Enviva Inc. (NYSE: EVA) (“Enviva,” the “Company,” “we,” “us,” or
“our”) today released financial and operating results for
first-quarter 2023, discussed changes to its capital allocation
priorities in addition to providing a 2023 financial guidance
update, and announced a large, long-term take-or-pay off-take
contract with an existing Japanese customer.
“As we will describe today, the plans and initiatives underway
to improve productivity and costs across Enviva’s current asset
platform continue to fall behind expectations. While the board of
directors remains convinced of management’s ability to deliver the
originally forecasted operational and financial performance over
time, it is clearly taking longer than expected,” said John
Keppler, Executive Chairman of the board. “To more conservatively
underwrite that plan and ensure the ability of the Company to
capture the value of the fully contracted growth ahead, after
careful consideration with management, the board of directors
evaluated the most accretive uses of the Company’s capital and
decided to revise Enviva’s capital allocation framework,
eliminating the Company’s quarterly dividend in order to preserve
liquidity and a conservative leverage profile, maintain our current
growth trajectory, potentially accelerate future investments in new
fully contracted plant and port assets, and implement a limited
share repurchase program.”
With the elimination of the dividend, management expects to
retain approximately $1 billion in incremental cash flow during the
period 2023 to 2026, providing incremental liquidity and investment
into the productivity and operational improvements in its current
assets and further reduce the need to access the capital markets to
fund its current growth plans, which include the construction of
the Company’s fully contracted wood pellet production facilities in
Epes, Alabama (“Epes”) and near Bond, Mississippi (“Bond”).
Under the share repurchase program authorized by the board of
directors (“Board”), the Company can repurchase up to $100 million
in shares of the Company’s common stock opportunistically from time
to time in the open market, or in privately negotiated transactions
at prevailing market prices, or by such other means as will comply
with applicable state and federal securities laws. This is the
Company’s first authorization for share repurchases since its
founding.
President and Chief Executive Officer Thomas Meth commented, “We
recognize this is an important departure from the plan we laid out
at our Investor Day a month ago, but a lot has changed since then.
Compared to our expectations, while our cost position has trended
in the right direction, it has done so at a much slower pace than
we had anticipated, in part due to slower volume growth, and in
part due to a higher spend profile for the volume growth we did
achieve.”
Meth continued, “We know what the specific issues are: contract
labor is too high, discipline around repairs and maintenance spend
is insufficient, wood input costs need to come down further and
stay there, and utilization rates at specific plants need to
improve and stabilize at those improved levels. Because of where we
are in our journey to bend our cost curve down while bending our
production curve up, we feel it is prudent to take a much more
conservative view of what our business can realistically achieve
over the next eight months.”
Meth concluded, “Against this backdrop of operational
challenges, we are undergoing an extensive review of where we are
allocating our capital. We believe we have more accretive capital
allocation alternatives, which start with improving returns from
our existing fleet of assets, growing our fully contracted asset
base, managing liquidity and leverage, and also include the
potential to opportunistically repurchase our shares in the open
market, which we believe have traded below their intrinsic value
for some time.”
The timing of any repurchases under the share repurchase program
will depend on market conditions, capital allocation priorities,
liquidity and leverage positions, and other considerations. The
program may be extended, modified, suspended or discontinued at any
time, and does not obligate the Company to repurchase any dollar
amount or number of shares.
Key Takeaways:
- Delivered volumes of approximately 1.3 million metric tons
(“MT”) during first-quarter 2023; volumes delivered were 20% higher
for first-quarter 2023 compared to first-quarter 2022, but short of
management’s expectations of approximately 1.5 million MT;
delivered at port cost per MT declined by $9 throughout
first-quarter 2023, but remain higher than management’s
expectations
- Reported a net loss of $116.9 million for first-quarter 2023,
as compared to a net loss of $45.3 million for first-quarter 2022,
and reported adjusted EBITDA for first-quarter 2023 of $3.4 million
as compared to $36.6 million for first-quarter 2022
- Updated 2023 financial guidance in light of
weaker-than-expected first-quarter 2023 results and accelerated
improvements related to operating position and production rates.
Enviva updated certain full-year 2023 guidance metrics, including
revising net loss to a range of $186 million to $136 million, and
adjusted EBITDA to a range of $200 million to $250 million
- Changed capital allocation priorities to direct cash flows from
the business to highest-returning opportunities. In order of
management priority: (1) effectively managing liquidity and
leverage, (2) improving operating cost and productivity of current
asset platform, (3) returning capital to stockholders through share
repurchases, and (4) accelerating, when appropriate, investments in
new fully contracted wood pellet production assets
- Announced 10-year take-or-pay off-take contract with existing
Japanese counterparty for deliveries of approximately 300,000
metric tons per year (“MTPY”); contract reflects favorable
long-term pricing environment for wood pellets, and deliveries are
expected to commence in tandem with new capacity coming on
line
“Although the future continues to be incredibly bright for
Enviva’s business, we have had a difficult and disappointing start
to 2023,” said Meth. “Operating cost overages and production
challenges were key drivers behind the first quarter’s poor
performance. While plant production is increasing and we are
reducing our operating cost position, neither improvement is
materializing at the rate we forecasted a few months ago. Based on
results from the first four months of the year, we believe it is
prudent to take a more conservative view on the timing of our
ability to deliver these improvements.”
First-Quarter 2023 Financial Results
Enviva reported certain accretive sales transactions in
first-quarter 2023 to a large European customer with whom we also
have a third-party pellet purchase agreement which resulted in a
deferral of gross margin (the “Deferred Gross Margin Transactions”
or “DGMT”). The cash has been collected in full for the sales, and
the accounting treatment is similar to the DGMT we reported in our
fourth-quarter 2022 financial results. The DGMT transactions in
first-quarter 2023 are with the same customer that gave rise to the
DGMT in fourth-quarter 2022.
The DGMT resulted in a decrease of $29.7 million in net revenue
for first-quarter 2023, with a decrease to both gross margin and
adjusted EBITDA of $4.6 million. Enviva expects the DGMT related to
these sales to have the opposite effect on gross margin and
adjusted EBITDA in 2024 and 2025, increasing gross margin and
adjusted EBITDA over those years.
Reported metric tons sold for first-quarter 2023 were reduced by
0.1 million MT for the tons sold pursuant to the DGMT.
The table below outlines reported first-quarter 2023 results as
well as the DGMT impact:
$ millions, unless noted
1Q23 As Reported
DGMT
1Q23 Excluding DGMT
Impact**
1Q22
Net Revenue
269.1
29.7
298.8
233.0
Net Income (Loss)
(116.9)
45.0
(71.9)
(45.3)
Gross Margin
(20.7)
4.6
(16.1)
(0.3)
Adjusted Gross Margin*
21.3
4.6
25.9
50.7
Adjusted EBITDA*
3.4
4.6
8.0
36.6
Adjusted Gross Margin $/metric ton*
17.93
37.70
19.77
46.27
*Adjusted gross margin, adjusted EBITDA,
and adjusted gross margin per metric ton are non-GAAP financial
measures. For a reconciliation of non-GAAP measures to their most
directly comparable GAAP measure please see the Non-GAAP Financial
Measures section below
**All financial measures presented
excluding the DGMT impact are non-GAAP financial measures; please
see the Non-GAAP Financial Measures section below
Net revenue for first-quarter 2023 was $269.1 million as
compared to $233.0 million for first-quarter 2022. The increase of
approximately 15% year-over-year was primarily driven by
incremental volumes produced and sold, in large part due to
production contributions from Enviva’s newest plant in Lucedale,
Mississippi being fully ramped during first-quarter 2023. Enviva
delivered approximately 20% more volume to customers during
first-quarter 2023 compared to first-quarter 2022. The increase in
net revenue was also bolstered by an uptick in average sales price
per ton as a result of annual price escalators in our contracts as
well as new contracts typically having higher pricing than our
legacy contracts.
Net loss for first-quarter 2023 was $116.9 million as compared
to $45.3 million for first-quarter 2022. Net loss for the first
quarter 2023 included $40.4 million of non-cash interest expense
associated with the DGMT.
Gross margin was $(20.7) million for first-quarter 2023 as
compared to $(0.3) million for first-quarter 2022.
Adjusted gross margin for first-quarter 2023 was $21.3 million
as compared to $50.7 million for first-quarter 2022. The decrease
in adjusted gross margin year-over-year was primarily attributable
to the following factors:
- Customer mix: Approximately $16 million of gross margin was
shifted to the second half of 2023 from first-quarter 2023 as a
result of customer delivery adjustments, whereby more tons were
sold and shipped in the quarter to Japanese customers as a result
of requests from a few of our European customers that were managing
supply chain challenges to delay such shipments to the second half
of 2023. Generally, Japanese contracts currently have slightly
lower sales prices per MT and higher shipping costs than our
European customers to whom these deliveries are scheduled to be
made in the second half of the year
- Repairs and Maintenance and Contract Labor: Approximately $10
million of unplanned repairs and maintenance expenses were incurred
during the quarter, including overages in contract labor
expenses
- Isolated costs: Approximately $5 million of expenses were
incurred during first-quarter 2023 related to third-party
consulting fees associated with plant optimization initiatives and
professional fees
- DGMT: Approximately $4.6 million of gross margin is deferred to
future years due to the accounting for sales related to shipments
delivered to a large European customer with whom we also have a
third-party pellet purchase agreement (associated with the same
customer as in our fourth-quarter 2022 results)
Adjusted gross margin per metric ton (“AGM/MT”) for
first-quarter 2023 was $17.93, as compared to $46.27 for
first-quarter 2022. The year-over-year decrease was driven by the
same factors that impacted adjusted gross margin.
Adjusted EBITDA for first-quarter 2023 was $3.4 million as
compared to $36.6 million for first-quarter 2022. The
year-over-year decrease was driven by the same factors that
impacted adjusted gross margin and from incremental sales, general
and administrative expenses.
Enviva’s liquidity was $634.4 million as of March 31, 2023,
which included cash on hand, including cash generally restricted to
funding a portion of the costs of the acquisition, construction,
equipping, and financing of our Epes and Bond facilities, as well
as availability under our $570.0 million senior secured revolving
credit facility.
2023 Guidance
Enviva continues to advance productivity and cost-reduction
initiatives designed to improve the operating and financial
performance of its fully contracted assets. Notwithstanding a
difficult start to the year, produced tons in first-quarter 2023
increased by 7.7% over first-quarter 2022.
During first-quarter 2023, management was able to reduce the
delivered at port (“DAP”) cost per MT by approximately $9, which
was well below management’s expectations. Management’s execution
plan is now targeting a further $20 reduction in DAP costs by
year-end 2023. Despite the improvements underway, the rate of
productivity increases and cost reduction is slower than
management’s prior expectations for full-year 2023. As a result,
management is reducing its estimates for full-year produced volumes
in 2023 to be approximately 5 million to 5.5 million MT, as
compared to our prior forecast of 5.5 million to 6.0 million MT.
For third-party procured volumes, we now are forecasting these to
be within a range of 500,000 to 1 million MT, as compared to our
prior estimate of 1.0 million to 1.5 million MT, which, net of
contracted tons that have been deferred by customers due to planned
and unplanned outages in power generation facilities, creates a
balance between our wood pellet deliveries and customer demand for
the remainder of the year.
Management continues to expect net revenue per ton to be
approximately $234 per MT for full-year 2023.
Given the impact of the challenging performance of first-quarter
2023, which was approximately $50 million below management’s
expectations for adjusted EBITDA, as well as the impact of the
updated production and cost estimates, Enviva is revising its
full-year 2023 guidance expectations for net loss and adjusted
EBITDA.
$ millions, unless noted
Previous 2023 Guidance
Revised 2023 Guidance
Net Loss
(48) - (18)
(186) - (136)
Adjusted EBITDA*
305 - 335
200 - 250
Dividend per Common Share ($/Share)
3.62
—
Total Capital Expenditures
365 - 415
365 - 415
*For a reconciliation of forward-looking
non-GAAP measures to their most directly comparable GAAP measure,
please see the Non-GAAP Financial Measures section below
Net loss guidance for 2023 is now projected to be a range of
$186 million to $136 million, changed from the prior estimate of a
net loss range of $48 million to $18 million.
Adjusted EBITDA for 2023 is projected to be within a range of
$200 million to $250 million, which is reduced from previously
provided guidance of $305 million to $335 million. Approximately
$30 million of the delta between the previous guidance midpoint of
$320 million and the revised midpoint of $225 million is related to
the weakness in first-quarter 2023 and the remaining $65 million
related to a shift in timing expectations to when productivity and
cost improvements are more fully realized.
Enviva’s quarterly income and cash flow are subject to
seasonality and the mix of customer shipments made, which varies
from period to period. Our business usually experiences higher
seasonality during the first quarter of the year as compared to
subsequent quarters, as colder and wetter winter weather increases
costs of procurement and production at our plants, and we have
experienced this in 2023.
In effort to give more visibility into our 2023 guidance
expectations, we are providing quarterly estimates for net income
(loss) and adjusted EBITDA. The table below outlines quarterly
expectations for net loss and adjusted EBITDA throughout the
remainder of 2023. Adjusted EBITDA is heavily weighted towards the
second half of the year, which is driven by the following
factors:
- Seasonality benefits and productivity improvements related to
production
- Cost reduction programs underway being more fully realized
- Increase in revenue per ton as a result of the majority of
deliveries being related to higher-priced contracts; key drivers
include regular seasonality, annual price escalators being fully
represented, and new higher-priced contracts accounting for an
increasingly larger percentage of shipments
$ millions, unless noted
2Q23 Guidance Ranges
3Q23 Guidance Ranges
4Q23 Guidance Ranges
Net Income ( Loss)
(60) - (50)
(25) - (5)
20 - 40
Adjusted EBITDA*
20 - 30
70 - 90
110 - 130
*For a reconciliation of forward-looking
non-GAAP measures to their most directly comparable GAAP measure,
please see the Non-GAAP Financial Measures section below
Enviva continues to forecast that total capital expenditures
(inclusive of capitalized interest) will range from $365 million to
$415 million for 2023, with investments in the following
projects:
- Greenfield site development and construction projects, ranging
from $295 million to $325 million
- Expansion and optimization of our plants, ranging from $50
million to $70 million
- Maintenance capital for existing asset footprint of
approximately $20 million
Total capital expenditures are expected to be back-end weighted
for 2023.
“Although we are very disappointed in our start to 2023, we are
committed to returning to much better levels of operating cost
control, asset utilization, and productivity,” said Meth. “We
believe in the cost position we have delivered historically and
that the production levels we have demonstrated are achievable on a
reliable, go-forward basis, and look forward to consistently
reporting on our progress.”
“I am also pleased to note that given the strong future
contracted growth we have in hand, the pace of our investment
continues to be on track, and with the changes we have announced
today, we have the opportunity to continue to deliver this growth
with lower risk and limited needs to access the capital markets,”
Meth concluded.
Capital Allocation Framework
The Board has decided to revise Enviva’s capital allocation
framework, eliminating Enviva’s quarterly dividend in order to
maintain conservative leverage, improve the operating cost and
productivity of its current asset platform, implement a share
repurchase program, and where appropriate, to accelerate investment
in new fully contracted plant and port assets.
With the elimination of the dividend, management expects to
retain approximately $1 billion in incremental cash flow during the
period 2023 to 2026. This is expected to provide incremental
liquidity and investment into the productivity and operational
improvements in Enviva’s current assets as well as further reduce
future needs to access the capital markets to fund its current
growth plans, which include the construction of the Company’s fully
contracted wood pellet production facilities, Epes and Bond.
Under the share repurchase program authorized by the Board, the
Company can repurchase up to $100 million in shares of the
Company’s common stock opportunistically from time to time in the
open market, in privately negotiated transactions at prevailing
market prices, or by such other means as will comply with
applicable state and federal securities laws. This is the Company’s
first authorization for share repurchases since its founding, and
is of a lower capital allocation priority compared to maintaining
conservative leverage metrics.
Contracting and Market Update
Enviva’s customers are renewing existing contracts and signing
new contracts in large part due to the urgent need to reduce
lifecycle greenhouse gas emissions from their supply chains and
products while securing reliable, affordable, renewable feedstocks
over the long term. There are limited large-scale alternatives
available for renewable baseload and dispatchable power and heat
generation, and even fewer sustainably sourced feedstocks to
substitute in hard-to-abate carbon-intensive industries.
Additionally, the carbon price environment in the European Union
continues to strengthen, which reinforces the cost-competitiveness
of biomass. Wood pellets are currently the cheapest form of thermal
energy generation in Europe. Enviva’s long-term contracted wood
pellets at $220 to $260 per MT makes biomass generation in the EU
more profitable than conventional generation, especially compared
to delivered liquified natural gas prices. Biomass continues to be
very price competitive, with biomass currently forecasted to be
cheaper than natural gas and coal at all points along forward
curves.
Today, Enviva announced a new 10-year, take-or-pay off-take
contract with an existing investment-grade Japanese customer that
is utilizing biomass in its power generating facilities. Deliveries
of approximately 300,000 MTPY are expected to commence in line with
our new capacity additions. The contract is subject to conditions
precedent.
On average, new long-term off-take contract pricing over the
last 12 months is approximately 20% higher than Enviva’s existing
long-term off-take contracts scheduled to expire over the next 3
years.
Pricing of Enviva’s long-term, take-or-pay off-take contracts is
not generally exposed to, nor predominantly driven by, current
commodity prices, but rather our customers’ longer-term view of
securing a long-term, cost-competitive, and renewable, sustainable
feedstock over timeframes spanning from 5 to more than 20 years,
which may relate to goals of achieving net-zero targets.
As of April 1, 2023, Enviva’s total weighted-average remaining
term of take-or-pay off-take contracts is approximately 14 years,
with a total contracted revenue backlog of approximately $23
billion. This contracted revenue backlog is complemented by a
customer sales pipeline exceeding $50 billion, which includes
contracts in various stages of negotiation. Given the quality and
size of this backlog and of our current customer sales pipeline, we
believe we will be able to support the addition of at least four
new fully contracted wood pellet production plants and several
highly accretive capital-light projects over the next four years.
We expect to construct our new fully-contracted wood pellet
production plants at an approximately 5 times, or better, adjusted
EBITDA project investment multiple.
European Union – Renewable Energy Directive Update
On March 30, 2023, EU negotiators reached an agreement on the
Renewable Energy Directive III (“RED III” or the “Agreement”). We
are pleased to hear that woody biomass will continue to be
recognized as a renewable energy source in the EU.
Although the final language has not yet been released, Enviva
understands that the Agreement does not impose restrictions on
“primary woody biomass,” which will continue to be counted as 100
percent renewable and zero-rated in the EU Emissions Trading System
(EU ETS), provided sustainability criteria are fulfilled. As the
world’s leading producer of sustainably sourced woody biomass,
Enviva is confident it will be able to meet all updated
sustainability criteria, enabling its customers to continue to make
an important contribution to achieving global climate goals.
Importantly, the final Agreement is expected to include:
assurances that electricity-only plants already receiving subsidies
will continue to do so, meaning Enviva’s existing off-take
contracts are not expected to be impacted; continuing availability
of financial support to electricity-only installations where
Bioenergy with Carbon Capture and Storage (BECCS) is used (this is
a pivotal technology for reaching net zero and a key focus for many
of Europe’s power generators); and the availability of financial
support for all other end uses of woody biomass, which should
provide further tailwinds to Enviva’s growth in combined heat and
power, hard-to-abate sectors, and advanced biofuels.
The final language of the Agreement is expected to be released
publicly by the end of May 2023, with the final vote, and formal
endorsement, by the EU Council of Ministers and EU Parliament
expected to be held in the following months, after which RED III
will enter into law and national implementation will begin.
Sustainability Update
Recently, the Enviva Forest Conservation Fund (the “Fund”)
announced the recipients of its 2023 grants. The projects funded
this year aim to conserve an estimated 6,165 acres and protect
ecologically sensitive bottomland hardwood forests in the
Virginia-North Carolina coastal plains.
The Fund has awarded 31 projects totaling more than $3.8 million
in grants over the past eight years, and expects to meet its target
protected acreage approximately two years earlier than planned. An
estimated 36,736 acres will be protected when these projects reach
completion. The forests conserved as a part of the Fund help clean
drinking water, purify the air, buffer structures from storms, and
provide habitat for many species of wildlife, while at the same
time, providing jobs and economic opportunity for rural families
and private landowners.
Asset Update
Construction of Epes is progressing well, and we continue to
expect that the facility will be operational in mid-2024.
We are moving forward with our process to enter into
construction agreements with one or more EPC firms to complete the
engineering, procurement, and construction of Bond and future
similar plants. We have all the necessary permits in hand for our
Bond development, and expect to have a signed EPC agreement in the
second half of 2023.
Given our updated capital allocation framework, we may have the
opportunity to accelerate the build timing of Bond, and move the
in-service date up by approximately six months, thus allowing a
potential in-service date as early as the fourth quarter of
2024.
Our business model of fully contracting plants and expansions
before commencing construction remains unchanged and, given the
strong pace of contracting, we potentially have the option to
accelerate the timing of our next two greenfield developments after
Bond, with potential in-service dates now in late 2025 and late
2026, respectively.
We continue to project that average cost per plant for the next
four greenfield projects (including Epes and Bond) will be
approximately $375 million, and we also expect a five times, or
better, project-level adjusted EBITDA investment multiple, which
implies annual plant-level adjusted EBITDA of $75 million to $90
million, when the production ramp is complete. Our expectation is
that Epes will generate a five times return, with subsequent plants
achieving an even better return, given the higher off-take contract
pricing environment relative to most of our historical long-term
off-take contracts.
First-Quarter and Full-Year 2022 Earnings Call
Details
Enviva will host a webcast and conference call on Thursday, May
4, 2023 at 10:00 a.m. Eastern Time to discuss first-quarter results
and the Company’s outlook. The conference call number for North
American participation is +1 (877) 883-0383, and for international
callers is +1 (412) 902-6506. The passcode is 9953103.
Alternatively, the call can be accessed online through a webcast
link provided on Enviva’s Events & Presentations website page,
located at ir.envivabiomass.com.
About Enviva
Enviva Inc. (NYSE: EVA) is the world’s largest producer of
industrial wood pellets, a renewable and sustainable energy source
produced by aggregating a natural resource, wood fiber, and
processing it into a transportable form, wood pellets. Enviva owns
and operates ten plants with a combined production capacity of
approximately 6.2 million metric tons per year in Virginia, North
Carolina, South Carolina, Georgia, Florida, and Mississippi, and is
constructing its 11th plant in Epes, Alabama. Enviva is planning to
commence construction of its 12th plant, near Bond, Mississippi, in
2023. Enviva sells most of its wood pellets through long-term,
take-or-pay off-take contracts with primarily creditworthy
customers in the United Kingdom, the European Union, and Japan,
helping to accelerate the energy transition and to defossilize
hard-to-abate sectors like steel, cement, lime, chemicals, and
aviation. Enviva exports its wood pellets to global markets through
its deep-water marine terminals at the Port of Chesapeake,
Virginia, the Port of Wilmington, North Carolina, and the Port of
Pascagoula, Mississippi, and from third-party deep-water marine
terminals in Savannah, Georgia, Mobile, Alabama, and Panama City,
Florida.
To learn more about Enviva, please visit our website at
www.envivabiomass.com. Follow Enviva on social media @Enviva.
Financial Statements
ENVIVA INC. AND
SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(In thousands, except par
value and number of shares)
March 31, 2023
December 31, 2022
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
5,275
$
3,417
Accounts receivable
128,737
169,847
Other accounts receivable
14,255
8,950
Inventories
185,746
158,884
Short-term customer assets
23,987
21,546
Prepaid expenses and other current
assets
8,499
7,695
Total current assets
366,499
370,339
Property, plant, and equipment, net
1,598,543
1,584,875
Operating lease right-of-use assets
100,764
102,623
Goodwill
103,928
103,928
Long-term restricted cash
216,099
247,660
Long-term customer assets
117,656
118,496
Other long-term assets
41,242
23,519
Total assets
$
2,544,731
$
2,551,440
Liabilities, Mezzanine Equity, and
Shareholders’ Equity
Current liabilities:
Accounts payable
$
24,646
$
37,456
Accrued and other current liabilities
133,395
146,497
Customer liabilities
36,828
75,230
Current portion of interest payable
16,908
32,754
Current portion of long-term debt and
finance lease obligations
15,313
20,993
Deferred revenue
48,972
32,840
Financial liability pursuant to repurchase
accounting
180,954
111,913
Total current liabilities
457,016
457,683
Long-term debt and finance lease
obligations
1,393,076
1,571,766
Long-term operating lease liabilities
113,159
115,294
Deferred tax liabilities, net
2,104
2,107
Long-term deferred revenue
129,689
41,728
Other long-term liabilities
72,177
76,106
Total liabilities
2,167,221
2,264,684
Commitments and contingencies
Mezzanine equity:
Series A convertible preferred stock,
$0.001 par value, 100,000,000 shares authorized, 6,605,671 and none
issued and outstanding as of March 31, 2023 and December 31, 2022,
respectively
248,589
—
Shareholders’ equity:
Common stock, $0.001 par value,
600,000,000 shares authorized, 67,727,662 and 66,966,092 issued and
outstanding as of March 31, 2023 and December 31, 2022,
respectively
68
67
Additional paid-in capital
461,576
502,554
Accumulated deficit
(285,206
)
(168,307
)
Accumulated other comprehensive income
198
197
Total Enviva Inc. shareholders’ equity
176,636
334,511
Noncontrolling interests
(47,715
)
(47,755
)
Total shareholders’ equity
128,921
286,756
Total liabilities, Mezzanine equity, and
shareholders’ equity
$
2,544,731
$
2,551,440
ENVIVA INC. AND
SUBSIDIARIES
Condensed Consolidated
Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended March
31,
2023
2022
Product sales
$
260,248
$
230,912
Other revenue
8,834
2,070
Net revenue
269,082
232,982
Operating costs and expenses:
Cost of goods sold, excluding items
below
253,215
211,036
Loss on disposal of assets
3,629
901
Selling, general, administrative, and
development expenses
30,954
33,691
Depreciation and amortization
34,674
22,559
Total operating costs and expenses
322,472
268,187
Loss from operations
(53,390
)
(35,205
)
Other (expense) income:
Interest expense
(23,393
)
(9,970
)
Interest expense on repurchase
accounting
(40,373
)
—
Total interest expense
(63,766
)
(9,970
)
Other income (expense), net
309
(116
)
Total other expense, net
(63,457
)
(10,086
)
Net loss before income taxes
(116,847
)
(45,291
)
Income tax expense
12
16
Net loss
$
(116,859
)
$
(45,307
)
ENVIVA INC. AND
SUBSIDIARIES
Condensed Consolidated
Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended March
31,
2023
2022
Cash flows from operating activities:
Net loss
$
(116,859
)
$
(45,307
)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization
34,674
22,559
Interest expense pursuant to repurchase
accounting
40,373
—
Amortization of debt issuance costs, debt
premium, and original issue discounts
654
647
Loss on disposal of assets
3,629
901
Non-cash equity-based compensation and
other expense
16,708
10,260
Fair value changes in derivatives
(439
)
(1,485
)
Unrealized loss on foreign currency
transactions, net
113
98
Change in operating assets and
liabilities:
Accounts and other receivables
39,045
26,328
Prepaid expenses and other current and
long-term assets
14,387
(426
)
Inventories
(15,027
)
(7,733
)
Finished goods subject to repurchase
accounting
(27,242
)
—
Derivatives
438
(125
)
Accounts payable, accrued liabilities, and
other current liabilities
(42,012
)
(28,939
)
Deferred revenue
104,094
—
Accrued interest
(15,846
)
(12,451
)
Other long-term liabilities
(4,818
)
(7,250
)
Net cash provided by (used in) operating
activities
31,872
(42,923
)
Cash flows from investing activities:
Purchases of property, plant, and
equipment
(72,194
)
(53,051
)
Payment for acquisition of a business
—
(5,000
)
Net cash used in investing activities
(72,194
)
(58,051
)
Cash flows from financing activities:
Principal payments on senior secured
revolving credit facility, net
(280,000
)
(172,000
)
Proceeds from debt issuance
102,900
—
Principal payments on other long-term debt
and finance lease obligations
(12,089
)
(4,839
)
Cash paid related to debt issuance costs
and deferred offering costs
(1,662
)
(591
)
Support payments received
9,821
—
Proceeds from sale of finished goods
subject to repurchase accounting
14,887
—
Proceeds from issuance of Series A
convertible preferred shares, net
248,583
—
Proceeds from issuance of Enviva Inc.
common shares, net
—
333,615
Cash dividends
(56,556
)
(52,037
)
Payment for withholding tax associated
with Long-Term Incentive Plan vesting
(15,265
)
(16,364
)
Net cash provided by financing
activities
10,619
87,784
Net decrease in cash, cash equivalents,
and restricted cash
(29,703
)
(13,190
)
Cash, cash equivalents, and restricted
cash, beginning of period
251,077
18,518
Cash, cash equivalents, and restricted
cash, end of period
$
221,374
$
5,328
ENVIVA INC. AND
SUBSIDIARIES
Condensed Consolidated
Statements of Cash Flows (continued)
(In thousands)
(Unaudited)
Three Months Ended March
31,
2023
2022
Non-cash investing and financing
activities:
Property, plant, and equipment acquired
included in accounts payable and accrued liabilities
$
(108
)
$
9,534
Supplemental information:
Interest paid, net of capitalized
interest
$
38,899
$
21,612
Non-GAAP Financial Measures
In addition to presenting our financial results in accordance
with accounting principles generally accepted in the United States
(“GAAP”), adjusted net income (loss), adjusted gross margin,
adjusted gross margin per metric ton, and adjusted EBITDA to
measure our financial performance.
Adjusted Net Income (Loss)
We define adjusted net income (loss) as net income (loss)
excluding acquisition and integration costs and other, effects of
COVID-19 and the war in Ukraine, Support Payments, Executive
separation, and early retirement of debt obligation. We believe
that adjusted net income (loss) enhances investors’ ability to
compare the past financial performance of our underlying operations
with our current performance separate from certain items of gain or
loss that we characterize as unrepresentative of our ongoing
operations.
Adjusted Gross Margin and Adjusted Gross Margin per Metric
Ton
We define adjusted gross margin as gross margin excluding loss
on disposal of assets and impairment of assets, non-cash
equity-based compensation and other expense, depreciation and
amortization, changes in unrealized derivative instruments related
to hedged items, acquisition and integration costs and other,
effects of COVID-19 and the war in Ukraine, and Support Payments.
We define adjusted gross margin per metric ton as adjusted gross
margin per metric ton of wood pellets sold. We believe adjusted
gross margin and adjusted gross margin per metric ton are
meaningful measures because they compare our revenue-generating
activities to our cost of goods sold for a view of profitability
and performance on a total-dollar and a per-metric ton basis.
Adjusted gross margin and adjusted gross margin per metric ton
primarily will 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 wood
pellet production plants and our production and distribution of
wood pellets.
Adjusted EBITDA
We define adjusted EBITDA as net income (loss) excluding
depreciation and amortization, total interest expense, income tax
expense (benefit), early retirement of debt obligation, non-cash
equity-based compensation and other expense, loss on disposal of
assets and impairment of assets, changes in unrealized derivative
instruments related to hedged items, acquisition and integration
costs and other, effects of COVID-19 and the war in Ukraine,
Support Payments, and Executive separation. 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.
Limitations of Non-GAAP Financial Measures
Adjusted net income (loss), adjusted gross margin, adjusted
gross margin per metric ton, and adjusted EBITDA are not financial
measures presented in accordance with GAAP. We believe that the
presentation of these non-GAAP financial measures provides useful
information to investors in assessing our financial condition and
results of operations. Our non-GAAP financial measures should not
be considered as alternatives to the most directly comparable GAAP
financial measures. Each of these non-GAAP financial measures has
important limitations as an analytical tool because they exclude
some, but not all, items that affect the most directly comparable
GAAP financial measures. You should not consider adjusted net
income (loss), adjusted gross margin, adjusted gross margin per
metric ton, or adjusted EBITDA in isolation or as substitutes for
analysis of our results as reported in accordance with GAAP.
Our definitions of these non-GAAP financial measures may not be
comparable to similarly titled measures of other companies, thereby
diminishing their utility.
The following tables present a reconciliation of adjusted net
loss, adjusted gross margin, adjusted gross margin per metric ton,
and adjusted EBITDA to the most directly comparable GAAP financial
measures, as applicable, for each of the periods indicated.
Three Months Ended March
31,
2023
2022
(in thousands)
Reconciliation of net loss to adjusted net
loss:
Net loss
$
(116,859
)
$
(45,307
)
Acquisition and integration costs and
other
—
10,778
Effects of COVID-19
—
15,189
Effects of the war in Ukraine
—
5,051
Support Payments
2,050
7,849
Adjusted net loss
$
(114,809
)
$
(6,440
)
Three Months Ended March
31,
2023
2022
(in thousands, except per
metric ton)
Reconciliation of gross margin to adjusted
gross margin and adjusted gross margin per metric ton:
Gross margin(1)
$
(20,735
)
$
(261
)
Loss on disposal of assets and impairment
of assets
3,797
901
Non-cash equity-based compensation and
other expense
3,255
734
Depreciation and amortization
32,973
21,306
Changes in unrealized derivative
instruments
(2
)
(1,610
)
Acquisition and integration costs and
other
—
2,801
Effects of COVID-19
—
13,942
Effects of the war in Ukraine
—
5,051
Support Payments
2,050
7,849
Adjusted gross margin
$
21,338
$
50,713
Metric tons sold
1,190
1,096
Adjusted gross margin per metric ton
$
17.93
$
46.27
(1)Gross margin is defined as net revenue
less cost of goods sold (including related depreciation and
amortization and loss on disposal of assets).
Three Months Ended March
31,
2023
2022
(in thousands)
Reconciliation of net loss to adjusted
EBITDA:
Net loss
$
(116,859
)
$
(45,307
)
Add:
Depreciation and amortization
34,674
22,559
Total interest expense
63,766
9,970
Income tax expense
12
16
Non-cash equity-based compensation and
other expense
16,006
11,154
Loss on disposal of assets and impairment
of assets
3,797
901
Changes in unrealized derivative
instruments
(2
)
(1,610
)
Acquisition and integration costs and
other
—
10,778
Effects of COVID-19
—
15,189
Effects of the war in Ukraine
—
5,051
Support Payments
2,050
7,849
Adjusted EBITDA
$
3,444
$
36,550
The following table provides a reconciliation of the estimated
range of adjusted EBITDA to the estimated range of net income
(loss) for Enviva for the quarters ending June 30, 2023, September
30, 2023, and December 31, 2023 (in millions):
Three Months Ending June 30,
2023
Three Months Ending September
30, 2023
Three Months Ending December
31, 2023
Estimated net income (loss)
(60) - (50)
(25) - (5)
20 - 40
Add:
Depreciation and amortization
35
35
35
Interest expense
20
20
20
Interest expense on repurchase
accounting
15
30
25
Income tax expense
—
—
—
Non-cash equity-based compensation
expense
10
10
10
Loss on disposal of assets
—
—
—
Changes in unrealized derivative
instruments
—
—
—
Support Payments
—
—
—
Estimated adjusted EBITDA
20 - 30
70 - 90
110 - 130
The following table provides a reconciliation of the estimated
range of adjusted EBITDA to the estimated range of net income
(loss) for Enviva for the twelve months ending December 31, 2023
(in millions):
Twelve Months Ending December
31, 2023
Estimated net income (loss)
(186) - (136)
Add:
Depreciation and amortization
140
Interest expense
84
Interest expense on repurchase
accounting
110
Income tax expense
0
Non-cash equity-based compensation
expense
46
Loss on disposal of assets
4
Changes in unrealized derivative
instruments
0
Support Payments
2
Estimated adjusted EBITDA
$ 200 - 250
Cautionary Note Concerning Forward-Looking Statements
The information included herein and in any oral statements made
in connection herewith include “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of present or
historical fact included herein, regarding Enviva’s strategy,
future operations, financial position, estimated revenues and
losses, projected costs, prospects, plans, and objectives of
management are forward-looking statements. When used herein,
including any oral statements made in connection herewith, the
words “could,” “should,” “will,” “may,” “believe,” “anticipate,”
“intend,” “estimate,” “expect,” “project,” the negative of such
terms, and other similar expressions are intended to identify
forward-looking statements, although not all forward-looking
statements contain such identifying words. These forward-looking
statements are based on management’s current expectations and
assumptions about future events and are based on currently
available information as to the outcome and timing of future
events. Except as otherwise required by applicable law, Enviva
disclaims any duty to revise or update any forward-looking
statements, all of which are expressly qualified by the statements
in this section, to reflect events or circumstances after the date
hereof. Enviva cautions you that these forward-looking statements
are subject to risks and uncertainties, most of which are difficult
to predict and many of which are beyond the control of Enviva.
These risks 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 wood pellet production plants or
deep-water marine terminals; (ii) the prices at which we are able
to sell or source our products; (iii) our ability to capitalize on
higher spot prices and contract flexibility in the future, which is
subject to fluctuations in pricing and demand; (iv) the possibility
that current market prices may not continue and therefore, in the
future, we may not be able to make spot sales and may need to make
spot purchases at higher prices; (v) our ability to successfully
negotiate, complete, and integrate acquisitions, including the
associated contracts, or to realize the anticipated benefits of
such acquisitions; (vi) failure of our customers, vendors, and
shipping partners to pay or perform their contractual obligations
to us; (vii) our inability to successfully execute our project
development, capacity, expansion, and new facility construction
activities on time and within budget; (viii) the creditworthiness
of our contract counterparties; (ix) the amount of low-cost wood
fiber that we are able to procure and process, which could be
adversely affected by, among other things, disruptions in supply or
operating or financial difficulties suffered by our suppliers; (x)
changes in the price and availability of natural gas, coal, or
other sources of energy; (xi) changes in prevailing economic and
market conditions; (xii) inclement or hazardous environmental
conditions, including extreme precipitation, temperatures, and
flooding; (xiii) fires, explosions, or other accidents; (xiv)
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, heat, or combined heat and power generators;
(xv) changes in domestic and foreign tax laws and regulations
affecting the taxation of our business and investors; (xvi) changes
in the regulatory treatment of biomass in core and emerging
markets; (xvii) our inability to acquire or maintain necessary
permits or rights for our production, transportation, or
terminaling operations; (xviii) changes in the price and
availability of transportation; (xix) changes in foreign currency
exchange or interest rates, and the failure of our hedging
arrangements to effectively reduce our exposure to related risks;
(xx) risks related to our indebtedness, including the levels and
maturity date of such indebtedness; (xxi) our failure to maintain
effective quality control systems at our wood pellet production
plants and deep-water marine terminals, which could lead to the
rejection of our products by our customers; (xxii) changes in the
quality specifications for our products that are required by our
customers; (xxiii) labor disputes, unionization, or similar
collective actions; (xxiv) our inability to hire, train, or retain
qualified personnel to manage and operate our business and newly
acquired assets; (xxv) the possibility of cyber and malware
attacks; (xxvi) our inability to borrow funds and access capital
markets; (xxvii) viral contagions or pandemic diseases; (xxviii)
changes to our leadership and management team; (xxix) overall
domestic and global political and economic conditions, including
the imposition of tariffs or trade or other economic sanctions,
political instability or armed conflict, including the ongoing
conflict in Ukraine, rising inflation levels and government efforts
to reduce inflation, or a prolonged recession; and (xxx) risks
related to our capital allocation plans and share repurchase
program, including the risk that the share repurchase program could
increase volatility and fail to enhance stockholder value and the
possibility that the share repurchase program may be suspended or
discontinued.
Should one or more of the risks or uncertainties described
herein and in any oral statements made in connection therewith
occur, or should underlying assumptions prove incorrect, actual
results and plans could different materially from those expressed
in any forward-looking statements. Additional information
concerning these and other factors that may impact Enviva’s
expectations and projections can be found in Enviva’s periodic
filings with the SEC. Enviva’s SEC filings are available publicly
on the SEC’s website at www.sec.gov.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230503006028/en/
Kate Walsh Vice President, Investor Relations
Investor.Relations@envivabiomass.com
Enviva (NYSE:EVA)
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