Enviva Partners, LP Reports Financial Results for Third Quarter 2019 and Announces Seventeenth Consecutive Distribution Increase

BETHESDA, Md.–(BUSINESS WIRE)–Enviva Partners, LP (NYSE: EVA) (“Enviva,” the “Partnership,” or “we”) today reported financial and operating results for the third quarter of 2019.

Highlights:

  • For the third quarter of 2019, the Partnership reported net income of $8.9 million and adjusted net income of $17.4 million, as compared to net income of $13.4 million and adjusted net income of $7.9 million for the third quarter of 2018
  • For the third quarter of 2019, the Partnership reported our highest ever quarterly adjusted EBITDA of $39.4 million, as compared to adjusted EBITDA of $30.2 million for the third quarter of 2018
  • The Partnership declared a quarterly distribution of $0.67 per unit, its seventeenth consecutive quarterly increase, at a distribution coverage ratio of 1.20 times

“As expected, our financial and operating performance for the third quarter was a significant step up from the second quarter, and with the ramp-up of the Hamlet plant, we continue to believe the fourth quarter will be a significant step up from the third,” said John Keppler, Chairman and Chief Executive Officer of Enviva. “We also are very excited that our sponsor has commenced construction of the fully contracted Lucedale production plant and the related Pascagoula terminal, part of the newest cluster of assets we expect to be made available to the Partnership, which should pave the way for the Partnership to double its expected 2019 adjusted EBITDA over the next few years.”

Third Quarter Financial Results

For the third quarter of 2019, we generated net revenue of $157.4 million, an increase of 9.2 percent, or $13.3 million, from the corresponding quarter of 2018. Net revenue included product sales of $155.2 million on 811,000 metric tons of wood pellets sold during the third quarter of 2019, as compared to $142.5 million on 762,000 metric tons of wood pellets sold during the corresponding quarter of 2018. The $12.6 million increase in product sales was primarily attributable to a 6.4 percent increase in sales volumes. Other revenue was $2.2 million for the third quarter of 2019, as compared to $1.6 million for the corresponding quarter of 2018.

For the third quarter of 2019, we generated gross margin of $26.5 million, as compared to $30.1 million for the corresponding period in 2018, a decrease of approximately $3.7 million. However, gross margin for the third quarter of 2018 included insurance recoveries, net of expenses incurred, related to the Chesapeake Incident (as defined below). Excluding such amounts, gross margin for the third quarter of 2019 would have been $8.4 million higher than for the third quarter of 2018, primarily as the result of an increase in sales volumes.

Adjusted gross margin was $41.0 million for the third quarter of 2019, as compared to $35.6 million for the third quarter of 2018. Adjusted gross margin per metric ton was $50.56 for the third quarter of 2019, as compared to adjusted gross margin per metric ton of $46.73 for the third quarter of 2018. The increase in adjusted gross margin per metric ton was principally due to greater fixed cost absorption resulting in lower average costs per metric ton due to the Partnership’s higher production volumes and partially due to MSA Fee Waivers (as defined below).

For the third quarter of 2019, net income was $8.9 million, as compared to net income of $13.4 million for the third quarter of 2018. Adjusted net income, which excludes the full financial impact of the Chesapeake Incident and the Hurricane Events (each as defined below) and includes the impact of certain non-cash waivers of fees for management services provided to us by our sponsor (the “MSA Fee Waivers”), was $17.4 million for the third quarter of 2019, as compared to $7.9 million for the third quarter of 2018. Adjusted EBITDA for the third quarter of 2019 was our highest ever at $39.4 million, as compared to $30.2 million for the corresponding quarter of 2018. The increase was primarily due to higher sales volumes and the MSA Fee Waivers. Distributable cash flow, prior to any distributions attributable to incentive distribution rights paid to our general partner, was $30.0 million for the third quarter of 2019, as compared to $20.7 million for the corresponding quarter of 2018.

As of September 30, 2019, the Partnership had $2.4 million of cash on hand and $185.0 million of borrowings outstanding under its senior secured revolving credit facility. The $18.5 million increase in revolving borrowings in the third quarter of 2019 is due primarily to funding of capital expenditures associated with the Partnership’s wood pellet production plant in Hamlet, North Carolina (the “Hamlet plant”) and the Partnership’s previously announced projects (the “Mid-Atlantic Expansions”) to increase the aggregate production capacity of its wood pellet production plants in Northampton, North Carolina and Southampton, Virginia by approximately 400,000 metric tons per year (“MTPY”).

Distribution

The board of directors of our general partner (the “Board”) declared a distribution of $0.67 per common unit for the third quarter of 2019. This distribution represents the seventeenth consecutive distribution increase since the Partnership’s initial public offering. The Partnership’s distributable cash flow, net of amounts attributable to incentive distribution rights paid to our general partner, of $26.9 million for the third quarter of 2019 covers the distribution for the quarter at 1.20 times. The quarterly distribution will be paid on Friday, November 29, 2019, to unitholders of record as of the close of business on Friday, November 15, 2019.

Outlook and Guidance

The Partnership now expects full-year 2019 net income to be in the range of $15.3 million to $20.3 million, adjusted EBITDA to be in the range of $140.7 million to $145.7 million, and distributable cash flow to be in the range of $94.0 million to $99.0 million, prior to any distributions attributable to incentive distribution rights paid to our general partner. The Partnership expects adjusted EBITDA and distributable cash flow for the fourth quarter of 2019 to be higher than for the third quarter of 2019. The Partnership continues to expect to distribute at least $2.65 per common unit for full-year 2019 and between $2.87 and $2.97 per common unit for full-year 2020.

The guidance amounts provided above, including the distribution expectations, include the benefit of our purchase of the sponsor’s interest in its first joint venture, which owns the Hamlet plant, in April 2019 (the “Hamlet Transaction”) and reflect the associated financing activities, but do not include the impact of any additional acquisitions by the Partnership from the sponsor, the sponsor’s development joint venture (the “Second JV”), or third parties, or any additional recoveries related to the Chesapeake Incident and the Hurricane Events (each as defined below). The Partnership’s quarterly income and cash flow are subject to seasonality and the mix of customer shipments made, which vary from period to period. When determining the distribution for a quarter, the Board evaluates the Partnership’s distribution coverage ratio on an annual basis and considers the expected distributable cash flow, net of expected amounts attributable to incentive distribution rights paid to our general partner.

“With our increased visibility into the year-end shipping schedule, we continue to expect to finish the year with further strong, quarter-over-quarter improvements in adjusted EBITDA and distributable cash flow. As such, we narrowed the ranges of our previously provided adjusted EBITDA and distributable cash flow guidance and reaffirm our distribution guidance for 2019 and 2020,” said Shai Even, Chief Financial Officer of Enviva. “It was also nice to see our track record and continued growth in scale and diversification result in the recent credit rating upgrade, which brings our corporate rating to BB- / Ba3 from all three credit rating agencies.”

Market and Contracting Update

Our strategy is to fully contract the wood pellet production from our plants under long-term, take-or-pay off-take contracts. The Partnership’s current production capacity is matched with a portfolio of firm off-take contracts that has a total weighted-average remaining term of 10.4 years and a total product sales backlog of $9.5 billion as of October 1, 2019. Assuming all volumes under the firm and contingent off-take contracts held by our sponsor and the Second JV, which we expect to have the opportunity to acquire, were included, our total weighted-average remaining term and product sales backlog would increase to 13.3 years and $17.8 billion, respectively.

Our sponsor’s previously announced 10-year, take-or-pay off-take contract to supply Mitsubishi Corporation with 210,000 MTPY of wood pellets is now firm. Deliveries under the contract are expected to commence in 2022.

At the multinational level, on August 8, 2019, the United Nations Intergovernmental Panel on Climate Change (“IPCC”), which continues to drive climate policies around the globe, released a Special Report on Climate Change and Land (the “SRCCL”). This report pointed out that a sustainable future depends on a diverse managed forest products industry that includes sawtimber, pulpwood, and bioenergy. This is a reiteration of IPCC’s long-standing view, as expressed in the October 2018 Special Report on Global Warming of 1.5 °C, that biomass and bioenergy must play a key role under every single pathway to achieve the goal of limiting climate change to 1.5-degrees Celsius. The International Renewable Energy Agency (“IRENA”), in its recently published Global Energy Transformation: A Roadmap to 2050 report (the “IRENA Roadmap”), not only reiterated IPCC’s view on the critical role of biomass, but also called for a tripling of the amount of modern biomass used for energy production from 5 percent today to 16 percent by 2050, as it laid out its own proposed global pathway to a carbon-neutral and renewable future by 2050.

At the recently concluded United Nations Climate Action Summit 2019 (the “2019 UN Climate Summit”), 65 countries and major sub-national economies committed to cut greenhouse gas (“GHG”) emissions to “net-zero” by 2050. Heads of state from many countries where our existing and potential customers are located, including the Netherlands, Germany, and South Korea, announced or reiterated concrete coal phase-out plans and actions. The global commitment to phase out coal, limit the impact of climate change, and achieve net-zero GHG emissions underline the continued strong growth expected in global demand for industrial-grade wood pellets, which the Partnership and its sponsor expect will underpin additional long-term off-take contracts. Below are a few noteworthy market developments:

  • In Poland, the government announced dedicated funds for the conversion of coal-fired municipal heating plants to biomass fuel to support the country’s efforts to reduce carbon emissions. Local experts have estimated that up to one-third of the more than 400 municipal heating plants will either fully convert to or co-fire biomass fuel, driving demand for more than 3.5 million MTPY of biomass.
  • In July 2019, the Lower House of the Netherlands passed the draft law to implement the government’s previously announced goal to phase-out all coal-fired power generation by 2030. Under the phase-out law, four coal-fired power plants, with total generation capacity of approximately 4.0 GWs, must either switch to an alternative fuel or face shut-downs by 2030. To avoid the shut-downs, these power plants are developing or commissioning biomass co-firing, which is expected to drive a significant increase in demand for industrial wood pellets in the Netherlands from just 350,000 metric tons in 2018 to over 3 million MTPY in 2021. The phase-out law currently is being reviewed in the Upper House of the Dutch parliament.
  • At the 2019 UN Climate Summit, Germany committed to achieving carbon neutrality by 2050. Meanwhile, the German government released a new climate change action plan with an estimated $60 billion package of climate policy support. In addition, the German government continues to progress the implementation of the Commission on Growth, Structural Economic Change and Employment’s (“Coal Commission”) recommendations. The laws regarding the gradual coal phase-out and the shut-down of coal-fired power generation assets are expected to be drafted in 2019 and come into force by early 2020. We expect these developments to drive demand for biomass in Germany.
  • The government of South Korea announced at the 2019 UN Climate Summit that it will shut down ten coal-fired power plants by 2022, which may drive a significant increase in biomass demand. 

Sustainability

More than 100 domestic and international scientists and university experts recently issued a letter in which they concluded that the “carbon benefits of sustainable forest biomass energy are well established” and urged policy makers around the world to base climate change policy decisions on current, consensus peer-reviewed science, rather than studies reliant on arguments that “significantly distort or ignore” the facts.

The letter referenced the SRCCL, in which the IPCC concluded that “in the long term, a sustainable forest management strategy aimed at maintaining or increasing forest carbon stocks, while producing an annual sustained yield of timber, fiber, or energy from the forest, will generate the largest sustained mitigation benefit.” Consistent with the IPCC’s recommendations, Enviva’s sustainable practices, as outlined in our sponsor’s Responsible Sourcing Policy and through the Track & Trace® program, continue to contribute to increasing forest carbon storage in the Southeastern United States. Enviva and our sponsor’s activities contribute to a robust market for forest products, which in turn contributed to the nearly 20 percent increase in forest inventory in our sourcing regions since 2008.

Finally, our sponsor recently completed audits of all of the Partnership and sponsor’s production facilities for third-party sustainability certifications and confirmed that all these facilities continue to fully meet or exceed the standards for Sustainable Forestry Initiative (“SFI”) Fiber Sourcing, SFI Chain of Custody, and Programme for the Endorsement of Forest Certification, as well as the Forest Stewardship Council and the Sustainable Biomass Program.

Partnership Development Activities

The Hamlet plant continues to ramp up production, and the Partnership continues to expect the plant to exit 2019 with a production run-rate of approximately 500,000 MTPY and to reach its nameplate production capacity of approximately 600,000 MTPY by the end of 2020.

The Mid-Atlantic Expansions are progressing and the Partnership expects to complete the construction activities in the first half of 2020 with startup thereafter, subject to receiving necessary permits.

Sponsor Development Activities

The Second JV has commenced construction of its deep-water marine terminal in Pascagoula, Mississippi (the “Pascagoula terminal”) and its wood pellet production plant in Lucedale, Mississippi (the “Lucedale plant”). In addition, our sponsor recently executed a project agreement with the State of Alabama and applied for an air permit to construct a potential wood pellet production plant in Epes, Alabama (the “Epes plant”). Subject to receiving the necessary permits, our sponsor expects to be ready to commence construction of the Epes plant in the first half of 2020. Production from the Epes plant is expected to be transported by barge via the Tennessee-Tombigbee River to the Pascagoula terminal. Our sponsor continues to evaluate additional sites in Alabama and Mississippi, the production of which would be exported through the Pascagoula terminal.

The Second JV continues to invest incremental capital in its wood pellet production plant in Greenwood, South Carolina (the “Greenwood plant”). The Partnership currently purchases wood pellets produced by the Greenwood plant. The Second JV expects to increase the Greenwood plant’s production capacity from 500,000 MTPY to 600,000 MTPY, subject to receiving necessary permits.

The Partnership expects to have the opportunity to acquire these assets and related off-take contracts from its sponsor and the Second JV.

“The several million metric tons per year of long-term contracts with Japanese customers that underpin the $8.3 billion revenue backlog held by our sponsor and its joint venture will require the production and export capacity of four plants and an export terminal,” said John Keppler, Chairman and Chief Executive Officer of Enviva. “The assets include the currently operating Greenwood plant, the Lucedale plant, the Epes plant, one additional production plant in the Pascagoula cluster, and the Pascagoula terminal itself, the potential drop-downs of which we believe will help double the Partnership’s expected 2019 adjusted EBITDA over the next few years. This expected growth does not include the potential additional impact of our sponsor’s current off-take contract pipeline, which exceeds the existing, combined contract backlog of the Partnership and its sponsor.”

Presentation of Financial Results

In addition to presenting our financial results in accordance with accounting principles generally accepted in the United States (“GAAP”), in certain cases we have provided financial results excluding the financial impact of the previously reported fire incident at the Partnership’s marine export terminal in Chesapeake, Virginia (the “Chesapeake Incident”), which occurred during the first quarter of 2018, and Hurricanes Florence and Michael (the “Hurricane Events”), which occurred during the second half of 2018.

Conference Call

We will host a conference call with executive management related to our third quarter 2019 results and a more detailed market update at 10:00 a.m. (Eastern Time) on Thursday, October 31, 2019. Information on how interested parties may listen to the conference call is available on the Investor Relations page of our website (www.envivabiomass.com). A replay of the conference call will be available on our website after the live call concludes.

About Enviva Partners, LP

Enviva Partners, LP (NYSE: EVA) is a publicly traded master limited partnership that aggregates a natural resource, wood fiber, and processes it into a transportable form, wood pellets. The Partnership sells a significant majority of its wood pellets through long-term, take-or-pay off-take contracts with creditworthy customers in the United Kingdom and Europe. The Partnership owns and operates seven plants with a combined production capacity of over 3.5 million metric tons of wood pellets per year in Virginia, North Carolina, Mississippi, and Florida. In addition, the Partnership exports wood pellets through its marine terminals at the Port of Chesapeake, Virginia and the Port of Wilmington, North Carolina and from third-party marine terminals in Mobile, Alabama and Panama City, Florida.

To learn more about Enviva Partners, LP, please visit our website at www.envivabiomass.com.

Notice

This press release is intended to be a qualified notice under Treasury Regulation Section 1.1446-4(b)(4). Brokers and nominees should treat 100 percent of the Partnership’s distributions to non-U.S. investors as being attributable to income that is effectively connected with a United States trade or business. Accordingly, the Partnership’s distributions to non-U.S. investors are subject to federal income tax withholding at the highest applicable effective tax rate.

Financial Statements

 

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except number of units)

 

 

September 30,

2019

 

December 31,

2018

 

 

(unaudited)

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

2,357

 

 

$

2,460

 

Accounts receivable

 

49,643

 

 

54,794

 

Insurance receivables

 

 

 

5,140

 

Related-party receivables

 

 

 

1,392

 

Inventories

 

42,349

 

 

31,490

 

Prepaid expenses and other current assets

 

3,998

 

 

2,235

 

Total current assets

 

98,347

 

 

97,511

 

Property, plant and equipment – in service, net

 

683,524

 

 

542,635

 

Construction in progress

 

60,924

 

 

14,393

 

Total property, plant and equipment, net

 

744,448

 

 

557,028

 

Operating lease right-of-use assets, net

 

33,379

 

 

 

Goodwill

 

85,615

 

 

85,615

 

Other long-term assets

 

7,326

 

 

8,616

 

Total assets

 

$

969,115

 

 

$

748,770

 

Liabilities and Partners’ Capital

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

21,512

 

 

$

15,551

 

Related-party payables and accrued liabilities

 

9,119

 

 

28,225

 

Deferred consideration for drop-downs due to related party

 

40,000

 

 

74,000

 

Accrued and other current liabilities

 

48,318

 

 

41,400

 

Current portion of interest payable

 

13,209

 

 

5,434

 

Current portion of long-term debt and finance lease obligations

 

4,490

 

 

2,722

 

Total current liabilities

 

136,648

 

 

167,332

 

Long-term debt and finance lease obligations

 

543,589

 

 

429,933

 

Long-term operating lease liabilities

 

33,725

 

 

 

Long-term interest payable

 

1,100

 

 

1,010

 

Other long-term liabilities

 

2,170

 

 

3,779

 

Total liabilities

 

717,232

 

 

602,054

 

Commitments and contingencies

 

 

 

 

Partners’ capital:

 

 

 

 

Limited partners:

 

 

 

 

Common unitholders—public (19,870,436 and 14,573,452 units issued and outstanding at September 30, 2019 and December 31, 2018, respectively)

 

314,258

 

 

207,612

 

Common unitholder—sponsor (13,586,375 and 11,905,138 units issued and outstanding at September 30, 2019 and December 31, 2018, respectively)

 

92,286

 

 

72,352

 

General partner (no outstanding units)

 

(106,530

)

 

(133,687

)

Accumulated other comprehensive income

 

61

 

 

439

 

Total Enviva Partners, LP partners’ capital

 

300,075

 

 

146,716

 

Noncontrolling interest

 

(48,192

)

 

 

Total partners’ capital

 

251,883

 

 

146,716

 

Total liabilities and partners’ capital

 

$

969,115

 

 

$

748,770

 

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per unit amounts)

(Unaudited)

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2019

 

2018

 

2019

 

2018

Product sales

$

155,188

 

 

$

142,541

 

 

$

478,989

 

 

$

398,031

 

Other revenue (1)

2,217

 

 

1,607

 

 

4,864

 

 

7,037

 

Net revenue

157,405

 

 

144,148

 

 

483,853

 

 

405,068

 

Cost of goods sold (1)

117,993

 

 

104,351

 

 

395,861

 

 

331,356

 

Depreciation and amortization

12,946

 

 

9,678

 

 

35,112

 

 

28,800

 

Total cost of goods sold

130,939

 

 

114,029

 

 

430,973

 

 

360,156

 

Gross margin

26,466

 

 

30,119

 

 

52,880

 

 

44,912

 

General and administrative expenses

1,314

 

 

3,201

 

 

9,179

 

 

9,778

 

Related-party management services agreement fee

6,486

 

 

4,114

 

 

19,488

 

 

11,628

 

Total general and administrative expenses

7,800

 

 

7,315

 

 

28,667

 

 

21,406

 

Income from operations

18,666

 

 

22,804

 

 

24,213

 

 

23,506

 

Other income (expense):

 

 

 

 

 

 

 

Interest expense

(9,872

)

 

(9,445

)

 

(28,701

)

 

(27,137

)

Other income (expense), net

58

 

 

(3

)

 

616

 

 

1,196

 

Total other expense, net

(9,814

)

 

(9,448

)

 

(28,085

)

 

(25,941

)

Net income (loss)

$

8,852

 

 

$

13,356

 

 

$

(3,872

)

 

$

(2,435

)

Net income (loss) per limited partner common unit:

 

 

 

 

 

 

 

Basic

$

0.15

 

 

$

0.45

 

 

$

(0.44

)

 

$

(0.25

)

Diluted

$

0.15

 

 

$

0.43

 

 

$

(0.44

)

 

$

(0.25

)

Net loss per limited partner subordinated unit:

 

 

 

 

 

 

 

Basic and diluted

$

 

 

$

 

 

$

 

 

$

(0.25

)

Weighted-average number of limited partner units outstanding:

 

 

 

 

 

 

 

Common—basic

33,457

 

 

26,477

 

 

31,230

 

 

19,866

 

Common—diluted

33,457

 

 

27,478

 

 

31,230

 

 

19,866

 

Subordinated—basic and diluted

 

 

 

 

 

 

6,541

 

 

 

 

 

 

 

 

 

(1) See Note 13, Related-Party Transactions

 

 

 

 

 

 

 

Contacts

Raymond Kaszuba
(240) 482-3856
ir@envivapartners.com

Read full story here

error: Content is protected !!