Enviva Partners, LP (NYSE: EVA) (the “Partnership” or “we”)
today reported financial and operating results for the third
quarter of 2018.
Highlights:
- Reported net income of $13.4 million
and adjusted EBITDA of $30.2 million for the third quarter of
2018
- Extended maturity of credit facility
by five years and increased revolver capacity to $350
million
- Reaffirmed full-year 2018
distribution guidance of at least $2.53 per unit
- Provided full-year 2019 guidance for
net income of $31.3 million to $41.3 million and adjusted EBITDA of
$125.0 million to $135.0 million, not including the impact of any
additional acquisitions from the sponsor’s joint ventures or third
parties
- Announced accretive investment in
400,000 MTPY expansion of production capacity at existing plants
expected to result in approximately $30.0 million incremental
adjusted EBITDA commencing 2020
“We built a portfolio of production plants and export terminals
capable of withstanding unexpected and catastrophic events,” said
John Keppler, Chairman and Chief Executive Officer of Enviva.
“Despite the compounding effects of the Chesapeake fire and the
direct hits we took from both Hurricanes Florence and Michael, our
team delivered a strong quarter and we continue to believe our 2018
guidance remains achievable assuming the timely receipt of the
recoveries we expect from our insurers and other parties. With
these events behind us, our platform of long-term contracted assets
is well positioned for a very strong 2019 and beyond.”
Third Quarter Financial Results
Net income for the third quarter of 2018 was $13.4 million
compared to net income of $5.0 million for the third quarter of
2017, an increase of $8.3 million.
Adjusted EBITDA for the third quarter of 2018 was $30.2 million,
as compared to $25.8 million for the corresponding quarter of 2017.
The increase was primarily attributable to net insurance recoveries
related to business continuity costs associated with the Chesapeake
Incident. Excluding the financial impact of the Chesapeake
Incident, adjusted EBITDA would have been $24.8 million for the
third quarter of 2018.
Distributable cash flow, prior to any distributions attributable
to incentive distribution rights paid to our general partner, was
$20.7 million for the third quarter of 2018 as compared to $17.7
million for the corresponding quarter of 2017.
For the third quarter of 2018, we generated net revenue of
$144.1 million, an increase of 9.0 percent, or $11.9 million, from
the corresponding quarter of 2017. Included in net revenue were
product sales of $142.5 million on 762,000 metric tons (“MT”) of
wood pellets sold during the third quarter of 2018, as compared to
$125.4 million on 668,000 MT of wood pellets sold during the
corresponding quarter of 2017. The $17.1 million increase in
product sales was primarily attributable to a 14 percent increase
in sales volumes, partially offset by a decrease in pricing due
primarily to customer contract mix. Other revenue was $1.6 million
for the third quarter of 2018, as compared to $6.8 million for the
corresponding quarter of 2017. The decrease is primarily due to
higher other revenue for the third quarter of 2017 consisting of
$2.2 million in fees received from customers requesting scheduling
accommodations and $3.2 million related to purchase and sale
transactions.
For the third quarter of 2018, we generated gross margin of
$30.1 million, as compared $20.4 million for the corresponding
period in 2017. The higher gross margin was primarily the result of
insurance recoveries, net of expenses incurred, related to the
Chesapeake Incident, as well as an increase in sales volume, offset
by lower other revenue, lower pricing driven by customer contract
mix partially offset by changes in unrealized derivative
instruments, and higher costs, including the costs of wood pellets
sourced from third- and related-party wood pellet producers.
Adjusted gross margin per metric ton was $55.64 for the third
quarter of 2018. Excluding the financial impact of the Chesapeake
Incident, we would have earned adjusted gross margin per metric ton
of $39.70. Adjusted gross margin per metric ton was $46.90 for the
third quarter of 2017. Adjusting for the impact of ASC 606 for
comparison purposes, adjusted gross margin per metric ton would
have been $43.33 for the third quarter of 2017.
As of September 30, 2018, the Partnership had $0.9 million of
cash on hand and $11.5 million of borrowings outstanding under its
senior secured credit facility, primarily due to the timing
mismatch of the incurrence of costs associated with the Chesapeake
Incident and their recovery through our insurance policies and
other contractual rights.
Distribution
As announced on October 31, 2018, the board of directors of our
general partner (the “Board”) declared a distribution of $0.635 per
common unit for the third quarter of 2018. This distribution
represents the thirteenth consecutive distribution increase since
the Partnership’s initial public offering of units representing
limited partner interests. The Partnership’s distributable cash
flow, net of amounts attributable to incentive distribution rights,
of $19.2 million for the third quarter of 2018 covers the
distribution for the quarter at 1.14 times. The quarterly
distribution will be paid on Thursday, November 29, 2018, to
unitholders of record as of the close of business on Thursday,
November 15, 2018.
Financing Activity
On October 18, 2018, the Partnership amended and restated its
prior senior secured credit facility (as amended, the “Amended
& Restated Credit Facility”) to extend the maturity to October
2023 from April 2020, increase the revolving credit facility to
$350 million from $100 million, reduce the applicable interest rate
margin, and include other improved terms. The applicable interest
rate margin under the Amended & Restated Credit Facility is
determined according to a total leverage ratio-based pricing grid,
which for a Eurodollar revolving credit borrowing is 2.50% based on
the Partnership’s current level of leverage as compared to 4.25%
under the prior credit facility.
A portion of the proceeds of the initial borrowings under the
Amended & Restated Credit Facility were used to repay $41.2
million of outstanding term loans under the prior credit facility.
Future borrowings under the Amended & Restated Credit Facility
will be used to support the Partnership’s strategic growth
initiatives and drop-down acquisitions and also will be available
for general partnership purposes.
“The new revolver not only reduces our cost of capital, but also
provides significant flexibility to initially finance drop-downs
and expansions before raising long-term capital through further
issuances of equity and bonds,” said Shai Even, Executive Vice
President and Chief Financial Officer of Enviva. “We expect to
maintain a balanced capital structure consistent with our
conservative financial policies and leverage as we continue to
finance our growth.”
Outlook and Guidance
Consistent with prior guidance, the Partnership expects to
distribute at least $2.53 per limited partner unit for full-year
2018. Although the Partnership’s shipping schedule and production
and logistics costs were impacted by Hurricanes Florence and
Michael (the “Hurricanes”), which compounded the financial and
operational impact from the previously reported fire incident at
the Partnership’s marine export terminal in Chesapeake, Virginia
(the “Chesapeake Incident”), the Partnership continues to believe
that the full-year adjusted EBITDA and distributable cash flow
guidance ranges provided in our February 22, 2018 earnings release
remain achievable, subject to the amount and timing of recoveries
from insurers and other responsible parties associated with the
Chesapeake Incident and the Hurricanes. Absent any further
recoveries associated with the Chesapeake Incident and the
Hurricanes that would benefit 2018 adjusted EBITDA, the Partnership
expects full-year 2018 net income to be approximately $11 million
and adjusted EBITDA to be approximately $100 million. However, the
Partnership has $26.3 million of outstanding claims related to the
Chesapeake Incident and the Hurricanes that would benefit 2018
adjusted EBITDA, although the total amount the Partnership will
receive in respect of these claims, and the timing of payment
thereon, are not entirely within the Partnership’s control.
For full-year 2019, the Partnership expects net income to be in
the range of $31.3 million to $41.3 million and adjusted EBITDA to
be in the range of $125.0 million to $135.0 million. The 2019
guidance amounts provided above do not include the impact of any
additional acquisitions by the Partnership from the sponsor, its
joint ventures, or third parties, any benefit of throughput at the
Partnership’s deep-water marine terminal in Wilmington, North
Carolina from the Hamlet plant, or any recoveries related to the
Chesapeake Incident or the Hurricanes. 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. As such,
the board of directors of the Partnership’s general partner
evaluates the Partnership’s distribution coverage ratio on an
annual basis when determining the distribution for a quarter.
Additionally, the Partnership expects to increase the aggregate
production capacity of its wood pellet production plants in
Northampton, North Carolina and Southampton, Virginia by
approximately 400,000 metric tons per year (“MTPY”) (the
“Mid-Atlantic Expansions”), subject to receiving the necessary
permits. The Partnership expects to invest approximately $130
million in additional production assets and emissions control
equipment, subject to completion of detailed engineering. The
ability to expand capacity and improve the energy density of our
pellets through increased pine utilization at two of our
Mid-Atlantic production plants will create incremental, high-margin
pellet sales opportunities into our long-term contracted position
with our customers, and we expect the Mid-Atlantic Expansions to
generate in excess of $30.0 million1 in incremental adjusted EBITDA
annually. The Partnership expects completion of construction in
early 2020 with startup shortly thereafter.
“In addition to drop-down transactions, a key pillar of our
growth strategy is increasing capacity and profitability within our
existing production plants,” said John Keppler. “We’re
particularly excited with the Mid-Atlantic expansions, as we have
the opportunity directly at the Partnership to add substantial
capacity at a much higher return on investment than we could
achieve through an acquisition.”
Market and Contracting Update
Our sales strategy continues to be to fully contract the
production capacity of the Partnership with a diversified customer
base. The Partnership’s current production capacity is matched with
a portfolio of firm off-take contracts that has a weighted-average
remaining term of 9.4 years and a $7.4 billion product sales
backlog as of November 1, 2018. Assuming all volumes under the firm
contracts held by our sponsor and its joint ventures were included,
our weighted-average remaining term and product sales backlog would
increase to 11.5 years and $12.1 billion, respectively. The
Partnership expects to have the opportunity to acquire these
contracts from our sponsor and its joint ventures.
As the Partnership and its sponsor have previously announced,
all conditions precedent to the effectiveness of the Partnership’s
15-year, 180,000 MTPY take-or-pay off-take contract with Marubeni
Corporation and the sponsor’s 15-year, 250,000 MTPY contract with
Sumitomo Corporation have been satisfied. In addition, all
conditions precedent to the effectiveness of the previously
announced 630,000 MTPY long-term take-or-pay off-take contracts
with Mitsubishi Corporation, pursuant to which the Partnership and
the Second Hancock JV will supply 180,000 MTPY and 450,000 MTPY of
wood pellets, respectively, have been satisfied. Both contracts are
expected to commence in 2022 and continue for at least fifteen
years.
In addition, the Partnership has agreed with Lynemouth Power
Limited to increase the annual sales volume under their existing
off-take contract by 200,000 MTPY for three years starting in
2020.
Several recent developments in the market continue to
demonstrate the strong growth expected in global demand for
industrial-grade wood pellets:
- In its recently published Renewable
2018 market analysis and forecast report, the International Energy
Agency (“IEA”) forecasted that, over the next five years, bioenergy
is expected to have the highest growth among renewable resources.
According to IEA, by 2023, global installed electricity generation
capacity from bioenergy is expected to rise to 158 gigawatts
(“GWs”), up from 121 GWs in 2017. Longer term, the IEA forecasted
that the share of modern bioenergy in the world’s energy mix will
grow from 4.5% today to 17% by 2060 in an effort to keep global
warming below 2 degrees Celsius this century.
- In Germany, the Special Commission on
Growth, Structural Economic Change and Employment, otherwise known
as the “Coal Commission,” continues to deliberate on a pathway to
end coal generation in order to reach its 2050 carbon emissions
reduction objectives. Meanwhile, the government’s parallel goal of
retiring all nuclear capacity by the end of 2022 creates challenges
that renewable biomass baseload generation can help solve.
- The Dutch government announced the
results of its Spring 2018 SDE+ allocation round, with 27 percent
of total funds awarded to biomass projects, representing 50
projects and approximately EUR 950 million of incentives. The
government also confirmed that a further EUR 6 billion of total
incentives will be available in the Autumn 2018 allocation round,
which opened in October 2018.
- Japan’s operating biomass power
generation capacity approved under its feed-in-tariff (FiT) scheme
reached approximately 2.4 GWs in the fiscal year ended March 31,
2018. The country is targeting 6.0 to 7.5 GWs of biomass power by
2030, which represents demand for approximately 15 to 20 million
MTPY of biomass.
Sponsor Activity
The initial joint venture (the “First Hancock JV”) between
affiliates of our sponsor and John Hancock Life Insurance Company
(U.S.A.) (“John Hancock”) continues to construct the 600,000 MTPY
nameplate capacity production plant in Hamlet, North Carolina (the
“Hamlet plant”). The First Hancock JV expects the Hamlet plant will
be operational in the first half of 2019.
The Partnership previously made an initial payment of $56.0
million upon the closing of the acquisition of Enviva Port of
Wilmington, LLC (the “Wilmington Drop-Down”). Upon first deliveries
to the Wilmington terminal from the Hamlet plant, the Partnership
will make another payment of $74.0 million to the First Hancock JV,
subject to certain conditions.
The second joint venture between affiliates of our sponsor and
John Hancock (the “Second Hancock JV”) continues to invest
incremental capital in its wood pellet production plant in
Greenwood, South Carolina (the “Greenwood plant”). The plant
currently produces wood pellets for the Partnership under a
take-or-pay off-take contract. The Second Hancock JV expects to
increase the Greenwood plant’s production capacity from 500,000
MTPY to 600,000 MTPY, subject to receiving necessary permits.
The Second Hancock JV expects to make a final investment
decision on a deep-water marine terminal in Pascagoula, Mississippi
and a wood pellet production plant in Lucedale, Mississippi in late
2018 or early 2019, and continues to evaluate additional
development locations.
The Partnership expects to have the opportunity to acquire these
assets from our sponsor and its joint ventures with John
Hancock.
Chesapeake Incident
The Partnership continues to believe that substantially all of
the costs resulting from the previously reported fire incident (the
“Chesapeake Incident”) will be recoverable through insurance or
other contractual rights. The Partnership’s financial performance
for the third quarter of 2018 was impacted by net recoveries of
business continuity costs related to the incident.
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 Chesapeake Incident.
References herein to the financial impact of the Chesapeake
Incident include the approximate costs incurred during the third
quarter of 2018 offset by insurance recoveries received to
date.
Presentation of Financial Results and Adoption of ASC
606
As of January 1, 2018, the Partnership adopted Financial
Accounting Standards Board Accounting Standards Codification 606
(“ASC 606”), Revenue from Contracts with Customers, which requires
entities to recognize revenue when control of the promised goods or
services is transferred to customers in an amount that reflects the
consideration to which such entity expects to be entitled to in
exchange for those goods or services. Prior to the adoption of ASC
606, back-to-back transactions to purchase and sell wood pellets,
where title and risk of loss are immediately transferred to the
ultimate purchaser, were recorded in “other revenue,” net of costs
paid to third-party suppliers. Pursuant to ASC 606, the Partnership
now recognizes revenue from such transactions on a gross basis in
“product sales.”
Unless otherwise indicated, the financial results for the three
and nine months ended September 30, 2018 presented in this release
are prepared on this basis.
Conference Call
We will host a conference call with executive management related
to our third quarter 2018 results and a more detailed market update
at 10:00 a.m. (Eastern Time) on Friday, November 9, 2018.
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. 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.
Non-GAAP Financial Measures
We use adjusted gross margin per metric ton, adjusted EBITDA,
and distributable cash flow to measure our financial
performance.
Adjusted Gross Margin per Metric Ton
We define adjusted gross margin as gross margin excluding asset
disposals, depreciation and amortization and changes in unrealized
derivative instruments related to hedged items included in gross
margin. 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 define adjusted EBITDA as net income or loss excluding
depreciation and amortization, interest expense, income tax
expense, early retirement of debt obligations, non-cash unit
compensation expense, asset impairments and disposals, changes in
unrealized derivative instruments related to hedged items included
in gross margin and other income (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 (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. 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.
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 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.
Our estimate of incremental adjusted EBITDA from the
Mid-Atlantic Expansions is based on numerous assumptions that are
subject to significant risks and uncertainties. Those assumptions
are inherently uncertain and subject to significant business,
economic, financial, regulatory, and competitive risks and
uncertainties that could cause actual results and amounts to differ
materially from such estimate. A reconciliation of the estimated
incremental adjusted EBITDA expected to be generated by the
Mid-Atlantic Expansions to the closest GAAP financial measure, net
income, is not provided because net income expected to be generated
by the expansions is not available without unreasonable effort, in
part because the amount of estimated incremental interest expense
related to the financing of the expansions and depreciation are not
available at this time.
The following tables present a reconciliation of 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 Nine Months Ended
September 30, September 30, 2018
2017 (Recast) 2018 2017 (Recast) (in
thousands, except per metric ton) Reconciliation of gross
margin to adjusted gross margin per metric ton: Metric tons sold
762 668 2,109 1,919 Gross margin $ 30,119 $ 20,382 $ 44,912 $
53,081 Loss on disposal of assets 656 1,237 900 3,242 Depreciation
and amortization 9,678 9,707 28,800 29,104 Changes in unrealized
derivative instruments 1,944 — (750) —
Adjusted gross margin $ 42,397 $ 31,326 $ 73,862 $ 85,427 Adjusted
gross margin per metric ton $ 55.64 $ 46.90 $ 35.02 $ 44.52
Three Months Ended Nine Months Ended
September 30, September 30, 2018 2017
(Recast) 2018 2017 (Recast) (in thousands)
Reconciliation of adjusted EBITDA and distributable cash flow to
net income (loss): Net income (loss) $ 13,356 $ 5,023 $ (2,435) $
6,475 Add: Depreciation and amortization 9,801 9,709 29,240 29,115
Interest expense 9,445 7,653 27,137 23,070 Non-cash unit
compensation expense 1,781 1,833 5,604 5,113 Asset impairments and
disposals 656 1,237 900 3,242 Changes in unrealized derivative
instruments 1,944 — (750) — Chesapeake Incident, net (6,787) —
8,999 — Transaction expenses 30 344 176
3,427 Adjusted EBITDA 30,226 25,799 68,871 70,442 Less: Interest
expense, net of amortization of debt issuance costs, debt premium
costs, original issue discount and impact from incremental
borrowings related to Chesapeake Incident 7,839 7,261 24,984 21,909
Maintenance capital expenditures 1,638 857
3,252 2,870 Distributable cash flow attributable to Enviva
Partners, LP 20,749 17,681 40,635 45,663 Less: Distributable cash
flow attributable to incentive distribution rights 1,532
1,063 4,196 2,269 Distributable cash flow
attributable to Enviva Partners, LP limited partners $ 19,217 $
16,618 $ 36,439 $ 43,394 Cash distributions declared
attributable to Enviva Partners, LP limited partners $ 16,814 $
50,005 Distribution coverage ratio 1.14 0.73
The following table provides a reconciliation of the estimated
range of adjusted EBITDA to the estimated range of net income, in
each case for the twelve months ending December 31, 2018 (in
millions), assuming no further recoveries associated with the
Chesapeake Incident and the Hurricanes that would benefit 2018
adjusted EBITDA after November 8, 2018:
Twelve Months Ending December 31,
2018
Estimated net income2
$ 8.4 – 12.4 Add: Depreciation and amortization 41.1 Interest
expense 36.5 Non-cash unit compensation expense 7.3 Chesapeake
Incident, net 1.9 Other non-cash expenses 2.2 Estimated
adjusted EBITDA $ 97.5 – 101.5
The following table provides a reconciliation of the estimated
range of adjusted EBITDA to the estimated range of net income, in
each case for the twelve months ending December 31, 2019 (in
millions):
Twelve Months Ending December 31,
2019 Estimated net income $ 31.3 – 41.3 Add: Depreciation
and amortization 44.5 Interest expense 37.4 Non-cash unit
compensation expense 9.8 Other non-cash expenses 2.0
Estimated adjusted EBITDA $ 125.0 – 135.0
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, 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, or to realize the anticipated benefits of such
acquisitions; (ix) inclement or hazardous environmental hazards,
including extreme precipitation 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 acquire or maintain
necessary permits or rights for our production, transportation, or
terminaling operations; (xiv) changes in 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 European Union on our and our
customers’ businesses; (xxi) our ability to borrow funds and access
capital markets; (xxii) our mis-estimation of the amounts and the
timing of the costs the Partnership has incurred and will incur as
result of the Chesapeake Incident and the Hurricanes; and (xxiii)
our inability to recover costs associated with the Chesapeake
Incident and the Hurricanes, including through claims under our
insurance policies and the exercise of our other contractual
rights, in amounts and on a timeline consistent with our
expectations.
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, 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, future events, or
otherwise.
Financial Statements ENVIVA
PARTNERS, LP AND SUBSIDIARIES Condensed Consolidated Balance
Sheets (In thousands, except number of units)
September 30, December 31, 2018 2017
(unaudited) Assets Current assets: Cash and cash
equivalents $ 863 $ 524 Accounts receivable, net 49,152 79,185
Related-party receivables 5,535 5,412 Inventories 34,322 23,536
Prepaid expenses and other current assets 1,643 1,006
Total current assets 91,515 109,663 Property, plant and
equipment, net 552,456 562,330 Intangible assets, net — 109
Goodwill 85,615 85,615 Other long-term assets 4,783
2,394 Total assets $ 734,369 $ 760,111
Liabilities and
Partners’ Capital Current liabilities: Accounts payable $
10,730 $ 7,554 Related-party payables and accrued liabilities
30,289 26,398 Accrued and other current liabilities 35,849 29,363
Current portion of interest payable 12,573 5,029 Current portion of
long-term debt and capital lease obligations 7,070
6,186 Total current liabilities 96,511 74,530 Long-term debt and
capital lease obligations 402,447 394,831 Related-party long-term
payable 74,000 74,000 Long-term interest payable 980 890 Other
long-term liabilities 4,687 5,491 Total liabilities
578,625 549,742 Commitments and contingencies Partners’
capital: Limited partners: Common unitholders—public (14,573,452
and 13,073,439 units issued and outstanding at September 30, 2018
and December 31, 2017, respectively) 212,539 224,027 Common
unitholder—sponsor (11,905,138 and 1,347,161 units issued and
outstanding at September 30, 2018 and December 31, 2017,
respectively) 76,380 16,050 Subordinated unitholder—sponsor (no
units issued and outstanding at September 30, 2018 and 11,905,138
units issued and outstanding at December 31, 2017) — 101,901
General partner (no outstanding units) (133,810) (128,569)
Accumulated other comprehensive income (loss) 635
(3,040) Total Enviva Partners, LP partners’ capital 155,744
210,369 Total liabilities and partners’ capital $ 734,369 $
760,111
ENVIVA PARTNERS, LP AND
SUBSIDIARIES Condensed Consolidated Statements of
Operations (In thousands, except per unit amounts)
(Unaudited) Three Months Ended Nine Months
Ended September 30, September 30, 2018
2017 (Recast) 2018 2017 (Recast)
Product sales $ 142,541 $ 125,422 $ 398,031 $ 366,142 Other revenue
1,607 6,801 7,037
16,071 Net revenue 144,148 132,223 405,068 382,213 Cost of
goods sold 103,695 100,897 330,456 296,786 Loss on disposal of
assets 656 1,237 900 3,242 Depreciation and amortization
9,678 9,707 28,800 29,104
Total cost of goods sold 114,029
111,841 360,156 329,132 Gross
margin 30,119 20,382 44,912 53,081 General and administrative
expenses 7,315 7,704 21,406
23,337 Income from operations 22,804 12,678
23,506 29,744 Other income (expense): Interest expense (9,445 )
(7,653 ) (27,137 ) (23,070 ) Other income (expense) (3 )
(2 ) 1,196 (199 ) Total other expense,
net (9,448 ) (7,655 ) (25,941 ) (23,269
) Net income (loss) 13,356 5,023 (2,435 ) 6,475 Less net loss
attributable to noncontrolling partners’ interests —
665 — 3,180 Net income
(loss) attributable to Enviva Partners, LP $ 13,356 $ 5,688
$ (2,435 ) $ 9,655 Less: Pre-acquisition loss from
operations of Enviva Port of Wilmington, LLC Drop-Down allocated to
General Partner — (651 ) —
(3,081 ) Enviva Partners, LP limited partners’ interest in
net income (loss) $ 13,356 $ 6,339 $ (2,435 ) $
12,736 Net income (loss) income per limited partner common
unit: Basic $ 0.45 $ 0.20 $ (0.25 ) $ 0.40 Diluted $ 0.43 $ 0.19 $
(0.25 ) $ 0.37 Net income (loss) per limited partner subordinated
unit: Basic $ — $ 0.20 $ (0.25 ) $ 0.40 Diluted $ — $ 0.20 $ (0.25
) $ 0.40 Weighted-average number of limited partner units
outstanding: Common—basic 26,477 14,412 19,866 14,400
Common—diluted 27,478 15,385 19,866 15,343 Subordinated—basic and
diluted — 11,905 6,541 11,905
ENVIVA PARTNERS, LP AND
SUBSIDIARIES Condensed Consolidated Statements of Cash
Flows (In thousands) (Unaudited) Nine
Months Ended September 30, 2018 2017
(Recast) Cash flows from operating activities: Net (loss)
income $ (2,435 ) $ 6,475 Adjustments to reconcile net (loss)
income to net cash provided by operating activities: Depreciation
and amortization 29,240 29,115 Amortization of debt issuance costs,
debt premium and original issue discounts 828 1,161 General and
administrative expense incurred by the First Hancock JV prior to
Enviva Port of Wilmington, LLC Drop-Down — 1,338 Loss on disposal
of assets 900 3,242 Unit-based compensation 5,604 5,113
De-designation of foreign currency forwards and options (1,947 ) —
Fair value changes in derivatives (4,465 ) (13 ) Unrealized loss on
foreign currency transactions 32 — Change in operating assets and
liabilities: Accounts receivable, net 30,004 28,026 Related-party
receivables (123 ) (3,312 ) Prepaid expenses and other assets (160
) 76 Assets held for sale — (310 ) Inventories (9,735 ) (4,433 )
Other long-term assets — 86 Derivatives 5,080 (1,442 ) Accounts
payable, accrued liabilities and other current liabilities 5,475
(6,845 ) Related-party payables and accrued liabilities 3,317 8,832
Accrued interest 7,634 6,301 Other current liabilities 234 — Other
long-term liabilities 648 621 Net cash
provided by operating activities 70,131 74,031 Cash flows from
investing activities: Purchases of property, plant and equipment
(16,034 ) (21,916 ) Insurance proceeds from property loss
1,130 — Net cash used in investing activities
(14,904 ) (21,916 ) Cash flows from financing activities: Principal
payments on debt and capital lease obligations (4,745 ) (3,428 )
Cash paid related to debt issuance costs — (209 ) Proceeds from
common unit issuance under the At-the-Market Offering Program, net
241 1,715 Distributions to unitholders, distribution equivalent
rights and incentive distribution rights holder (55,163 ) (46,323 )
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 (4,380 ) —
Proceeds and payments on revolving credit commitments, net 11,500
(6,500 ) Contributions from sponsor related to Enviva Pellets
Sampson, LLC Drop-Down — 1,652 Proceeds from contributions from the
First Hancock JV prior to Enviva Port of Wilmington, LLC Drop-Down
— 9,965 Net cash used in financing
activities (54,888 ) (43,128 ) Net increase in cash,
cash equivalents and restricted cash 339 8,987 Cash, cash
equivalents and restricted cash, beginning of period 524
466 Cash, cash equivalents and restricted
cash, end of period $ 863 $ 9,453
ENVIVA
PARTNERS, LP AND SUBSIDIARIES Condensed Consolidated
Statements of Cash Flows (continued) (In thousands)
(Unaudited) Nine Months Ended September
30, 2018 2017 (Recast)
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 $ 7,539 $ 6,649 Property,
plant and equipment acquired under capital lease obligations 949
1,124 Property, plant and equipment transferred from inventories 2
279 Distributions included in liabilities 1,047 937 Withholding tax
payable associated with Long-Term Incentive Plan vesting 156 —
Conversion of subordinated units to common units 78,504 —
Application of short-term deposit to fixed assets — 258
Depreciation capitalized to inventories 1,508 483 Supplemental
information: Interest paid $ 18,802 $ 15,516
_______________________________
1 The estimated incremental adjusted EBITDA that can be
expected from the Mid-Atlantic Expansions is based on an internal
financial analysis of the anticipated benefit from the incremental
production capacity at the Northampton and Southampton production
plants. Please refer to the “Non-GAAP Financial Measures” section
below for an explanation of why we are unable to reconcile such
estimate to the most directly comparable GAAP financial measure.
2
Assumes additional insurance recoveries in
the fourth quarter of 2018 related to the Chesapeake Incident of
approximately $7.1 million that are included in estimated net
income but would not benefit estimated adjusted EBITDA.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181108006034/en/
Enviva Partners, LPInvestor Contact:Raymond
Kaszuba, 240-482-3856ir@envivapartners.com
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