Market Overview

Covia Announces Second-Quarter 2018 Results

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  • Reported Volumes of 7.6 million tons; Reported Energy Volumes of 4.3 million tons; Reported Net Income from Continuing Operations of $17.1 million
  • Pro Forma Volumes of 10.0 million tons, up 10% sequentially; Pro Forma Energy Volumes of 6.2 million, up 11% sequentially; Pro Forma Adjusted EBITDA of $179 million, up 18% sequentially
  • Integration of Supply Chain Successfully Completed in June
  • Began Shipping Local West Texas Sand in July 2018

INDEPENDENCE, Ohio, Aug. 14, 2018 (GLOBE NEWSWIRE) -- Covia (NYSE:CVIA), a leading provider of minerals and material solutions for the Industrial and Energy markets, today announced results for the second quarter ended June 30, 2018. As a result of the merger that closed on June 1, 2018, Covia's second-quarter 2018 reported results, under Generally Accepted Accounting Principles ("GAAP"), include the consolidated financial results of both Unimin Corporation ("Unimin") and Fairmount Santrol Holdings Inc. ("Fairmount Santrol") for the one month ended June 30, 2018, as well as the stand-alone results for Unimin for the two 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 for the entire quarter and exclude HPQ results, have been provided as exhibits to this release.

Reported Second-Quarter 2018 Results

Second-quarter 2018 reported Company volumes sold were 7.6 million tons, compared with 5.9 million tons in the first quarter of 2018 and 5.9 million tons in the second-quarter 2017. Reported revenues in second-quarter 2018 were $508.4 million, compared with $369.8 million in the first-quarter 2018 and $324.1 million in the second-quarter 2017. Reported net income from continuing operations for second-quarter 2018 was $17.1 million, or $0.14 per diluted share, compared with $36.8 million in the first-quarter 2018 and $30.2 million in the second quarter of 2017. As a result of the merger, second-quarter 2018 reported net income includes the pre-tax impact of $38.9 million of transaction-related expenses, $19.2 million in costs related to the fair value write-up of Fairmount Santrol inventories, and $12.3 million in charges related to a project termination following a post-merger synergy and capital optimization analysis.  

Industrial Segment Reported Results

Second-quarter 2018 reported Industrial volumes were 3.3 million tons compared with 3.1 million tons in the second-quarter 2017. Reported revenues for the segment were $181.7 million and $166.7 million in second-quarter 2018 and 2017, respectively. Reported Industrial gross profit was $51.8 million in second-quarter of 2018 compared with $52.3 million in the second-quarter 2017.

Energy Segment Reported Results

Reported second-quarter 2018 Energy volumes were 4.3 million tons and 3.0 million tons in the first-quarter 2018. Revenues were $326.7 million compared with $207.5 million in the first-quarter 2018. Reported Energy gross profit totaled $101.3 million in the second-quarter 2018, an increase of $35.8 million from $65.5 million in the first quarter of 2018.

Pro Forma Combined Second-Quarter 2018 Results

On a pro forma basis, assuming the merger had closed, and the HPQ divestiture had taken place on the first day of the period(s), Covia volumes sold were 10.0 million tons, up 10% from the first quarter of 2018 and an increase of 9% from 9.2 million tons in the second quarter of 2017. Pro forma second-quarter 2018 revenues were $712.4 million, up 11% from $643.2 million in the first quarter of 2018 and 28% higher than the second quarter of 2017.

Pro forma net income from continuing operations for the second-quarter 2018 was $19.8 million, compared with pro forma net income from continuing operations of $65.5 million for the first quarter of 2018.

Pro forma Adjusted EBITDA for the second quarter of 2018 was $179.1 million compared with $151.7 million for the first quarter of 2018. Second-quarter 2018 pro forma Adjusted EBITDA includes West Texas mine start-up costs of $7.1 million and $19.2 million of charges related to the write-up of inventories as a result of the merger. Excluding these start-up costs and the impact from the write-up of inventories, pro forma Adjusted EBITDA would have been $205.4 million.

Jenniffer Deckard, President and Chief Executive Officer, said, "We are very proud of the collective accomplishments of the Covia Team during our first quarter as a combined company. In addition to completing the merger, our people made significant progress on integrating the strengths of our two legacy organizations, including the full integration of our industry-leading supply chain. At the same time, we initiated the start-up of both of our local sand plants in West Texas, delivered overall higher volumes and lower costs, and benefited from improved pricing across the business."

Industrial Segment Pro Forma Combined Results

Pro forma Industrial volumes in second-quarter 2018 were 3.8 million tons, relatively flat to pro forma volumes in second-quarter 2017. Volumes by end-market were consistent between the two periods.

Pro forma Industrial revenues for the second quarter of 2018 were $206.3 million, up from pro forma revenues of $201.1 million in the second quarter of 2017. The increase in pro forma revenue was due mainly to price increases instituted at the beginning of the year.

Pro forma Industrial gross profit was $62.1 million, which includes $1.2 million of non-cash expense related to the write-up of inventories. Excluding these non-cash charges, pro forma Industrial gross profit would have been $63.3 million in second-quarter 2018, compared with $67.5 million in the second quarter of 2017. The lower gross profit in the second quarter of 2018 was due to several cost factors, driven primarily by higher production and energy costs at certain facilities in the U.S. and Mexico.

Energy Segment Pro Forma Combined Results

Pro forma Energy volumes for the second-quarter 2018 were 6.2 million tons, an increase of 11% sequentially and 15% greater than the pro forma volumes in the second quarter of 2017. The increase in pro forma volumes was driven by both robust demand and increased production from the expansion at the Utica, Illinois, facility, the completion of process engineering changes, and favorable seasonal operating conditions.

Pro forma Energy revenues for second-quarter 2018 were $506.1 million, a 13% increase compared to pro forma Energy revenues of $449.6 million in the first quarter of 2018. Pro forma Energy revenues benefited sequentially from increased volumes and an average price increase on raw sand proppant of approximately $2 per ton for tons sold on a like-for-like basis.

Pro forma Energy gross profit for the second quarter of 2018 was $161.8 million, which includes $18.0 million of non-cash expense related to the write-up of inventories under GAAP as a result of the merger. Excluding this expense, pro forma gross profit would have been $179.8 million, or $29 per ton, in the second quarter of 2018, compared with pro forma Energy gross profit of $141.6 million, or $25 per ton, in the first quarter of 2018. The increase in pro forma gross profit was primarily the result of the previously mentioned price increase and lower production costs. Pro forma Energy gross profit for the second quarter of 2018 was also negatively impacted by $7.1 million in start-up costs at the Company's Crane and Kermit mines in West Texas.

Ms. Deckard said, "As we move into the second half of the year, the outlook for the Industrial markets that we serve remains steady, and our teams continue to explore cross-selling and other attractive growth opportunities as a result of our now combined product and operational footprints. Within the proppant market, continued supply growth has begun to outpace the growth in demand, which will create pricing and volume pressure. We remain committed to capturing synergies, growing our total solutions offerings, and leveraging our industry-leading capabilities to outperform in the market."

Balance Sheet and Other Information

On June 1, 2018, as part of the closing of the merger, the Company entered into a $1.65 billion Term Loan B Credit facility ("Term Loan B") as well as a $200 million Senior Secured Revolving Credit facility. As of June 30, 2018, the Company had cash of $136.4 million, and the Company's revolving credit facility remained undrawn, with $14.6 million committed for outstanding letters of credit.

Capital expenditures for the second half of the year are expected to be in the range of $110 million to $130 million primarily related to the completion of the Kermit and Crane facilities, the Seiling, Oklahoma, facility, and maintenance activities to support the Company's asset base. 

Update on Greenfield Expansions

The Company's Crane and Kermit facilities in West Texas have both begun start-up activities and the Company began shipping sand in July. Both facilities are expected to ramp up to full capacity by the end of the fourth quarter of 2018. Continued construction of the Company's Seiling, Oklahoma, processing facility was approved by local authorities and this facility is expected to begin production in the fourth quarter of 2018.

Use of Certain GAAP and Non-GAAP Financial Measures

The Company defines EBITDA as net income from continuing operations before interest expense, income tax expense, depreciation, depletion and amortization. Adjusted EBITDA is defined as EBITDA before non-cash stock-based compensation, write-down of assets and certain other income or expenses. The Company defines Pro Forma Combined 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 entire quarter and excludes HPQ results. Adjusted Pro Forma Combined EBITDA is defined as Pro Forma Combined 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. Such presentation includes financial measures that are not in conformity with GAAP and do not conform with Securities and Exchange Commission rules for pro forma presentation. However, we believe that the additional non-GAAP financial measures will be helpful to investors in comparing current results with results of prior periods. These 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 the Company. The Company also believes Pro Forma Combined EBITDA and Pro Forma Combined 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, August 14, 2018, at 10 a.m. Eastern Time to discuss the Company's 2018 second-quarter financial results. Investors 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. 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 can also be accessed live by dialing (866) 393-4306 or, for international callers, (734) 385-2616. The conference ID for the call is 1294467. 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 1294467. The replay of the call will be available through August 21, 2018.

About Covia

Covia is a leading provider of minerals 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, 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.

Forward-Looking Statements
This press 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. All forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those anticipated or implied in forward-looking statements are described in the information included in Covia's Registration Statement on Form S-4, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other factors that are set forth in management's discussion and analysis of Covia's most recently filed reports with the Securities and Exchange Commission ("SEC"). These factors include: changes in prevailing economic conditions, including fluctuations in demand for, and pricing of, our products; potential business uncertainties relating to the merger, including potential disruptions to our business and operational relationships, our ability to achieve anticipated synergies, and the anticipated costs, timing and complexity of our 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; our ability to successfully develop and market new products; our rights and ability to mine our property and our renewal or receipt of the required permits and approvals from government authorities and other third parties; our ability to implement and realize efficiencies from capacity expansion plans, and cost reduction initiatives within our 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 our 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; and other operating risks that are beyond our control.

Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in Covia's filings with the SEC. The risk factors and other factors noted in our filings with the SEC could cause our actual results to differ materially from those contained in any forward-looking statement.

                                 
Covia                                
Condensed Consolidated Statements of Income                          
(unaudited)                                
    Three Months Ended June 30,     Six Months Ended June 30,  
    2018     2017     2018     2017  
                                 
    (in thousands, except per share amounts)     (in thousands, except per share amounts)  
             
Revenues   $ 508,418     $ 324,079     $ 878,239     $ 611,391  
Cost of goods sold (excluding depreciation, depletion, and amortization shown separately)     355,311       231,145       615,630       449,416  
                                 
Operating expenses                                
Selling, general and administrative expenses(A)     31,377       21,220       56,601       42,045  
Depreciation, depletion and amortization expense     36,744       23,896       63,875       47,558  
Other operating expense, net     12,944       813       12,944       1,836  
Operating income from continuing operations     72,042       47,005       129,189       70,536  
                                 
Interest expense, net     9,497       5,250       14,688       10,605  
Other non-operating expense, net     38,923       -       44,223       -  
Income from continuing operations before provision for income taxes     23,622       41,755       70,278       59,931  
                                 
Provision for income taxes     6,454       11,566       16,324       16,370  
Net income from continuing operations     17,168       30,189       53,954       43,561  
Less: Net income from continuing operations attributable to the non-controlling interest     106       -       106       -  
Net income from continuing operations attributable to Covia Holdings Corporation     17,062       30,189       53,848       43,561  
                                 
Income from discontinued operations, net of tax     3,830       6,612       12,587       10,080  
                                 
Net income attributable to Covia Holdings Corporation   $ 20,892     $ 36,801     $ 66,435     $ 53,641  
                                 
Continuing operations earnings per share                                
Basic   $ 0.14     $ 0.25     $ 0.44     $ 0.36  
Diluted     0.14       0.25       0.44       0.36  
                                 
Discontinued operations earnings per share                                
Basic     0.03       0.06       0.11       0.09  
Diluted     0.03       0.06       0.10       0.09  
                                 
Earnings per share                                
Basic     0.17       0.31       0.55       0.45  
Diluted   $ 0.17     $ 0.31     $ 0.54     $ 0.45  
                                 
Weighted average number of shares outstanding                                
Basic     123,460       119,645       121,552       119,645  
Diluted     124,166       119,645       122,258       119,645  
                                 
(A) - Stock compensation expense of $793 for the three months and six months ended June 30, 2018 is included within selling, general, and administrative expenses.
   


                 
Covia                
Condensed Consolidated Statements of Cash Flows                
(unaudited)                
    Six Months Ended June 30,  
    2018     2017  
                 
    (in thousands)  
Net income attributable to Covia Holdings Corporation   $ 66,435     $ 53,641  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation, depletion, and amortization     68,396       52,779  
Prepayment penalties on Senior Notes     2,213       -  
Gain on disposal of fixed assets     (81 )     (107 )
Change in fair value of interest rate swaps     (1,581 )     -  
Deferred income taxes and taxes payable     1,564       564  
Stock compensation expense     3,193       -  
Write-down of assets under construction     12,300       -  
Net income from non-controlling interest     106       -  
Other, net     4,653       (239 )
Change in operating assets and liabilities, net of business combination effect:                
Accounts receivable     (44,469 )     (32,737 )
Inventories     1,210       (491 )
Prepaid expenses and other assets     (146 )     5,874  
Accounts payable     3,362       6,477  
Accrued expenses     (31,572 )     194  
Net cash provided by operating activities     85,583       85,955  
                 
Cash flows from investing activities                
Proceeds from sale of fixed assets     222       413  
Capital expenditures     (115,709 )     (29,230 )
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     (211,184 )     (28,784 )
                 
Cash flows from financing activities                
Proceeds from borrowings on term loan     1,650,000       49,815  
Prepayment on Unimin Term Loans     (314,642 )     (205 )
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     (25,380 )     -  
Fees for Revolver     (4,500 )     -  
Cash Redemption payment     (520,377 )     -  
Proceeds from share-based awards exercised or distributed     2       -  
Tax payments for withholdings on share-based awards exercised or distributed     (1 )     -  
Dividends paid     -       (50,000 )
Net cash used in financing activities     (47,256 )     (390 )
                 
Effect of foreign currency exchange rate changes     1,168       2,735  
Increase (decrease) in cash and cash equivalents     (171,689 )     59,516  
                 
Cash and cash equivalents:                
Beginning of period     308,059       183,361  
End of period   $ 136,370     $ 242,877  
                 


                 
Covia                
Condensed Consolidated Balance Sheets                
(unaudited)                
    June 30, 2018     December 31, 2017  
                 
    (in thousands)  
Assets                
Current assets                
Cash and cash equivalents   $ 136,370     $ 308,059  
Accounts receivable, net     418,301       219,719  
Inventories, net     183,164       79,959  
Other receivables     34,780       27,963  
Prepaid expenses and other current assets     20,871       16,322  
Current assets of discontinued operations     -       66,906  
Total current assets     793,486       718,928  
                 
Property, plant and equipment, net     2,653,792       1,136,104  
Deferred tax assets, net     7,497       7,441  
Goodwill     472,347       53,512  
Intangibles, net     170,015       25,596  
Other non-current assets     23,504       2,416  
Non-current assets of discontinued operations     -       96,101  
Total assets   $ 4,120,641     $ 2,040,098  
                 
Liabilities and Equity                
Current liabilities                
Current portion of long-term debt   $ 19,920     $ 50,045  
Accounts payable     185,753       101,983  
Accrued expenses     121,403       88,208  
Current liabilities of discontinued operations     -       10,027  
Total current liabilities     327,076       250,263  
                 
Long-term debt     1,615,666       366,967  
Employee benefit obligations     99,490       97,798  
Deferred tax liabilities, net     230,416       62,614  
Other long-term liabilities     84,802       29,057  
Non-current liabilities of discontinued operations     -       8,084  
Total liabilities     2,357,450       814,783  
                 
Equity                
Common stock     1,777       1,777  
Additional paid-in capital     383,771       43,941  
Retained earnings     1,984,892       1,918,457  
Accumulated other comprehensive loss     (121,716 )     (128,228 )
Treasury stock at cost     (486,092 )     (610,632 )
Non-controlling interest     559       -  
Total equity     1,763,191       1,225,315  
Total liabilities and equity   $ 4,120,641     $ 2,040,098  
                 


                                         
Covia                                        
Pro Forma Combined Segment Reports                                  
(unaudited)                                        
(in thousands)                                        
    Three Months Ended June 30,  
    2018     2017  
    As
Reported
  Pre-
Merger(1)
  Pro Forma
Combined(2)
    As
Reported
  Pre-
Merger(3)
  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                                        
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(4)   $ 153,107   $ 70,847   $ 223,954     $ 92,934   $ 67,424   $ 160,358  
                                         
    Six Months Ended June 30,  
    2018     2017  
    As
Reported
  Pre-
Merger(1)
  Pro Forma
Combined(2)
    As
Reported
  Pre-
Merger(3)
  Pro Forma
Combined(2)
 
Volumes (tons)                                        
Energy     7,250     4,588     11,838       5,281     4,669     9,950  
Industrial     6,317     1,048     7,365       6,087     1,282     7,369  
Total volumes     13,567     5,636     19,203       11,368     5,951     17,319  
                                         
Revenues                                        
Energy   $ 534,207   $ 421,526   $ 955,733     $ 287,606   $ 339,805   $ 627,411  
Industrial     344,032     55,805     399,837       323,785     66,004     389,789  
Total revenues     878,239     477,331     1,355,570       611,391     405,809     1,017,200  
                                         
Segment gross profit                                        
Energy     166,783     136,668     303,451       66,064     77,694     143,758  
Industrial     95,826     21,440     117,266       95,911     28,111     124,022  
Total segment gross profit(4)   $ 262,609   $ 158,108   $ 420,717     $ 161,975   $ 105,805   $ 267,780  
                                         
    Three Months Ended March 31,  
    2018     2017  
    As
Reported
  Pre-
Merger(5)
  Pro Forma
Combined(2)
    As
Reported
  Pre-
Merger(5)
  Pro Forma
Combined(2)
 
Volumes (tons)                                        
Energy     2,976     2,635     5,611       2,462     2,082     4,544  
Industrial     2,971     578     3,549       2,968     595     3,563  
Total volumes     5,947     3,213     9,160       5,430     2,677     8,107  
                                         
Revenues                                        
Energy   $ 207,461   $ 242,181   $ 449,642     $ 130,223   $ 140,993   $ 271,216  
Industrial     162,360     31,156     193,516       157,089     31,590     188,679  
Total revenues     369,821     273,337     643,158       287,312     172,583     459,895  
                                         
Segment gross profit                                        
Energy     65,495     76,115     141,610       25,448     25,461     50,909  
Industrial     44,007     11,146     55,153       43,593     12,920     56,513  
Total segment gross profit(4)   $ 109,502   $ 87,261   $ 196,763     $ 69,041   $ 38,381   $ 107,422  
__________                                        
                                         
(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) Pro forma financial results for 2018 and 2017 include combined results of operations for Fairmount Santrol and Unimin for periods preceding the June 1, 2018 merger.  Such presentation includes financial information that is not in conformity with Securities and Exchange Commission rules or Generally Accepted Accounting Principles ("GAAP") for pro forma presentation.  
                                         
(3) 2017 Pre-Merger financial results are for Fairmount Santrol for the three and six months ended June 30, 2017, as previously reported by Fairmount Santrol.  Both Fairmount Santrol and Unimin reported financial results on a calendar fiscal year.  
                                         
(4) As a result of the June 1, 2018 merger, inventories were written up to fair value under GAAP and $19.2 million of this write-up was expensed through cost of sales in June 2018 thereby reducing Gross Profit.  Of this $19.2 million, $18.0 million and $1.2 million impacted the Energy and Industrial businesses for the three and six month period respectively.  
                                         
(5) 2018 Pre-Merger and 2017 Pre-Merger financial results are for Fairmount Santrol for the three months ended March 31, 2018 and March 31, 2017, respectively, as previously reported by Fairmount Santrol.  Both Fairmount Santrol and Unimin reported financial results on a calendar fiscal year.  
   


                                         
Covia                                        
Pro Forma Combined Statements of Income and Non-GAAP Financial Measures  
(unaudited)                                        
(in thousands)                                        
    Three Months Ended June 30,  
    2018     2017  
    As
Reported
  Pre-
Merger(1)
  Pro Forma
Combined(2)
    As
Reported
  Pre-
Merger(3)
  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(5)     31,377     20,137     51,514       21,220     25,719     46,939  
Depreciation, depletion and amortization expense     36,744     12,088     48,832       23,896     19,846     43,742  
Other operating expense, net     12,944     (1,563 )   11,381       813     355     1,168  
Operating income from continuing operations     72,042     40,186     112,228       47,005     21,504     68,509  
                                         
Interest expense, net     9,497     11,903     21,400       5,250     12,983     18,233  
Other non-operating expense, net(5)     38,923     24,723     63,646       -     144     144  
Income from continuing operations before provision for income taxes     23,622     3,560     27,182       41,755     8,377     50,132  
                                         
Provision for income taxes     6,454     811     7,265       11,566     520     12,086  
Net income from continuing operations     17,168     2,749     19,917       30,189     7,857     38,046  
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     2,749     19,811       30,189     7,817     38,006  
                                         
Interest expense, net     9,497     11,903     21,400       5,250     12,983     18,233  
Provision for income taxes     6,454     811     7,265       11,566     520     12,086  
Depreciation, depletion and amortization expense     36,744     12,088     48,832       23,896     19,846     43,742  
EBITDA     69,757     27,551     97,308       70,901     41,166     112,067  
                                         
Costs and expenses related to the Merger(5)     38,923     24,723     63,646       -     144     144  
Non-cash stock compensation expense(6)     793     5,063     5,856       -     2,763     2,763  
Loss on debt extinguishment and repurchase(7)     -     -     -       -     389     389  
Write-down of assets under construction(8)     12,300     -     12,300       -     -     -  
Adjusted EBITDA   $ 121,773   $ 57,337   $ 179,110     $ 70,901   $ 44,462   $ 115,363  
                                         
    Six Months Ended June 30,  
    2018     2017  
    As
Reported
  Pre-
Merger(1)
  Pro Forma
Combined(2)
    As
Reported
  Pre-
Merger(3)
  Pro Forma
Combined(2)
 
Revenues   $ 878,239   $ 477,332   $ 1,355,571     $ 611,391   $ 405,809   $ 1,017,200  
Cost of goods sold (excluding depreciation, depletion, and amortization shown separately)(4)     615,630     319,224     934,854       449,416     300,005     749,421  
                                         
Operating expenses                                        
Selling, general and administrative expenses(5)     56,601     44,156     100,757       42,045     48,189     90,234  
Depreciation, depletion and amortization expense     63,875     29,313     93,188       47,558     39,288     86,846  
Other operating expense, net     12,944     (2,292 )   10,652       1,836     (705 )   1,131  
Operating income from continuing operations     129,189     86,931     216,120       70,536     19,032     89,568  
                                         
Interest expense, net     14,688     25,686     40,374       10,605     25,520     36,125  
Other non-operating expense, net(5)     44,223     28,057     72,280       -     144     144  
Income from continuing operations before provision for income taxes     70,278     33,188     103,466       59,931     (6,632 )   53,299  
                                         
Provision for income taxes     16,324     1,683     18,007       16,370     (628 )   15,742  
Net income from continuing operations     53,954     31,505     85,459       43,561     (6,004 )   37,557  
Less: Net income from continuing operations attributable to the non-controlling interest     106     3     109       -     218     218  
Net income from continuing operations attributable to Covia Holdings Corporation     53,848     31,502     85,350       43,561     (6,222 )   37,339  
                                         
Interest expense, net     14,688     25,686     40,374       10,605     25,520     36,125  
Provision for income taxes     16,324     1,683     18,007       16,370     (628 )   15,742  
Depreciation, depletion and amortization expense     63,875     29,313     93,188       47,558     39,288     86,846  
EBITDA     148,735     88,184     236,919       118,094     57,958     176,052  
                                         
Costs and expenses related to the Merger(5)     44,223     28,057     72,280       -     144     144  
Non-cash stock compensation expense(6)     793     8,482     9,275       -     5,179     5,179  
Loss on debt extinguishment and repurchase(7)     -     -     -       -     389     389  
Write-down of assets under construction(8)     12,300     -     12,300       -     -     -  
Adjusted EBITDA   $ 206,051   $ 124,723   $ 330,774     $ 118,094   $ 63,670   $ 181,764  
                                         
                                         
                                         
    Three Months Ended March 31,  
    2018     2017  
    As
Reported
  Pre-
Merger(9)
  Pro Forma
Combined(2)
    As
Reported
  Pre-
Merger(9)
  Pro Forma
Combined(2)
 
Revenues   $ 369,821   $ 273,338   $ 643,159     $ 287,312   $ 172,583   $ 459,895  
Cost of goods sold (excluding depreciation, depletion, and amortization shown separately)(4)     260,319     186,078     446,397       218,271     134,203     352,474  
                                         
Operating expenses                                        
Selling, general and administrative expenses(5)     25,224     24,019     49,243       20,825     22,470     43,295  
Depreciation, depletion and amortization expense     27,131     17,225     44,356       23,662     19,442     43,104  
Other operating expense, net     -     (729 )   (729 )     1,023     (1,060 )   (37 )
Operating income from continuing operations     57,147     46,745     103,892       23,531     (2,472 )   21,059  
                                         
Interest expense, net     5,191     13,783     18,974       5,355     12,537     17,892  
Other non-operating expense, net(5)     5,300     3,334     8,634       -     -     -  
Income from continuing operations before provision for income taxes     46,656     29,628     76,284       18,176     (15,009 )   3,167  
                                         
Provision for income taxes     9,870     872     10,742       4,804     (1,148 )   3,656  
Net income from continuing operations     36,786     28,756     65,542       13,372     (13,861 )   (489 )
Less: Net income from continuing operations attributable to the non-controlling interest     -     3     3       -     178     178  
Net income from continuing operations attributable to Covia Holdings Corporation     36,786     28,753     65,539       13,372     (14,039 )   (667 )
                                         
Interest expense, net     5,191     13,783     18,974       5,355     12,537     17,892  
Provision for income taxes     9,870     872     10,742       4,804     (1,148 )   3,656  
Depreciation, depletion and amortization expense     27,131     17,225     44,356       23,662     19,442     43,104  
EBITDA     78,978     60,633     139,611       47,193     16,792     63,985  
                                         
Costs and expenses related to the Merger(5)     5,300     3,334     8,634       -     -     -  
Non-cash stock compensation expense(6)     -     3,419     3,419       -     2,416     2,416  
Loss (gain) on debt extinguishment and repurchase(7)     -     -     -       -     -     -  
Write-down of assets under construction(8)     -     -     -       -     -     -  
Adjusted EBITDA   $ 84,278   $ 67,386   $ 151,664     $ 47,193   $ 19,208   $ 66,401  
__________                                        
                                         
(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) Pro forma financial results for 2018 and 2017 include combined results of operations for Fairmount Santrol and Unimin for periods preceding the June 1, 2018 merger.  Such presentation includes financial measures that are not in conformity with Generally Accepted Accounting Principles ("GAAP") and do not conform with Securities and Exchange Commission rules for pro forma presentation.  However, we believe that the additional non-GAAP financial measures will be helpful to investors in comparing current results with results of prior periods.  These 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 the Company.  
                                         
(3) 2017 Pre-Merger financial results are for Fairmount Santrol for the three and six months ended June 30, 2017, as previously reported by Fairmount Santrol.  Both Fairmount Santrol and Unimin reported financial results on a calendar fiscal year.  
                                         
(4) As a result of the June 1, 2018 merger, inventories were written up to fair value under GAAP and $19.2 million of this write-up was expensed through cost of sales in June 2018 thereby reducing Gross Profit.  Of this $19.2 million, $18.0 million and $1.2 million impacted the Energy and Industrial businesses, respectively, for the three and six month period ended June 30, 2018.  
                                         
(5) 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.  
                                         
(6) Represents the non-cash expense for stock-based awards issued to Fairmount Santrol employees and outside directors.  Stock compensation expenses are reported in SG&A.  
                                         
(7) Represents the write-off of deferred financing fees related to an amendment to Fairmount Santrol's Revolving Credit Facility in 2017.  This expense was reported by Fairmount Santrol in Other operating expense for the three months ended June 30, 2017.  
                                         
(8) Represents charges from a terminated project due to post-Merger synergies and capital optimization.  
   
(9) 2018 Pre-Merger and 2017 Pre-Merger financial results are for Fairmount Santrol for the three months ended March 31, 2018 and March 31, 2017, respectively, as previously reported by Fairmount Santrol. Both Fairmount Santrol and Unimin reported financial results on a calendar fiscal year.  
   

Investor contact:

Matthew Schlarb
440-214-3284
Matthew.Schlarb@coviacorp.com 
Source: Covia

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