Enviva Partners, LP (NYSE: EVA) (“Enviva,” the “Partnership,” or
“we”) today reported financial and operating results for the first
quarter of 2019.
Highlights:
- The Partnership declared a quarterly
distribution of $0.645 per unit, its fifteenth consecutive
quarterly increase, and announced it expects to distribute at least
$2.65 per common unit for full-year 2019
- For the first quarter of 2019, the
Partnership reported a net loss of $8.9 million, as compared to a
net loss of $19.3 million for the first quarter of 2018, and an
adjusted EBITDA increase to $21.6 million, as compared to adjusted
EBITDA of $17.6 million for the first quarter of 2018
- The Partnership executed a new
off-take contract with RWE Supply & Trading GmbH to supply
1,000,000 metric tons over a five-year period commencing in
2020
- Following completion of the
previously announced Hamlet Transaction, the Partnership is
finalizing construction of the Hamlet plant and has begun
commissioning major process islands
“Our plant and port facilities delivered operating and financial
results consistent with our expectations for what is historically
our most seasonally challenging quarter,” said John Keppler,
Chairman and Chief Executive Officer of Enviva. “As we progress
through the second quarter and into the back half of the year, we
are excited about the opportunity to bring our new Hamlet plant
online and for our sponsor to begin construction on the next set of
fully contracted assets in our Port of Pascagoula cluster. With its
confidence in the underlying business and the Partnership’s growth
trajectory, the Board declared a distribution of $0.645 per unit,
our 15th consecutive quarterly increase since our IPO.”
First Quarter Financial Results
For the first quarter of 2019, we generated net revenue of
$158.4 million, an increase of 26.4 percent, or $33.0 million, from
the corresponding quarter of 2018. Included in net revenue were
product sales of $156.6 million on 843,000 metric tons of wood
pellets sold during the first quarter of 2019, as compared to
$122.3 million on 648,000 metric tons of wood pellets sold during
the corresponding quarter of 2018. The $34.3 million increase in
product sales was primarily attributable to a 30.1 percent increase
in sales volumes, partially offset by a decrease in pricing due
primarily to customer contract mix. Other revenue was $1.8 million
for the first quarter of 2019, as compared to $3.0 million for the
corresponding quarter of 2018. The decrease was primarily due to
lower fees received from off-take customers requesting scheduling
accommodations.
For the first quarter of 2019, we generated gross margin of $9.9
million, as compared to $(5.0) million for the corresponding period
in 2018, an increase of approximately $14.9 million. Adjusted gross
margin was $27.6 million for the first quarter of 2019, as compared
to $21.6 million for the first quarter of 2018. Adjusted gross
margin per metric ton was $32.73 for the first quarter of 2019, as
compared to adjusted gross margin per metric ton of $33.40 for the
first quarter of 2018. Adjusted gross margin per metric ton
decreased due to customer contract mix and higher production costs
associated with more significant and longer lasting seasonal
factors.
For the first quarter of 2019, net loss was $8.9 million, as
compared to a net loss of $19.3 million for the first quarter of
2018. Adjusted EBITDA for the first quarter of 2019 was $21.6
million, as compared to $17.6 million for the corresponding quarter
of 2018. The increase was primarily due to higher sales volumes,
partially offset by lower pricing due to customer contract mix and
higher production costs associated with more significant and longer
lasting seasonal factors. Distributable cash flow, prior to any
distributions attributable to incentive distribution rights paid to
our general partner, was $11.8 million for the first quarter of
2019, as compared to $8.8 million for the corresponding quarter of
2018.
As of March 31, 2019, the Partnership had $106.7 million of
cash on hand and $119.0 million of borrowings outstanding under its
senior secured revolving credit facility. The $46.0 million
increase in revolving borrowings in the first quarter of 2019 is
due primarily to funding of capital expenditures and timing of
changes in working capital.
Distribution
The board of directors of our general partner (the “Board”)
declared a distribution of $0.645 per common unit for the first
quarter of 2019. This distribution represents the fifteenth
consecutive distribution increase since the Partnership’s initial
public offering. The Partnership’s distributable cash flow, net of
amounts attributable to incentive distribution rights paid to our
general partner, of $9.8 million for the first quarter of 2019
covers the distribution for the quarter at 0.51 times. The
distribution coverage ratio for the first quarter of 2019 was
impacted by the common units issued in the Registered Direct
Offering discussed below. The quarterly distribution will be paid
on Wednesday, May 29, 2019, to unitholders of record as of the
close of business on Monday, May 20, 2019.
Acquisition and Financing Activities
The Partnership issued an aggregate of 3,508,778 common units to
investors for net proceeds of approximately $100.0 million in a
registered direct offering in March of 2019 (the “Registered Direct
Offering”).
Moreover, as previously announced, on April 1, 2019, the
Partnership made the second and final payment (the “Second
Payment”) of $74.0 million in deferred consideration, consisting of
approximately $24.0 million in cash and the issuance of 1,691,627
common units, for its October 2017 acquisition of the deep-water
marine terminal in Wilmington, North Carolina from Enviva
Wilmington Holdings, LLC (the “First JV”), the sponsor’s first
development joint venture. In connection with the Second Payment,
the Partnership commenced the associated terminal services
agreement to handle contracted volumes from the Hamlet plant (the
“Hamlet Throughput”).
In addition, on April 2, 2019, the Partnership completed the
purchase (the “Hamlet Transaction”) of the sponsor’s interest in
the First JV and related credit facility for total consideration of
$165.0 million. The Partnership will consolidate the financial
results of the First JV. The First JV owns a wood pellet production
plant under construction in Hamlet, North Carolina (the “Hamlet
plant”) and a firm, 15-year take-or-pay off-take contract (the “MGT
contract”) to supply MGT Power Ltd.’s Tees Renewable Energy Plant
with nearly one million metric tons per year (“MTPY”) of wood
pellets, following a ramp period. The Partnership made an initial
payment for the Hamlet Transaction of $75.0 million consisting of
$25.0 million in cash and 1,681,237 common units at closing and
will pay an additional $50.0 million upon commencement of
commercial operations (“COD”) of the Hamlet plant and $40.0 million
upon the later of COD and January 2, 2020. COD of the Hamlet plant
is expected to occur in June 2019.
The Partnership issued approximately $200.0 million in common
units (6,881,642 common units) in connection with the above
transactions as partial consideration for the Hamlet Transaction
and the Second Payment, as well as partial financing for the
Partnership’s previously announced production capacity expansions
at its wood pellet production plants in Northampton, North Carolina
and Southampton, Virginia (the “Mid-Atlantic Expansions”). The
Partnership expects to finance the remaining payments for the
Hamlet Transaction and the additional capital anticipated to be
required to complete construction of the Hamlet plant and the
Mid-Atlantic Expansions with borrowings under its $350 million
senior secured revolving credit facility.
Barclays Capital, Inc., BMO Capital Markets Corp., Citigroup
Global Markets Inc., Goldman Sachs & Co. LLC, HSBC Securities
(USA) Inc., J.P. Morgan Securities LLC, and RBC Capital Markets,
LLC advised the Partnership on its financing activities.
Outlook and Guidance
With the benefit of the Hamlet Transaction and the Hamlet
Throughput, the Partnership expects full-year 2019 net income to be
in the range of $18.9 million to $26.9 million and adjusted EBITDA
to be in the range of $140.7 million to $148.7 million. The
estimated range of adjusted EBITDA for full-year 2019 includes the
benefit of approximately $10.7 million of MSA Fee Waivers discussed
below. In our press release issued March 25, 2019, the benefit of
the MSA Fee Waivers was not included in estimated adjusted EBITDA,
but was included in estimated distributable cash flow. The
Partnership expects to incur maintenance capital expenditures of
$6.8 million and interest expense net of amortization of debt
issuance costs and original issue discount, before accounting for
the impact from incremental borrowings related to Chesapeake
Incident and Hurricane Events, of $41.9 million. As a result, the
Partnership continues to expect full-year 2019 distributable cash
flow to be in the range of $92.0 million to $100.0 million, prior
to any distributions attributable to incentive distribution rights
paid to our general partner. Similar to previous years, the
Partnership expects adjusted EBITDA and distributable cash flow for
the second half of 2019 to be significantly higher than for the
first half of the year. For full-year 2019, the Partnership expects
to distribute at least $2.65 per common unit.
The guidance amounts provided above, including the distribution
expectations, include the benefit of the Hamlet Transaction and the
Hamlet Throughput and reflect the associated financing activities
described above. The guidance amounts provided above do not include
the impact of any additional acquisitions by the Partnership from
the sponsor, its joint venture, or third parties, or any additional
recoveries related to the Chesapeake Incident and the Hurricane
Events. The Partnership’s quarterly income and cash flow are
subject to seasonality and the mix of customer shipments made,
which vary from period to period. When determining the distribution
for a quarter, the Board evaluates the Partnership’s distribution
coverage ratio on an annual basis and considers the expected
distributable cash flow, net of expected amounts attributable to
incentive distribution rights paid to our general partner.
“By issuing $200 million of equity, we have pre-funded the
equity capital needs associated with the Hamlet Transaction and the
Mid-Atlantic Expansions,” said Shai Even, Chief Financial Officer
of Enviva. “The incremental units issued, combined with seasonality
impacts that are associated with the first half of the year, will
temporarily impact our distribution coverage ratio; however, we
expect much stronger adjusted EBITDA and higher distribution
coverage for the second half of 2019 and continue to target a
distribution coverage ratio of 1.20 times on a forward-looking
annual basis.”
Market and Contracting Update
Our strategy is to fully contract the wood pellet production
from our plants under long-term, take-or-pay off-take contracts.
The Partnership’s current production capacity is matched with a
portfolio of firm off-take contracts that has a total
weighted-average remaining term of 10.5 years and a total product
sales backlog of $9.9 billion as of April 2, 2019. Assuming all
volumes under the firm off-take contracts held by our sponsor and
its joint venture, which we expect to have the opportunity to
acquire, were included, our total weighted-average remaining term
and product sales backlog would increase to 12.2 years and $14.4
billion, respectively.
The Partnership executed a new, firm 5-year take-or-pay off-take
contract with RWE Supply & Trading GmbH to service its growing
demand for wood pellets in the Netherlands and elsewhere.
Deliveries under the contract are expected to commence in 2020 with
volumes of 200,000 MTPY of wood pellets.
In addition, our sponsor’s previously announced 18-year
take-or-pay off-take contract with Sumitomo Corporation to supply
wood pellets to a new biomass power plant located in Fukushima
Prefecture in Japan is now firm, as all conditions precedent to the
effectiveness of the contract have been satisfied. Deliveries under
this contract are expected to commence in 2022 with volumes of
440,000 MTPY of wood pellets.
Several recent developments demonstrate the continued strong
growth expected in global demand for industrial-grade wood
pellets:
- After the finalization of the Renewable
Energy Directive II (RED II) in December 2018, EU Member States now
have until June 2020 to adopt it into national law through
integrated National Energy and Climate Plans. The resulting
national policies are expected to provide further impetus for new
biomass demand across the EU.
- Pursuant to its final report published
in late January 2019, Germany’s Commission on Growth, Structural
Economic Change and Employment, otherwise known as the “Coal
Commission,” established the goal of decommissioning 12.5 gigawatts
(“GWs”) of coal-fired power generation capacity by 2022 and more
than 25.0 GWs by 2030. The German government has declared it will
adopt the report’s goals into national law, providing a potential
driver for utilities in Germany to develop industrial-scale biomass
projects to convert or replace coal-based assets.
- In Japan, all energy suppliers must
achieve a minimum share of 44 percent of power generation from
non-fossil fuel energy sources by 2030. To achieve and sustain the
target energy mix beyond the 20-year term of the current
feed-in-tariff (“FiT”) scheme, several leading firms have started
to evaluate biomass projects without FiT scheme support.
- Under South Korea’s Renewable Portfolio
Standard, power companies with installed power capacity of greater
than 500 megawatts must increase the mix of renewable energy in
their total power generation from 5 percent in 2018 to 10 percent
in 2023. If all dedicated and co-fired biomass projects currently
planned as a result of this regulatory framework were to come
online, the country’s demand for industrial wood pellets would
double by 2023.
Sustainability
Through programs like the Enviva Forest Conservation Fund (the
“Conservation Fund”), our sponsor continues to work with our local
partners to conserve forest land and support forest growth. On
March 15, 2019, the Conservation Fund celebrated the dedication of
the Salmon Creek State Natural Area, a 1,000-acre property in
Bertie County, North Carolina. The property contains ecologically
significant cypress gum swamps and bottomland hardwood forests and
is also the subject of archaeological research by the First Colony
Foundation. More recently, on April 24, 2019, the Conservation Fund
made a grant to a Virginia Outdoors Foundation project to acquire
and establish a conservation easement for the “Shand’s Tract,”
which contains 8,000 feet of frontage along the Nottoway River, as
well as 425 acres of cypress and tupelo swampland. In addition to
protecting a critical habitat for threatened species, this project
will enhance permanent public access to the waterway.
The Partnership and the sponsor’s biomass feedstock sourcing
practices play an important role in restoring critical forest
ecosystems in the Southeastern United States, particularly longleaf
pine savanna. Longleaf is an ecosystem that supports dozens of
threatened and endangered species, but it has declined
significantly across the Southeastern coastal plain. In
collaboration with the North Carolina Coastal Land Trust, our
sponsor has supported several longleaf restoration projects,
including a recent 25-acre project in Craven County, North
Carolina.
Our sponsor also recently released the latest data under its
industry leading Track & Trace® system. Over the same period as
the Partnership’s and our sponsor’s use of wood fiber grew from
approximately 2.2 million metric tons in 2014 to approximately 5.4
million metric tons in 2018, forest inventory in the Partnership’s
and our sponsor’s sourcing region increased by approximately 160
million metric tons (an 8.1 percent increase). The data shows that
forest inventory growth and therefore increases in carbon stocks
result from the market incentives created by a healthy forest
products industry, of which our company is an integral part.
Enviva’s wood pellets directly displace coal in power generation
and heating applications, lowering the lifecycle greenhouse gas
emissions profile of utilities and effectively eliminating the
harmful trace element emissions like mercury and arsenic from
burning coal. Through 2018, wood pellets supplied by the
Partnership and our sponsor have effectively displaced 14 million
metric tons of coal. With existing contracts running through 2040,
the Partnership and our sponsor are on track to displace another 65
million metric tons of coal.
Partnership Development Activities
The Partnership expects the Hamlet plant to achieve COD in June
2019 and reach its nameplate production capacity of approximately
600,000 MTPY in 2021. The Partnership is finalizing construction of
the Hamlet plant and has begun commissioning major process islands.
As the Partnership completed the Hamlet Transaction before the
Hamlet plant has achieved COD and the MGT contract has reached full
contracted volumes, the sponsor executed a make-whole agreement
with the Partnership pursuant to which, among other things, the
sponsor agreed to (i) guarantee certain cash flows from the Hamlet
plant until June 30, 2020 and (ii) reimburse construction cost
overruns in excess of budgeted capital expenditures for the Hamlet
plant, subject to certain limited exceptions. In addition, the
sponsor has executed agreements with (i) the First JV, pursuant to
which the sponsor will waive certain management services and other
fees that otherwise would be owed by the First JV until the later
of July 1, 2019 and COD and (ii) the Partnership, pursuant to which
the sponsor will waive certain management services and other fees
that otherwise would be owed by the Partnership until June 30, 2020
(collectively, the “MSA Fee Waivers”).
The Mid-Atlantic Expansions also are progressing, as detailed
engineering is nearing completion and major pieces of equipment
have been ordered. The Partnership expects completion of the
expansion activities in the first half of 2020 with startup shortly
thereafter, subject to receiving necessary permits.
Sponsor Development Activities
The sponsor’s second development joint venture (the “Second JV”)
continues to invest incremental capital in its wood pellet
production plant in Greenwood, South Carolina (the “Greenwood
plant”). The Partnership currently purchases wood pellets produced
by the Greenwood plant under a take-or-pay off-take contract. The
Second JV expects to increase the Greenwood plant’s production
capacity from 500,000 MTPY to 600,000 MTPY, subject to receiving
necessary permits.
The sponsor’s Second JV continues to progress pre-construction
activities for a deep-water marine terminal in Pascagoula,
Mississippi and a wood pellet production plant in Lucedale,
Mississippi. In addition, the sponsor continues to evaluate
additional development locations to support existing and
anticipated future off-take contracts, including sites in Alabama
and Mississippi around the planned Pascagoula terminal, as well as
locations near the Partnership’s existing terminals in the Port of
Chesapeake, Virginia and Port of Wilmington, North Carolina.
The Partnership expects to have the opportunity to acquire these
assets and related off-take contracts from our sponsor and its
development joint venture.
Presentation of Financial Results
In addition to presenting our financial results in accordance
with accounting principles generally accepted in the United States
(“GAAP”), in certain cases we have provided financial results
excluding the financial impact of the previously reported fire
incident at the Partnership’s marine export terminal in Chesapeake,
Virginia (the “Chesapeake Incident”), which occurred during the
first quarter of 2018, and Hurricanes Florence and Michael (the
“Hurricane Events”), which occurred during the second half of 2018.
References herein to the financial impact of the Chesapeake
Incident and/or the Hurricane Events include the approximate costs
incurred during the first quarter of 2018 and the first quarter of
2019, as applicable, offset by insurance recoveries received.
Conference Call
We will host a conference call with executive management related
to our first quarter 2019 results and a more detailed market update
at 10:00 a.m. (Eastern Time) on Thursday, May 9, 2019. Information
on how interested parties may listen to the conference call is
available on the Investor Relations page of our website
(www.envivabiomass.com). A replay of the conference call will be
available on our website after the live call concludes.
About Enviva Partners, LP
Enviva Partners, LP (NYSE: EVA) is a publicly traded master
limited partnership that aggregates a natural resource, wood fiber,
and processes it into a transportable form, wood pellets. The
Partnership sells a significant majority of its wood pellets
through long-term, take-or-pay agreements with creditworthy
customers in the United Kingdom and Europe. The Partnership owns
and operates six plants with a combined production capacity of
nearly three million metric tons of wood pellets per year in
Virginia, North Carolina, Mississippi, and Florida and is nearing
completion of construction of a seventh plant with a nameplate
production capacity of approximately 600,000 metric tons in Hamlet,
North Carolina. In addition, the Partnership exports wood pellets
through its owned marine terminal assets at the Port of Chesapeake,
Virginia and the Port of Wilmington, North Carolina and from
third-party marine terminals in Mobile, Alabama and Panama City,
Florida.
To learn more about Enviva Partners, LP, please visit our
website at www.envivabiomass.com.
Notice
This press release is intended to be a qualified notice under
Treasury Regulation Section 1.1446-4(b)(4). Brokers and nominees
should treat 100 percent of the Partnership’s distributions to
non-U.S. investors as being attributable to income that is
effectively connected with a United States trade or business.
Accordingly, the Partnership’s distributions to non-U.S. investors
are subject to federal income tax withholding at the highest
applicable effective tax rate.
Financial Statements
ENVIVA PARTNERS, LP AND
SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(In thousands, except number of
units)
March 31,2019
December 31,2018 (unaudited) Assets
Current assets: Cash and cash equivalents $ 106,745 $ 2,460
Accounts receivable 64,904 54,794 Insurance receivables 1,300 5,140
Related-party receivables 13,558 1,392 Inventories 27,999 31,490
Prepaid expenses and other current assets 2,391 2,235
Total current assets 216,897 97,511 Property, plant and
equipment, net 560,372 557,028 Operating lease right-of-use assets,
net 26,957 — Goodwill 85,615 85,615 Other long-term assets 5,939
8,616 Total assets $ 895,780 $ 748,770
Liabilities and Partners’ Capital Current
liabilities: Accounts payable $ 7,667 $ 15,551 Related-party
payables and accrued liabilities 17,294 28,225 Deferred
consideration for Wilmington Drop-Down due to related-party 74,000
74,000 Accrued and other current liabilities 58,656 41,400 Current
portion of interest payable 13,020 5,434 Current portion of
long-term debt and finance lease obligations 2,762 2,722
Total current liabilities 173,399 167,332 Long-term debt and
finance lease obligations 475,975 429,933 Long-term operating lease
liabilities 27,730 — Long-term interest payable 1,040 1,010 Other
long-term liabilities 2,165 3,779 Total liabilities
680,309 602,054 Commitments and contingencies Partners’
capital: Limited partners: Common unitholders—public (18,176,319
and 14,573,452 units issued and outstanding at March 31, 2019 and
December 31, 2018, respectively) 290,845 207,612 Common
unitholder—sponsor (11,905,138 units issued and outstanding at
March 31, 2019 and December 31, 2018) 60,011 72,352 General partner
(no outstanding units) (135,680 ) (133,687 ) Accumulated other
comprehensive income 295 439 Total partners’ capital
215,471 146,716 Total liabilities and partners’
capital $ 895,780 $ 748,770
ENVIVA PARTNERS, LP AND
SUBSIDIARIES
Condensed Consolidated Statements of
Operations
(In thousands, except per unit
amounts)
(Unaudited)
Three Months EndedMarch
31,
2019 2018 Product sales $ 156,599 $
122,322 Other revenue 1,770 3,002 Net revenue 158,369
125,324 Cost of goods sold 137,392 121,038 Depreciation and
amortization 11,070 9,304 Total cost of goods sold
148,462 130,342 Gross margin 9,907 (5,018 ) General
and administrative expenses 9,837 6,804 Income (loss)
from operations 70 (11,822 ) Other income (expense): Interest
expense (9,633 ) (8,645 ) Other income, net 640 1,132
Total other expense, net (8,993 ) (7,513 ) Net loss $ (8,923 ) $
(19,335 ) Net loss per limited partner common unit: Basic $ (0.42 )
$ (0.78 ) Diluted $ (0.42 ) $ (0.78 ) Net loss per limited partner
subordinated unit: Basic $ — $ (0.78 ) Diluted $ — $ (0.78 )
Weighted-average number of limited partner units outstanding:
Common—basic 26,759 14,438 Common—diluted 26,759 14,438
Subordinated—basic and diluted — 11,905
ENVIVA PARTNERS, LP AND
SUBSIDIARIES
Condensed Consolidated Statements of
Cash Flows
(In thousands)
(Unaudited)
Three Months EndedMarch
31, 2019 2018 Cash flows from
operating activities: Net loss $ (8,923 ) $ (19,335 ) Adjustments
to reconcile net loss to net cash (used in) provided by operating
activities: Depreciation and amortization 11,208 9,408 Amortization
of debt issuance costs, debt premium and original issue discounts
295 272 Impairment of inventory — 10,383 Loss on disposal of assets
— 1,130 Unit-based compensation 2,472 1,343 Fair value changes in
derivatives 2,216 525 Unrealized gains (losses) on foreign currency
transactions, net 92 (69 ) Change in operating assets and
liabilities: Accounts and insurance receivables (6,359 )
31,232
Related-party receivables (8,022 ) 1,800 Prepaid expenses and other
current and long-term assets (72 ) (50 ) Inventories 3,366 (16,509
) Derivatives 298 (601 ) Accounts payable, accrued liabilities and
other current liabilities (1,229 ) 8,677 Related-party payables and
accrued liabilities (12,330 ) (6,501 ) Accrued interest 7,514 7,574
Operating lease liabilities (893 ) — Other long-term liabilities 98
37 Net cash (used in) provided by operating
activities (10,269 ) 29,316 Cash flows from investing activities:
Purchases of property, plant and equipment (11,279 ) (1,999 ) Net
cash used in investing activities (11,279 ) (1,999 ) Cash flows
from financing activities: Proceeds from (repayments on) long-term
debt and finance lease obligations, net 45,447 (1,172 )
Proceeds from common unit issuances, (net
in 2018)
100,000 241 Distributions to unitholders, distribution equivalent
rights and incentive distribution rights holder (19,614 ) (17,847 )
Payment to General Partner to purchase affiliate common units for
Long-Term Incentive Plan vesting — (2,341 ) Payment for withholding
tax associated with Long-Term Incentive Plan vesting —
(1,665 ) Net cash provided by (used in) financing activities
125,833 (22,784 ) Net increase in cash, cash equivalents and
restricted cash 104,285 4,533 Cash, cash equivalents and restricted
cash, beginning of period 2,460 524 Cash, cash
equivalents and restricted cash, end of period $ 106,745 $
5,057
ENVIVA PARTNERS, LP AND
SUBSIDIARIES
Condensed Consolidated Statements of
Cash Flows (Continued)
(In thousands)
(Unaudited)
Three Months EndedMarch
31, 2019 2018 Non-cash investing
and financing activities: The Partnership acquired property, plant
and equipment in non-cash transactions as follows: Property, plant
and equipment acquired included in accounts payable and accrued
liabilities $ 11,237 $ 1,587 Property, plant and equipment acquired
under finance lease obligations 626 674 Property, plant and
equipment transferred from inventories — 2 Property, plant and
equipment capitalized interest 102 — Distributions included in
liabilities 873 1,352 Withholding tax payable associated with
Long-Term Incentive Plan vesting 1,870 — Common unit issuance costs
in accrued liabilities 3,339 — Depreciation capitalized to
inventories 442 1,037 Supplemental cash flow information: Interest
paid
$
1,929
$
795
Non-GAAP Financial Measures
We use adjusted net (loss) income, adjusted gross margin per
metric ton, adjusted EBITDA, and distributable cash flow to measure
our financial performance.
Adjusted Net (Loss) Income
We define adjusted net (loss) income as net (loss) income
excluding certain expenses incurred related to the Chesapeake
Incident and the Hurricane Events, consisting of emergency response
expenses, expenses related to the disposal of inventory, and asset
disposal and repair costs, offset by insurance recoveries received,
and interest expense associated with incremental borrowings related
to the Chesapeake Incident. We believe that adjusted net (loss)
income enhances investors’ ability to compare the past
financial performance of our underlying operations with our
current performance separate from certain items of gain or loss
that we characterize as unrepresentative of our ongoing
operations.
Adjusted Gross Margin per Metric Ton
We use adjusted gross margin per metric ton to measure our
financial performance. We define adjusted gross margin as gross
margin excluding asset disposals, depreciation and amortization,
changes in unrealized derivative instruments related to hedged
items included in gross margin, and certain items of income or loss
that we characterize as unrepresentative of our ongoing operations,
including certain expenses incurred related to the Chesapeake
Incident and Hurricane Events, consisting of emergency response
expenses, expenses related to the disposal of inventory, and asset
disposal and repair costs, offset by insurance recoveries received.
We believe adjusted gross margin per metric ton is a meaningful
measure because it compares our revenue-generating activities to
our operating costs for a view of profitability and performance on
a per metric ton basis. Adjusted gross margin per metric ton will
primarily be affected by our ability to meet targeted production
volumes and to control direct and indirect costs associated with
procurement and delivery of wood fiber to our production plants and
the production and distribution of wood pellets.
Adjusted EBITDA
We view adjusted EBITDA as an important indicator of our
financial performance. We define adjusted EBITDA as net (loss)
income excluding depreciation and amortization, interest expense,
income tax expense, early retirement of debt obligations, non-cash
MSA Fee Waivers and unit compensation expenses, asset impairments
and disposals, changes in unrealized derivative instruments related
to hedged items included in gross margin and other income and
expense, and certain items of income or loss that we characterize
as unrepresentative of our ongoing operations, including certain
expenses incurred related to the Chesapeake Incident and Hurricane
Events, consisting of emergency response expenses, expenses related
to the disposal of inventory, and asset disposal and repair costs,
offset by insurance recoveries received. Adjusted EBITDA is a
supplemental measure used by our management and other users of our
financial statements, such as investors, commercial banks and
research analysts, to assess the financial performance of our
assets without regard to financing methods or capital
structure.
Distributable Cash Flow
We define distributable cash flow as adjusted EBITDA less
maintenance capital expenditures and interest expense net of
amortization of debt issuance costs, debt premium, original issue
discounts, and the impact from incremental borrowings related to
the Chesapeake Incident and Hurricane Events. We use distributable
cash flow as a performance metric to compare the cash-generating
performance of the Partnership from period to period and to compare
the cash-generating performance for specific periods to the cash
distributions (if any) that are expected to be paid to our
unitholders. We do not rely on distributable cash flow as a
liquidity measure.
Limitations of Non-GAAP Measures
Adjusted net (loss) income, adjusted gross margin per metric
ton, adjusted EBITDA, and distributable cash flow are not financial
measures presented in accordance with GAAP. We believe that the
presentation of these non-GAAP financial measures provides useful
information to investors in assessing our financial condition and
results of operations. Our non-GAAP financial measures should not
be considered as alternatives to the most directly comparable GAAP
financial measures. Each of these non-GAAP financial measures has
important limitations as an analytical tool because they exclude
some, but not all, items that affect the most directly comparable
GAAP financial measures. You should not consider adjusted net
(loss) income, adjusted gross margin per metric ton, adjusted
EBITDA, or distributable cash flow in isolation or as substitutes
for analysis of our results as reported under GAAP.
Our definitions of these non-GAAP financial measures may not be
comparable to similarly titled measures of other companies, thereby
diminishing their utility.
The following tables present a reconciliation of adjusted net
loss, adjusted gross margin per metric ton, adjusted EBITDA, and
distributable cash flow to the most directly comparable GAAP
financial measures, as applicable, for each of the periods
indicated.
Three Months Ended March 31, 2019
2018 (in thousands) Reconciliation of
net loss to adjusted net loss: Net loss $ (8,923 ) $ (19,335 )
Chesapeake Incident and Hurricane Events 289 16,590
Interest expense from incremental
borrowings related to Chesapeake Incident and Hurricane Events
490 — Adjusted net loss $ (8,144 ) $ (2,745 )
Three Months Ended March
31, 2019 2018 (in thousands
except per metric ton) Reconciliation of gross margin to
adjusted gross margin per metric ton: Gross margin $ 9,907 $ (5,018
) Depreciation and amortization 11,070 9,304 Chesapeake Incident
and Hurricane Events 359 16,590 Changes in unrealized derivative
instruments 2,010 769 Acquisition costs1 4,243 —
Adjusted gross margin $ 27,589 $ 21,645 Metric tons
sold 843 648 Adjusted gross margin per metric ton $ 32.73 $ 33.40
Three Months Ended March 31,
2019 2018 (in thousands)
Reconciliation of net loss to adjusted EBITDA and distributable
cash flow: Net loss $ (8,923 ) $ (19,335 ) Add: Depreciation and
amortization 11,208 9,408 Interest expense 9,633 8,645 Non-cash
unit compensation expense 2,472 1,343 Chesapeake Incident and
Hurricane Events 289 16,590 Changes in the fair value of derivative
instruments 2,010 769 Acquisition costs1,2 4,927 153
Adjusted EBITDA 21,616 17,573 Less: Interest expense, net of
amortization of debt issuance costs, debt premium, original issue
discount and impact from incremental borrowings related to
Chesapeake Incident and Hurricane Events 8,848 8,373 Maintenance
capital expenditures 928 388 Distributable cash flow
attributable to Enviva Partners, LP 11,840 8,812 Less:
Distributable cash flow attributable to incentive distribution
rights3 2,042 1,264 Distributable cash flow
attributable to Enviva Partners, LP limited partners $ 9,798
$ 7,548 Cash distributions declared attributable to
Enviva Partners, LP limited partners3 $ 19,403 $ 16,509
Distribution coverage ratio3 0.51 0.46
The following table provides a reconciliation of the estimated
range of adjusted EBITDA to the estimated range of net (loss)
income, in each case for the twelve months ending December 31,
2019 (in millions):
Twelve Months EndingDecember 31,
2019
Estimated net (loss) income $18.9 - 26.9 Add: Depreciation and
amortization 49.1 Interest expense 43.1 Non-cash unit compensation
expense 9.7 Chesapeake Incident and Hurricane Events 0.3 Changes in
the fair value of derivative instruments 2.0 Acquisition costs1,2
4.9 MSA Fee Waivers 10.7 Other non-cash expenses 2.0 Estimated
adjusted EBITDA $140.7 - 148.7 Less: Interest expense net of
amortization of debt issuance costs, debt premium, original issue
discount and impact from incremental borrowings related to
Chesapeake Incident and Hurricane Events 41.9 Maintenance capital
expenditures 6.8 Estimated distributable cash flow $92.0 - 100.0
1.
Includes $4.2 million of incremental
costs, which are unrepresentative of our ongoing operations, in
connection with our evaluation of the potential purchase of a
third-party wood pellet production plant (the “Potential Target”).
When we commenced our review, the Potential Target had recently
returned to operations following an extended shutdown during a
bankruptcy proceeding with the intent of demonstrating favorable
operations prior to conducting an auction sale process; however,
the Potential Target had not yet established a logistics chain
through a viable export terminal, given that the terminal through
which the plant historically had exported was not operational at
the time and was not reasonably certain to become operational in
the future. Accordingly, as part of our diligence of the Potential
Target, we developed an alternative logistics chain to bring the
Potential Target’s wood pellets to market and began purchasing the
production of the Potential Target for a trial period. The
incremental costs associated with the establishment and evaluation
of this new logistics chain primarily consist of barge, freight,
trucking, storage, and shiploading services. We have completed our
evaluation of the alternative logistics chain and determined it is
not viable; consequently, we do not expect to incur additional
costs of this nature in the future.
2.
Includes $0.7 million in costs, primarily
legal fees related to the Hamlet Transaction, in addition to the
costs described in footnote 1.
3.
Distributable cash flow attributable to
incentive distribution rights, cash distributions declared
attributable to Enviva Partners, LP limited partners, and
distribution coverage ratio for the first quarter of 2019 were
calculated based on common units outstanding as of March 31,
2019.
Cautionary Note Concerning Forward-Looking Statements
Certain statements and information in this press release,
including those concerning our future results of operations,
acquisition opportunities, and distributions, may constitute
“forward-looking statements.” The words “believe,” “expect,”
“anticipate,” “plan,” “intend,” “foresee,” “should,” “would,”
“could,” or other similar expressions are intended to identify
forward-looking statements, which are generally not historical in
nature. These forward-looking statements are based on the
Partnership’s current expectations and beliefs concerning future
developments and their potential effect on the Partnership.
Although management believes that these forward-looking statements
are reasonable as and when made, there can be no assurance that
future developments affecting the Partnership will be those that it
anticipates. The forward-looking statements involve significant
risks and uncertainties (some of which are beyond the Partnership’s
control) and assumptions that could cause actual results to differ
materially from the Partnership’s historical experience and its
present expectations or projections. Important factors that could
cause actual results to differ materially from forward-looking
statements include, but are not limited to: (i) the volume and
quality of products that we are able to produce or source and sell,
which could be adversely affected by, among other things, operating
or technical difficulties at our plants or deep-water marine
terminals; (ii) the prices at which we are able to sell our
products; (iii) failure of the Partnership’s customers, vendors,
and shipping partners to pay or perform their contractual
obligations to the Partnership; (iv) the creditworthiness of our
contract counterparties; (v) the amount of low-cost wood fiber that
we are able to procure and process, which could be adversely
affected by, among other things, disruptions in supply or operating
or financial difficulties suffered by our suppliers; (vi) changes
in the price and availability of natural gas, coal, or other
sources of energy; (vii) changes in prevailing economic conditions;
(viii) our inability to complete acquisitions, including
acquisitions from our sponsor and joint ventures, or to realize the
anticipated benefits of such acquisitions; (ix) inclement or
hazardous environmental conditions, including extreme
precipitation, temperatures and flooding; (x) fires, explosions or
other accidents; (xi) changes in domestic and foreign laws and
regulations (or the interpretation thereof) related to renewable or
low-carbon energy, the forestry products industry, the
international shipping industry, or power generators; (xii) changes
in the regulatory treatment of biomass in core and emerging
markets; (xiii) our inability to timely acquire or maintain
necessary permits or rights for our production, transportation, or
terminaling operations as well as expenditures associated
therewith; (xiv) changes in the price and availability of
transportation; (xv) changes in foreign currency exchange or
interest rates, and the failure of our hedging arrangements to
effectively reduce our exposure to the risks related thereto; (xvi)
risks related to our indebtedness; (xvii) our failure to maintain
effective quality control systems at our production plants and
deep-water marine terminals, which could lead to the rejection of
our products by our customers; (xviii) changes in the quality
specifications for our products that are required by our customers;
(xix) labor disputes; (xx) the effects of the anticipated exit of
the United Kingdom from the EU on our and our customers’
businesses; (xxi) our inability to hire, train or retain qualified
personnel to manage and operate our business and newly acquired
assets; (xxii) our inability to borrow funds and access capital
markets; (xxiii) our mis-estimation of the timing and extent of our
ability to recover the costs associated with the Chesapeake Event
and the Hurricanes through our insurance policies and other
contractual rights; and (xxiv) our inability to successfully
execute our project development and construction activities on time
and within budget.
For additional information regarding known material factors that
could cause the Partnership’s actual results to differ from
projected results, please read its filings with the U.S. Securities
and Exchange Commission (the “SEC”), including the Annual Report on
Form 10-K and the Quarterly Reports on Form 10-Q most recently
filed with the SEC. Readers are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the
date thereof. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements after the date they
are made, whether as a result of new information or future events
or otherwise.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190508005950/en/
Investor Contact:Raymond Kaszuba(240)
482-3856ir@envivapartners.com
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