- Volumes of 8.2 million tons, down 19% sequentially, and revenues of $523 million, down 27% sequentially, both on a pro forma basis
- Net loss of $289 million driven primarily by $295 million of pre-tax impairments, restructuring and merger-related charges
- Adjusted EBITDA of $84.1 million, down 53% sequentially on a pro forma basis due to lower Energy volumes and pricing
- Net cash flow provided by operating activities of $105 million
- Solid Industrial segment gross profit results of $56.8 million
- All in-basin plants online and expected to reach combined 8 million ton annual production capacity by first quarter of 2019
INDEPENDENCE, Ohio, Nov. 14, 2018 (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 third quarter ended September 30, 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 four months ended September 30, 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, which is 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.
Third Quarter 2018 Results
- Total volumes of 8.2 million tons, a decline of 15% compared to the third quarter of 2017 and down 19% sequentially, both on a pro forma basis, driven by lower Energy volumes.
- Total revenues of $523.4 million, a decline of 17% compared to the third quarter of 2017 and down 27% sequentially, both on a pro forma basis, driven by lower Energy volumes and average selling prices.
- Net loss from continuing operations of $288.8 million, or $2.20 per share, driven by the pre-tax impact of $265.3 million in non-cash impairment charges of goodwill and other assets, $24.1 million in restructuring charges, and $5.6 million in merger-related expenses.
- Adjusted EBITDA of $84.1 million, a decline of 42% compared to the third quarter of 2017 and down 53% sequentially, both on a pro forma basis. Adjusted EBITDA includes $5.5 million in non-cash inventory charges related to purchase accounting and a $6.3 million negative impact from our in-basin facilities as a result of start-up costs and limited production.
- Net cash flow provided by operating activities of $104.7 million aided by strong Industrial segment performance and reduced working capital.
“During the third quarter, our dedicated team members made substantial progress on our integration initiatives, including the realization of synergies, further delivering on our commitment to leverage the core strengths of Covia,” said Jenniffer Deckard, President and Chief Executive Officer. “We remained focused on expanding our Industrial business, while also taking decisive actions in response to challenges faced in our Energy segment.”
Ms. Deckard continued, “Our Industrial segment again posted solid quarterly results, with contributions from multiple markets, while our Energy segment’s results were adversely impacted by market conditions, which began to deteriorate in July. Exhaustion of operator budgets led a progressive slowdown in proppant demand, which is expected to continue through the end of the year before rebounding. At the same time, in-basin supply continued to grow, resulting in significant volume and pricing pressure. We also experienced some specific Energy customer challenges and had limited production from our new in-basin facilities during the third quarter.”
Ms. Deckard concluded, “We have taken significant actions to further strengthen Covia’s leadership position, including the idling of excess capacity and the consolidation of production into our lowest-cost plants, resulting in a more highly competitive footprint. Additionally, our 8 million tons of in-basin capacity is consistently ramping up to meet strong demand for this product. These actions better align our product offering with current market demand, and reduce our overall cost to serve. Further, we are making steady progress in strengthening and diversifying our customer mix, partnering with leading last-mile solutions providers, capturing merger-related synergies and growing our high cash-flow-yielding Industrial business.”
Third Quarter 2018 Segment Results
Industrial Segment Results
- Volumes of 3.7 million tons, relatively flat year-over-year on a pro forma basis.
- Revenues of $198.8 million, up 3% year-over-year on a pro forma basis, driven by price increases instituted at the beginning of 2018.
- Segment gross profit of $56.8 million, down $4.0 million, or 7%, year-over-year due to higher production costs in Mexico, hurricane-related disruptions in the Southeast United States and $1.4 million of non-cash inventory charges related to purchase accounting.
Energy Segment Results
- Volumes of 4.5 million tons, down 28% sequentially on a pro forma basis, driven by softer demand for Northern White sand and limited production at the Company’s new West Texas facilities.
- Revenues of $324.6 million, down 36% sequentially on a pro forma basis, driven by lower volumes and an average like-for-like price decrease on Northern White sand of approximately $6 per ton.
- Segment gross profit of $61.0 million, down 62% sequentially on a pro forma basis, driven primarily by lower volumes, pricing, and fixed-cost leverage, resulting in segment gross profit per ton of approximately $13.60.
- Segment gross profit for the third quarter included total charges of $17.1 million, or approximately $3.80 per ton resulting from inventory write-offs from idled facilities, losses from the in-basin facilities as a result of start-up costs and limited production, and non-cash inventory charges related to purchase accounting.
Further Reductions in Capacity and Costs
The Company plans to idle its two operating facilities in Voca, Texas by the end of January 2019, resulting in a decrease of 1.6 million tons of Texas Gold capacity. Since September, the Company has idled or announced plans to idle 4.9 million tons of Energy capacity. Existing demand from Northern White facilities has been transferred to the Company’s lower-cost plants. Remaining demand from Voca customers is expected to be transferred to Covia’s facilities in West Texas.
Capital Projects Update
- The Company recently completed an expansion of its Canoitas facility in Mexico to add capacity and meet increasing demand from containerized glass customers.
- Covia’s Crane and Kermit in-basin facilities in West Texas commenced shipments in the middle of the third quarter of 2018 and sold a combined total of approximately 180,000 tons during the period. The two plants are expected to ramp up to their stated annual production capacity of 6 million tons by the end of the first quarter of 2019.
- Covia’s new Seiling, Oklahoma in-basin facility began production in November 2018. This facility is expected to ramp up to its stated 2 million ton annual production capacity by the end of the first quarter of 2019.
Fourth Quarter 2018 Outlook
- Industrial volumes are expected to be in the range of 3.4 million to 3.5 million tons, similar to the fourth quarter of 2017 on a pro forma basis.
- Energy volumes are expected to be relatively flat sequentially and be in the range of 4.3 million to 4.5 million tons.
- Selling, general and administrative expenses are expected to be approximately $45 million, which includes $3 million in non-cash stock compensation.
- Capital expenditures are expected to be in the range of $50 million to $55 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, November 14, 2018, 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 (866) 393-4306 or, for international callers, (734) 385-2616. The conference ID for the call is 2376299. A replay will be available on the website and can be accessed by dialing (855) 859-2056 or (404) 537-3406. The passcode for the replay is 2376299. The replay of the call will be available through November 21, 2018.
About Covia
Covia is a leading provider of mineral-based and 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.
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.
Investor contact:
Matthew Schlarb
440-214-3284
Matthew.Schlarb@coviacorp.com
| Covia | ||||||||||||||||
| Condensed Consolidated Statements of Income (Loss) | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (in thousands, except per share amounts) |
(in thousands, except per share amounts) |
|||||||||||||||
| Revenues | $ | 523,368 | $ | 347,808 | $ | 1,401,607 | $ | 959,199 | ||||||||
| Cost of goods sold (excluding depreciation, depletion, | ||||||||||||||||
| and amortization shown separately) | 405,602 | 244,694 | 1,021,232 | 694,110 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative expenses(A) | 43,164 | 24,210 | 99,765 | 66,255 | ||||||||||||
| Depreciation, depletion and amortization expense | 68,584 | 24,639 | 132,459 | 72,197 | ||||||||||||
| Goodwill and other asset impairments | 265,343 | – | 277,643 | – | ||||||||||||
| Restructuring charges | 14,750 | – | 14,750 | – | ||||||||||||
| Other operating expense (income), net | (974 | ) | (6 | ) | (330 | ) | 1,830 | |||||||||
| Operating income (loss) from continuing operations | (273,101 | ) | 54,271 | (143,912 | ) | 124,807 | ||||||||||
| Interest expense, net | 23,530 | 5,104 | 35,325 | 12,634 | ||||||||||||
| Other non-operating expense, net | 9,043 | 1,374 | 56,159 | 4,449 | ||||||||||||
| Income (loss) from continuing operations before provision (benefit) for income taxes | (305,674 | ) | 47,793 | (235,396 | ) | 107,724 | ||||||||||
| Provision (benefit) for income taxes | (16,848 | ) | 20,090 | (524 | ) | 36,460 | ||||||||||
| Net income (loss) from continuing operations | (288,826 | ) | 27,703 | (234,872 | ) | 71,264 | ||||||||||
| Less: Net income (loss) from continuing operations attributable to the non-controlling interest | (32 | ) | – | 74 | – | |||||||||||
| Net income (loss) from continuing operations attributable to Covia Holdings Corporation | (288,794 | ) | 27,703 | (234,946 | ) | 71,264 | ||||||||||
| Income from discontinued operations, net of tax | – | 2,441 | 12,587 | 12,521 | ||||||||||||
| Net income (loss) attributable to Covia Holdings Corporation | $ | (288,794 | ) | $ | 30,144 | $ | (222,359 | ) | $ | 83,785 | ||||||
| Continuing operations earnings (loss) per share | ||||||||||||||||
| Basic | $ | (2.20 | ) | $ | 0.23 | $ | (1.90 | ) | $ | 0.60 | ||||||
| Diluted | (2.20 | ) | 0.23 | (1.90 | ) | 0.60 | ||||||||||
| Discontinued operations earnings per share | ||||||||||||||||
| Basic | – | 0.02 | 0.10 | 0.10 | ||||||||||||
| Diluted | – | 0.02 | 0.10 | 0.10 | ||||||||||||
| Earnings (loss) per share | ||||||||||||||||
| Basic | (2.20 | ) | 0.25 | (1.80 | ) | 0.70 | ||||||||||
| Diluted | $ | (2.20 | ) | $ | 0.25 | $ | (1.80 | ) | $ | 0.70 | ||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic | 131,154 | 119,645 | 123,604 | 119,645 | ||||||||||||
| Diluted | 131,154 | 119,645 | 123,604 | 119,645 | ||||||||||||
| (A) – Stock compensation expense of $2,654 and $3,447 for the three and nine months ended September 30, 2018, respectively, is included within selling, general, and administrative expenses. | ||||||||||||||||
| Covia | ||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| (unaudited) | ||||||||
| Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| (in thousands) | ||||||||
| Net income (loss) attributable to Covia Holdings Corporation | $ | (222,359 | ) | $ | 83,785 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation, depletion, and amortization | 138,460 | 81,019 | ||||||
| Prepayment penalties on Senior Notes | 2,213 | – | ||||||
| Goodwill and other asset impairments | 277,643 | – | ||||||
| Restructuring charges, net of cash paid | 14,327 | – | ||||||
| Inventory write-downs | 6,744 | – | ||||||
| Gain on disposal of fixed assets | (90 | ) | – | |||||
| Change in fair value of interest rate swaps, net | (2,658 | ) | – | |||||
| Deferred income tax provision (benefit) | (9,234 | ) | 6,172 | |||||
| Stock compensation expense | 5,847 | – | ||||||
| Net income from non-controlling interest | 74 | – | ||||||
| Other, net | (3,226 | ) | 188 | |||||
| Change in operating assets and liabilities, net of business combination effect: | ||||||||
| Accounts receivable | 53,533 | (57,193 | ) | |||||
| Inventories | 10,511 | 9,333 | ||||||
| Prepaid expenses and other assets | (806 | ) | 790 | |||||
| Accounts payable | (32,628 | ) | (1,037 | ) | ||||
| Accrued expenses | (48,091 | ) | 3,438 | |||||
| Net cash provided by operating activities | 190,260 | 126,495 | ||||||
| Cash flows from investing activities | ||||||||
| Proceeds from sale of fixed assets | 862 | 413 | ||||||
| Capital expenditures | (188,424 | ) | (51,107 | ) | ||||
| Cash of HPQ Co. distributed | (31,000 | ) | – | |||||
| Payments to Fairmount Santrol Holdings Inc. shareholders, net of cash acquired | (64,697 | ) | – | |||||
| Other investing activities | – | 33 | ||||||
| Net cash used in investing activities | (283,259 | ) | (50,661 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from borrowings on term loan | 1,650,000 | 49,815 | ||||||
| Payments on Term Loan | (4,125 | ) | – | |||||
| Prepayment on Unimin Term Loans | (314,642 | ) | (221 | ) | ||||
| 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 | (35,574 | ) | – | |||||
| Fees for Revolver | (4,500 | ) | – | |||||
| Cash Redemption payment | (520,377 | ) | – | |||||
| Proceeds from share-based awards exercised or distributed | 1 | – | ||||||
| Tax payments for withholdings on share-based awards exercised or distributed | (289 | ) | – | |||||
| Dividends paid | – | (50,000 | ) | |||||
| Net cash used in financing activities | (61,864 | ) | (406 | ) | ||||
| Effect of foreign currency exchange rate changes | 2,211 | 872 | ||||||
| Increase (decrease) in cash and cash equivalents | (152,652 | ) | 76,300 | |||||
| Cash and cash equivalents: | ||||||||
| Beginning of period | 308,059 | 183,361 | ||||||
| End of period | $ | 155,407 | $ | 259,661 | ||||
| Covia | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| (unaudited) | ||||||||
| September 30, 2018 | December 31, 2017 | |||||||
| (in thousands) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 155,407 | $ | 308,059 | ||||
| Accounts receivable, net | 320,299 | 219,719 | ||||||
| Inventories, net | 167,731 | 79,959 | ||||||
| Other receivables | 31,373 | 27,963 | ||||||
| Prepaid expenses and other current assets | 23,988 | 16,322 | ||||||
| Current assets of discontinued operations | – | 66,906 | ||||||
| Total current assets | 698,798 | 718,928 | ||||||
| Property, plant and equipment, net | 2,772,264 | 1,136,104 | ||||||
| Deferred tax assets, net | 12,170 | 7,441 | ||||||
| Goodwill | 135,763 | 53,512 | ||||||
| Intangibles, net | 159,512 | 25,596 | ||||||
| Other non-current assets | 25,733 | 2,416 | ||||||
| Non-current assets of discontinued operations | – | 96,101 | ||||||
| Total assets | $ | 3,804,240 | $ | 2,040,098 | ||||
| Liabilities and Equity | ||||||||
| Current liabilities | ||||||||
| Current portion of long-term debt | $ | 20,126 | $ | 50,045 | ||||
| Accounts payable | 133,937 | 101,983 | ||||||
| Accrued expenses | 104,147 | 88,208 | ||||||
| Current liabilities of discontinued operations | – | 10,027 | ||||||
| Total current liabilities | 258,210 | 250,263 | ||||||
| Long-term debt | 1,612,412 | 366,967 | ||||||
| Employee benefit obligations | 97,136 | 97,798 | ||||||
| Deferred tax liabilities, net | 252,240 | 62,614 | ||||||
| Other non-current liabilities | 98,841 | 29,057 | ||||||
| Non-current liabilities of discontinued operations | – | 8,084 | ||||||
| Total liabilities | 2,318,839 | 814,783 | ||||||
| Equity | ||||||||
| Common stock | 1,777 | 1,777 | ||||||
| Additional paid-in capital | 385,513 | 43,941 | ||||||
| Retained earnings | 1,696,098 | 1,918,457 | ||||||
| Accumulated other comprehensive loss | (113,333 | ) | (128,228 | ) | ||||
| Treasury stock at cost | (485,181 | ) | (610,632 | ) | ||||
| Non-controlling interest | 527 | – | ||||||
| Total equity | 1,485,401 | 1,225,315 | ||||||
| Total liabilities and equity | $ | 3,804,240 | $ | 2,040,098 | ||||
| Covia | ||||||||||||||||||||
| Pro Forma Segment Information | ||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| 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 | ||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||
| 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 | 11,747 | 4,588 | 16,335 | 8,362 | 7,501 | 15,863 | ||||||||||||||
| Industrial | 9,997 | 1,048 | 11,045 | 9,188 | 1,897 | 11,085 | ||||||||||||||
| Total volumes | 21,744 | 5,636 | 27,380 | 17,550 | 9,398 | 26,948 | ||||||||||||||
| Revenues | ||||||||||||||||||||
| Energy | $ | 858,813 | $ | 421,526 | $ | 1,280,339 | $ | 473,299 | $ | 589,556 | $ | 1,062,855 | ||||||||
| Industrial | 542,794 | 55,805 | 598,599 | 485,900 | 96,303 | 582,203 | ||||||||||||||
| Total revenues | 1,401,607 | 477,331 | 1,878,938 | 959,199 | 685,859 | 1,645,058 | ||||||||||||||
| Segment gross profit(3) | ||||||||||||||||||||
| Energy | 227,744 | 136,668 | 364,412 | 122,004 | 158,235 | 280,239 | ||||||||||||||
| Industrial | 152,631 | 21,440 | 174,071 | 143,085 | 41,774 | 184,859 | ||||||||||||||
| Total segment gross profit | $ | 380,375 | $ | 158,108 | $ | 538,483 | $ | 265,089 | $ | 200,009 | $ | 465,098 | ||||||||
| Three Months Ended June 30, | ||||||||||||||||||||
| 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 | 4,274 | 1,953 | 6,227 | 2,819 | 2,587 | 5,406 | ||||||||||||||
| Industrial | 3,346 | 470 | 3,816 | 3,119 | 687 | 3,806 | ||||||||||||||
| Total volumes | 7,620 | 2,423 | 10,043 | 5,938 | 3,274 | 9,212 | ||||||||||||||
| Revenues | ||||||||||||||||||||
| Energy | $ | 326,746 | $ | 179,345 | $ | 506,091 | $ | 157,383 | $ | 198,812 | $ | 356,195 | ||||||||
| Industrial | 181,672 | 24,649 | 206,321 | 166,696 | 34,414 | 201,110 | ||||||||||||||
| Total revenues | 508,418 | 203,994 | 712,412 | 324,079 | 233,226 | 557,305 | ||||||||||||||
| Segment gross profit(3) | ||||||||||||||||||||
| Energy | 101,288 | 60,553 | 161,841 | 40,616 | 52,233 | 92,849 | ||||||||||||||
| Industrial | 51,819 | 10,294 | 62,113 | 52,318 | 15,191 | 67,509 | ||||||||||||||
| Total segment gross profit | $ | 153,107 | $ | 70,847 | $ | 223,954 | $ | 92,934 | $ | 67,424 | $ | 160,358 | ||||||||
| __________ | ||||||||||||||||||||
| (1) 2018 Fairmount Santrol Pre-Merger financial results for the nine months ended September 30, 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. 2018 Fairmount Santrol Pre-merger financial results for the three months ended June 30, 2018 are for the two months ended May 31, 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 and nine months ended September 30, 2017 and three months ended June 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 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 for the three months ended September 30, 2018, $4.1 million and $1.4 million impacted the Energy and Industrial segments, respectively. For the nine months ended September 30, 2018, $24.7 million of this write-up was expensed through cost of sales thereby reducing segment gross profit. Of this $24.7 million for the nine months ended September 30, 2018, $22.1 million and $2.6 million impacted the Energy and Industrial segments, respectively. For the three months ended June 30, 2018, $19.2 million of this write-up was expensed through cost of sales thereby reducing segment gross profit. Of this $19.2 million, $18.0 million and $1.2 million impacted the Energy and Industrial segments, respectively.
Additionally, for the three and nine months ended September 30, 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 and nine months ended September 30, 2018, Energy segment gross profit included $6.3 million in losses from the in basin facilities due to start-up costs and lower fixed cost leverage associated with scaling production, and $13.4 million in plant start up costs from these facilities, respectively. In the three months ended June 30, 2018, Energy segment gross profit included $7.1 million in start up costs from the in basin facilities. |
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| Covia | ||||||||||||||||||||||||||
| Pro Forma Net Income 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 September 30, | ||||||||||||||||||||||||||
| 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 | $ | 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 (loss) from continuing operations before provision (benefit) 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(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 | |||||||||||
| Nine 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 | $ | 1,401,607 | $ | 477,332 | $ | – | $ | 1,878,939 | $ | 959,199 | $ | 685,859 | $ | – | $ | 1,645,058 | ||||||||||
| Cost of goods sold (excluding depreciation, depletion, | ||||||||||||||||||||||||||
| and amortization shown separately)(4) | 1,021,232 | 319,224 | – | 1,340,456 | 694,110 | 485,850 | – | 1,179,960 | ||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | 99,765 | 44,156 | – | 143,921 | 66,255 | 79,438 | (1,477 | ) | 144,216 | |||||||||||||||||
| Depreciation, depletion and amortization expense | 132,459 | 29,313 | 1,587 | 163,359 | 72,197 | 51,999 | 46,422 | 170,618 | ||||||||||||||||||
| Goodwill and other asset impairments | 277,643 | – | – | 277,643 | – | – | – | – | ||||||||||||||||||
| Restructuring charges | 14,750 | – | – | 14,750 | – | – | – | – | ||||||||||||||||||
| Other operating expense (income), net | (330 | ) | (2,292 | ) | – | (2,622 | ) | 1,830 | (2,299 | ) | – | (469 | ) | |||||||||||||
| Operating income (loss) from continuing operations | (143,912 | ) | 86,931 | (1,587 | ) | (58,568 | ) | 124,807 | 70,871 | (44,945 | ) | 150,733 | ||||||||||||||
| Interest expense, net | 35,325 | 25,686 | 8,799 | 69,810 | 12,634 | 37,630 | 31,059 | 81,323 | ||||||||||||||||||
| Other non-operating expense, net | 56,159 | 28,057 | (77,880 | ) | 6,336 | 4,449 | – | – | 4,449 | |||||||||||||||||
| Income (loss) from continuing operations before provision (benefit) for income taxes | (235,396 | ) | 33,188 | 67,494 | (134,714 | ) | 107,724 | 33,241 | (76,004 | ) | 64,961 | |||||||||||||||
| Provision (benefit) for income taxes | (524 | ) | 1,683 | 15,524 | 16,683 | 36,460 | 481 | (28,121 | ) | 8,820 | ||||||||||||||||
| Net income (loss) from continuing operations | (234,872 | ) | 31,505 | 51,970 | (151,397 | ) | 71,264 | 32,760 | (47,883 | ) | 56,141 | |||||||||||||||
| Less: Net income (loss) from continuing operations attributable to the non-controlling interest | 74 | 3 | – | 77 | – | 193 | – | 193 | ||||||||||||||||||
| Net income (loss) from continuing operations attributable to Covia Holdings Corporation | (234,946 | ) | 31,502 | 51,970 | (151,474 | ) | 71,264 | 32,567 | (47,883 | ) | 55,948 | |||||||||||||||
| Interest expense, net | 35,325 | 25,686 | 8,799 | 69,810 | 12,634 | 37,630 | 31,059 | 81,323 | ||||||||||||||||||
| Provision (benefit) for income taxes | (524 | ) | 1,683 | 15,524 | 16,683 | 36,460 | 481 | (28,121 | ) | 8,820 | ||||||||||||||||
| Depreciation, depletion and amortization expense | 132,459 | 29,313 | 1,587 | 163,359 | 72,197 | 51,999 | 46,422 | 170,618 | ||||||||||||||||||
| EBITDA | (67,686 | ) | 88,184 | 77,880 | 98,378 | 192,555 | 122,677 | 1,477 | 316,709 | |||||||||||||||||
| Non-cash stock compensation expense(5) | 3,447 | 8,482 | – | 11,929 | – | 7,582 | – | 7,582 | ||||||||||||||||||
| Costs and expenses related to the Merger(6) | 49,823 | 28,057 | (77,880 | ) | – | – | 1,477 | (1,477 | ) | – | ||||||||||||||||
| Restructuring expenses(7) | 24,061 | – | – | 24,061 | – | – | – | – | ||||||||||||||||||
| Goodwill and other asset impairments(8) | 277,643 | – | – | 277,643 | – | – | – | – | ||||||||||||||||||
| Write-off of deferred financing costs(9) | – | – | – | – | – | 389 | – | 389 | ||||||||||||||||||
| Adjusted EBITDA | $ | 287,288 | $ | 124,723 | $ | – | $ | 412,011 | $ | 192,555 | $ | 132,125 | $ | – | $ | 324,680 | ||||||||||
| Three Months Ended June 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 | $ | 508,418 | $ | 203,994 | $ | – | $ | 712,412 | $ | 324,079 | $ | 233,226 | $ | – | $ | 557,305 | ||||||||||
| Cost of goods sold (excluding depreciation, depletion, | ||||||||||||||||||||||||||
| and amortization shown separately)(4) | 355,311 | 133,146 | – | 488,457 | 231,145 | 165,802 | – | 396,947 | ||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | 31,377 | 20,137 | – | 51,514 | 21,220 | 25,719 | – | 46,939 | ||||||||||||||||||
| Depreciation, depletion and amortization expense | 36,744 | 12,088 | 5,971 | 54,803 | 23,896 | 17,256 | 9,832 | 50,984 | ||||||||||||||||||
| Other operating expense, net | 12,944 | (1,563 | ) | – | 11,381 | 813 | 355 | – | 1,168 | |||||||||||||||||
| Operating income from continuing operations | 72,042 | 40,186 | (5,971 | ) | 106,257 | 47,005 | 24,094 | (9,832 | ) | 61,267 | ||||||||||||||||
| Interest expense, net | 7,965 | 11,903 | 4,907 | 24,775 | 3,654 | 12,983 | 8,154 | 24,791 | ||||||||||||||||||
| Other non-operating expense, net | 40,455 | 24,723 | (63,646 | ) | 1,532 | 1,596 | 144 | (144 | ) | 1,596 | ||||||||||||||||
| Income from continuing operations before provision for income taxes |
23,622 | 3,560 | 52,768 | 79,950 | 41,755 | 10,967 | (17,842 | ) | 34,880 | |||||||||||||||||
| Provision for income taxes | 6,454 | 872 | 11,063 | 18,389 | 11,566 | 520 | (10,464 | ) | 1,622 | |||||||||||||||||
| Net income from continuing operations | 17,168 | 2,688 | 41,705 | 61,561 | 30,189 | 10,447 | (7,378 | ) | 33,258 | |||||||||||||||||
| Less: Net income from continuing operations attributable to the non- controlling interest |
106 | – | – | 106 | – | 40 | – | 40 | ||||||||||||||||||
| Net income from continuing operations attributable to Covia Holdings Corporation |
17,062 | 2,688 | 41,705 | 61,455 | 30,189 | 10,407 | (7,378 | ) | 33,218 | |||||||||||||||||
| Interest expense, net | 7,965 | 11,903 | 4,907 | 24,775 | 3,654 | 12,983 | 8,154 | 24,791 | ||||||||||||||||||
| Provision for income taxes | 6,454 | 872 | 11,063 | 18,389 | 11,566 | 520 | (10,464 | ) | 1,622 | |||||||||||||||||
| Depreciation, depletion and amortization expense | 36,744 | 12,088 | 5,971 | 54,803 | 23,896 | 17,256 | 9,832 | 50,984 | ||||||||||||||||||
| EBITDA | 68,225 | 27,551 | 63,646 | 159,422 | 69,305 | 41,166 | 144 | 110,615 | ||||||||||||||||||
| Non-cash stock compensation expense(5) | 793 | 5,063 | – | 5,856 | – | 2,763 | – | 2,763 | ||||||||||||||||||
| Costs and expenses related to the Merger(6) | 38,923 | 24,723 | (63,646 | ) | – | – | 144 | (144 | ) | – | ||||||||||||||||
| Goodwill and other asset impairments(8) | 12,300 | – | – | 12,300 | – | – | – | – | ||||||||||||||||||
| Write-off of deferred financing costs(9) | – | – | – | – | – | 389 | – | 389 | ||||||||||||||||||
| Adjusted EBITDA | $ | 120,241 | $ | 57,337 | $ | – | $ | 177,578 | $ | 69,305 | $ | 44,462 | — | $ | 113,767 | |||||||||||
| __________ | ||||||||||||||||||||||||||
| (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 nine months ended September 30, 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. 2018 Fairmount Santrol Pre-merger financial results for the three months ended June 30, 2018 are for the two months ended May 31, 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 and nine months ended September 30, 2017 and three months ended June 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 GAAP. For the three months ended September 30, 2018, $5.5 million of this write-up was expensed through cost of sales. For the nine months ended September 30, 2018, $24.7 million of this write-up was expensed through cost of sales. For the three months ended June 30, 2018, $19.2 million of this write-up was expensed through cost of sales.
Additionally, for the three and nine months ended September 30, 2018, the Company recognized $6.7 million of impairment charges in cost of sales, related to inventories located at recently idled facilities. In the three and nine months ended September 30, 2018, cost of sales included $6.3 million in losses from our in basin facilities due to start-up costs and lower fixed cost leverage associated with scaling production, and $13.4 million in plant start up costs from these facilities, respectively. In the three months ended June 30, 2018, cost of sales included $7.1 million in start up costs from the in basin facilities. |
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| (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 other 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-offs, pension and severance expenses, in addition to other liabilities recognized. The inventory write-offs of $6.7 million are recorded in cost of goods sold. The pension related expenses of $2.6 million are 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 and nine months ended September 30, 2018. Also includes charges from a terminated project for the nine months ended September 30, 2018 due to post-Merger synergies and capital optimization. | ||||||||||||||||||||||||||
| (9) Represents the write-off of deferred financing fees in relation to the term loan prepayment for legacy Fairmount Santrol for the three months ended June 30, 2017 and the nine months ended September 30, 2017. | ||||||||||||||||||||||||||