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Covia Announces Fourth Quarter and Full Year 2018 Results

March 21, 2019
  • Fourth quarter 2018 volumes of 7.8 million tons; full year 2018 pro forma volumes of 35.2 million tons
  • Fourth quarter 2018 revenues of $441 million; full year 2018 pro forma revenues of $2.3 billion
  • Fourth quarter 2018 net loss from continuing operations of $48.1 million; full year 2018 pro forma net loss from continuing operations of $185.5 million
  • Fourth quarter 2018 Adjusted EBITDA of $43.9 million; full year 2018 pro forma Adjusted EBITDA of $455.9 million
  • Fourth quarter 2018 net cash provided by operating activities of $57.1 million

INDEPENDENCE, Ohio, March 21, 2019 (GLOBE NEWSWIRE) -- Covia (NYSE:CVIA), a leading provider of mineral-based and material solutions for the Industrial and Energy markets, today announced results for the fourth quarter and full year ended December 31, 2018. 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.

Jenniffer Deckard, President and Chief Executive Officer, commented, “We are proud of our team’s integration efforts, which are nearing completion and ahead of schedule, as well as our ability to overcome significant market headwinds and deliver fourth quarter volumes that squarely met the guidance we provided for both our Industrial and Energy segments. Our Industrial segment again posted solid top-line results aided by steady economic growth and our unique and diverse combination of mineral, geographic and end market exposure. The overall Energy market was softer than we had initially anticipated, and we faced some challenges related to the ramp-up of our local sand plants; however, we successfully navigated these challenges by leveraging our well-positioned Energy assets to deliver solutions to our customers in all major basins.”

“So far in 2019, demand within our Industrial segment has been relatively flat, and we have instituted low single-digit percentage price increases, on average, across our Industrial portfolio. We anticipate improving demand as we progress through 2019,” Ms. Deckard added. “Energy volumes through most of the first quarter were similar to fourth quarter levels, but we have seen a noticeable strengthening of demand in March. While weather and start up-related challenges have created cost headwinds in the first quarter, we have recently made significant progress in scaling our local plants and have instituted a modest price increase for Northern White sand, and we anticipate additional price opportunities in the second quarter. These positive developments have given us momentum as we exit March, and we expect a meaningfully stronger second quarter.”  

Ms. Deckard concluded, “Given our sharp focus on cash flow generation, we have also taken decisive actions to align our capacity and cost structure with current demand. We remain confident that our recent capacity and cost reduction initiatives, combined with synergy capture, capital discipline and our balanced and diverse business model, including our large base of Industrial profitability, will allow us to invest in our core businesses and generate cash flow to reduce net debt as we progress through 2019.”

Fourth Quarter 2018 Results

  • Total volumes of 7.8 million tons, a decline of 4% sequentially driven primarily by lower Energy volumes and seasonality in the Industrial segment. Fourth quarter 2018 total volumes decreased 14% compared to the fourth quarter of 2017 on a pro forma basis.
  • Total revenues of $441.3 million, a decline of 16% sequentially driven by modestly lower Energy volumes and pricing and normal Industrial seasonality. Fourth quarter 2018 total revenues were down 28% compared to the fourth quarter of 2017 on a pro forma basis due to lower Energy volumes and pricing partially offset by higher Industrial revenues.
  • Net loss from continuing operations of $48.1 million, or $0.37 per share.
  • Adjusted EBITDA of $43.9 million compared to $84.1 million in the third quarter 2018 and $127.8 million in the fourth quarter 2017 on a pro forma basis.
      °  Fourth quarter 2018 Adjusted EBITDA was negatively impacted by an $8.1 million gross margin loss from the Seiling and Kermit plants as they scaled production, and $3.6 million in non-cash inventory purchase accounting charges, partially offset by the positive impact of a $5.0 million revaluation of a contingent consideration liability.
  • Net cash flow provided by operating activities of $57.1 million.

Full Year 2018 Results

  • Total volumes of 35.2 million tons, a decline of 2% compared to 2017 on a pro forma basis.
  • Total revenues of $2.3 billion, an increase of 3% compared to 2017 on a pro forma basis.
  • Net loss from continuing operations of $185.5 million on a pro forma basis.
      °  2018 net loss from continuing operations was negatively impacted by $309.0 million in pre-tax charges resulting from $267.0 million of goodwill and asset impairment, $27.7 million of restructuring activities, and $14.3 million of non-cash stock compensation.
  • Adjusted EBITDA of $455.9 million, an increase of $3.4 million compared to 2017 on a pro forma basis.
      °  2018 Adjusted EBITDA was negatively impacted by $28.3 million in non-cash inventory purchase accounting charges, and a $21.4 million gross margin loss from local sand plants as they started and scaled production, partially offset by the positive impact of a $5.0 million revaluation of a contingent consideration liability.

Fourth Quarter 2018 Segment Results

Industrial Segment Results

  • Volumes of 3.5 million tons, up 1% from the fourth quarter of 2017 on a pro forma basis. 
  • Revenues of $185.7 million, up 2% from the fourth quarter of 2017 on a pro forma basis, aided by price increases instituted at the beginning of 2018.
  • Segment gross profit of $50.5 million, down $3.4 million, or 6%, from the fourth quarter of 2017 on a pro forma basis due to continued higher utility costs in Mexico and lower fixed cost leverage at hybrid plants due to decreased Energy volumes.
      °  Segment gross profit for the fourth quarter was negatively impacted by $1.1 million of non-cash inventory purchase accounting charges.

Energy Segment Results

  • Volumes of 4.4 million tons, down 3% sequentially.
      °  Local sand volumes were approximately 700 thousand tons in the fourth quarter of 2018 versus nearly 180 thousand tons in the third quarter of 2018.
  • Revenues of $255.6 million, down 21% sequentially, driven by lower Northern White sand volumes and pricing and a mix shift toward FOB mine sales.
  • Segment gross profit of $31.3 million, down $29.7 million sequentially, driven primarily by lower pricing and lower fixed cost leverage. 
      °  Combined, the Company’s three local sand plants generated positive gross profit during the fourth quarter; however, segment gross profit for the fourth quarter of 2018 was negatively impacted by an $8.1 million gross margin loss from its Kermit and Seiling plants as they scaled production. Additionally, gross profit was negatively impacted by $2.5 million in non-cash inventory purchase accounting charges. Combined, these items totaled $10.6 million.

Full Year 2018 Segment Results

Industrial Segment Results

  • Volumes of 14.5 million tons, similar to 2017 on a pro forma basis. 
  • Revenues of $784.3 million, up 3% over 2017 on a pro forma basis, with 2018 results aided by price increases.
  • Segment gross profit of $224.6 million, down 6% from 2017 on a pro forma basis, driven by higher energy and stripping costs and unfavorable foreign exchange changes in Mexico.
      °  Segment gross profit was negatively impacted by $3.7 million of non-cash inventory purchase accounting charges.

Energy Segment Results

  • Volumes of 20.7 million tons, down 4% from 2017, on a pro forma basis.
  • Revenues of $1.5 billion, an increase of 3% from 2017, on a pro forma basis. 2018 results benefited from higher average pricing, particularly in the first half of the year.
  • Segment gross profit of $395.7 million, down $20.6 million from 2017, on a pro forma basis.
      °  Segment gross profit for 2018 was negatively impacted by $24.6 million in non-cash inventory purchase accounting charges, $21.4 million in gross margin losses from the start-up and scaling of local sand facilities and $6.7 million in impairment charges from idled facilities. Combined, these items totaled $52.7 million.

Balance Sheet Update

  • Total liquidity of $322 million as of December 31, 2018, which is composed of $134 million in cash and cash equivalents and $188 million availability on its revolving credit facility.
      °  The Company amended the terms of its revolving credit facility to relax its covenant and maintain the facility size of $200 million.
  • Capital expenditures totaled $75.6 million during the fourth quarter of 2018 as certain expenditures which were included in its previously communicated plans for 2019 were incurred earlier than expected.

Production Rationalization

  • Covia has reduced effective annual capacity at its Tunnel City, Wisconsin plant by 2.0 million tons to 1.2 million tons.
  • The previously announced idling of the two Voca, Texas facilities, with a combined 1.6 million tons of annual capacity, was completed in the first quarter of 2019.
  • The Company has also idled its Guion, Arkansas coating plant.

Outlook

First quarter 2019 expectations are:

  • Industrial volumes of 3.5 million tons, relatively flat to first quarter of 2018 on a pro forma basis.
  • Energy volumes of 4.4 million tons, relatively flat sequentially.

Second quarter 2019 expectations are:

  • Industrial volumes of 3.8 million tons, relatively flat to the second quarter of 2018 on a pro forma basis.
  • 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, compared to previous guidance of $90 million to $110 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, March 21, 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 3864098. 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 3864098. The replay of the call will be available through March 28, 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 Amendment No. 2 to Form S-4 Registration Statement on Form S-4 as filed with the Securities and Exchange Commission (“SEC”) on April 23, 2018; 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   December   31,     Year   Ended   December   31,  
  2018     2017     2018     2017  
  (in thousands, except per share amounts)     (in thousands, except per share amounts)  
           
Revenues $ 441,330     $ 335,913     $ 1,842,937     $ 1,295,112  
Cost of goods sold (excluding depreciation, depletion, and amortization shown separately)   359,534       234,549       1,380,766       928,659  
                               
Operating expenses                              
Selling, general and administrative expenses(A)   45,828       32,832       145,593       99,087  
Depreciation, depletion and amortization expense   63,996       29,363       196,455       101,560  
Goodwill and other asset impairments   (10,609 )     -       267,034       -  
Restructuring charges   7,204       -       21,954       -  
Other operating expense (income), net   (4,694 )     1,273       (5,024 )     3,102  
Operating income (loss) from continuing operations   (19,929 )     37,896       (163,841 )     162,704  
                               
Interest expense, net   24,997       2,019       60,322       14,653  
Other non-operating expense (income), net   (1,327 )     21,540       54,832       25,989  
Income (loss) from continuing operations before benefit from income taxes   (43,599 )     14,337       (278,995 )     122,062  
                               
Provision (benefit) for income taxes   4,511       (45,285 )     3,987       (8,825 )
Net income (loss) from continuing operations   (48,110 )     59,622       (282,982 )     130,887  
Less: Net income from continuing operations attributable to the non-controlling interest   29       -       103       -  
Net income (loss) from continuing operations attributable to Covia Holdings Corporation   (48,139 )     59,622       (283,085 )     130,887  
                               
Income from discontinued operations, net of tax   -       10,763       12,587       23,284  
                               
Net income (loss) attributable to Covia Holdings Corporation $ (48,139 )   $ 70,385     $ (270,498 )   $ 154,171  
                               
Continuing operations earnings (loss) per share                              
Basic $ (0.37 )   $ 0.50     $ (2.26 )   $ 1.09  
Diluted   (0.37 )     0.50       (2.26 )     1.09  
                               
Discontinued operations earnings per share                              
Basic   -       0.09       0.10       0.20  
Diluted   -       0.09       0.10       0.20  
                               
Earnings (loss) per share                              
Basic   (0.37 )     0.59       (2.16 )     1.29  
Diluted $ (0.37 )   $ 0.59     $ (2.16 )   $ 1.29  
                               
Weighted average number of shares outstanding                              
Basic   131,182       119,645       125,514       119,645  
Diluted   131,182       119,645       125,514       119,645  
                               

(A) - Stock compensation expense of $2,365 and $5,812 for the three months and year ended December 31, 2018, respectively, is included within selling, general, and administrative expenses.

Covia              
Condensed Consolidated Statements of Cash Flows              
(unaudited)              
  Year   Ended   December   31,  
  2018     2017  
  (in thousands)  
Net income (loss) attributable to Covia Holdings Corporation $ (270,498 )   $ 154,171  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:              
Depreciation, depletion, and amortization   200,525       112,705  
Amortization of deferred financing fees   3,489       -  
Prepayment penalties on Senior Notes   2,213       -  
Goodwill and other asset impairments   267,034       -  
Restructuring charges   21,154       -  
Inventory write-downs   6,744       -  
Loss on disposal of fixed assets   107       -  
Change in fair value of interest rate swaps, net   (296 )     -  
Deferred income tax benefit   (6,542 )     (47,215 )
Stock compensation expense   8,212       -  
Net income from non-controlling interest   103       -  
Other, net   (7,507 )     (1,308 )
Change in operating assets and liabilities, net of business combination effect:              
Accounts receivable   105,850       (55,554 )
Inventories   14,653       (7,383 )
Prepaid expenses and other assets   (6,067 )     5,101  
Accounts payable   (59,062 )     32,405  
Accrued expenses   (32,725 )     39,285  
Net cash provided by operating activities   247,387       232,207  
               
Cash flows from investing activities              
Proceeds from sale of fixed assets   3,180       695  
Capital expenditures   (264,052 )     (108,854 )
Cash of HPQ Co. distributed to Sibelco prior to Merger   (31,000 )     -  
Payments to Fairmount Santrol Holdings Inc. shareholders, net of cash acquired   (64,697 )     -  
Other investing activities   -       770  
Net cash used in investing activities   (356,569 )     (107,389 )
               
Cash flows from financing activities              
Proceeds from borrowings on Term Loan   1,650,000       -  
Payments on Term Loan   (8,250 )     -  
Proceeds from borrowings on term debt   -       49,642  
Payments on term debt   -       (103 )
Prepayment on Unimin Term Loans   (314,642 )     -  
Prepayment on Senior Notes   (100,000 )     -  
Prepayment on Fairmount Santrol Holdings Inc. term loan   (695,625 )     -  
Fees for Term Loan and Senior Notes prepayment   (36,733 )     -  
Payments on capital leases and other long-term debt   (36,818 )     -  
Fees for Revolver   (4,500 )     -  
Cash Redemption payment to Sibelco   (520,377 )     -  
Proceeds from share-based awards exercised or distributed   464       -  
Tax payments for withholdings on share-based awards exercised or distributed   (318 )     -  
Dividends paid   -       (50,000 )
Net cash used in financing activities   (66,799 )     (461 )
               
Effect of foreign currency exchange rate changes   2,052       341  
Increase (decrease) in cash and cash equivalents   (173,929 )     124,698  
               
Cash and cash equivalents:              
Beginning of period   308,059       183,361  
End of period $ 134,130     $ 308,059  
               

 

Covia              
Condensed Consolidated Balance Sheets              
(unaudited)              
  December 31, 2018     December 31, 2017  
  (in thousands)  
Assets              
Current assets              
Cash and cash equivalents $ 134,130     $ 308,059  
Accounts receivable, net   267,268       219,719  
Inventories, net   162,970       79,959  
Other receivables   40,306       27,963  
Prepaid expenses and other current assets   20,941       16,322  
Current assets of discontinued operations   -       66,906  
Total current assets   625,615       718,928  
               
Property, plant and equipment, net   2,834,361       1,136,104  
Deferred tax assets, net   8,740       7,441  
Goodwill   131,655       53,512  
Intangibles, net   137,113       25,596  
Other non-current assets   18,633       2,416  
Non-current assets of discontinued operations   -       96,101  
Total assets $ 3,756,117     $ 2,040,098  
               
Liabilities and Equity              
Current liabilities              
Current portion of long-term debt $ 15,482     $ 50,045  
Accounts payable   145,070       101,983  
Accrued expenses   130,161       88,208  
Current liabilities of discontinued operations   -       10,027  
Total current liabilities   290,713       250,263  
               
Long-term debt   1,612,887       366,967  
Employee benefit obligations   54,789       97,798  
Deferred tax liabilities, net   267,350       62,614  
Other non-current liabilities   75,425       29,057  
Non-current liabilities of discontinued operations   -       8,084  
Total liabilities   2,301,164       814,783  
               
Equity              
Common stock   1,777       1,777  
Additional paid-in capital   388,027       43,941  
Retained earnings   1,647,959       1,918,457  
Accumulated other comprehensive loss   (95,225 )     (128,228 )
Treasury stock at cost   (488,141 )     (610,632 )
Non-controlling interest   556       -  
Total equity   1,454,953       1,225,315  
Total liabilities and equity $ 3,756,117     $ 2,040,098  
               

Covia
Pro Forma Segment Information
(unaudited)
(in thousands)

  Three Months Ended December 31,  
  2018     2017  
  Covia, As Reported         Covia, As Reported   Fairmount Santrol Pre-Merger(1)   Covia Pro Forma Combined(2)  
Volumes (tons)                                      
Energy   4,354           2,854     2,777     5,631  
Industrial   3,483           2,882     581     3,463  
Total volumes   7,837           5,736     3,358     9,094  
                                       
Revenues                                      
Energy $ 255,611         $ 182,638   $ 245,193   $ 427,831  
Industrial   185,719           153,275     28,743     182,018  
Total revenues   441,330           335,913     273,936     609,849  
                                       
Segment gross profit(3)                                      
Energy   31,252           59,711     76,332     136,043  
Industrial   50,544           41,653     12,253     53,906  
Total segment gross profit $ 81,796         $ 101,364   $ 88,585   $ 189,949  
                                       
  Year Ended December 31,  
  2018     2017  
  Covia, As Reported   Fairmount Santrol Pre-Merger(1)   Covia Pro Forma Combined(2)     Covia, As Reported   Fairmount Santrol Pre-Merger(1)   Covia Pro Forma Combined(2)  
Volumes (tons)                                      
Energy   16,101     4,588     20,689       11,216     10,278     21,494  
Industrial   13,480     1,048     14,528       12,070     2,478     14,548  
Total volumes   29,581     5,636     35,217       23,286     12,756     36,042  
                                       
Revenues                                      
Energy $ 1,114,424   $ 421,526   $ 1,535,950     $ 655,937   $ 834,749   $ 1,490,686  
Industrial   728,513     55,805     784,318       639,175     125,046     764,221  
Total revenues   1,842,937     477,331     2,320,268       1,295,112     959,795     2,254,907  
                                       
Segment gross profit(3)                                      
Energy   258,996     136,668     395,664       181,715     234,567     416,282  
Industrial   203,175     21,440     224,615       184,738     54,027     238,765  
Total segment gross profit $ 462,171   $ 158,108   $ 620,279     $ 366,453   $ 288,594   $ 655,047  
                                       
  Three Months Ended September 30,  
  2018     2017  
  Covia, As Reported         Covia, As Reported   Fairmount Santrol Pre-Merger(1)   Covia Pro Forma Combined(2)  
Volumes (tons)                                      
Energy   4,497           3,081     2,832     5,913  
Industrial   3,680           3,101     615     3,716  
Total volumes   8,177           6,182     3,447     9,629  
                                       
Revenues                                      
Energy $ 324,606         $ 185,693   $ 249,751   $ 435,444  
Industrial   198,762           162,115     30,299     192,414  
Total revenues   523,368           347,808     280,050     627,858  
                                       
Segment gross profit(3)                                      
Energy   60,961           55,940     80,542     136,482  
Industrial   56,805           47,174     13,663     60,837  
Total segment gross profit $ 117,766         $ 103,114   $ 94,205   $ 197,319  
                                       

__________

(1) 2018 Fairmount Santrol Pre-Merger financial results for the year ended December 31, 2018 are for Fairmount Santrol Holdings Inc. ("Fairmount Santrol"), for the five months ended May 31, 2018, the day before the merger between Fairmount Santrol and Unimin Corporation ("Unimin") occurred on June 1, 2018.  Such results are based on Fairmount Santrol's unaudited internal financial statements and have been prepared on a basis substantially consistent with Fairmount Santrol's prior audited financial statements, but have not been reviewed by the Company's independent auditors.  Both Fairmount Santrol and Unimin reported financial results on a calendar fiscal year.  2017 Fairmount Santrol Pre-Merger financial results are for Fairmount Santrol for the three months and year ended December 31, 2017 and three months ended September 30, 2017, 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 including periods preceding the June 1, 2018 merger in addition to the Covia, As Reported results for periods on and after the date of the merger.

(3) 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 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.  For the year ended December 31, 2018, $28.3 million of this write-up was expensed through cost of sales thereby reducing segment gross profit.  Of this $28.3 million for the year ended December 31, 2018, $24.6 million and $3.7 million impacted the Energy and Industrial segments, respectively.  For the three months ended September 30, 2018, $5.5 million of this write-up was expensed through cost of sales thereby reducing segment gross profit.  Of this $5.5 million, $4.1 million and $1.4 million impacted the Energy and Industrial segments, respectively.

Additionally, for the year ended December 31, 2018, the Company recognized $6.7 million of impairment charges in the Energy segment cost of sales, related to inventories located at recently idled facilities, thereby reducing segment gross profit.

In the three months and year ended December 31, 2018, Energy segment gross profit was negatively impacted by $8.1 million and $21.4 million, respectively from the in-basin facilities due to start-up costs and losses as they were scaling production.  In the three months ended September 30, 2018, Energy segment gross profit was negatively impacted by $6.3 million from the in-basin facility 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 December 31,  
  2018     2017  
  As Reported   Fairmount Santrol Pre-Merger   Merger Pro Forma Adjustments(1)   Covia Pro Forma Combined(2)     As Reported   Fairmount Santrol Pre-Merger(3)   Merger Pro Forma Adjustments(1)   Covia Pro Forma Combined(2)  
Revenues $ 441,330     $ -   $ 441,330     $ 335,913   $ 273,936   $ -   $ 609,849  
Cost of goods sold (excluding depreciation, depletion, and amortization shown separately)(4)   359,534       -     359,534       234,549     185,351     -     419,900  
                                                   
Operating expenses                                                  
Selling, general and administrative expenses   45,828       -     45,828       32,832     33,802     (6,835 )   59,799  
Depreciation, depletion and amortization expense   63,996       (16,672 )   47,324       29,363     17,411     14,171     60,945  
Goodwill and other asset impairments   (10,609 )     -     (10,609 )     -     -     -     -  
Restructuring charges   7,204       -     7,204       -     -     -     -  
Other operating expense (income), net   (4,694 )     -     (4,694 )     1,273     1,227     -     2,500  
Operating income (loss) from continuing operations   (19,929 )     16,672     (3,257 )     37,896     36,145     (7,336 )   66,705  
                                                   
Interest expense, net   24,997       (372 )   24,625       2,019     18,778     (183 )   20,614  
Loss on debt extinguishment and repurchase   -       -     -       -     2,898     -     2,898  
Other non-operating expense, net   (1,327 )     (1,289 )   (2,616 )     21,540     -     (19,300 )   2,240  
Income (loss) from continuing operations before provision (benefit) for income taxes   (43,599 )     18,333     (25,266 )     14,337     14,469     12,147     40,953  
                                                   
Provision (benefit) for income taxes   4,511       4,216     8,727       (45,285 )   (6,196 )   4,494     (46,987 )
Net income (loss) from continuing operations   (48,110 )     14,117     (33,993 )     59,622     20,665     7,653     87,940  
Less: Net income from continuing operations attributable to the non-controlling interest   29       -     29       -     104     -     104  
Net income (loss) from continuing operations attributable to Covia Holdings Corporation   (48,139 )     14,117     (34,022 )     59,622     20,561     7,653     87,836  
                                                   
Interest expense, net   24,997       (372 )   24,625       2,019     18,778     (183 )   20,614  
Provision (benefit) for income taxes   4,511       4,216     8,727       (45,285 )   (6,196 )   4,494     (46,987 )
Depreciation, depletion and amortization expense   63,996       (16,672 )   47,324       29,363     17,411     14,171     60,945  
EBITDA   45,365       1,289     46,654
      45,719
    50,554     26,135     122,408  
                                                   
Non-cash stock compensation expense(5)   2,365       -     2,365       -     2,489     -     2,489  
Costs and expenses related to the Merger and integration(6)   3,156       (1,289 )   1,867       19,300     6,835     (26,135 )   -  
Restructuring expenses(7)   3,599       -     3,599       -     -     -     -  
Goodwill and other asset impairments(8)   (10,609 )     -     (10,609 )     -     -     -     -  
Write-off deferred financing fees and loss on debt extinguishment and repurchase(9)   -       -     -       -     2,898     -     2,898  
Adjusted EBITDA $ 43,876     $ -   $ 43,876     $ 65,019   $ 62,776   $ -   $ 127,795  
                                                   
  Year Ended December 31,  
  2018     2017  
  As Reported   Fairmount Santrol Pre-Merger(1)   Merger Pro Forma Adjustments(1)   Pro Forma Combined(2)     As Reported   Fairmount Santrol Pre-Merger(3)   Merger Pro Forma Adjustments(1)   Pro Forma Combined(2)  
Revenues $ 1,842,937   $ 477,332   $ -   $ 2,320,269     $ 1,295,112   $ 959,795   $ -   $ 2,254,907  
Cost of goods sold (excluding depreciation, depletion, and amortization shown separately)(4)   1,380,766     319,224     -     1,699,990       928,659     671,201     -     1,599,860  
                                                   
Operating expenses                                                  
Selling, general and administrative expenses   145,593     44,156     -     189,749       99,087     113,240     (8,312 )   204,015  
Depreciation, depletion and amortization expense   196,455     29,313     (15,085 )   210,683       101,560     69,410     60,593     231,563  
Goodwill and other asset impairments   267,034     -     -     267,034       -     -     -     -  
Restructuring charges   21,954     -     -     21,954       -     -     -     -  
Other operating expense (income), net   (5,024 )   (2,292 )   -     (7,316 )     3,102     (1,072 )   -     2,030  
Operating income (loss) from continuing operations   (163,841 )   86,931     15,085     (61,825 )     162,704     107,016     (52,281 )   217,439  
                                                   
Interest expense, net   60,322     25,686     8,428     94,436       14,653     56,408     30,876     101,937  
Loss on debt extinguishment and repurchase   -     -     -     -       -     2,898     -     2,898  
Other non-operating expense, net   54,832     28,057     (79,169 )   3,720       25,989     -     (19,300 )   6,689  
Income (loss) from continuing operations before provision (benefit) for income taxes   (278,995 )   33,188     85,826     (159,981 )     122,062     47,710     (63,857 )   105,915  
                                                   
Provision (benefit) for income taxes   3,987     1,683     19,740     25,410       (8,825 )   (5,715 )   (23,627 )   (38,167 )
Net income (loss) from continuing operations   (282,982 )   31,505     66,086     (185,391 )     130,887     53,425     (40,230 )   144,082  
Less: Net income from continuing operations attributable to the non-controlling interest   103     3     -     106       -     297     -     297  
Net income (loss) from continuing operations attributable to Covia Holdings Corporation   (283,085 )   31,502     66,086     (185,497 )     130,887     53,128     (40,230 )   143,785  
                                                   
Interest expense, net   60,322     25,686     8,428     94,436       14,653     56,408     30,876     101,937  
Provision (benefit) for income taxes   3,987     1,683     19,740     25,410       (8,825 )   (5,715 )   (23,627 )   (38,167 )
Depreciation, depletion and amortization expense   196,455     29,313     (15,085 )   210,683       101,560     69,410     60,593     231,563  
EBITDA   (22,321 )   88,184     79,169     145,032       238,275     173,231     27,612     439,118  
                                                   
Non-cash stock compensation expense(5)   5,812     8,482     -     14,294       -     10,071     -     10,071  
Costs and expenses related to the Merger and integration(6)   52,979     28,057     (79,169 )   1,867       19,300     8,312     (27,612 )   -  
Restructuring expenses(7)   27,660     -     -     27,660       -     -     -     -  
Goodwill and other asset impairments(8)   267,034     -     -     267,034       -     -     -     -  
Write-off of deferred financing costs and loss on debt extinguishment and repurchase(9)   -     -     -     -       -     3,287     -     3,287  
Adjusted EBITDA $ 331,164   $ 124,723   $ -   $ 455,887     $ 257,575   $ 194,901   $ -   $ 452,476  
                                                   
  Three Months Ended September 30,  
  2018     2017  
  As Reported   Fairmount Santrol Pre-Merger(1)   Merger Pro Forma Adjustments(1)   Pro Forma Combined(2)     As Reported   Fairmount Santrol Pre-Merger(3)   Merger Pro Forma Adjustments(1)   Pro Forma Combined(2)  
Revenues $ 523,368     $ -   $ 523,368     $ 347,808   $ 280,050   $ -   $ 627,858  
Cost of goods sold (excluding depreciation, depletion, and amortization shown separately)(4)   405,602       -     405,602       244,694     185,845     -     430,539  
                                                   
Operating expenses                                                  
Selling, general and administrative expenses   43,164       -     43,164       24,210     31,105     (1,333 )   53,982  
Depreciation, depletion and amortization expense   68,584       (10,392 )   58,192       24,639     17,497     14,206     56,342  
Goodwill and other asset impairments   265,343       -     265,343       -     -     -     -  
Restructuring charges   14,750       -     14,750       -     -     -     -  
Other operating expense (income), net   (974 )     -     (974 )     (6 )   (1,594 )   -     (1,600 )
Operating income (loss) from continuing operations   (273,101 )     10,392     (262,709 )     54,271     47,197     (12,873 )   88,595  
                                                   
Interest expense, net   23,530       (372 )   23,158       5,104     12,110     9,429     26,643  
Other non-operating expense, net   9,043       (5,600 )   3,443       1,374     -     -     1,374  
Income from continuing operations before provision for income taxes   (305,674 )     16,364     (289,310 )     47,793     35,087     (22,302 )   60,578  
                                                   
Provision (benefit) for income taxes   (16,848 )     3,764     (13,084 )     20,090     1,156     (8,252 )   12,994  
Net income (loss) from continuing operations   (288,826 )     12,600     (276,226 )     27,703     33,931     (14,050 )   47,584  
Less: Net income (loss) from continuing operations attributable to the non-controlling interest   (32 )     -     (32 )     -     (25 )   -     (25 )
Net income (loss) from continuing operations attributable to Covia Holdings Corporation   (288,794 )     12,600     (276,194 )     27,703     33,956     (14,050 )   47,609  
                                                   
Interest expense, net   23,530       (372 )   23,158       5,104     12,110     9,429     26,643  
Provision (benefit) for income taxes   (16,848 )     3,764     (13,084 )     20,090     1,156     (8,252 )   12,994  
Depreciation, depletion and amortization expense   68,584       (10,392 )   58,192       24,639     17,497     14,206     56,342  
EBITDA   (213,528 )     5,600     (207,928 )     77,536     64,719     1,333     143,588  
                                                   
Non-cash stock compensation expense(5)   2,654       -     2,654       -     2,402     -     2,402  
Costs and expenses related to the Merger and integration(6)   5,600       (5,600 )   -       -     1,333     (1,333 )   -  
Restructuring expenses(7)   24,061       -     24,061       -     -     -     -  
Goodwill and other asset impairments(8)   265,343       -     265,343       -     -     -     -  
Adjusted EBITDA $ 84,130     $ -   $ 84,130     $ 77,536   $ 68,454   $ -   $ 145,990  
                                                   

__________

(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.  2018 Fairmount Santrol Pre-Merger financial results for the year ended December 31, 2018 are for Fairmount Santrol Holdings Inc. ("Fairmount Santrol"), for the five months ended May 31, 2018, the day before the merger between Fairmount Santrol and Unimin Corporation ("Unimin") occurred on June 1, 2018.

(2) The unaudited Covia Pro Forma Combined financial results include the aggregate results of operations for legacy Fairmount Santrol and legacy Unimin including periods preceding the June 1, 2018 merger in addition to the Covia, As Reported results for periods on and after the date of the merger.

(3) 2017 Fairmount Santrol Pre-Merger financial results are for Fairmount Santrol for the three months and year ended December 31, 2017 and three months ended September 30, 2017, as previously reported by Fairmount Santrol.

(4) 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 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.  For the year ended December 31, 2018, $28.3 million of this write-up was expensed through cost of sales thereby reducing segment gross profit.  Of this $28.3 million for the year ended December 31, 2018, $24.6 million and $3.7 million impacted the Energy and Industrial segments, respectively.  For the three months ended September 30, 2018, $5.5 million of this write-up was expensed through cost of sales thereby reducing segment gross profit.  Of this $5.5 million, $4.1 million and $1.4 million impacted the Energy and Industrial segments, respectively.

Additionally, for the year ended December 31, 2018, the Company recognized $6.7 million of impairment charges in the Energy segment cost of sales, related to inventories located at recently idled facilities, thereby reducing segment gross profit.

In the three months and year ended December 31, 2018, Energy segment gross profit was negatively impacted by $8.1 million and $21.4 million, respectively from the in-basin facilities due to start-up costs and losses as they were scaling production.  In the three months ended September 30, 2018, Energy segment gross profit was negatively impacted by $6.3 million from the in-basin facility losses as they were scaling production.

(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.  Additionally, it includes stock compensation expense related to accelerated awards as a result of the Merger.

(7) Represents expenses associated with restructuring activities as a result of the Merger and idled plant facilities, including, inventory write-downs, pension and severance expenses, in addition to other liabilities recognized.  For the year ended December 31, 2018 and for the three months ended September 30, 2018, inventory write-downs of $6.7 million are recorded in cost of goods sold.  In the three months and year ended December 31, 2018, pension related income of $3.6 million and $1.0 million are recorded in Other non-operating expense, net.  In the three months ended September 30, 2018, pension related expenses of $2.6 million is recorded in Other non-operating expense, net.

(8) Represents expenses associated with the impairment of goodwill in the Energy segment and the impairment of assets from recently idled facilities for the three months and year ended December 31, 2018.  Also includes charges from a terminated project for the year ended December 31, 2018 due to post-Merger synergies and capital optimization.

(9) Represents write-off of deferring financing fees and debt extinguishment losses related to the legacy Fairmount Santrol debt refinancing and prepayment activities in 2017.

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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