non-cash charges relating to operating leases as a result of the adoption of Topic 842.

As a result of the June 1, 2018 merger, legacy Fairmount Santrol inventories were written up to fair value under Generally Accepted Accounting Principles ("GAAP").  For the three months ended March 31, 2019, $0.8 million of this write-up was expensed through cost of goods sold, thereby reducing segment gross profit.  Of this $0.8 million for the three months ended March 31, 2019, $0.4 million impacted the Energy segment and $0.4 million impacted the Industrial segment.  For the three months ended December 31, 2018, $3.6 million of this write-up was expensed through cost of sales thereby reducing segment gross profit.  Of this $3.6 million for the three months ended December 31, 2018, $2.5 million and $1.1 million impacted the Energy and Industrial segments, respectively.

In the three months ended December 31, 2018, Energy segment gross profit was negatively impacted by $8.1 million from the in-basin facilities due to start-up costs and losses as they were scaling production.
 
   

 

Covia                                  
Pro Forma Net Income (Loss) Information & Reconciliation to Non-GAAP Measures (unaudited)  
The following table reconciles EBITDA and Adjusted EBITDA, non-GAAP financial measures, to the most directly comparable GAAP measure, net income (loss) from continuing operations (amounts in thousands)  
                                   
    Three Months Ended March 31,  
    2019     2018  
    As Reported     As Reported   Fairmount
Santrol Pre-Merger(3)
  Merger Pro
Forma
Adjustments(1)
  Covia Pro
Forma
Combined(2)
 
Revenues   $ 428,246     $ 369,821   $ 273,338   $ -   $ 643,159  
Cost of goods sold (excluding depreciation, depletion,                                  
and amortization shown separately)(9)     361,560       260,319     186,078     -     446,397  
                                   
Operating expenses                                  
Selling, general and administrative expenses     41,960       25,224     27,353     (3,334 )   49,243  
Depreciation, depletion and amortization expense     58,095       27,131     17,225     6,008     50,364  
Goodwill and other asset impairments     -       -     -     -     -  
Restructuring charges     2,002       -     -     -     -  
Other operating income, net     (6,859 )     -     (729 )   -     (729 )
Operating income (loss) from continuing operations     (28,512 )     57,147     43,411     (2,674 )   97,884  
                                   
Interest expense, net     25,603       2,298     13,783     4,265     20,346  
Other non-operating expense, net     2,187       8,193     -     (5,300 )   2,893  
Income (loss) from continuing operations before provision (benefit) for income taxes     (56,302 )     46,656     29,628     (1,639 )   74,645  
                                   
Provision (benefit) for income taxes     (4,054 )     9,870     872     636     11,378  
Net income (loss) from continuing operations     (52,248 )     36,786     28,756     (2,275 )   63,267  
Less: Net income from continuing operations attributable to the non-controlling interest     (3 )     -     3     -     3  
Net income (loss) from continuing operations attributable to Covia Holdings Corporation     (52,245 )     36,786     28,753     (2,275 )   63,264  
                                   
Interest expense, net     25,603       2,298     13,783     4,265     20,346  
Provision (benefit) for income taxes     (4,054 )     9,870     872     636     11,378  
Depreciation, depletion and amortization expense     58,095       27,131     17,225     6,008     50,364  
EBITDA     27,399       76,085     60,633     8,634     145,352  
                                   
Non-cash charges relating to operating leases(4)     2,100       -     -     -     -  
Non-cash stock compensation expense(5)     2,767       -     3,420     -     3,420  
Costs and expenses related to the Merger and integration(6)     651       5,300     3,334     (8,634 )   -  
Restructuring expenses(7)     2,002       -     -     -     -  
Adjusted EBITDA   $ 34,919     $ 81,385   $ 67,387   $ -   $ 148,772  
                                   
    Three Months
Ended
December 31,
                           
    2018                            
    As Reported                            
Revenues   $ 441,330                            
Cost of goods sold (excluding depreciation, depletion,                                  
and amortization shown separately)(9)     359,534                            
                                   
Operating expenses                                  
Selling, general and administrative expenses     45,828                            
Depreciation, depletion and amortization expense     63,996                            
Goodwill and other asset impairments     (10,609 )                          
Restructuring charges     7,204                            
Other operating expense (income), net     (4,694 )                          
Operating income (loss) from continuing operations     (19,929 )                          
                                   
Interest expense, net     24,997                            
Other non-operating expense, net     (1,327 )                          
Income from continuing operations before provision for income taxes     (43,599 )                          
                                   
Provision (benefit) for income taxes     4,511                            
Net income (loss) from continuing operations     (48,110 )                          
Less: Net income (loss) from continuing operations attributable to the non-controlling interest     29                            
Net income (loss) from continuing operations attributable to Covia Holdings Corporation     (48,139 )                          
                                   
Interest expense, net     24,997                            
Provision (benefit) for income taxes     4,511                            
Depreciation, depletion and amortization expense     63,996                            
EBITDA     45,365                            
                                   
Non-cash stock compensation expense(5)     2,365                            
Costs and expenses related to the Merger and integration(6)     3,156                            
Restructuring expenses(7)     3,599                            
Goodwill and other asset impairments(8)     (10,609 )                          
Adjusted EBITDA   $ 43,876                            
                                   
                                   
(1) The unaudited pro forma condensed financial information presents the Company’s combined results as if the Merger had occurred on January 1, 2017.  The pro forma financial information was prepared to give effect to events that are (i) directly attributable to the Merger; (ii) factually supportable; and (iii) expected to have a continuing impact on the Company’s results.  All material intercompany transactions during the periods presented have been eliminated.  These pro forma results include adjustments for interest expense that would have been incurred to finance the transaction and reflect purchase accounting adjustments for additional depreciation, depletion and amortization on acquired property, plant and equipment and intangible assets in prior periods which resulted in a reduction to depreciation, depletion and amortization in the current periods.  The pro forma results exclude Merger related transaction costs and expenses that were incurred in conjunction with the transaction for all periods presented.  
                                   
(2) The unaudited Covia Pro Forma Combined financial results include the aggregate results of operations for legacy Fairmount Santrol and legacy Unimin for periods preceding the June 1, 2018 merger.  
                                   
(3) Fairmount Santrol Pre-Merger financial results are for Fairmount Santrol for the three months ended March 31, 2018, as previously reported by Fairmount Santrol.  
                                   
(4) Represents amount of operating lease expense incurred for the three months ended March 31, 2019 related to intangible assets that were reclassified to Operating right-of-use assets, net on the Condensed Consolidated Balance Sheets, as a result of the adoption of Topic 842.  The expense, previously recognized as non-cash amortization expense, is now recognized in Cost of goods sold (excluding depreciation, depletion, and amortization shown separately) on the Condensed Consolidated Statement of Income (Loss).  
                                   
(5) Represents the non-cash expense for stock-based awards issued to employees and outside directors.  Stock compensation expenses are reported in Selling, general & administrative expenses ("SG&A").  
                                   
(6) Costs and expenses related to the Merger with Fairmount Santrol include legal, accounting, financial advisory services, severance, debt extinguishment, and integration expenses.  
                                   
(7) Represents expenses associated with restructuring activities as a result of the Merger and idled plant facilities, including, pension and severance expenses, in addition to other liabilities recognized.  
                                   
(8) Represents expenses associated with the impairment of goodwill in the Energy segment and the impairment of assets from idled facilities for the three months ended December 31, 2018.  
                                   
(9) In the three months ended March 31, 2019, cost of goods sold included $2.1 million of non-cash charges relating to operating leases as a result of the adoption of Topic 842.

As a result of the June 1, 2018 merger, legacy Fairmount Santrol inventories were written up to fair value under Generally Accepted Accounting Principles ("GAAP").  For the three months ended March 31, 2019, $0.8 million of this write-up was expensed through cost of goods sold, thereby reducing segment gross profit.  Of this $0.8 million for the three months ended March 31, 2019, $0.4 million impacted the Energy segment and $0.4 million impacted the Industrial segment.  For the three months ended December 31, 2018, $3.6 million of this write-up was expensed through cost of sales thereby reducing segment gross profit.  Of this $3.6 million for the three months ended December 31, 2018, $2.5 million and $1.1 million impacted the Energy and Industrial segments, respectively.

In the three months ended December 31, 2018, Energy segment gross profit was negatively impacted by $8.1 million from the in-basin facilities due to start-up costs and losses as they were scaling production.
 
   

Investor contact:
Matthew Schlarb
440-214-3284
Matthew.Schlarb@coviacorp.com

Source: Covia

 

Covia_Color_RGB.jpg

Source: Covia Holdings Corporation

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