Enviva Partners Announces 23rd Consecutive Quarterly Distribution Increase, Reports First Quarter 2021 Results, and Reaffirms Full-Year Guidance

BETHESDA, Md.–(BUSINESS WIRE)–Enviva Partners, LP (NYSE: EVA) (“Enviva,” the “Partnership,” “we,” or “our”) today announced the declaration of its 23rd consecutive quarterly distribution increase and reported financial and operating results for the first quarter of 2021. Additionally, the Partnership reaffirmed its previously announced full-year 2021 guidance.

Highlights:

• For the first quarter of 2021, the Partnership declared a distribution of $0.785 per common unit, a 15.4% increase over the first quarter of 2020 and its 23rd consecutive quarterly distribution increase since its initial public offering.
• For the first quarter of 2021, the Partnership reported net loss of $1.5 million, adjusted net income of $7.4 million, and adjusted EBITDA of $46.3 million, which was a 58.8% increase in adjusted EBITDA over the same period in 2020.
• The Partnership reaffirmed full-year 2021 guidance, including net income in the range of $42.3 million to $62.3 million, adjusted EBITDA in the range of $230.0 million to $250.0 million, and per-unit distributions of at least $3.17, each before considering the benefit of any additional drop-downs or other acquisitions.
• The Partnership’s sponsor announced the signing of a new 21-year take-or-pay off-take contract to supply a biomass project backed by a major Japanese utility and a major Japanese trading house with 60,000 metric tons per year (“MTPY”) of wood pellets. Deliveries under the contract are expected to commence in 2024.
• Recently, Enviva announced a partnership with Mitsui O.S.K. Lines to explore developing and deploying an environmentally friendly bulk carrier, the use of which would reduce greenhouse gas (“GHG”) emissions in ocean transportation by harnessing wind energy.

“Given that the first quarter of the year typically is our seasonally soft period, we were very pleased to report a 59% increase in adjusted EBITDA relative to the same period last year,” said John Keppler, Chairman and Chief Executive Officer. “Production and sales from the recently acquired Greenwood and Waycross plants and the performance of our commercial and operating teams, which has continued to ensure high-quality, uninterrupted deliveries to our customers, drove our solid financial results. Building on this foundation, we look forward to the commissioning and production ramps underway at the Northampton and Southampton plant expansions driving further margin increases throughout the year in support of our previously announced guidance.”

First Quarter 2021 Financial Results

As detailed above, results for the first quarter of 2021 benefited from incremental production and sales related to acquisitions and operational improvements executed in 2020. Typically, our business experiences higher seasonality during the first quarter of the year as compared to subsequent quarters, as colder and wetter winter weather modestly increases costs of procurement and production at our plants. Nonetheless, the Partnership achieved financial results substantially in line with management’s expectations during the first quarter, including the following financial highlights:

• Net revenue increased by $36.6 million, or 17.9%, for the first quarter of 2021 as compared to the first quarter of 2020, primarily as a result of a $26.7 million increase in product sales and a $9.9 million increase in other revenue. For the first quarter of 2021, other revenue included payments to the Partnership for adjusting deliveries under our take-or-pay off-take contracts, which otherwise would have been included in product sales.
• Gross margin for the first quarter of 2021 decreased by $5.0 million, or 18.3%, as compared to the first quarter of 2020 principally due to an increase of $6.8 million in depreciation and amortization expense associated with the acquisitions in July 2020 and $8.0 million less in changes in unrealized derivative instruments, which were primarily offset by a 14% increase in product sales volumes.
• Adjusted gross margin for the first quarter of 2021 increased by $15.8 million, or 47.5%, as compared to the first quarter of 2020. The increase in adjusted gross margin is primarily attributable to higher sales volumes, and higher pricing due to customer contract mix, which were partially offset by higher cost of goods sold associated with increased seasonality.
• Adjusted gross margin per metric ton for the first quarter of 2021 increased by $9.58, or 28.9%, as compared to the first quarter of 2020. The increase in adjusted gross margin per metric ton is primarily attributable to higher pricing due to customer contract mix.
• The Partnership generated a net loss of $1.5 million for the first quarter of 2021 compared to net income of $7.6 million for the corresponding period in 2020. Adjusted net income for the first quarter of 2021 decreased by $1.7 million, or 19.0%, as compared to the corresponding period in 2020.
• Adjusted EBITDA for the first quarter of 2021 increased by $17.2 million, or 58.8%, as compared to the first quarter of 2020, primarily due to higher sales volumes and higher pricing as a result of customer contract mix. DCF increased by $11.8 million, or 63.3%, for the first quarter of 2021, as compared to the corresponding period in 2020, as a result of adjusted EBITDA growth outpacing increases in interest expense and maintenance capital expenditures.
• As of March 31, 2021, the Partnership’s liquidity, which included cash on hand and availability under the Partnership’s previous $350 million revolving credit facility, was $187.1 million. The Partnership expanded its revolving credit facility to $525 million on April 16, 2021.
• The Partnership continues to report that, during the first quarter of 2021 and to date, our operating and financial results have not been materially impacted by the outbreak of a novel strain of coronavirus (“COVID-19”) and all of our customers have performed in accordance with their contracts with us. Although the full implications of COVID-19 are not yet known, we have contingency and business continuity plans in place that we believe would mitigate the impact of potential business disruptions if necessary.

Distribution

On April 27, 2021, the board of directors of the Partnership’s general partner (the “Board”) declared a distribution of $0.785 per common unit for the first quarter of 2021, an increase of 15.4% over the corresponding period in 2020. This distribution represents the 23rd consecutive distribution increase since the Partnership’s initial public offering. The Partnership’s DCF, net of amounts attributable to incentive distribution rights, of $22.1 million for the first quarter of 2021 covered the distribution for the quarter at 0.70 times. The quarterly distribution will be paid on Friday, May 28, 2021, to unitholders of record as of the close of business on Friday, May 14, 2021.

When determining the distribution for a quarter, the Board evaluates the Partnership’s distribution coverage ratio on a forward-looking annual basis, after taking into consideration its expected DCF, net of expected amounts attributable to incentive distribution rights, for the full year. On this basis, the Partnership continues to target a distribution coverage ratio of 1.2 times on a forward-looking annual basis.

2021 Guidance Reaffirmed

Based on solid performance during the first quarter of 2021, and the outlook for the remainder of the year, the Partnership reaffirmed its previously provided guidance for full-year 2021, as outlined below:

The guidance amounts provided above do not include the impact of any additional acquisitions by the Partnership from our sponsor or third parties. 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. Similar to previous years, the Partnership expects net income, adjusted EBITDA, and distributable cash flow for the second half of 2021 to be significantly higher than for the first half of the year, and for the fourth quarter to be a significant step up from the third quarter.

“The solid financial results we delivered for the first quarter of 2021 set the stage for strong full-year results, during which we expect to continue our track record of organic growth and accretive drop-down transactions. This track record has enabled us to consistently and durably increase per-unit distributions every quarter since our initial public offering,” said Shai Even, Chief Financial Officer. “Our fully contracted business model, combined with our conservative financial policies, places us in an excellent position to continue to stably and reliably grow the Partnership in size, scale, and profitability.”

Notable Recent Financing Activities

The Partnership recently amended its senior secured revolving credit facility, extending the maturity to April 2026 from October 2023, increasing its size to $525 million from $350 million, and reducing the cost of borrowing by 25 basis points. The amendment is a result of the increased scale, diversification, and significant market opportunities ahead for Enviva, and the expanded revolver will be an important tool for the Partnership as it adds financial flexibility for funding anticipated growth over the next several years.

Enviva remains committed to conservatively managing its balance sheet, targeting a leverage ratio between 3.5 and 4.0 times. Additionally, the Partnership expects to continue to finance growth initiatives and acquisitions with 50% equity and 50% debt.

Market and Contracting Update

Additional global commitments to achieve net-zero emissions, combined with favorable legislative and policy recommendations supporting incremental utilization of sustainably sourced biomass, continue to reinforce the growing long-term market opportunity for the Partnership’s products around the world.

Last week, the European Union (“EU”) Commission released its taxonomy, which is the centerpiece of the EU’s sustainable investment strategy, and one of the key mechanisms used to implement the European Green Deal. The new taxonomy recognizes bioenergy used for power and heat as making a substantial contribution to climate mitigation, alongside other renewables such as wind and solar, underscoring its indispensable role in the EU low-carbon energy transition.

Additionally, the International Renewable Energy Agency, an intergovernmental organization comprising 163 member countries, published a preview to its World Energy Transitions Outlook report where, for the first time, it provided a specific pathway to meet the Paris Agreement’s goal of limiting global temperature rise to 1.5 degrees Celsius. The report highlights the need for year-over-year global GHG emissions reductions of 3.3% in order to reach net zero by 2050 and requires the share of biomass in energy generation to increase from 3% in 2018 to 18% in 2050 in order to achieve this goal.

In the United Kingdom (the “UK”), the Department for Business, Energy and Industrial Strategy published its new Industrial Decarbonization Strategy, a blueprint for facilitating the world’s first low-carbon industry. Building on the 10 Point Plan for a Green Industrial Revolution, the paper outlines how industries can decarbonize in line with net-zero objectives while remaining competitive and without pushing emissions abroad. To reduce GHG emissions by at least two-thirds by 2035 as compared to 2018 levels, the strategy outlines a policy framework for industries to switch from fossil fuels to low-carbon alternatives such as biomass. The report makes it clear that the UK government foresees an important role for biomass in the decarbonization of industry, especially when combined with carbon capture and storage (“CCS”).

Notably, a report commissioned by Drax Group plc (“Drax”), one of Enviva’s UK-based customers, concluded that developing bioenergy with carbon capture and storage (“BECCS”) at Drax could save the UK energy system and consumers £4.5 billion over the subsequent decade while simultaneously delivering a carbon-negative solution.

Danish utility Ørsted, Enviva’s largest customer in Denmark, is working with Microsoft and Aker Carbon Capture, to explore ways to support the development of BECCS at Ørsted’s biomass-fired heat and power plants in Denmark. Because BECCS is one of the few scalable technologies to deliver negative emissions today, the Danish Economic Council expects BECCS to play a significant role in achieving the country’s target of a 70% reduction in GHG emissions by 2030 and considers the technology critical to a cost-competitive transition. BECCS is also widely accepted as an important instrument to limit the increase in global temperature to 1.5 degrees Celsius.

In Germany, regulations for long-term financial support for electricity and heat conversions from fossil fuels to biomass are expected to be announced mid-year as part of the priority initiatives of the Federal Ministry for Economic Affairs and Energy. The finalization of these regulations should pave a clear path for Enviva and its sponsor to finalize commercial discussions currently underway with a number of major German utilities and heat and power generators.

The Netherlands is one of the first EU countries to announce plans to eliminate natural gas from its energy mix. The current Dutch government coalition is committed to a 49% reduction in GHG emissions by 2030, which would surpass the existing EU target. Biomass is the largest source of renewable energy in the Netherlands today and, together with CCS technologies, plays an indispensable role in meeting the country’s emissions reduction goal. The Partnership and our sponsor, which have been serving customers in the Netherlands since 2012, are currently advancing multiple long-term contracts with additional European utilities and generators to deliver product into the Dutch power and heating markets.

Utilities have long been the prime consumers of biomass in Europe, but the global industrial sector is becoming an emerging market for the Partnership and our sponsor, where large steel mills, cement factories, and chemical plants are evaluating both coal-to-biomass switching and adding CCS infrastructure to their energy supply chain. The Partnership and our sponsor recently delivered test volumes to a large industrial conglomerate in Europe, to pilot biomass as a replacement for metallurgical coal in its steelmaking operations.

Given the growing market for our product in Europe, our sponsor has increased its presence in the region by adding additional employees to support sales and business development, shipping and logistics, and market and policy development in both the United Kingdom and Germany, and there are similar opportunities for potential new markets such as Poland. Specifically for Poland, we are seeking to replicate our market entry strategy in Japan, where we and our sponsor have been successful in securing approximately 3.7 million MTPY of long-term contracted demand to major utilities and power generators.

Favorable policy tailwinds in Japan continue to support further investment in this growing market. The Japanese Ministry of Economy, Trade and Industry (“METI”) is working to revise its Strategic Energy Plan by mid-2021 and the ruling Liberal Democratic Party’s Renewable Energy Caucus has commented that the share of renewable power in its 2030 energy mix should increase from a range of 22% to 24% under the current plan to at least 45%.

In April 2021, the working group under METI that has been tasked with considering regulatory measures to phase out inefficient coal-fired plants by 2030 reached an interim conclusion to increase minimum thermal efficiency of coal-fired power plants from 41% to 43% by 2030. Increasing the use of non-fossil fuel such as biomass is one of the most cost-effective ways for coal operators to increase thermal efficiency, and we expect this new thermal efficiency standard to drive incremental commercial opportunities.

In addition to the approximately 3.7 million MTPY of long-term off-take contracts the Partnership and our sponsor previously announced with Japanese counterparties, our sponsor recently executed a 21-year take-or-pay off-take contract to a biomass-fired power plant backed by a major Japanese utility, which is a new customer, and a major Japanese trading house, for 60,000 MTPY of wood pellets. The contract is subject to certain conditions precedent, which our sponsor expects to be met during 2021. Deliveries under the contract are expected to commence in 2024.

Along with Japan, Taiwan is currently one of the largest coal consumers in Asia. The Taiwanese government is actively addressing the challenges of decarbonizing its energy supply chain by leveraging both renewable energy sources and emerging technologies to reduce its reliance on coal-fired generation. Our sponsor recently hired a development team to support business and policy progress in this advancing market, and to assist major utilities and power generators in evaluating and effecting profitable conversions of coal to biomass-fired generation.

Finally, last week, President Biden committed to achieve a 50% to 52% reduction in GHG emissions in the United States by 2030 with an emphasis on American workers and industry tackling the climate crisis. This new target contemplates expanding carbon capture in industrial processes for cleaner steel and cement and enhancing carbon sinks like our forests.

As of April 1, 2021, the Partnership’s current production capacity is matched with a portfolio of firm, take-or-pay off-take contracts that has a total weighted-average remaining term of approximately 12.8 years and a total product sales backlog of approximately $14.5 billion. Assuming all volumes under the firm and contingent off-take contracts held by our sponsor, including the new 21-year, 60,000 MTPY off-take contract described above, were included, our total weighted-average remaining term and product sales backlog would increase to approximately 14.2 years and approximately $20.0 billion, respectively.

Sustainability

Healthy, growing forests remain one of the most critical tools in the fight to mitigate climate change, and sustainable forest management is part of every plan outlined by the UN Intergovernmental Panel on Climate Change (the “IPCC”) to limit global warming to less than 1.5 degrees Celsius. Specifically, the IPCC’s recent report, which was written by the leading world body for assessing the science related to climate change and is considered by global policymakers to be the blueprint for climate change mitigation, declared that “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 [climate change] mitigation benefit.”

Enviva’s wood pellets are sustainably produced from forests whose inventories have been growing over time. Enviva invests heavily in policies, systems, and third-party verification to ensure that our sourcing practices continue to support carbon stock and inventory growth in the working forest landscapes where we operate.

In an effort to transparently demonstrate our adherence to and accountability for sustainable forest management and wood sourcing, our sponsor developed our proprietary, industry-leading Track & Trace^® system in 2017. Our Track & Trace system enables us to pinpoint precisely where our tracts are located, allowing us to clearly report the characteristics of the forests from which our feedstock originates. Our data demonstrate that, based on the more than 7,800 forest tracts from which we have purchased wood fiber since 2017, on average just under 32% of the volume from each harvest went to Enviva, while the remaining 68% of the volume went to other participants in the forest products sector, including those that manufacture products that ensure long-term carbon storage such as dimensional lumber, building products, and furniture. Enviva only uses low-value wood in its operations, and about 3% of the wood harvested in the U.S. Southeast is used to produce industrial-grade pellets.

Pursuant to Enviva’s Responsible Sourcing Policy, Enviva requires landowners to commit to replant following harvests in which Enviva participates. At the same time, the U.S. Department of Agriculture’s (“USDA”) Forest Service data demonstrate that healthy demand for forest products ensures that forests remain forests in large part because robust markets for forest products encourage ownership of and investment in forestland, and discourage its conversion to other non-forest uses.

The benefit to the environment is significant. According to the USDA, there are more trees and forests in our country today than there were 100 years ago, and the data show that, for the last 20 years, forest growth in the United States has exceeded removals by nearly 50%. In the U.S. Southeast, where our sustainable biomass is produced, forest stocks have increased more than 100% since 1953. As further detailed in our Track & Trace data, since the time we commenced operations there are 336 million more tons (a 16% increase) of wood inventory in our own catchment area after deducting all of the forest products and bioenergy produced from this growing resource.

International safeguards have been established to ensure the forest management objectives outlined by the IPCC are realized, and these safeguards reinforce the benefits of Enviva’s approach to ensuring sustainability. The report issued this January by the EU Joint Research Center (“JRC”), which provides independent scientific advice and support to EU policymakers, reiterated the importance of swiftly implementing the sustainability criteria for woody biomass that were approved in the EU’s most recent renewable energy directive (RED II). These criteria emphasize the importance of forest regeneration, protected areas, maintenance of soil quality and biodiversity, and maintenance of forests’ long-term production capacity.

As a leader in environmental stewardship, we and our sponsor have designed our practices in keeping with our values, as well as the standards and objectives espoused by the IPCC, the JRC, and other bodies focused on mitigating climate change. Our Track & Trace system and our renowned Responsible Sourcing Policy provide us with the commitments and methods we need to set goals and internally manage, measure, and improve our actions in furtherance of those goals, but we also subject ourselves to stringent third-party annual

Contacts

Investor Contact:
Kate Walsh
Vice President, Investor Relations
ir@envivapartners.com

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