- Fourth quarter 2019 selling, general and administrative expenses include $1.7 million in non-cash stock compensation expense. In the third quarter of 2019 and fourth quarter of 2018, non-cash stock compensation totaled $2.3 million and $2.4 million, respectively.
The Company’s fourth quarter 2019 Adjusted EBITDA was negatively impacted by pricing declines for proppants and lower Northern White volumes. The significant decline in volumes resulted in the Company placing approximately 6,000 rail cars in storage in the fourth quarter. In total, the Company incurred excess railcar and idled plant costs of $14.2 million during the fourth quarter and $35.1 million during 2019.
Fourth Quarter 2019 Segment Results
- Volumes decreased 7% to 3.2 million tons compared to the fourth quarter of 2018, driven primarily by the sale of the Calera lime business (“Calera”) and reduced foundry volumes as a result of the General Motors strike. This was partially offset by strength in building products which benefited from solid end market demand and the addition of new customers.
- Excluding the Calera and the Winchester and Western Railroad (“W&W”) businesses, which were sold during the third quarter of 2019, volumes declined 4% compared to the fourth quarter of 2018.
- Excluding Calera and W&W and transportation-related revenues, segment revenues decreased 1% compared to the fourth quarter of 2018.
- Segment gross profit increased 2% compared to the fourth quarter of 2018, excluding Calera and W&W.
- Volumes decreased 21% sequentially to 3.3 million tons, in-line with the market decrease in completions activity during the period.
- Revenues decreased 32% sequentially to $151.9 million, driven primarily by lower volumes and a $3.70 per ton decrease in pricing on a like-for-like basis. The pricing decrease was driven primarily by the full-quarter impact of concessions made late in the third quarter of 2019.
- Segment gross loss of $12.5 million compared to segment gross profit of $17.7 million in the third quarter of 2019.
- Segment contribution margin of $1.7 million compared to $24.6 million on the third quarter of 2019. The decrease was driven primarily by lower pricing and lower fixed-cost absorption.
Balance Sheet and Liquidity
- Cash and cash equivalents of $319.5 million as of December 31, 2019.
- Generated cash flow from operations of $35.1 million in the fourth quarter of 2019 and $103.9 million for 2019.
- Capital expenditures totaled $12.5 million during the fourth quarter of 2019, primarily related to maintenance capital and the Canoitas plant expansion in Mexico to support customer growth.
- Received a commitment from PNC Bank, National Association for a new, 3-year standby credit facility with expected availability of $75 million secured by the Company’s U.S. accounts receivable. The Company expects to close on this facility near the end of the first quarter of 2020.
Update on Industrial Growth Projects
The Company expects to complete the modernization and expansion of its Canadian nepheline syenite facility by the middle of 2021. The world class facility will be the only one of its kind in North America serving coatings, polymers, glass and ceramic end markets. Nepheline syenite is a unique, hard rock, silica-deficient mineral resource which enhances deep color tones, reduces fading and adds abrasion resistance to architectural paints. The material also provides superior anti-blocking capabilities for packaging films and has been approved for use in food-based applications by the FDA. The modernization and expansion is expected to reduce operating costs by $9 million annually and save more than $30 million in maintenance capital over the next 10 years. Additionally, the facility will add needed production capacity to serve our growing market share in the coatings and polymers end markets. The total remaining capital investment is estimated to be $45 million, of which $20-25 million is expected to be invested in 2020.
The Company also completed its expansion at its Canoitas, Mexico facility in fourth quarter of 2019. This expansion adds 350 thousand tons of annual silica production capacity and is expected to be used to support growth for customers in Mexico beginning in the second quarter of 2020.
Outlook
Based on preliminary results through February, the Company expects first quarter 2020 Industrial volumes to be in the range of 3.3 million to 3.4 million tons and Energy volumes to be up 10% to 15% sequentially. Adjusted EBITDA in the first quarter is expected to be between $22 million and $27 million.
The unknown impact of the Covid-19 virus and fluctuating oil and gas prices on market conditions makes forecasting 2020 challenging. The Company expects 2020 selling, general and administrative expenses to be between $135 million and $145 million, which includes approximately $10 million in non-cash stock compensation. The Company expects 2020 capital expenditures to be in the range of $60 million to $70 million, of which $20 million to $25 million is related to the modernization and expansion of the nepheline syenite operations in Canada.
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, segment contribution margin per ton, 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 segment contribution margin per ton 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 divided by tons sold. 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, merger-related expenses, restructuring charges 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 March 10, 2020, at 8:00 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 1880198. 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 1880198. The replay of the call will be available through November 13, 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 such risks, uncertainties and other factors carefully in evaluating forward-looking statements.
You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date thereof. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures the Company makes on related subjects in its public announcements and SEC filing.
Covia Condensed Consolidated Statements of Income (Loss) (unaudited) Three Months Ended December 31, Year Ended December 31, 2019 2018 2019 2018 (in thousands, except per share amounts) (in thousands, except per share amounts) Revenues $ 313,307 $ 441,330 $ 1,595,446 $ 1,842,937 Cost of goods sold (excluding depreciation, depletion, and amortization shown separately) 279,409 359,534 1,319,172 1,380,766 Operating expenses Selling, general and administrative expenses (A) 37,364 45,828 153,596 145,593 Depreciation, depletion and amortization expense 52,823 63,996 222,042 196,455 Goodwill and other asset impairments, net 1,426,387 (10,609 ) 1,434,148 267,034 Restructuring and other charges 15,685 7,204 30,600 21,954 Gain on sale of subsidiaries 1,765 - (125,430 ) - Other operating expense (income), net (1,336 ) (4,694 ) (6,040 ) (5,024 ) Operating income (loss) from continuing operations (1,498,790 ) (19,929 ) (1,432,642 ) (163,841 ) Interest expense, net 27,995 24,997 107,891 60,322 Gain on extinguishment of debt (13,411 ) - (13,411 ) - Other non-operating expense, net 1,309 (1,327 ) 6,991 54,832 Income (loss) from continuing operations before provision (benefit) for income taxes (1,514,683 ) (43,599 ) (1,534,113 ) (278,995 ) Provision (benefit) for income taxes (257,415 ) 4,511 (244,134 ) 3,987 Net income (loss) from continuing operations (1,257,268 ) (48,110 ) (1,289,979 ) (282,982 ) Less: Net income (loss) from continuing operations attributable to the non-controlling interest (33 ) 29 123 103 Net income (loss) from continuing operations attributable to Covia Holdings Corporation (1,257,235 ) (48,139 ) (1,290,102 ) (283,085 ) Income from discontinued operations, net of tax - - - 12,587 Net income (loss) attributable to Covia Holdings Corporation $ (1,257,235 ) $ (48,139 ) $ (1,290,102 ) $ (270,498 ) Continuing operations earnings (loss) per share Basic $ (9.54 ) $ (0.37 ) $ (9.81 ) $ (2.26 ) Diluted (9.54 ) (0.37 ) (9.81 ) (2.26 ) Discontinued operations earnings per share Basic - - - 0.10 Diluted - - - 0.10 Earnings (loss) per share Basic (9.54 ) (0.37 ) (9.81 ) (2.16 ) Diluted $ (9.54 ) $ (0.37 ) $ (9.81 ) $ (2.16 ) Weighted average number of shares outstanding Basic 131,736 131,182 131,512 125,514 Diluted 131,736 131,182 131,512 125,514 (A) - Included within selling, general, and administrative expenses is stock compensation expense of $1.7 million and $2.4 million for the three months ended December 31, 2019 and 2018, respectively, and $10.0 million and $5.8 million for the years ended December 31, 2019 and 2018, respectively. Covia Condensed Consolidated Statements of Cash Flows (unaudited) Year Ended December 31, 2019 2018 (in thousands) Net loss attributable to Covia Holdings Corporation $ (1,290,102 ) $ (270,498 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion, and amortization 222,042 200,525 Amortization of deferred financing costs 9,828 3,489 Prepayment penalties on Senior Notes - 2,213 Goodwill and other asset impairments 1,430,166 267,034 Inventory write-downs 3,982 6,744 (Gain) loss on disposal of fixed assets (21 ) 107 Gain on sale of subsidiaries (125,430 ) - Gain on extinguishment of debt (13,411 ) - Change in fair value of interest rate swaps, net - (296 ) Deferred income tax provision (benefit) (268,345 ) (6,542 ) Stock compensation expense 10,028 8,212 Net income from non-controlling interest 123 103 Other, net 15,659 14,447 Change in operating assets and liabilities, net of business combination effect: Accounts receivable 62,405 105,850 Inventories 33,607 14,653 Prepaid expenses and other assets 18,943 (6,067 ) Accounts payable (24,458 ) (59,062 ) Accrued expenses 18,898 (33,525 ) Net cash provided by operating activities 103,914 247,387 Cash flows from investing activities Capital expenditures (87,535 ) (264,052 ) 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 (7,312 ) - Proceeds from sale of fixed assets 11,025 3,180 Proceeds from sale of subsidiaries 232,249 - Net cash provided by (used in) investing activities 148,427 (356,569 ) Cash flows from financing activities Proceeds from borrowings on Term Loan - 1,650,000 Payments on Term Loan (12,375 ) (8,250 ) Repurchase of Term Loan (48,335 ) - Fees for repurchase of Term Loan (157 ) - 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 (1,664 ) (36,818 ) Payments on finance lease liabilities (4,401 ) - Fees for Revolver - (4,500 ) Cash Redemption payment to Sibelco - (520,377 ) Proceeds from share-based awards exercised or distributed 14 464 Tax payments for withholdings on share-based awards exercised or distributed (636 ) (318 ) Net cash used in financing activities (67,554 ) (66,799 ) Effect of foreign currency exchange rate changes 567 2,052 Increase (decrease) in cash and cash equivalents 185,354 (173,929 ) Cash and cash equivalents: Beginning of period 134,130 308,059 End of period $ 319,484 $ 134,130 Covia Condensed Consolidated Balance Sheets (unaudited) (audited) December 31, 2019 December 31, 2018 (in thousands) Assets Current assets Cash and cash equivalents $ 319,484 $ 134,130 Accounts receivable, net 199,027 267,268 Inventories, net 121,790 162,970 Other receivables 15,879 40,306 Prepaid expenses and other current assets 20,843 20,941 Total current assets 677,023 625,615 Property, plant and equipment, net 1,414,541 2,834,361 Operating right-of-use assets, net 158,489 - Deferred tax assets, net 14,575 8,740 Goodwill 119,822 131,655 Intangibles, net 33,630 137,113 Other non-current assets 23,847 18,633 Total assets $ 2,441,927 $ 3,756,117 Liabilities and Equity Current liabilities Current portion of long-term debt $ 18,633 $ 15,482 Operating lease liabilities, current 63,773 - Accounts payable 97,313 145,070 Accrued expenses 126,897 120,424 Deferred revenue 7,815 9,737 Total current liabilities 314,431 290,713 Long-term debt 1,539,073 1,612,887 Operating lease liabilities, non-current 272,378 - Employee benefit obligations 69,108 54,789 Deferred tax liabilities, net 131 267,350 Other non-current liabilities 71,828 75,425 Total liabilities 2,266,949 2,301,164 Equity Common stock 1,777 1,777 Additional paid-in capital 400,047 388,027 Retained earnings 357,857 1,647,959 Accumulated other comprehensive loss (107,272 ) (95,225 ) Treasury stock at cost (478,110 ) (488,141 ) Non-controlling interest 679 556 Total equity 174,978 1,454,953 Total liabilities and equity $ 2,441,927 $ 3,756,117 Covia Pro Forma Segment Information (unaudited) (in thousands) Three Months Ended December 31, 2019 2018 Covia, As Reported Covia, As Reported — — Volumes (tons) Energy 3,307 4,354 — — Industrial 3,244 3,483 — — Total volumes 6,551 7,837 — — Revenues Energy $ 151,938 $ 255,611 — — Industrial 161,369 185,719 — — Total revenues 313,307 441,330 — — Segment gross profit (3) Energy (12,501 ) 31,252 — — Industrial 46,399 50,544 — — Total segment gross profit 33,898 81,796 — — Segment contribution margin (non-GAAP) (4) Energy 1,666 39,148 — — Industrial 46,399 50,544 — — Total segment contribution margin (non-GAAP) $ 48,065 $ 89,692 — — Segment contribution margin per ton (non-GAAP) (4) Energy $ 0.50 $ 8.99 — — Industrial 14.30 14.51 — — Total segment contribution margin per ton (non-GAAP) $ 7.34 $ 11.44 — — Year Ended December 31, 2019 2018 Covia, As Reported Covia, As Reported Fairmount Santrol Pre-Merger (1) Covia Pro Forma Combined (2) Volumes (tons) Energy 16,498 16,101 4,588 20,689 Industrial 13,988 13,480 1,048 14,528 Total volumes 30,486 29,581 5,636 35,217 Revenues Energy $ 862,878 $ 1,114,424 $ 421,526 $ 1,535,950 Industrial 732,568 728,513 55,805 784,318 Total revenues 1,595,446 1,842,937 477,331 2,320,268 Segment gross profit (3) Energy 54,083 258,996 136,668 395,664 Industrial 222,191 203,175 21,440 224,615 Total segment gross profit 276,274 462,171 158,108 620,279 Segment contribution margin (non-GAAP) (4) Energy 89,173 275,947 147,394 423,341 Industrial 222,191 203,175 21,440 224,615 Total segment contribution margin (non-GAAP) $ 311,364 $ 479,122 168,834 $ 647,956 Segment contribution margin per ton (non-GAAP) (4) Energy $ 5.41 $ 17.14 $ 32.13 $ 20.46 Industrial 15.88 15.07 20.46 15.46 Total segment contribution margin per ton (non-GAAP) $ 10.21 $ 16.20 $ 29.96 $ 18.40 Three Months Ended September 30, 2019 Covia, As Reported Volumes (tons) Energy 4,177 Industrial 3,583 Total volumes 7,760 Revenues Energy $ 223,318 Industrial 185,639 Total revenues 408,957 Segment gross profit (3) Energy 17,662 Industrial 59,061 Total segment gross profit 76,723 Segment contribution margin (non-GAAP) (4) Energy 24,576 Industrial 59,061 Total segment contribution margin (non-GAAP) $ 83,637 Segment contribution margin per ton (non-GAAP) (4) Energy $ 5.88 Industrial 16.48 Total segment contribution margin per ton (non-GAAP) $ 10.78 __________ (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 twelve months ended December 31, 2019, Energy segment gross profit was negatively impacted by the $1.8 million and $7.9 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 ASC 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 year ended December 31, 2019, $1.1 million of this write-up was expensed through cost of goods sold, thereby reducing segment gross profit. There was no write-up in the three months ended December 31, 2019. Of the $1.1 million in the year ended December 31, 2019, $0.4 million impacted the Energy segment and $0.7 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 $14.2 million and $7.9 million in the three months ended December 31, 2019 and 2018, respectively, and $35.1 million and $17.0 million in the year ended December 31, 2019 and 2018, respectively. Segment contribution margin and segment contribution margin per ton are non-GAAP financial measures. 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 of Non-GAAP Measures (unaudited) The following table reconciles EBITDA and Adjusted EBITDA, non-GAAP financial measures, to the most directly comparable GAAP measure, net income (loss) from continuing operations (amounts in thousands) Three Months Ended December 31, 2019 2018 As Reported As Reported Fairmount Santrol Pre-Merger Merger Pro Forma Adjustments (1) Covia Pro Forma Combined (2) Revenues $ 313,307 $ 441,330 — $ - $ 441,330 Cost of goods sold (excluding depreciation, depletion, and amortization shown separately) (4) 279,409 359,534 — - 359,534 Operating expenses Selling, general and administrative expenses 37,364 45,828 — - 45,828 Depreciation, depletion and amortization expense 52,823 63,996 — (16,672 ) 47,324 Goodwill and other asset impairments, net 1,426,387 (10,609 ) — - (10,609 ) Restructuring and other charges 15,685 7,204 — - 7,204 Gain on sale of subsidiaries 1,765 - — - - Other operating expense (income), net (1,336 ) (4,694 ) — - (4,694 ) Operating income (loss) from continuing operations (1,498,790 ) (19,929 ) — 16,672 (3,257 ) Interest expense, net 27,995 24,997 — (372 ) 24,625 Gain on extinguishment of debt (13,411 ) - — - - Other non-operating expense, net 1,309 (1,327 ) — (1,289 ) (2,616 ) Income (loss) from continuing operations before provision (benefit) for income taxes (1,514,683 ) (43,599 ) — 18,333 (25,266 ) Provision (benefit) for income taxes (257,415 ) 4,511 — 4,216 8,727 Net income (loss) from continuing operations (1,257,268 ) (48,110 ) — 14,117 (33,993 ) Less: Net income (loss) from continuing operations attributable to the non-controlling interest (33 ) 29 — - 29 Net income (loss) from continuing operations attributable to Covia Holdings Corporation (1,257,235 ) (48,139 ) — 14,117 (34,022 ) Interest expense, net 27,995 24,997 — (372 ) 24,625 Provision (benefit) for income taxes (257,415 ) 4,511 — 4,216 8,727 Depreciation, depletion and amortization expense 52,823 63,996 — (16,672 ) 47,324 EBITDA (non-GAAP) (1,433,832 ) 45,365 — 1,289 46,654 Non-cash charges relating to operating leases (4) 1,848 - — - - Non-cash stock compensation expense (5) 1,650 2,365 — - 2,365 Costs and expenses related to the Merger and integration (6) - 3,156 — (1,289 ) 1,867 Restructuring and other charges (7) 15,685 3,599 — - 3,599 Gain on extinguishment of debt (8) (13,411 ) - - - - Goodwill and asset impairments (9) 1,426,387 (10,609 ) — - (10,609 ) Gain on sale of subsidiaries (10) 1,765 - - - - Adjusted EBITDA (non-GAAP) $ 92 $ 43,876 — $ - $ 43,876 Year Ended December 31, 2019 2018 As Reported As Reported Fairmount Santrol Pre-Merger (3) Merger Pro Forma Adjustments (1) Pro Forma Combined (2) Revenues $ 1,595,446 $ 1,842,937 $ 477,332 $ - $ 2,320,269 Cost of goods sold (excluding depreciation, depletion, and amortization shown separately) (4) 1,319,172 1,380,766 319,224 - 1,699,990 Operating expenses Selling, general and administrative expenses 153,596 145,593 44,156 - 189,749 Depreciation, depletion and amortization expense 222,042 196,455 29,313 (15,085 ) 210,683 Goodwill and other asset impairments, net 1,434,148 267,034 - - 267,034 Restructuring and other charges 30,600 21,954 - - 21,954 Gain on sale of subsidiaries (125,430 ) - - - - Other operating expense (income), net (6,040 ) (5,024 ) (2,292 ) - (7,316 ) Operating income (loss) from continuing operations (1,432,642 ) (163,841 ) 86,931 15,085 (61,825 ) Interest expense, net 107,891 60,322 25,686 8,428 94,436 Gain on extinguishment of debt (13,411 ) - - - - Other non-operating expense, net 6,991 54,832 28,057 (79,169 ) 3,720 Income (loss) from continuing operations before provision (benefit) for income taxes (1,534,113 ) (278,995 ) 33,188 85,826 (159,981 ) Provision (benefit) for income taxes (244,134 ) 3,987 1,683 19,740 25,410 Net income (loss) from continuing operations (1,289,979 ) (282,982 ) 31,505 66,086 (185,391 ) Less: Net income (loss) from continuing operations attributable to the non-controlling interest 123 103 3 - 106 Net income (loss) from continuing operations attributable to Covia Holdings Corporation (1,290,102 ) (283,085 ) 31,502 66,086 (185,497 ) Interest expense, net 107,891 60,322 25,686 8,428 94,436 Provision (benefit) for income taxes (244,134 ) 3,987 1,683 19,740 25,410 Depreciation, depletion and amortization expense 222,042 196,455 29,313 (15,085 ) 210,683 EBITDA (non-GAAP) (1,204,303 ) (22,321 ) 88,184 79,169 145,032 Non-cash charges relating to operating leases (4) 7,904 - - - - Non-cash stock compensation expense (5) 10,028 5,812 8,482 - 14,294 Costs and expenses related to the Merger and integration (6) 896 52,979 28,057 (79,169 ) 1,867 Restructuring and other charges (7) 33,189 27,660 - - 27,660 Gain on debt extinguishment (8) (13,411 ) - - - - Goodwill and other asset impairments (9) 1,434,148 267,034 - - 267,034 Gain on sale of subsidiaries (10) (125,430 ) - - - - Adjusted EBITDA (non-GAAP) $ 143,021 $ 331,164 $ 124,723 $ - $ 455,887 Three Months Ended September 30, 2019 As Reported Revenues $ 408,957 Cost of goods sold (excluding depreciation, depletion, and amortization shown separately) (4) 332,234 Operating expenses Selling, general and administrative expenses 35,628 Depreciation, depletion and amortization expense 51,920 Goodwill and other asset impairments, net 7,761 Restructuring and other charges 3,378 Gain on sale of subsidiaries (127,195 ) Other operating expense (income), net 18 Operating income (loss) from continuing operations 105,213 Interest expense, net 26,894 Other non-operating expense, net 1,924 Income from continuing operations before provision for income taxes 76,395 Provision (benefit) for income taxes 22,471 Net income (loss) from continuing operations 53,924 Less: Net income (loss) from continuing operations attributable to the non-controlling interest 152 Net income (loss) from continuing operations attributable to Covia Holdings Corporation 53,772 Interest expense, net 26,894 Provision (benefit) for income taxes 22,471 Depreciation, depletion and amortization expense 51,920 EBITDA (non-GAAP) 155,057 Non-cash charges relating to operating leases (4) 1,856 Non-cash stock compensation expense (5) 2,296 Costs and expenses related to the Merger and integration (6) - Restructuring and other charges (7) 3,378 Goodwill and other asset impairments (9) 7,761 Gain on sale of subsidiaries (10) (127,195 ) Adjusted EBITDA (non-GAAP) $ 43,153 __________ (1) The unaudited Covia Pro Forma Combined 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. The Merger Pro Forma Adjustments reflect adjustments for interest expense that would have been incurred to finance the transaction and 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 twelve months ended December 31, 2019, Energy segment gross profit was negatively impacted by the $1.8 million and $7.9 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 ASC 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, other charges related to executive severance and benefits, as well as restructuring-related SG&A expenses. (8) Represents the gain, net of $1.0 million of deferred financing fees and $0.2 million of transaction fees, on $62.9 million of Term Loan repurchases in December 2019. (9) Represents expenses associated with the impairment of long-lived assets, Propel SSP® self-suspending proppant, idled facilities and railcars, and spare parts inventory in the Energy segment in 2019. Represents expenses associated with the impairment of goodwill in the Energy reporting unit and the impairment of assets from idled facilities and assets under construction in 2018 (10) Represents the gain on the sales of Calera and W&W. Covia Pro Forma Segment Contribution Margin & Reconciliation of Non-GAAP Measures (unaudited) The following table reconciles segment contribution margin and segment contribution margin per ton, non-GAAP financial measures, to the most directly comparable GAAP measures, segment gross profit and segment gross profit per ton, respectively Three Months Ended December 31, 2019 2018 As Reported Covia, As Reported — — Segment gross profit (3) Energy $ (12,501 ) $ 31,252 — — Industrial 46,399 50,544 — — Total segment gross profit 33,898 81,796 — — Operating expenses excluded from segment contribution margin (4) 14,167 7,896 — — Segment contribution margin (non-GAAP) (4) Energy 1,666 39,148 — — Industrial 46,399 50,544 — — Total segment contribution margin (non-GAAP) $ 48,065 $ 89,692 — — Segment gross profit per ton (3) Energy $ (3.78 ) $ 7.18 — — Industrial 14.30 14.51 — — Total segment gross profit per ton 5.17 10.44 — — Operating expenses per ton excluded from segment contribution margin per ton (4) 4.28 1.81 — — Segment contribution margin per ton (non-GAAP) (4) Energy 0.50 8.99 — — Industrial 14.30 14.51 — — Total segment contribution margin per ton (non-GAAP) $ 7.34 $ 11.44 — — Year Ended December 31, 2019 2018 As Reported Covia, As Reported Fairmount Santrol Pre-Merger (1) Covia Pro Forma Combined (2) Segment gross profit (3) Energy $ 54,083 $ 258,996 $ 136,668 $ 395,664 Industrial 222,191 203,175 21,440 224,615 Total segment gross profit 276,274 462,171 158,108 620,279 Operating expenses excluded from segment contribution margin (non-GAAP) (4) 35,090 16,951 10,726 27,677 Segment contribution margin (non-GAAP) (4) Energy 89,173 275,947 147,394 423,341 Industrial 222,191 203,175 21,440 224,615 Total segment contribution margin (non-GAAP) $ 311,364 $ 479,122 $ 168,834 $ 647,956 Segment gross profit per ton (3) Energy $ 3.28 $ 16.09 $ 29.79 $ 19.12 Industrial 15.88 15.07 20.46 15.46 Total segment gross profit per ton 9.06 15.62 28.05 17.61 Operating expenses per ton excluded from segment contribution margin per ton (4) 2.13 1.05 2.34 1.34 Segment contribution margin per ton (non-GAAP) (4) Energy 5.41 17.14 32.13 20.46 Industrial 15.88 15.07 20.46 15.46 Total segment contribution margin per ton (non-GAAP) $ 10.21 $ 16.20 $ 29.96 $ 18.40 Three Months Ended September 30, 2019 As Reported Segment gross profit (3) Energy $ 17,662 Industrial 59,061 Total segment gross profit 76,723 Operating expenses excluded from segment contribution margin (non-GAAP) (4) 6,914 Segment contribution margin (non-GAAP) (4) Energy 24,576 Industrial 59,061 Total segment contribution margin (non-GAAP) $ 83,637 Segment gross profit per ton (3) Energy $ 4.23 Industrial 16.48 Total segment gross profit per ton 9.89 Operating expenses per ton excluded from segment contribution margin per ton (4) 1.66 Segment contribution margin per ton (non-GAAP) (4) Energy 5.88 Industrial 16.48 Total segment contribution margin per ton (non-GAAP) $ 10.78 __________ (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 twelve months ended December 31, 2019, Energy segment gross profit was negatively impacted by the $1.8 million and $7.9 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 ASC 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 year ended December 31, 2019, $1.1 million of this write-up was expensed through cost of goods sold, thereby reducing segment gross profit. There was no write-up in the three months ended December 31, 2019. Of the $1.1 million in the year ended December 31, 2019, $0.4 million impacted the Energy segment and $0.7 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 $14.2 million and $7.9 million in the three months ended December 31, 2019 and 2018, respectively, and $35.1 million and $17.0 million in the year ended December 31, 2019 and 2018, respectively. Segment contribution margin and segment contribution margin per ton are non-GAAP financial measures. A reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures is provided in tables that follow. Covia Adjusted Industrial Segment Information The following table provides unaudited adjusted Industrial segment data, excluding the impact of Calera and W&W, as well as freight revenues. Calera and W&W were sold in August and September 2019, respectively. Amounts in thousands. Three Months Ended December 31, Year Ended December 31, 2019 2018 2019 2018 Covia, As Reported Covia, As Reported Covia, As Reported Covia, As Reported Fairmount Santrol Pre-Merger (1) Covia Pro Forma Combined (2) Industrial volumes (tons), as reported 3,244 3,483 13,988 14,528 - 14,528 Less Calera volumes - (108 ) (230 ) (399 ) - (399 ) Adjusted Industrial volumes 3,244 3,375 13,758 14,129 - 14,129 Industrial revenues, as reported $ 161,369 $ 185,719 $ 732,568 $ 784,318 $ - $ 784,318 Less Calera revenues - (13,916 ) (30,208 ) (51,123 ) - (51,123 ) Less W&W revenues - (2,870 ) (8,782 ) (12,975 ) - (12,975 ) Adjusted Industrial revenues $ 161,369 $ 168,933 $ 693,578 $ 720,220 $ - $ 720,220 Industrial segment gross profit, as reported $ 46,399 $ 50,544 $ 222,191 $ 224,615 $ - $ 224,615 Less Calera gross profit - (3,850 ) (7,754 ) (15,059 ) - (15,059 ) Less W&W gross profit - (984 ) (3,753 ) (5,277 ) - (5,277 ) Adjusted Industrial segment gross profit $ 46,399 $ 45,710 $ 210,684 $ 204,279 $ - $ 204,279 __________ (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. Investor contact:
Matthew Schlarb
440-214-3284
Matthew.Schlarb@coviacorp.com
Source: Covia