Enviva Reports 3Q 2022 Results

BETHESDA, Md.–(BUSINESS WIRE)–Enviva Inc. (NYSE: EVA) (“Enviva,” the “Company,” “we,” “us,” or “our”) today announced financial and operating results and declared a dividend for third-quarter 2022.

Highlights:

• Reported net loss of $18.3 million for third-quarter 2022 compared to net loss of $35.8 million for third-quarter 2021 and reported adjusted EBITDA for third-quarter 2022 of $60.6 million compared to $14.2 million for third-quarter 2021

• Declared dividend of $0.905 per share for third-quarter 2022, representing a 7.7% increase over third-quarter 2021 distribution

“For third-quarter 2022, Enviva delivered financial and operating results in line with the expectations we outlined on our last earnings call. We are also thankful that our people and assets navigated Hurricane Ian safely, with the financial impact limited to the deferral of around $3 million of adjusted EBITDA from third quarter to fourth quarter due to the modest ship loading delays we experienced as a result of the storm at quarter end,” said John Keppler, Chairman and Chief Executive Officer. “This solid foundation gives us additional confidence in the step-up we expect for the second half of 2022 and we believe we are well positioned to deliver full-year financial performance in line with our guidance. As demonstrated this quarter, we continue to benefit from a very constructive pricing environment for wood pellets both for the near term and for long-term contracted deliveries, achieving an adjusted gross margin per metric ton of $60 this quarter, with the continued expectation of further improvements for fourth-quarter 2022.”

Third-Quarter 2022 Financial Results

Net revenue for third-quarter 2022 was $325.7 million compared to $237.8 million and $237.4 million for third-quarter 2021 on a recast and non-recast basis, respectively. The increase of approximately 37% year-over-year was driven primarily by an increase in average sales price per ton, as a result of annual price escalators in our contracts as well as the elevated pricing environment for biomass. Enviva was able to help address dislocations in our customers’ and other producers’ supply chains during third-quarter 2022, which enabled incremental deliveries at elevated spot pricing.

Net revenue for third-quarter 2022 was dampened slightly given the timing shift of three shipments from September to October due to weather delays related to Hurricane Ian, which also drove higher-than-average finished product inventory at the end of the period.

Adjusted gross margin was $75.4 million for third-quarter 2022 compared to $34.4 million and $56.7 million for third-quarter 2021 on a recast and non-recast basis, respectively. Adjusted gross margin per MT (“AGM/MT”) for third-quarter 2022 was $59.99, as compared to $29.36 and $48.38 for third-quarter 2021 on a recast and non-recast basis, respectively. The year-over-year increase in adjusted gross margin and AGM/MT was primarily driven by higher pricing due to the same factors which benefited net revenue during the period.

Adjusted EBITDA for third-quarter 2022 was $60.6 million as compared to $14.2 million and $62.9 million for third-quarter 2021 on a recast and non-recast basis, respectively. Adjusted EBITDA for third-quarter 2022 was dampened slightly given the timing shift of three shipments from September to October due to weather delays related to Hurricane Ian; the shift of roughly $3 million of adjusted EBITDA is reflected in our fourth-quarter 2022 expectations.

Distributable cash flow (“DCF”) for third-quarter 2022 was $36.3 million as compared to distributable cash outflow of $3.6 million and DCF of $49.5 million for the third quarter of 2021 on a recast and non-recast basis, respectively.

Enviva’s liquidity as of September 30, 2022, 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 plant) and availability under our $570.0 million senior secured revolving credit facility, was $327.6 million.

Dividend

On November 2, 2022, Enviva’s board of directors declared a dividend of $0.905 per share for third-quarter 2022, an increase of 7.7% over the corresponding period in 2021. The quarterly dividend will be paid on Friday, November 25, 2022, to shareholders of record as of the close of business on Monday, November 14, 2022. The dividend declared for third-quarter 2022 is consistent with Enviva’s dividend guidance for 2022. Enviva expects to pay a dividend of $3.62 per share for full-year 2022, with a quarterly dividend of $0.905 per share expected to be declared for fourth-quarter 2022.

2022 Guidance

Similar to what was described in Enviva’s most recent financial update on October 3, 2022, we expect fourth-quarter 2022 adjusted EBITDA to be approximately $113 million at the midpoint of our guidance range, representing over 40% of full-year 2022 adjusted EBITDA. The second half of the year is traditionally Enviva’s seasonally strongest period, as higher plant productivity is achieved through drier, warmer weather and increased asset utilization and throughput rates. Additionally, the production ramp for Enviva’s newest wood pellet production plant in Lucedale, Mississippi continues to progress in line with expectations, and as a result we are increasing shipments and asset utilization at Enviva’s new deep-water marine terminal in Pascagoula, Mississippi.

As a result, AGM/MT for fourth-quarter 2022 is projected to be approximately $75.00. We are increasingly benefiting from (i) cost improvements, (ii) improved pricing (including new higher-priced contracts and select repricing of legacy contracts), (iii) contract escalators for 2021 inflation now fully embedded in sales prices, and (iv) fixed cost absorption resulting from increased volumes sold. Enviva’s contracts are predominantly denominated in U.S. dollars.

Enviva narrowed its capital expenditures guidance range for full-year 2022 to $255 million to $265 million, from $255 million to $275 million (both ranges inclusive of capitalized interest). Enviva continues to expect to build new plants at a project-level return of an approximately 5 times adjusted EBITDA investment multiple.

“Productivity improvements across our manufacturing facilities, including debottlenecking, asset utilization increases, and the capacity expansions we have underway, are resulting in production rates that we expect to translate to over 6 million tons next year, and when combined with our improving supply chain conditions and the constructive pricing environment, particularly in Europe, are expected to not only provide modest opportunities in fourth-quarter 2022 to drive incremental margin and cash flow, but also set the stage for substantial growth in 2023 and beyond,” said Thomas Meth, President. “We are projecting meaningful year-over-year step-changes in the cash flow generation of our asset base, as we bring new fully contracted capacity online in a favorable pricing environment for our products. Going forward, our capital allocation policy is focused on reinvesting retained cash flows into our business, while maintaining ample liquidity, conservative leverage, and preserving a stable dividend that has the opportunity to grow over time.”

“For 2023, based on our preliminary outlook, we are projecting an adjusted EBITDA range of $305 million to $335 million, which would cover our current, stable dividend of $3.62 per share at 1.1 times, at the midpoint of this range,” said Shai Even, Chief Financial Officer. “We expect to come back early in the new year with fulsome 2023 guidance as we complete our budget cycle and refine our shipping schedules with our customers, and describe how the year-over-year incremental cash flow we expect continues to map both our transition to a self-funding model for growth as well as our progression to a dividend coverage ratio of 1.5 times by 2025, consistent with what we have outlined previously.”

Contracting and Market Update

In the current geopolitical environment, customers’ purchasing decisions are being driven by both the urgent need to decarbonize their supply chains while seeking to secure reliable, affordable, low-carbon feedstocks over the long term. Countries and companies are not only facing high and volatile fossil fuel prices while they navigate toward net-zero goals, but they are also revising the long-term security of supply for the carbon feedstocks they are sourcing. This congruence creates an increased ability to pay for our customers, but is further complicated by the fact that there are limited large-scale alternatives available for renewable base-load and dispatchable power and heat generation, and even fewer low-carbon feedstocks to substitute in hard-to-abate sectors. As a result, our current customers are increasingly looking for supply in a structurally short market and are willing and able to collaborate with suppliers like Enviva to develop mutually beneficial solutions, including pricing new contracted volumes at terms more reflective of the current pricing environment in which pricing for prompt delivery of biomass has more than doubled in the past year and also, at times, repricing original contracted volumes at a significant premium to our historical weighted average contract prices in consideration of the overall transaction.

Consistent with the strategy we have outlined, Enviva continues to steadily diversify its customer base, not only by the number of companies served, but also the geographies in which they are located, and the industries in which they operate. As of October 1, 2022, Enviva’s total weighted-average remaining term of take-or-pay off-take contracts is over 14 years, with a total contracted revenue backlog of over $21 billion. This contracted revenue backlog is complemented by a customer sales pipeline exceeding $50 billion, which includes contracts in various stages of negotiation.

Our customer sales pipeline comprises long-term, take-or-pay off-take opportunities in our traditional markets for biomass-fired power and heat generation in geographies ranging from the United Kingdom to the European Union (including opportunities in Germany and Poland), to Asia (including incremental demand in Japan and emerging potential in Taiwan), as well as in developing industrial segments across the globe (including steel, cement, lime, chemicals, sustainable aviation fuel (“SAF”), biomethanol, and biodiesel). We are also negotiating long-term wood pellet supply contracts with several industrial companies in each of these hard-to-abate sectors that are actively and urgently pursing large-scale decarbonization.

US Inflation Reduction Act

On August 16, 2022, the United States enacted the Inflation Reduction Act of 2022 (“IRA”), which represents one of the most progressive financial commitments in U.S. history to tackle global warming. The IRA directs approximately $370 billion for energy security and climate change resources, utilizing investments and tax credits to incentivize wind, solar, and other renewable power sources, such as sustainably sourced biomass.

Specific to bioenergy, the IRA strengthens the U.S. commitment to SAF by providing tax credits for every gallon of qualifying SAF produced in the U.S. based on lifecycle greenhouse gas emission reduction percentages. Further, the IRA extends and modifies the tax credit for the production of renewable energy from biomass and other technologies. The legislation also enhances tax credits for bioenergy with carbon capture, use and storage (BECCS), at both industrial facilities and power plants in the U.S.

Historically, Enviva’s business has been export-driven, with a limited domestic customer base. Recently, we signed our first contract with a U.S.-based SAF producer, and we are encouraged by the actions taken by Congress and the White House and the potential for a significant domestic market for sustainable biomass for SAF production and for utilization in potentially negative-emissions BECCS projects.

European Union – Renewable Energy Directive Update

Since 2009, European Union policymakers have recognized that sustainable biomass is a vital renewable energy source, which can provide dispatchable heat and power, high temperature heat and transport fuel. Today, bioenergy accounts for almost 60% of renewable energy used in Europe, providing a reliable source of energy during an unprecedented global energy crisis and supporting continued transition of the EU towards climate-neutrality by 2050. As part of a package of measures designed to help the EU bloc reach its goals of reducing emissions by 55% by 2030 and achieving climate-neutrality by 2050 the EU is updating the Renewable Energy Directive (“RED III”), which includes revising its woody biomass sustainability criteria. Trilogues – a negotiation among the EU Parliament, EU Council of Ministers (“Council”), and EU Commission – have already started for RED III with the talks expected to conclude by the end of the year or in the first half of 2023. All three institutions have agreed positions which continue to treat sustainable woody biomass as renewable and keep the sustainability framework from REDII largely intact. A position that the Parliament’s lead negotiator, Markus Pieper MEP, reiterated in a recent article that “When it comes to biomass, we want it to be considered as renewable energy.”

As part of this process, 550 scientists from across the world have issued a public letter to the Presidents of the European Commission, Parliament, and Council. The scientist were unequivocal in stating “Wood from sustainably managed forests is CO2-neutral” and outlined the numerous climate benefits of woody biomass and sustainable forest management. The letter highlighted the important role that woody biomass from sustainably managed forests can play in climate change mitigation, delivering a fossil fuel-free energy future, and maintaining healthy forests. This specifically includes imports of woody biomass sourced from sustainably managed forests in the U.S. Southeast. The views of these highly respected scientists align with Enviva’s mission and approach to limiting climate change, and as the EU progresses its discussions on the RED III, these expert perspectives, based on science and deep expertise in forest management and ecology, will help inform the policy debate surrounding the use of woody biomass in meeting the EU’s climate targets.

Japan

Japan’s Ministry of Economics, Trade, and Industry is taking steps to phase out the country’s more than 100 inefficient coal-fired power plants, with a combined capacity of roughly 25 gigawatts, by 2030. The policy framework for this large-scale initiative is currently being developed, and could include financial compensation, incentives, and/or a carbon tax. This initiative is expected to drive biomass co-firing demand at existing inefficient coal-fired units.

Japan is the world’s second-largest national market for utility-grade wood pellets, with expected demand of 5.1 million metric tons for 2022 (according to forestry consulting firm Hawkins Wright). Japan’s demand is currently less than that of the United Kingdom, but in excess of Denmark’s. Hawkins Wright data further highlights that there are 17 large biopower plants currently in construction in Japan. These 17 plants represent significant incremental volumes as they include both biomass co-firing with coal and full conversions of coal plants to dedicated biomass-fired plants.

Taiwan

Earlier this year, the Taiwan Power Company (“Taipower”), Taiwan’s state-owned electric company, announced plans to convert a large coal-fired unit of the Hsinta Power Plant to biomass in order to meet the Taiwanese government’s policy objectives around increasing renewable energy generation. The project is scheduled to produce approximately 3,000 gigawatt hours of renewable energy after 2025, which translates into demand for roughly 1.8 million MT of biomass annually. Given Enviva’s size, scale, and track record delivering into the Asian market, we expect to be an important partner in Taipower’s biomass supply chain.

International Energy Agency – World Energy Outlook Report – 2022

Last week, the International Energy Agency (“IEA”) issued its annual World Energy Outlook report, highlighting that the world is facing its first global energy crisis spreading from natural gas, oil, coal, and electricity to food security and climate. It concluded that the world has not been investing enough in energy in recent years, making it more vulnerable to the shocks seen this year. They foresee that investment in renewable energy will be increasingly driven by energy security as well as climate change and called for a tripling in spending on clean energy and infrastructure by 2030 in order for the world to achieve net zero by 2050. Of all renewable energy sources, bioenergy and solar are expected to grow the most by 2030, with bioenergy supply expected to grow two-and-a-half-times by 2050. The report underlines that bioenergy will play a multifaceted role in reaching net zero with applications ranging from power and district heating, through to industry and transport as well as playing an essential role in carbon dioxide removal.

Sustainability Update

Forests in the U.S. Southeast are large and growing, with only a small percentage harvested each year. When a timberland owner makes the decision to harvest, the products from each tract are generally merchandised into multiple markets, from high-value timber like dimensional lumber and other building products, to low-value pulp and bioenergy materials, where customers like Enviva typically provide the lowest revenue per ton.

Enviva recently updated sustainability content on its website specifically related to our procurement of wood fiber. As reported based on publication of data from of our Track and Trace® (“T&T”) program, our industry leading supply chain transparency system, Enviva received, on average, only 35% of the harvested volume from tracts (our “merchandising percentage”) across our procurement areas for the second half of 2021. During this period, our merchandising percentage was less than or equal to 30% for 59% of the harvested acres from which we procured wood, and was greater than 70% for approximately 12.4% of such tracts harvested acres. Reasons for why we at times source a higher-than-average percentage of a harvest include hurricane damage, multi-stage harvesting, and ecological or economic reasons that a harvest was predominantly pulpwood.

Additionally, for the second half of 2021, approximately 20% of the fiber we sourced was from secondary material (e.g. sawdust, shavings, and other byproducts), and approximately 18% of our wood was sourced from thinning activity.

Healthy markets lead to healthy forests which continue to grow, especially when the forest community is committed to ensuring forests remain forests – a commitment Enviva obtains from all its fiber suppliers. Enviva is proud to be a part of this vital community of forest stewards producing a steady stream of wood products used around the globe, which supports forestland remaining as forest. This community’s collective decisions about planting trees for a range of products and markets have resulted in an increase in forest inventory in Enviva’s sourcing area of 21% since 2011.

Asset Update

Enviva is progressing well through the early stages of our growth plan to more than double production capacity over the next four to five years, from 6.2 million MTPY to approximately 13 million MTPY. Enviva’s Lucedale, Mississippi plant, the first plant in our Pascagoula cluster, continues to ramp production, and is on track to reach nameplate capacity of 750,000 MTPY by the end of this year. In July 2022, we commenced construction of the fully contracted 1.1 million MTPY plant in Epes, Alabama, the second plant in our Pascagoula cluster.

We also formally announced plans to build the third plant in our Pascagoula cluster in Bond, Mississippi, subject to receiving the necessary permits. Our facility in Bond will be our next state-of-the-art manufacturing facility, with capacity to produce more than one million MTPY of wood pellets, and, similar to the Lucedale and Epes plants, will export from our terminal at the Port of Pascagoula.

Our business model of fully contracting plants and expansions before commencing construction remains unchanged. Given the current pace of contracting with new and existing customers, Enviva is evaluating the timing of a fourth wood pellet production plant in our Pascagoula cluster. We continue to progress our analysis of site location options and anticipate making a decision around year-end 2022.

We also are in the process of securing sites in both Georgia and South Carolina and will continue the evaluation process in the coming months to determine which site is most suitable for a new greenfield project in our Savannah cluster.

We recently appointed Mark Coscio as Executive Vice President and Chief Development Officer to lead our corporate development and construction functions through Enviva’s next phase of significant growth. Mark brings extensive experience managing global engineering, procurement, and construction projects within the energy sector, and is currently leading Enviva’s evaluation of potential partnerships with large North American engineering and construction organizations who share Enviva’s commitment to safety, quality, and environmental stewardship, and have the expertise and teams to assist us with our program of large-scale, highly accretive capacity expansions.

Consistent with prior updates, we expect Enviva’s previously announced “Multi-Plant Expansions” to be completed by year-end 2022.

Third-Quarter 2022 Earnings Call Details

Enviva will host a webcast and conference call on Thursday November 3, 2022, at 10:00 a.m. Eastern time to discuss third-quarter 2022 results and the Company’s outlook. Conference call numbers for North American participation are +1 (877) 883-0383, and +1 (412) 902-6506 for international callers. The passcode is 9243030. Alternatively, the call can be accessed online through a webcast link provided on Enviva’s Events & Presentations website page, located at ir.

Contacts

Investor Contact:
Kate Walsh

Vice President, Investor Relations

Investor.Relations@envivabiomass.com

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