Covia Announces Third Quarter 2019 Results

Covia (NYSE:CVIA), a leading provider of mineral-based material solutions for the Industrial and Energy markets, today announced results for the third quarter ended September 30, 2019. As a result of the merger that closed on June 1, 2018, Covia’s 2018 reported results under U.S. generally accepted accounting principles (“GAAP”) include the consolidated financial results of both Unimin Corporation (“Unimin”) and Fairmount Santrol Holdings Inc. (“Fairmount Santrol”) for the seven months ended December 31, 2018, as well as the stand-alone results for Unimin for the five months ended May 31, 2018, including the high-purity quartz (“HPQ”) business reported as discontinued operations. Selected pro forma financial results, which reflect combined Unimin and Fairmount Santrol operations prior to the merger and exclude HPQ results, have been provided as exhibits with this release.

“During the third quarter, we made significant progress in reducing our financial leverage, including closing on $240 million in non-core asset sales, structurally removing costs and streamlining our organization,” said Richard Navarre, Chairman, President and Chief Executive Officer. “Industrial profitability increased year-over-year, despite the sale of two businesses and temporary end market-related challenges. Energy performed consistent with guidance through August; however, customers sharply curtailed completions activity in September, which negatively impacted our results. We have taken further actions to consolidate our production into lower-cost facilities and reduce costs across the organization.”

Mr. Navarre added, “Energy demand is expected to soften further in the fourth quarter, due to customer budget exhaustion and seasonality. In the face of these challenging conditions, we remain committed to repositioning our Energy business, organically growing our Industrial segment and strengthening our balance sheet. We are confident that these strategies will best position Covia to navigate market challenges and deliver strong profitability as market conditions improve.”   

Third Quarter 2019 Results

• Total volumes decreased 5% sequentially to 7.8 million tons, and decreased 5% compared to the third quarter of 2018.
• Total revenues decreased 8% sequentially to $409.0 million, and decreased 22% compared to the third quarter of 2018.
• Selling, general and administrative expenses decreased 8% sequentially to $35.6 million, and decreased 17% compared to the third quarter of 2018.  °  Third quarter 2019 selling, general and administrative expenses include $2.3 million in non-cash stock compensation expense. In the second quarter of 2019 and third quarter of 2018, non-cash stock compensation totaled $3.3 million and $2.7 million, respectively. 
• Net income from continuing operations totaled $53.8 million, a sequential increase of $88.2 million. The increase was driven by the $127.2 million pre-tax gain on sale of assets.
• Adjusted EBITDA of $43.2 million, compared to $65.3 million in the second quarter of 2019, and $84.1 million in the third quarter of 2018.

Third Quarter 2019 Segment Results

Industrial Segment Results

• Volumes decreased 3% to 3.6 million tons compared to the third quarter of 2018, driven primarily by the sale of the Calera lime facility (“Calera’) and softness in the metals and foundry business, which was negatively impacted by the General Motors union strike. This was partially offset by strength in coatings and polymers, which increased 15%, and solid mid-single-digit growth in Mexican containerized glass.   °  Excluding Calera and the Winchester and Western Railroad (“W&W”), which were sold during the third quarter of 2019, volumes declined 1% compared to the third quarter of 2018.
• Revenues decreased 7% to $185.6 million compared to the third quarter of 2018, driven primarily by lower transportation-related revenues.   °  Excluding Calera and W&W, revenues decreased 3% compared to the third quarter of 2018.
• Segment gross profit and segment contribution margin of $59.1 million each increased $2.3 million, or 4%, from the third quarter of 2018, due mainly to increased pricing and cost improvements, partially offset by the sale of Calera and the W&W.  °  Segment gross profit excluding Calera and W&W increased 11% compared to the third quarter of 2018.

Energy Segment Results

• Volumes decreased 9% sequentially to 4.2 million tons.
• Revenues decreased 11% sequentially to $223.3 million, driven primarily by lower volumes in September and moderately lower pricing for both Northern White and local sand.
• Segment gross profit of $17.7 million compared to $33.9 million in the second quarter of 2019. Segment contribution margin of $24.6 million, a decrease of $16.3 million sequentially, driven primarily by lower pricing and lower fixed-cost absorption resulting from decreased volumes.
• In response to lower market demand, the Company has reduced its annual effective Northern White capacity by approximately 5 million tons, including the idling of the Kasota, Minnesota facility, and the de-rating of capacity at several other facilities.

Balance Sheet and Liquidity

• Total liquidity of $528.8 million as of September 30, 2019, which was composed of $340.1 million in cash and cash equivalents and $188.7 million of availability under the Company’s revolving credit facility.
• Generated cash flow from operations of $17.4 million in the third quarter of 2019.
• Third quarter 2019 capital expenditures totaled $15.6 million, primarily related to maintenance capital and the Canoitas plant expansion in Mexico to support customer growth.

Outlook

The Company’s fourth quarter 2019 expectations are:

• Industrial volumes are expected to be in the range of 3.3 million tons to 3.5 million tons, which includes the negative impact from the sale of Calera.
• Energy volumes are expected to decline at least 15% sequentially.

The Company’s full-year 2019 expectations are:

• 2019 selling, general and administrative expenses of $145 million to $155 million, which includes approximately $10 million in non-cash stock compensation expense.
• 2019 capital expenditures are expected to be in the range of $85 million to $95 million.

The Company is actively implementing a Company-wide business optimization program to deliver a lower cost structure, support improved Industrial profitability, strengthen the balance sheet and create a more resilient and profitable Energy business.

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 November 6, 2019, 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 [phone] or, for international callers, [phone]. The conference ID for the call is 1880198. A replay will be available on the website and can be accessed by dialing [phone] or [phone]. 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 EndedSeptember 30,								Nine Months EndedSeptember 30,
	2019				2018				2019				2018
	(in thousands, except per share amounts)								(in thousands, except per share amounts)
Revenues	$	408,957			$	523,368			$	1,282,139			$	1,401,607
Cost of goods sold (excluding depreciation, depletion,
and amortization shown separately)		332,234				405,602				1,039,763				1,021,232
Operating expenses
Selling, general and administrative expenses(A)		35,628				43,164				116,232				99,765
Depreciation, depletion and amortization expense		51,920				68,584				169,219				132,459
Goodwill and other asset impairments		7,761				265,343				7,761				277,643
Restructuring and other charges		3,378				14,750				14,915				14,750
Gain on sale of subsidiaries		(127,195	)			-				(127,195	)			-
Other operating expense (income), net		18				(974	)			(4,704	)			(330	)
Operating income (loss) from continuing operations		105,213				(273,101	)			66,148				(143,912	)
Interest expense, net		26,894				23,530				79,896				35,325
Other non-operating expense, net		1,924				9,043				5,682				56,159
Income (loss) from continuing operations before provision (benefit) for income taxes		76,395				(305,674	)			(19,430	)			(235,396	)
Provision (benefit) for income taxes		22,471				(16,848	)			13,281				(524	)
Net income (loss) from continuing operations		53,924				(288,826	)			(32,711	)			(234,872	)
Less: Net income (loss) from continuing operations attributable to the non-controlling interest		152				(32	)			156				74
Net income (loss) from continuing operations attributable to Covia Holdings Corporation		53,772				(288,794	)			(32,867	)			(234,946	)
Income from discontinued operations, net of tax		-				-				-				12,587
Net income (loss) attributable to Covia Holdings Corporation	$	53,772			$	(288,794	)		$	(32,867	)		$	(222,359	)
Continuing operations earnings (loss) per share
Basic	$	0.41			$	(2.20	)		$	(0.25	)		$	(1.90	)
Diluted		0.41				(2.20	)			(0.25	)			(1.90	)
Discontinued operations earnings per share
Basic		-				-				-				0.10
Diluted		-				-				-				0.10
Earnings (loss) per share
Basic		0.41				(2.20	)			(0.25	)			(1.80	)
Diluted	$	0.41			$	(2.20	)		$	(0.25	)		$	(1.80	)
Weighted average number of shares outstanding
Basic		131,562				131,154				131,437				123,604
Diluted		131,745				131,154				131,437				123,604
(A) - Included within selling, general, and administrative expenses is stock compensation expense of $2.3 million and $2.7 million for the three months ended September 30, 2019 and 2018, respectively, and $8.4 million and $3.4 million for the nine months ended September 30, 2019 and 2018, respectively.

Covia
Condensed Consolidated Statements of Cash Flows
(unaudited)
	Nine Months Ended September 30,
	2019				2018
	(in thousands)
Net loss attributable to Covia Holdings Corporation	$	(32,867	)		$	(222,359	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion, and amortization		169,219				132,459
Amortization of deferred financing costs		4,626				6,001
Prepayment penalties on Senior Notes		-				2,213
Goodwill and other asset impairments		7,761				277,643
Inventory write-downs		-				6,744
(Gain) loss on disposal of fixed assets		2,255				(90	)
Gain on sale of subsidiaries		(127,195	)			-
Change in fair value of interest rate swaps, net		-				(2,658	)
Deferred income tax provision (benefit)		6,414				(9,234	)
Stock compensation expense		8,378				5,847
Net income from non-controlling interest		156				74
Other, net		5,037				11,101
Change in operating assets and liabilities, net of business combination effect:
Accounts receivable		13,303				53,533
Inventories		19,768				10,511
Prepaid expenses and other assets		6,078				(806	)
Accounts payable		(22,950	)			(32,628	)
Accrued expenses		8,812				(48,091	)
Net cash provided by operating activities		68,795				190,260
Cash flows from investing activities
Capital expenditures		(75,063	)			(188,424	)
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		(6,772	)			-
Proceeds from sale of fixed assets		2,998				862
Proceeds from sale of subsidiaries		234,014				-
Net cash provided by (used in) investing activities		155,177				(283,259	)
Cash flows from financing activities
Proceeds from borrowings on Term Loan		-				1,650,000
Payments on Term Loan		(12,375	)			(4,125	)
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	)			(35,574	)
Payments on finance lease liabilities		(3,460	)			-
Fees for Revolver		-				(4,500	)
Cash Redemption payment to Sibelco		-				(520,377	)
Proceeds from share-based awards exercised or distributed		14				1
Tax payments for withholdings on share-based awards exercised or distributed		(616	)			(289	)
Net cash used in financing activities		(18,101	)			(61,864	)
Effect of foreign currency exchange rate changes		125				2,211
Increase (decrease) in cash and cash equivalents		205,996				(152,652	)
Cash and cash equivalents:
Beginning of period		134,130				308,059
End of period	$	340,126			$	155,407

Covia
Condensed Consolidated Balance Sheets
	(unaudited)				(audited)
	September 30, 2019				December 31, 2018
	(in thousands)
Assets
Current assets
Cash and cash equivalents	$	340,126			$	134,130
Accounts receivable, net		247,440				267,268
Inventories, net		139,061				162,970
Other receivables		33,943				40,306
Prepaid expenses and other current assets		20,174				20,941
Assets held for sale		5,797				-
Total current assets		786,541				625,615
Property, plant and equipment, net		2,629,950				2,834,361
Operating right-of-use assets, net		379,569				-
Deferred tax assets, net		7,450				8,740
Goodwill		119,822				131,655
Intangibles, net		60,638				137,113
Other non-current assets		30,256				18,633
Total assets	$	4,014,226			$	3,756,117
Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	14,509			$	15,482
Operating lease liabilities, current		65,880				-
Accounts payable		97,124				145,070
Accrued expenses		116,361				120,424
Deferred revenue		13,111				9,737
Total current liabilities		306,985				290,713
Long-term debt		1,604,095				1,612,887
Operating lease liabilities, non-current		282,843				-
Employee benefit obligations		58,048				54,789
Deferred tax liabilities, net		267,620				267,350
Other non-current liabilities		73,878				75,425
Total liabilities		2,593,469				2,301,164
Equity
Common stock		1,777				1,777
Additional paid-in capital		386,600				388,027
Retained earnings		1,615,092				1,647,959
Accumulated other comprehensive loss		(105,102	)			(95,225	)
Treasury stock at cost		(478,322	)			(488,141	)
Non-controlling interest		712				556
Total equity		1,420,757				1,454,953
Total liabilities and equity	$	4,014,226			$	3,756,117

Covia
Pro Forma Segment Information
(unaudited)
(in thousands)
	Three Months Ended September 30,
	2019				2018
	Covia, As Reported				Covia, As Reported			—			—
Volumes (tons)
Energy		4,177				4,497		—			—
Industrial		3,583				3,680		—			—
Total volumes		7,760				8,177		—			—
Revenues
Energy	$	223,318			$	324,606		—			—
Industrial		185,639				198,762		—			—
Total revenues		408,957				523,368		—			—
Segment gross profit(3)
Energy		17,662				60,961		—			—
Industrial		59,061				56,805		—			—
Total segment gross profit		76,723				117,766		—			—
Segment contribution margin (non-GAAP)(4)
Energy		24,576				67,913		—			—
Industrial		59,061				56,805		—			—
Total segment contribution margin (non-GAAP)	$	83,637			$	124,718		—			—
Segment contribution margin per ton (non-GAAP)(4)
Energy	$	5.88			$	15.10		—			—
Industrial		16.48				15.44		—			—
Total segment contribution margin per ton (non-GAAP)	$	10.78			$	15.25		—			—
	Nine Months Ended September 30,
	2019				2018
	Covia, As Reported				Covia, As Reported			Fairmount Santrol Pre-Merger(1)			Covia Pro Forma Combined(2)
Volumes (tons)
Energy		13,191				11,747			4,588			16,335
Industrial		10,744				9,997			1,048			11,045
Total volumes		23,935				21,744			5,636			27,380
Revenues
Energy	$	710,940			$	858,813		$	421,526		$	1,280,339
Industrial		571,199				542,794			55,805			598,599
Total revenues		1,282,139				1,401,607			477,331			1,878,938
Segment gross profit(3)
Energy		66,584				227,744			136,668			364,412
Industrial		175,792				152,631			21,440			174,071
Total segment gross profit		242,376				380,375			158,108			538,483
Segment contribution margin (non-GAAP)(4)
Energy		87,507				236,798			147,394			384,192
Industrial		175,792				152,631			21,440			174,071
Total segment contribution margin (non-GAAP)	$	263,299			$	389,429			168,834		$	558,263
Segment contribution margin per ton (non-GAAP)(4)
Energy	$	6.63			$	20.16		$	32.13		$	23.52
Industrial		16.36				15.27			20.46			15.76
Total segment contribution margin per ton (non-GAAP)	$	11.00			$	17.91		$	29.96		$	20.39
	Three Months Ended June 30,
	2019
	Covia, As Reported
Volumes (tons)
Energy		4,582
Industrial		3,596
Total volumes		8,178
Revenues
Energy	$	251,547
Industrial		193,389
Total revenues		444,936
Segment gross profit(3)
Energy		33,858
Industrial		65,109
Total segment gross profit		98,967
Segment contribution margin (non-GAAP)(4)
Energy		40,912
Industrial		65,109
Total segment contribution margin (non-GAAP)	$	106,021
Segment contribution margin per ton (non-GAAP)(4)
Energy	$	8.93
Industrial		18.11
Total segment contribution margin per ton (non-GAAP)	$	12.96
__________
(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 nine months ended September 30, 2019, Energy segment gross profit was negatively impacted by the $1.9 million and $6.1 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 nine months ended September 30, 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 September 30, 2019.  Of the $1.1 million in the nine months ended September 30, 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 $6.9 million and $7.0 million in the three months ended September 30, 2019 and 2018, respectively, and $20.9 million and $9.1 million in the nine months ended September 30, 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 September 30,
	2019				2018
	As Reported				As Reported			Fairmount Santrol Pre-Merger			Merger Pro Forma Adjustments(1)			Covia Pro Forma Combined(2)
Revenues	$	408,957			$	523,368		—			$	-		$	523,368
Cost of goods sold (excluding depreciation, depletion,
and amortization shown separately)(4)		332,234				405,602		—				-			405,602
Operating expenses
Selling, general and administrative expenses		35,628				43,164		—				-			43,164
Depreciation, depletion and amortization expense		51,920				68,584		—				(10,392	)		58,192
Goodwill and other asset impairments		7,761				265,343		—				-			265,343
Restructuring and other charges		3,378				14,750		—				-			14,750
Gain on sale of subsidiaries		(127,195	)			-		—				-			-
Other operating expense (income), net		18				(974	)	—				-			(974	)
Operating income (loss) from continuing operations		105,213				(273,101	)	—				10,392			(262,709	)
Interest expense, net		26,894				23,530		—				(372	)		23,158
Other non-operating expense, net		1,924				9,043		—				(5,600	)		3,443
Income (loss) from continuing operations before provision (benefit) for income taxes		76,395				(305,674	)	—				16,364			(289,310	)
Provision (benefit) for income taxes		22,471				(16,848	)	—				3,764			(13,084	)
Net income (loss) from continuing operations		53,924				(288,826	)	—				12,600			(276,226	)
Less: Net income (loss) from continuing operations attributable to the non-controlling interest		152				(32	)	—				-			(32	)
Net income (loss) from continuing operations attributable to Covia Holdings Corporation		53,772				(288,794	)	—				12,600			(276,194	)
Interest expense, net		26,894				23,530		—				(372	)		23,158
Provision (benefit) for income taxes		22,471				(16,848	)	—				3,764			(13,084	)
Depreciation, depletion and amortization expense		51,920				68,584		—				(10,392	)		58,192
EBITDA		155,057				(213,528	)	—				5,600			(207,928	)
Non-cash charges relating to operating leases(4)		1,856				-		—				-			-
Non-cash stock compensation expense(5)		2,296				2,654		—				-			2,654
Costs and expenses related to the Merger and integration(6)		-				5,600		—				(5,600	)		-
Restructuring and other charges(7)		3,378				24,061		—				-			24,061
Goodwill and asset impairments(8)		7,761				265,343		—				-			265,343
Gain on sale of subsidiaries(9)		(127,195	)			-			-			-			-
Adjusted EBITDA	$	43,153			$	84,130		—			$	-		$	84,130
	Nine Months Ended September 30,
	2019				2018
	As Reported				As Reported			Fairmount Santrol Pre-Merger(3)			Merger Pro Forma Adjustments(1)			Pro Forma Combined(2)
Revenues	$	1,282,139			$	1,401,607		$	477,332		$	-		$	1,878,939
Cost of goods sold (excluding depreciation, depletion,
and amortization shown separately)(4)		1,039,763				1,021,232			319,224			-			1,340,456
Operating expenses
Selling, general and administrative expenses		116,232				99,765			44,156			-			143,921
Depreciation, depletion and amortization expense		169,219				132,459			29,313			1,587			163,359
Goodwill and other asset impairments		7,761				277,643			-			-			277,643
Restructuring and other charges		14,915				14,750			-			-			14,750
Gain on sale of subsidiaries		(127,195	)			-			-			-			-
Other operating expense (income), net		(4,704	)			(330	)		(2,292	)		-			(2,622	)
Operating income (loss) from continuing operations		66,148				(143,912	)		86,931			(1,587	)		(58,568	)
Interest expense, net		79,896				35,325			25,686			8,799			69,810
Other non-operating expense, net		5,682				56,159			28,057			(77,880	)		6,336
Income (loss) from continuing operations before provision (benefit) for income taxes		(19,430	)			(235,396	)		33,188			67,494			(134,714	)
Provision (benefit) for income taxes		13,281				(524	)		1,683			15,524			16,683
Net income (loss) from continuing operations		(32,711	)			(234,872	)		31,505			51,970			(151,397	)
Less: Net income (loss) from continuing operations attributable to the non-controlling interest		156				74			3			-			77
Net income (loss) from continuing operations attributable to Covia Holdings Corporation		(32,867	)			(234,946	)		31,502			51,970			(151,474	)
Interest expense, net		79,896				35,325			25,686			8,799			69,810
Provision (benefit) for income taxes		13,281				(524	)		1,683			15,524			16,683
Depreciation, depletion and amortization expense		169,219				132,459			29,313			1,587			163,359
EBITDA		229,529				(67,686	)		88,184			77,880			98,378
Non-cash charges relating to operating leases(4)		6,056				-			-			-			-
Non-cash stock compensation expense(5)		8,378				3,447			8,482			-			11,929
Costs and expenses related to the Merger and integration(6)		896				49,823			28,057			(77,880	)		-
Restructuring and other charges(7)		17,504				24,061			-			-			24,061
Goodwill and other asset impairments(8)		7,761				277,643			-			-			277,643
Gain on sale of subsidiaries(9)		(127,195	)			-			-			-			-
Adjusted EBITDA	$	142,929			$	287,288		$	124,723		$	-		$	412,011
	Three Months Ended June 30,
	2019
	As Reported
Revenues	$	444,936
Cost of goods sold (excluding depreciation, depletion,
and amortization shown separately)(4)		345,969
Operating expenses
Selling, general and administrative expenses		38,644
Depreciation, depletion and amortization expense		59,204
Restructuring and other charges		9,535
Other operating expense (income), net		1,670
Operating income (loss) from continuing operations		(10,086	)
Interest expense, net		27,866
Other non-operating expense, net		1,571
Income from continuing operations before provision for income taxes		(39,523	)
Provision (benefit) for income taxes		(5,136	)
Net income (loss) from continuing operations		(34,387	)
Less: Net income (loss) from continuing operations attributable to the non-controlling interest		7
Net income (loss) from continuing operations attributable to Covia Holdings Corporation		(34,394	)
Interest expense, net		27,866
Provision (benefit) for income taxes		(5,136	)
Depreciation, depletion and amortization expense		59,204
EBITDA		47,540
Non-cash charges relating to operating leases(4)		2,100
Non-cash stock compensation expense(5)		3,316
Costs and expenses related to the Merger and integration(6)		245
Restructuring and other charges(7)		12,124
Adjusted EBITDA	$	65,325
__________
(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 nine months ended September 30, 2019, Energy segment gross profit was negatively impacted by the $1.9 million and $6.1 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 expenses from a terminated project in 2018 due to post-Merger synergies and capital optimization.
(9) 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 September 30,
	2019				2018
	As Reported				Covia, As Reported			—			—
Segment gross profit(3)
Energy	$	17,662			$	60,961		—			—
Industrial		59,061				56,805		—			—
Total segment gross profit		76,723				117,766		—			—
Operating expenses excluded from segment contribution margin(4)		6,914				6,952		—			—
Segment contribution margin (non-GAAP)(4)
Energy		24,576				67,913		—			—
Industrial		59,061				56,805		—			—
Total segment contribution margin (non-GAAP)	$	83,637			$	124,718		—			—
Segment gross profit per ton(3)
Energy	$	4.23			$	13.56		—			—
Industrial		16.48				15.44		—			—
Total segment gross profit per ton		9.89				14.40		—			—
Operating expenses per ton excluded from segment contribution margin per ton(4)		1.66				1.55		—			—
Segment contribution margin per ton (non-GAAP)(4)
Energy		5.88				15.10		—			—
Industrial		16.48				15.44		—			—
Total segment contribution margin per ton (non-GAAP)	$	10.78			$	15.25		—			—
	Nine Months Ended September 30,
	2019				2018
	As Reported				Covia, As Reported			Fairmount Santrol Pre-Merger(1)			Covia Pro Forma Combined(2)
Segment gross profit(3)
Energy	$	66,584			$	227,744		$	136,668		$	364,412
Industrial		175,792				152,631			21,440			174,071
Total segment gross profit		242,376				380,375			158,108			538,483
Operating expenses excluded from segment contribution margin (non-GAAP)(4)		20,923				9,054			10,726			19,780
Segment contribution margin (non-GAAP)(4)
Energy		87,507				236,798			147,394			384,192
Industrial		175,792				152,631			21,440			174,071
Total segment contribution margin (non-GAAP)	$	263,299			$	389,429		$	168,834		$	558,263
Segment gross profit per ton(3)
Energy	$	5.05			$	19.39		$	29.79		$	22.31
Industrial		16.36				15.27			20.46			15.76
Total segment gross profit per ton		10.13				17.49			28.05			19.67
Operating expenses per ton excluded from segment contribution margin per ton(4)		1.59				0.77			2.34			1.21
Segment contribution margin per ton (non-GAAP)(4)
Energy		6.63				20.16			32.13			23.52
Industrial		16.36				15.27			20.46			15.76
Total segment contribution margin per ton (non-GAAP)	$	11.00			$	17.91		$	29.96		$	20.39
	Three Months Ended June 30,
	2019
	As Reported
Segment gross profit(3)
Energy	$	33,858
Industrial		65,109
Total segment gross profit		98,967
Operating expenses excluded from segment contribution margin (non-GAAP)(4)		7,054
Segment contribution margin (non-GAAP)(4)
Energy		40,912
Industrial		65,109
Total segment contribution margin (non-GAAP)	$	106,021
Segment gross profit per ton(3)
Energy	$	7.39
Industrial		18.11
Total segment gross profit per ton		12.10
Operating expenses per ton excluded from segment contribution margin per ton(4)		1.54
Segment contribution margin per ton (non-GAAP)(4)
Energy		8.93
Industrial		18.11
Total segment contribution margin per ton (non-GAAP)	$	12.96
__________
(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 nine months ended September 30, 2019, Energy segment gross profit was negatively impacted by the $1.9 million and $6.1 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 nine months ended September 30, 2019, $1.1 million, respectively, 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 September 30, 2019.  Of the $1.1 million in the nine months ended September 30, 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.  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.  Segment contribution margin per ton is defined as segment contribution margin divided by tons sold.  Operating costs of idled facilities and excess railcar capacity costs, which are both entirely attributable to the Energy segment, were $6.9 million and $7.0 million in the three months ended September 30, 2019 and 2018, respectively, and $20.9 million and $9.1 million in the nine months ended September 30, 2019 and 2018, respectively.  Segment contribution margin is a non-GAAP financial measure.  A reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures is provided in tables.

Covia
Adjusted Industrial Segment Information
The following table provides unaudited adjusted Industrial segment data, excluding the impact of Calera and the Winchester & Western Railroad 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 September 30,
	2019				2018
Industrial volumes (tons), as reported		3,583				3,680
Less Calera volumes		(35	)			(100	)
Adjusted Industrial volumes		3,548				3,580
Industrial revenues, as reported	$	185,639			$	198,762
Less Calera revenues		(4,591	)			(12,232	)
Less W&W revenues		(2,659	)			(3,333	)
Adjusted Industrial revenues	$	178,389			$	183,197
Industrial segment gross profit, as reported	$	59,061			$	56,805
Less Calera gross profit		(1,321	)			(4,130	)
Less W&W gross profit		(960	)			(1,485	)
Adjusted Industrial segment gross profit	$	56,780			$	51,190

Investor contact:Matthew [e-mail]: Covia