Enviva Partners, LP Reports Financial Results for First Quarter 2019 and Announces Fifteenth 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 first quarter of
2019.

Highlights:

  • The Partnership declared a quarterly distribution of $0.645 per
    unit, its fifteenth consecutive quarterly increase, and announced it
    expects to distribute at least $2.65 per common unit for full-year 2019
  • For the first quarter of 2019, the Partnership reported a net loss
    of $8.9 million, as compared to a net loss of $19.3 million for the
    first quarter of 2018, and an adjusted EBITDA increase to $21.6
    million, as compared to adjusted EBITDA of $17.6 million for the first
    quarter of 2018
  • The Partnership executed a new off-take contract with RWE Supply &
    Trading GmbH to supply 1,000,000 metric tons over a five-year period
    commencing in 2020
  • Following completion of the previously announced Hamlet
    Transaction, the Partnership is finalizing construction of the Hamlet
    plant and has begun commissioning major process islands

“Our plant and port facilities delivered operating and financial results
consistent with our expectations for what is historically our most
seasonally challenging quarter,” said John Keppler, Chairman and Chief
Executive Officer of Enviva. “As we progress through the second quarter
and into the back half of the year, we are excited about the opportunity
to bring our new Hamlet plant online and for our sponsor to begin
construction on the next set of fully contracted assets in our Port of
Pascagoula cluster. With its confidence in the underlying business and
the Partnership’s growth trajectory, the Board declared a distribution
of $0.645 per unit, our 15th consecutive quarterly increase
since our IPO.”

First Quarter Financial Results

For the first quarter of 2019, we generated net revenue of $158.4
million, an increase of 26.4 percent, or $33.0 million, from the
corresponding quarter of 2018. Included in net revenue were product
sales of $156.6 million on 843,000 metric tons of wood pellets sold
during the first quarter of 2019, as compared to $122.3 million on
648,000 metric tons of wood pellets sold during the corresponding
quarter of 2018. The $34.3 million increase in product sales was
primarily attributable to a 30.1 percent increase in sales volumes,
partially offset by a decrease in pricing due primarily to customer
contract mix. Other revenue was $1.8 million for the first quarter of
2019, as compared to $3.0 million for the corresponding quarter of 2018.
The decrease was primarily due to lower fees received from off-take
customers requesting scheduling accommodations.

For the first quarter of 2019, we generated gross margin of $9.9
million, as compared to $(5.0) million for the corresponding period in
2018, an increase of approximately $14.9 million. Adjusted gross margin
was $27.6 million for the first quarter of 2019, as compared to $21.6
million for the first quarter of 2018. Adjusted gross margin per metric
ton was $32.73 for the first quarter of 2019, as compared to adjusted
gross margin per metric ton of $33.40 for the first quarter of 2018.
Adjusted gross margin per metric ton decreased due to customer contract
mix and higher production costs associated with more significant and
longer lasting seasonal factors.

For the first quarter of 2019, net loss was $8.9 million, as compared to
a net loss of $19.3 million for the first quarter of 2018. Adjusted
EBITDA for the first quarter of 2019 was $21.6 million, as compared to
$17.6 million for the corresponding quarter of 2018. The increase was
primarily due to higher sales volumes, partially offset by lower pricing
due to customer contract mix and higher production costs associated with
more significant and longer lasting seasonal factors. Distributable cash
flow, prior to any distributions attributable to incentive distribution
rights paid to our general partner, was $11.8 million for the first
quarter of 2019, as compared to $8.8 million for the corresponding
quarter of 2018.

As of March 31, 2019, the Partnership had $106.7 million of cash on hand
and $119.0 million of borrowings outstanding under its senior secured
revolving credit facility. The $46.0 million increase in revolving
borrowings in the first quarter of 2019 is due primarily to funding of
capital expenditures and timing of changes in working capital.

Distribution

The board of directors of our general partner (the “Board”) declared a
distribution of $0.645 per common unit for the first quarter of 2019.
This distribution represents the fifteenth consecutive distribution
increase since the Partnership’s initial public offering. The
Partnership’s distributable cash flow, net of amounts attributable to
incentive distribution rights paid to our general partner, of $9.8
million for the first quarter of 2019 covers the distribution for the
quarter at 0.51 times. The distribution coverage ratio for the first
quarter of 2019 was impacted by the common units issued in the
Registered Direct Offering discussed below. The quarterly distribution
will be paid on Wednesday, May 29, 2019, to unitholders of record as of
the close of business on Monday, May 20, 2019.

Acquisition and Financing Activities

The Partnership issued an aggregate of 3,508,778 common units to
investors for net proceeds of approximately $100.0 million in a
registered direct offering in March of 2019 (the “Registered Direct
Offering”).

Moreover, as previously announced, on April 1, 2019, the Partnership
made the second and final payment (the “Second Payment”) of $74.0
million in deferred consideration, consisting of approximately $24.0
million in cash and the issuance of 1,691,627 common units, for its
October 2017 acquisition of the deep-water marine terminal in
Wilmington, North Carolina from Enviva Wilmington Holdings, LLC (the
“First JV”), the sponsor’s first development joint venture. In
connection with the Second Payment, the Partnership commenced the
associated terminal services agreement to handle contracted volumes from
the Hamlet plant (the “Hamlet Throughput”).

In addition, on April 2, 2019, the Partnership completed the purchase
(the “Hamlet Transaction”) of the sponsor’s interest in the First JV and
related credit facility for total consideration of $165.0 million. The
Partnership will consolidate the financial results of the First JV. The
First JV owns a wood pellet production plant under construction in
Hamlet, North Carolina (the “Hamlet plant”) and a firm, 15-year
take-or-pay off-take contract (the “MGT contract”) to supply MGT Power
Ltd.’s Tees Renewable Energy Plant with nearly one million metric tons
per year (“MTPY”) of wood pellets, following a ramp period. The
Partnership made an initial payment for the Hamlet Transaction of $75.0
million consisting of $25.0 million in cash and 1,681,237 common units
at closing and will pay an additional $50.0 million upon commencement of
commercial operations (“COD”) of the Hamlet plant and $40.0 million upon
the later of COD and January 2, 2020. COD of the Hamlet plant is
expected to occur in June 2019.

The Partnership issued approximately $200.0 million in common units
(6,881,642 common units) in connection with the above transactions as
partial consideration for the Hamlet Transaction and the Second Payment,
as well as partial financing for the Partnership’s previously announced
production capacity expansions at its wood pellet production plants in
Northampton, North Carolina and Southampton, Virginia (the “Mid-Atlantic
Expansions”). The Partnership expects to finance the remaining payments
for the Hamlet Transaction and the additional capital anticipated to be
required to complete construction of the Hamlet plant and the
Mid-Atlantic Expansions with borrowings under its $350 million senior
secured revolving credit facility.

Barclays Capital, Inc., BMO Capital Markets Corp., Citigroup Global
Markets Inc., Goldman Sachs & Co. LLC, HSBC Securities (USA) Inc., J.P.
Morgan Securities LLC, and RBC Capital Markets, LLC advised the
Partnership on its financing activities.

Outlook and Guidance

With the benefit of the Hamlet Transaction and the Hamlet Throughput,
the Partnership expects full-year 2019 net income to be in the range of
$18.9 million to $26.9 million and adjusted EBITDA to be in the range of
$140.7 million to $148.7 million. The estimated range of adjusted EBITDA
for full-year 2019 includes the benefit of approximately $10.7 million
of MSA Fee Waivers discussed below. In our press release issued March
25, 2019, the benefit of the MSA Fee Waivers was not included in
estimated adjusted EBITDA, but was included in estimated distributable
cash flow. The Partnership expects to incur maintenance capital
expenditures of $6.8 million and interest expense net of amortization of
debt issuance costs and original issue discount, before accounting for
the impact from incremental borrowings related to Chesapeake Incident
and Hurricane Events, of $41.9 million. As a result, the Partnership
continues to expect full-year 2019 distributable cash flow to be in the
range of $92.0 million to $100.0 million, prior to any distributions
attributable to incentive distribution rights paid to our general
partner. Similar to previous years, the Partnership expects adjusted
EBITDA and distributable cash flow for the second half of 2019 to be
significantly higher than for the first half of the year. For full-year
2019, the Partnership expects to distribute at least $2.65 per common
unit.

The guidance amounts provided above, including the distribution
expectations, include the benefit of the Hamlet Transaction and the
Hamlet Throughput and reflect the associated financing activities
described above. The guidance amounts provided above do not include the
impact of any additional acquisitions by the Partnership from the
sponsor, its joint venture, or third parties, or any additional
recoveries related to the Chesapeake Incident and the Hurricane Events.
The Partnership’s quarterly income and cash flow are subject to
seasonality and the mix of customer shipments made, which vary from
period to period. When determining the distribution for a quarter, the
Board evaluates the Partnership’s distribution coverage ratio on an
annual basis and considers the expected distributable cash flow, net of
expected amounts attributable to incentive distribution rights paid to
our general partner.

“By issuing $200 million of equity, we have pre-funded the equity
capital needs associated with the Hamlet Transaction and the
Mid-Atlantic Expansions,” said Shai Even, Chief Financial Officer of
Enviva. “The incremental units issued, combined with seasonality impacts
that are associated with the first half of the year, will temporarily
impact our distribution coverage ratio; however, we expect much stronger
adjusted EBITDA and higher distribution coverage for the second half of
2019 and continue to target a distribution coverage ratio of 1.20 times
on a forward-looking annual basis.”

Market and Contracting Update

Our strategy is to fully contract the wood pellet production from our
plants under long-term, take-or-pay off-take contracts. The
Partnership’s current production capacity is matched with a portfolio of
firm off-take contracts that has a total weighted-average remaining term
of 10.5 years and a total product sales backlog of $9.9 billion as of
April 2, 2019. Assuming all volumes under the firm off-take contracts
held by our sponsor and its joint venture, which we expect to have the
opportunity to acquire, were included, our total weighted-average
remaining term and product sales backlog would increase to 12.2 years
and $14.4 billion, respectively.

The Partnership executed a new, firm 5-year take-or-pay off-take
contract with RWE Supply & Trading GmbH to service its growing demand
for wood pellets in the Netherlands and elsewhere. Deliveries under the
contract are expected to commence in 2020 with volumes of 200,000 MTPY
of wood pellets.

In addition, our sponsor’s previously announced 18-year take-or-pay
off-take contract with Sumitomo Corporation to supply wood pellets to a
new biomass power plant located in Fukushima Prefecture in Japan is now
firm, as all conditions precedent to the effectiveness of the contract
have been satisfied. Deliveries under this contract are expected to
commence in 2022 with volumes of 440,000 MTPY of wood pellets.

Several recent developments demonstrate the continued strong growth
expected in global demand for industrial-grade wood pellets:

  • After the finalization of the Renewable Energy Directive II (RED II)
    in December 2018, EU Member States now have until June 2020 to adopt
    it into national law through integrated National Energy and Climate
    Plans. The resulting national policies are expected to provide further
    impetus for new biomass demand across the EU.
  • Pursuant to its final report published in late January 2019, Germany’s
    Commission on Growth, Structural Economic Change and Employment,
    otherwise known as the “Coal Commission,” established the goal of
    decommissioning 12.5 gigawatts (“GWs”) of coal-fired power generation
    capacity by 2022 and more than 25.0 GWs by 2030. The German government
    has declared it will adopt the report’s goals into national law,
    providing a potential driver for utilities in Germany to develop
    industrial-scale biomass projects to convert or replace coal-based
    assets.
  • In Japan, all energy suppliers must achieve a minimum share of 44
    percent of power generation from non-fossil fuel energy sources by
    2030. To achieve and sustain the target energy mix beyond the 20-year
    term of the current feed-in-tariff (“FiT”) scheme, several leading
    firms have started to evaluate biomass projects without FiT scheme
    support.
  • Under South Korea’s Renewable Portfolio Standard, power companies with
    installed power capacity of greater than 500 megawatts must increase
    the mix of renewable energy in their total power generation from 5
    percent in 2018 to 10 percent in 2023. If all dedicated and co-fired
    biomass projects currently planned as a result of this regulatory
    framework were to come online, the country’s demand for industrial
    wood pellets would double by 2023.

Sustainability

Through programs like the Enviva Forest Conservation Fund (the
“Conservation Fund”), our sponsor continues to work with our local
partners to conserve forest land and support forest growth. On March 15,
2019, the Conservation Fund celebrated the dedication of the Salmon
Creek State Natural Area, a 1,000-acre property in Bertie County, North
Carolina. The property contains ecologically significant cypress gum
swamps and bottomland hardwood forests and is also the subject of
archaeological research by the First Colony Foundation. More recently,
on April 24, 2019, the Conservation Fund made a grant to a Virginia
Outdoors Foundation project to acquire and establish a conservation
easement for the “Shand’s Tract,” which contains 8,000 feet of frontage
along the Nottoway River, as well as 425 acres of cypress and tupelo
swampland. In addition to protecting a critical habitat for threatened
species, this project will enhance permanent public access to the
waterway.

The Partnership and the sponsor’s biomass feedstock sourcing practices
play an important role in restoring critical forest ecosystems in the
Southeastern United States, particularly longleaf pine savanna. Longleaf
is an ecosystem that supports dozens of threatened and endangered
species, but it has declined significantly across the Southeastern
coastal plain. In collaboration with the North Carolina Coastal Land
Trust, our sponsor has supported several longleaf restoration projects,
including a recent 25-acre project in Craven County, North Carolina.

Our sponsor also recently released the latest data under its industry
leading Track & Trace® system. Over the same period as the Partnership’s
and our sponsor’s use of wood fiber grew from approximately 2.2 million
metric tons in 2014 to approximately 5.4 million metric tons in 2018,
forest inventory in the Partnership’s and our sponsor’s sourcing region
increased by approximately 160 million metric tons (an 8.1 percent
increase). The data shows that forest inventory growth and therefore
increases in carbon stocks result from the market incentives created by
a healthy forest products industry, of which our company is an integral
part.

Enviva’s wood pellets directly displace coal in power generation and
heating applications, lowering the lifecycle greenhouse gas emissions
profile of utilities and effectively eliminating the harmful trace
element emissions like mercury and arsenic from burning coal. Through
2018, wood pellets supplied by the Partnership and our sponsor have
effectively displaced 14 million metric tons of coal. With existing
contracts running through 2040, the Partnership and our sponsor are on
track to displace another 65 million metric tons of coal.

Partnership Development Activities

The Partnership expects the Hamlet plant to achieve COD in June 2019 and
reach its nameplate production capacity of approximately 600,000 MTPY in
2021. The Partnership is finalizing construction of the Hamlet plant and
has begun commissioning major process islands. As the Partnership
completed the Hamlet Transaction before the Hamlet plant has achieved
COD and the MGT contract has reached full contracted volumes, the
sponsor executed a make-whole agreement with the Partnership pursuant to
which, among other things, the sponsor agreed to (i) guarantee certain
cash flows from the Hamlet plant until June 30, 2020 and (ii) reimburse
construction cost overruns in excess of budgeted capital expenditures
for the Hamlet plant, subject to certain limited exceptions. In
addition, the sponsor has executed agreements with (i) the First JV,
pursuant to which the sponsor will waive certain management services and
other fees that otherwise would be owed by the First JV until the later
of July 1, 2019 and COD and (ii) the Partnership, pursuant to which the
sponsor will waive certain management services and other fees that
otherwise would be owed by the Partnership until June 30, 2020
(collectively, the “MSA Fee Waivers”).

The Mid-Atlantic Expansions also are progressing, as detailed
engineering is nearing completion and major pieces of equipment have
been ordered. The Partnership expects completion of the expansion
activities in the first half of 2020 with startup shortly thereafter,
subject to receiving necessary permits.

Sponsor Development Activities

The sponsor’s second development joint venture (the “Second JV”)
continues to invest incremental capital in its wood pellet production
plant in Greenwood, South Carolina (the “Greenwood plant”). The
Partnership currently purchases wood pellets produced by the Greenwood
plant under a take-or-pay off-take contract. The Second JV expects to
increase the Greenwood plant’s production capacity from 500,000 MTPY to
600,000 MTPY, subject to receiving necessary permits.

The sponsor’s Second JV continues to progress pre-construction
activities for a deep-water marine terminal in Pascagoula, Mississippi
and a wood pellet production plant in Lucedale, Mississippi. In
addition, the sponsor continues to evaluate additional development
locations to support existing and anticipated future off-take contracts,
including sites in Alabama and Mississippi around the planned Pascagoula
terminal, as well as locations near the Partnership’s existing terminals
in the Port of Chesapeake, Virginia and Port of Wilmington, North
Carolina.

The Partnership expects to have the opportunity to acquire these assets
and related off-take contracts from our sponsor and its development
joint venture.

Presentation of Financial Results

In addition to presenting our financial results in accordance with
accounting principles generally accepted in the United States (“GAAP”),
in certain cases we have provided financial results excluding the
financial impact of the previously reported fire incident at the
Partnership’s marine export terminal in Chesapeake, Virginia (the
“Chesapeake Incident”), which occurred during the first quarter of 2018,
and Hurricanes Florence and Michael (the “Hurricane Events”), which
occurred during the second half of 2018. References herein to the
financial impact of the Chesapeake Incident and/or the Hurricane Events
include the approximate costs incurred during the first quarter of 2018
and the first quarter of 2019, as applicable, offset by insurance
recoveries received.

Conference Call

We will host a conference call with executive management related to our
first quarter 2019 results and a more detailed market update at 10:00
a.m. (Eastern Time) on Thursday, May 9, 2019. Information on how
interested parties may listen to the conference call is available on the
Investor Relations page of our website (www.envivabiomass.com).
A replay of the conference call will be available on our website after
the live call concludes.

About Enviva Partners, LP

Enviva Partners, LP (NYSE: EVA) is a publicly traded master limited
partnership that aggregates a natural resource, wood fiber, and
processes it into a transportable form, wood pellets. The Partnership
sells a significant majority of its wood pellets through long-term,
take-or-pay agreements with creditworthy customers in the United Kingdom
and Europe. The Partnership owns and operates six plants with a combined
production capacity of nearly three million metric tons of wood pellets
per year in Virginia, North Carolina, Mississippi, and Florida and is
nearing completion of construction of a seventh plant with a nameplate
production capacity of approximately 600,000 metric tons in Hamlet,
North Carolina. In addition, the Partnership exports wood pellets
through its owned marine terminal assets at the Port of Chesapeake,
Virginia and the Port of Wilmington, North Carolina and from third-party
marine terminals in Mobile, Alabama and Panama City, Florida.

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

Notice

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

Financial Statements

 

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except number of units)

         

March 31,
2019

December 31,
2018
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 106,745 $ 2,460
Accounts receivable 64,904 54,794
Insurance receivables 1,300 5,140
Related-party receivables 13,558 1,392
Inventories 27,999 31,490
Prepaid expenses and other current assets 2,391   2,235  
Total current assets 216,897 97,511
 
Property, plant and equipment, net 560,372 557,028
Operating lease right-of-use assets, net 26,957
Goodwill 85,615 85,615
Other long-term assets 5,939   8,616  
Total assets $ 895,780   $ 748,770  
 
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable $ 7,667 $ 15,551
Related-party payables and accrued liabilities 17,294 28,225
Deferred consideration for Wilmington Drop-Down due to related-party 74,000 74,000
Accrued and other current liabilities 58,656 41,400
Current portion of interest payable 13,020 5,434
Current portion of long-term debt and finance lease obligations 2,762   2,722  
Total current liabilities 173,399 167,332
Long-term debt and finance lease obligations 475,975 429,933
Long-term operating lease liabilities 27,730
Long-term interest payable 1,040 1,010
Other long-term liabilities 2,165   3,779  
Total liabilities 680,309 602,054
Commitments and contingencies
 
Partners’ capital:
Limited partners:
Common unitholders—public (18,176,319 and 14,573,452 units issued
and outstanding at March 31, 2019 and December 31, 2018,
respectively)
290,845 207,612
Common unitholder—sponsor (11,905,138 units issued and outstanding
at March 31, 2019 and December 31, 2018)
60,011 72,352
General partner (no outstanding units) (135,680 ) (133,687 )
Accumulated other comprehensive income 295   439  
Total partners’ capital 215,471   146,716  
Total liabilities and partners’ capital $ 895,780   $ 748,770  
 

Contacts

Investor Contact:
Raymond Kaszuba
(240)
482-3856

[email protected]

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