August 8, 2019 - 6:00 AM EDT
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Covia Announces Second Quarter 2019 Results
  • Sold 8.2 million tons, up 2% sequentially, with revenues up 4% sequentially
  • Incurred $34 million net loss from continuing operations
  • Improved Adjusted EBITDA to $65 million, up $31 million sequentially
  • Generated $107 million in cash flow from operations
  • Announced $240 million in non-core asset divestitures

INDEPENDENCE, Ohio, Aug. 08, 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 second quarter ended June 30, 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.

“During the second quarter, our team delivered strong sequential profitability growth through a combination of improved volumes and pricing, and lower costs. These successes, aided by improved working capital, translated into operating cash flow of $107 million during the quarter,” said Richard Navarre, Chairman, President and Chief Executive Officer. “In addition to these operational achievements, we also announced the divesture of non-core assets for $240 million to accelerate the strengthening of our balance sheet.”

“As we move forward, we are executing on multiple initiatives across the organization to reduce costs, optimize assets and organically grow our Industrial segment. We believe these initiatives will improve margins and drive cash flow generation,” Mr. Navarre added. “These actions should serve not only to solidify our balance sheet, but also strengthen our position as a low-cost leader, allowing us to successfully navigate changes in market conditions and capture growth opportunities.”

Second Quarter 2019 Results

  • Total volumes increased 2% sequentially to 8.2 million tons, and decreased 19% compared to the second quarter of 2018 on a pro forma basis.
  • Total revenues increased 4% sequentially to $444.9 million, and decreased 38% compared to the second quarter of 2018 on a pro forma basis.
  • Selling, general and administrative expenses decreased 8% sequentially to $38.6 million, and decreased 25% compared to the second quarter of 2018 on a pro forma basis.
    • Second quarter 2019 selling, general and administrative expenses include $3.3 million in non-cash stock compensation expense.
  • Net loss from continuing operations totaled $34.4 million, or $0.26 per share.
  • Adjusted EBITDA of $65.3 million, an increase of $30.9 million sequentially, compared to $178.6 million in the second quarter of 2018 on a pro forma basis.

Second Quarter 2019 Segment Results

Industrial Segment Results

  • Volumes of 3.6 million tons, a decrease of 6% compared to the second quarter of 2018 on a pro forma basis, driven primarily by softness in building products, which was impacted by unseasonably wet weather. 
  • Revenues of $193.4 million, a decrease of 6% from the second quarter of 2018 on a pro forma basis, driven primarily by lower transportation-related revenues.
  • Segment gross profit and segment contribution margin of $65.1 million, an increase of $3.0 million from the second quarter of 2018 on a pro forma basis, due to increased pricing and cost improvements.
  • Signed several multi-year contracts with Industrial customers since the beginning of the year, representing over 2 million tons of annual volume commitments, which will help leverage fixed costs across Industrial and hybrid plants.

Energy Segment Results

  • Volumes of 4.6 million tons, an increase of 3% sequentially, driven primarily by growth in local sand volumes.
  • Revenues of $251.5 million, an increase of 7% sequentially, driven primarily by higher pricing for Northern White Sand.
  • Segment gross profit of $33.9 million. Segment contribution margin of $40.9 million, an increase of $18.9 million sequentially, driven primarily by improved Northern White Sand pricing and lower costs.
    • Segment contribution margin was negatively impacted by $2.1 million in non-cash charges related to the new lease accounting standard in both periods.
    • Segment contribution margin excludes the impact from idled facilities and excess railcars on gross profit, which Company management believes better reflects the operating performance of the segment.

Improved Liquidity Position

  • Generated cash flow from operations of $106.5 million in the second quarter of 2019, driven by improved profitability and working capital.
  • Total liquidity of $300.8 million as of June 30, 2019, which was composed of $112.1 million in cash and cash equivalents and $188.7 million of availability under the Company’s revolving credit facility.
  • Second quarter 2019 capital expenditures totaled $26.6 million, primarily related to completion of local sand facilities and the expansion project of the Canoitas plant in Mexico.
  • Expect gross cash proceeds of $240 million from the sale of the Calera, Alabama lime facility and the Winchester & Western Railroad. The Company received $135 million in August, and the remainder is expected to be received by the end of the third quarter. Net operating loss carryforwards are expected to minimize cash taxes resulting from these sales. In 2018, these assets generated $20.4 million of segment contribution margin.

Outlook

The Company’s third quarter 2019 expectations are:

  • Industrial and Energy volumes similar to second quarter 2019 levels.

The Company’s full year 2019 expectations are:

  • 2019 selling, general and administrative expenses of $145 million to $155 million, which includes approximately $10 million in non-cash stock compensation expense. This represents a reduction from previous guidance of $160 million to $170 million.
  • 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 segment contribution margin, 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 segment contribution margin as gross profit excluding any selling, general and administrative costs and corporate costs, and also excludes operating costs of idled facilities and excess railcar capacity. 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 segment contribution margin, 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 on August 8, 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 2177169. 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 2177169. The replay of the call will be available through August 15, 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, 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 June 30,  Six Months Ended June 30, 
  2019  2018  2019  2018 
  (in thousands, except per share amounts)  (in thousands, except per share amounts) 
Revenues $444,936  $508,418  $873,182  $878,239 
Cost of goods sold (excluding depreciation, depletion,                
and amortization shown separately)  345,969   355,311   707,529   615,630 
                 
Operating expenses                
Selling, general and administrative expenses(A)  38,644   31,377   80,604   56,601 
Depreciation, depletion and amortization expense  59,204   36,744   117,299   63,875 
Asset impairments  -   12,300   -   12,300 
Restructuring and other charges  9,535   -   11,537   - 
Other operating expense (income), net  1,670   1,150   (4,722)  1,663 
Operating income (loss) from continuing operations  (10,086)  71,536   (39,065)  128,170 
                 
Interest expense, net  27,866   8,991   53,002   13,669 
Other non-operating expense, net  1,571   38,923   3,758   44,223 
Income (loss) from continuing operations before provision (benefit) for income taxes  (39,523)  23,622   (95,825)  70,278 
                 
Provision (benefit) for income taxes  (5,136)  6,454   (9,190)  16,324 
Net income (loss) from continuing operations  (34,387)  17,168   (86,635)  53,954 
Less: Net income from continuing operations attributable to the non-controlling interest  7   106   4   106 
Net income (loss) from continuing operations attributable to Covia Holdings Corporation  (34,394)  17,062   (86,639)  53,848 
                 
Income from discontinued operations, net of tax  -   3,830   -   12,587 
                 
Net income (loss) attributable to Covia Holdings Corporation $(34,394) $20,892  $(86,639) $66,435 
                 
Continuing operations earnings (loss) per share                
Basic $(0.26) $0.14  $(0.66) $0.44 
Diluted  (0.26)  0.14   (0.66)  0.44 
                 
Discontinued operations earnings per share                
Basic  -   0.03   -   0.11 
Diluted  -   0.03   -   0.10 
                 
Earnings (loss) per share                
Basic  (0.26)  0.17   (0.66)  0.55 
Diluted $(0.26) $0.17  $(0.66) $0.54 
                 
Weighted average number of shares outstanding                
Basic  131,458   123,460   131,373   121,552 
Diluted  131,458   124,166   131,373   122,258 
                 
(A) - Included within selling, general, and administrative expenses is stock compensation expense of $3.3 million and $0.8 million for the three months ended June 30, 2019 and 2018, respectively, and $6.1 million and $0.8 million for the six months ended June 30, 2019 and 2018, respectively. 


Covia        
Condensed Consolidated Statements of Cash Flows        
(unaudited)        
  Six Months Ended June 30, 
  2019  2018 
  (in thousands) 
Net income (loss) attributable to Covia Holdings Corporation $(86,639) $66,435 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation, depletion, and amortization  117,299   68,396 
Amortization of deferred financing costs  2,977   - 
Prepayment penalties on Senior Notes  -   2,213 
Asset impairments  -   12,300 
(Gain) loss on disposal of fixed assets  1,959   (81)
Change in fair value of interest rate swaps, net  -   (1,581)
Deferred income tax provision (benefit)  (13,035)  1,564 
Stock compensation expense  6,082   3,193 
Net income from non-controlling interest  4   106 
Other, net  6,122   4,653 
Change in operating assets and liabilities, net of business combination effect:        
Accounts receivable  (24,701)  (44,469)
Inventories  6,320   1,210 
Prepaid expenses and other assets  4,718   (146)
Accounts payable  (2,260)  3,362 
Accrued expenses  32,580   (31,572)
Net cash provided by operating activities  51,426   85,583 
         
Cash flows from investing activities        
Capital expenditures  (59,469)  (115,709)
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)
Capitalized interest  (3,283)  - 
Proceeds from sale of fixed assets  130   222 
Net cash used in investing activities  (62,622)  (211,184)
         
Cash flows from financing activities        
Proceeds from borrowings on Term Loan  -   1,650,000 
Payments on Term Loan  (8,250)  - 
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 other long-term debt  (76)  (23,237)
Payments on finance lease liabilities  (2,237)  (2,143)
Fees for Revolver  -   (4,500)
Cash Redemption payment to Sibelco  -   (520,377)
Proceeds from share-based awards exercised or distributed  14   2 
Tax payments for withholdings on share-based awards exercised or distributed  (486)  (1)
Net cash used in financing activities  (11,035)  (47,256)
         
Effect of foreign currency exchange rate changes  244   1,168 
Decrease in cash and cash equivalents  (21,987)  (171,689)
         
Cash and cash equivalents:        
Beginning of period  134,130   308,059 
End of period $112,143  $136,370 


Covia        
Condensed Consolidated Balance Sheets        
  (unaudited)  (audited) 
  June 30, 2019  December 31, 2018 
  (in thousands) 
Assets        
Current assets        
Cash and cash equivalents $112,143  $134,130 
Accounts receivable, net  284,864   267,268 
Inventories, net  151,801   162,970 
Other receivables  32,535   40,306 
Prepaid expenses and other current assets  16,400   20,941 
Assets held for sale  133,377   - 
Total current assets  731,120   625,615 
         
Property, plant and equipment, net  2,682,819   2,834,361 
Operating right-of-use assets, net  396,680   - 
Deferred tax assets, net  7,362   8,740 
Goodwill  119,822   131,655 
Intangibles, net  68,212   137,113 
Other non-current assets  30,799   18,633 
Total assets $4,036,814  $3,756,117 
         
Liabilities and Equity        
Current liabilities        
Current portion of long-term debt $15,405  $15,482 
Operating lease liabilities, current  67,720   - 
Accounts payable  118,199   145,070 
Accrued expenses  130,025   120,424 
Deferred revenue  18,361   9,737 
Liabilities held for sale  23,306   - 
Total current liabilities  373,016   290,713 
         
Long-term debt  1,607,041   1,612,887 
Operating lease liabilities, non-current  296,678   - 
Employee benefit obligations  54,209   54,789 
Deferred tax liabilities, net  249,001   267,350 
Other non-current liabilities  87,516   75,425 
Total liabilities  2,667,461   2,301,164 
         
Equity        
Common stock  1,777   1,777 
Additional paid-in capital  389,000   388,027 
Retained earnings  1,561,320   1,647,959 
Accumulated other comprehensive loss  (100,287)  (95,225)
Treasury stock at cost  (483,018)  (488,141)
Non-controlling interest  561   556 
Total equity  1,369,353   1,454,953 
Total liabilities and equity $4,036,814  $3,756,117 


Covia              
Pro Forma Segment Information           
(unaudited)              
(in thousands)              
  Three Months Ended June 30, 
  2019  2018 
  Covia, As Reported  Covia, As Reported Fairmount Santrol Pre-Merger(1) Covia Pro Forma Combined(2) 
Volumes (tons)              
Energy  4,582   4,274  1,953  6,227 
Industrial  3,596     3,346    470    3,816 
Total volumes  8,178   7,620  2,423  10,043 
               
Revenues              
Energy $251,547  $326,746 $179,345 $506,091 
Industrial  193,389   181,672  24,649  206,321 
Total revenues  444,936   508,418  203,994  712,412 
               
Segment gross profit(3)              
Energy  33,858   101,288  60,553  161,841 
Industrial  65,109   51,819  10,294  62,113 
Total segment gross profit  98,967   153,107  70,847  223,954 
               
Segment contribution margin (non-GAAP)(4)              
Energy  40,912   103,390  64,756  168,146 
Industrial  65,109   51,819  10,294  62,113 
Total segment contribution margin (non-GAAP) $106,021  $155,209  75,050 $230,259 
               
Segment contribution margin per ton (non-GAAP)(4)              
Energy $8.93  $24.19 $33.16 $27.00 
Industrial  18.11   15.49  21.90  16.28 
Total segment contribution margin per ton (non-GAAP) $12.96  $20.37 $30.97 $22.93 
               
  Six Months Ended June 30, 
  2019  2018 
  Covia, As Reported  Covia, As Reported Fairmount Santrol Pre-Merger(1) Covia Pro Forma Combined(2) 
Volumes (tons)              
Energy  9,014   7,250  4,588  11,838 
Industrial  7,161   6,317  1,048  7,365 
Total volumes  16,175   13,567  5,636  19,203 
               
Revenues              
Energy $487,622  $534,207 $421,526 $955,733 
Industrial  385,560   344,032  55,805  399,837 
Total revenues  873,182   878,239  477,331  1,355,570 
               
Segment gross profit(3)              
Energy  48,922   166,783  136,668  303,451 
Industrial  116,731   95,826  21,440  117,266 
Total segment gross profit  165,653   262,609  158,108  420,717 
               
Segment contribution margin (non-GAAP)(4)              
Energy  62,931   168,885  147,394  316,279 
Industrial  116,731   95,826  21,440  117,266 
Total segment contribution margin (non-GAAP) $179,662  $264,711  168,834 $433,545 
               
Segment contribution margin per ton (non-GAAP)(4)              
Energy $6.98  $23.29 $32.13 $26.72 
Industrial  16.30   15.17  20.46  15.92 
Total segment contribution margin per ton (non-GAAP) $11.11  $19.51 $29.96 $22.58 
               
  Three Months Ended March 31,           
  2019           
  Covia, As Reported           
Volumes (tons)              
Energy  4,432           
Industrial  3,565           
Total volumes  7,997           
               
Revenues              
Energy $236,075           
Industrial  192,171           
Total revenues  428,246           
               
Segment gross profit(3)              
Energy  15,064           
Industrial  51,622           
Total segment gross profit  66,686           
               
Segment contribution margin (non-GAAP)(4)              
Energy  22,019           
Industrial  51,622           
Total segment contribution margin (non-GAAP) $73,641           
               
Segment contribution margin per ton (non-GAAP)(4)              
Energy $4.97           
Industrial  14.48           
Total segment contribution margin per ton (non-GAAP) $9.21           
__________ 
  
(1) 2018 Pre-Merger financial results are for Fairmount Santrol Holdings Inc. ("Fairmount Santrol"), for the two and 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. 
  
(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 and six months ended June 30, 2019, Energy segment gross profit was negatively impacted by the $2.1 million and $4.2 million, respectively, of operating lease expense incurred 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).

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 and six months ended June 30, 2019, $0.2 million and $1.0 million, respectively, of this write-up was expensed through cost of goods sold, thereby reducing segment gross profit.  All of the $0.2 million for the three months ended June 30, 2019 impacted the Industrial segment.  Of the $1.0 million in the six months ended June 30, 2019, $0.4 million impacted the Energy segment and $0.6 million impacted the Industrial segment.
 
  
(4) We define segment contribution margin as segment revenue less segment cost of sales, excluding any depreciation, depletion and amortization expenses, selling, general, and administrative costs, and operating costs of idled facilities and excess railcar capacity.  Operating costs of idled facilities and excess railcar capacity costs, which are both entirely attributable to the Energy segment, were $7.1 million and $2.1 million in the three months ended June 30, 2019 and 2018, respectively, and $14.0 million and $2.1 million in the six months ended June 30, 2019 and 2018, respectively.  Segment contribution margin is a non-GAAP financial measure.  A reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures is provided in tables that follow. 


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 June 30, 
  2019  2018 
  As Reported  As Reported Fairmount Santrol Pre-Merger(3) Merger Pro Forma Adjustments(1) Covia Pro Forma Combined(2) 
Revenues $444,936  $508,418 $203,994 $- $712,412 
Cost of goods sold (excluding depreciation, depletion,                 
and amortization shown separately)(4)  345,969   355,311  133,146  -  488,457 
                  
Operating expenses                 
Selling, general and administrative expenses  38,644   31,377  20,137  -  51,514 
Depreciation, depletion and amortization expense  59,204   36,744  12,088  5,971  54,803 
Asset impairments  -   12,300  -  -  12,300 
Restructuring and other charges  9,535     -    -  -  - 
Other operating expense (income), net  1,670   1,150  (1,563 -  (413)
Operating income (loss) from continuing operations  (10,086)  71,536  40,186  (5,971) 105,751 
                  
Interest expense, net  27,866   8,991  11,903  4,907  25,801 
Other non-operating expense, net  1,571   38,923  24,723  (63,646 - 
Income (loss) from continuing operations before provision (benefit) for income taxes  (39,523)  23,622  3,560  52,768  79,950 
                  
Provision (benefit) for income taxes  (5,136)  6,454  872  11,063  18,389 
Net income (loss) from continuing operations  (34,387)  17,168  2,688  41,705  61,561 
Less: Net income from continuing operations attributable to the non-controlling interest  7   106  -  -  106 
Net income (loss) from continuing operations attributable to Covia Holdings Corporation  (34,394)  17,062  2,688  41,705  61,455 
                  
Interest expense, net  27,866   8,991  11,903  4,907  25,801 
Provision (benefit) for income taxes  (5,136)  6,454  872  11,063  18,389 
Depreciation, depletion and amortization expense  59,204   36,744  12,088  5,971  54,803 
EBITDA  47,540   69,251  27,551  63,646  160,448 
                  
Non-cash charges relating to operating leases(4)  2,100   -  -  -  - 
Non-cash stock compensation expense(5)  3,316   793  5,063  -  5,856 
Costs and expenses related to the Merger and integration(6)  245   38,923  24,723  (63,646) - 
Restructuring and other charges(7)  12,124   -  -  -  - 
Asset impairments(8)  -   12,300  -  -  12,300 
Adjusted EBITDA $65,325  $121,267 $57,337 $- $178,604 
                  
  Six Months Ended June 30, 
  2019  2018 
  As Reported  As Reported Fairmount Santrol Pre-Merger(3) Merger Pro Forma Adjustments(1) Pro Forma Combined(2) 
Revenues $873,182  $878,239 $477,332 $- $1,355,571 
Cost of goods sold (excluding depreciation, depletion,                 
and amortization shown separately)(4)  707,529   615,630  319,224  -  934,854 
                  
Operating expenses                 
Selling, general and administrative expenses  80,604   56,601  44,156  -  100,757 
Depreciation, depletion and amortization expense  117,299   63,875  29,313  1,587  94,775 
Asset impairments  -   12,300  -  -  12,300 
Restructuring and other charges  11,537   -  -  -  - 
Other operating expense (income), net  (4,722)  1,663  (2,292) -  (629)
Operating income (loss) from continuing operations  (39,065)  128,170  86,931  (1,587) 213,514 
                  
Interest expense, net  53,002   13,669  25,686  8,799  48,154 
Loss on debt extinguishment and repurchase  -   -  -  -  - 
Other non-operating expense, net  3,758   44,223  28,057  (77,880) (5,600)
Income (loss) from continuing operations before provision (benefit) for income taxes  (95,825)  70,278  33,188  67,494  170,960 
                  
Provision (benefit) for income taxes  (9,190)  16,324  1,683  15,524  33,531 
Net income (loss) from continuing operations  (86,635)  53,954  31,505  51,970  137,429 
Less: Net income from continuing operations attributable to the non-controlling interest  4   106  3  -  109 
Net income (loss) from continuing operations attributable to Covia Holdings Corporation  (86,639)  53,848  31,502  51,970  137,320 
                  
Interest expense, net  53,002   13,669  25,686  8,799  48,154 
Provision (benefit) for income taxes  (9,190)  16,324  1,683  15,524  33,531 
Depreciation, depletion and amortization expense  117,299   63,875  29,313  1,587  94,775 
EBITDA  74,472   147,716  88,184  77,880  313,780 
                  
Non-cash charges relating to operating leases(4)  4,200   -  -  -  - 
Non-cash stock compensation expense(5)  6,082   793  8,482  -  9,275 
Costs and expenses related to the Merger and integration(6)  896   44,223  28,057  (77,880) (5,600)
Restructuring and other charges(7)  14,126   -  -  -  - 
Asset impairments(8)  -   12,300  -  -  12,300 
Adjusted EBITDA $99,776  $205,032 $124,723 $- $329,755 
                  
  Three Months Ended March 31,              
  2019              
  As Reported              
Revenues $428,246              
Cost of goods sold (excluding depreciation, depletion,                 
and amortization shown separately)(4)  361,560              
                  
Operating expenses                 
Selling, general and administrative expenses  41,960              
Depreciation, depletion and amortization expense  58,095              
Goodwill and other asset impairments  -              
Restructuring and other charges  2,002              
Other operating expense (income), net  (6,392)             
Operating income (loss) from continuing operations  (28,979)             
                  
Interest expense, net  25,136              
Other non-operating expense, net  2,187              
Income from continuing operations before provision for income taxes  (56,302)             
                  
Provision (benefit) for income taxes  (4,054)             
Net income (loss) from continuing operations  (52,248)             
Less: Net income (loss) from continuing operations attributable to the non-controlling interest  (3)             
Net income (loss) from continuing operations attributable to Covia Holdings Corporation  (52,245)             
                  
Interest expense, net  25,136              
Provision (benefit) for income taxes  (4,054)             
Depreciation, depletion and amortization expense  58,095              
EBITDA  26,932              
                  
Non-cash charges relating to operating leases(4)  2,100              
Non-cash stock compensation expense(5)  2,767              
Costs and expenses related to the Merger and integration(6)  651              
Restructuring and other charges(7)  2,002              
Adjusted EBITDA $34,452              
__________ 
  
(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) 2018 Pre-Merger financial results are for Fairmount Santrol Holdings Inc. ("Fairmount Santrol"), for the two and 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. 
  
(4) In the three and six months ended June 30, 2019, Energy segment gross profit was negatively impacted by the $2.1 million and $4.2 million, respectively, of operating lease expense incurred 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 restructuring-related SG&A expenses. 
  
(8) Represents expenses from a terminated project in 2018 due to post-Merger synergies and capital optimization. 


Covia 
Pro Forma Segment Contribution Margin & Reconciliation to Most Directly Comparable GAAP Measures (unaudited) 
The following table reconciles segment contribution margin, a non-GAAP financial measure, to the most directly comparable GAAP measure, segment gross profit 
               
  Three Months Ended June 30, 
  2019  2018 
  As Reported  Covia, As Reported Fairmount Santrol Pre-Merger(1) Covia Pro Forma Combined(2) 
Segment gross profit(3)              
Energy $33,858  $101,288 $60,553 $161,841 
Industrial  65,109   51,819  10,294  62,113 
Total segment gross profit  98,967   153,107  70,847    223,954 
               
Operating expenses excluded from segment contribution margin(4)  7,054     2,102  4,203  6,305 
               
Segment contribution margin (non-GAAP)(4)              
Energy  40,912   103,390  64,756  168,146 
Industrial  65,109   51,819  10,294  62,113 
Total segment contribution margin (non-GAAP) $106,021  $155,209 $75,050 $230,259 
               
Segment contribution margin per ton (non-GAAP)(4)              
Energy $8.93  $24.19 $33.16 $27.00 
Industrial  18.11   15.49  21.90  16.28 
Total segment contribution margin per ton (non-GAAP) $12.96  $20.37 $30.97 $22.93 
               
  Six Months Ended June 30, 
  2019  2018 
  As Reported  Covia, As Reported Fairmount Santrol Pre-Merger(1) Covia Pro Forma Combined(2) 
Segment gross profit(3)              
Energy $48,922  $166,783 $136,668 $303,451 
Industrial  116,731   95,826  21,440  117,266 
Total segment gross profit  165,653   262,609  158,108  420,717 
               
Operating expenses excluded from segment contribution margin (non-GAAP)(4)  14,009   2,102  10,726  12,828 
               
Segment contribution margin (non-GAAP)(4)              
Energy  62,931   168,885  147,394  316,279 
Industrial  116,731   95,826  21,440  117,266 
Total segment contribution margin (non-GAAP) $179,662  $264,711 $168,834 $433,545 
               
Segment contribution margin per ton (non-GAAP)(4)              
Energy $6.98  $23.29 $32.13 $26.72 
Industrial  16.30   15.17  20.46  15.92 
Total segment contribution margin per ton (non-GAAP) $11.11  $19.51   $29.96 $22.58 
               
  Three Months Ended March 31,           
  2019           
  As Reported           
Segment gross profit(3)              
Energy $15,064           
Industrial  51,622           
Total segment gross profit  66,686           
               
Operating expenses excluded from segment contribution margin (non-GAAP)(4)  6,955           
               
Segment contribution margin (non-GAAP)(4)              
Energy  22,019           
Industrial  51,622           
Total segment contribution margin (non-GAAP) $73,641           
               
Segment contribution margin per ton (non-GAAP)(4)              
Energy $4.97           
Industrial  14.48           
Total segment contribution margin per ton (non-GAAP) $9.21           
__________ 
  
(1) 2018 Pre-Merger financial results are for Fairmount Santrol Holdings Inc. ("Fairmount Santrol"), for the two and 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. 
  
(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 and six months ended June 30, 2019, Energy segment gross profit was negatively impacted by the $2.1 million and $4.2 million, respectively, of operating lease expense incurred 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).

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 and six months ended June 30, 2019, $0.2 million and $1.0 million, respectively, of this write-up was expensed through cost of goods sold, thereby reducing segment gross profit.  All of the $0.2 million for the three months ended June 30, 2019 impacted the Industrial segment.  Of the $1.0 million in the six months ended June 30, 2019, $0.4 million impacted the Energy segment and $0.6 million impacted the Industrial segment.
 
  
(4) We define segment contribution margin as segment revenue less segment cost of sales, excluding any depreciation, depletion and amortization expenses, selling, general, and administrative costs, and operating costs of idled facilities and excess railcar capacity.  Operating costs of idled facilities and excess railcar capacity costs, which are both entirely attributable to the Energy segment, were $7.1 million and $2.1 million in the three months ended June 30, 2019 and 2018, respectively, and $14.0 million and $2.1 million in the six months ended June 30, 2019 and 2018, respectively.  Segment contribution margin is a non-GAAP financial measure. 

Investor contact:
Matthew Schlarb
440-214-3284
[email protected] 

Source: Covia

 

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Source: GlobeNewswire (August 8, 2019 - 6:00 AM EDT)

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