ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per unit amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2019
|
|
2018
|
Product sales
|
$
|
156,599
|
|
|
$
|
122,322
|
|
Other revenue
(1)
|
1,770
|
|
|
3,002
|
|
Net revenue
|
158,369
|
|
|
125,324
|
|
Cost of goods sold
(1)
|
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
(1)
|
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
|
|
|
|
|
|
(1)
See Note 12,
Related-Party Transactions
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2019
|
|
2018
|
Net loss
|
$
|
(8,923
|
)
|
|
$
|
(19,335
|
)
|
Other comprehensive loss:
|
|
|
|
Net unrealized losses on cash flow hedges
|
(55
|
)
|
|
(1,328
|
)
|
Reclassification of net (gains) losses realized into net loss
|
(107
|
)
|
|
1
|
|
Total other comprehensive loss
|
(162
|
)
|
|
(1,327
|
)
|
Total comprehensive loss
|
$
|
(9,085
|
)
|
|
$
|
(20,662
|
)
|
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Partners’ Capital
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Partner
Interest
|
|
Limited Partners’ Capital
|
Accumulated
Other
Comprehensive
Income
|
|
Total
Partners'
Capital
|
Common
Units—
Public
|
|
Common
Units—
Sponsor
|
|
Units
|
|
Amount
|
|
Units
|
|
Amount
|
|
Partners' capital, December 31, 2018
|
$
|
(133,687
|
)
|
|
14,573
|
|
|
$
|
207,612
|
|
|
11,905
|
|
|
$
|
72,352
|
|
|
$
|
439
|
|
|
$
|
146,716
|
|
Distributions to unitholders, distribution equivalent and incentive distribution rights
|
(1,671
|
)
|
|
—
|
|
|
(10,269
|
)
|
|
—
|
|
|
(7,619
|
)
|
|
—
|
|
|
(19,559
|
)
|
Issuance of units through Long-Term Incentive Plan
|
(2,129
|
)
|
|
94
|
|
|
659
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,470
|
)
|
Issuance of common units, net
|
—
|
|
|
3,509
|
|
|
96,661
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
96,661
|
|
Non-cash Management Services Agreement expenses
|
136
|
|
|
—
|
|
|
2,072
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,208
|
|
Cumulative effect of accounting change - derivative instruments
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
(8
|
)
|
|
18
|
|
|
—
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(162
|
)
|
|
(162
|
)
|
Net income (loss)
|
1,671
|
|
|
—
|
|
|
(5,880
|
)
|
|
—
|
|
|
(4,714
|
)
|
|
—
|
|
|
(8,923
|
)
|
Partners' capital, March 31, 2019
|
$
|
(135,680
|
)
|
|
18,176
|
|
|
$
|
290,845
|
|
|
11,905
|
|
|
$
|
60,011
|
|
|
$
|
295
|
|
|
$
|
215,471
|
|
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Partners’ Capital (Continued)
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Partner
Interest
|
|
Limited Partners’ Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
Partners'
Capital
|
Common
Units—
Public
|
|
Common
Units—
Sponsor
|
|
Subordinated
Units—
Sponsor
|
Units
|
|
Amount
|
|
Units
|
|
Amount
|
|
Units
|
|
Amount
|
Partners' capital, December 31, 2017
|
$
|
(128,569
|
)
|
|
13,073
|
|
|
$
|
224,027
|
|
|
1,347
|
|
|
$
|
16,050
|
|
|
11,905
|
|
|
$
|
101,901
|
|
|
$
|
(3,040
|
)
|
|
$
|
210,369
|
|
Distributions to unitholders, distribution equivalent and incentive distribution rights
|
(1,130
|
)
|
|
—
|
|
|
(8,833
|
)
|
|
—
|
|
|
(784
|
)
|
|
—
|
|
|
(7,381
|
)
|
|
—
|
|
|
(18,128
|
)
|
Issuance of units through Long-Term Incentive Plan
|
(2,129
|
)
|
|
99
|
|
|
(164
|
)
|
|
(82
|
)
|
|
(1,301
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,594
|
)
|
Issuance of common units, net
|
—
|
|
|
8
|
|
|
241
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
241
|
|
Non-cash Management Services Agreement expenses
|
102
|
|
|
—
|
|
|
931
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,033
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,327
|
)
|
|
(1,327
|
)
|
Net income (loss)
|
1,130
|
|
|
—
|
|
|
(10,233
|
)
|
|
—
|
|
|
(983
|
)
|
|
—
|
|
|
(9,249
|
)
|
|
—
|
|
|
(19,335
|
)
|
Partners' capital, March 31, 2018
|
$
|
(130,596
|
)
|
|
13,180
|
|
|
$
|
205,969
|
|
|
1,265
|
|
|
$
|
12,982
|
|
|
11,905
|
|
|
$
|
85,271
|
|
|
$
|
(4,367
|
)
|
|
$
|
169,259
|
|
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 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
|
|
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 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
|
|
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
(1) Description of Business and Basis of Presentation
Description of Business
Enviva Partners, LP, together with its subsidiaries (“we,” “us,” “our” or the “Partnership”), supplies utility-grade wood pellets primarily to major power generators under long-term, take-or-pay off-take contracts. We procure wood fiber and process it into utility-grade wood pellets and load the finished wood pellets into railcars, trucks and barges for transportation to deep-water marine terminals, where they are received, stored and ultimately loaded onto oceangoing vessels for delivery to our principally European, and increasingly Japanese, customers under long-term, take-or-pay contracts.
As of March 31, 2019, we owned and operated
six
industrial-scale wood pellet production plants located in the Mid-Atlantic and Gulf Coast regions of the United States. In addition to the volumes from our plants, we also procure wood pellets from third parties and Enviva Pellets Greenwood, LLC (“Greenwood”), a wholly owned subsidiary of Enviva JV Development Company, LLC (the “Second JV”), a joint venture between Enviva Holdings, LP (together with its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC, where applicable, the “sponsor”) and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates. Greenwood owns a wood pellet production plant in Greenwood, South Carolina (the “Greenwood plant”). Wood pellets are exported from our wholly owned dry-bulk, deep-water marine terminal in Chesapeake, Virginia (the “Chesapeake terminal”) and terminal assets in Wilmington, North Carolina (the “Wilmington terminal”), and from third-party deep-water marine terminals in Mobile, Alabama and Panama City, Florida, under a short-term and a long-term contract, respectively.
Basis of Presentation
The unaudited financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.
In the opinion of management, all adjustments and accruals necessary for a fair presentation have been included. All such adjustments and accruals are of a normal and recurring nature unless disclosed otherwise. All significant intercompany balances and transactions have been eliminated in consolidation. The results reported in the financial statements are not necessarily indicative of the results that may be reported for the entire year.
Certain amounts related to the change in the fair value of derivatives have been reclassified to product sales from other income for 2018 to conform to current period presentation. Certain amounts on our condensed consolidated statements of cash flows related to insurance recoveries have been reclassified to accounts and insurance receivables for 2018 to conform to current period presentation.
The unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes included in our Annual Report on Form 10-K for the year ended
December 31, 2018
.
(2) Significant Accounting Policies
During interim periods, we follow the accounting policies disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2018
except for our adoption on and as of January 1, 2019 of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842)
and ASU 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in our unaudited financial statements and accompanying notes. Actual results could differ materially from those estimates.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
Accounting Standards Adopted
Leases
ASU 2016-02 established a right-of-use (“ROU”) model that requires lessees to recognize a ROU asset and corresponding lease liability on the balance sheet for all leases with a term of longer than 12 months and classify leases as operating or finance. Operating lease expense is recorded in a single financial statement line item on a straight-line basis over the lease term. Amortization of the ROU asset is the calculated difference between straight-line lease expense and the accretion of interest on the lease liability each period.
We adopted ASU 2016-02 on and as of January 1, 2019 using the modified retrospective transition method, which we applied to all leases existing at the date of initial application of the ASU. We elected to use the effective date as the date of initial application, as opposed to the beginning of the earliest comparative period presented in the financial statements; consequently, financial information and disclosures are not presented under the new standard for periods prior to January 1, 2019. We elected the package of three practical expedients under the transition guidance within the new standard, which permitted us to reassess our prior conclusions under the previous guidance concerning lease identification, lease classification and initial direct leasing costs. We elected the practical expedient to not evaluate existing or expired land easements that were not accounted for as leases under previous guidance. We did not, however, elect the separate practical expedient pertaining to the use of hindsight in determining the lease term for existing leases. We have a significant contract containing both lease and nonlease components, which are accounted for separately. As this contract has fixed payments, the allocation of lease and nonlease components is based on relative standalone price.
The adoption of the new standard as of January 1, 2019 resulted in the recognition of operating lease ROU assets of
$27.4 million
, net of
$2.1 million
of deferred rent liabilities existing as of December 31, 2018, and operating lease liabilities of
$29.5 million
for operating leases related to real estate, machinery and equipment and other operating leases with terms of longer than 12 months. The amounts recognized as of January 1, 2019 were based on the present value of the remaining minimum rental payments under previous leasing standards for existing operating leases. The classification of a lease affects the pattern and classification of expense recognition in the income statement, which is unchanged from under the previous accounting method. The adoption of the new standard did not change our accounting for finance leases (which were described as “capital leases” under the previous standard) or impact our results of operations and cash flows. See Note 8,
Leases
.
Derivative Instruments
We adopted ASU 2017-12 on and
as of January 1, 2019 using the modified retrospective method, which requires the recognition of the cumulative effect of the change on the opening balance of each affected component of equity in the statement of changes in partner’s capital as of the date of adoption of the new standard. Upon adoption of ASU 2017-12, we no longer measure and recognize ineffectiveness related to designated and qualifying cash flow hedges in earnings; as a result, any ineffectiveness is included in accumulated other comprehensive income. On January 1, 2019, we recorded a nominal cumulative effect adjustment to accumulated other comprehensive income and common units in partners’ capital. See Note 9,
Derivatives
.
Recently Issued Accounting Standards not yet Adopted
Currently, there are no recently issued accounting standards not yet adopted by us that we expect to be reasonably likely to materially impact the financial position, results of operations or cash flows of the Partnership.
(3) Revenue
Performance Obligations
As of
March 31, 2019
, the aggregate amount of revenues from contracts with customers allocated to performance obligations that were unsatisfied or partially satisfied was approximately
$7.9 billion
. This amount excludes forward prices related to variable consideration including inflation and foreign currency and commodity prices. Also, this amount excludes the effects of related foreign currency derivative contracts as they do not represent contracts with customers. As of April 1, 2019 we expect to recognize approximately
7.0%
of our remaining performance obligations as revenue during the remainder of 2019, an additional
11.0%
in 2020 and the balance thereafter. Our off-take contracts expire at various times through 2040 and our terminal services contracts extend into 2026.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
Variable Consideration
Variable consideration from off-take contracts arises from several pricing features outlined in our off-take contracts, pursuant to which such contract pricing may be adjusted in respect of particular shipments to reflect differences between certain contractual quality specifications of the wood pellets as measured both when the wood pellets are loaded onto ships and unloaded at the discharge port as well as certain other contractual adjustments.
Variable consideration from terminal services contracts, which was not material for the three months ended
March 31, 2019
, arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services.
We allocate variable consideration under our off-take and terminal services contracts entirely to each performance obligation to which variable consideration relates. The estimate of variable consideration represents the amount that is not more likely than not to be reversed. For the three months ended
March 31, 2019
, we recognized
$0.1 million
of revenue related to performance obligations satisfied in previous periods.
Contract Balances
Accounts receivable related to product sales as of
March 31, 2019
and
December 31, 2018
were
$58.9 million
and
$51.3 million
, respectively. We had
$0.2 million
and
$0.3 million
of deferred revenue as of
March 31, 2019
and
December 31, 2018
, respectively, for future performance obligations associated with off-take contracts.
(4) Significant Risks and Uncertainties Including Business and Credit Concentrations
Our business is significantly impacted by greenhouse gas emission and renewable energy legislation and regulations in the European Union as well as its member states and Japan. If the European Union, its member states or Japan significantly modify such legislation or regulations, then our ability to enter into new contracts as our existing contracts expire may be materially affected.
Our current sales are primarily to industrial customers located in the United Kingdom, Denmark and Belgium. Product sales to third-party customers that accounted for 10% or a greater share of consolidated product sales are as follows:
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2019
|
|
2018
|
Customer A
|
40
|
%
|
|
38
|
%
|
Customer B
|
11
|
%
|
|
7
|
%
|
Customer C
|
16
|
%
|
|
6
|
%
|
Customer D
|
25
|
%
|
|
34
|
%
|
(5) Inventory Impairment and Asset Disposal
On February 27, 2018, a fire occurred at the Chesapeake terminal, causing damage to equipment and approximately
43,000
MT of wood pellets (the “Chesapeake Incident”). The Chesapeake terminal returned to operations on June 28, 2018. During the three months ended March 31, 2018, we incurred
$28.4 million
in costs as a result of the Chesapeake Incident related to asset impairment, inventory write-off and disposal costs, emergency response costs, asset repair costs and business continuity costs, the latter of which represented incremental costs to commission temporary wood pellet storage and handling and ship loading operations at nearby locations to meet our contractual obligations to our customers. As of March 31, 2018, we had recovered
$8.9 million
related to the Chesapeake Incident, which included
$1.1 million
of lost profits. As of December 31, 2018,
$3.8 million
of probable insurance recoveries for the then-remaining costs not yet recovered were included in insurance receivables; we received the
$3.8 million
in probable insurance recoveries (plus
$0.5 million
recognized as other income) in February 2019.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
(6) Inventories
Inventories consisted of the following at:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
Raw materials and work-in-process
|
$
|
5,594
|
|
|
$
|
4,936
|
|
Consumable tooling
|
17,750
|
|
|
17,561
|
|
Finished goods
|
4,655
|
|
|
8,993
|
|
Total inventories
|
$
|
27,999
|
|
|
$
|
31,490
|
|
(7) Property, Plant and Equipment
Property, plant and equipment consisted of the following at:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
Land
|
$
|
13,492
|
|
|
$
|
13,492
|
|
Land improvements
|
44,990
|
|
|
44,990
|
|
Buildings
|
196,574
|
|
|
196,574
|
|
Machinery and equipment
|
436,630
|
|
|
434,776
|
|
Vehicles
|
635
|
|
|
635
|
|
Furniture and office equipment
|
6,148
|
|
|
6,148
|
|
Leasehold improvements
|
987
|
|
|
987
|
|
Property, plant and equipment - in service
|
699,456
|
|
|
697,602
|
|
Less accumulated depreciation
|
(165,929
|
)
|
|
(154,967
|
)
|
Property, plant and equipment - in service, net
|
533,527
|
|
|
542,635
|
|
Construction in progress
|
26,845
|
|
|
14,393
|
|
Total property, plant and equipment, net
|
$
|
560,372
|
|
|
$
|
557,028
|
|
Total depreciation expense was
$11.2 million
and
$9.3 million
for the three months ended
March 31, 2019
and
2018
, respectively. Total interest capitalized related to construction in progress was
$0.1 million
for the three months ended March 31, 2019. We did
no
t capitalize interest related to construction in progress during the three months ended March 31, 2018.
(8) Leases
We have operating and finance leases related to real estate, machinery, equipment and other assets where we are the lessee. Leases with an initial term of 12 months or less are not recorded on the balance sheet but are recognized as lease expense on a straight-line basis over the applicable lease terms. Amortization of the ROU asset is calculated as the difference between straight-line lease expense and the accretion of interest on the lease liability each period. In addition to fixed lease payments, we have contracts that incur variable lease expense related to usage (e.g. throughput fees, maintenance and repair and machine hours), which are expensed as incurred. Our leases have remaining terms of
one
to
28 years
, some of which include options to extend the leases for up to
5 years
. Our leases are generally noncancellable. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
A discount rate is applied to our leases for balance sheet measurement. As rates are not explicitly defined in the operating and finance lease agreements, we use our incremental borrowing rate for purposes of measuring the ROU assets and lease liabilities for recognized leases. This is a secured interest rate which takes into account our credit rating, the term of our leases, as well as the economic environment in which we operate. Each lease uses a secured interest rate with a term commensurate to the identified lease term.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
Operating leases are included in operating lease right-of-use assets, accrued and other current liabilities and long-term operating lease liabilities on our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, current portion of long-term debt and finance lease obligations and long-term debt and finance lease obligations on our condensed consolidated balance sheets. Changes in right-of-use assets and operating lease liabilities are included net in change in operating lease liabilities on the condensed consolidated statement of cash flows.
Operating lease ROU assets and liabilities and finance leases were as follows at:
|
|
|
|
|
|
|
|
March 31,
2019
|
Operating leases:
|
|
|
Operating lease ROU assets, gross
|
|
$
|
29,490
|
|
Accumulated amortization
|
|
(2,533
|
)
|
Operating lease ROU assets, net
|
|
$
|
26,957
|
|
|
|
|
Long-term operating lease liabilities
|
|
$
|
27,730
|
|
Current portion of operating lease liabilities
|
|
1,393
|
|
Total operating lease liabilities
|
|
$
|
29,123
|
|
|
|
|
Finance leases:
|
|
|
Property, plant and equipment, gross
|
|
$
|
8,461
|
|
Accumulated depreciation
|
|
(3,734
|
)
|
Property plant and equipment, net
|
|
$
|
4,727
|
|
|
|
|
Current portion of long-term finance lease obligations
|
|
$
|
2,754
|
|
Long-term finance lease obligations
|
|
1,963
|
|
Total finance lease liabilities
|
|
$
|
4,717
|
|
Operating and finance lease costs were as follows:
|
|
|
|
|
|
|
|
Lease Cost
|
|
Classification
|
|
Three Months Ended
March 31, 2019
|
Operating lease cost:
|
|
|
|
|
Fixed lease cost
|
|
Cost of goods sold
|
|
$
|
1,034
|
|
Variable lease cost
|
|
Cost of goods sold
|
|
6
|
|
Short-term lease costs
|
|
Cost of goods sold
|
|
—
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
Amortization of leased assets
|
|
Depreciation and amortization
|
|
719
|
|
Variable lease cost
|
|
Cost of goods sold
|
|
4
|
|
Interest on lease liabilities
|
|
Interest expense
|
|
52
|
|
|
|
Total lease cost
|
|
$
|
1,815
|
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
Operating and finance lease cash flow information was as follows:
|
|
|
|
|
|
|
|
Three Months
Ended
March 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
|
$
|
893
|
|
Operating cash flows from financing leases
|
|
52
|
|
Financing cash flows from financing leases
|
|
551
|
|
|
|
|
Assets obtained in exchange for lease obligations:
|
|
|
Operating leases
|
|
$
|
—
|
|
Financing leases
|
|
626
|
|
The future minimum lease payments and the aggregate maturities of operating and finance lease liabilities are as follows as of March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
Remainder of 2019
|
|
$
|
2,689
|
|
|
$
|
2,374
|
|
|
$
|
5,063
|
|
2020
|
|
3,224
|
|
|
1,861
|
|
|
5,085
|
|
2021
|
|
2,939
|
|
|
605
|
|
|
3,544
|
|
2022
|
|
2,729
|
|
|
46
|
|
|
2,775
|
|
2023
|
|
2,678
|
|
|
43
|
|
|
2,721
|
|
Thereafter
|
|
59,320
|
|
|
4
|
|
|
59,324
|
|
Total lease payments
|
|
73,579
|
|
|
4,933
|
|
|
78,512
|
|
Less: imputed interest
|
|
(44,456
|
)
|
|
(216
|
)
|
|
(44,672
|
)
|
Total present value of lease liabilities
|
|
$
|
29,123
|
|
|
$
|
4,717
|
|
|
$
|
33,840
|
|
The future minimum lease payments as of
December 31, 2018
for operating and finance lease liabilities were
$73.8 million
and
$4.8 million
, respectively.
The weighted-average remaining lease terms and discount rates for our operating and finance leases were weighted using the undiscounted future minimum lease payments and are as follows at:
|
|
|
|
|
|
|
March 31, 2019
|
Weighted average remaining lease term (years):
|
|
|
Operating leases
|
|
27
|
|
Finance leases
|
|
2
|
|
|
|
|
Weighted average discount rate:
|
|
|
Operating leases
|
|
8
|
%
|
Finance leases
|
|
5
|
%
|
(9) Derivative Instruments
We use derivative instruments to partially offset our business exposure to foreign currency exchange and interest rate risk. We may enter into foreign currency forward and option contracts to offset some of the foreign currency exchange risk on our expected future cash flows and interest rate swaps to offset some of the interest rate risk on our expected future cash flows from certain borrowings. Our derivative instruments expose us to credit risk to the extent that our hedge counterparties may be unable to meet
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
the terms of the applicable derivative instrument. We seek to mitigate such risks by limiting our counterparties to major financial institutions. In addition, we monitor the potential risk of loss with any one counterparty resulting from credit risk. Management does not expect material losses as a result of defaults by counterparties. We use derivative instruments to manage cash flow and not for speculative or trading purposes.
Cash Flow Hedges
For qualifying cash flow hedges, the effective and ineffective portion of the gain or loss on the change in fair value is initially reported as a component of accumulated other comprehensive income in partners’ capital and subsequently reclassified into earnings when the hedged exposure affects earnings. Prior to January 1, 2019 and the adoption of ASU 2017-12 (see Note 2,
Significant Accounting Policies
), the ineffective portion of the gain or loss, if any, was reported in earnings in the current period. We considered our cash flow hedges to be highly effective at inception. Changes in fair value for derivative instruments not designated as hedging instruments are recognized in earnings.
Foreign Currency Exchange Risk
We are primarily exposed to fluctuations in foreign currency exchange rates related to off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”) and Euro (“EUR”). We have entered and may continue to enter into foreign currency forward contracts, purchased option contracts or other instruments to partially manage this risk and, prior to August 2018, had designated certain of these instruments as cash flow hedges.
Interest Rate Risk
We are exposed to fluctuations in interest rates on borrowings under our senior secured revolving credit facility. We have entered into a pay-fixed, receive-variable interest rate swap that expires in April 2020 to hedge the interest rate risk associated with our variable rate borrowings under our senior secured revolving credit facility. The interest rate swap is designated and qualifies as a cash flow hedge.
The fair value of derivative instruments as of
March 31, 2019
and
December 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability)
|
|
|
Balance Sheet Classification
|
|
March 31, 2019
|
|
December 31, 2018
|
Designated as hedging instruments:
|
|
|
|
|
|
|
Interest rate swap
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
328
|
|
|
$
|
508
|
|
|
|
Other long-term assets
|
|
99
|
|
|
118
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
427
|
|
|
$
|
626
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments:
|
|
|
|
|
|
|
Foreign currency exchange forward contracts:
|
|
|
|
|
|
|
|
|
Prepaid and other current assets
|
|
$
|
1,012
|
|
|
$
|
794
|
|
|
|
Other long-term assets
|
|
800
|
|
|
1,810
|
|
|
|
Accrued and other current liabilities
|
|
(388
|
)
|
|
(68
|
)
|
|
|
Other long-term liabilities
|
|
(415
|
)
|
|
(179
|
)
|
|
|
|
|
|
|
|
Foreign currency purchased option contracts:
|
|
|
|
|
|
|
|
|
Prepaid and other current assets
|
|
49
|
|
|
22
|
|
|
|
Other long-term assets
|
|
2,189
|
|
|
3,348
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
$
|
3,247
|
|
|
$
|
5,727
|
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
Net losses related to the change in fair market value of derivative instruments not designated as hedging instruments were
$2.0 million
and
$0.8 million
during the three months ended
March 31, 2019
and 2018, respectively, and are included in product sales. Realized gains related to derivatives settled during the period were
$0.1 million
and
$0.3 million
during the three months ended March 31, 2019 and 2018, respectively, and are included in product sales.
As a result of our adoption of ASU 2017-12 on January 1, 2019 (see Note 2,
Significant Accounting Policies
), an insignificant amount of a cumulative effect of the accounting change was recognized to accumulated other comprehensive income to reflect that change of recognizing ineffectiveness related to designated and qualifying cash flow hedges in other comprehensive loss rather than net loss.
The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive loss and the gains and losses recognized in earnings for the three months ended
March 31, 2019
were as follows:
|
|
|
|
|
|
|
|
|
|
Amount of Loss in Other
Comprehensive
Loss on
Derivative
|
|
Location of
Gain
Reclassified from
Accumulated Other
Comprehensive
Loss
|
|
Amount of
Gain
Reclassified from
Accumulated Other
Comprehensive
Loss
into Earnings
|
Interest rate swap
|
(55
|
)
|
|
Interest expense
|
|
107
|
|
The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive loss and the gains and losses recognized in earnings for the three months ended
March 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Loss) Gain
in Other
Comprehensive
Income on
Derivative
(Effective Portion)
|
|
Location of
Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive
Income
(Effective Portion)
|
|
Amount of
Loss
Reclassified from
Accumulated Other
Comprehensive
Income
into Income
(Effective Portion)
|
|
Location of (Loss) Gain
Recognized in
Income on Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
|
|
Amount of Gain
(Loss) Recognized in
Earnings on Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
|
Foreign currency exchange forward contracts
|
$
|
(1,325
|
)
|
|
Product sales
|
|
$
|
—
|
|
|
Product sales
|
|
$
|
(1
|
)
|
Foreign currency exchange purchased option contracts
|
(323
|
)
|
|
Product sales
|
|
—
|
|
|
Product sales
|
|
—
|
|
Interest rate swap
|
320
|
|
|
Interest expense
|
|
(1
|
)
|
|
Interest expense
|
|
1
|
|
We enter into master netting arrangements, which are designed to permit net settlement of derivative transactions among the respective counterparties. If we had settled all transactions with our respective counterparties at
March 31, 2019
, we would have received a net settlement termination payment of
$3.7 million
, which differs insignificantly from the recorded fair value of the derivatives. We present our derivative assets and liabilities at their gross fair values.
The notional amounts of outstanding derivative instruments associated with outstanding or unsettled derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
Foreign exchange forward contracts in GBP
|
£
|
39,435
|
|
|
£
|
42,170
|
|
Foreign exchange purchased option contracts in GBP
|
£
|
39,365
|
|
|
£
|
39,365
|
|
Foreign exchange forward contracts in EUR
|
€
|
7,000
|
|
|
€
|
14,300
|
|
Foreign exchange purchased option contracts in EUR
|
€
|
1,675
|
|
|
€
|
1,675
|
|
Interest rate swap
|
$
|
38,460
|
|
|
$
|
39,829
|
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
(10) Fair Value Measurements
The amounts reported in the unaudited condensed consolidated balance sheets as cash and cash equivalents, accounts receivable, insurance receivables, related-party receivables, prepaid expenses and other current assets, accounts payable, related-party payables and accrued liabilities, and accrued and other current liabilities approximate fair value because of the short-term nature of these instruments.
Derivative instruments and long-term debt and finance lease obligations, including the current portion, are classified as Level 2 instruments. The fair value of our senior notes (see Note 11,
Long-Term Debt and Finance Lease Obligations – Senior Notes Due 2021
) was determined based on observable market prices in a less active market and was categorized as Level 2 in the fair value hierarchy. The fair value of other long-term debt and finance lease obligations classified as Level 2 was determined based on the usage of market prices not quoted on active markets and other observable market data. The fair value of long-term debt and finance lease obligations are based upon rates currently available for debt and finance lease obligations with similar terms and remaining maturities. The carrying amount of derivative instruments approximates fair value.
The carrying amount and estimated fair value of long-term debt and finance lease obligations as of
March 31, 2019
and
December 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Senior notes
|
$
|
353,008
|
|
|
$
|
368,095
|
|
|
$
|
352,843
|
|
|
$
|
359,943
|
|
Other long-term debt and finance lease obligations
|
125,729
|
|
|
125,730
|
|
|
79,812
|
|
|
79,812
|
|
Total long-term debt and finance lease obligations
|
$
|
478,737
|
|
|
$
|
493,825
|
|
|
$
|
432,655
|
|
|
$
|
439,755
|
|
(11) Long-Term Debt and Finance Lease Obligations
Long-term debt and finance lease obligations at carrying value are composed of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
Senior notes, net of unamortized discount, premium and debt issuance of $2.0 million as of March 31, 2019 and $2.2 million as of December 31, 2018
|
$
|
353,008
|
|
|
$
|
352,843
|
|
Senior secured revolving credit facility
|
119,000
|
|
|
73,000
|
|
Other loans
|
2,012
|
|
|
2,015
|
|
Finance leases
|
4,717
|
|
|
4,797
|
|
Total long-term debt and finance lease obligations
|
478,737
|
|
|
432,655
|
|
Less current portion of long-term debt and finance lease obligations
|
(2,762
|
)
|
|
(2,722
|
)
|
Long-term debt and finance lease obligations, excluding current installments
|
$
|
475,975
|
|
|
$
|
429,933
|
|
Senior Notes Due 2021
As of
March 31, 2019
and
December 31, 2018
, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, our
8.5%
senior unsecured notes due 2021. Our obligations under the senior notes are guaranteed by certain of our subsidiaries.
Senior Secured Revolving Credit Facility
As of
March 31, 2019
and
December 31, 2018
, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, our senior secured revolving credit facility. Our obligations under the senior secured revolving credit facility are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our assets.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
(12) Related-Party Transactions
Related-party transaction amounts included on the unaudited condensed consolidated statements of operations were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Other revenue
|
$
|
592
|
|
|
$
|
1,232
|
|
Cost of goods sold
|
19,998
|
|
|
15,139
|
|
General and administrative expenses
|
4,213
|
|
|
3,964
|
|
Management Services Agreement
Pursuant to a management services agreement (the “MSA”) with Enviva Management Company, LLC (“Enviva Management”), a wholly owned subsidiary of the sponsor, Enviva Management provides us with operations, general administrative, management and other services (the “Services”). We are required to reimburse Enviva Management for the amount of all direct or indirect internal or third-party expenses incurred by Enviva Management in connection with the provision of the Services. The MSA fee charged by Enviva Holdings, LP to us includes rent related amounts for non-cancelable operating leases for office space in Maryland and North Carolina held by Enviva Holdings, LP.
During the three months ended
March 31, 2019
,
$13.6 million
related to the MSA was included in cost of goods sold and
$4.2 million
was included in general and administrative expenses. As of
March 31, 2019
,
$0.9 million
incurred under the MSA was included in finished goods inventory.
During the three months ended
March 31, 2018
,
$8.7 million
related to the MSA was included in cost of goods sold and
$4.0 million
was included in general and administrative expenses.
As of
March 31, 2019
and
December 31, 2018
, we had
$9.0 million
and
$19.0 million
, respectively, included in related-party payables primarily related to the MSA.
Common Control Transactions
In October 2017, we acquired from Enviva Wilmington Holdings, LLC (the “First JV”), a joint venture between our sponsor and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates, all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”), which owns the Wilmington terminal assets (the “Wilmington Drop-Down”), for total consideration of
$130.0 million
, subject to certain conditions. The Wilmington Drop-Down included the Wilmington terminal assets and a long-term terminal services agreement with our sponsor (the “Holdings TSA”) to handle throughput volumes sourced from Greenwood. The purchase price included
$74.0 million
of deferred consideration, which is reflected on the condensed consolidated balance sheets as of
March 31, 2019
and
December 31, 2018
. We paid in full the
$74.0 million
in deferred consideration for the Wilmington Drop-Down to the First JV on April 1, 2019. See Note 17,
Subsequent Events
.
In March 2019, Wilmington entered into a long-term terminal services agreement (the “Wilmington Hamlet TSA”) with the First JV and Enviva Pellets Hamlet, LLC (“Hamlet”) to receive, store and load wood pellets from the First JV’s production plant under construction in Hamlet, North Carolina (the “Hamlet plant”) following notice of the anticipated first delivery of wood pellets to the Wilmington terminal from the Hamlet plant. The Wilmington Hamlet TSA provides for deficiency payments to Wilmington if minimum throughput requirements are not met.
Related-Party Indemnification
We acquired Enviva Pellets Sampson, LLC (“Sampson”) from the First JV in December 2016 (the “Sampson Drop-Down”). Sampson owns a wood pellet production plant in Sampson County, North Carolina (the “Sampson plant”). In connection with the Sampson Drop-Down and the Wilmington Drop-Down, the First JV agreed to indemnify us, our affiliates and our respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Sampson plant and the Wilmington terminal that were included in the net assets
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
acquired. As of
March 31, 2019
and
December 31, 2018
, the related-party receivable associated with such amounts was
$4.5 million
and
$0.3 million
, respectively.
Greenwood Contract
In February 2018, we entered into a contract with Greenwood to purchase wood pellets produced by the Greenwood plant through March 2022. We have a take-or-pay obligation with respect to
550,000
metric tons per year (“MTPY”) of wood pellets from July 2019 through March 2022.
During the three months ended
March 31, 2019
, we purchased
$10.5 million
of wood pellets and recorded a cost of cover deficiency fee from Greenwood of approximately
$2.9 million
from Greenwood as Greenwood was unable to satisfy certain commitments. Of the net
$7.6 million
,
$7.5 million
is included in cost of goods sold and
$0.1 million
is included in finished goods inventory as of
March 31, 2019
. During the three months ended
March 31, 2018
, we purchased
$3.7 million
of wood pellets from Greenwood, of which
$3.1 million
is included in cost of goods sold.
As of
March 31, 2019
,
$4.3 million
is included in related-party payables related to our wood pellet purchases from Greenwood and
$3.6 million
is included in related-party receivables related to Greenwood’s cost of cover deficiency fee. As of December 31, 2018,
$7.9 million
is included in related-party payables related to our wood pellet purchases from Greenwood.
Holdings TSA
Pursuant to the Holdings TSA, our sponsor agreed to deliver a minimum of
125,000
MT of wood pellets per quarter for receipt, storage, handling and loading services by the Wilmington terminal and pay a fixed fee on a per-ton basis for such terminal services. The Holdings TSA remains in effect until September 1, 2026. We did
no
t record any terminal services revenue from our sponsor during the three months ended
March 31, 2019
. During the three months ended
March 31, 2018
, we recorded
$0.8 million
as terminal services revenue from our sponsor, which is included in other revenue.
In February 2018, our sponsor amended and assigned the Holdings TSA to Greenwood. Deficiency payments are due to Wilmington if quarterly minimum throughput requirements are not met. During the three months ended
March 31, 2019
and 2018, we recorded
$0.6 million
and
$0.4 million
, respectively, of deficiency fees from Greenwood, which is included in other revenue.
Biomass Option Agreement – Enviva Holdings, LP
Enviva, LP purchased
$1.7 million
of wood pellets from our sponsor during the three months ended
March 31, 2018
pursuant to a biomass option agreement. The wood pellet purchase amounts are included in cost of goods sold. The biomass option agreement terminated in accordance with its terms in March 2018.
EVA-MGT Contracts
In January 2016, we entered into a contract (the “EVA‑MGT Contract”) with the First JV to supply
375,000
MTPY of wood pellets to MGT Teesside Limited’s Tees Renewable Energy Plant (the “Tees REP”), which is under development. As amended, the EVA-MGT Contract commences in 2019, ramps to full supply in 2021 and continues through 2034. The EVA-MGT Contract is denominated in U.S. Dollars for commissioning volumes in 2019 and in GBP thereafter.
We entered into a second supply agreement with the First JV in connection with the Sampson Drop-Down to supply an additional
95,000
MTPY of the contracted volume to the Tees REP. The contract, which is denominated in GBP, commences in 2020 and continues through 2034.
Enviva FiberCo, LLC
We purchase raw materials from Enviva FiberCo, LLC (“FiberCo”), a wholly owned subsidiary of our sponsor. During the three months ended
March 31, 2019
, we purchased raw materials of
$1.9 million
from FiberCo. Offsetting the raw material purchases during the three months ended March 31, 2019, we recognized
$2.9 million
of cost of cover deficiency fees from FiberCo under a wood supply master agreement as FiberCo was unable to satisfy certain commitments, which is included in related-party receivables as of March 31, 2019. During the three months ended March 31, 2018 we purchased raw materials of
$1.7 million
from FiberCo.
No
cost of cover deficiency fees were recognized during the three months ended March 31, 2018.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
Long-Term Incentive Plan Vesting
As of
March 31, 2019
, we had
$1.9 million
included in related-party payables related to withholding tax amounts due to Enviva Management associated with the vesting of time-based phantom units under the Enviva Partners, LP Long-Term Incentive Plan (“LTIP”).
(13) Partners’ Capital
Common Units - Issuance
During March 2019, we issued
3,508,778
common units in a registered direct offering for net proceeds of approximately
$97.0 million
, net of
$3.0 million
of issuance costs which was included in accrued and other current liabilities.
Incentive Distribution Rights
Incentive distribution rights (“IDRs”) represent the right to receive increasing percentages (from
15.0%
to
50.0%
) of quarterly distributions from operating surplus after distributions in amounts exceeding specified target distribution levels have been achieved by the Partnership. Our general partner (“General Partner”) currently holds the IDRs, but may transfer these rights at any time.
At-the-Market Offering Program
Pursuant to an equity distribution agreement dated August 8, 2016, we may offer and sell common units from time to time through a group of managers, subject to the terms and conditions set forth in such agreement, of up to an aggregate sales amount of
$100.0 million
(the “ATM Program”).
During the three months ended
March 31, 2019
, we did
no
t sell common units under the ATM Program. During the three months ended
March 31, 2018
, we sold
8,408
common units under the ATM Program for net proceeds of
$0.2 million
, net of an insignificant amount of commissions. Net proceeds from sales under the ATM Program were used for general partnership purposes.
(14) Equity-Based Awards
The following table summarizes information regarding phantom unit awards (the “Affiliate Grants”) under the LTIP to employees of Enviva Management who provide services to the Partnership:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
Phantom Units
|
|
Performance-Based
Phantom Units
|
|
Total Affiliate Grant
Phantom Units
|
|
Units
|
|
Weighted-
Average
Grant Date
Fair Value
(per unit)(1)
|
|
Units
|
|
Weighted-
Average
Grant Date
Fair Value
(per unit)(1)
|
|
Units
|
|
Weighted-
Average
Grant Date
Fair Value
(per unit)(1)
|
Nonvested December 31, 2018
|
723,940
|
|
|
$
|
25.91
|
|
|
239,512
|
|
|
$
|
27.65
|
|
|
963,452
|
|
|
$
|
26.34
|
|
Granted
|
334,884
|
|
|
$
|
30.16
|
|
|
206,409
|
|
|
$
|
30.16
|
|
|
541,293
|
|
|
$
|
30.16
|
|
Forfeitures
|
(2,881
|
)
|
|
$
|
26.43
|
|
|
—
|
|
|
$
|
—
|
|
|
(2,881
|
)
|
|
$
|
26.43
|
|
Vested
|
(141,794
|
)
|
|
$
|
18.19
|
|
|
—
|
|
|
$
|
—
|
|
|
(141,794
|
)
|
|
$
|
18.19
|
|
Nonvested March 31, 2019
|
914,149
|
|
|
$
|
28.66
|
|
|
445,921
|
|
|
$
|
28.81
|
|
|
1,360,070
|
|
|
$
|
28.71
|
|
______________________________________________________________
|
|
(1)
|
Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
|
As of
March 31, 2019
,
$1.9 million
is included in related-party payables to Enviva Management to satisfy tax-withholding requirements associated with
141,794
time-based phantom awards that vested under the LTIP during the three months ended
March 31, 2019
. During the three months ended March 31, 2018, we paid
$2.3 million
to the General Partner, which acquired common units from a wholly owned subsidiary of our sponsor for delivery to the recipients under the LTIP. We also paid
$1.7
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
million
during the three months ended March 31, 2018 to Enviva Management to satisfy the tax-withholding requirements associated with such common units under the MSA.
The following table summarizes information regarding phantom unit awards to certain non-employee directors of the General Partner (the “Director Grants”) under the LTIP:
|
|
|
|
|
|
|
|
|
Time-Based
Phantom Units
|
|
Units
|
|
Weighted-
Average
Grant Date
Fair Value
(per unit)(1)
|
Nonvested December 31, 2018
|
13,964
|
|
|
$
|
28.65
|
|
Granted
|
13,444
|
|
|
$
|
30.16
|
|
Vested
|
(13,964
|
)
|
|
$
|
28.65
|
|
Nonvested March 31, 2019
|
13,444
|
|
|
$
|
30.16
|
|
In February 2019, Director Grants valued at
$0.4 million
were granted and vest on the first anniversary of the grant date. In February 2019, the Director Grants that were nonvested at
December 31, 2018
vested, and common units were issued in respect of such vested Director Grants.
Distribution Equivalent Rights
Unpaid distribution equivalent rights (“DERs”) amounts related to the performance-based Affiliate Grants at
March 31, 2019
were
$1.0 million
, of which
$0.5 million
are included in accrued liabilities and
$0.5 million
are included in other long-term liabilities on the condensed consolidated balance sheets. Unpaid DER amounts related to the performance-based Affiliate Grants at
December 31, 2018
were
$0.7 million
, of which
$0.4 million
are included in accrued liabilities and
$0.3 million
are included in other long-term liabilities.
Paid DER distributions related to the time-based Affiliate Grants were
$0.9 million
for the three months ended
March 31, 2019
. Paid DER distributions related to the time-based Affiliate Grants were
$0.5 million
for the three months ended
March 31, 2018
. At March 31, 2019 and December 31, 2018,
$0.6 million
and
$0.9 million
, respectively, of DER distributions were included in related-party accrued liabilities.
(15) Income Taxes
Our operations are organized as limited partnerships and entities that are disregarded entities for federal and state income tax purposes. As a result, we are not subject to U.S. federal and most state income taxes. The unitholders of the Partnership are liable for these income taxes on their share of our taxable income. Some states impose franchise and capital taxes on the Partnership. Such taxes are not material to the condensed consolidated financial statements and have been included in other income (expense) as incurred.
As of
March 31, 2019
, the only periods subject to examination for federal and state income tax returns are 2015 through
2018
. We believe our income tax filing positions, including our status as a pass-through entity, would be sustained on audit and do not anticipate any adjustments that would result in a material change to our unaudited condensed consolidated balance sheet. Therefore,
no
reserves for uncertain tax positions or interest and penalties have been recorded. For the three months ended
March 31, 2019
and
2018
,
no
provision for federal or state income taxes has been recorded in the condensed consolidated financial statements.
(16) Net Income (Loss) per Limited Partner Unit
Net income (loss) per unit applicable to limited partners is computed by dividing limited partners’ interest in net income (loss), after deducting any incentive distributions, by the weighted-average number of outstanding common units. Our net income (loss) is allocated to the limited partners in accordance with their respective ownership percentages, after giving effect to priority
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
income allocations for incentive distributions, if any, to the holder of the IDRs, which are declared and paid following the close of each quarter. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income (loss) allocations used in the calculation of earnings per unit.
On May 30, 2018, the requirements under our partnership agreement for the conversion of all of our subordinated units into common units were satisfied and the subordination period for such subordinated units ended. As a result, all of our
11,905,138
outstanding subordinated units converted into common units on a
one
-for-one basis. The conversion did not impact the amount of the cash distribution paid or the total number of our outstanding units representing limited partner interests. Our net income (loss) was allocated to the General Partner and the limited partners, including the holders of the subordinated units and IDR holders, in accordance with our partnership agreement.
In addition to the common units, we have also identified the IDRs and phantom units as participating securities and use the two-class method when calculating the net income (loss) per unit applicable to limited partners, which is based on the weighted-average number of common units and subordinated units outstanding during the period. Diluted net income per unit includes the effects of potentially dilutive time-based and performance-based phantom units on our common units. Basic and diluted earnings per unit previously applicable to subordinated limited partner units were the same because there are
no
potentially dilutive subordinated units outstanding.
The following computation of net income (loss) per limited partner unit is as follows for the three months ended
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Common
Units
|
|
General
Partner
|
Weighted-average common units outstanding—basic
|
26,759
|
|
|
—
|
|
Effect of nonvested phantom units
|
—
|
|
|
—
|
|
Weighted-average common units outstanding—diluted
|
26,759
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Common
Units
|
|
General
Partner
|
|
Total
|
Distributions declared
|
$
|
21,580
|
|
|
$
|
2,270
|
|
|
$
|
23,850
|
|
Earnings less than distributions
|
(32,773
|
)
|
|
—
|
|
|
(32,773
|
)
|
Net (loss) income attributable to partners
|
$
|
(11,193
|
)
|
|
$
|
2,270
|
|
|
$
|
(8,923
|
)
|
Weighted-average units outstanding—basic
|
26,759
|
|
|
|
|
|
Weighted-average units outstanding—diluted
|
26,759
|
|
|
|
|
|
Net loss per limited partner unit—basic
|
$
|
(0.42
|
)
|
|
|
|
|
Net loss per limited partner unit—diluted
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Common
Units
|
|
Subordinated
Units
|
|
General
Partner
|
Weighted-average common units outstanding—basic
|
14,438
|
|
|
11,905
|
|
|
—
|
|
Effect of nonvested phantom units
|
—
|
|
|
—
|
|
|
—
|
|
Weighted-average common units outstanding—diluted
|
14,438
|
|
|
11,905
|
|
|
—
|
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Common
Units
|
|
Subordinated
Units
|
|
General
Partner
|
|
Total
|
Distributions declared
|
$
|
9,066
|
|
|
$
|
7,441
|
|
|
$
|
1,264
|
|
|
$
|
17,771
|
|
Earnings less than distributions
|
(20,380
|
)
|
|
(16,726
|
)
|
|
—
|
|
|
(37,106
|
)
|
Net (loss) income attributable to partners
|
$
|
(11,314
|
)
|
|
$
|
(9,285
|
)
|
|
$
|
1,264
|
|
|
$
|
(19,335
|
)
|
Weighted-average units outstanding—basic
|
14,438
|
|
|
11,905
|
|
|
|
|
|
Weighted-average units outstanding—diluted
|
14,438
|
|
|
11,905
|
|
|
|
|
|
Net loss per limited partner unit—basic
|
$
|
(0.78
|
)
|
|
$
|
(0.78
|
)
|
|
|
|
|
Net loss per limited partner unit—diluted
|
$
|
(0.78
|
)
|
|
$
|
(0.78
|
)
|
|
|
|
|
Cash Distributions to Unitholders
Distributions that have been paid or declared related to the reporting period are considered in the determination of earnings per unit. The following table details the cash distribution paid or declared (in millions, except per-unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Declaration
Date
|
|
Record
Date
|
|
Payment
Date
|
|
Distribution
Per Unit
|
|
Total Cash
Distribution
|
|
Total
Payment to
General
Partner for
Incentive
Distribution
Rights
|
March 31, 2018
|
|
May 3, 2018
|
|
May 15, 2018
|
|
May 29, 2018
|
|
$
|
0.6250
|
|
|
$
|
16.5
|
|
|
$
|
1.3
|
|
June 30, 2018
|
|
August 1, 2018
|
|
August 15, 2018
|
|
August 29, 2018
|
|
$
|
0.6300
|
|
|
$
|
16.7
|
|
|
$
|
1.4
|
|
September 30, 2018
|
|
October 31, 2018
|
|
November 15, 2018
|
|
November 29, 2018
|
|
$
|
0.6350
|
|
|
$
|
16.8
|
|
|
$
|
1.5
|
|
December 31, 2018
|
|
January 29, 2019
|
|
February 15, 2019
|
|
February 28, 2019
|
|
$
|
0.6400
|
|
|
$
|
17.0
|
|
|
$
|
1.7
|
|
March 31, 2019
|
|
May 2, 2019
|
|
May 15, 2019
|
|
May 29, 2019
|
|
$
|
0.6450
|
|
|
$
|
21.6
|
|
|
$
|
2.3
|
|
Distributions to be made in future periods based on the current period calculation of cash available for distribution are allocated to each class of equity that will receive the distribution. Any unpaid cumulative distributions are allocated to the appropriate class of equity.
We determine the amount of cash available for distribution for each quarter in accordance with our partnership agreement. The amount to be distributed to common unitholders and IDR holders is based on the distribution waterfall set forth in our partnership agreement. Net earnings for the quarter are allocated to each class of partnership interest based on the distributions to be made. On May 30, 2018, the subordination period ended in accordance with our partnership agreement and the subordinated units were converted into common units on a
one
-for-one basis (see Note 16,
Net Income (Loss) per Limited Partner Unit
).
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited
)
(17) Subsequent Events
On April 1, 2019, we paid
$74.0 million
to the First JV in deferred consideration for the Wilmington Drop-Down (the “Second Payment”). The Second Payment consisted of (i) approximately
$24.0 million
in cash, of which approximately
$23.0 million
was distributed to John Hancock Life Insurance Company (U.S.A.) and approximately
$1.0 million
was retained by the First JV, and (ii) the issuance of
1,691,627
common units, or approximately
$50.0 million
in common units, which were distributed to John Hancock Life Insurance Company (U.S.A.), in connection with which we entered into a registration rights agreement covering the resale of such common units.
On April 2, 2019, we acquired all of the issued and outstanding Class B Units of the First JV from our sponsor and our sponsor assigned to us our sponsor’s position as lender under an amended and restated credit agreement dated June 30, 2018 between the First JV and our sponsor for total consideration of
$165.0 million
, subject to certain adjustments (the “Hamlet Transaction”). Such consideration is comprised of (i) the issuance of
1,681,237
common units, or approximately
$50.0 million
in common units, and approximately
$25.0 million
in cash, paid on April 2, 2019, (ii)
$50.0 million
in cash to be paid upon commencement of commercial operations of the Hamlet plant, expected in the second quarter of 2019 (“COD”), and (iii)
$40.0 million
in cash to be paid upon the later of COD and January 2, 2020. The First JV owns the Hamlet plant and a firm,
15
-year take-or-pay off-take contract, which adds incremental sales volumes of approximately
500,000
MTPY to our product sales backlog.
(18) Supplemental Guarantor Information
The Partnership and its wholly owned finance subsidiary, Enviva Partners Finance Corp., are the co-issuers of our senior notes on a joint and several basis. The Partnership has
no
material independent assets or operations. The senior notes are guaranteed on a senior unsecured basis by certain of the Partnership’s direct and indirect wholly owned subsidiaries (excluding Enviva Partners Finance Corp. and certain recently formed immaterial subsidiaries) and will be guaranteed by the Partnership’s future restricted subsidiaries that guarantee certain of its other indebtedness (collectively, the “Subsidiary Guarantors”). The guarantees are full and unconditional and joint and several. Each of the Subsidiary Guarantors is directly or indirectly
100%
owned by the Partnership. Enviva Partners Finance Corp. is a finance subsidiary formed for the purpose of being the co-issuer of the Senior Notes. Other than certain restrictions arising under the senior secured revolving credit facility and the indenture governing the senior notes (see Note 11, Long-Term Debt and Finance Lease Obligations), there are no significant restrictions on the ability of any restricted subsidiary to (i) pay dividends or make any other distributions to the Partnership or any of its restricted subsidiaries or (ii) make loans or advances to the Partnership or any of its restricted subsidiaries.