UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021 | | | | | |
For the fiscal year ended December 31, 2018 |
or |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from ____ to |
Commission file number 001-37363____ |
Commission file number 001-37363Enviva Partners, LP
(Exact name of registrant as specified in its charter)
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| | Enviva Inc. |
Delaware(Exact name of registrant as specified in its charter) |
| | 46-4097730 | | | | | | |
| Delaware | | 46-4097730 |
| (State or other jurisdiction | | (I.R.S. Employer |
| of incorporation or organization) | | Identification No.) |
| | | | | | | | | | | |
| 7272 Wisconsin Ave. | Suite 1800 | | |
7200 Wisconsin Ave, Suite 1000Bethesda, | MD | | 20814 |
Bethesda, MD | | 20814 |
| (Address of principal executive offices) | | (Zip code) |
(301) 657-5560
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| (301) | 657-5560 |
| (Registrant’s telephone number, including area code) |
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| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Units Representing Limited Partner InterestsStock | EVA | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐☒ No ☒☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ | ☒ | | Accelerated filer ☒ | ☐ |
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| Non-accelerated filer | ☐ | | | Smaller reporting company | ☐ |
| | | Emerging growth company ☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common units held by non-affiliates of the registrant as of June 30, 20182021 was approximately $423.9 million,$1,646,811,507 based upon a closing price of $29.10$52.41 per common unit as reported on the New York Stock Exchange on such date.
As of February 15, 2019, 26,572,67928, 2022, 66,558,919 shares of common unitsstock were outstanding.
Documents Incorporated by Reference:None.
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| Documents Incorporated by Reference: |
| None |
ENVIVA PARTNERS, LPINC.
ANNUAL REPORT ON FORM 10‑K
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS
Certain statements and information in this Annual Report on Form 10‑K (this “Annual Report”) may constitute “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could”“could,” or other similar expressions are intended to identify forward‑looking statements, which are generally not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. Although management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts forof our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from those in our historical experience and our present expectations or projections. Important factorsFactors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:
•the volume and quality of products that we are able to produce or source and sell, which could be adversely affected by, among other things, operating or technical difficulties at our wood pellet production plants or deep-water marine terminals;
•the prices at which we are able to sell our products;
•failure of the Partnership’sour customers, vendors, and shipping partners to pay or perform their contractual obligations to the Partnership;us;
•our inability to successfully execute our project development, capacity expansion, and new facility construction activities on time and within budget;
•the creditworthiness of our contract counterparties;
•the amount of low-cost wood fiber that we are able to procure and process, which could be adversely affected by, among other things, disruptions in supply or operating or financial difficulties suffered by our suppliers;
•our ability to successfully negotiate, complete, and integrate third-party acquisitions, or to realize the anticipated benefits of such acquisitions;
•changes in the price and availability of natural gas, coal, or other sources of energy;
•changes in prevailing economic and market conditions;
our inability to complete acquisitions, including acquisitions from our sponsor and its joint ventures, or to realize the anticipated benefits of such acquisitions;
•inclement or hazardous environmental conditions, including extreme precipitation, temperatures, and flooding;
•fires, explosions, or other accidents;
the timing and extent of our ability to recover the costs associated with the fire at the Chesapeake terminal and Hurricanes Florence and Michael through our insurance policies and other contractual rights;
•changes in domestic and foreign laws and regulations (or the interpretation thereof) related to renewable or low-carbon energy, the forestry products industry, the international shipping industry, or power, heat, or combined heat and power generators;
•changes in domestic and foreign tax laws and regulations affecting the taxation of our business, and investors;
•changes in the regulatory treatment of biomass in core and emerging markets;
•our inability to acquire or maintain necessary permits or rights for our production, transportation, or terminaling operations;
•changes in the price and availability of transportation;
•changes in foreign currency exchange or interest rates and the failure of our hedging arrangements to effectively reduce our exposure to the risks related thereto;risks;
•risks related to our indebtedness, including the levels, and maturity date of such indebtedness;
•our failure to maintain effective quality control systems at our wood pellet production plants and deep-water marine terminals, which could lead to the rejection of our products by our customers;
•changes in the quality specifications for our products that are required by our customers;
•labor disputes;disputes, unionization, or similar collective actions;
•our inability to hire, train, or retain qualified personnel to manage and operate our business and newly acquired assets;
our inability to complete •the planned expansionspossibility of our Northamptoncyber and Southampton plants or future construction projects on time and within budget;malware attacks;
the effects of the anticipated exit of the United Kingdom (“Brexit”) from the European Union on our and our customers’ businesses; and
•our inability to borrow funds and access capital markets.markets; and
•viral contagions or pandemic diseases, such as COVID-19.
All forward-looking statements in this Annual Report are expressly qualified in their entirety by the foregoing cautionary statements.
Please read Part I, Item 1A. “Risk Factors.” Readers are cautioned not to place undue reliance on forward-looking statements and we undertake no obligation to update or revise any such statements after the date they are made, whether as a result of new information, future events or otherwise.
GLOSSARY OF TERMS
biomass: any organic biological material derived from living organisms that stores energy from the sun.
co-fire: the combustion of two different types of materials at the same time. For example, biomass is sometimes fired in combination with coal in existing coal plants.
cost pass-through mechanism: a provision in commercial contracts that passes costs through to the purchaser.
dry-bulk: describes dry-bulk commodities that are shipped in large, unpackaged amounts.
metric ton: one metric ton, which is equivalent to 1,000 kilograms and 1.1023 short tons.
nameplate: the intended full-load sustained maximum rated output of production.
net calorific value: the amount of usable heat energy released when a fuel is burned completely and the heat contained in the water vapor generated by the combustion process is not recovered. The European power industry typically uses net calorific value as the means of expressing fuel energy.
off-take contract: an agreement between a producerconcerning the purchase and sale of a resource and a buyer of a resource to purchase a certain volume of the producer’s future production.
ramp: increasing production for a period of time following the startup of a plant or completion of a project.given resource such as wood pellets.
Riverstone: Riverstone Holdings LLC.
Riverstone Funds: Riverstone/Carlyle Renewable and Alternative Energy Fund II, L.P. and certain affiliated entities, collectively.
stumpage: the price paid to the underlying timber resource owner for the raw material.
utility-grade wood pellets: wood pellets meeting minimum requirements generally specified by industrial consumers and produced and sold in sufficient quantities to satisfy industrial‑scale consumption.
wood fiber: cellulosic elements that are extracted from trees and used to make various materials, including paper. In North America, wood fiber is primarily extracted from hardwood (deciduous) trees and softwood (coniferous) trees.
wood pellets: energy-dense, low-moisture, and uniformly-sizeduniformly sized units of wood fuel produced from processing various wood resources or byproducts.
PART I
ITEM 1. BUSINESS
On December 31, 2021, Enviva Partners, LP (the “Partnership”) converted from a Delaware limited partnership to a Delaware corporation (the “Conversion”) named “Enviva Inc.” References in this Annual Report to “Enviva,” the “Partnership,“Company,” “we,” “our,“us,” “us” or like terms“our” refer to (i) Enviva Inc. and its subsidiaries for the periods following the Conversion and (ii) Enviva Partners, LP and its subsidiaries.subsidiaries for periods prior to the Conversion, except where the context otherwise requires. References to “our former sponsor” refer to Enviva Holdings, LP, and, where applicable, its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC. References to “our former General Partner” refer to Enviva Partners GP, LLC, a wholly owned subsidiary of Enviva Holdings, LP. References to “Enviva Management” refer to Enviva Management Company, LLC, a wholly owned subsidiary of Enviva Holdings, LP, and references to “our employees” refer to the employees of Enviva Management. References to the “First Hancock JV” and the “Second Hancock JV” refer to Enviva Wilmington Holdings, LLC and Enviva JV Development Company, LLC, respectively, which are joint ventures between our sponsor and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates. Please read Cautionary Statement Regarding Forward-Looking Statements beginning on page 1 and Item 1A. “Risk Factors” for information regarding certain risks inherent in our business.
Overview
We are a growth-oriented company originally formed in 2013 as a master limited partnership that converted to a corporation on December 31, 2021. We develop, construct, acquire, and own and operate, fully contracted wood pellet production plants where we aggregate a natural resource, wood fiber, and process it into dry, densified, uniform pellets that can be effectively stored and transported around the world’s largest supplier by production capacity of utility-gradeworld. We primarily sell our wood pellets to major power generators. Since our entry into this business in 2010, we have executed multiplethrough long-term, take-or-pay off-take contracts with utilitiescreditworthy customers in the United Kingdom (the “U.K.”), the European Union, and large-scaleJapan, who use our pellets to displace coal and other fossil fuels to generate renewable power generators and have built and acquiredheat as part of their efforts to accelerate the production and terminaling capacity necessaryenergy transition from conventional energy generation to serve them. Our existing production constitutes approximately 13% of current global utility-grade wood pellet production capacity and the product we deliver torenewable energy generation. Increasingly, our customers typically comprisesare also using our pellets as renewable raw material inputs to decarbonize hard-to-abate sectors like steel, cement, lime, chemicals, and aviation fuels. Collectively, the wood pellets we produce are viewed by our customers as a material portioncritical component of their fuel supply. efforts to reduce life-cycle greenhouse gas emissions in their core energy generation or industrial manufacturing processes, and mitigate the impact of climate change.
We own and operate six industrial-scale productionten plants in the Southeastern United States that have(collectively, “our plants”) with a combined wood pellet production capacity of 2.9approximately 6.2 million metric tons per year (“MTPY”). In addition to of wood pellets in Virginia, North Carolina, South Carolina, Georgia, Florida and Mississippi, the volumes fromproduction of which is fully contracted with many of our plants, we also procure approximately 0.5 million MPTY fromcontracts extending well into the Second Hancock JV’s Greenwood plant.2040s. We export our wood pellets fromto global markets through our wholly owned dry-bulk, deep-water marine terminal inat the Port of Chesapeake, Virginia, (the “Chesapeake terminal”) and terminal assets inat the Port of Wilmington, North Carolina, (the “Wilmington terminal”),and the Port of Pascagoula, Mississippi, and from third-party deep-water marine terminals in Savannah, Georgia, Mobile, Alabama, (the “Mobile terminal”) and Panama City, Florida (the “Panama City terminal”), under a short-term and a long-term contract, respectively.Florida. All of our facilities are located in geographic regions with low input costs and favorable transportation logistics. Owning these cost-advantaged assets the output from which is fully contracted, in a rapidly expanding industry provides us with a platform to generate stable and growing cash flowsflows. Our plants are sited in robust fiber baskets providing stable pricing for the low-grade fiber used to produce wood pellets. Our raw materials are byproducts of traditional timber harvesting, principally low-value wood materials, such as trees generally not suited for sawmilling or other manufactured forest products, tree tops and limbs, understory, brush, and slash that we anticipate will enable us to increase our per‑unit cash distributions over time, which is our primary business objective.are generated in a harvest.
Our sales strategy is to fully contract the wood pellet production from our plants under long-term, take-or-pay off-take contracts.contracts with a diversified and creditworthy customer base. Our long-term off-take contracts typically provide for fixed-price deliveries that often include provisions that escalate the price over time and provide for other margin protection. During 2019,2021, production capacity from our wood pellet production plants, andtogether with wood pellets sourced from the Greenwood plant and third parties arewas approximately equal to the contracted volumes under our existing long-term, take-or-pay off-take contracts. Our long-term, take-or-pay off-take contracts provide for a product sales backlog of 3.4 million metric tons (“MT”) of wood pellets in 2019$21.2 billion and have a total weighted-average remaining term of 9.714.5 years from February 1, 2019. We intend to continue expanding our business by taking advantage of the growing demand for our product that is driven by conversion of coal-fired power generation and combined heat and power plants to co-fired or dedicated biomass-fired plants and construction of newly dedicated biomass-fired plants, principally in Europe and increasingly in Japan.2022.
We procure wood fiber and process it into utility-grade wood pellets at our production plants. We load the finished wood pellets into railcars, trucks and barges that are transported to our owned or leased deep-water marine terminal assets, where they are received, stored and ultimately loaded into oceangoing vessels for transport to our principally European customers.
Our customers use our wood pellets as a substitute fuel for coal in dedicated biomass or co-fired coal power plants. Wood pellets serve as a suitable “drop-in” alternative to coal because of their comparable heat content, density and form. Due to the uninterruptible nature of our customers’ fuel and other raw material consumption, our customers require a reliable supply of wood pellets that meet stringent product specifications. We have built our operations and assets to deliver and certify the highest levels of product quality and our proven track record of reliable deliveries enables us to charge premium prices for this certainty.
Our Production Plants, Logistics and Storage Capabilities
We procure low-grade wood fiber and process it into utility-grade wood pellets and load the finished wood pellets into railcars, trucks, and barges for transportation to deep-water marine terminals, where we receive, store and ultimately load our products onto dry bulk cargo oceangoing vessels for delivery to our customers.
We own and operate ten industrial-scale wood pellet production plants strategically located in the Mid-Atlantic and Gulf Coast regions of the United States, geographic areas in which wood fiber resources are plentiful and readily available. We employ a “build-and-copy” approach to the construction of new capacity, which allows for efficiencies in the engineering, design,
construction, and operation of our facilities. Furthermore, our multi-plant profile and scale provide us with flexibility under our portfolio of off-take contracts that enhances the reliability of our deliveries and provides opportunities for optimization.
Our facilities are designed to operate 24 hours per day, 365 days per year, although we schedule up to 15 days of planned maintenance for our wood pellet production plants during each calendar year. There are no regularly required major turnarounds or overhauls.
The following table describes our wood pellet production plants, all of which we wholly own:
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| Plant Location | | Year of Acquisition or Operations Commenced | | Nameplate Production (MTPY) | | Receiving Terminal Location |
| Ahoskie, North Carolina | | 2011 | | 410,000 | | | Chesapeake |
| Amory, Mississippi | | 2010 | | 115,000 | | | Mobile |
| Cottondale, Florida | | 2015 | | 780,000 | | | Panama City |
| Greenwood, South Carolina | | 2020 | | 600,000 | | | Wilmington |
| Hamlet, North Carolina | | 2019 | | 600,000 | | | Wilmington |
Lucedale, Mississippi(a) | | 2021 | | 750,000 | | | Pascagoula |
| Northampton, North Carolina | | 2013 | | 750,000 | | | Chesapeake |
| Sampson, North Carolina | | 2016 | | 600,000 | | | Wilmington |
| Southampton, Virginia | | 2013 | | 760,000 | | | Chesapeake |
| Waycross, Georgia | | 2020 | | 800,000 | | | Savannah |
| Total | | | | 6,165,000 | | | |
(a) We are currently constructing and commissioning a wood pellet production plant in Lucedale, Mississippi; nameplate production represents production after construction and commissioning.Wood Fiber Procurement and Sustainability
We and our customers are subject to stringent requirements regarding the sustainability of the fuels they procure. In addition to our customers’ focusinternal sustainability policies and initiatives like our Responsible Sourcing Policy, our wood fiber procurement is conducted in accordance with leading forest certification standards, and we maintain multiple forest certifications. Our fiber supply chains are routinely audited by independent third parties, and we maintain the traceability of, and make public, information concerning the primary wood that is delivered to us directly from forests via our proprietary Track & Trace® system.
Our wood fiber demand is complementary to, rather than in competition with, demand for high-grade wood from most other forest-related industries, such as lumber and furniture. Demand for the non-merchantable fiber, waste products, or byproducts that we use is generally low; accordingly, the tops, limbs, and other low-grade wood fiber we purchase would otherwise generally be left on the reliabilityforest floor, impeding reforestation, or burned.
Our fleet of supply, they are concerned aboutproduction plants is sited in robust fiber baskets in the combustion efficiencySoutheast United States that sustainably support our growing operations with low-grade fiber. As a result of the fragmented nature of tract ownership in our sourcing areas, we procure raw materials from hundreds of landowners, loggers and timber industry participants, with no individual landowner representing a material fraction of any of our plants’ needs. Our wood pellets and their safe handling. Because combustion efficiencyfiber is a function of energy density, particle size distribution, ash/inert content and moisture, our customers require that we supply wood pellets meeting minimum criteria forprocured under a variety of specificationsarrangements, including (1) logging contracts for the thinnings, pulpwood, and other unmerchandised low-grade fiber, (2) in-woods chipping contracts, and (3) contracts with timber dealers.
Port Operations
The following table describes our owned and leased ports:
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| Port Location | | Throughput Capacity (MTPY) | | Storage Capacity (MT) | | Own/Lease(a) |
| Chesapeake, Virginia | | 2,500,000 | | | 90,000 | | | Own |
Mobile, Alabama(b) | | 115,000 | | | * | | Lease |
| Panama City, Florida | | 780,000 | | | 32,000 | | | Lease |
Pascagoula, Mississippi(c) | | 3,000,000 | | | 90,000 | | | Own |
Wilmington, North Carolina(d) | | 3,000,000 | | | 90,000 | | | Lease |
| Savannah, Georgia | | 1,500,000 | | | 50,000 | | | Lease |
| Total | | 10,895,000 | | | 352,000 | | | |
(a) Represents owned ports and leased terminal assets.(b) The Mobile terminal is a privately owned and maintained deep-water, multi-berth terminal that operates 24 hours per day, seven days per week.
(c) We are currently constructing a deep-water marine terminal at the Port of Pascagoula, Mississippi; throughput capacity and storage capacity represents projected capacity after construction.
(d) We lease certain real property at North Carolina State Port Authority’s Wilmington, North Carolina marine terminal.
Our Contracts
We refer to the structure of our long-term sales contracts as “take-or-pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions for us to be compensated in the event of the customer’s failure to accept all or a part of the contracted volumes or for termination of a contract by the customer.
We also have entered into several other contracts that have smaller off-take quantities than the contracts described above. In total, as of February 1, 2022, our backlog of fully contracted volumes under our existing take-or-pay contracts is $21.2 billion with a weighted-average remaining contract term of 14.5 years.Included in the backlog are contracts with 16 customers in jurisdictions ranging from the U.K., Denmark, the Netherlands, Belgium, and Japan.
In some cases, provide incentives for exceeding our contract specifications.we may purchase shipments of product from third-party suppliers and resell them in back-to-back transactions.
Industry Overview
Our product, utility-grade wood pellets, is used in an increasing variety of applications around the world to help reduce the life-cycle greenhouse gas emissions generated by our customers in energy generation and industrial processes.
For many of our customers, our wood pellets are used as a substitute for coal in both dedicated and co-fired power generation and combined heat and power plants. It enables major power, heat or combined heat and power generators (“generators”) to profitably generate electricity and heat in a manner that reduces the overall cost of compliance with certain mandatory greenhouse gas (“GHG”) emissions limits and renewable energy targets while also allowing countries to diversify their sources of electricity supply.
Unlike intermittent sources of renewable generation like wind and solar power, wood pellet-fired plants are capable of meeting baseload electricity demand and are dispatchable (that is, power output can be switched on or off or adjusted based on demand). As a result, utilities and major power generators in Europe, Asia and Asiaother areas have made and continue to make long-term, profitable investments in power plant conversions and new builds of generating assets that either co-fire wood pellets with coal or are fully dedicated wood pellet-fired plants. Such developments help generators in European and Asian markets maintain and increase baseload generating capacity and comply with binding climate change regulations and other emissions reduction targets and increase renewable energy usage at a lower cost to consumers and taxpayers than other forms of renewable energy generation.targets.
The capital costs required to convert a coal plant to co-fire biomass, or to burn biomass exclusively, are a fraction of the capital costs associated with implementing offshore wind and most other renewable technologies. Furthermore, the relatively quick process of converting coal-fired plants to biomass-fired generation iscan be an attractive benefit for power generators whose generation assets are no longer viable as coal plants due to the expiration of operating permits, orregulatory phase-out of coal-fired power generation, the introduction of taxes, or other restrictions on fossil fuel usage or emissions of GHGs and other pollutants.
There also continues to be significant demand growth in the EuropeanEurope and Asian demandAsia for wood pellets as thea preferred fuel source and lower-costrenewable alternative to delivered fossil fuels for district heating loops, for heating homesresidential and commercial buildingsheating, and for the production of process heat atfor industrial sites.
Increasingly, wood pellets are also being sought by hard-to-abate sectors to be used as bio-based raw material inputs to displace inputs to industrial processes formerly provided by fossil fuels. In addition to the customer applications outlined above, we have long-term, take-or-pay off-take contracts in place with customers who will utilize our wood pellets as a raw material input for bio-based substitutes for traditional fossil fuel‑based fuelsin the refinement of bio-liquids like biodiesel and chemicals.sustainably produced aviation fuel as well as heavy industrial manufacturing like lime, steel, and cement. As these markets further develop, therewe believe we will continue to behave opportunities for utility-grade wood pellet producers to serve this growing demand.
Assets and Operations
Our Production Plants
We own and operate six industrial-scale wood pellet production plants located in the Mid-Atlantic and the Gulf Coast regions of the United States, geographic areas in which wood fiber resources are plentiful and readily available. These facilities are designed to operate 24 hours per day, 365 days per year, although we schedule up to 15 days of maintenance formaterial demand beyond our plants during each calendar year. There are no regularly required major turnarounds or overhauls.
Mid-Atlantic Region Plants
The following table describes our four wood pellet production plants in the Mid-Atlantic region: |
| | | | | | |
| | Plant Location | | Operations
Commenced | |
Production
(MTPY) |
| |
| |
| |
| | Ahoskie, North Carolina | | 2011 | | 415,000 |
|
| | Northampton, North Carolina | | 2013 | | 550,000 |
|
| | Sampson, North Carolina | | 2016 | | 555,000 |
|
| | Southampton, Virginia | | 2013 | | 545,000 |
|
| | Total | | | | 2,065,000 |
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Ahoskie
We acquired the site of the Ahoskie plant in December 2010 and constructed a dedicated wood pellet production plant in Ahoskie, North Carolina (the “Ahoskie plant”) in less than one year, commencing operations in November 2011. Through an expansion completed in June 2012, we increased the plant’s production from 260,000 MTPY to 350,000 MTPY and have made further improvements to increase production to 415,000 MTPY of wood pellets.
Production from the Ahoskie plant is transported by truck to our Chesapeake terminal.
Northampton
Our wood pellet production plant in Northampton, North Carolina (the “Northampton plant”) was constructed based on the Ahoskie plant design, utilizing the same major equipment suppliers. The Northampton plant currently produces 550,000 MTPY of wood pellets. During 2019, we expect to increase the wood pellet production of the Northampton plant to 750,000 MTPY, subject to receiving the necessary permits. We expect to complete expansion activities in early 2020 with startup shortly thereafter.
Production from the Northampton plant is transported by truck to our Chesapeake terminal.
Sampson
The Sampson plant, which was built based on our templated design and which we acquired from the First Hancock JV in December 2016, commenced operations during the fourth quarter of 2016 and currently produces 555,000 MTPY of wood pellets.
Production from the Sampson plant is transported by truck to our Wilmington terminal.
Southampton
We acquired a wood pellet production plant in Southampton County, Virginia (the “Southampton plant”) from the First Hancock JV in December 2015. The Southampton plant is a build-and-copy replica of our Northampton plant and currently produces 545,000 MTPY of wood pellets. During 2019, we expect to increase the production capacity of the Southampton plant to 745,000 MTPY of wood pellets, subject to receiving the necessary permits. We expect to complete expansion activities in early 2020 with startup shortly thereafter.
Production from the Southampton plant is transported by truck to our Chesapeake terminal.
Gulf Coast Region Plants
The following table describes our two wood pellet production plants in the Gulf Coast region: |
| | | | | | |
| | Plant Location | | Acquisition Year | | Production
(MTPY) |
| |
| |
| |
| | Cottondale, Florida | | 2015 | | 730,000 |
|
| | Amory, Mississippi | | 2010 | | 120,000 |
|
| | Total | | | | 850,000 |
|
Cottondale
Our sponsor acquired a wood pellet production plant in Cottondale, Florida (the “Cottondale plant”), in January 2015 and contributed it to us in April 2015. Following the acquisition of the Cottondale plant from our sponsor, the Cottondale plant has undergone several expansions and process improvements. Expansion projects during 2016 and 2017 increased its production capacity from 720,000 MTPY to 730,000 MTPY of wood pellets.
Wood pellets produced by the Cottondale plant are transported approximately 50 miles by short-line rail to a warehouse that can store up to 32,000 MT of wood pellet inventory at the Panama City terminal.
Amory
We purchased a wood pellet production plant in Amory, Mississippi (the “Amory plant”) in August 2010. The Amory plant initially consisted of three pellet mills producing wood pellets at a rate of 41,500 MTPY. Through operational improvements and installation of a fourth pellet mill, the Amory plant currently produces 120,000 MTPY of wood pellets.
Production from the Amory plant is transported by barge to the Mobile terminal.
Logistics and Storage Capabilities
To-Port Logistics and Port Infrastructure
We site our production plants to minimize wood fiber procurement and logistics costs. Our production plants are strategically located in advantaged fiber baskets and near multiple truck, rail, river and ocean transportation access points. We also have inland waterway access and rail access at the Chesapeake, Wilmington, and Panama City terminals. Our multi-year fixed-cost contracts with third-party logistics providers allow for long-term visibility into our to-port logistics cost structure.
The wood pellets produced at our plants must be stored, terminaled and shipped to our principally European customers. Limited deep-water, dry-bulk terminaling assets exist in the Southeastern United States, and very few of them have the appropriate handling and storage infrastructure necessary for receiving, storing and loading wood pellets. In response to such scarcity, we have vertically integrated our Mid-Atlantic operations downstream to encompass finished product logistics and storage. As a largely fixed cost and capital intensive piece of the value chain, our port infrastructure allows us to ship incremental product from our regional plants at a small fraction of the cost of our competitors. Management of port terminal infrastructure is also a key element in reducing distribution-related costs as it allows us to manage the arrival and loading of vessels. Additionally, we are able to improve our cost position by maintaining a dedicated berth where pellets from our Mid-Atlantic region plants have priority and equipment with sufficient load-rate capabilities to turn around vessels within the allotted time windows.
In addition to terminaling wood pellets from our production plants, we will, on occasion, provide terminaling services for third‑ and related-party wood pellet producers as well as for owners of other dry-bulk commodities.
Port Operation in the Mid-Atlantic Region
We acquired the Chesapeake terminal in January 2011 and converted it into a major dry-bulk terminal. The Chesapeake terminal receives, stores and loads wood pellets for export and serves as the shipment point for products produced at our Ahoskie, Northampton and Southampton plants. The Chesapeake terminal accommodates Handysize, Supramax and Panamax-sized vessels, and has a 200-car rail yard adjacent to a Norfolk Southern track, a loading/unloading system that accommodates deliveries by truck, rail and barge and a highly automated conveying system. In May 2011, we erected a 157-foot tall, 175-foot wide storage dome that receives, stores and loads up to 45,000 MT of wood pellets. In April 2013, we placed into operation a second storage dome at the site to add an additional 45,000 MT of storage.
The Chesapeake terminal’s storage and loading capacity is more than adequate to store and facilitate the loading of the wood pellets produced from our Northampton, Southampton and Ahoskie plants, and its location decreases our customers’ transportation time and costs. Efficiently positioned near our Northampton, Southampton and Ahoskie plants, the Chesapeake terminal delivers up to a three- to four-day European shipping advantage compared to other Southern or Gulf Coast ports. In addition, because we own the Chesapeake terminal, we enjoy preferential berth access and loading, which minimizes costs of shipping and logistics without the need for excess storage. Our ownership and operation of this terminal enable us to control shipment of the production of our Mid-Atlantic region plants that it serves.
Wood pellets produced at our Sampson plant and at a wood pellet production plant in Greenwood, South Carolina (the “Greenwood plant”), owned by the Second Hancock JV, are terminaled at our Wilmington terminal. The Wilmington terminal accommodates Handysize, Supramax and Panamax-sized vessels, and has a receiving system that accommodates deliveries by truck and rail, a highly automated conveying system and two wood pellet storage domes with capacities of 45,000 MT each. The Wilmington terminal’s storage and loading capacity is more than adequate to store and facilitate the loading of pellets produced from our Sampson plant and the Greenwood plant and its location decreases transportation time and costs through the entire supply chain. We benefit from preferential berth access and loading at our Wilmington terminal, which minimizes costs of shipping and logistics without need for excess storage.
Port Operation in the Gulf Coast Region
Wood pellets from our Cottondale plant are transported via short‑line rail to the Panama City terminal, where we store up to 32,000 MT of wood pellet inventory in a warehouse at Port Panama City. Production from the Cottondale plant is received, stored and loaded under a long‑term terminal services agreement with the Panama City Port Authority and a stevedoring contract, each of which runs through September 2023 and may be extended by us for an additional five-year period.
Wood pellets produced at our Amory plant are transported by barge to the Mobile terminal, where, pursuant to a services agreement with Cooper Marine & Timberlands (“Cooper”), we export from Cooper’s ChipCo terminal. This privately owned and maintained deep-water, multi-berth terminal operates 24 hours per day, seven days per week and is the fleeting and loading point for production from our Amory plant. The Amory plant is sited along a major inland waterway that makes transportation to the Mobile terminal easy and efficient, thereby reducing emissions and costs. Our ability to store our wood pellets in barges provides a capital-light, flexible solution that accommodates the storage needs of the Amory plant.
Please read Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Development” and ” Part II, Item 8. “Financial Statements and Supplementary Data—Significant Accounting Policies—Segment and Geographic Information” for more information regarding our plants, terminals and other long‑lived assets.
Our Relationship with Our Sponsor
Our sponsor, Enviva Holdings, LP, is a majority owned subsidiary of the Riverstone Funds.
Our sponsor owns approximately 45% of our common units and all of our General Partner. Our General Partner owns our incentive distribution rights, which entitles our General Partner to increasing percentages of our cash distributions above certain targets. As a result, our sponsor is incentivized to facilitate our access to accretive acquisitions and organic growth opportunities, including those pursuant to a right of first offer under the Purchase Rights Agreement.
In November 2014, Enviva Development Holdings, LLC (“Development Holdings”) entered into a joint venture (the “First Hancock JV”) with John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates to acquire, develop and construct wood pellet production plants and deep-water marine terminals such as the Southampton, Sampson and Hamlet plants and the Wilmington terminal. In December 2017, Development Holdings entered into a second joint venture with John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates (the “Second Hancock JV”) to acquire, develop and construct wood pellet production plants and deep-water marine terminals in the Southeastern United States. Development Holdings is the managing
member and Enviva Management is the operator of the First Hancock JV and the Second Hancock JV (together, the “Hancock JVs”) and is responsible for managing the activities of the Hancock JVs, including the development and construction of the development projects of the Hancock JVs.
In 2015, we entered into a purchase rights agreement (the “Purchase Rights Agreement”) with our sponsor, pursuant to which our sponsor granted us a five-year right of first offer to acquire any wood pellet production plants and associated deep-water marine terminals that it or the Hancock JVs may develop or acquire and elect to sell. We expect to continue to pursue the acquisition of such assets from our sponsor and the Hancock JVs to the extent they are supported by long-term off-take contracts with creditworthy counterparties and have long useful lives, stable cost positions and advantaged locations.
Although we expect to continue to have the opportunity to acquire assets, including those described below, from our sponsor and the Hancock JVs, there can be no assurance that our sponsor or the Hancock JVs will complete their development projects or that our sponsor will decide to sell, or compel the Hancock JVs to sell, assets or completed development projects to us. The right of first offer under the Purchase Rights Agreement expires in May 2020.
Our Sponsor’s Assets and Development Projects
Hamlet Plant
The First Hancock JV has secured permits and is nearing completion of construction of a wood pellet production plant in Hamlet, North Carolina (the “Hamlet plant”), which is strategically sited in an attractive wood fiber basket and has been constructed using our “build-and-copy” approach, using substantially the same design and equipment as the Sampson plant. Following a ramp period, the Hamlet plant is expected to reach wood pellet production of 600,000 MTPY. Production from the Hamlet plant, once completed, will be terminaled at the Wilmington terminal. The First Hancock JV expects that the Hamlet plant will be operational in the first half of 2019.
Greenwood Plant
The Second Hancock JV acquired the Greenwood plant as its first investment. The Second Hancock JV intends to make investments in the Greenwood plant to improve its operational efficiency and increase its production capacity to 600,000 MTPY of wood pellets, subject to receiving the necessary permits.
In February 2018, we entered into a contract with Greenwood to purchase wood pellets produced by the Greenwood plant through March 2022 and have a take-or-pay obligation with respect to 550,000 MTPY of wood pellets (prorated for partial contract years) beginning in mid-2019 and subject to Greenwood’s option to increase or decrease the volume by 10% each contract year. Wood pellets produced at the Greenwood plant are exported from our Wilmington terminal.
Other Sponsor Development Projects
In addition to the projects discussed above, the Second Hancock JV is pursuing the development of additional deep-water marine terminals and production plants. The Second Hancock JV has executed agreements with the Jackson County Port Authority granting the Second Hancock JV an option to build and operate a marine export terminal at the Port of Pascagoula, Mississippi (the “Pascagoula terminal”), which would service new, regionally proximate production plants, including a potential wood pellet production plant in Lucedale, Mississippi (the “Lucedale plant”).
Customers
We have long-term, take-or-pay off-take contracts with utilities and large European power generators such as Drax Power Limited (“Drax”), Ørsted Bioenergy & Thermal Power A/S (“Ørsted,” formerly known as “DONG Energy Thermal Power A/S”), Lynemouth Power Limited (“Lynemouth Power”), Engie Energy Management SCRL (“ENGIE”), and MGT Teesside Limited (“MGT”) (through two contracts with the First Hancock JV). We have also executed long-term, take-or-pay off-take contracts with customers in Japan including Mitsubishi Corporation (“Mitsubishi”), Marubeni Corporation (“Marubeni”). Additionally, we have executed a long-term take-or-pay off-take contract with a major Japanese trading house to supply a Japanese independent power producer, subject to certain conditions precedent, which we expect to be met in the first quarter of 2019.
The following table provides an overview of our off-take contracts, as well as those of Enviva Holdings, LP and its joint ventures:
|
| | | | | | | | |
| | Customer | Market | Commencement Year | Ending Year | MTPY | |
| Enviva Partners, LP | | | | | |
| | Drax Power Limited | Europe | 2013 | 2022 | 1,000,000 |
| |
| | | | 2015 | 2025 | 500,000 |
| |
| | | | 2022 | 2026 | 650,000 |
| |
| | | | | | | |
| | Ørsted Bioenergy & Thermal Power A/S | Europe | 2016 | 2026 | 420,000 |
| |
| | | | 2018 | 2021 | 80,000 |
| (1) |
| | | | | | | |
| | Lynemouth Power Limited | Europe | 2017 | 2019 | 800,000 |
| |
| | | | 2020 | 2022 | 1,000,000 |
| |
| | | | 2023 | 2027 | 800,000 |
| |
| | | | | | | |
| | Engie Energy Management SCRL | Europe | 2017 | 2019 | 180,000 |
| (2) |
| | | | 2018 | 2020 | 135,000 |
| (3) |
| | | | 2021 | 2035 | 45,000 |
| (3) |
| | | | | | | |
| | First Hancock JV | Related-party | 2021 | 2034 | 375,000 |
| (4) |
| | | | 2021 | 2034 | 95,000 |
| (4) |
| | | | | | | |
| | Mitsubishi Corporation | Japan | 2022 | 2037 | 180,000 |
| |
| | | | | | | |
| | Marubeni Corporation | Japan | 2022 | 2036 | 180,000 |
| |
| | | | 2022 | 2032 | 100,000 |
| |
| | | | | | | |
| | Japanese trading house | Japan | 2023 | 2027 | 100,000 |
| |
| | | | 2028 | 2040 | 175,000 |
| |
| | | | | | | |
| (1 | ) | Average, as contract is for 200,000 MT from late 2018 through mid-2021. | |
| (2 | ) | Remainder for 2019, as contract for 450,000 MT from mid-2017 through and including 2019. | |
| (3 | ) | Average, as contracts are for aggregate 405,000 MT from 2018 through 2020 and 675,000 MT from 2021 through 2035. | |
| (4 | ) | Contracted through the First Hancock JV for wood pellets supplied to MGT, which ramps to full supply in 2021, and continues through 2034. | |
| | | | | | | |
| Enviva Holdings, LP | | | | | |
| | Japanese trading house | Japan | 2022 | 2037 | 270,000 |
| |
| | | | 2021 | 2036 | 250,000 |
| |
| | | | | | | |
| First Hancock JV | | | | | |
| | MGT Teesside Limited | Europe | 2021 | 2034 | 1,000,000 |
| (5) |
| | | | | | | |
| Second Hancock JV | | | | | |
| | Mitsubishi Corporation | Japan | 2022 | 15 | 450,000 |
| |
| | | | | | | |
| (5 | ) | Total MTPY contracted through the First Hancock JV for wood pellets supplied to MGT, which ramps to full supply in 2021, and continues through 2034. Enviva, LP contracted to source 375,000 MTPY and 95,000 MTPY of wood pellets to the First Hancock JV during contract term. | |
We also have entered into several other contracts that have smaller off-take quantities than the contracts described above. We diversified our customer base during 2018; however, our four largest customers accounted for 90% of ourcurrent product sales in 2018.
We refer to the structure of our long-term contracts as “take-or-pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions for us to be compensated in the event of a customer’s failure to accept all or a part of the contracted volumes or for termination of a contract by a customer. Our long-term contracts typically provide for annual inflation‑based adjustments or price escalators. Certain of our long-term contracts also contain provisions that allow us to increase or decrease the volume of product that we deliver by a percentage of the base volume of the contract, as well as cost pass-through mechanisms related to stumpage, fuel or transportation costs and price adjustments for actual product specifications. In addition, certain of our long-term contracts and related arrangements provide for certain cost recovery and sharing arrangements in connection with certain changes in law or sustainability requirements as well as payments to us in the case of their termination as a result of such changes.
In addition to our long-term contracts, we also fulfill our contractual commitments and take advantage of dislocations in market supply and demand by entering into purchase and sale transactions. We typically are the principal in such transactions because we control the wood pellets prior to transferring them to the customer and therefore recognize related revenue on a gross basis.
In some instances, a customer may request to cancel, defer, or accelerate a shipment, in which case we seek to optimize our position by selling or purchasing the subject shipment to or from another party, including in some cases a related party, either within our contracted off‑take portfolio or as an independent transaction on the spot market. In most instances, the original customer pays us a fee, including reimbursement of any incremental costs, which is included in other revenue.
We also provide terminaling services for third- and related-party wood pellet producers as well as for owners of other bulk commodities.
Contracted Backlog
As of February 1, 2019, we had approximately $7.9 billion of product sales backlog for firm and contingent contracted product sales to major power generators and have a total weighted-average remaining term of 9.7 years from February 1, 2019 compared to approximately $5.8 billion and a total weighted-average remaining term of 9.5 years as of February 15, 2018. Backlog represents the revenue to be recognized under existing contracts assuming deliveries occur as specified in the contract. Contracted future product sales denominated in foreign currencies, excluding revenue hedged with foreign currency forward contracts, are included in U.S. Dollars at February 1, 2019 forward rates. The contracted backlog includes forward prices including inflation, foreign currency and commodity prices. The amount also includes the effects of related foreign currency derivative contracts. Please read Part II, Item 8. “Financial Statements and Supplementary Data—Derivative Instruments” for more information regarding our foreign currency forward contracts.
Our expected future product sales revenue under our contracted backlog as of February 1, 2019 is as follows (in millions):
|
| | | |
| Period from February 1, 2019 to December 31, 2019 | $ | 609 |
|
| Year ending December 31, 2020 | 779 |
|
| Year ending December 31, 2021 and thereafter | 6,525 |
|
| Total product sales contracted backlog | $ | 7,913 |
|
Assuming all volumes under the firm and contingent off-take contracts held by our sponsor and its joint ventures were included with our product sales backlog for firm and contingent contracted product sales, the total weighted-average remaining term as of February 1, 2019 would increase to 12.3 years and product sales backlog would increase to $14.6 billion as follows (in millions):
|
| | | |
| Period from February 1, 2019 to December 31, 2019 | $ | 609 |
|
| Year ending December 31, 2020 | 879 |
|
| Year ending December 31, 2021 and thereafter | 13,066 |
|
| Total product sales contracted backlog | $ | 14,554 |
|
Included in the product sales backlog above are $0.6 billion and $2.2 billion of contingent contracts held by the Partnership and the sponsor and its joint ventures, respectively.
Wood Fiber Procurement
Although stumpage constitutes a small portion of our total cost of delivered products, wood fiber procurement is a vital function of our business, and cost-effective access to wood fiber is an important factor in our pricing stability. Our raw materials are byproducts of traditional timber harvesting, principally low-value wood materials such as trees generally not suited for sawmilling or other manufactured forest products and the tops and limbs of trees that are generated in a harvest. We procure wood fiber directly from timber owners, loggers and other suppliers. We also opportunistically acquire industrial residuals (sawdust and shavings) when they provide a cost or operating advantage. Due to the moisture content of unprocessed wood, it cannot be transported economically over long distances. Therefore, the specific regional wood fiber resource supply and demand balance dictates the underlying economics of wood fiber procurement. For this reason, we have elected to site our facilities in some of the most robust and advantaged fiber baskets in the world.
Our customers are subject to stringent requirements regarding the sustainability of the fuels they procure. In addition to our internal sustainability policies and initiatives, our wood fiber procurement is conducted in accordance with leading forest certification standards. Our fiber supply chains are routinely audited by independent third parties. We maintain multiple forest certifications including: Forest Stewardship Council (FSC®) Chain of Custody, FSC® Controlled Wood, Programme for the Endorsement of Forest Certification (PEFC™) Chain of Custody, Sustainable Forestry Initiative (SFI®) Fiber Sourcing and SFI® Chain of Custody. We have obtained independent third-party certification for all of our plants to the applicable Sustainable Biomass Program (SBP) Standards.
Our wood fiber demand is complementary to, rather than in competition with, demand for high‑grade wood for use by most other forest-related industries, such as lumber and furniture making. For example, improvements in the U.S. housing construction industry increase the demand for construction‑quality lumber, which in turn increases the available supply of the low-cost pulpwood and mill residues that are used in wood pellet production. By using commercial thinnings and byproducts as raw materials, wood pellet production also indirectly supports other forest-related industries as well as the sustainable management of commercial forests.
The wood fiber used for wood pellet production comprises predominantly pulpwood, which derives its name from its traditional use by the pulp and paper industry and includes roundwood (typically low-grade trees, thinnings from forest management operations and the tops and branches from sawlogs), and wood residues (primarily mill residues, a byproduct of sawmilling and veneer mill operations). Our procured wood fiber consists of:
low-grade wood fiber: trees or wood that are unsuitable for or rejected by the sawmilling and lumber industries because of small size, defects (e.g. crooked or knotty), disease or pest infestation;
tops and limbs: the parts of trees that cannot be processed into lumber;
commercial thinnings: harvests that promote the growth of higher value timber by removing weaker or deformed trees to reduce competition for water, nutrients and sunlight; and
mill residues: chips, sawdust and other wood industry byproducts.
Demand for the non-merchantable trees, waste products or byproducts that we use is generally low because they have few competing uses. The tops, limbs and other low-grade wood fiber we purchase would otherwise generally be left on the forest floor, impeding reforestation, or burned. Wood pellet production provides a profitable use for the residues from sawmill and furniture industries and also for the trees that are thinned to support the growth of higher value lumber-grade trees. U.S. demand for such low-grade wood fiber historically emerged from the pulp and paper industry. However, due to the decline in demand from paper and pulp, many landowners lack commercial markets for this wood fiber. Wood pellet producers help fill the gap.
As a result of the fragmented nature of tract ownership, we procure raw materials from hundreds of landowners, loggers and timber industry participants, with no individual landowner representing a material fraction of any of our production plants’ needs. Our wood fiber is procured under a variety of arrangements, including (1) logging contracts for the thinnings, pulpwood and other unmerchandised chip-and-saw timber cut by a harvester, (2) in-woods chipping contracts where we may also provide the harvesting assets and (3) contracts with timber dealers. Via our sponsor’s proprietary Track & Trace® system, we maintain 100% traceability of the primary wood that is delivered to us directly from forests. Any supplier delivering wood to one of our plants must first share the details about the forest characteristics of the tract from which the wood is sourced with our forestry staff so we can verify that it meets our strict sustainability criteria. Our supplier contracts require a certification that the relevant tract information has been entered into our database before wood may be delivered directly from a particular tract. We summarize all such tract information periodically and publish tract-level details on our website. During 2018, we sourced wood fiber from approximately 300 suppliers, including brokers who source from landowners growing both hardwoods and softwoods and other suppliers. The diversity of our supply base and our facilities’ advantaged siting enables us to benefit from more reliable deliveries, at a lower cost, than others in our region or industry.
backlog.
Competition
We compete with other utility-grade wood pellet producers for long-term, take-or-pay off-take contracts with major power and heat generation customers, trading houses, and related trading houses.increasingly with customers in hard-to-abate sectors. Competition in our industry is based on the price, quality, and consistency of the wood pellets produced, the reliability of wood pellet deliveries and the producer’s ability to verify and document, through customer and third-party audits, that itstheir wood pellets meet the regulatory sustainability, obligationsand use requirements of a particular customer.
Most of the world’s current wood pellet production plants are owned by small, private companies, with few companies owning or operating multiple plants. Few companies have the scale, production, technical expertise, access to sustainable fiber baskets, or commercial infrastructure necessary to supply utility-grade wood pellets under large, long-term off-take contracts with power generators.
to creditworthy counterparties. We are the largest producer by production capacity and consider other companies with comparable scale, technical expertise, or commercial infrastructure to be our competitors, including AS Graanul Invest, Pinnacle Renewable Energy Inc., Drax Biomass Inc., Georgia Biomass, LLC, Fram Renewable Fuels, LLC, and Highland Pellets LLC,LLC.
Development Projects
Demand for our product continues to exceed available supply, industry-wide.In order to meet growing demand, we identify potentially attractive new locations for wood pellet production, and Pacific BioEnergy Corporation.
Employees
deep-water terminal operations, and secure control or ownership of these sites.The process of developing these sites includes permitting, designing, engineering, and ultimately constructing, commissioning, and operating new wood pellet production or terminaling capacity consistent with our “build and copy” strategy, whereby we replicate production, and terminaling assets consistent with the design and equipment selection of our then-current operating assets. We are partycurrently developing a fully contracted wood pellet production plant in Epes, Alabama, which is designed and permitted to produce more than one million MTPY of wood pellets, and a management services agreement with Enviva Management, pursuant to which Enviva Management provides us with the employees, managementpotential plant site in Bond, Mississippi, and services necessary for the operationmaintain a portfolio of our business. As of December 31, 2018, Enviva Management had 856 employees. Please read Part II, Item 13. “Certain Relationships and Related Transactions, and Director Independence—Other Transactions with Related Persons--Management Services Agreement” for more information regarding our MSA with Enviva Management.12 additional sites under consideration.
Environmental MattersGovernmental Regulations
Our operations are subject to stringent and comprehensive federal, state, and local laws and regulations governing matters including protection of the environment and natural resources, occupational health and safety, and the release or discharge of materials into the environment, including air emissions and wastewater discharges. Theseemissions. Such laws and regulations may (1) require acquisition, compliance with and maintenance of certainus to obtain permits, or other approvals to conduct regulated activities, (2) impose technology requirements or standards on our operations, (3) restrict the amounts and types of substances that may be discharged or emitted into the environment, (4) limit or prohibit constructionavoid certain operational practices, and incur costs for compliance or timbering activitiesremediation. Failure to comply with such laws may also result in sensitive areas such as wetlands or areas inhabited by endangered or threatened species, (5) govern worker health and safety aspects of operations, (6) require measures to investigate, mitigate or remediate releases of hazardous or other substances from our operations and (7) impose substantial liabilities, including possible fines and penalties, for unpermitted emissions or discharges from our operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil, and criminal penalties, the imposition of investigatory and remedial obligations, and the issuance of orders enjoining some or all of our operations in affected areas.
Moreover, the global trend in environmental regulation is towards increasingly broad and stringent requirements for activities that may affect the environment. Any changes in environmental laws and regulations or re‑interpretation of enforcement policies that result in more stringent and costly requirements could have a material adverse effect on our operations and financial position. Although we monitor environmental requirements closely and budget for the expected costs, actual future expenditures may be different from the amounts we currently anticipate spending. Moreover, certain environmental laws impose strict joint and several liability for costs to clean up and restore sites where pollutants have been disposed or otherwise spilled or released. We cannot assure that we will not incurreleased, potentially resulting in significant costs and liabilities for remediation orof resulting damage to property, natural resources, or persons as a result of spills or releases from our operations or those of a third party.persons. Although we believe that our competitors face similar environmental requirements, other market factors may prevent us from passing on any increased costs to our customers. Additionally, although we believe that continued compliance with existing requirements will not materially adversely affect us, there is no assurance that the current levels of regulation will continue in the future.
The following summarizes some of the more significant existing environmental, health, and safety laws and regulations applicable to our operations, the failure to comply with which could have a material adverse impact on our capital expenditures, results of operations and financial position.
Air Emissions
The federal Clean Air Act, as amended (the “CAA”), and state and local laws and regulations that implement and add to CAA requirements, regulate the emission of air pollutants from our facilities. The CAA and state and local laws and regulations impose significant monitoring, testing, recordkeeping and reporting requirements for these emissions. These laws and regulations require us to obtain pre-approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and strictly comply with stringent air permit emission limits, and in certain cases utilize specific equipment or technologies to control and measure emissions. Obtaining these permits can be both costly and time intensive and has the potential to delay opening of new plants or significant expansion of existing plants. Complyingplants; moreover, complying with these permits, including satisfying testing requirements, can also be costly and time-intensive and has the potential to have a material adverse impact on our operations and financial position.time-intensive. Failure to comply with these laws, regulations and permit requirements may cause us to face fines, penalties or injunctive orders in connection with air pollutant emissions from our operations.
The CAA requires that we obtain various construction and operating permits, including, in some cases, Title V air permits. In certain cases, the CAA requires us to incur capital expenditures to install air pollution control devices at our facilities. We are also required to control fugitive emissions from our operations and may face fines, penalties or injunctive orders in connection with fugitive emissions from our operations.fugitive emissions. We have incurred, and expect to continue to incur, substantial administrative, operating and capital expenditures to maintain compliance with CAA requirements that have been promulgated or may be promulgated or revised in the future.
Climate Change and Greenhouse Gases
In responseOur operations are subject to findings thatlimited direct regulation with respect to emissions of carbon dioxide, methane and GHGs present an endangerment to public health and the environment,GHGs. For example, at this time, the U.S. Environmental Protection Agency (the “EPA”) has adopted regulations under existing provisions of the CAA that require GHG emissions reductions from motor vehicles andrequires certain stationary sources. At this time, the EPA requires biomasslarge facilities with GHG emissions above 75,000 tons per year that are otherwise subject to CAA permitting to undergo CAA pre-construction review and obtain operating permits for their GHG emissions. Any other legislation orOur operations are also indirectly affected by regulations that require permitting or reportingregarding the carbon treatment of GHG emissions or limit such emissions frombiomass. Several jurisdictions to which we ship our equipment and operations or from biomass-fired power plants operated by our customers could require us to incur costs to reduce such emissions or negatively impact demand for wood pellets. Furthermore, although in April 2018product have imposed regulations on the EPA categorizedcharacterization of biomass as a carbon-neutral fuel, several environmental groups have criticized this determination and are attemptingany change that imposes more stringent regulations on the characterization of biomass as carbon-neutral could negatively impact demand for our products or require us to have it changed.incur additional costs to achieve such characterization of our products. For more information, see our risk factor titled “Changes in the treatment of biomass could adversely impact our business.” Additionally, the SEC has announced its intention to promulgate rules requiring climate disclosures. Although the form and substance of such requirements is not yet known, they could result in additional compliance costs. Finally, scientists have concluded that increasing concentrations of GHGs in the earth’s atmosphere may produce climate changes that have significant physical effects, such as sea-level rise, increased frequency and severity of storms, floods and other climatic events, including forest fires. If any such effects were to occur, they could have an adverse effect on our operations.
Water Discharges
The Federal Water Pollution Control Act, as amended (the “Clean Water Act”), as well as state laws and regulations that implement, and may be more stringent than, the Clean Water Act, restrict the discharge of pollutants into waters of the United States. Any such discharge of pollutants must be performed in accordance with the terms of a permit issued by the EPA or the implementing state agency. In addition, the Clean Water Act and implementing state laws and regulations require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non‑compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations. These permits generally have a term of five years. Certain of our facilities hold such discharge permits. Changes to the terms and conditions of our permits in future renewals or new or modified regulations could require us to incur additional capital or operating expenditures, which may be material.
Pursuant to the Clean Water Act, the EPA has adopted the Discharge of Oil regulation, which requires any person in charge of an onshore facility to report any discharge of a harmful quantity of oil into U.S. navigable waters, adjoining shorelines or the contiguous zone. A harmful quantity is any quantity of discharged oil that violates state water quality standards, causes a film or sheen on the water’s surface or leaves sludge or emulsion beneath the surface. Spills from our production plants that are located along waterways or from our deep-water marine terminal facilities may result in fines, penalties and obligations to respond to and remediate any such spills. We could also be liable for removal and remediation costs, as well as damages to natural resources, in the event of an unauthorized discharge of oil from one of our facilities.
Spill Response and Release Reporting
Certain of our facilities are subject to federal requirements to prepare for and respond to spills or releases from tanks and other equipment located at these facilities and provide training to employees on operation, maintenance and discharge prevention procedures and the applicable pollution control laws. At such facilities, we have developed or will develop Spill Prevention, Control and Countermeasure plans to memorialize our preparation and response plans and will update them on a regular basis. From time to time, these requirements may be made more stringent and may require us to modify our operations or expand our plans accordingly.
The costs of implementing any such modifications or expansion may be significant. In addition, in the event of a spill or release, we may incur fines or penalties or incur responsibility for damage to natural resources, private property or personal injury in addition to obligations to respond to and remediate any such spill or release.
Endangered Species Act
The federal Endangered Species Act, as amended (the “ESA”), restricts activities that may affect endangered and threatened species or their habitats. Although some of our facilities may be located in areas that are designated as habitats for endangered or threatened species, this has not so far had a material adverse impact on our business. Some of our suppliers may source materials from locations that provide habitats for species that are protected under the ESA, which may extend the time required to access those areas, or may impose conditions or restrictions on accessing those areas in a way that restricts our ability to obtain raw materials for our wood pellet production plants. Moreover, as a result of a settlement approved by the U.S. District Court for the District of Columbia on September 9, 2011, the U.S. Fish and Wildlife Service is required to make a determination regarding the listing of more than 250 species by the end of the agency’s 2017 fiscal year. While the agency did not complete its review by the deadline, that process reportedly remains underway. The designation of previously unidentified endangered or threatened species could cause us to incur additional costs or become subject to operating restrictions or bans in the affected areas, which could have an adverse impact on the availability or price of raw materials.
Coastal Area Protection and Wetlands and Navigable Waters Activity Regulations
Our terminals are located in areas that are subject to the various federal and state programs that regulate the conservation and development of coastal resources. At the federal level, the Coastal Zone Management Act (the “CZMA”) was enacted to preserve, protect, develop and, where possible, restore or enhance valuable natural coastal resources of the U.S. coastal zone. The CZMA authorizes and provides grants for state management programs to regulate land and water use and coastal development. Requirements under the CZMA may affect the siting of any new terminals and could impact the expansion of modification of existing terminal facilities. The CZMA process may result either in delays in obtaining the required authorizations to construct a new terminal or expand an existing terminal or conditions that may restrict the construction or operation of our terminals.
In addition to the CZMA, requirements under the Clean Water Act and related federal laws may result in federal or state regulators imposing conditions or restrictions on our operations or construction activities. For instance, the dredge and fill provisions of the Clean Water Act require a permit to conduct construction activities in protected waters and wetlands and prohibit unpermitted discharges of fill materials. Likewise, the Rivers and Harbors Act requires permits for the construction of certain port structures. Although compliance has not previously had a material adverse impact on our business, any delays in obtaining future permits or renewals, or the inclusion of restrictive conditions in such permits, could adversely affect the cost of, or result in delays to, our operations and the construction of new, or expansion of existing, terminals.
Safety and Maintenance
We are subject to a number of federal and state laws and regulations, including the federal Occupational Safety and Health Act, as amended (“OSHA”), and comparable state statutes, whosethe purpose of which is to protect the health and safety of workers. We have a corporate healthOSHA regulations impose various requirements, including with respect to training, policies and safety program that governs the way we conduct our operations at our facilities. Our employees receive OSHA training that is appropriate in light of the tasks performed at our facilitiesprocedures and general training on our health and safety plans. Compliance with OSHA and general training is mandatory. We perform preventive and routine maintenance on all of our manufacturing and deep-water marine terminaling systems, and make repairs and replacements when necessary or appropriate. We also conduct routine and required inspections of those assets in accordance with applicable regulations.maintenance. In addition, the OSHA hazard communication standards in the Emergency Planning and Community Right-to-Know Act and comparable state statutes require that information be maintained concerning hazardous materials used or produced in our operations and that this information be provided to employees, state and local governmental authorities and citizens. Our facilities adhere to National Fire Protection Association (NFPA) standards for combustible dust andrequire our facilities to incorporate pollution control equipment such as cyclones, baghouses and electrostatic precipitators to minimize regulated emissions. Our deep-water marine terminals must also adhere to Homeland Security/U.S. Coast Guard regulations regarding physical security and emergency response plans. We continually strive to maintain compliance with applicable air, solid waste and wastewater regulations; nevertheless, we cannot guarantee that serious accidents will not occur in the future.
Seasonality
Our business is affected by seasonal fluctuations. The cost of producing wood pellets tends to be higher in the winter months because of increases in the cost of delivereddelivered raw materials, primarily due to a reduction in accessibility during cold and wet weather conditions. Our raw materials typically have higher moisture content during this period, resulting in a lower product yield; moreover, the cost of drying wood fiber increases during periods of lower ambient temperatures.temperatures given greater energy required in the process of heating.
Human Capital
We believe our employees are our greatest asset and their safety is our top priority. We have been unrelenting in our commitment to the health and safety of our employees. Moreover, we continue to work to build diversity and inclusion among our
employees and other stakeholders and making a long-lasting, positive impact in the communities in which we operate. As a company, we value keeping promises, acting with integrity, the determination to make a difference and the qualities of openness, humility and respect.
The increase in demandThrough our human resources practices, we focus on attracting, developing and retaining talent to help enable our growth consistent with our values. In addition, we apply a talent framework to support our human resources objectives of recruiting and nurturing top talent, strengthening our succession planning to develop a pipeline of future leaders for powerkey roles and heat during the winter months drives greater customer demand for wood pellets. As somedriving a culture of accountability through a robust performance management process.
We had 1,196 employees as of December 31, 2021. None of our wood pellet supplyemployees are represented by a labor union. We have not experienced any employment-related work stoppages, and we consider relations with our employees to be good.
People make Enviva, and safety of our customersPeople has been our top priority since the first days of our business and is sourced from third-party purchases, we may experience higher wood pellet costspart of the company’s DNA. Maintaining safety in our daily 24/7 operations amongst the challenges of the COVID-19 pandemic brought Enviva’s best minds, systems, processes, and team back-up culture, together. Enviva finished 2021 with a Total Recordable Incident Rate of .91 compared to an industry average of 3.0.
We focus on attracting, developing, and retaining a team of highly talented and motivated employees. We offer our employees competitive pay and benefits including paid time off, multiple healthcare and insurance coverage options including premium free offerings, paid company holidays, and a reduction401(k) retirement plan. Employee performance is measured in part based on goals that are aligned with our annual objectives, and we recognize that our success is based on the talents and dedication of those we employ. Additionally, we look to support our employees both on and off the job site by offering benefits such as paid parental leave, a wellness reimbursement program, FSA dependent care, paid disability (short term/long term), and educational assistance. All of our full-time employees are bonus eligible and 20% of our employees are currently eligible for equity-based awards under our LTIP. We evaluate these programs annually to ensure our employees are compensated fairly and competitively.
In 2021, our commitment to career growth and development led us to deploy various in-person and online courses and presentations to give employees the opportunity to learn new skills, hone existing ones and deepen their understanding of our business as well as expose them to new ideas that challenge their way of thinking. We offered 20 technical skill trainings for our operators in our gross margin duringplants. We hosted our annual program called Enviva Days which is a development initiative focused on driving career development and employee engagement. In 2021, this event included 15 learning sessions over the winter months.course of one week. More than 500 Enviva employees participated from across 3 continents, 4 countries, and 7 U.S. states.
To achieve operational discipline in our hiring efforts, we follow a consistent hiring process across the organization. We recognize the need to fill roles and strive for a time-to-fill rate that aligns with internal benchmarks. Our current hiring process includes a pre-screen interview and cross-functional panel interview. Following recruitment, our onboarding program provides our new hires with the tools and information needed to succeed. These processes helped us maintain a total voluntary turnover rate of 27%.
We are an equal opportunity employer with a commitment to diversity and inclusion. We believe in a workplace that promotes equality, transparency and accountability. Our policies and procedures seek to foster these values through regular trainings and employee engagement, such as annual trainings for 100% of our employees on workplace conduct and non-discrimination. We strive to engage with the local communities where our operations are based so that we can locate and support a diverse talent pool.
Additional information regarding our human resources initiatives can be found under the “People” section of our 2020 Corporate Responsibility Report which can be found on our website.
Principal Executive Offices
We lease office space for ourOur principal executive offices are located at 72007272 Wisconsin Avenue, Suite 1000,1800, Bethesda, Maryland 20814. The lease expires in June 2024.
Available Information
We file annual, quarterly and current reports and other documents with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains a website at www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC.
We also make available free of charge our Annual Reports on Form 10‑K, Quarterly Reports on Form 10-Q, Current Reports on Form 8‑K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, simultaneously with or as soon as reasonably practicable after filing such materials with, or furnishing such materials to, the SEC and on or through our website, www.envivabiomass.com. The information on our website, or information about us on any other website, is not incorporated by reference into this Annual Report.
ITEM 1A. RISK FACTORS
There are many factors that could have a material adverse effect on the Partnership’sour business, financial condition, results of operations and cash available for distribution.dividends. New risks may emerge at any time and the Partnershipwe cannot predict those risks or estimate the extent to which they may affect financial performance. Each of the risks described below could adversely impact the value of the Partnership’s common units.
Risks Inherent in Our Business
We may not have sufficient cash from operations following the establishment of cash reserves and payment of costs and expenses, including cost reimbursements to our General Partner and its affiliates, to enable us to pay quarterly distributions to our unitholders at our current distribution rate.
We may not have sufficient cash each quarter to enable us to pay quarterly distributions at our current distribution rate. The amount of cash we can distribute on our common units principally depends uponstock.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties, including those described in this Item 1A “Risk Factors.” These risks include the amount of cash we generatefollowing:
•The Company’s ability to declare and pay dividends, and repurchase shares is subject to certain conditions.
•We will derive substantially all our revenues from our operations, which fluctuates from quarter to quarter based on the following factors, somesix customers in 2022, five of which are beyondlocated in Europe. If we fail to continue to diversify our control:customer base, our results of operations, business and financial position, and ability to pay dividends to our stockholders could be materially adversely affected.
•Changes in laws or government policies, incentives and taxes related to low-carbon and renewable energy may affect customer demand for our products.
•Challenges to or delays in the volumeissuance of air permits, or our failure to comply with our permits, could impair our operations and quality ofability to expand our production.
•Federal, state, and local legislative and regulatory initiatives relating to forestry products that we are able to produce or source and sell,the potential for related litigation could result in increased costs, and additional operating restrictions and delays, which could cause a decline in the demand for our products and negatively impact our business, financial condition and results of operations.
•Increasing attention to environmental, social, and governance (“ESG”) matters, including our net-zero goals or our failure to successfully achieve such goals, could adversely affect our business.
•We may be adversely affected by, among other things, operating or technical difficultiesunable to complete our construction projects on time, and our construction costs could increase to levels that make the return on our investment less than expected.
•The satisfactory delivery of substantially all of our production is dependent on continuous access to infrastructure at our plants or deep-water marine terminals;
the prices at which we are ableowned, leased and third-party-operated terminals. Loss of access to sell our products;
ports of shipment and destination, including through failure of the Partnership’s customers, vendorsterminal equipment and shipping partners to pay or perform their contractual obligations to the Partnership;port closures, could adversely affect our financial results and cash flows.
the creditworthiness of our contract counterparties;
the amount of low‑cost wood fiber that we are able to procure and process, which could be adversely affected by, among other things, disruptions in supply or operating or financial difficulties suffered by our suppliers;
changes in the price and availability of natural gas, coal or other sources of energy;
changes in prevailing economic conditions;
our inability to complete acquisitions, including acquisitions from our sponsor, or to realize the anticipated benefits of such acquisitions;
inclement or hazardous environmental conditions, including extreme precipitation, temperatures and flooding;
fires, explosions or other accidents;
the timing and extent of our ability to recover the costs associated with the fire at the Chesapeake terminal and Hurricanes Florence and Michael through our insurance policies and other contractual rights;
changes in domestic and foreign laws and regulations (or the interpretation thereof) related to renewable or low‑carbon energy, the forestry products industry, the international shipping industry or power generators;
changes in the regulatory treatment of biomass in core and emerging markets;
our inability to acquire or maintain necessary permits or rights for our production, transportation or terminaling operations;
changes in the price and availability of transportation;
changes in foreign currency exchange or interest rates, and the failure of our hedging arrangements to effectively reduce our exposure to the risks related thereto;
risks related to our indebtedness;
our failure•Failure to maintain effective quality control systems at our production plants and deep‑waterdeep-water marine terminals could have a material adverse effect on our business and operations.
•Our business is subject to operating hazards and other operational risks, which may have a material adverse effect on our business and results of operations. We may also not be adequately insured against such events.
•Significant increases in the cost, or decreases in the availability, of raw materials or sourced wood pellets could leadresult in lower revenue, operating profits, and cash flows, or impede our ability to meet commitments to our customers.
•We are exposed to the rejectioncredit risk of our products by our customers;
changes incontract counterparties, including the quality specificationscustomers for our products, that are requiredand any material nonpayment or nonperformance by our customers;
labor disputes;
our inability to hire, train or retain qualified personnel to manage and operate our business and newly acquired assets;
our inability to complete the planned expansions of our Northampton and Southampton plants or future construction projects on time and within budget;
the effects of Brexit on our and our customers’ businesses; and
our inability to borrow funds and access capital markets.
In addition, the actual amount of cash we have available for distribution depends on other factors, some of which are beyond our control, including:
the level of capital expenditures we make;
costs associated with construction projects at our existing facilities and future construction projects;
fluctuations in our working capital needs;
our treatment as a pass‑through entity for U.S. federal income tax purposes;
our debt service requirements and other liabilities;
restrictions contained in our existing or future debt agreements; and
the amount of cash reserves established by our General Partner.
The amount of cash we have available for distribution to holders of our units depends primarily on our cash flow and not solely on profitability, which may prevent us from making cash distributions during periods when we record net income.
The amount of cash we have available for distribution depends primarily upon our cash flow, including cash flow from reserves and working capital or other borrowings, and not solely on profitability, which will be affected by non‑cash items. As a result, we may pay cash distributions during periods when we record net losses for financial accounting purposes and may be unable to pay cash distributions during periods when we record net income.
Substantially all of our revenues currently are generated under contracts with four customers and the loss of any of them could adversely affect our business financial condition,and results of operations.
•The international nature of our business subjects us to a number of risks, including foreign exchange risk and unfavorable political, regulatory, and tax conditions in foreign countries.
•Changes to applicable tax laws and regulations or exposure to additional income tax liabilities could affect our business, cash flows, and future profitability.
•We may issue additional shares without stockholder approval, which would dilute existing stockholder ownership interests.
Risks Related to Our Business
We will derive substantially all our revenues from six customers in 2022, five of which are located in Europe. If we fail to continue to diversify our customer base, our results of operations, cash flowsbusiness and financial position and ability to make cash distributions. We may notpay dividends to our stockholders could be able to renew or obtain new and favorable contracts with these customers when our existing contracts expire, and we may not be able to obtain contracts with new customers, which couldmaterially adversely affect our revenues and profitability.affected.
Our contracts with Drax, Ørsted, Lynemouth Power, MGT, RWE, Ørsted, and ENGIESumitomo, five of which are located in Europe, will represent substantially all of our product sales volumes in 2019. Because we have2022; as a small number of customers,result, we face counterparty and geographic concentration risk. The ability of each of our customers to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include among other things, the overall financial condition of the counterparty, the counterparty’s access to capital, the condition of the regional and global power, heat and combined heat and power generation industry, continuing regulatory and economic support for wood pellet‑generated power,pellets as a fuel source, spot market pricing trends and general economic conditions. In addition, in depressed market conditions, our customers may no longer need the amount of our products they have contracted for or may be able to obtain comparable products at a lower price. If economic, political, regulatory or financial market conditions in Europe deteriorate and/or our customers experience a significant downturn in their business or financial condition, they may attempt to renegotiate, reject or declare force majeure under our contracts. Should any counterparty fail to honor its obligations under a contract with us, we could sustain losses, which could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution.dividends. We may also decide to renegotiate our existing contracts on less favorable terms and/or at reduced volumes in order to preserve our relationships with our customers.
Upon the expiration of our off-take contracts, our customers may decide not to recontract on terms as favorable to us as our current contracts, or at all. For example, our current customers may acquire wood pellets from other providers that offer more competitive pricing or logistics or develop their own sources of wood pellets. Some of our customers could also exit their
current business or be acquired by other companies that purchase wood pellets from other providers. The demand for wood pellets or their prevailing prices at the times at which our current off‑take contracts expire may also render entry into new long-term-off-take contracts difficult or impossible.
Any reduction in the amount of wood pellets purchased by our customers renegotiation of our contracts on less favorable terms, or our inability to enter into newrenegotiate or replace our existing contracts on economically acceptable terms, uponor our failure to successfully penetrate new markets within and outside of Europe in the expiration of our current contractsfuture, could have a material adverse effect on our results of operations, business and financial position, as well as our ability to pay distributionsdividends to our unitholders.stockholders.
Termination penalties within our off-take contracts may not fully compensate us for our total economic losses.
Certain of our off-take contracts provide the customer with a right of termination for various events of convenience or changes in law or policy. Although some of these contracts are subject to certain protective termination payments, the termination payments made by our customers may not fully compensate us for losses resulting from a termination by such counterparty. In each case, welosses. We may be unable to re-contract our production at favorable prices or at all, and our results of operations, business and financial position, and our ability to make cash distributionspay dividends to our unitholdersstockholders, may be materially adversely affected as a result.
We Currently, we derive substantially all of our revenues from customers in Europe. If we fail to continue to diversify our customer base geographically within and outside of Europe in the future, our results of operations, business and financial position and ability to make cash distributionspay dividends to our stockholders could be materially adversely affected.
Substantially all of our revenues currently are derived from customers in Europe, and our revenues have been heavily dependent on developments in the European markets. If economic, political, regulatory or financial market conditions in Europe deteriorate, including as a result of weakness in European economies,Our long-term off-take contracts with our customers may respond by suspending, delayingonly partially offset certain increases in our costs or reducing their expenditurespreclude us from taking advantage of relatively high wood pellet prices in the broader markets.
Our long-term off-take contracts typically set base prices subject to annual price escalation and other pricing adjustments for changes in certain of our underlying costs of operations, including, in some cases, for stumpage or diesel fuel. However, such cost pass-through mechanisms may attemptonly pass a portion of our total costs through to renegotiate, reject or declare force majeureour customers. If our operating costs increase significantly during the terms of our long-term off-take contracts beyond the levels of pricing and cost protection afforded to us under the terms of such contracts, our results of operations, business and financial position, and ability to pay dividends to our stockholders, could be adversely affected.
Moreover, during periods when the prevailing market price of wood pellets exceeds the prices under our contracts. long-term off-take contracts, our revenues could be significantly lower than they otherwise would have been were we not party to such contracts for substantially all our production. In addition, our current and future competitors may be in a better position than we are to take advantage of relatively high prices during such periods.
The growth of our business depends in part on locating, developing, and acquiring interests in additional wood pellet production plants and marine terminals at favorable prices.
Our business strategy includes growing our business through construction, and greenfield facilities, and third-party acquisitions that increase our cash generated from operations. Various factors could affect the availability of attractive projects to grow our business, including:
•our failure to successfully penetrate markets outsidecomplete development projects in a timely manner or at all, which could result from, among other things, permitting challenges, failure to procure requisite financing or equipment, construction difficulties or an inability to obtain off‑take contracts on acceptable terms; and
•fewer accretive third‑party acquisition opportunities than we expect, which could result from, among other things, available projects having less desirable economic returns, competition, anti‑trust concerns, or higher risk profiles than we believe suitable for our business plan and investment strategy.
Any of Europe in the futurethese factors could prevent us from executing our growth strategy or otherwise could have a material adverse effect on our results of operations, business and financial position, and our ability to pay distributionsdividends to our unitholders.stockholders.
The actions of certain special interest groupsWe may be unable to make attractive acquisitions, and any acquisitions we make will be subject to substantial risks that could adversely impact our business.
Certain special interest groups that focusWe may consummate acquisitions we believe will be attractive, but result in a decrease in our cash flow from operating activities per share. Any acquisition involves potential risks, some of which are beyond our control, including:
•mistaken assumptions about revenues and costs, including synergies;
•the inability to successfully integrate businesses we acquire;
•the inability to hire, train or retain qualified personnel to manage and operate our business and newly acquired assets;
•the assumption of unknown liabilities;
•limitations on environmental issues have expressed their oppositionour access to indemnification from the useseller;
•incorrect assumptions about the overall costs of biomass for power generation, both publiclyequity or debt;
•the diversion of management’s attention to other business concerns;
•unforeseen difficulties in connection with operating newly acquired assets or in new geographic areas;
•customer or key employee losses at acquired businesses; and directly
•the inability to domesticmeet obligations in off‑take or other contracts associated with acquisitions.
If we consummate any future acquisitions, our capitalization and foreign regulators, policy makers, power generators and other industrial users of biomass. These groups are also actively lobbying, litigating and undertaking other actions domestically and abroad in an effort to increase the regulation of, reduce or eliminate the incentives and support for, or otherwise delay, interfere with or impede the production and use of biomass for power generation. Such efforts, if successful, could materially adversely affect our results of operations businessmay change significantly, and our stockholders will not have the opportunity to evaluate the economic, financial, and other relevant information that we will consider in determining the application of our funds, and other resources to acquisitions.
The Company's ability to declare and pay dividends, and repurchase shares is subject to certain considerations.
Dividends are authorized and determined by the Company's board of directors in its sole discretion. Decisions regarding the payment of dividends and the repurchase of shares are subject to a number of considerations, including:
•cash available for dividends or repurchases;
•the Company's results of operations and anticipated future results of operations;
•the Company's financial condition, and our ability to make cash distributions to our unitholders.
Our exposure to risks associated with foreign currency and interest rate fluctuations, as well as the hedging arrangements we may enter into to mitigate those risks, could have an adverse effect on our financial condition and results of operations.
We may experience foreign currency exchange and interest rate volatilityespecially in operating our business. We began to use hedging transactions in 2016 with respect to certain of our off-take contracts which are, in part or in whole, denominated in GBP, as well as an interest rate swap with respect to a portion of our variable rate debt, in an effort to achieve more predictable cash flow and to reduce our exposure to foreign currency exchange and interest rate fluctuations. We currently do not hedge a significant portion of our overall revenue pursuant to our off‑take contracts.
Fluctuations in foreign currency exchange rates could be material to us depending upon, among other things, the currency denominations of our off-take contracts. In particular, we have exposure to fluctuations in foreign currency exchange rates between the U.S. Dollar and the GBP as sales under the EVA‑MGT Contract or the 95,000 MTPY contract with the First Hancock JV, which commence in 2019 and 2020, respectively, are denominated in GBP from 2020 onward and sales under the off-take contract with Lynemouth Power, which commenced in 2017, are denominated in U.S. Dollars and GBP. Although the use of hedging transactions limits our downside risk, their use may also limit future revenues.
In addition, there may be instances in which costs and revenue will not be matched with respect to currency denomination. As a result,relation to the extent that existinganticipated future capital needs;
•the level of cash reserves the Company may establish to fund future capital expenditures;
•the Company's stock price; and future off-take contracts are not denominated in U.S. Dollars, it is possible that increasing portions
•other factors the board of revenue, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations.
Our hedging transactions involve cost and risk and may not be effective at mitigating our exposure to fluctuations in foreign currency exchange and interest rates. Risks inherent in our hedging transactions include the risk that counterparties to derivative contracts may be unable to perform their obligations and the risk that the terms of such instruments will not be legally enforceable. Likewise, our hedging activities may be ineffective or may not offset more than a portion of the financialdirectors deems relevant.
impact resulting from foreign currency exchangeThe Company can provide no assurance that it will continue to pay dividends or interest rates fluctuations, whichauthorize share repurchases at the current rate or at all. Any elimination of or downward revision in the Company's dividend payout or stock repurchase program could have a material adverse effect on the market price of the Company's common stock.
Regulatory and Litigation Risks
Changes in laws or government policies, incentives and taxes related to low-carbon and renewable energy may affect customer demand for our products.
Consumers of utility-grade wood pellets currently use our products either as part of a binding obligation to generate a certain percentage of low-carbon energy or because they receive direct or indirect financial support or incentives to do so. Financial support is often necessary to cover the generally higher costs of wood pellets compared to conventional fossil fuels like coal. In most countries, once the government implements a tax (e.g., the U.K.’s carbon price floor tax) or a preferable tariff or specific renewable energy policy either supporting a renewable energy generator or the energy generating sector as a whole, such tax, tariff or policy is guaranteed for a specified period of time, sometimes for the investment lifetime of a generator’s project. However, governmental policies that currently support the use of biomass may adversely modify their tax, tariff or incentive regimes, and the future availability of such taxes, tariffs or incentive regimes, either in current jurisdictions beyond the prescribed timeframes or in new jurisdictions, is uncertain. Demand for wood pellets could be substantially lower than expected if government support is removed, reduced or delayed or, in the future, is insufficient to enable successful deployment of biomass power at the levels currently projected. In addition, regulatory changes such as new requirements to install additional pollution control technology could require us to curtail or amend operations to meet new greenhouse gas (“GHG”) emission limits. This may also affect demand for our products in addition to increasing our operational costs.
Biomass energy generation requires the use of biomass that is derived from acceptable sources and is demonstrably sustainable. This typically is implemented through biomass sustainability criteria, which either are a mandatory element of eligibility for financial subsidies to biomass energy generators or will become mandatory in the future. For more information, see our risk factor titled “Changes in the treatment of biomass could adversely impact our business.” As a biomass fuel supplier, the viability of our business is therefore dependent on our ability to comply with such requirements. This may restrict the types of biomass we can use and the geographic regions from which we source our raw materials, and may require us to reduce the GHG emissions associated with our supply and production processes.
Currently, some elements of the criteria with which we must comply, including rules relating to forest management practices and carbon accounting, are under revision. Certain requirements, such as the regulations in place in jurisdictions from which we source biomass, may be beyond our ability to control. If different sustainability requirements are adopted in the future, demand for our products could be materially reduced in certain markets, and our results of operations, business and financial position, and our ability to pay distributionsdividends to our unitholders.stockholders, may be materially adversely affected.
Challenges to or delays in the issuance of air permits, or our failure to comply with our permits, could impair our operations and ability to expand our production.
Our pellet production facilitiesplants are subject to the requirements of the CAAClean Air Act and must either receive minor source permits from the states in which they are located or a major source permit, which is subject to the approval of the EPA. In general, our facilities are eligible for minor source permits following the application of pollution control technologies. However, we could experience substantial delays with respect to obtaining such permits, including as a result of any challenges to the issuance of our permits or other factors, which could impair our ability to operate our wood pellet production plants or expand our production capacity. In addition, any new air permits we receive could require that we incur additional expenses to install emissions control technologies, limit our operations and impede our ability to satisfy emission limitations and/or satisfy stringent testing requirements to demonstrate compliance with the permit and emission limitations thereunder.therewith. Failure to meet such requirements could have a material adverse effect on our results of operations, business and financial position, and our ability to make distributionspay dividends to our unitholders.
Changes in laws or government policies, incentives and taxes implemented to support increased generation of or otherwise regulate low-carbon and renewable energy may affect customer demand for our products.
Consumers of utility-grade wood pellets currently use our products either as part of a binding obligation to generate a certain percentage of low-carbon energy or because they receive direct or indirect financial support or incentives to do so. Financial support is often necessary to cover the generally higher costs of wood pellets compared to conventional fossil fuels like coal. In most countries, once the government implements a tax (e.g., the United Kingdom’s carbon price floor tax) or a preferable tariff or a specific renewable energy policy either supporting a renewable energy generator or the energy generating sector as a whole, such tax, tariff or policy is guaranteed for a specified period of time, sometimes for the investment lifetime of any electricity generator’s project. However, governmental policies that currently support the use of biomass may adversely modify their tax, tariff or incentive regimes, and the future availability of such taxes, tariffs or policies, either in current jurisdictions beyond the prescribed timeframes or in new jurisdictions, is uncertain. Demand for wood pellets could be substantially lower than expected if government support is removed, reduced or delayed or, in the future, is insufficient to enable successful deployment of biomass power to the levels currently projected. In addition, regulatory changes such as new requirements to install additional pollution control technology or curtail operations to meet new GHG emission limits may also affect demand for our products.
In Europe, the European Union’s (the “EU”) Renewable Energy Directive (“RED”) requires that member nations fulfill 20% of their energy demand from renewable sources by 2020. Under the current RED framework, biofuels are subject to a set of sustainability criteria that must be met in order to qualify as renewable fuels. In December 2018, the EU finalized a second Renewable Energy Directive (“RED II”) that increased the renewable energy goal to 32% of energy demand by 2030 in addition to establishing a 2030 goal for energy efficiency improvements of 33%. Under RED II, qualifying biofuels such as biomass are subject to new EU-wide sustainability requirements, including a requirement that feedstocks used to make biomass fuel be harvested from areas with increasing carbon stocks for countries that are not party to the Paris Agreement, and individual member states may implement more restrictive requirements than those required by the directive. The implementation of these requirements could cause us to incur additional compliance costs. Furthermore, although carbon stocks are currently increasing in all of our supply regions, there is a risk that such stocks could decline unexpectedly due to factors beyond our control, such as fire, storms, or pest infestations, which could adversely impact our ability to meet these requirements.
Finally, EU action to regulate biofuels may influence future regulatory actions in other countries where our customers are located. In the event that RED II limits or otherwise constrains our ability to export our product to the European Union or has other adverse consequences, it could have a material adverse effect on our results of operations and financial condition.
In the United States, on October 16, 2017, the EPA proposed a rule to repeal the Clean Power Plan (the “CPP”), the Obama Administration’s rule establishing carbon pollution standards for existing power plants. Under the proposal, the CPP—which is currently subject to a judicial stay issued by the U.S. Supreme Court—would be repealed. However, in August 2018, the EPA proposed the Affordable Clean Energy Rule, which targets emissions reductions at existing coal-fired plants. Although the proposal focuses on achieving these reductions through heat rate improvements, the EPA contemplates that some facilities may be able to achieve the required emissions by co-firing biomass. At this time, it is not clear what impact the repeal of the CPP and any future rulemaking will have on the demand for biomass in the United States. In addition, in April 2018, the EPA issued a statement of policy clarifying that future regulatory actions would treat biomass from managed forests as carbon-neutral. Separately, almost half of U.S. states, either individually or through multi-state regional initiatives, have begun to address GHG emissions, primarily through the planned development of GHG emission inventories and/or regional GHG cap-and-trade
programs. Although neither the U.S. Congress nor the states in which our facilities are located have adopted such legislation at this time, they may do so in the future or adopt regulations with similar effects. For example, Virginia has expressed interest in joining the Regional Greenhouse Gas Initiative, and the Virginia Department of Environmental Quality has proposed a rule to enable the state to link into this initiative. The adoption of a different approach to the treatment of biogenic carbon in the United States could be treated as precedential by European regulators and impact the regulatory treatment of our product in our primary markets. Furthermore, we could face increased operating costs in the form of either emissions controls or costs to purchase allowances in the event that the states in which we have production plants or export terminals adopt restrictions on GHG emissions.
Moreover, many nations have agreed to limit emissions of GHGs pursuant to the United Nations Framework Convention on Climate Change and more recently, in December 2015, 195 countries met in Paris, France to approve a landmark climate accord. On November 4, 2016, the Paris Agreement entered into force, potentially providing additional incentives for participating countries to reduce their GHG emissions. While the Trump Administration has signaled its intent to withdraw from the Paris Agreement, substantially all of our current customers are located in countries that have agreed to be bound by the Paris Agreement. Although it is not possible at this time to accurately estimate how potential future laws or regulations addressing GHG emissions would impact our business, any such future laws or implementing regulations could require us to incur increased operating or maintenance costs, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.
The international nature of our business subjects us to a number of risks, including foreign exchange risk and unfavorable political, regulatory and tax conditions in foreign countries.
Substantially all of our current product sales are to customers that operate outside of the United States. As a result, we face certain risks inherent in maintaining international operations that include, but are not limited to, the following:
foreign exchange movements, which may make it more difficult for our customers to make payments denominated in U.S. Dollars or exert pricing pressure on new contracts compared to competitors that source in a weaker currency;
restrictions on foreign trade and investment, including currency exchange controls imposed by or in other countries; and
trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make our products less competitive in some countries.
Our business in foreign countries requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends, in part, on our ability to succeed under differing legal, regulatory, economic, social and political conditions. There can be no assurance, however, that we will be able to develop, implement and maintain policies and strategies that will be effective in each location where our customers operate. Any of the foregoing factors could have a material adverse effect on our results of operations, business and financial position, and our ability to pay distributions to our unitholders.stockholders.
Federal, state, and local legislative and regulatory initiatives relating to forestry products and the potential for related litigation could result in increased costs and additional operating restrictions orand delays, for our suppliers and customers, respectively, which could cause a decline in the demand for our products and negatively impact our business, financial condition, and results of operations.
Currently, ourOur raw materials are byproducts of traditional timber management and harvesting, principally low-value wood materials such as thinnings and the tops and limbs of trees that are generated in a harvest and industrial residuals (chips, sawdust and other wood industry byproducts). Commercial forestry is regulated by complex regulatory frameworks at each of the federal, state and local levels. Among other federal laws, the Clean Water Act and the Endangered Species Act have been applied to commercial forestry operations through agency regulations and court decisions, as well as through the delegation to states to implement and monitor compliance with such laws. State forestry laws, as well as land-use regulations and zoning ordinances at the local level,
are also used to manage forests in the Southeastern United States, as well as other regions from which we may need to source raw materials in the future. Any new or modified laws or regulations at any of these levels could have the effect of reducing forestry operations in areas where we procure our raw materials and consequently may prevent us from purchasing raw materials in an economic manner, or at all. In addition, future regulation of, or litigation concerning, the use of timberlands, the protection of endangered species, the promotion of forest biodiversity and the response to and prevention of wildfires, as well as litigation, campaigns or other measures advanced by environmental activistspecial interest groups, could also reduce the availability of the raw materials required for our operations.
Changes in the treatment of biomass could adversely impact our business.
The enactmentFor example, the European Union has promulgated directives on renewable energy that, among other things, establish targets for renewable energy supply and establish certain sustainability requirements for biomass, including requirements related to carbon stocks and land use. If the wood pellets we produce do not conform to these or future requirements, our customers would not be able to count energy generated therefrom towards these renewable energy goals, which could decrease demand for our products. Biomass has been under additional regulatory scrutiny in recent years to develop standards to safeguard against adverse environmental effects from its use. Although regulators continue to consider biomass harvested with certain practices to be sustainable, certain special interest groups that focus on environmental issues have expressed their opposition to the use of derivatives legislation could have an adverse effect on our abilitybiomass, both publicly and directly, to use derivative instruments to reduce the effect ofdomestic and foreign currency, interest rate,regulators, policy makers, power, heat or combined heat and power generators (“generators”) and other risks associatedindustrial users of biomass. These groups are also actively lobbying, litigating and undertaking other actions domestically and abroad in an effort to increase the regulation of, reduce or eliminate the incentives and support for, or otherwise delay, interfere with our business.
The Dodd-Frank Wall Street Reformor impede the production and Consumer Protection Act (“Dodd‑Frank Act”) enacted on July 21, 2010, established federal oversight and regulation over the derivatives markets and entities, such as us, that participate in such markets. The Dodd‑Frank Act requires the Commodities Futures Trading Commission (“CFTC”) and the SEC to promulgate rules and regulations implementing the Dodd‑Frank Act. Although the CFTC has finalized certain regulations, others remain to be finalizeduse of biomass for or implemented and it is not possible at this time to predict when this will be accomplished.
The CFTC has designated certain interest rate swaps and credit default swaps for mandatory clearing and the associated rules also require us, in connection with covered derivative activities, to comply with clearing and trade-execution requirements or take steps to qualify for an exemptionby generators. In response to such requirements. Weconcerns, the Biden Administration withdrew from pre-publication review a pending rulemaking to characterize biomass as carbon-neutral for CAA purposes in the United States. While we do not utilize credit default swaps and we qualify for, and expect to continue to qualify for, the end-user exception from the mandatory clearing requirements for swaps entered to hedge our interest rate risks. Pursuant to the Dodd‑Frank Act, however, the CFTC or federal banking regulators may require the posting of collateral with respect to uncleared interest rate derivative transactions.
Certain banking regulators and the CFTC have recently adopted final rules establishing minimum margin requirements for uncleared swaps. Although we qualify for the end-user exception from such margin requirements for swaps entered into to hedge our commercial risks, the application of such requirements to other market participants, such as swap dealers, may change the cost and availability of the swaps that we use for hedging. Moreover, if anycurrently sell a significant portion of our swaps do not qualify forproducts in the commercial end-user exception,United States, any changes in the treatment of biomass in jurisdictions where we may be requiredsell or plan to post additional cash margin or collateral, which could impactsell our liquidity and reduce our ability to use cash for capital expenditures or other partnership purposes.
The full impact of the Dodd-Frank Act and related regulatory requirements upon our business will not be known until the regulations are implemented and the market for derivatives contracts has adjusted. The Dodd-Frank Act and regulations could significantly increase the cost of derivative contracts, materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter, or reduce our ability to monetize or restructure our existing derivative contracts. If we reduce our use of derivatives as a result of the Dodd-Frank Act and regulations implementing the Dodd-Frank Act our results of operations may become more volatile and our cash flows may be less predictable, whichproducts could materially adversely affect our results of operations, business and financial condition, and our ability to planpay dividends to our stockholders.
Our operations are subject to stringent environmental and occupational health and safety laws and regulations that may expose us to significant costs and liabilities.
Our operations are subject to stringent federal, regional, state and local environmental, health and safety laws and regulations. These laws and regulations govern environmental protection, occupational health and safety, the release or discharge of materials into the environment, air emissions, wastewater discharges, the investigation and remediation of contaminated sites and allocation of liability for cleanup of such sites. These laws and fundregulations may restrict or impact our business in many ways, including by requiring us to acquire permits or other approvals to conduct regulated activities, limiting our air emissions or wastewater discharges or requiring us to install costly equipment to control, reduce or treat such emissions or discharges and impacting our ability to modify or expand our operations. We may be required to make significant capital expenditures.and operating expenditures to comply with these laws and regulations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of investigatory or remedial obligations, suspension or revocation of permits and the issuance of orders limiting or prohibiting some or all of our operations. Adoption of new or modified environmental laws and regulations may impair the operation of our business, delay or prevent expansion of existing facilities or construction of new facilities and otherwise result in increased costs and liabilities, which may be material.
The actions of certain special interest groups could adversely impact our business.
Certain special interest groups that focus on environmental issues have expressed their opposition to the use of biomass, both publicly and directly to domestic and foreign regulators, policy makers, power, heat or combined heat and power generators (“generators”) and other industrial users of biomass. These groups are also actively lobbying, litigating and undertaking other actions domestically and abroad in an effort to increase the regulation of, reduce or eliminate the incentives and support for, or otherwise delay, interfere with or impede the production and use of biomass for or by generators. Such efforts, if successful, could materially adversely affect our results of operations, business and financial condition, and our ability to pay dividends to our stockholders.
Increasing attention to ESG matters, including our net-zero goals or our failure to achieve such goals, could adversely affect our business.
Increasing social and political attention to climate change and other environmental and social impacts may result in increased costs, changes in demand for certain types of products or means of production, enhanced compliance obligations, or other negative impacts to our business or our financial condition. Although we may participate in various voluntary frameworks and certification programs to improve the ESG profile of our operations and product, we cannot guarantee that such participation or certification will have the intended results on our ESG profile.
We create and publish voluntary disclosures regarding ESG matters from time to time, but many of the statements in those voluntary disclosures are based on our expectations and assumptions, which may require substantial discretion and forecasts about costs and future developments. Such expectations and assumptions are also complicated by the lack of an established framework for identifying, measuring, and reporting on many ESG matters. Moreover, in February 2021, we announced our intention to become carbon-neutral in our operations by 2030 and to publicly report our progress against this goal. For more information, see “Recent Developments—Commitment to Achieve Carbon Neutral Operations.” Our estimates concerning the timing and cost of implementing our goals are subject to risks and uncertainties, some of which are outside of our control. We also may face greater scrutiny as a result of our announcement and publication of our progress, and our failure to successfully achieve our voluntary net-zero goals, or the manner in which we achieve some or any portion of our goals, could lead to adverse press coverage or other public attention. Moreover, despite these the voluntary nature of our net-zero goal, we may receive pressure from external sources, such as lenders, investors, or other groups, to adopt more aggressive climate or other ESG-related goals; however, we may not agree that such goals will be appropriate for our business, and we may not be able to implement such goals because of potential costs or technical or operational obstacles.
In addition, the European Unionorganizations that provide information to investors on corporate governance and other non‑U.S. jurisdictionsrelated matters have developed rating processes on evaluating companies on their approach to ESG matters. Such ratings are implementing regulations with respectused by some investors to inform their investment and voting decisions. Unfavorable ESG ratings could lead to increased negative investor sentiment toward us, our customers, or our industry, which could negatively impact our share price as well as our access to and cost of capital. Finally, to the derivatives market. To the extent we transact with counterparties in foreign jurisdictions,ESG matters negatively impact our reputation, we may become subjectnot be able to such regulations. At this time, the impact of such regulations on us is uncertain.compete as effectively to recruit or retain employees, which may adversely affect our operations.
Operational Risks
We may be unable to complete the planned expansions of our Northampton and Southampton plants or future construction projects on time, and our construction costs could increase to levels that make the return on our investment less than expected.
Historically, we have acquired wood pellet production plants, marine export terminals, and other assets that had already commenced commercial operations. In response to the increasing demand for our product, we are undertaking an expansion project to increase the aggregate production capacity at our Northampton and Southampton plants by approximately 400,000 MTPY in the aggregate at a total cost of approximately $130.0 million (the “Mid-Atlantic Expansion”). The Mid-Atlantic Expansion is our first major construction project. ThereWe may beface delays or unexpected developments in completing the Mid-Atlantic Expansionour current or other future construction projects, which could cause the costs of these projects to exceed our expectations, including as a result of our failure to timely obtain the factors enumerated below.equipment, services or access to infrastructure necessary for the operation of our projects at budgeted costs, maintain all necessary rights to land access and use and/or obtain and/or maintain environmental and other permits or approvals. These circumstances could prevent our construction projects from commencing operations or from meeting our original expectations concerning timing, their production capacity,operational performance, the capital expenditures necessary for their completion and the returns they will achieve. No assurances can be given that disputes with project construction providers will not arise in the future. While we will attempt to reach a settlement if disputes do arise, no assurances can be given that we would actually reach a settlement or that any such settlement amount would be covered by the remaining budgeted project contingencies. If an equitable settlement cannot be reached, arbitration or legal action could be commenced, and any final judgment or decision could result in increased costs, which could make the return on our investment in the project less than expected.
The following factors could contribute to construction-cost overruns and construction delays, including, without limitation:
failure to timely obtain the equipment necessary for the operation of our projects at budgeted costs;
failure to secure and maintain connections to transportation networks, including road, rail, and waterway access or other infrastructure, including local utility services;
failure to maintain all necessary rights to land access and use;
failure to timely receive quality and timely performance of third-party services at budgeted costs;
failure to timely obtain and/or maintain environmental and other permits or approvals or appeals of those permits or approvals, including by special interest groups opposed to the use of biomass for power generation;
inclement weather conditions and adverse environmental and geological conditions; and
force majeure or other events outside of our control.
Our inability to complete and transition our construction projects including the Mid-Atlantic Expansion, into financially successful operating projects on time and within budget could have a material adverse effect on our results of operations, business, and financial position, and our ability to make cash distributions to our unitholders.
The vote by the United Kingdom to leave the European Union could adversely affect our results of operations, business and financial position and ability to make cash distributions.
In March 2017, the Prime Minister of the United Kingdom (“U.K.”) formally notified the European Counsel of the commencement of the process by which the United Kingdom will exit (“Brexit”) from the European Union under Article 50 of the Treaty of the European Union. This notification began a two-year period pursuant to which the U.K. and the remaining European Union Member States will negotiate a withdrawal agreement. The United Kingdom is scheduled to withdraw from the European Union in March 2019.
We have take-or-pay off-take contracts with utilities and large power generators in the United Kingdom and in other European markets. For the year ended December 31, 2018, approximately 64% of our product sales were derived from contracts with customers in the United Kingdom and 33% of our product sales were derived from contracts with customers in other European markets.
Brexit may create uncertainty with respect to the legal and regulatory requirements to which we and our customers in the United Kingdom are subject and lead to divergent national laws and regulations as the United Kingdom government determines which European Union laws to replace or replicate. The absence of precedent for an exit of a European Member State from the European Union means that it is unclear how the access of United Kingdom businesses to the European Union Single Market and how the legal and regulatory environments in the United Kingdom and the European Union could be impacted by Brexit, and ultimately how Brexit could impact our business or that of our customers.
The consequences of Brexit, together with what may be protracted negotiations around the terms of Brexit, could also introduce significant uncertainties into global financial markets and adversely impact the markets in which we and our customers operate. For example, prolonged exchange rate volatility or weakness of the local currencies of our customers relative to the U.S. Dollar may impair the purchasing power of our customers and cause them to default on payment or seek modification of the terms of our off‑take contracts. The impacts of Brexit may also adversely affect our ability to re‑negotiate our existing contracts on terms acceptable to us as they expire or enter into new contracts with new or existing customers.
These uncertainties surrounding Brexit and risks associated with the commencement of Brexit could have a material adverse effect on our operations, business and financial position, as well as our ability to pay distributions to our unitholders.
The viability of our customers’ businesses may also affect demand for our products and the results of our business and operations.
The viability of our customers’ businesses is dependent on their ability to compete in their respective electricity and heat markets. Our customers’ competitiveness is a function of, among other things, the market price of electricity, the market price of competing fuels (e.g. coal and natural gas), the relative cost of carbon and the costs of generating heat or electricity using other renewable energy technologies. For example, advancements in battery storage technology have the potential to make solar, wind, and other intermittent sources of renewable energy more competitive with biomass as a potential source for baseload and peak-demand electricity needs. Changes in the values of the inputs and outputs of our customers’ businesses, or of the businesses of their competitors, could have a material adverse effect on our customers and, as a result, could have a material adverse effect on our results of operations, business and financial position, and our ability to pay distributions to our unitholders.
The growth of our business depends in part upon locating and acquiring interests in additional production plants and deep-water marine terminals at favorable prices.
Our business strategy includes growing our business through drop‑down and third-party acquisitions that increase our cash generated from operations and cash available for distribution on a per-unit basis. Various factors could affect the availability of attractive projects to grow our business, including:
our sponsor’s failure to complete its or the Hancock JVs’ development projects in a timely manner or at all, which could result from, among other things, permitting challenges, failure to procure the requisite financing or equipment, construction difficulties or an inability to obtain an off‑take contract on acceptable terms;
our sponsor’s failure to offer its assets or the assets of the Hancock JVs for sale;
our failure or inability to exercise our right of first offer with respect to any asset that our sponsor offers, or compels the Hancock JVs to offer, to us; and
fewer third‑party acquisition opportunities than we expect, which could result from, among other things, available projects having less desirable economic returns, competition, anti‑trust concerns or higher risk profiles than we believe suitable for our business plan and investment strategy.
Any of these factors could prevent us from executing our growth strategy or otherwise could have a material adverse effect on our results of operations, business and financial position, and our ability to pay distributions to our unitholders.
Any acquisitions we make may reduce, rather than increase, our cash generated from operations on a per-unit basis.
We may consummate acquisitions that we believe will be accretive, but result in a decrease in our cash available for distribution per unit. Any acquisition involves potential risks, some of which are beyond our control, including, among other things:
mistaken assumptions about revenues and costs, including synergies;
the inability to successfully integrate the businesses we acquire;
the inability to hire, train or retain qualified personnel to manage and operate our business and newly acquired assets;
the assumption of unknown liabilities;
limitations on rights to indemnity from the seller;
mistaken assumptions about the overall costs of equity or debt;
the diversion of management’s attention to other business concerns;
unforeseen difficulties in connection with operating in new product areas or new geographic areas;
customer or key employee losses at the acquired businesses; and
the inability to meet the obligations in off‑take contracts associated with acquired production plants.
If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of our funds and other resources.
If there are significant increases in the cost of raw materials or our suppliers suffer from operating or financial difficulties, we could generate lower revenue, operating profits and cash flows or lose our ability to meet commitments to our customers.
We purchase wood fiber from third-party landowners and other suppliers for use at our production plants. Our reliance on third parties to secure wood fiber exposes us to potential price volatility and unavailability of such raw materials, and the associated costs may exceed our ability to pass through such price increases under our contracts with our customers. Further, delays or disruptions in obtaining wood fiber may result from a number of factors affecting our suppliers, including extreme weather, production or delivery disruptions, inadequate logging capacity, labor disputes, impaired financial condition of a particular supplier, the inability of suppliers to comply with regulatory or sustainability requirements or decreased availability of raw materials. In addition, other companies, whether or not in our industry, could procure wood fiber within our procurement areas and adversely change regional market dynamics, resulting in insufficient quantities of raw material or higher prices. Any of these events could increase our operating costs or prevent us from meeting our commitments to our customers, and thereby could have a material adverse effect on our results of operations, business and financial position, and our ability to make distributions to our unitholders.
Any interruption or delay in the supply of wood fiber, or our inability to obtain wood fiber at acceptable prices in a timely manner, could impair our ability to meet the demands of our customers and expand our operations, which could have a material adverse effect on our results of operations, business and financial position, and our ability to make distributions to our unitholders.
We are exposed to the credit risk of our contract counterparties, including the customers for our products, and any material nonpayment or nonperformance by our customers could adversely affect our financial results and cash available for distribution.
We are subject to the risk of loss resulting from nonpayment or nonperformance by our contract counterparties, including our long-term off-take customers, whose operations are concentrated in the European power generation industry. Our credit procedures and policies may not be adequate to fully eliminate counterparty credit risk. If we fail to adequately assess the creditworthiness of existing or future customers, or if their creditworthiness deteriorates unexpectedly, any resulting unremedied nonpayment or nonperformance by them could have a material adverse effect on our results of operations, business and financial position, and our ability to make cash distributions to our unitholders.flows.
The satisfactory delivery of substantially all of our production is dependent uponon continuous access to infrastructure at our owned, leased and third-party-operated terminals. Loss of access to our ports of shipment and destination, including through failure of terminal equipment and port closures, could adversely affect our financial results and cash available for distribution.dividends.
A significant portion of our total production is loaded for shipment utilizing automated conveyor and ship loading equipment at the Port of Chesapeake, Port of Wilmington, and Port Panama City, and substantiallySubstantially all of our production is dependent uponon infrastructure at our owned, leased and third-party operatedthird-party-operated ports. Should we suffer a catastrophic failure of the equipment at these ports or otherwise experience port closures, including for security or weather-related reasons, we could be unable to fulfill off‑take obligations or incur substantial additional transportation costs, which would reduce our cash flow. Moreover, we rely on various ports of destination, as well as third parties who provide stevedoring or other services at our ports of shipment and destination or from whom we charter oceangoing vessels and crews, to transport our product to our customers. Loss of access to these ports for any reason, or failure of such third-party service providers to uphold their contractual obligations, may impact our ability to fulfill our obligations under our off-take obligations,contracts, cause interruptions to our shipping schedule and/orand cause us to incur substantial additional transportation or other costs, all of which could have a material adverse effect on our business, financial condition and results of operations.
Fluctuations in transportation costs and the availability or reliability of shipping, rail or truck transportation could reduce revenues by causing us to reduce our production or by impairing our ability to deliver products to our customers or the ability of our customers to take delivery of our products.
Disruptions of local or regional transportation services due to shortages of vessels, barges, railcars or trucks, weather-related problems, flooding, drought, accidents, mechanical difficulties, bankruptcy, strikes, lockouts, bottlenecks or other events could temporarily impair our ability to deliver products to our customers and might, in certain circumstances, constitute a force majeure event under our customer contracts, permitting our customers to suspend taking delivery of and paying for our products.
In addition, persistent disruptions in marine transportation may force us to halt production as we reach storage capacity at our deep‑water marine terminals. Accordingly, if the transportation services we use to transport our products are disrupted, and we are unable to find alternative transportation providers, it could have a material adverse effect on our results of operations, business and financial position, and our ability to make cash distributions to our unitholders.
Our long-term off-take contracts with our customers may only partially offset certain increases in our costs or preclude us from taking advantage of relatively high wood prices.
Our long-term off-take contracts typically set base prices subject to annual price escalation and other pricing adjustments for changes in certain of our underlying costs of operations, including, in some cases, for stumpage or shipping fuel. However, such cost pass-through mechanisms may only pass a portion of our total costs through to our customers. If our operating costs increase significantly during the terms of our long-term off-take contracts beyond the levels of pricing and cost protection afforded to us under the terms of such contracts, our results of operations, business and financial position, and ability to make cash distributions to our unitholders could be materially adversely affected.
Moreover, during periods when the price of wood pellets exceeds the prices under our long-term off-take contracts, our revenues could be significantly lower than they otherwise would have been were we not party to such contracts for substantially all of our production. In addition, our current and future competitors may be in a better position than we are to take advantage of relatively high prices during such periods.
We may be required to make substantial capital expenditures to maintain and improve our facilities.
Although we currently use a portion of our cash reserves and cash generated from our operations to maintain, develop and improve our assets and facilities, such investment may, over time, be insufficient to preserve the operating profile required for us to meet our planned profitability or meet the evolving quality and product specifications demanded by our customers. Moreover, our current and future construction projects, including the Mid-Atlantic Expansion, may be capital-intensive. Accordingly, if we exceed our budgeted capital expenditures and/or additional capital expenditures become necessary in the future and we are unable to execute our construction, maintenance or improvement programs successfully, within budget, and in a timely manner, our results of operations, business and financial position, and our ability to make cash distributions to our unitholders, may be materially adversely affected.
We compete with other wood pellet producers and, if growth in domestic and global demand for wood pellets meets or exceeds management’s expectations, the competition within our industry may grow significantly.
We compete with other wood pellet production companies for the customers to whom we sell our products. Other current producers of utility‑grade wood pellets include AS Graanul Invest, Pinnacle Renewable Energy Inc., Drax Biomass Inc., Georgia Biomass, LLC, Fram Renewable Fuels, LLC, Highland Pellets LLC and Pacific BioEnergy Corporation. Competition in our industry is based on price, consistency and quality of product, site location, distribution and logistics capabilities, customer service, creditworthiness and reliability of supply. Some of our competitors may have greater financial and other resources than we do, may develop technology superior to ours or may have production plants that are sited in more advantageous locations from a transport or other cost perspective.
In addition, we expect global demand for solid biomass to increase significantly in the coming years. This demand growth may lead to a significant increase in the production levels of our existing competitors and may incentivize new, well‑capitalized competitors to enter the industry, both of which could reduce the demand and the prices we are able to obtain under future off‑take contracts. Significant price decreases or reduced demand could have a material adverse effect on our results of operations, business and financial position, and our ability to pay distributions to our unitholders.
For our products to be acceptable to our customers, they must comply with stringent sustainability requirements, which may continue to develop and change.
Biomass energy generation requires the use of biomass that is derived from acceptable sources and is demonstrably sustainable. This typically is implemented through biomass sustainability criteria, which either are a mandatory element of eligibility for financial subsidies to biomass energy generators or will become mandatory in the future. As a biomass fuel supplier, the viability of our business is therefore dependent upon our ability to comply with such requirements. This may restrict the types of biomass we can use and the geographic regions from which we source our raw materials, and may require us to reduce the GHG emissions associated with our supply and production processes. Currently, some elements of the criteria with which we will have to comply, including rules relating to forest management practices, are not yet finalized. If more stringent sustainability requirements are adopted in the future, demand for our products could be materially reduced in certain markets, and our results of operations, business and financial position, and our ability to make cash distributions to our unitholders, may be materially adversely affected as a result.
Our level of indebtedness may increase and reduce our financial flexibility.
As of December 31, 2018, our total debt was $432.7 million, which primarily consisted of $352.8 million outstanding under our Senior Notes and $73.0 million outstanding under senior secured credit facilities. In the future, we may incur additional indebtedness in order to make acquisitions or to develop our properties. Our level of indebtedness could affect our operations in several ways, including the following:
a significant portion of our cash flows could be used to service our indebtedness;
the covenants contained in the agreements governing our outstanding indebtedness may limit our ability to borrow additional funds, dispose of assets, pay distributions and make certain investments;
our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry;
a high level of debt would increase our vulnerability to general adverse economic and industry conditions;
a high level of debt may place us at a competitive disadvantage compared to our competitors that may be less leveraged and therefore may be able to take advantage of opportunities that our indebtedness would prevent us
from pursuing; and a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions, general partnership or other purposes.
In addition, revolving borrowings under our senior secured credit facilities bear, and potentially other credit facilities we or our subsidiaries may enter into in the future will bear, interest at variable rates. If market interest rates increase, such variable‑rate debt will create higher debt service requirements, which could adversely affect our cash flow.
In addition to our debt service obligations, our operations require substantial expenditures on a continuing basis. Our ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and non‑capital expenditures necessary to maintain the condition of our operating assets and properties, as well as to provide capacity for the growth of our business, depends on our financial and operating performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt, and future working capital borrowings or equity financing may not be available to pay or refinance such debt.
An increase in the price or a significant interruption in the supply of electricity could have a material adverse effect on our results of operations.
Our production plants use a substantial amount of electricity. The price and supply of electricity are unpredictable and can fluctuate significantly based on international, political and economic circumstances, as well as other events outside our control, such as changes in supply and demand due to weather conditions, regional production patterns and environmental concerns. In addition, potential climate change regulations or carbon or emissions taxes could result in higher production costs for electricity, which may be passed on to us in whole or in part. A significant increase in the price of electricity or an extended interruption in the supply of electricity to our production plants could have a material adverse effect on our results of operations, cash flows and ability to make cash distributions.
Changes in the price of diesel fuel may adversely affect our results of operations.
Diesel fuel costs generally fluctuate with world crude oil prices, and accordingly are subject to political, economic and market factors that are outside of our control. Our operations are dependent on rolling stock and trucks, and diesel fuel costs are a significant component of the operating expense of these vehicles. In addition, diesel fuel is consumed by our wood suppliers in the harvesting and transport of our raw material and is therefore a component of the delivered cost we pay for wood fiber. It is also consumed by the handling equipment at our plants. Some of our off‑take contracts contain mechanisms that are intended to reduce the impact that changes in the price of diesel fuel would have on us, but these mechanisms may not be effective. Accordingly, changes in diesel fuel prices could have an adverse effect on our results of operations, cash flows and ability to make cash distributions.
Our business may suffer if we lose, or are unable to attract and retain, key personnel.
We depend to a large extent on the services of our senior management team and other key personnel. Members of our senior management and other key employees collectively have extensive expertise in designing, building and operating wood pellet production plants, negotiating long‑term off-take contracts and managing businesses such as ours. Competition for management and key personnel is intense, and the pool of qualified candidates is limited. The loss of any of these individuals or the failure to attract additional personnel, as needed, could have a material adverse effect on our operations and could lead to higher labor costs or the use of less‑qualified personnel. In addition, if any of our executives or other key employees were to join a competitor or form a competing company, we could lose customers, suppliers, know-how and key personnel. Our success is dependent on our ability to continue to attract, employ and retain highly skilled personnel.
Failure to maintain effective quality control systems at our production plants and deep-water marine terminals could have a material adverse effect on our business and operations.
Our customers require a reliable supply of wood pellets that meet stringent product specifications. We have built our operations and assets to consistently deliver and certify the highest levels of product quality and performance, which is critical to the success of our business. These factors dependbusiness and depends significantly on the effectiveness of our quality control systems, which, in turn, depends on a number of factors. These includeincluding the design and efficacy of our quality control systems, the success of our quality training program and our ability to ensure that our employees and third‑party contractorscontract counterparties adhere to our quality control policies and guidelines. AnyMoreover, any significant failure or deterioration of our quality control systems could impact our ability to deliver product that meets our customers’ specifications and, in turn, could lead to rejection of our product by our customers, which could have a material adverse effect on our business, financial condition and results of operations.
Our business is subject to operating hazards and other operational risks, which may have a material adverse effect on our business and results of operation.operations. We may also not be adequately insured against such events.
Our business could be materially adversely affected by operating hazards and other risks to our operations. We produce a combustible product that may under certain circumstances present a risk of fires and explosions or other hazards. SevereMoreover, severe weather, such as floods, earthquakes, hurricanes or other natural disasters, climatic phenomena, such as drought, and other catastrophic events, such as plant or shipping disasters, could impact our operations by causing damage to our facilities and equipment, affecting our ability to deliver our product to our customers and impacting our customers’ ability to take delivery of our products. Such events may also adversely affect the ability of our suppliers or service providers to provide us with the raw materials or services we require or the ability of vessels to load, transport and unload our product.
In addition, the scientific community has concluded that severe weather will increase in frequency and intensity as result of increasing concentrations of GHGs in the Earth’s atmosphere, and that climate change will have significant physical effects, including sea-level rise, increased frequency and severity of hurricanes and other storms, flooding, drought and forest fires. We and our suppliers operate in coastal and wooded areas in geographic regions that are susceptible to such climate impacts.
We maintain insurance policies to mitigate against certain risks related to our business, in types and amounts that we believe are reasonable depending on the circumstances surrounding each identified risk; however, we may not be fully insured against all operating hazards and other operational risks incident to our business. Furthermore, we may be unable to maintain or obtain insurance of the type and amount we desire at reasonable rates, if at all. As a result of market conditions and certain claims we may make under our insurance policies, premiums and deductibles for certain of our insurance policies could escalate. In some instances, insurance could become unavailable or available only for reduced amounts of coverage or at unreasonable rates. If we were to incur a significant liability for which we are not fully insured, it could have a material adverse effect on our financial condition, results of operations and cash available for distributiondividends to our unitholders.stockholders.
Our operations are subject to stringent environmental and occupational health and safety laws and regulations that may expose us to significant costs and liabilities.
Our operations are subject to stringent federal, regional, state and local environmental, health and safety laws and regulations. These laws and regulations govern environmental protection, occupational health and safety, the release or discharge of materials into the environment, air emissions, wastewater discharges, the investigation and remediation of contaminated sites and allocation of liability for cleanup of such sites. These laws and regulations may restrict or impact our business in many ways, including by requiring us to acquire permits or other approvals to conduct regulated activities; limiting our air emissions or wastewater discharges or requiring us to install costly equipment to control, reduce or treat such emissions or discharges; imposing requirements on the handling or disposal of wastes; impacting our ability to modify or expand our operations (for example, by limiting or prohibiting construction and operating activities in environmentally sensitive areas); and imposing health and safety requirements for worker protection. We may be required to make significantsubstantial capital and operating expenditures to comply with these lawsmaintain and regulations. Failureimprove our facilities.
Although we currently use a portion of our cash generated from our operations to comply with these lawsmaintain, develop and regulationsimprove our assets and facilities, such investment may, resultover time, be insufficient to preserve the operating profile required for us to meet our planned profitability or meet the evolving quality and product specifications demanded by our customers. Moreover, our current and future construction and other capital projects may be capital-intensive or suffer cost-overruns. Accordingly, if we exceed our budgeted capital expenditures and/or additional capital expenditures become necessary in the assessmentfuture and we are unable to execute our construction, maintenance or improvement programs successfully, within budget, and in a timely manner, our results of administrative, civiloperations, business and criminal penalties, imposition of investigatory or remedial obligations, suspension or revocation of permitsfinancial position, and the issuance of orders limiting or prohibiting some or all of our operations. Adoption of new or modified environmental laws and regulations may impair the operation of our business, delay or prevent expansion of existing facilities or construction of new facilities and otherwise result in increased costs and liabilities, whichability to generate cash flows, may be material.materially adversely affected.
Our business and operating results are subject to seasonal fluctuations.
Our business is affected by seasonal fluctuations. The cost of producing wood pellets tends to be higher in the winter months because of increases in the cost of delivered raw materials, primarily due to a reduction in accessibility during cold and wet weather conditions. Our raw materials typically have higher moisture content during this period, resulting in a lower product yield; moreover, the cost of drying wood fiber increases during periods of lower ambient temperatures.
The increase in demand for power and heat during the winter months drives greater customer demand for wood pellets. As some of our wood pellet supply to our customers are sourced from third-party purchases, we may experience higher wood pellet costs and a reduction in our gross margin during the winter months.
While our contracts generally call for ratable deliveries throughout the year, we are party to one contract that calls for a higher percentage of deliveries during the first and fourth calendar quarters. These seasonal fluctuations could have an adverse effect on our business, financial condition and results of operations and cause comparisons of operating measures between consecutive quarters to not be as meaningful as comparisons between longer reporting periods.
We are exposed to construction and development risks related to our projects.
Historically, we acquired wood pellet production plants and marine export terminals that had either already commenced commercial operations or armed conflictreceived financial support from our former sponsor to mitigate the risk associated with the construction and ramp of such assets. Following the Simplification Transaction, we will receive certain fixed payments from certain owners of our former sponsor associated with its existing obligations related to prior drop-downs and other transactions; however, such payments may be insufficient to fully compensate us for cost overruns, production delays, or other adverse developments. Furthermore, we remain exposed to the risks associated with our organic growth initiatives and will be fully exposed to the risks associated with any new development or construction activities.
We expect to experience an increase in capital expenditures and general and administrative expenses related to our development and construction activities, which may be substantial. We may face delays or unexpected developments in completing our current or future construction projects, including as a result of our failure to timely obtain the equipment, services or access to infrastructure necessary for the operation of our projects at budgeted costs, maintain all necessary rights to land access and use and obtain and maintain environmental and other permits or approvals. These circumstances could prevent our construction projects from commencing operations or meeting our original expectations concerning timing, operational performance, the capital expenditures necessary for their completion and the returns they will achieve. Moreover, design, development and construction activities associated with a project may occur over an extended period of time, but may generate little or no revenue or cash flow until the project is placed into commercial service. This mis-match in timing could reduce our available liquidity. Our inability to complete and transition our construction projects into financially successful operating projects on time and within budget or the failure of our projects to generate expected returns could have a material adverse impact our liquidity, results of operations, business and financial position, as well as our ability to pay dividends to our stockholders.
Market and Credit Risks
Significant increases in the cost, or decreases in the availability, of raw materials or sourced wood pellets could result in lower revenue, operating profits and cash flows, or impede our ability to meet commitments to our customers.
We purchase wood fiber from third-party landowners and other suppliers for use at our plants. Our reliance on third parties to secure wood fiber exposes us to potential price volatility and unavailability of such raw materials, and the associated costs may exceed our ability to pass through such price increases under our contracts with our customers. Further, delays or disruptions in obtaining wood fiber may result from a number of factors affecting our suppliers, including extreme weather, production or delivery disruptions, inadequate logging capacity, labor disputes, impaired financial condition of a particular supplier, the inability of suppliers to comply with regulatory or sustainability requirements or decreased availability of raw materials. In addition, other companies, whether or not in our industry, could procure wood fiber within our procurement areas and adversely change regional market dynamics, resulting in insufficient quantities of raw material or higher prices.
Any interruption or delay in the supply of wood fiber, or our inability to obtain wood fiber at acceptable prices in a timely manner, could impair our ability to meet the demands of our customers and expand our operations
In addition to our production, we purchase wood pellets produced by other suppliers to fulfill our obligations under our portfolio of long-term off-take contracts or take advantage of market dislocations on an opportunistic basis. Any reliance on other wood pellet producers exposes us to the risk that such suppliers will fail to satisfy their obligations to us pursuant to the associated off-take contracts, including by failing to timely meet quality specifications and volume requirements. Any such failure could increase our costs or prevent us from meeting our commitments to our customers.
The materialization of any of the foregoing risks could have an adverse effect on our results of operations, business, and financial position, and cash generated from our operations.
We are exposed to the credit risk of our contract counterparties, including the customers for our products, and any material nonpayment or nonperformance by our customers could adversely affect our financial results, and cash generated from our operations.
We are subject to the risk of loss resulting from nonpayment or nonperformance by our contract counterparties, including our long-term off-take customers and suppliers. Our credit procedures and policies may not be adequate to fully eliminate counterparty credit risk. If we fail to adequately assess the creditworthiness of existing or future customers or suppliers, or if their creditworthiness deteriorates unexpectedly, any resulting nonpayment or nonperformance by them could have an adverse impact on our results of operations, business and financial position, and cash generated from our operations.
Impacts to the cost or availability of transportation and other infrastructure could reduce our revenues.
Disruptions to or increases in the cost of local or regional transportation services and other forms of infrastructure, such as electricity, due to shortages of vessels, barges, railcars or trucks, weather-related problems, flooding, drought, accidents, mechanical difficulties, bankruptcy, strikes, lockouts, bottlenecks or other events could increase our costs, temporarily impair our ability to deliver products to our customers and might, in certain circumstances, constitute a force majeure event under our customer contracts, permitting our customers to suspend taking delivery of and paying for our products.
In addition, persistent disruptions in our access to infrastructure may force us to halt production as we reach storage capacity at our facilities. Accordingly, if the primary transportation services we use to transport our products are disrupted, and we are unable to find alternative transportation providers, it could have a material adverse effect on our results of operations, business and financial position, and cash generated from our operations.
We compete with other wood pellet producers and, if growth in domestic and global demand for wood pellets meets or exceeds management’s expectations, the competition within our industry may grow significantly.
We compete with other wood pellet production companies for the customers to whom we sell our products. Other current producers of utility‑grade wood pellets include AS Graanul Invest, Drax Biomass Inc., Fram Renewable Fuels, LLC, and Highland Pellets LLC. Competition in our industry is based on price, consistency and quality of product, site location, distribution and logistics capabilities, customer service, creditworthiness and reliability of supply. Some of our competitors may have greater financial and other resources than we do, may develop technology superior to ours or may have production plants sited in more advantageous locations from a logistics, procurement or other cost perspective.
In addition, we expect global demand for solid biomass to increase significantly in the coming years. This demand growth may lead to a significant increase in the production levels of our existing competitors and may incentivize new, well‑capitalized competitors to enter the industry, both of which could reduce the demand and the prices we are able to obtain under future off‑take contracts. Significant price decreases or reduced demand could have a material adverse effect on our results of operations, business and financial position, and cash generated from our operations.
Financial Risks
Our level of indebtedness may increase, thereby reducing our financial flexibility.
As of December 31, 2021, our total debt was $1.3 billion, which primarily consisted of $0.750 billion outstanding under our 6.5% senior unsecured notes due 2026. In January 2022, we issued common stock and used the net proceeds of $0.346 billion to reduce our total debt. In the future, we may incur additional indebtedness in order to make acquisitions or to develop our properties. Our level of indebtedness could affect our operations in several ways, including the following:
•a significant portion of our cash flows could be used to service our indebtedness;
•the covenants contained in the agreements governing our outstanding indebtedness may limit our ability to borrow additional funds, dispose of assets, pay dividends, and make certain investments;
•our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry;
•a high level of debt would increase our vulnerability to general adverse economic and industry conditions;
•a high level of debt may place us at a competitive disadvantage compared to our competitors that may be less leveraged and therefore may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing; and
•a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions, or general corporate or other purposes.
In addition, revolving borrowings under our senior secured revolving credit facility bear, and potentially other credit facilities we or our subsidiaries may enter into in the future will bear, interest at variable rates. If market interest rates increase, such variable‑rate debt will create higher debt service requirements, which could adversely affect our cash flow.
In addition to our debt service obligations, our operations require substantial expenditures on a continuing basis. Our ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and non‑capital expenditures necessary to maintain the condition of our operating assets and properties, as well as to provide
capacity for the growth of our business, depends on our financial and operating performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt, and future working capital borrowings or debt or equity financing may not be available to pay or refinance such debt.
Our exposure to risks associated with foreign currency and interest rate fluctuations, as well as the hedging arrangements we may enter into to mitigate those risks, could have an adverse effect on our financial condition and results of operations.
We may experience foreign currency exchange and interest rate volatility in our business. We use hedging transactions with respect to certain of our off-take contracts which are, in part or in whole, denominated in foreign currencies, and are party to interest rate swaps with respect to a portion of our variable rate debt, in an effort to achieve more predictable cash flow and to reduce our exposure to foreign currency exchange and interest rate fluctuations.
In addition, there may be instances in which costs and revenue will not be matched with respect to currency denomination. As a result, to the extent that existing and future off-take contracts are not denominated in U.S. Dollars, it is possible that increasing portions of our revenue, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations.
Our hedging transactions involve cost and risk and may not be effective at mitigating our exposure to fluctuations in foreign currency exchange and interest rates. Although the use of hedging transactions limits our downside risk, their use may also limit future revenues. Risks inherent in our hedging transactions include the risk that counterparties to hedging contracts may be unable to perform their obligations and the risk that the terms of such contracts will not be legally enforceable. Likewise, our hedging activities may be ineffective or may not fully offset the financial impact of foreign currency exchange or interest rates fluctuations, which could have an adverse impact on our results of operations, business and financial position, and our ability to pay dividends to our stockholders.
General Risk Factors
Our business may suffer if we lose, or are unable to attract and retain, key personnel.
We depend to a large extent on the services of our senior management team and other key personnel. Members of our senior management and other key employees collectively have extensive expertise in designing, building and operating wood pellet production plants or marine terminals, negotiating long‑term off-take contracts and managing businesses such as ours. Competition for management and key personnel is intense, and the pool of qualified candidates is limited. The loss of any of these individuals or the failure to attract additional personnel, as needed, could have a material adverse effect on our operations and could lead to higher labor costs or reliance on less qualified personnel. In addition, if any of our executives or other key employees were to join a competitor or form a competing company, we could lose customers, suppliers, know-how and key personnel. Our success is dependent on our ability to continue to attract, employ and retain highly skilled personnel.
The international nature of our business subjects us to a number of risks, including foreign exchange risk and unfavorable political, regulatory and tax conditions in foreign countries.
Substantially all of our current product sales are to customers that operate outside of the United States. As a result, we face certain risks inherent in maintaining international operations that include foreign exchange movements, restrictions on foreign trade and investment, including currency exchange controls imposed by or in other countries and trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make our products less competitive in some countries.
Changes to applicable tax laws and regulations or exposure to additional income tax liabilities could affect our business, cash flows and future profitability.
We are subject to various complex and evolving U.S. federal, state and local and non-U.S. taxes. U.S. federal, state and local and non-U.S. tax laws, policies, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us, in each case, possibly with retroactive effect, and may have an adverse effect on our business, cash flows and future profitability. For example, several tax proposals have been set forth that would, if enacted, make significant changes to U.S. tax laws. Such proposals include, but are not limited to, (i) an increase in the U.S. income tax rate applicable to corporations (such as us) from 21% to 28%, (ii) the imposition of a minimum tax on book income for certain corporations and (iii) the imposition of an excise tax on certain corporate stock repurchases that would be borne by the corporation repurchasing such stock. The U.S. Congress may consider, and could include, some or all of these proposals in connection with tax reform that may be undertaken. In addition, state and local and non-U.S. tax authorities may impose changes to their tax laws, regulations, policies, or ordinances that impact us. It is unclear whether these or similar changes will be enacted and, if enacted,
how soon any such changes could take effect. The passage of any legislation as a result of these proposals and other similar changes in tax laws could adversely affect our business, cash flows and future profitability.
Labor strikes or work stoppages by our employees could harm our business.
TerroristUnionization activities could occur among non-union employees. If union employees strike, participate in a work stoppage or slowdown or engage in other forms of labor strike, it could lead to disruptions in our business, increases in our operating costs and armed conflictsconstraints on our operating flexibility. Strikes, work stoppages or an inability to negotiate future collective bargaining agreements on commercially reasonable terms could adversely affecthave a material adverse effect on our business, results of operations, financial condition and cash flows.
Uncertainty relating to the U.S.London Inter-bank Offered Rate (“LIBOR”) calculation process and global economies and could prevent us from meeting financial and other obligations or prevent our customers from meeting their obligations to us. We could experience losspotential phasing out of business, delays or defaultsLIBOR in payments from customers or disruptions of fuel supplies and markets, including if domestic and global power generators are direct targets or indirect casualties of an act of terror or war. Terrorist activities and the threat of potential terrorist activities and any resulting economic downturn could2023 may adversely affect our resultscurrent or future debt obligations, including our senior secured revolving credit facility.
On July 27, 2017, the Chief Executive of operations, impairthe U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021, which was extended through June 2023 for U.S. dollar LIBOR values. At this time, it is not possible to predict what such phase out, alternative reference rates or other reforms, if they occur, will have on the amount of interest paid on, or the market value of, our ability to raise capitalcurrent or otherwise adversely impactfuture debt obligations, including our ability to realize certain business strategies.
senior secured revolving credit facility.
Our business is subject to cybersecurity risks.
As is typical of modern businesses, we are reliant on the continuous and uninterrupted operation of our information technology (“IT”) systems. User access and security of our sites and IT systems can be critical elements of our operations, as are cloud security and protection against cybersecurity incidents. Any IT failure pertaining to availability, access or system security could potentially result in disruption of our activities and personnel, and could adversely affect our reputation, operations or financial performance.
Potential risks to our IT systems could include unauthorized attempts to extract business-sensitive, confidential or personal information, denial of access, extortion, corruption of information, or disruption of business processes. A cybersecurity incident resulting in a security breach or failure to identify a security threat could disrupt our business and could result in the loss of sensitive, confidential information or other assets, as well as litigation, regulatory enforcement, violation of privacy or securities laws and regulations, and remediation costs, all of which could materially impact our reputation, operations or financial performance.
Risks RelatedA terrorist attack or armed conflict could harm our business.
Terrorist activities and armed conflicts could adversely affect the U.S. and global economies and could prevent us from meeting financial and other obligations or prevent our customers from meeting their obligations to Our Partnership Structureus. We could experience loss of business, delays or defaults in payments from customers or disruptions of fuel supplies and markets, including if domestic and global generators are direct targets or indirect casualties of an act of terror or war. Terrorist activities and the threat of potential terrorist activities and any resulting economic downturn could adversely affect our results of operations, impair our ability to raise capital or otherwise adversely impact our ability to realize certain business strategies.
Enviva Holdings, LP ownsIf the price of our common stock fluctuates significantly, your investment could lose value.
Although our common stock is listed on the NYSE, we cannot assure you that an active public market will continue for our common stock. If an active public market for our common stock does not continue, the trading price and controlsliquidity of our General Partner, which has sole responsibilitycommon stock will be materially and adversely affected. If there is a thin trading market or “float” for conductingour stock, the market price for our common stock may fluctuate significantly more than the stock market as a whole. Without a large float, our common stock would be less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile. In addition, in the absence of an active public trading market, investors may be unable to liquidate their investment in us. Furthermore, the stock market is subject to significant price and volume fluctuations, and the price of our common stock could fluctuate widely in response to several factors, including; our quarterly or annual operating results; changes in our earnings estimates; investment recommendations by securities analysts following our business and managingor our operations. Our General Partner and its affiliates, including Enviva Holdings, LP, have conflictsindustry; additions or departures of interest with us and limited duties, and they may favor their own interests to our detriment and thatkey personnel; changes in the business, earnings estimates or market perceptions of our unitholders.competitors; our failure to achieve operating results consistent with securities analysts’ projections; changes in industry, general market or economic conditions; and announcements of legislative or regulatory changes.
Enviva Holdings, LP, ownsThe stock market has experienced extreme price and controls our General Partner and appoints allvolume fluctuations in recent years that have significantly affected the quoted prices of the directorssecurities of many companies, including companies in our industry. The changes often appear to occur
without regard to specific operating performance. The price of our General Partner. Althoughcommon stock could fluctuate based upon factors that have little or nothing to do with our General Partner has a duty to managecompany and these fluctuations could materially reduce our stock price.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock or if our operating results do not meet their expectations, our stock price could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us in a manner that it believes is not adverse toor our interest, the executive officers and directorsbusiness. If one or more of these analysts cease coverage of our General Partner havecompany or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrade our stock or if our operating results do not meet their expectations, our stock price could decline.
Our certificate of incorporation and bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our common stock.
Our certificate of incorporation authorizes our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a fiduciary dutythird party to manageacquire us. In addition, some provisions of our General Partner incertificate of incorporation and bylaws could make it more difficult for a mannerthird party to acquire control of us, even if the change of control would be beneficial to our sponsor. Therefore, conflicts of interest may arise between our sponsor or any of its affiliates, including our General Partner, on the one hand,stockholders, including:
•advance notice provisions for stockholder proposals and us or any of our unitholders, on the other hand. In resolving these conflicts of interest, our General Partner may favor its own interests and the interests of its affiliates over the interests of our common unitholders. These conflicts include the following situations, among others:
our General Partner is allowednominations for elections to take into account the interests of parties other than us, such as our sponsor, in exercising certain rights under our partnership agreement;
neither our partnership agreement nor any other agreement requires our sponsor to pursue a business strategy that favors us;
our partnership agreement eliminates and replaces the fiduciary duties that would otherwise be owed by our General Partner with contractual standards governing its duties, limits our General Partner’s liabilities and restricts the remedies available to our unitholders for actions that, without such eliminations and limitations, might constitute breaches of fiduciary duty;
except in limited circumstances, our General Partner has the power and authority to conduct our business without unitholder approval;
our General Partner determines the amount and timing of asset purchases and sales, borrowings, issuances of additional partnership securities and the level of reserves, each of which can affect the amount of cash that is distributed to our unitholders;
our General Partner determines the amount and timing of any cash expenditure and whether an expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion capital expenditure, which does not reduce operating surplus. This determination can affect the amount of cash from operating surplus that is distributed to our common unitholders relative to our General Partner as the holder of our incentive distribution rights;
our General Partner may cause us to borrow funds in order to permit the payment of cash distributions;
our partnership agreement permits us to distribute up to $39.3 million as operating surplus, even if it is generated from asset sales, borrowings other than working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions to holders of our incentive distribution rights;
our General Partner determines which costs incurred by it and its affiliates are reimbursable by us;
our partnership agreement does not restrict our General Partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf;
our General Partner intends to limit its liability regarding our contractual and other obligations;
our General Partner may exercise its right to call and purchase common units if it and its affiliates own more than 80% of the common units;
our General Partner controls the enforcement of obligations that it and its affiliates owe to us;
our General Partner decides whether to retain separate counsel, accountants or others to perform services for us; and
our General Partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our General Partner’s incentive distribution rights without the approval of the conflicts committee of the board of directors to be acted upon at meetings of stockholders; and
•limitations on the ability of our General Partner or the unitholders. This election may result in lower distributionsstockholders to the common unitholders in certain situations.call special meetings.
In addition, we may compete directly with our sponsor and entities in which it has an interest for acquisition opportunities and potentially will compete with these entities for new business or extensions of the existing services provided by us.
The board of directors of our General Partner may modify or revoke our cash distribution policy at any time at its discretion. Our partnership agreement does not require us to pay any distributions at all.
Pursuant to our cash distribution policy, we intend to distribute quarterly at least $0.4125 per unit on all of our units to the extent we have sufficient cash after the establishment of cash reserves and the payment of our expenses, including payments to our General Partner and its affiliates. However, the board may change such policy at any time at its discretion and could elect not to pay distributions for one or more quarters. Please read Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Cash Distribution Policy.”
In addition, our partnership agreement does not require us to pay any distributions at all. Accordingly, investors are cautioned not to place undue reliance on the permanence of such a policy in making an investment decision. Any modification or revocation of our cash distribution policy could substantially reduce or eliminate the amounts of distributions to our unitholders. The amount of distributions we make, if any, and the decision to make any distribution at all will be determined by the board of directors of our General Partner, whose interests may differ from those of our common unitholders. Our General Partner has limited duties to our unitholders, which may permit it to favor its own interests or the interests of our sponsor to the detriment of our common unitholders.
Our General Partner limits its liability regarding our obligations.
Our General Partner limits its liability under contractual arrangements between us and third parties so that the counterparties to such arrangements have recourse only against our assets, and not against our General Partner or its assets. Our General Partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our General Partner. Our partnership agreement provides that any action taken by our General Partner to limit its liability is not a breach of our General Partner’s duties, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are obligated to reimburse or indemnify our General Partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our unitholders.
We intend to distribute a significant portion of our cash available for distribution to our partners, which could limit our ability to grow and make acquisitions.
We intend to distribute most of our cash available for distribution, which may cause our growth to proceed at a slower pace than that of businesses that reinvest their cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, may impact the cash that we have available to distribute to our unitholders.
Our partnership agreement eliminates and replaces our General Partner’s fiduciary duties to holders of our units.
Our partnership agreement contains provisions that eliminate and replace the fiduciary standards to which our General Partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement permits our General Partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our General Partner, or otherwise free of fiduciary duties to us and our unitholders. This entitles our General Partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our General Partner may make in its individual capacity include:
how to allocate business opportunities among us and its affiliates;
whether to exercise its call right;
whether to seek approval of the resolutions of a conflict of interest by the conflicts committee of the board of directors of our General Partner;
how to exercise its voting rights with respect to the units it owns;
whether to exercise its registration rights;
whether to elect to reset target distribution levels; and
whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership agreement.
Limited partners who own common units are treated as having consented to the provisions in the partnership agreement, including the provisions discussed above.
Our partnership agreement restricts the remedies available to holders of our units for actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty.
Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement provides that:
whenever our General Partner makes a determination or takes, or declines to take, any other action in its capacity as our General Partner, our General Partner is generally required to make such determination, or take or decline to take such other action, in good faith, and will not be subject to any higher standard imposed by our partnership agreement, Delaware law or any other law, rule or regulation, or at equity;
our General Partner and its officers and directors will not be liable for monetary damages or otherwise toprohibits us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that such losses or liabilities were the result of conduct in which our General Partner or its officers or directors engaged in bad faith, meaning that they believed that the decision was adverse to the interest of the partnership or, with respect to any criminal conduct, with knowledge that such conduct was unlawful; and
our General Partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is:
(1) approved by the conflicts committee of the board of directors of our General Partner, although our General Partner is not obligated to seek such approval; or
(2) approved by the vote of a majority of the outstanding common units, excluding any common units owned by our General Partner and its affiliates.
In connection with a situation involving a transaction with an affiliate or a conflict of interest, other than one where our General Partner is permitted to act in its sole discretion, any determination by our General Partner must be made in good faith. If an affiliate transaction or the resolution of a conflict of interest is not approved by our common unitholders or the conflicts committee then it will be presumed that, in making its decision, taking any action or failing to act, the board of directors acted
in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
Our sponsor and other affiliates of our General Partner may compete with us.
Our partnership agreement provides that our General Partner is restricted from engaging in any business activities othercombination with any “interested stockholder,” meaning generally that a stockholder who beneficially owns more than acting as our General Partner, engaging in those activities incidental to its ownership interest in us and providing management, advisory and administrative services to its affiliates or to other persons. However, affiliates15% of our General Partner, including our sponsor, are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us. In addition, our sponsor may compete withstock cannot acquire us for investment opportunities and may own an interest in entities that compete with us.
Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to our General Partner or any of its affiliates, including its executive officers and directors and our sponsor. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our General Partner and result in less than favorable treatment of us and our unitholders.
The holder or holders of our incentive distribution rights may elect to cause us to issue common units to it in connection with a resetting of the incentive distribution without the approval of our unitholders. This election may result in lower distributions to our common unitholders in certain situations.
The holder or holders of a majority of our incentive distribution rights (currently our General Partner) have the right, at any time when we have made cash distributions in excess of the then‑applicable third target distribution for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our cash distribution levels at the time of the exercise of the reset election. Following a reset election, a baseline distribution amount will be calculated equal to an amount equal to the prior cash distribution per common unit for the fiscal quarter immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”), and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution. In addition, in connection with a reset election, the holders of our incentive distribution rights would receive a number of newly issued common units based on the value of cash distributions paid in respect of the incentive distribution rights in the quarter preceding the reset election.
We anticipate that our General Partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per unit without such conversion. However, our General Partner may transfer the incentive distribution rights at any time. It is possible that our General Partner or a transferee could exercise this reset election at a time when we are experiencing declines in our aggregate cash distributions or at a time when the holders of the incentive distribution rights expect that we will experience declines in our aggregate cash distributions in the foreseeable future. In such situations, the holders of the incentive distribution rights may be experiencing, or may expect to experience, declines in the cash distributions they receive related to the incentive distribution rights and may therefore desire to be issued our common units, which are entitled to specified priorities with respect to our distributions and which therefore may be more advantageous for them to own in lieu of the right to receive incentive distribution payments based on target distribution levels that are less certain to be achieved. As a result, a reset election may cause our common unitholders to experience dilution in the amount of cash distributions that they would have otherwise received had we not issued new common units to the holders of the incentive distribution rights in connection with resetting the target distribution levels.
Our general partner has certain incentive distribution rights that reduce the amount of our cash available for distribution to our common unitholders.
Our General Partner currently holds incentive distribution rights that entitle it to receive an increasing percentage (15 percent, 25 percent and 50 percent) of the cash that we distribute to our common unitholders from available cash after the minimum quarterly distribution and certain target distribution levels have been achieved. The maximum distribution right for our General Partner to receive 50 percent of any distributions paid to our common unitholders does not include any distributions that our General Partner or its affiliates may receive on common units that they own. Effective as of our quarterly cash distribution in the fourth quarter of 2017, our General Partner was at the top tier of the incentive distribution rights scale. Given that a higher percentage of our cash flows is allocated to our general partner due to these incentive distribution rights, it may be more difficult for us to increase the amount of distributions to our unitholders and our cost of capital may be higher, making investments, capital expenditures and acquisitions, and therefore, future growth, by us potentially more costly, and in some cases, potentially prohibitively so.
Holders of our common units have limited voting rights and are not entitled to elect our General Partner or its directors, which could reduce the price at which our common units will trade.
Compared to the holders of common stock in a corporation, unitholders have limited voting rights and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders have no right on an annual or ongoing basis to elect our General Partner or its board of directors. The board of directors of our General Partner, including the independent directors, is chosen entirely by our sponsor, as a result of it owning our General Partner, and not by our unitholders. Unlike publicly traded corporations, we do not hold annual meetings of our unitholders to elect directors or consider other matters routinely addressed at annual meetings of stockholders of corporations. As a result of these limitations, the price at which the common units trade could be diminished because of the absence or reduction of a takeover premium in the trading price.
Even if holders of our common units are dissatisfied, they cannot currently remove our General Partner without our sponsor’s consent.
If our unitholders are dissatisfied with the performance of our General Partner, they have limited ability to remove our General Partner. Unitholders are currently unable to remove our General Partner without our sponsor’s consent because our sponsor and its affiliates own sufficient units to be able to prevent its removal. The vote of the holders of at least 66 2/3% of all outstanding common units is required to remove our General Partner. As of February 15, 2019, our sponsor owned approximately 45% of our common units. This condition would enable our sponsor to prevent the removal of our General Partner.
Our general partner interest or the control of our General Partner may be transferred to a third party without unitholder consent.
Our General Partner may transfer its general partner interest to a third party without the consent of our unitholders. Furthermore, our partnership agreement does not restrict the ability of the owner of our General Partner to transfer its membership interests in our General Partner to a third party. The new owner of our General Partner would then be in a position to replace the board of directors and executive officers of our General Partner with its own designees and thereby exert significant control over the decisions taken by the board of directors and executive officers of our General Partner. This effectively permits a “change of control” without the vote or consent of the unitholders.
The incentive distribution rights may be transferred to a third party without unitholder consent.
Our General Partner may transfer the incentive distribution rights to a third party at any time without the consent of our unitholders. If our General Partner transfers the incentive distribution rights to a third party, our General Partner would not have the same incentive to grow our partnership and increase quarterly distributions to unitholders over time. For example, a transfer of incentive distribution rights by our General Partner could reduce the likelihood of our sponsor accepting offers made by us relating to assets owned by our sponsor, as it would have less of an economic incentive to grow our business, which in turn would impact our ability to grow our asset base.
Our General Partner has a call right that may require unitholders to sell their common units at an undesirable time or price.
If at any time our General Partner and its affiliates own more than 80% of the common units, our General Partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per‑unit price paid by our General Partner or any of its affiliates for common units during the 90‑day period preceding the date such notice is first mailed. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our General Partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the call right. There is no restriction in our partnership agreement that prevents our General Partner from causing us to issue additional common units and then exercising its call right. If our General Partner exercised its call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Exchange Act.
We may issue additional units without unitholder approval, which would dilute existing unitholder ownership interests.
Our partnership agreement does not limit the number of additional limited partner interests we may issue at any time without the approval of our unitholders. The issuance of additional common units or other equity interests of equal or senior rank will have the following effects:
our existing unitholders’ proportionate ownership interest in us will decrease;
the amount of cash available for distribution on each unit may decrease;
the ratio of taxable income to distributions may increase;
the relative voting strength of each previously outstanding unit may be diminished; and
the market price of the common units may decline.
There are no limitations in our partnership agreement on our ability to issue units ranking senior to the common units.
In accordance with Delaware law and the provisions of our partnership agreement, we may issue additional partnership interests that are senior to the common units in right of distribution, liquidation and voting. The issuance by us of units of senior rank may (1) reduce or eliminate the amount of cash available for distribution to our common unitholders; (2) diminish the relative voting strength of the total common units outstanding as a class; or (3) subordinate the claims of the common unitholders to our assets in the event of our liquidation.
The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public or private markets, including sales by our sponsor or other large holders.
Our sponsor has registration rights with respect to the common units it currently holds. Sales by our sponsor or other large holders of a substantial number of our common units in the public markets, or the perception that such sales might occur, could have a material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of equity securities.
Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.
Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person or group that owns 20% or more of any class of units then outstanding, other than our General Partner and its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our General Partner, cannot vote on any matter.
Cost reimbursements due to our General Partner and its affiliates for services provided to us or on our behalf will reduce cash available for distribution to our unitholders. The amount and timing of such reimbursements will be determined by our General Partner.
Under our management services agreement with Enviva Management (the “MSA”), we are obligated to reimburse Enviva Management for all direct or indirect costs and expenses incurred by, or chargeable to, Enviva Management in connection with its provision of services necessary for the operation of our business. If the MSA were terminated without replacement, or our General Partner or its affiliates provided services outside of the scope of the MSA, our partnership agreement would require us
to reimburse our General Partner and its affiliates for all expenses they incur and payments they make on our behalf. Our partnership agreement does not set a limit on the amount of expenses for which our General Partner and its affiliates may be reimbursed. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our General Partner by its affiliates. Our partnership agreement provides that our General Partner determines the expenses that are allocable to us. The reimbursement of expenses and payment of fees, if any, to our General Partner and its affiliates will reduce the amount of cash available for distribution to our unitholders.
The price of our common units may fluctuate significantly and unitholders could lose all or part of their investment.
The market price of our common units may be influenced by many factors, some of which are beyond our control, including:
our quarterly distributions;
our quarterly or annual earnings or those of other companies in our industry;
announcements by us or our competitors of significant contracts or acquisitions;
changes in accounting standards, policies, guidance, interpretations or principles;
general economic conditions;
the failure of securities analysts to cover our common units or changes in financial estimates by analysts;
future sales of our common units; and
the other factors described in these “Risk Factors.”
Unitholders may have liability to repay distributions.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17‑607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date this person became an interested stockholder, unless various conditions are met, such as approval of the impermissible distribution, limited partnerstransaction by our board of directors.
The corporate opportunity provisions in our certificate of incorporation could enable affiliates of ours to benefit from corporate opportunities that might otherwise be available to us.
Subject to the limitations of applicable law, our certificate of incorporation, among other things; permits us to enter into transactions with entities in which one or more of our officers or directors are financially or otherwise interested; permits any of our stockholders, officers or directors to conduct business that competes with us and to make investments in any kind of property in which we may make investments; and provides that if any director or officer of one of our affiliates who received the distributionis also one of our officers or directors becomes aware of a potential business opportunity, transaction or other matter (other than one expressly offered to that director or officer in writing solely in his or her capacity as our director or officer), that director or officer will have no duty to communicate or offer that opportunity to us, and who knew at the time of the distribution that it violated Delaware law will be liablepermitted to the limited partnership for the distribution amount. Liabilitiescommunicate or offer that opportunity to partners on account of their partnership interestssuch affiliates and liabilities that are non‑recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.
For as long as we are an emerging growth company, wedirector or officer will not be requireddeemed to complyhave (i) acted in a manner inconsistent with certain disclosure requirementshis or her fiduciary or other duties to us regarding the opportunity or (ii) acted in bad faith or in a manner inconsistent with our best interests.
These provisions create the possibility that applya corporate opportunity that would otherwise be available to other public companies.
For as long as we remain an “emerging growth company” as defined inus may be used for the Tax Cuts and Jobs Actbenefit of 2017, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to provide an auditor’s attestation report on management’s assessment of the effectivenessone of our system of internal control over financial reporting pursuant to Section 404 of the Sarbanes‑Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports. We will remain an emerging growth company for up to five years, although we will lose that status earlier if we have more than $1.1 billion of revenues in a fiscal year, have more than $700.0 million in market value of our common units held by non‑affiliates, or issue more than $1.0 billion of non‑convertible debt over a three‑year period.
To the extent that we rely on any of the exemptions available to emerging growth companies, our unitholders will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our common units to be less attractive as a result, there may be a less active trading market for our common units and our trading price may be more volatile.
The New York Stock Exchange (the “NYSE”) does not require a publicly traded partnership like us to comply with certain of its corporate governance requirements.
Our common units are listed on the NYSE. Because we are a publicly traded partnership, the NYSE does not require us to have a majority of independent directors on our General Partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Accordingly, unitholders do not have the same protections afforded toaffiliates.
certain corporations that are subject to all of the NYSE corporate governance requirements. Please read Part III, Item 10. “Directors, Executive Officers and Corporate Governance—Director Independence.”
Tax Risks to Common Unitholders
Our tax treatment depends on our status as a partnership for federal income tax purposes and not being subject to a material amount of entity‑level taxation. If the Internal Revenue Service(“IRS”)were to treat us as a corporation for federal income tax purposes, or we become subject to entity‑level taxation for state tax purposes, our cash available for distribution to our unitholders would be substantially reduced.
The anticipated after‑tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for federal income tax purposes.
Despite the fact that we are organized as a limited partnership under Delaware law, we would be treated as a corporation for U.S. federal income tax purposes unless we satisfy a “qualifying income” requirement. Based upon our current operations and current Treasury Regulations, we believe we satisfy the qualifying income requirement. We have requested and obtained a favorable private letter ruling from the IRS to the effect that, based on facts presented in the private letter ruling request, our income from processing timber feedstocks into pellets and transporting, storing, marketing and distributing such timber feedstocks and wood pellets constitute “qualifying income” within the meaning of Section 7704 of the Internal Revenue Code of 1986 (the “Code”). However, no ruling has been or will be requested regarding our treatment as a partnership for U.S. federal income tax purposes. Failing to meet the qualifying income requirement or a change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation as an entity.
If we were treated as a corporation for federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate. Distributions to our unitholders would generally be taxed again as corporate distributions, and no income, gains, losses or deductions would flow through to our unitholders. Because a tax would be imposed upon us as a corporation, our cash available for distribution to our unitholders would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after‑tax return to the unitholders, likely causing a substantial reduction in the value of our common units.
Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity‑level taxation for U.S. federal, state, local or foreign income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law or interpretation on us. At the state level, several states have been evaluating ways to subject partnerships to entity‑level taxation through the imposition of state income, franchise or other forms of taxation. Specifically, we currently own assets and conduct business in Mississippi, North Carolina, Florida and Virginia, each of which imposes a margin or franchise tax. In the future, we may expand our operations. Imposition of a similar tax on us in other jurisdictions that we may expand to could substantially reduce our cash available for distribution to our unitholders.
The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. From time to time, members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that affect publicly traded partnerships. Although there is no current legislative proposal, a prior legislative proposal would have eliminated the qualifying income exception to the treatment of all publicly traded partnerships as corporations upon which we rely for our treatment as a partnership for U.S. federal income tax purposes. In addition, the Treasury Department has issued, and in the future may issue, regulations interpreting those laws that affect publicly traded partnerships. We believe we qualify as a partnership for U.S. federal income tax purposes under current regulations.
However, any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any similar or future legislative changes could negatively impact the value of an investment in our common units. You are urged to consult with your own tax advisor with respect to the status of regulatory or administrative developments and proposals and their potential effect on your investment in our common units.
If the IRS were to contest the federal income tax positions we take, it may adversely impact the market for our common units, and the costs of any such contest would reduce cash available for distribution to our unitholders.
We have requested and obtained a favorable private letter ruling from the IRS to the effect that, based on facts presented in the private letter ruling request, our income from processing timber feedstocks into pellets and transporting, storing, marketing and distributing such timber feedstocks and wood pellets will constitute “qualifying income” within the meaning of Section 7704 of the Code. However, no ruling has been or will be requested regarding our treatment as a partnership for U.S. federal income tax purposes. The IRS may adopt positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest with the IRS may materially and adversely impact the market for our common units and the price at which they trade. Moreover, the costs of any contest between us and the IRS will result in a reduction in cash available for distribution to our unitholders and thus will be borne indirectly by our unitholders.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from us, in which case we may require our unitholders and former unitholders to reimburse us for such taxes (including any applicable penalties or interest) or, if we are required to bear such payments, our cash available for distribution to our unitholders might be substantially reduced.
Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit adjustments to our income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us. To the extent possible under the new rules, our General Partner may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if we are eligible, issue a revised information statement to each unitholder and former unitholder with respect to an audited and adjusted return, which statement reports the items adjusted and certain other amounts. Although our General Partner may elect to have our unitholders and former unitholders take such audit adjustment into account and pay any resulting taxes (including applicable penalties and interest) in accordance with their interests in us during the tax year under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. As a result, our current unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such unitholders did not own units in us during the tax year under audit. If, as a result of any such audit adjustment, we are required to make payments of taxes, penalties and interest, we may require our unitholders and former unitholders to reimburse us for such taxes (including any applicable penalties or interest) or, if we are required to bear such payments, our cash available for distribution to our unitholders might be substantially reduced. These rules are not applicable for tax years beginning on or prior to December 31, 2017.
Even if unitholders do not receive any cash distributions from us, unitholders will be required to pay taxes on their share of our taxable income.
Unitholders are required to pay federal income taxes and, in some cases, state and local income taxes, on unitholders’ share of our taxable income, whether or not they receive cash distributions from us. For example, if we sell assets and use the proceeds to repay existing debt or fund capital expenditures, you may be allocated taxable income and gain resulting from the sale, and our cash available for distribution would not increase. Similarly, taking advantage of opportunities to reduce our existing debt, such as debt exchanges, debt repurchases, or modifications of our existing debt could result in “cancellation of indebtedness income” being allocated to our unitholders as taxable income without any increase in our cash available for distribution. Unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax due from them with respect to that income.
A tax gain or loss on the disposition of our common units could be more or less than unitholders expect.
If unitholders sell their common units, they will recognize a gain or loss equal to the difference between the amount realized and their tax basis in those common units. Because distributions in excess of unitholders’ allocable share of our net taxable income decrease their tax basis in their common units, the amount, if any, of such prior excess distributions with respect to the units unitholders sell will, in effect, become taxable income to our unitholders if they sell such units at a price greater than their tax basis in those units, even if the price they receive is less than their original cost. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if they sell their units, unitholders may incur a tax liability in excess of the amount of cash they receive from the sale.
Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation recapture. Thus, you may recognize both ordinary income and capital loss from the sale of your units if the amount realized on a sale of your units is less than your adjusted basis in the units. Net capital loss may only offset capital gains and, in the case of individuals, up to $3,000 of ordinary income per year. In the
taxable period in which you sell your units, you may recognize ordinary income from our allocations of income and gain to you prior to the sale and from recapture items that generally cannot be offset by any capital loss recognized upon the sale of units.
Tax-exempt entities face unique tax issues from owning our common units that may result in adverse tax consequences to them.
Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs), raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Further, with respect to taxable years beginning after December 31, 2017, subject to the proposed aggregation rules for certain similarly situated businesses or activities issued by the Treasury Department, a tax-exempt entity with more than one unrelated trade or business (including by attribution from investment in a partnership such as ours that is engaged in one or more unrelated trade or business) is required to compute the unrelated business taxable income of such tax-exempt entity separately with respect to each such trade or business (including for purposes of determining any net operating loss deduction). As a result, for years beginning after December 31, 2017, it may not be possible for tax-exempt entities to utilize losses from an investment in our partnership to offset unrelated business taxable income from another unrelated trade or business and vice versa. Any tax‑exempt entity should consult its tax advisor before investing in our common units.
Unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
Historically, we have been entitled to a full deduction for interest paid or accrued on indebtedness properly allocable to our trade or business during our taxable year. However, under the Tax Cuts and Jobs Act signed into law in December 2017, for taxable years beginning after December 31, 2017, our deduction for “business interest” is limited to the sum of our business interest income and 30% of our “adjusted taxable income.” For the purposes of this limitation, our adjusted taxable income is computed without regard to any business interest expense or business interest income, and in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization or depletion to the extent such depreciation, amortization or depletion is not capitalized into cost of goods sold with respect to inventory. As a result, we expect that a substantial portion of our interest expense may be limited.
Non-U.S. Unitholders will be subject to U.S. taxes and withholding with respect to their income and gain from owning our units.
Non-U.S. unitholders are generally taxed and subject to income tax filing requirements by the United States on income effectively connected with a U.S. trade or business (“effectively connected income”). Income allocated to our unitholders and any gain from the sale of our units will generally be considered to be “effectively connected” with a U.S. trade or business. As a result, distributions to a non-U.S. unitholder will be subject to withholding at the highest applicable effective tax rate and a non-U.S. unitholder who sells or otherwise disposes of a unit will also be subject to U.S. federal income tax on the gain realized from the sale or disposition of such unit.
The Tax Cuts and Jobs Act imposes a withholding obligation of 10% of the amount realized upon a non-U.S. unitholder’s sale or exchange of an interest in a partnership that is engaged in a U.S. trade or business. However, due to challenges of administering a withholding obligation applicable to open market trading and other complications, the IRS has temporarily suspended the application of this withholding rule to open market transfers of interests in publicly traded partnerships pending promulgation of regulations or other guidance that resolves the challenges. It is not clear if or when such regulations or other guidance will be issued. Non-U.S. unitholders should consult a tax advisor before investing in our common units.
We treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.
Because we cannot match transferors and transferees of common units, we have adopted certain methods for allocating depreciation and amortization deductions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to the use of those methods could adversely affect the amount of tax benefits available to our unitholders. It also could affect the timing of these tax benefits or the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to their tax returns.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month (the “Allocation Date”), instead of on the basis of
the date a particular unit is transferred. Similarly, we generally allocate certain deductions for depreciation of capital additions, gain or loss realized on a sale or other disposition of our assets and, in the discretion of the general partner, any other extraordinary item of income, gain, loss or deduction based upon ownership on the Allocation Date. Treasury Regulations allow a similar monthly simplifying convention, but such regulations do not specifically authorize all aspects of our proration method. If the IRS were to challenge our proration method, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders.
A unitholder whose units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of units) may be considered as having disposed of those units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition.
Because there are no specific rules governing the U.S. federal income tax consequence of loaning a partnership interest, a unitholder whose units are the subject of a securities loan may be considered as having disposed of the loaned units. In that case, the unitholder may no longer be treated for tax purposes as a partner with respect to those units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a securities loan are urged to consult a tax advisor to determine whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their units.
We have adopted certain valuation methodologies in determining a unitholder’s allocations of income, gain, loss and deduction. The IRS may challenge these methodologies or the resulting allocations, which could adversely affect the value of the common units.
In determining the items of income, gain, loss and deduction allocable to our unitholders, we must routinely determine the fair market value of our assets. Although we may, from time to time, consult with professional appraisers regarding valuation matters, we make many fair market value estimates using a methodology based on the market value of our common units as a means to measure the fair market value of our assets. The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction.
A successful IRS challenge to these methods or allocations could adversely affect the timing or amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.
Our unitholders will likely be subject to state and local taxes and income tax return filing requirements in jurisdictions where they do not live as a result of investing in our common units.
In addition to U.S. federal income taxes, our unitholders may be subject to other taxes, including foreign, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if they do not live in any of those jurisdictions. Our unitholders will likely be required to file foreign, state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements.
We currently own assets in multiple states. Many of these states currently impose a personal income tax on individuals, corporations and other entities. As we make acquisitions or expand our business, we may own assets or conduct business in additional states that impose a personal income tax. It is our unitholders’ responsibility to file all U.S. federal, foreign, state and local tax returns and pay any resulting taxes due in these jurisdictions. Unitholders should consult with their own tax advisors regarding the filing of such tax returns, the payment of such taxes, and the deductibility of any such taxes paid.
| |
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Information regarding our properties is contained in Part I, Item 1. “Business” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
DuringITEM 3. LEGAL PROCEEDINGS
Although we may, from time to time, be involved in litigation and claims arising out of our operations in the fourth quarternormal course of 2016,business, we re-purchaseddo not believe that we are a shipmentparty to any litigation that will have a material adverse impact on our financial condition or results of wood pellets from one customer and subsequently sold it to another customer in a purchase and sale transaction. Smoldering was observed onboard the vessel carrying the shipment, which resulted in damage to a portion of the shipment and one of the vessel’s five cargo holds (the “Shipping Event”). The disponent owner of the vessel (the “Shipowner”) had directly or indirectly chartered the vessel from certain other parties (collectively, the “Head Owners”) and in turn contracted with Cottondale as the charterer of the vessel. Following the mutual appointment of arbitrators in connection with the Shipping Event, in June, 2017, the Shipowner submitted claims against Cottondale (the “Claims”) alleging damages of approximately $11.5 million (calculated using exchange rates as of December 31, 2018), together with other unquantified losses and damages. The Claims provide that the Shipowner would seek indemnification and other damages from Cottondale to the extent that the Shipowner is unsuccessful in its defense of claims raised by the Head Owners against it for damages arising in connection with the Shipping Event. In February 2019, the parties to the arbitration settled the Claims at no incremental cost to us.operations.
As of December 31, 2018, $1.0 million is recorded in insurance receivables related to recovery of legal costs incurred.
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ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
| |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
On December 31, 2021, the Company completed its conversion from a Delaware limited partnership named Enviva Partners, LP to a Delaware corporation named Enviva Inc. As a result of and at the effective date of the Conversion, each common unit representing a limited partner interest in Enviva Partners, LP issued and outstanding immediately prior to the conversion was automatically converted into one share of common stock, par value $0.001 per share, of Enviva Inc.
Our common units representing limited partner interests in the Partnership (“common units”) arestock is traded on the New York Stock Exchange (“NYSE”) under the symbol “EVA.”
Holders of Record
As of February 15, 2019,28, 2022, there were 26,572,67966.6 million shares of common unitsstock outstanding held by three unitholders47 stockholders of record. Because many shares of our common unitsstock are held by brokers and other institutions on behalf of unitholders,our stockholders, we are unable to estimate the total number of unitholdersstockholders represented by these stockholders of record.
Dividend Policy
Subsequent to the Conversion, we intend to continue to pay a quarterly dividend to our stockholders in line with the levels of cash distributions per unit that we paid to unitholders of record. As of February 15, 2019 our sponsor held approximately 45% ofEnviva Partners, LP prior to the common units.
Cash Distribution Policy
General
Our partnership agreement provides that our General Partner will make a determination as to whether to make a distribution, but our partnership agreement does not require usConversion. However, the decision to pay distributions at any time or in any amount. Instead,future dividends is solely within the discretion of, and subject to approval by, our board of directorsdirectors. Our board of our General Partner adopted a cash distribution policy that sets forth our General Partner’s intentiondirectors’ determination with respect to any such dividends, including the distributions to be made to unitholders. Pursuant to our cash distribution policy, within 60 days afterrecord date, the end of each quarter, we intend to distribute topayment date and the holders of common units on a quarterly basis at least the minimum quarterly distribution of $0.4125 per unit, or $1.65 on an annualized basis, to the extent we have sufficient cash after establishment of cash reserves and payment of fees and expenses, including payments to our General Partner and its affiliates.
The board of directors of our General Partner may change the foregoing distribution policy at any time and from time to time, and even if our cash distribution policy is not modified or revoked, theactual amount of distributions paid underthe dividend, will depend upon our policyresults of operations, financial condition, liquidity, capital requirements, contractual restrictions, restrictions imposed by applicable law and other factors that the decision to make any distribution is determined by our General Partner. Our partnership agreement does not contain a requirement for us to pay distributions to our unitholders, and there is no guarantee that we will pay any specific distribution level, or any distribution, onboard deems relevant at the units in any quarter. However, our partnership agreement does contain provisions intended to motivate our General Partner to make steady, increasing and sustainable distributions over time.
Please read Part II, Item 7. “Management’s Discussion and Analysistime of Financial Condition and Results of Operations—Senior Secured Credit Facilities” for a discussion of the provisions included in our credit facility that may restrict our ability to make distributions.
General Partner Interest and Incentive Distribution Rights
Our General Partner owns a non-economic general partner interest in us, which does not entitle it to receive cash distributions. However, our General Partner owns the incentive distribution rights and may in the future own common units or other equity interests in us and will be entitled to receive distributions on any such interests.
Incentive distribution rights represent the right to receive increasing percentages (15.0%, 25.0% and 50.0%) of quarterly distributions from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our General Partner currently holds the incentive distribution rights, but may transfer these rights separately from its general partner interest.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities for the year ended December 31, 2018.
Repurchase of Securities by the Partnership or Affiliated Purchasers
On February 1, 2018, the General Partner purchased a total of 81,708 common units from affiliates of Enviva Holdings, LP at a price of $28.65 per common unit and used the common units to satisfy the vesting of performance-based phantom units under the LTIP. There were no other repurchases of the Partnership’s securities during the year ended December 31, 2018.determination.
Securities Authorized for Issuance under Equity Compensation Plans
Please read Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”Matters—Equity Compensation Plan Information” for information regarding our equity compensation plans.
Unregistered Sales of Securities.
We did not have any sales of unregistered equity securities during the fiscal year ended December 31, 2021 that we have not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
ITEM 6. SELECTED FINANCIAL DATARESERVED
The following table presents our selected historical financial data, for the periods and as of the dates indicated, for us andto Enviva, LP and its subsidiaries (other than Enviva Pellets Cottondale, LLC) prior to April 9, 2015 (the “Predecessor”).
The financial statements have been retroactively recast to reflect the contribution of our sponsor’s interest in our Predecessor and Enviva GP, LLC as if the contributions occurred at the beginning of the periods presented, the contribution of Enviva Cottondale Acquisition II, LLC as if the contribution occurred on January 5, 2015, which is the date on which our sponsor acquired Green Circle Bio Energy, Inc., which owned the Cottondale plant, the contribution of Enviva Pellets Southampton, LLC (“Southampton”) as if it occurred on April 9, 2015, the date Southampton was originally conveyed to the First Hancock JV, and the contribution of Enviva Pellets Sampson, LLC (“Sampson”) and Enviva Port of Wilmington, LLC (“Wilmington”) as if they had occurred on May 15, 2013, the date Sampson and Wilmington were originally organized.Not applicable.
The selected statement of operations and statements of cash flow data for the years ended December 31, 2018, 2017 and 2016 and the balance sheet data as of December 31, 2018 and 2017 are derived from our audited consolidated financial statements included in Item 8 of this Annual Report. On January 1, 2018, we adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers using the modified retrospective method and as such, prior period amounts were not adjusted.
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | | | | | | | | | (Predecessor) |
| | (in thousands, except per metric ton and operating data and per unit data) |
| Statement of Operations Data: | | | | | | | | | |
| Product sales | $ | 564,010 |
| | $ | 522,250 |
| | $ | 444,489 |
| | $ | 450,980 |
| | $ | 286,641 |
|
| Other revenue (1) | 9,731 |
| | 20,971 |
| | 19,787 |
| | 6,394 |
| | 3,495 |
|
| Net revenue | 573,741 |
| | 543,221 |
| | 464,276 |
| | 457,374 |
| | 290,136 |
|
| Costs of goods sold, excluding depreciation and amortization (1) | 461,735 |
| | 419,616 |
| | 357,418 |
| | 365,061 |
| | 251,058 |
|
| Loss on disposal of assets | 2,386 |
| | 4,899 |
| | 2,386 |
| | 2,081 |
| | 340 |
|
| Depreciation and amortization | 40,179 |
| | 39,904 |
| | 27,700 |
| | 30,692 |
| | 18,971 |
|
| Total cost of goods sold | 504,300 |
| | 464,419 |
| | 387,504 |
| | 397,834 |
| | 270,369 |
|
| Gross margin | 69,441 |
| | 78,802 |
| | 76,772 |
| | 59,540 |
| | 19,767 |
|
| General and administrative expenses (1) | 27,641 |
| | 30,107 |
| | 33,098 |
| | 23,922 |
| | 16,958 |
|
| Disposal and impairment of assets held for sale | — |
| | 827 |
| | 9,991 |
| | — |
| | — |
|
| Total general and administrative expenses | 27,641 |
| | 30,934 |
| | 43,089 |
| | 23,922 |
| | 16,958 |
|
| Income from operations | 41,800 |
| | 47,868 |
| | 33,683 |
| | 35,618 |
| | 2,809 |
|
| Other income (expense): | | | | | | | | | |
| Interest expense | (36,471 | ) | | (31,744 | ) | | (15,643 | ) | | (10,558 | ) | | (8,724 | ) |
| Related-party interest expense | — |
| | — |
| | (578 | ) | | (1,154 | ) | | — |
|
| Early retirement of debt obligation | (751 | ) | | — |
| | (4,438 | ) | | (4,699 | ) | | (73 | ) |
| Other income (expense) | 2,374 |
| | (1,751 | ) | | 439 |
| | 979 |
| | 22 |
|
| Total other expense, net | (34,848 | ) | | (33,495 | ) | | (20,220 | ) | | (15,432 | ) | | (8,775 | ) |
| Income (loss) before income tax expense | 6,952 |
| | 14,373 |
| | 13,463 |
| | 20,186 |
| | (5,966 | ) |
| Income tax expense | — |
| | — |
| | — |
| | 2,623 |
| | 15 |
|
| Net income (loss) | 6,952 |
| | 14,373 |
| | 13,463 |
| | 17,563 |
| | (5,981 | ) |
| Less net loss attributable to noncontrolling partners’ interests | — |
| | 3,140 |
| | 5,804 |
| | 2,859 |
| | 304 |
|
| Net income (loss) attributable to Enviva Partners, LP | $ | 6,952 |
| | $ | 17,513 |
| | $ | 19,267 |
| | $ | 20,422 |
| | $ | (5,677 | ) |
| Less: Predecessor (loss) income to May 4, 2015 (prior to IPO) | — |
| | — |
| | — |
| | (2,132 | ) | | 264 |
|
| Less: Pre-acquisition income from April 10, 2015 to December 10, 2015 from operations of Enviva Pellets Southampton, LLC Drop-Down allocated to General Partner | — |
| | — |
| | — |
| | 6,264 |
| | — |
|
| Less: Pre-acquisition loss from inception to December 13, 2016 from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner | — |
| | — |
| | (3,231 | ) | | (1,815 | ) | | (3,440 | ) |
| Less: Pre-acquisition loss from inception to October 1, 2017 from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner | — |
| | (3,049 | ) | | (2,110 | ) | | (937 | ) | | (2,501 | ) |
| Enviva Partners, LP partners’ interest in net income | $ | 6,952 |
| | $ | 20,562 |
| | $ | 24,608 |
| | $ | 19,042 |
| | $ | — |
|
| Net income per limited partner common unit: | | | | | | | | | |
| Basic | $ | 0.04 |
| | $ | 0.65 |
| | $ | 0.95 |
| | $ | 0.80 |
| | |
| Diluted | $ | 0.04 |
| | $ | 0.61 |
| | $ | 0.91 |
| | $ | 0.79 |
| | |
| Net income per limited partner subordinated unit: | | | | | | | | | |
| Basic | $ | 0.04 |
| | $ | 0.65 |
| | $ | 0.93 |
| | $ | 0.80 |
| | |
| Diluted | $ | 0.04 |
| | $ | 0.65 |
| | $ | 0.93 |
| | $ | 0.79 |
| | |
(1) See Part II, Item 8. “Financial Statements and Supplementary Data—Note 13, Related-Party Transactions” |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | | | | | | | | | (Predecessor) |
| | (in thousands, except per metric ton and operating data and per unit data) |
| Statement of Cash Flow Data: | |
| Net cash provided by (used in): | | | | | | | | | |
| Operating activities | $ | 84,053 |
| | $ | 87,095 |
| | $ | 55,804 |
| | $ | 65,857 |
| | $ | 28,992 |
|
| Investing activities | (26,002 | ) | | (28,601 | ) | | (111,124 | ) | | (103,490 | ) | | (17,174 | ) |
| Financing activities | (56,115 | ) | | (58,436 | ) | | 53,658 |
| | 39,173 |
| | (14,789 | ) |
| Other Financial Data: | | | | | | | | | |
| Adjusted EBITDA(1) | $ | 102,631 |
| | $ | 102,381 |
| | $ | 79,291 |
| | $ | 71,710 |
| | $ | 22,182 |
|
| Adjusted gross margin per metric ton(1) | $ | 38.81 |
| | $ | 45.38 |
| | $ | 45.55 |
| | $ | 38.89 |
| | $ | 25.91 |
|
| Maintenance capital expenditures(2) | 4,872 |
| | 4,353 |
| | 5,187 |
| | 4,359 |
| | 515 |
|
| Distributable cash flow(1) | 63,789 |
| | 67,731 |
| | 59,775 |
| | 57,245 |
| | 14,964 |
|
| Operating Data: | | | | | | | | | |
| Total metric tons sold | 2,983 |
| | 2,724 |
| | 2,346 |
| | 2,374 |
| | 1,508 |
|
| Balance Sheet Data (at period end): | | | | | | | | | |
| Cash and cash equivalents | $ | 2,460 |
| | $ | 524 |
| | $ | 466 |
| | $ | 2,128 |
| | $ | 592 |
|
| Total assets | 748,770 |
| | 760,111 |
| | 801,376 |
| | 688,209 |
| | 388,395 |
|
| Long-term debt and capital lease obligations (including current portion) | 432,655 |
| | 401,017 |
| | 351,080 |
| | 207,632 |
| | 90,481 |
|
| Total liabilities | 602,054 |
| | 549,742 |
| | 424,514 |
| | 266,539 |
| | 110,781 |
|
| Partners’ capital | 146,716 |
| | 210,369 |
| | 376,862 |
| | 421,670 |
| | 277,614 |
|
(1)For more information, please read “—Limitations of Non-GAAP Financial Measures” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—How We Evaluate Our Operations.”
(2)Maintenance capital expenditures are cash expenditures made to maintain our long‑term operating capacity or net income.
Limitations of Non-GAAP Financial Measures
Adjusted net income, adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with accounting principles generally accepted in the United States (“GAAP”). We believe that the presentation of these non-GAAP financial measures provides useful information to investors in assessing our financial condition and results of operations. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non-GAAP financial measures has important limitations as an analytical tool because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider adjusted net income, adjusted gross margin per metric ton, adjusted EBITDA or distributable cash flow in isolation or as substitutes for analysis of our results as reported under GAAP. Our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
Adjusted Net Income
We define adjusted net income as net income excluding certain expenses incurred related to the Chesapeake Incident and the Hurricane Events, consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repair costs, offset by insurance recoveries received, as well as employee compensation and other related costs allocated to us in respect of the Chesapeake Incident and the Hurricane Events pursuant to our management services agreement with an affiliate of our sponsor for services that could otherwise have been dedicated to our ongoing operations and interest expense associated with incremental borrowings related to the Chesapeake Incident. We believe that adjusted net income enhances investors’ ability to compare the past financial performance of our underlying operations with our current performance separate from certain items of gain or loss that we characterize as unrepresentative of our ongoing operations.
Adjusted Gross Margin per Metric Ton
We use adjusted gross margin per metric ton to measure our financial performance. We define adjusted gross margin as gross margin excluding asset disposals, depreciation and amortization, changes in unrealized derivative instruments related to hedged items included in gross margin, and certain items of income or loss that we characterize as unrepresentative of our ongoing operations, including certain expenses incurred related to the Chesapeake Incident and Hurricane Events, consisting of
emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repair costs, offset by insurance recoveries received, as well as employee compensation and other related costs allocated to us in respect of the Chesapeake Incident and the Hurricane Events pursuant to our management services agreement with an affiliate of our sponsor for services that could otherwise have been dedicated to our ongoing operations. We believe adjusted gross margin per metric ton is a meaningful measure because it compares our revenue-generating activities to our operating costs for a view of profitability and performance on a per metric ton basis. Adjusted gross margin per metric ton will primarily be affected by our ability to meet targeted production volumes and to control direct and indirect costs associated with procurement and delivery of wood fiber to our production plants and the production and distribution of wood pellets.
Adjusted EBITDA
We view adjusted EBITDA as an important indicator of our financial performance. We define adjusted EBITDA as net income or loss excluding depreciation and amortization, interest expense, income tax expense, early retirement of debt obligations, non-cash unit compensation expense, asset impairments and disposals, changes in unrealized derivative instruments related to hedged items included in gross margin and other income and expense, and certain items of income or loss that we characterize as unrepresentative of our ongoing operations, including certain expenses incurred related to the Chesapeake Incident and Hurricane Events, consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repair costs, offset by insurance recoveries received, as well as employee compensation and other related costs allocated to us in respect of the Chesapeake Incident and the Hurricane Events pursuant to our management services agreement with an affiliate of our sponsor for services that could otherwise have been dedicated to our ongoing operations. Adjusted EBITDA is a supplemental measure used by our management and other users of our financial statements, such as investors, commercial banks and research analysts, to assess the financial performance of our assets without regard to financing methods or capital structure.
Distributable Cash Flow
We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures and interest expense net of amortization of debt issuance costs, debt premium, original issue discounts, and the impact from incremental borrowings related to the Chesapeake Incident. We use distributable cash flow as a performance metric to compare the cash-generating performance of the Partnership from period to period and to compare the cash-generating performance for specific periods to the cash distributions (if any) that are expected to be paid to our unitholders. We do not rely on distributable cash flow as a liquidity measure.
The following tables present a reconciliation of each of adjusted net income, adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow to the most directly comparable GAAP financial measure for each of the periods indicated
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | | | | | | | | | (Predecessor) |
| | (in thousands) |
| Reconciliation of adjusted net income (loss): | | | | | | | | | |
| Net income (loss) | $ | 6,952 |
| | $ | 14,373 |
| | $ | 13,463 |
| | $ | 17,563 |
| | $ | (5,981 | ) |
| Chesapeake Incident and Hurricane Events | 12,951 |
| | — |
| | — |
| | — |
| | — |
|
| Interest expense from incremental borrowings related to Chesapeake Incident | 1,567 |
| | — |
| | — |
| | — |
| | — |
|
| Adjusted net income (loss) | $ | 21,470 |
| | $ | 14,373 |
| | $ | 13,463 |
| | $ | 17,563 |
| | $ | (5,981 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | | | | | | | | | (Predecessor) |
| | (in thousands, except per metric ton) |
| Reconciliation of gross margin to adjusted gross margin per metric ton: | | | | | | | | | |
| Metric tons sold | 2,983 |
| | 2,724 |
| | 2,346 |
| | 2,374 |
| | 1,508 |
|
| Gross margin | $ | 69,441 |
| | $ | 78,802 |
| | $ | 76,772 |
| | $ | 59,540 |
| | $ | 19,767 |
|
| Loss on disposal of assets | 2,386 |
| | 4,899 |
| | 2,386 |
| | 2,081 |
| | 340 |
|
| Depreciation and amortization | 40,179 |
| | 39,904 |
| | 27,700 |
| | 30,692 |
| | 18,971 |
|
| Chesapeake Incident and Hurricane Events | 7,799 |
| | — |
| | — |
| | — |
| | — |
|
| Changes in unrealized derivative instruments | (4,032 | ) | | — |
| | — |
| | — |
| | — |
|
| Adjusted gross margin | $ | 115,773 |
| | $ | 123,605 |
| | $ | 106,858 |
| | $ | 92,313 |
| | $ | 39,078 |
|
| Adjusted gross margin per metric ton | $ | 38.81 |
| | $ | 45.38 |
| | $ | 45.55 |
| | $ | 38.89 |
| | $ | 25.91 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | | | | | | | | (Predecessor) |
| | (in thousands) |
| Reconciliation of adjusted EBITDA and distributable cash flow to net income: | | | | | | | | | |
| Net income (loss) | $ | 6,952 |
| | $ | 14,373 |
| | $ | 13,463 |
| | $ | 17,563 |
| | $ | (5,981 | ) |
| Add: | | | | | | | | | |
| Depreciation and amortization | 40,745 |
| | 40,361 |
| | 27,735 |
| | 30,738 |
| | 19,009 |
|
| Interest expense | 36,471 |
| | 31,744 |
| | 16,221 |
| | 11,712 |
| | 8,724 |
|
| Early retirement of debt obligation | 751 |
| | — |
| | 4,438 |
| | 4,699 |
| | 73 |
|
| Purchase accounting adjustment to inventory | — |
| | — |
| | — |
| | 697 |
| | — |
|
| Non-cash unit compensation expense | 6,229 |
| | 5,014 |
| | 4,230 |
| | 704 |
| | 2 |
|
| Income tax expense | — |
| | — |
| | — |
| | 2,623 |
| | 15 |
|
| Asset impairments and disposals | 2,386 |
| | 5,726 |
| | 12,377 |
| | 2,081 |
| | 340 |
|
| Changes in unrealized derivative instruments | (4,032 | ) | | 1,565 |
| | — |
| | — |
| | — |
|
| Chesapeake Incident and Hurricane Events | 12,951 |
| | — |
| | — |
| | — |
| | — |
|
| Transaction expenses | 178 |
| | 3,598 |
| | 827 |
| | 893 |
| | — |
|
| Adjusted EBITDA | $ | 102,631 |
| | $ | 102,381 |
| | $ | 79,291 |
| | $ | 71,710 |
| | $ | 22,182 |
|
| Less: | | | | | | | | | |
| Interest expense, net of amortization of debt issuance costs, debt premium costs, original issue discount and impact from incremental borrowings related to Chesapeake Incident | 33,970 |
| | 30,297 |
| | 14,329 |
| | 10,106 |
| | 6,703 |
|
| Maintenance capital expenditures | 4,872 |
| | 4,353 |
| | 5,187 |
| | 4,359 |
| | 515 |
|
| Distributable cash flow attributable to Enviva Partners, LP | $ | 63,789 |
| | $ | 67,731 |
| | $ | 59,775 |
| | $ | 57,245 |
| | $ | 14,964 |
|
| Less: Distributable cash flow attributable to incentive distribution rights | 5,867 |
| | 3,398 |
| | 1,077 |
| | — |
| | — |
|
| Distributable cash flow attributable to Enviva Partners, LP limited partners | $ | 57,922 |
| | $ | 64,333 |
| | $ | 58,698 |
| | $ | 57,245 |
| | $ | 14,964 |
|
| |
(1) | In December 2016, we initiated a plan to sell the wood pellet production plant in Stone County, Mississippi (the “Wiggins plant”) owned by Enviva Pellets Wiggins, LLC. The carrying amount of the assets held for sale exceeded the estimated fair value of the Wiggins plant, which resulted in a $10.0 million non-cash impairment charge to earnings. In December 2017, we sold the Wiggins plant for $0.4 million and recorded a loss on the sale $0.8 million, net, upon deconsolidation. |
| |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our historical performance, financial condition and future prospects should be read in conjunction with Part I, Item 1. “Business” and the consolidated financial statements in Part II, Item 8. “Financial Statements and Supplementary Data.”
On December 31, 2021, Enviva Partners, LP (the “Partnership”) converted from a Delaware limited partnership to a Delaware corporation (the “Conversion”) named “Enviva Inc.” References in this Annual Report to “Enviva,” the “Partnership,“Company,” “we,” “our,“us,” “us” or like terms“our” refer to (i) Enviva Inc. and its subsidiaries for the periods following the Conversion and (ii) Enviva Partners, LP and its subsidiaries.subsidiaries for periods prior to the Conversion, except where the context otherwise requires. References to common units for periods prior to the Conversion refer to common units of Enviva Partners, LP, and references to common stock for periods following the Conversion refer to shares of common stock of Enviva Inc. As a result of the Conversion, the primary financial impact to the consolidated financial statements contained herein consisted of (i) reclassification of partnership capital accounts to equity accounts reflective of a corporation and (ii) income tax effects.
References to “our former sponsor” refer to Enviva Holdings, LP, and, where applicable, its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC. References to “our former General Partner” refer to Enviva Partners GP, LLC, a wholly owned subsidiary of Enviva Holdings, LP. References to “Enviva Management” refer to Enviva Management Company, LLC, a wholly owned subsidiary of Enviva Holdings, LP, and references to “our employees” refer to the employees of Enviva Management. References to the “First Hancock JV” and the “Second Hancock JV” refer to Enviva Wilmington Holdings, LLC and Enviva JV Development Company, LLC, respectively, which are joint ventures between our sponsor and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates. Please read Cautionary Statement Regarding Forward‑Looking Statements on page 1 and Part 1, Item 1A. “Risk Factors” for information regarding certain risks inherent in our business.
Basis of Presentation
On October 2, 2017, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”) for total consideration of $130.0 million (the “Wilmington Drop-Down”).
On December 14, 2016, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Enviva Pellets Sampson, LLC (“Sampson”) for total consideration of $175.0 million (the “Sampson Drop-Down”). The Sampson Drop-Down also included two off-take contracts and related third-party shipping contracts.
Business Overview
We are a growth-oriented company originally formed as a Delaware limited partnership in 2013 that converted to a Delaware corporation named “Enviva Inc.” We develop, construct, acquire, and own and operate, fully contracted wood pellet production plants where we aggregate a natural resource, wood fiber, and process it into dry, densified, uniform pellets that can be effectively stored and transported around the world’s largest supplier by production capacity of utility-gradeworld. We primarily sell our wood pellets to major power generators. Since our entry into this business in 2010, we have executed multiplethrough long-term, take-or-pay off-take contracts with utilitiescreditworthy customers in the United Kingdom, the European Union, and large-scaleJapan, who use our pellets to displace coal and other fossil fuels to generate renewable power generators and have built and acquiredheat as part of their efforts to accelerate the production and terminaling capacity necessaryenergy transition from conventional energy generation to serve them. Our existing production constitutes approximately 13% of current global utility-grade wood pellet production capacity and the product we deliver torenewable energy generation. Increasingly, our customers typically comprisesare also using our pellets as renewable raw material inputs to decarbonize hard-to-abate sectors like steel, cement, lime, chemicals, and aviation fuels. Collectively, the wood pellets we produce are viewed by our customers as a material portioncritical component of their fuel supply. efforts to reduce life-cycle greenhouse gas emissions in their core energy generation or industrial manufacturing processes, and mitigate the impact of climate change.
We own and operate six industrial-scale productionten plants in the Southeastern United States that have(collectively, “our plants”) with a combined wood pellet production capacity of 2.9approximately 6.2 million metric tons (“MT”) of wood pellets per year (“MTPY”). In addition to in Virginia, North Carolina, South Carolina, Georgia, Florida and Mississippi, the volumes fromproduction of which is fully contracted, with many of our plants, we also procure approximately 0.5 million MPTY ofcontracts extending well into the 2040s. We export our wood pellets from a production plant in Greenwood, South Carolina (the “Greenwood plant”) owned by the Second Hancock JV. We export wood pellets fromto global markets through our wholly owned dry-bulk, deep-water marine terminal inat the Port of Chesapeake, Virginia, (the “Chesapeake terminal”), from terminal assets inat the Port of Wilmington, North Carolina, (the “Wilmington terminal”)the Port of Pascagoula, Mississippi, and from third-party deep-water marine terminals in Savannah, Georgia, Mobile, Alabama, (the “Mobile terminal”) and Panama City, Florida (the “Panama City terminal”), under a short-term and a long-term contract, respectively.Florida. All of our facilities are located in geographic regions with low input costs and favorable transportation logistics. Owning these cost-advantaged assets the output from which is fully contracted, in a rapidly expanding industry provides us with a platform to generate stable and growing cash flowsflows. Our plants are sited in robust fiber baskets providing stable pricing for the low-grade fiber used to produce wood pellets. Our raw materials are byproducts of traditional timber harvesting, principally low-value wood materials, such as trees generally not suited for sawmilling or other manufactured forest products, and tree tops and limbs, understory, brush, and slash that we anticipate will enable us to increase our per‑unit cash distributions over time, which is our primary business objective. Forare generated in a more complete description of our business, please read Part I, Item 1. “Business.”harvest.
Our sales strategy is to fully contract the wood pellet production from our plants under long-term, take-or-pay off-take contracts.contracts with a diversified and creditworthy customer base. Our long-term off-take contracts typically provide for fixed-price deliveries that often include provisions that escalate the price over time and provide for other margin protection. During 2019,2021, production capacity from our wood pellet production plants, andtogether with wood pellets sourced from the Greenwood plant and third parties, arewas approximately equal to the contracted volumes under our existing long-term, take-or-pay off-take contracts. Our long-term, take-or-pay off-take contracts provide for a product sales backlog of 3.4 million metric tons (“MT”) of wood pellets in 2019$21.2 billion and have a total weighted-average remaining term of 9.714.5 years from February 1, 2019.2022.
Our largest customers use our wood pellets as a substitute fuel for coal in dedicated biomass or co-fired coal power plants. Wood pellets serve as a suitable “drop-in” alternative to coal because of their comparable heat content, density, and form. Due to the uninterruptible nature of our customers’ fuel consumption, our customers require a reliable supply of wood pellets that meet stringent product specifications. We intendhave built our operations and assets to continue expanding our business by taking advantagedeliver and certify the highest levels of the growing demand for our product that is driven by conversion of coal-fired power generation and combined heat and power plants to co-fired or dedicated biomass-fired plants and construction of newly dedicated biomass-fired plants, principally in Europe and increasingly in Japan.
quality and our proven track record of reliable deliveries enables us to charge premium prices for this certainty. In addition to our customers’ focus on the reliability of supply, they are concerned about the combustion efficiency of the wood pellets and their safe handling. Because combustion efficiency is a function of energy density, particle size distribution, ash/inert content, and moisture, our customers require that we supply wood pellets meeting minimum criteria for a variety of specifications and, in some cases, provide incentives for exceeding our contract specifications.
Basis of Presentation
On October 14, 2021, the Partnership entered into and closed on an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Partnership, Enviva Holdings, LP (“Holdings”), Enviva Partners Merger Sub, LLC (“Merger Sub”), and the limited partners of Holdings (the “Holdings Limited Partners”) set forth in the Merger Agreement. Pursuant to the terms of the Merger Agreement, (a) the Company acquired our former sponsor and our former General Partner and (b) the incentive distribution rights held by our former sponsor were cancelled and eliminated (collectively, the “Simplification Transaction”). In connection with the Simplification Transaction, the Company acquired certain assets under development, as well as off-take contracts in varying stages of negotiation. The consolidated financial statements have been retroactively recast to reflect the Simplification Transaction as if the Simplification Transaction occurred on March 18, 2010, the date on which Holdings was originally organized, instead of October 14, 2021, the closing date of the Simplification Transaction.
We own all of the Class B units of Enviva Wilmington Holdings, LLC (the “Hamlet JV”). The Hamlet JV owns a wood pellet production plant in Hamlet, North Carolina (the “Hamlet plant”). We are the managing member of the Hamlet JV, which is a consolidated subsidiary partially owned by a third party. For more information regarding our rights and obligations with respect to the Hamlet JV, see Note 17, Equity-Hamlet JV.
Recent Developments
Production Capacity ExpansionSimplification Transaction
During 2019,In October 2021, we expectclosed the Simplification Transaction and acquired all of the ownership interests in our former sponsor and eliminated all outstanding incentive distribution rights in exchange for 16.0 million common units, which were distributed to increase the aggregateowners of our former sponsor.
The owners of our former sponsor agreed to reinvest in our common stock all dividends from 9.0 million of the 16.0 million common units issued in connection with the Simplification Transaction during the period beginning with the distribution for the third quarter of 2021 through the fourth quarter of 2024. On the date of the Simplification Transaction, the non-management owners of our former sponsor held 27.7 million common units.
As a result of the Simplification Transaction, we now perform the business activities previously performed by our former sponsor, including corporate, commercial, sales and marketing, communications, public affairs, sustainability, development, and construction activities. We plan to construct fully contracted wood pellet production capacityplants and deep-water marine terminals using our “build and copy” model as a part of our plantsorganic growth initiatives. We expect the cost to construct such assets to be lower than our historical cost of acquiring them from our former sponsor in Northampton, North Carolinadrop-down acquisitions.
In addition, we acquired four existing take-or-pay off-take contracts with investment grade-rated counterparties, a fully contracted plant in Epes, Alabama currently under development (the “Epes plant”), and Southampton, Virginia by approximately 400,000 MTPYa prospective production plant in Bond, Mississippi in the Simplification Transaction. The off-take contracts we acquired have an aggregate subjectrevenue backlog of $4.4 billion and a weighted-average term of 19 years, with an associated base volume of 21 million metric tons of wood pellets. The Epes plant is designed and permitted to receiving the necessary permits. We expectproduce 1.1 million MTPY of wood pellets. The Bond plant is being developed to invest a totalproduce 1.1 million MTPY of approximately $130.0 million in additional wood pellet production assets and emissions control equipment for the expansions and to complete expansion activities in early 2020 with startup shortly thereafter.
Customer Contracts
During the year ended December 31, 2018, we have executed the following new take-or-pay off-take contracts:
A 5-year, 650,000 MTPY contract with Drax Power commencing in 2022 and continuing through 2026;
A 15-year, 180,000 MTPY contract with Mitsubishi Corporation commencing in 2022;
A 15-year, 180,000 MTPY contract with Marubeni Corporation commencing in 2022;
A 10-year, 100,000 MTPY contract with Marubeni Corporation commencing in 2022;
A 17-year, 100,000 MTPY for the first five years and 175,000 MTPY for the remaining years contract with a Japanese trading house commencing in 2023;
A 15-year, 45,000 MTPY contract with Engie Energy Management SCRL commencing in 2021; and
A 4-year contract with Engie Energy Management SCRL to deliver 405,000 MT, in the aggregate, from 2018 through 2023.pellets.
In connection with the Mitsubishi Corporation contract described above,Simplification Transaction, our existing management services fee waivers (the “MSA Fee Waivers”) and other support agreements with our former sponsor were consolidated, fixed, and novated to certain owners of our former sponsor. Under the Second Hancock JV also executedconsolidated support agreement, we are entitled to receive quarterly payments (the “Support Payments”) in an aggregate amount of up to $55.5 million with respect to periods from the fourth quarter of 2021 through the first quarter of 2024.
C-Corporation Conversion
The Partnership converted from a 15-year take-or-pay contract with Mitsubishi CorporationDelaware limited partnership to a Delaware corporation effective December 31, 2021; consequently, results for periods prior to December 31, 2021 reflect Enviva as a limited partnership, not a corporation. The primary financial impacts of the supplyConversion to the consolidated financial statements were (i) reclassification of 450,000 MTPYpartnership capital accounts to equity accounts reflective of a corporation and (ii) income tax effects. On the date of the Conversion, each
common unit representing a limited partner interest in the Partnership issued and outstanding immediately prior to the Conversion was exchanged for one share of common stock of the Company, par value $0.001 per share.
Issuance of Common Units and Common Shares
In June 2021, we issued 4,925,000 common units at a price of $45.50 per common unit for total net proceeds of $214.5 million, after deducting $9.5 million of issuance costs. The net proceeds partially financed the drop-down of the production plant under construction in Lucedale, Mississippi and the terminal at the Port of Pascagoula, Mississippi,from our former sponsor and partially financed our development activities to expand our wood pellets commencing in 2022.
Our sponsor has executed the following take-or-pay off-take contacts to supply new biomass powerpellet production plants in Japan:Sampson, North Carolina, Hamlet, North Carolina, and Cottondale, Florida (collectively the “Multi-Plant Expansions”).
A 15-year, 270,000 MTPY contract withIn January 2022, we issued 4,945,000 common shares at a Japanese trading house commencing in 2022;
A 15-year, 250,000 MTPY contact with Sumitomo Corporation commencing in 2021; and
An 18-year, 440,000 MTPY contract with a Japanese trading house commencing in 2022.
Senior Secured Credit Facilities
In October 2018, we amended our credit agreement, increasingprice of $70.00 per common share for total net proceeds of $334.0 million, after deducting $12.2 million of issuance costs. We intend to use the revolving commitments under our senior secured credit facilities from $100.0net proceeds of $334.0 million to $350.0 million and extending the maturity from April 2020 to October 2023. We used $41.2 millionfund a portion of our revolving credit commitmentscapital expenditures related to fullyongoing development projects. We initially used the net proceeds to repay the previously outstanding term loan borrowings under our senior secured revolving credit facilities. Our credit agreement includes two quarterly maintenance financial covenants providing for a leverage ratio not more than 4.75 to 1.00 and an interest coverage ratio not less than 2.25 to 1.00. See Part II, Item 8. “Financial Statements and Supplementary Data - Note 12, Long-Term Debt and Capital Lease Obligations”.facility.
Hurricane EventsFinancing Activities
In September 2018, Hurricane Florence caused unprecedented floodingApril 2021, we amended our senior secured revolving credit facility to increase the revolving credit commitments from $350.0 million to $525.0 million, extend the maturity from October 2023 to April 2026, increase the letter of credit commitment from $50.0 million to $80.0 million, and reduce the cost of borrowing by 25 basis points. In December 2021, we amended our senior secured revolving credit facility to increase the revolving credit commitments from $525.0 million to $570.0 million and to permit the issuance of commercial letters of credit.
Capacity Expansion and Development Activities
We completed our expansion project at our Northampton, North Carolina wood pellet production plant and are commissioning the recently expanded capacity at our Southampton, Virginia plant. We expect each plant to reach its expanded nameplate production capacity of approximately 750,000 and 760,000 MTPY, respectively, during 2022.
We are commissioning the expanded capacity of our Greenwood plant and expect production capacity to increase to 600,000 MTPY during 2022.
Commitment to Achieve Carbon-Neutral Operations
Consistent with our mission to displace coal, grow more trees, and fight climate change, we recently announced our commitment to become “net-zero” in greenhouse gas (“GHG”) emissions from our operations by 2030. The product we manufacture helps reduce the lifecycle GHG emissions of our customers, but we believe we must also do our part within our operations to mitigate the impacts of climate change. We expect to accomplish neutrality with respect to our Scope 1 emissions (i.e., direct emissions from our manufacturing) by improving energy efficiency and adopting lower-carbon processes, as well as through investment in carbon offsets. We also plan to neutralize our Scope 2 emissions (i.e., indirect emissions from energy we purchase) by using 100% renewable energy by 2030 through the purchase of renewable electricity and/or onsite generation where practicable. Moreover, we will seek to proactively engage with our suppliers, transportation partners, and other stakeholders to drive innovative improvements in our supply chain to reduce our Scope 3 emissions (i.e., indirect emissions in our value chain). We intend to report our Scopes 1, 2, and 3 emissions annually and fully meet the requirements of CDP (formerly known as the Carbon Disclosure Project) by 2022. Although it is difficult to project the incremental cost to our operations in 2030, we do not expect any material impact to our financial performance as a result of our efforts to achieve “net-zero” in GHG emissions from our operations. For more information, refer to the risk factor titled “Increasing attention to ESG matters, including our net-zero goals and our failure to successfully achieve them, could adversely affect our business.”
Outbreak of the Novel Coronavirus
The outbreak of a novel strain of coronavirus (“COVID-19”) has significantly adversely impacted global markets and continues to present global public health and economic challenges. In the third quarter of 2021, our contractors and supply chain partners experienced labor-related, and other challenges associated with COVID-19 that had a temporal, but more pronounced than anticipated, impact on our operations and project execution schedule. In the fourth quarter of 2021, the prevalence of the Omicron variant of COVID-19 and increased rates of infection across areas in which we operate affected the availability of healthy workers from time to time at our facilities, and we experienced increased rates of absence in our hourly workforce as our workers who contracted COVID-19 quarantined at home. These absences contributed to reduced facility availability and in some cases, reduced aggregate production levels. We believe that these challenges were short-term in nature, and based on the actions we have taken and the plans we have in place, we believe these issues are beginning to be behind us.
We have taken prescriptive safety measures including social distancing, hygienic policies and procedures, and other steps recommended by the Centers for Disease Control and Prevention (the “CDC”). We adopted the CDC’s risk management approach at the beginning of the outbreak and have established risk levels based on the degree to which the virus has spread in a given community and the nature of the work performed at that location. Within our field operations, we have continued operations largely as normal with additional precautionary measures; however, we continue to monitor local data on a daily basis and have prioritized putting the right plans, procedures, and measures in place to mitigate the risk of exposure and infection and the related impacts to our business. We have also facilitated access for our employees to receive vaccines at our locations and we provide ongoing financial incentives for our employees to remain up to date with their vaccinations, in accordance with CDC guidelines.
We specifically designed our operations and logistics systems with flexibility and redundancies so they are capable of effectively responding to unforeseen events. We operate a portfolio of ten wood pellet production plants geographically dispersed across the Mid-Atlantic region.Southeast United States. Our wood pellet production plantcapacity is committed under long-term, take-or-pay off-take contracts with fixed pricing and fixed volumes that are not impacted by the market prices of crude oil, natural gas, power or heat. We export our product from a portfolio of six bulk terminals and transport it to our customers under long-term, fixed-price shipping contracts with multiple shipping partners. Our shipping operations have not been affected by COVID-19.
Factors Impacting Comparability of Our Financial Results
Waycross
On July 31, 2020, we acquired all of the limited liability interests in Sampson County, North Carolina (the “Sampson plant”)Georgia Biomass Holding LLC, a Georgia limited liability company and the Wilmington terminal incurred minor damage. The Sampson plant and Wilmington terminal were operational by September 30, 2018. The flooding impacted our ability to procure wood fiber as our raw material suppliers had limited access to tracts and many transportation routes for the deliveryindirect owner of wood fiber to our plants in the mid-Atlantic region were closed.
In October 2018, oura wood pellet production plant located in Jackson County, FloridaWaycross, Georgia (the “Cottondale plant”“Waycross plant,”) for total consideration of $164.0 million in cash, after accounting for certain adjustments (the “Georgia Biomass Acquisition”). The Georgia Biomass Acquisition was recorded as a business combination and a third-party deep-water marine terminalaccounted for using the acquisition method. Assets acquired and liabilities assumed were recognized at fair value on the acquisition date of July 31, 2020, and the difference between the fair value of consideration transferred, which excludes acquisition-related costs, and the fair values of the identified net assets acquired, was recognized as goodwill. For more information regarding the Georgia Biomass Acquisition, see Item 8. Financial Statements and Supplemental Data, Note 1, Description of Business and Basis of Presentation-Georgia Biomass Holding LLC and Note 4, Acquisition.
2026 Notes
During December 2019, we issued $600.0 million in Panama City, Floridaprincipal amount of 6.5% senior unsecured notes due January 15, 2026 (the “Panama City terminal”“2026 Notes”) incurred damage. We received gross proceeds of approximately $601.8 million from the category four Hurricane Michael. The Cottondale plant was operational by October 31, 2018. Althoughofferings and net proceeds of approximately $595.8 million after deducting commissions and expenses.
In July 2020, we do not own material infrastructure assets at the Panama City terminal, Port of Panama City remained closed forissued an extended period of time. As a result, portionsadditional $150.0 million in aggregate principal amount of our shipping schedule were delayed6.5% the 2026 Notes at an offering price of 103.75% of the principal amount, which implied an effective yield to maturity of approximately 5.7%. We received net proceeds of approximately $153.6 million from the offering after deducting discounts and we incurred incremental logistics costscommissions and offering costs.
Senior Secured Green Term Loan Facility
In February 2021, our former sponsor entered into a senior secured green term loan facility (the “Green Term Loan”) providing for $325.0 million principal amount, maturing in February 2026. Interest was priced at LIBOR plus 5.50% with a LIBOR floor of 1.00%. Our former sponsor received gross proceeds of $325.0 million and net proceeds of approximately $317.2 million after deducting original issue discount, commissions, and expenses. Our former sponsor used the net proceeds (1) to deliver wood pelletspurchase the noncontrolling interest in Enviva JV Development Company, LLC (the “ Development JV”), (2) to our customers.
We undertook substantial preparation in advance of Hurricane Florencerepay the Riverstone Loan (see Item 8. Financial Statements and Hurricane Michael (collectively, “Hurricane Events”Supplemental Data, Note 15, Related-Party Transactions), including proactively idling operations,(3) to securefund capital expenditures and liquidity reserve cash accounts, and (4) for general purposes.
In October 2021, our former sponsor repaid in full the safetyGreen Term Loan and recognized a $9.4 million loss in early retirement of our personnel and to minimize damage to our assets.
Additionally, to minimize disruption to our customers, we commissioned temporary wood pellet storage and contracted alternative logistic capabilities.
Chesapeake Incident
On February 27, 2018, a fire occurred at our Chesapeake terminal (the “Chesapeake Incident”), causing damage to equipment and approximately 43,000 MT of wood pellets. The Chesapeake terminal returned to operation on June 28, 2018.
To meet our contractual obligations to our customers, we incurred incremental costs to commission temporary wood pellet storage and handling and ship loading operations (collectively, “business continuity activities”) at nearby locations. The wood pellets from our production plants in the Mid-Atlantic region were delivered to such temporary locations as well as to the Wilmington terminal, which increased our distribution costs. We incurred $60.3 million in costs related to asset impairment, inventory write-off and disposal costs, emergency response costs, asset repairunamortized debt issuance costs and business continuity costs as a result of the Chesapeake Incident.original issue discount.
We have recovered $62.1 million related to the Chesapeake Incident, which included $1.8 million of lost profits. In addition, we incurred other losses and costs associated with the Chesapeake Incident and are pursuing outstanding claims of approximately $25.0 million related to such amounts. Consequently, our results of operations and cash flows, as well as our non-GAAP financial measures, may not be comparable to those for previously reported periods and our quarterly distribution coverage ratios may not be comparable to those for previously reported periods or our full-year target.
Common and Subordinated Units - Sponsor
On May 9, 2018, the sponsor sold to third parties all of the 1,265,453 common units held by the sponsor on such date. On May 30, 2018, all of our 11,905,138 previously outstanding subordinated units, which were held by the sponsor, converted into common units on a one-for-one basis. As of December 31, 2018, the sponsor held 11,905,138 common units.
Adoption of Revenue Recognition Standard
We adopted a new revenue recognition standard, Financial Accounting Standards Board Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), on January 1, 2018. Following adoption of ASC 606, our off-take contracts have continued to be classified as product sales. However, the adoption of ASC 606 impacted the basis of presentation in certain arrangements where we purchase shipments of product from third-party suppliers and resell them in back-to-back transactions to customers (“purchase and sale transactions”). Prior to the adoption of ASC 606, we reported revenue from purchase and sale transactions net of costs paid to third-party suppliers, which was classified as other revenue. Subsequent to the adoption of ASC 606, we recognize revenue on a gross basis in products sales when we determine that we act as a principal and control the wood pellets before they are transferred to the customer. Recoveries from customers for certain costs incurred at the discharge port under our off-take contracts were reported gross in product sales prior to the adoption of ASC 606. Under ASC 606, these recoveries are not considered a part of the transaction price, and therefore are excluded from product sales and included as an offset to cost of goods sold. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, whereas prior comparative reporting periods have not been adjusted and continue to be reported under the accounting standards in effect for such periods. We did not have a transition adjustment as a result of adopting ASC 606.
How We Generate Revenue
Overview
We primarily earn revenue by supplying wood pellets to our customers under off‑take contracts, the majority of which are long termlong-term in nature. Our off-take contracts are considered “take-or-pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions that require that we be compensated in the case of a
customer’s failure to accept all or a part of the contracted volumes or termination of a contract by a customer. Each of our long-term off-take contracts defines the annual volume of wood pellets that a customer is required to purchase and we are required to sell, the fixed price per metric tonMT for product satisfying a base net calorific value and other technical specifications. These prices are fixed for the entire term, and are subject to adjustments which may include annual inflation-based adjustments or price escalators, price adjustments for product specifications, as well as, in some instances, price adjustments due to changes in underlying indices. In addition to sales of our product under these long-term off-take contracts, we routinely sell wood pellets under shorter-term contracts, which range in volume and tenor and, in some cases, may include only one specific shipment. Because each of our off-take contracts is a bilaterally negotiated agreement, our revenue over the duration of such contracts does not generally follow observable current market pricing trends. Our performance obligations under these contracts include the delivery of wood pellets, which are aggregated into metric tons.MT. We account for each metric tonMT as a single performance obligation. Our revenue from the sale of wood pellets we produce is recognized upon satisfaction of the performance obligation when control transfers to the customer at the time of loading wood pellets onto a ship.
Depending on the specific off-take contract, shipping terms under our long-term contracts are either Cost, Insurance and Freight (“CIF”), Cost and Freight (“CFR”), or Free On Board (“FOB”). Under a CIF contract, we procure and pay for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. Under a CFR contract, we procure and pay for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping costs under CIF and CFR contracts after control has passed to the customer is considered a fulfillment activity rather than a performance obligation and associated expenses are accrued and included in the price to the customer. Under FOB contracts, the customer is directly responsible for shipping costs.
We also fulfill our contractual commitmentsIn some cases, we may purchase shipments of product from third-party suppliers and take advantage of dislocationsresell them in market supply and demand by entering into purchase and saleback-to-back transactions (“purchase and sale transactions”). We typically are the principal in such transactions because we control the wood pellets prior to transferring them to the customer and therefore recognize related revenue on a gross basis.
Other Revenue
Other revenue includes fees from customers when they cancel, deferrelated to cancellations, deferrals or accelerate a shipment.accelerations of shipments and certain sales and marketing, scheduling, sustainability, consultation, shipping, and risk management services (collectively, “Commercial Services”).
We recognize third- and related-partythird-party terminal services revenue ratably over the contract term at our ports.term. Terminal services are performance obligations that are satisfied over time, as customers simultaneously receive and consume the benefits of the terminal services as we perform. The consideration is generally fixed for minimum quantities up to theand services beyond minimum in the contract. Above-minimum quantities are generally billed based on a per-metric tonper-MT rate.
Contracted Backlog
As of February 1, 2019,2022, we had approximately $7.9$21.2 billion of product sales backlog for firm and contingent contracted product sales to our long-term off-take customers and have a total weighted-average remaining term of 9.714.5 years compared to approximately $5.8$19.9 billion and a total weighted-average remaining term of 9.514.0 years as of February 15, 2018. Backlog1, 2021. Contracted backlog represents the revenue to be recognized under existing contracts assuming deliveries occur as specified in the contracts. Contracted future product sales denominated in foreign currencies, excluding revenue hedged with foreign currency forward contracts, are included in U.S. Dollars at February 1, 20192022 forward rates. The contracted backlog includes forward prices, including inflation, as well as foreign currency and commodity prices. The amountcontracted backlog also includes the effects of related foreign currency derivative contracts. Please read Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” and Item 8. “Financial Statements and Supplementary Data—Note 10, Derivative Instruments”Instruments, for more information regarding our foreign currency forward contracts.
Our expected future product sales revenue under our contracted backlog as of February 1, 20192022 is as follows (in millions):
| | | | | |
| Period from February 1, 2022 to December 31, 2022 | $ | 1,257 | |
| Year ending December 31, 2023 | 1,437 | |
| Year ending December 31, 2024 and thereafter | 18,478 | |
| Total product sales contracted backlog | $ | 21,172 | |
|
| | | |
| Period from February 1, 2019 to December 31, 2019 | $ | 609 |
|
| Year ending December 31, 2020 | 779 |
|
| Year ending December 31, 2021 and thereafter | 6,525 |
|
| Total product sales contracted backlog | $ | 7,913 |
|
Assuming all volumes under the firm and contingent off-take contracts held by our sponsor and its joint ventures were included with our product sales backlog for firm and contingent contracted product sales, the total weighted-average remaining term as of February 1, 2019 would increase 12.3 years and product sales backlog would increase to $14.6 billion as follows (in millions):
|
| | | |
| Period from February 1, 2019 to December 31, 2019 | $ | 609 |
|
| Year ending December 31, 2020 | 879 |
|
| Year ending December 31, 2021 and thereafter | 13,066 |
|
| Total product sales contracted backlog | $ | 14,554 |
|
Included in the product sales backlog above are $0.6 billion and $2.2 billion of contingent contracts held by the Partnership and the sponsor and its joint ventures, respectively.
Costs of Conducting Our Business
Cost of Goods Sold
Cost of goods sold includes the costs to produce and deliver our wood pellets to customers, reimbursable shipping-related costs associated with specific off-take contracts with CIF or CFR shipping terms, and costs associated with purchase and sale transactions. The principalprimary expenses incurred to produce and deliver our wood pellets consist of raw material, production, and distribution costs.
We have strategically located our plants in the SoutheasternMid-Atlantic and Gulf Coast regions of the United States, a region with plentifulgeographic areas in which wood fiber resources.sources are plentiful and readily available. We have short-term and long-term contracts to manage the supply of raw materials into our plants through a mixture of short-term and long-term contracts.plants. Delivered wood fiber costs include stumpage as well as harvesting, transportation, and in some cases, size reductionsize-reduction services provided by our suppliers. The majority of our product volumes are sold under off-take contracts that include cost pass-through mechanisms to mitigate increases in raw material and distribution costs.
Production costs at our production plants consist of labor, energy, tooling, repairs and maintenance, and plant overhead costs. Production costs also include depreciation expense associated with the use of our plants and equipment and any gain or loss on disposal of associated assets. Some of our off-take contracts include price escalators that mitigate inflationary pressure on certain components of our production costs. In addition to the wood pellets that we produce at our owned and operated production plants, we selectively purchase additional quantities of wood pellets from our third- and related-partyother wood pellet producers.
Distribution costs include all transportation costs from our plants to our port locations, any storage or handling costs while the product remains at port, and shipping costs related to the delivery of our product from our port locations to our customers. Both the strategic location of our plants and our ownership or control of our deep-water terminals have allowed for the efficient and cost-effective transportation of our wood pellets. We seek to mitigate shipping risk by entering into long-term, fixed-price shipping contracts with reputable shippers matching the terms and volumes of our off-take contracts pursuant to which we are responsible for arranging shipping. Certain of our off-take contracts include pricing adjustments for volatility in fuel prices, which allow us to pass the majority of the fuel price-risk associated with shipping through to our customers.
Costs associated with purchase and sale transactions are included in cost of goods sold.
Raw material, production, and distribution costs associated with delivering our wood pellets to our owned and leased marine terminals and third- and related-partythird-party wood pellet purchase costs are capitalized as a component of inventory. Fixed production overhead, including the related depreciation expense, is allocated to inventory based on the normal capacity of the production plants. These costs areWhen the inventory is sold, the depreciation allocated to it is reflected as depreciation and amortization expense in our consolidated statements of operations, while the other fixed production overhead allocated to inventory is reflected in cost of goods sold, when inventory is sold.excluding depreciation and amortization. Distribution costs associated with shipping our wood pellets to our customers and amortization of favorable acquired customer contracts, if any, are expensed as incurred. Our inventory is recorded using the first-in, first-out method (“FIFO”), which requires the use of judgment and estimates.. Given the nature of our inventory, the calculation of cost of goods sold is based on estimates used in the valuation of the FIFO inventory and in determining the specific composition of inventory that is sold to each customer.
Recoveries from customers for certain costs incurred at the discharge port under our off-take contracts are not considered a part of the transaction price, and therefore are excluded from product sales and included as an offset to cost of goods sold.
General and Administrative Expenses
We and our General Partner are party to a Management Services Agreement (the “MSA”) with Enviva Management. Under the MSA, direct or indirect internal or third-party expenses incurred are either directly identifiable or allocated to us. Enviva Management estimates the percentage of employee salaries and related benefits, third-party costs, office rent and expenses and any other overhead costs to be provided to us. Each month, Enviva Management allocates the actual costs incurred using these estimates. Enviva Management also charges us for any directly identifiable costs such as goods or services provided at our request. We believe Enviva Management’s assumptions and allocations have been made on a reasonable basis and are the best estimate of the costs that we would have incurred on a stand-alone basis.
Our consolidated financial statements have been recast to reflect the contribution of our sponsor’s interest in Wilmington as if the contribution had occurred on May 15, 2013, the date Wilmington was originally organized. We do not develop plants or ports within the Partnership and therefore we do not incur startup and commissioning costs or overhead costs related to construction activities. Prior to the consummation of the Wilmington Drop-Down, Wilmington incurred general and administrative costs related to development activities which included startup and commissioning activities prior to beginning production as well as incremental overhead costs related to construction activities. We do not expect to incur these costs going forward.
How We Evaluate Our Operations
Adjusted Net Income (Loss)
We define adjusted net income (loss) as net income (loss) excluding certain expenses incurred related to the Chesapeake Incidentacquisition and the Hurricane Events, consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repairintegration costs offset by insurance recoveries received, as well as employee compensation and other, related costs allocated to us in respectearly retirement of debt obligation, and Support Payments, adjusting for the Chesapeake Incidenteffect of Commercial Services, and the Hurricane Events pursuant to our management services agreement with an affiliate of our sponsor for services that could otherwise have been dedicated to our ongoing operations andexcluding interest expense associated with incremental borrowings related to a fire that occurred in February 2018 at the Chesapeake Incident.terminal (the “Chesapeake Incident”) and Hurricanes Florence and Michael (the “Hurricane Events”). We believe that adjusted net income (loss) enhances investors’ ability to compare the past financial performance of our underlying operations with our current performance separate from certain items of gain or loss that we characterize as unrepresentative of our ongoing operations.
Adjusted Gross Margin and Adjusted Gross Margin per Metric Ton
We use adjusted gross margin per metric ton to measure our financial performance. We define adjusted gross margin as gross margin excluding asset disposals,loss on disposal of assets, non-cash equity-based compensation and other expense, depreciation and amortization, changes in unrealized derivative instruments related to hedged items, included in gross margin,acquisition and certain items of income or loss that we characterize as unrepresentative of our ongoing operations, including certain expenses incurred related to the Chesapeake Incident and Hurricane Events, consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repairintegration costs offset by insurance recoveries received, as well as employee compensation and other, related costs allocated to us in respectand Support Payments, and adjusting for the effect of the Chesapeake Incident and the Hurricane Events pursuant to the MSA for services that could otherwise have been dedicated to our ongoing operations.Commercial Services. We believedefine adjusted gross margin per metric ton is aas adjusted gross margin per metric ton of wood pellets sold. We believe adjusted gross margin and adjusted gross margin per metric ton are meaningful measuremeasures because it comparesthey compare our revenue-generating
activities to our operating costscost of goods sold for a view of profitability and performance on a per metrictotal-dollar and a per-metric ton basis. Adjusted gross margin and adjusted gross margin per metric ton primarily will primarily be affected by our ability to meet targeted production volumes and to control direct and indirect costs associated with procurement and delivery of wood fiber to our wood pellet production plants and theour production and distribution of wood pellets.
Adjusted EBITDA
We define adjusted EBITDA as net income or loss(loss) excluding depreciation and amortization, interest expense, income tax expense (benefit), early retirement of debt obligations,obligation, non-cash unitequity-based compensation and other expense, asset impairments and disposals,loss on disposal of assets, changes in unrealized derivative instruments related to hedged items, included in gross marginacquisition and integration costs and other, income and expense,MSA Fee Waivers and certain itemsSupport Payments, and adjusting for the effect of income or loss that we characterize as unrepresentative of our ongoing operations, including certain expenses incurred related to the Chesapeake Incident and the Hurricane Events, consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repair costs, offset by insurance recoveries received, as well as employee compensation and other related costs allocated to us in respect of the Chesapeake Incident and the Hurricane Events pursuant to the MSA for services that could otherwise have been dedicated to our ongoing operations.Commercial Services. Adjusted EBITDA is a supplemental measure used by our management and other users of our financial statements, such as investors, commercial banks, and research analysts, to assess the financial performance of our assets without regard to financing methods or capital structure.
Distributable Cash Flow
We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures andcash income tax expenses, interest expense net of amortization of debt issuance costs, debt premium, original issue discounts, andinterest expense associated with the redemption of the $355.0 million of aggregate principal amount of 6.5% senior unsecured notes due 2021 (the “2021 Notes”), the impact from incremental borrowings related to the Chesapeake Incident.Incident and Hurricane Events, and maintenance capital expenditures. We use distributable cash flow as a performance metric to compare theour cash-generating performance of the Partnership from period to period and to compare the cash-generating performance for specific periods to the cash distributions (if any) that are expected to be paid to our unitholders.shareholders. We do not rely on distributable cash flow as a liquidity measure.
2021 Non-Recast Presentation
Our 2021 results were calculated on a recast basis in accordance with accounting principles generally accepted in the United States (“GAAP”) to reflect the consolidated performance of Enviva and our former sponsor as if Enviva had bought the former sponsor at inception instead of October 14, 2021, the closing date of the Simplification Transaction. In addition, we are also presenting results for 2021, calculated on a non-GAAP basis that combines (i) the actual performance of Enviva through October 14, 2021, the closing date of the Simplification Transaction, on a non-recast basis, and (ii) our consolidated performance, calculated on a recast basis in accordance with GAAP, inclusive of the assets and operations acquired as part of the Simplification Transaction, from the closing date through December 31, 2021 (the “Non-Recast Presentation”). We believe the non-recast presentation provides investors with relevant information to evaluate our financial and operating performance because it reflects Enviva’s actual and historically reported performance on a stand-alone basis through the closing date of the Simplification Transaction and performance on a consolidated basis from the closing date until year-end.
The Non-Recast Presentation does not reflect the recast of our historical results required under GAAP due to the Simplification Transaction and accordingly contains non-GAAP measures.
Unless expressly stated otherwise, all results are presented on a recast basis.
The following table presents a reconciliation of net loss to adjusted EBITDA and distributable cash flow for the year ended December 31, 2021, on a recast basis and non-recast basis (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Recast Presentation | | Adjustments | | Non-Recast Presentation |
| (in millions) |
| Net loss | $ | (145.3) | | | $ | 112.1 | | | $ | (33.2) | |
| Add: | | | | | |
| Depreciation and amortization | 92.0 | | | (2.8) | | | 89.2 | |
| Interest expense | 56.5 | | | (11.2) | | | 45.3 | |
| Income tax (benefit) expense | (17.0) | | | 17.1 | | | 0.1 | |
| Early retirement of debt obligation | 9.4 | | | (9.4) | | | — | |
| Non-cash equity-based compensation and other expense | 55.9 | | | (32.4) | | | 23.5 | |
| Loss on disposal of assets | 10.2 | | | (0.1) | | | 10.1 | |
| Changes in unrealized derivative instruments | (2.7) | | | — | | | (2.7) | |
| Acquisition and integration costs and other | 32.6 | | | — | | | 32.6 | |
| MSA Fee Waivers and Support Payments | 25.1 | | | 36.1 | | | 61.2 | |
| Adjusted EBITDA | $ | 116.7 | | | $ | 109.4 | | | $ | 226.1 | |
| Less: | | | | | |
| Interest expense net of amortization of debt issuance costs, debt premium, and original issue discount | 52.6 | | | (8.3) | | | 44.3 | |
| Maintenance capital expenditures | 14.0 | | | — | | | 14.0 | |
| Distributable cash flow | $ | 50.1 | | | $ | 117.7 | | | $ | 167.8 | |
Limitations of Non-GAAP Financial Measures
Adjusted net income (loss), adjusted gross margin, adjusted gross margin per metric ton, adjusted EBITDA, and distributable cash flow, as well as our Non-Recast Presentation, are not financial measures presented in accordance with accounting principles generally accepted in the United States (“GAAP”).GAAP. We believe that the presentation of these non-GAAP financial measures provides useful information to investors in assessing our financial condition and results of operations. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non-GAAP financial measures has important limitations as an analytical tool because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider adjusted net income (loss), adjusted gross margin, adjusted gross margin per metric ton, adjusted EBITDA, or distributable cash flow, or our Non-Recast Presentation, in isolation or as substitutes for analysis of our results as reported underin accordance with GAAP.
Our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. Please read Part II, Item 6. “Selected Financial Data—Limitationssee above for a reconciliation of Non-GAAP Financial Measures”the Non-Recast Presentation to the Recast Presentation and below for a reconciliation of each of adjusted net income (loss), adjusted gross margin and adjusted gross margin per metric ton, adjusted EBITDA, and distributable cash flow to the most directly comparable GAAP financial measure.
Results of Operations
Year Ended December 31, 20182021 Compared to Year Ended December 31, 20172020 | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2021 | | 2020 |
| (Recast) | | (Recast) | |
| (in thousands) |
| Product sales | $ | 999,190 | | | $ | 830,528 | | | $ | 168,662 | |
| Other revenue | 42,488 | | | 44,434 | | | (1,946) | |
| Net revenue | 1,041,678 | | | 874,962 | | | 166,716 | |
| Cost of goods sold, excluding items below | 861,703 | | | 711,248 | | | 150,455 | |
| Loss on disposal of assets | 10,153 | | | 8,715 | | | 1,438 | |
Selling, general, administrative, and development expenses(1) | 175,108 | | | 129,537 | | | 45,571 | |
| Depreciation and amortization | 91,966 | | | 85,892 | | | 6,074 | |
| Total operating costs and expenses | 1,138,930 | | | 935,392 | | | 203,538 | |
| Loss from operations | (97,252) | | | (60,430) | | | (36,822) | |
| Interest expense | (56,497) | | | (45,996) | | | (10,501) | |
| Early retirement of debt obligation | (9,377) | | | — | | | (9,377) | |
| Other income, net | 880 | | | 271 | | | 609 | |
| Net loss before income tax (benefit) expense | (162,246) | | | (106,155) | | | (56,091) | |
| Income tax (benefit) expense | (16,975) | | | 169 | | | (17,144) | |
| Net loss | $ | (145,271) | | | $ | (106,324) | | | $ | (38,947) | |
(1)SeePart II, Item 8., “Financial Statements and Supplementary Data—Note 15, Related-Party Transactions |
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change | | Chesapeake | | |
| | Incident and | | |
| 2018 | | 2017 | | Hurricane Events | | Net Change |
| (in thousands) |
| Product sales | $ | 564,010 |
| | $ | 522,250 |
| | $ | 41,760 |
| | $ | (300 | ) | | $ | 42,060 |
|
Other revenue (1) | 9,731 |
| | 20,971 |
| | (11,240 | ) | | — |
| | (11,240 | ) |
| Net revenue | 573,741 |
| | 543,221 |
| | 30,520 |
| | (300 | ) | | 30,820 |
|
Cost of goods sold, excluding depreciation and amortization (1) | 461,735 |
| | 419,616 |
| | 42,119 |
| | 7,490 |
| | 34,629 |
|
| Loss on disposal of assets | 2,386 |
| | 4,899 |
| | (2,513 | ) | | — |
| | (2,513 | ) |
| Depreciation and amortization | 40,179 |
| | 39,904 |
| | 275 |
| | — |
| | 275 |
|
| Total cost of goods sold | 504,300 |
| | 464,419 |
| | 39,881 |
| | 7,490 |
| | 32,391 |
|
| Gross margin | 69,441 |
| | 78,802 |
| | (9,361 | ) | | (7,790 | ) | | (1,571 | ) |
General and administrative expenses (1) | 27,641 |
| | 30,107 |
| | (2,466 | ) | | 5,161 |
| | (7,627 | ) |
| Disposal and impairment of assets held for sale | — |
| | 827 |
| | (827 | ) | | — |
| | (827 | ) |
| Total general and administrative expenses | 27,641 |
| | 30,934 |
| | (3,293 | ) | | 5,161 |
| | (8,454 | ) |
| Income from operations | 41,800 |
| | 47,868 |
| | (6,068 | ) | | (12,951 | ) | | 6,883 |
|
| Interest expense | (36,471 | ) | | (31,744 | ) | | (4,727 | ) | | (1,567 | ) | | (3,160 | ) |
| Early retirement of debt obligation | (751 | ) | | — |
| | (751 | ) | | — |
| | (751 | ) |
| Other income (expense) | 2,374 |
| | (1,751 | ) | | 4,125 |
| | — |
| | 4,125 |
|
| Net income | 6,952 |
| | 14,373 |
| | (7,421 | ) | | (14,518 | ) | | 7,097 |
|
| Less net loss attributable to noncontrolling partners’ interests | — |
| | 3,140 |
| | (3,140 | ) | | — |
| | (3,140 | ) |
| Net income attributable to Enviva Partners, LP | $ | 6,952 |
| | $ | 17,513 |
| | $ | (10,561 | ) | | $ | (14,518 | ) | | $ | 3,957 |
|
(1) See Part II, Item 8. “Financial Statements and Supplementary Data—Note 13, Related-Party Transactions” | | | | |
Product sales
Revenue related to product sales for wood pellets produced or procured by us increased to $564.0$999.2 million in 20182021 from $522.3$830.5 million in 2017.2020. The $41.8$168.7 million, or 8%20%, increase was primarily attributable to a 10%16% increase in product sales volumes for the year ended December 31, 20182021 as compared to the year ended December 31, 2017. The increase2020.
Other revenue for the years ended December 31, 2021 and 2020 included $37.3 million and $32.5 million, respectively, in payments to us for adjusting deliveries under our take-or-pay off-take contracts, which otherwise would have been included in product sales was partially offset by a decrease in pricingsales. Other revenue also included $4.1 million from Commercial Services during the year ended December 31, 2018 due primarily to customer contract mix.2020. The increase in product sales is also attributable to the adoption of ASC 606 (see Note 2, Significant Accounting Policies).
Other revenue
Other revenue decreased by $11.2$37.3 million during the year ended December 31, 2018 as compared to the year ended December 31, 2017. The change was primarily driven by $10.4and $36.6 million of purchase and sale transactions during the year ended December 31, 2017 recorded in other revenue prior towas recognized under a breakage model based on when the adoption of ASC 606. During the year ended December 31, 2018, the purchase and sale transactions were recorded on a gross basis in product sales revenue and cost of goods sold because we acted as principal in the transactions.pellets would have been loaded.
Cost of goods sold
Cost of goods sold increased to $504.3$861.7 million for the year ended December 31, 20182021 from $464.4$711.2 million for the year ended December 31, 2017.2020, an increase of $150.5 million, or 21%. The $39.9 million increase was primarily attributable to ana 16% increase in our sales volumes.
Gross margin
Adjusted gross margin and adjusted gross margin per metric ton | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2021 | | 2020 | |
| (Recast) | | (Recast) | |
| (in thousands, except per metric ton) |
| Reconciliation of gross margin to adjusted gross margin and adjusted gross margin per metric ton: | | | | | |
Gross margin(1) | $ | 83,362 | | | $ | 72,538 | | | $ | 10,824 | |
| Loss on disposal of assets | 10,143 | | | 8,653 | | | 1,490 | |
| Non-cash equity-based compensation and other expense | 2,271 | | | 2,714 | | | (443) | |
| Depreciation and amortization | 86,471 | | | 82,523 | | | 3,948 | |
| Changes in unrealized derivative instruments | (2,673) | | | 4,328 | | | (7,001) | |
| | | | | |
| Acquisition and integration costs and other | 397 | | | 1,517 | | | (1,120) | |
| Support Payments | 25,100 | | | — | | | 25,100 | |
| Commercial Services | — | | | (4,139) | | | 4,139 | |
| Adjusted gross margin | $ | 205,071 | | | $ | 168,134 | | | $ | 36,937 | |
| Metric tons sold | 5,033 | | | 4,332 | | | 701 | |
| Adjusted gross margin per metric ton | $ | 40.75 | | | $ | 38.81 | | | $ | 1.94 | |
(1)Gross margin was $69.4is defined as net revenue less cost of goods sold (including related depreciation and amortization and loss on disposal of assets). We earned adjusted gross margin of $205.1 million, or $40.75 per MT, for the year ended December 31, 2018 as2021 compared to $78.8 million for the year ended December 31, 2017. The $9.4 million decrease in gross margin was primarily attributable to the following:
An $11.2 million decrease in other revenue as described above.
A $7.8 million decrease related to the Chesapeake Incident and Hurricane Events is attributable to idling the plants and ports during the Hurricane Events and costs incurred to commission temporary wood pellet storage and contract alternative logistic capabilities. This decrease is also attributable to employee compensation and other related costs associated with the Chesapeake Incident and Hurricane Events allocated to us pursuant to the MSA for services that could otherwise have been dedicated to our ongoing operations.
Lower pricing due to customer contract mix, partially offset by changes in unrealized derivative instruments (see Note 8, Derivative Instruments), which decreased gross margin by $4.4 million.
An increase in depreciation expense decreased gross margin by $0.3 million.
Offsetting the above were:
An increase in sales volumes increased gross margin by $10.0 million. Including the impact of ASC 606, we sold 2,983,000 MT during the year ended December 31, 2018, or approximately 259,000 MT more than the year ended December 31, 2017.
Lower loss on asset disposals, which increased gross margin by $2.5 million.
Lower production costs of our wood pellets increased gross margin by $1.8 million.
Adjusted gross margin per metric ton |
| | | | | | | | | | | |
| | Year Ended December 31, | | |
| 2018 | | 2017 | | Change |
| (in thousands except per metric ton) |
| Metric tons sold | 2,983 |
| | 2,724 |
| | 259 |
|
| Gross margin | $ | 69,441 |
| | $ | 78,802 |
| | $ | (9,361 | ) |
| Loss on disposal of assets | 2,386 |
| | 4,899 |
| | (2,513 | ) |
| Depreciation and amortization | 40,179 |
| | 39,904 |
| | 275 |
|
| Chesapeake Incident and Hurricane Events | 7,799 |
| | — |
| | 7,799 |
|
| Changes in unrealized derivative instruments | (4,032 | ) | | — |
| | (4,032 | ) |
| Adjusted gross margin | $ | 115,773 |
| | $ | 123,605 |
| | $ | (7,832 | ) |
| Adjusted gross margin per metric ton | $ | 38.81 |
| | $ | 45.38 |
| | $ | (6.57 | ) |
We earned an adjusted gross margin of $115.8$168.1 million, or $38.81 per MT, for the year ended December 31, 2018. Adjusted2020. The increase in adjusted gross margin was $123.6 million, or $45.38 per MT,primarily due to a 16% increase in product sales volumes for the year ended December 31, 2017. Adjusting for the impact of ASC 606 for comparison purposes, adjusted gross margin per MT would have been $42.19 per MT for the year ended December 31, 2017. The factors impacting adjusted gross margin are detailed above under the heading “Gross margin.”
General and administrative expenses
General and administrative expenses were $27.6 million for the year ended December 31, 2018 and $30.1 million for the year ended December 31, 2017.
The $2.5 million decrease during the year ended December 31, 20182021 as compared to the year ended December 31, 2017 is primarily attributable to a $3.42020 and the Support Payments.
Selling, general, administrative, and development expenses
Selling, general, administrative, and development expenses were $175.1 million decrease in acquisition-related transaction expenses. Included in the $27.6 million of general and administrative expenses is $5.2 million of employee compensation and other related costs associated with the Chesapeake Incident and Hurricane Events allocated to us pursuant to the MSA for services that could otherwise have been dedicated to our ongoing operations.
Disposal and impairment of assets held for sale
During the year ended December 31, 2017, we recorded a loss on2021 and $129.5 million for the saleyear ended December 31, 2020. The $45.6 million increase in total selling, general, administrative, and development expenses is primarily associated with the increases in acquisition and integration costs of $0.8$24.9 million net, upon deconsolidationprimarily associated with the Simplification Transaction and Conversion and the drop-down of the Wiggins plant.production plant under construction in Lucedale, Mississippi and terminal at the Port of Pascagoula, Mississippi from our former sponsor as well as non-cash equity-based compensation and other expense of $16.8 million associated with the Simplification Transaction.
Depreciation and amortization
$6.1 million or 7%, mainly due to the acquisition of the production plant located in Waycross, Georgia in July 2020.
Interest expense
We incurred $36.5$56.5 million of interest expense during the year ended December 31, 20182021 and $31.7$46.0 million during the year ended December 31, 2017.2020. The increase in interest expense from the prior year was primarily attributable to an increase in our long-term debt outstanding. See “—Senior Notes Due 2021” below. We also incurred $1.6 million in interest expense on revolving borrowings under our senior secured credit facilities to fund timing differences between expenses incurred and associated insurance recoveries related towith the Chesapeake Incident.Green Term Loan.
Early retirement of debt obligation
In October 2021, our former sponsor repaid in full the Green Term Loan, which had a principal balance of $318.4 million at the time, and recognized a $9.4 million loss in early retirement of debt resulting from the write-off of unamortized debt issuance costs and original issue discount.
Income tax
We incurred a $0.8recorded $17.0 million chargeof income tax benefit during the year ended December 31, 2018 for the write-off of debt issuance costs2021 and original issue discount associated with our senior secured credit facilities. The amounts were amortized over the term of the debt and were expensed in October 2018 when we repaid $41.2$0.2 million of term-loan borrowings outstanding under the senior secured credit facilities.
Other income (expense)
The $2.4 million of other incometax expense during the year ended December 31, 20182020. The increase in income tax benefit of $17.2 million was primarily consists of $1.8 million of insurance proceeds received for lost margin on sales relateddue to the Chesapeake Incident.Conversion.
Certain cash flow hedges related to foreign currency exchange risk previously designated as hedges ceased to qualify for hedge accounting treatment and we discontinued hedge accounting for such hedge transactions on December 31, 2017. A $1.6 million loss included in accumulated other comprehensive income was reclassified to other expense.
Adjusted net incomeloss | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2021 | | 2020 | |
| (Recast) | | (Recast) | |
| (in thousands) |
| Reconciliation of net loss to adjusted net loss: | | | | | |
| Net loss | $ | (145,271) | | | $ | (106,324) | | | $ | (38,947) | |
| Acquisition and integration costs and other | 32,608 | | | 7,678 | | | 24,930 | |
| Early retirement of debt obligation | 9,377 | | | — | | | 9,377 | |
| Support Payments | 25,100 | | | — | | | 25,100 | |
| Commercial Services | — | | | (4,139) | | | 4,139 | |
| Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events | — | | | 2,211 | | | (2,211) | |
| Adjusted net loss | $ | (78,186) | | | $ | (100,574) | | | $ | 22,388 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2018 | | 2017 | | Change |
| | (in thousands) |
| Net income | $ | 6,952 |
| | $ | 14,373 |
| | $ | (7,421 | ) |
| Chesapeake Incident and Hurricane Events | 12,951 |
| | — |
| | 12,951 |
|
| Interest expense from incremental borrowings related to Chesapeake Incident | 1,567 |
| | — |
| | 1,567 |
|
| Adjusted net income | $ | 21,470 |
| | $ | 14,373 |
| | $ | 7,097 |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change |
| 2021 | | 2020 | |
| (Recast) | | (Recast) | |
| (in thousands) |
| Reconciliation of net loss to adjusted EBITDA: | | | | | |
| Net loss | $ | (145,271) | | | $ | (106,324) | | | $ | (38,947) | |
| Add: | | | | | |
| Depreciation and amortization | 91,966 | | | 85,892 | | | 6,074 | |
| Interest expense | 56,497 | | | 45,996 | | | 10,501 | |
| Income tax (benefit) expense | (16,975) | | | 169 | | | (17,144) | |
| Early retirement of debt obligation | 9,377 | | | — | | | 9,377 | |
| Non-cash equity-based compensation and other expense | 55,924 | | | 39,528 | | | 16,396 | |
| Loss on disposal of assets | 10,153 | | | 8,715 | | | 1,438 | |
| Changes in unrealized derivative instruments | (2,673) | | | 4,328 | | | (7,001) | |
| | | | | |
| Acquisition and integration costs and other | 32,608 | | | 7,678 | | | 24,930 | |
| Support Payments | 25,100 | | | — | | | 25,100 | |
| Commercial Services | — | | | (4,139) | | | 4,139 | |
| Adjusted EBITDA | $ | 116,706 | | | $ | 81,843 | | | $ | 34,863 | |
We generated adjusted net incomeEBITDA of $21.5$116.7 million for the year ended December 31, 20182021 compared to $14.4 million or the year ended December 31, 2017.
|
| | | | | | | | | | | |
| | Year Ended December 31, | | |
| 2018 | | 2017 | | Change |
| (in thousands) |
| Reconciliation of adjusted EBITDA to net income: | |
| | |
| | |
|
| Net income | $ | 6,952 |
| | $ | 14,373 |
| | $ | (7,421 | ) |
| Add: | | | | | |
|
| Depreciation and amortization | 40,745 |
| | 40,361 |
| | 384 |
|
| Interest expense | 36,471 |
| | 31,744 |
| | 4,727 |
|
| Early retirement of debt obligation | 751 |
| | — |
| | 751 |
|
| Non-cash unit compensation expense | 6,229 |
| | 5,014 |
| | 1,215 |
|
| Asset impairments and disposals | 2,386 |
| | 5,726 |
| | (3,340 | ) |
| Changes in the fair value of derivative instruments | (4,032 | ) | | 1,565 |
| | (5,597 | ) |
| Chesapeake Incident and Hurricane Events | 12,951 |
| | — |
| | 12,951 |
|
| Transaction expenses | 178 |
| | 3,598 |
| | (3,420 | ) |
| Adjusted EBITDA | $ | 102,631 |
| | $ | 102,381 |
| | $ | 250 |
|
We generated adjusted EBITDA of $102.6$81.8 million for the year ended December 31, 2018 compared to $102.4 million or the year ended December 31, 2017.2020. The $0.3$34.9 million increase was primarily attributable to the factors described above under the heading “Gross margin” and “General and administrative expenses.”
Distributable cash flow
The following is a reconciliation of adjusted EBITDA to distributable cash flow: |
| | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2018 | | 2017 | | Change |
| | (in thousands) |
| Adjusted EBITDA | $ | 102,631 |
| | $ | 102,381 |
| | $ | 250 |
|
| Less: | | | | | |
|
| Interest expense, net of amortization of debt issuance costs, debt premium, original issue discount and impact from incremental borrowings related to Chesapeake Incident | 33,970 |
| | 30,297 |
| | 3,673 |
|
| Maintenance capital expenditures | 4,872 |
| | 4,353 |
| | 519 |
|
| Distributable cash flow attributable to Enviva Partners, LP | 63,789 |
| | 67,731 |
| | (3,942 | ) |
| Less: Distributable cash flow attributable to incentive distribution rights | 5,867 |
| | 3,398 |
| | 2,469 |
|
| Distributable cash flow attributable to Enviva Partners, LP limited partners | $ | 57,922 |
| | $ | 64,333 |
| | $ | (6,411 | ) |
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 |
| | | | | | | | | | | |
| | Year Ended December 31 | | |
| 2017 | | 2016 | | Change |
| (in thousands) |
| Product sales | $ | 522,250 |
| | $ | 444,489 |
| | $ | 77,761 |
|
| Other revenue (1) | 20,971 |
| | 19,787 |
| | 1,184 |
|
| Net revenue | 543,221 |
| | 464,276 |
| | 78,945 |
|
| Cost of goods sold, excluding depreciation and amortization (1) | 419,616 |
| | 357,418 |
| | 62,198 |
|
| Loss on disposal of assets | 4,899 |
| | 2,386 |
| | 2,513 |
|
| Depreciation and amortization | 39,904 |
| | 27,700 |
| | 12,204 |
|
| Total cost of goods sold | 464,419 |
| | 387,504 |
| | 76,915 |
|
| Gross margin | 78,802 |
| | 76,772 |
| | 2,030 |
|
| General and administrative expenses (1) | 30,107 |
| | 33,098 |
| | (2,991 | ) |
| Impairment of assets held for sale | 827 |
| | 9,991 |
| | (9,164 | ) |
| Total general and administrative expenses | 30,934 |
| | 43,089 |
| | (12,155 | ) |
| Income from operations | 47,868 |
| | 33,683 |
| | 14,185 |
|
| Interest expense | (31,744 | ) | | (15,643 | ) | | (16,101 | ) |
| Related-party interest expense | — |
| | (578 | ) | | 578 |
|
| Early retirement of debt obligation | — |
| | (4,438 | ) | | 4,438 |
|
| Other (expense) income | (1,751 | ) | | 439 |
| | (2,190 | ) |
| Net income | 14,373 |
| | 13,463 |
| | 910 |
|
| Less net loss attributable to noncontrolling partners’ interests | 3,140 |
| | 5,804 |
| | (2,664 | ) |
| Net income attributable to Enviva Partners, LP | $ | 17,513 |
| | $ | 19,267 |
| | $ | (1,754 | ) |
(1) See Part II, Item 8. “Financial Statements and Supplementary Data—Note 13, Related-Party Transactions” |
Product sales
Revenue related to product sales (either produced by us or procured from a third party) increased to $522.3 million in 2017 from $444.5 million in 2016. The $77.8 million increase was largely attributable to greater sales volumes, primarily relating to
tons sold under the contract acquired in connection with the Sampson Drop-Down. In 2017, we sold 2,724,000 MT of wood pellets compared to 2,346,000 in 2016, a 16% increase.
Other revenue
Other revenue increased to $21.0 million for the year ended December 31, 2017 compared to $19.8 million for the year ended December 31, 2016. The $1.2 million increase was primarily attributable to a $2.8 million increase in related-party terminal services as a result of the Wilmington Drop-Down. Other revenue includes sales of wood pellets sourced from third-party pellet producers and delivered to our customers. In these back-to-back transactions, title and risk of loss immediately transfers to the ultimate purchasers; accordingly, such transactions are presented on a net basis. Other revenue also includes revenue derived from terminal services.
Cost of goods sold
Cost of goods sold increased to $464.4 million for the year ended December 31, 2017 from $387.5 million for the year ended December 31, 2016. The $76.9 million increase was primarily attributable to an increase in sales volumes and depreciation expense. In 2017, there was approximately $12.6 million of incremental depreciation expense, related to machinery and equipment at the Sampson plant and Wilmington terminal.
Loss on disposal of assets
We incurred $4.9 million and $2.4 million of expense associated with the disposal of assets during the years ended December 31, 2017 and 2016, respectively, which was primarily attributable to the disposal of assets replaced in connection with growth and maintenance capital projects at two of our plants.
Gross margin
We earned“Adjusted gross margin of $78.8 million and $76.8 million for the years ended December 31, 2017 and 2016, respectively. The gross margin increase of $2.0 million was primarily attributable to the following:
A $14.2 million increase in gross margin due to higher sales volumes. Our wood pellet sales volumes increased by approximately 378,000 MT during 2017 as compared to 2016, representing a 16% increase, which is principally attributable to sales under the contract acquired in connection with the Sampson Drop-Down.
A $1.4 million increase in gross margin during 2017 as compared to 2016 due primarily to lower raw material costs during 2017 as compared to 2016.
A $0.8 million increase in gross margin due to lower amortization costs as acquired contracts reach the end of their respective contract terms.
Offsetting the above was:
An increase in depreciation expense during 2017, which decreased gross margin by $13.0 million as compared to 2016. The increase in depreciation expense primarily related to machinery and equipment at the Sampson plant and Wilmington terminal.
An increase of $2.5 million in loss on the disposal of assets during 2017, which is primarily attributable to the disposal of assets replaced in connections with growth and maintenance capital projects at our wood pellet production plants.
A $0.4 million decrease in gross margin due to the mix of customer and shipping contracts during 2017 as compared to 2016.
Adjustedadjusted gross margin per metric tonton.”
|
| | | | | | | | | | | |
| | Year Ended December 31, | | |
| 2017 | | 2016 | | Change |
| (in thousands except per metric ton) |
| Metric tons sold | 2,724 |
| | 2,346 |
| | 378 |
|
| Gross margin | $ | 78,802 |
| | $ | 76,772 |
| | $ | 2,030 |
|
| Loss on disposal of assets | 4,899 |
| | 2,386 |
| | 2,513 |
|
| Depreciation and amortization | 39,904 |
| | 27,700 |
| | 12,204 |
|
| Adjusted gross margin | $ | 123,605 |
| | $ | 106,858 |
| | $ | 16,747 |
|
| Adjusted gross margin per metric ton | $ | 45.38 |
| | $ | 45.55 |
| | $ | (0.17 | ) |
We earned an adjusted gross margin of $123.6 million, or $45.38 per metric ton, for the year ended December 31, 2017 and an adjusted gross margin of $106.9 million, or $45.55 per metric ton, for the year ended December 31, 2016. The factors impacting adjusted gross margin are detailed above under the heading “Gross margin.”
General and administrative expenses
General and administrative expenses were $30.1 million for the year ended December 31, 2017 and $33.1 million for the year ended December 31, 2016. During the year ended December 31, 2017, general and administrative expenses included allocated expenses of $14.6 million that were incurred under the MSA, $0.2 million related to development activities prior to the Wilmington Drop-Down, $6.7 million of direct expenses, $5.0 million of non‑cash unit compensation expense associated with unit‑based awards and $3.5 million related to acquisition transaction expenses. During the year ended December 31, 2016, we incurred $14.2 million under the MSA, $2.4 million and $7.0 million related to development activities prior to the Wilmington Drop-Down and the Sampson Drop‑Down, respectively, $4.5 million of direct expenses, $4.2 million of non‑cash unit compensation expense associated with unit‑based awards, and $0.8 million of expenses related to acquisition transaction expenses.
Disposal and impairment of assets held for sale
During the year ended December 31, 2017, we recorded a loss on the sale of $0.8 million, net, upon deconsolidation of the Wiggins plant. During the year ended December 31, 2016, we incurred a $10.0 million non-cash impairment charge related to the sale of the Wiggins plant.
Interest expense
We incurred $31.7 million of interest expense during the year ended December 31, 2017 and $15.6 million during the year ended December 31, 2016. The increase in interest expense from the prior year was primarily attributable to our increase in long‑term debt outstanding. Please read “-Senior Notes Due 2021” below.
Related-party interest expense
On December 11, 2015, under our senior secured credit facilities, we obtained incremental borrowings in the amount of $36.5 million and Enviva FiberCo, LLC, a wholly owned subsidiary of our sponsor (“FiberCo”), became a lender with the purchase of $15.0 million aggregate principal amount of the incremental borrowings. On June 30, 2016, FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. During 2016, we incurred $0.4 million of related-party interest expense associated with this related-party debt. We did not incur related‑party interest expense during 2017. Please read “-Senior Secured Credit Facilities” below.
Early retirement of debt obligation
We incurred a $4.4 million charge during the year ended December 31, 2016 for the partial write-off of debt issuance costs and original issue discount associated with our senior secured credit facilities. The amounts were amortized over the term of the debt and were expensed in December 2016 when we repaid $158.1 million outstanding under the senior secured credit facilities.
Other (expense) income
Certain cash flow hedges related to foreign currency exchange risk previously designated as hedges ceased to qualify for hedge accounting treatment and we discontinued hedge accounting for such hedge transactions on December 31, 2017. A $1.6 million loss included in accumulated other comprehensive income was reclassified to other expense.
|
| | | | | | | | | | | |
| | Year Ended December 31, | | |
| 2017 | | 2016 | | Change |
| (in thousands) |
| Reconciliation of adjusted EBITDA to net income: | |
| | |
| | |
|
| Net income | $ | 14,373 |
| | $ | 13,463 |
| | $ | 910 |
|
| Add: | | | | | |
|
| Depreciation and amortization | 40,361 |
| | 27,735 |
| | 12,626 |
|
| Interest expense | 31,744 |
| | 16,221 |
| | 15,523 |
|
| Early retirement of debt obligation | — |
| | 4,438 |
| | (4,438 | ) |
| Non-cash unit compensation expense | 5,014 |
| | 4,230 |
| | 784 |
|
| Asset impairments and disposals | 5,726 |
| | 12,377 |
| | (6,651 | ) |
| Changes in the fair value of derivative instruments | 1,565 |
| | — |
| | 1,565 |
|
| Transaction expenses | 3,598 |
| | 827 |
| | 2,771 |
|
| Adjusted EBITDA | $ | 102,381 |
| | $ | 79,291 |
| | $ | 23,090 |
|
We generated adjusted EBITDA of $102.4 million for the year ended December 31, 2017 compared to $79.3 million for the year ended December 31, 2016. The $23.1 million increase in adjusted EBITDA was attributable to the $16.7 million increase in adjusted gross margin described above and a decrease in general and administrative expenses primarily attributable to the $2.4 million and $7.0 million of development activities related to the Wilmington terminal and Sampson plant, respectively, incurred during 2016.
Distributable cash flow
The following is a reconciliation of adjusted EBITDA to distributable cash flow:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2021 | | 2020 | |
| (Recast) | | (Recast) | |
| (in thousands) |
| Adjusted EBITDA | $ | 116,706 | | | $ | 81,843 | | | $ | 34,863 | |
| Less: | | | | | |
| Interest expense, net of amortization of debt issuance costs, debt premium, original issue discount, and impact from incremental borrowings related to Chesapeake Incident and Hurricane Events | 52,574 | | | 41,206 | | | 11,368 | |
| Maintenance capital expenditures | 13,981 | | | 7,952 | | | 6,029 | |
| Distributable cash flow attributable to Enviva | 50,151 | | | 32,685 | | | 17,466 | |
| Less: Distributable cash flow attributable to incentive distribution rights | 19,030 | | | 26,917 | | | (7,887) | |
| Distributable cash flow attributable to Enviva | $ | 31,121 | | | $ | 5,768 | | | $ | 25,353 | |
The following is a reconciliation of non-recast net (loss) income to non-recast adjusted EBITDA and non-recast adjusted EBITDA to non-recast distributable cash flow:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2021 | | 2020 | |
| Non-Recast Presentation | | Non-Recast As Previously Reported | |
| (in millions) |
| Net (loss) income | $ | (33.2) | | | $ | 17.1 | | | $ | (50.3) | |
| Add: | | | | | |
| Depreciation and amortization | 89.2 | | | 77.5 | | | 11.7 | |
| Interest expense | 45.3 | | | 44.9 | | | 0.4 | |
| Income tax expense | 0.1 | | | 0.1 | | | — | |
| Non-cash equity-based compensation and other expense | 23.5 | | | 12.8 | | | 10.7 | |
| Loss on disposal of assets | 10.1 | | | 7.0 | | | 3.1 | |
| Changes in unrealized derivative instruments | (2.7) | | | 4.3 | | | (7.0) | |
| Acquisition and integration costs and other | 32.6 | | | 7.4 | | | 25.2 | |
| MSA Fee Waivers and Support Payments | 61.2 | | | 23.4 | | | 37.8 | |
| Commercial Services | — | | | (4.1) | | | 4.1 | |
| Adjusted EBITDA | 226.1 | | | 190.3 | | | 35.8 | |
| Less: | | | | | |
| Interest expense net of amortization of debt issuance costs, debt premium, and original issue discount | 44.3 | | | 40.8 | | | 3.5 | |
| Maintenance capital expenditures | 14.0 | | | 8.0 | | | 6.0 | |
| Distributable cash flow | $ | 167.8 | | | $ | 141.6 | | | $ | 26.2 | |
Non-recast Adjusted EBITDA increased to $226.1 million for the year ended December 31, 2021 from $190.3 million for the year ended December 31, 2020, an increase of $35.8 million, or 19%. Non-recast distributable cash flow increased to $167.8 million for the year ended December 31, 2021 from $141.6 million for the year ended December 31, 2020, an increase of $26.2 million, or 19%.
|
| | | | | | | | | | | |
| | Year Ended December 31, | | |
| 2017 | | 2016 | | Change |
| (in thousands) |
| Adjusted EBITDA | $ | 102,381 |
| | $ | 79,291 |
| | $ | 23,090 |
|
| Less: | | | | | |
|
| Interest expense, net of amortization of debt issuance costs, debt premium costs and original issue discount | 30,297 |
| | 14,329 |
| | 15,968 |
|
| Maintenance capital expenditures | 4,353 |
| | 5,187 |
| | (834 | ) |
| Distributable cash flow to Enviva Partners, LP limited partners | $ | 67,731 |
| | $ | 59,775 |
| | $ | 7,956 |
|
| Less: Distributable cash flow attributable to incentive distribution rights | 3,398 |
| | 1,077 |
| | 2,321 |
|
| Distributable cash flow attributable to Enviva Partners, LP limited partners | $ | 64,333 |
| | $ | 58,698 |
| | $ | 5,635 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2020 | | 2019 |
| (Recast) | | (Recast) | |
| (in thousands) |
| Product sales | $ | 830,528 | | | $ | 674,251 | | | $ | 156,277 | |
| Other revenue | 44,434 | | | 9,317 | | | 35,117 | |
| Net revenue | 874,962 | | | 683,568 | | | 191,394 | |
| Cost of goods sold, excluding items below | 711,248 | | | 601,869 | | | 109,379 | |
| Loss on disposal of assets | 8,715 | | | 3,558 | | | 5,157 | |
Selling, general, administrative, and development expenses(1) | 129,537 | | | 98,818 | | | 30,719 | |
| Depreciation and amortization | 85,892 | | | 65,565 | | | 20,327 | |
| Total operating costs and expenses | 935,392 | | | 769,810 | | | 165,582 | |
| Loss from operations | (60,430) | | | (86,242) | | | 25,812 | |
| Interest expense | (45,996) | | | (42,042) | | | (3,954) | |
| Early retirement of debt obligation | — | | | (9,042) | | | 9,042 | |
| Other income, net | 271 | | | 410 | | | (139) | |
| Loss from operations before income tax expense (benefit) | (106,155) | | | (136,916) | | | 30,761 | |
| Income tax expense (benefit) | 169 | | | (1,932) | | | 2,101 | |
| Net loss | $ | (106,324) | | | $ | (134,984) | | | $ | 28,660 | |
(1)See Part II, Item 8. “Financial Statements and Supplementary Data—Note 15, Related-Party TransactionsNet revenue
Revenue related to product sales for wood pellets produced or procured by us increased to $830.5 million in 2020 from $674.3 million in 2019. The $156.3 million, or 23%, increase was primarily attributable to a 22% increase in product sales volumes for the year ended December 31, 2020 as compared to the year ended December 31, 2019.
Other revenue for the year ended December 31, 2020 included $32.5 million in payments to us, which otherwise would have been included in product sales, for adjusting deliveries under our take-or-pay off-take contracts. Other revenue also included $4.1 million from the Commercial Services during the year ended December 31, 2020. The $32.5 million and $4.1 million in other revenue was recognized under a breakage model based on when the pellets otherwise would have been loaded.
Cost of goods sold
Cost of goods sold increased to $711.2 million for the year ended December 31, 2020 from $601.9 million for the year ended December 31, 2019, an increase of $109.4 million, or 18%. The increase was primarily attributable to a 22% increase in sales volumes during the year ended December 31, 2020 compared to the year ended December 31, 2019.
Adjusted gross margin and adjusted gross margin per metric ton
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2020 | | 2019 | |
| (Recast) | | (Recast) | |
| (in thousands, except per metric ton) |
| Reconciliation of gross margin to adjusted gross margin and adjusted gross margin per metric ton: | | | | | |
Gross margin(1) | $ | 72,538 | | | $ | 16,134 | | | 56,404 | |
| Loss on disposal of assets | 8,653 | | | 3,577 | | | 5,076 | |
| Non-cash equity-based compensation and other expense | 2,714 | | | — | | | 2,714 | |
| Depreciation and amortization | 82,523 | | | 61,988 | | | 20,535 | |
| Changes in unrealized derivative instruments | 4,328 | | | 4,588 | | | (260) | |
| | | | | |
| Acquisition and integration costs and other | 1,517 | | | 4,299 | | | (2,782) | |
| Commercial Services | (4,139) | | | 4,139 | | | (8,278) | |
| Adjusted gross margin | $ | 168,134 | | | $ | 94,725 | | | $ | 73,409 | |
| Metric tons sold | 4,332 | | | 3,564 | | | 768 | |
| Adjusted gross margin per metric ton | $ | 38.81 | | | $ | 26.58 | | | $ | 12.23 | |
(1)Gross margin is defined as net revenue less cost of goods sold (including related depreciation and amortization and loss on disposal of assets).We earned adjusted gross margin of $168.1 million, or $38.81 per MT, for the year ended December 31, 2020 compared to $94.7 million, or $26.58 per MT, for the year ended December 31, 2019.The increase in adjusted gross margin was primarily due to a 22% increase in product sales volumes for the year ended December 31, 2020 as compared to the year ended December 31, 2019.
Adjusted gross margin for the year ended December 31, 2019 excludes $4.3 million of incremental costs, which are unrepresentative of our ongoing operations, in connection with our evaluation of a third-party wood pellet production plant we considered purchasing (the “Potential Target”). When we commenced our review, the Potential Target had recently returned to operations following an extended shutdown during a bankruptcy proceeding with the intent of demonstrating favorable operations prior to proceeding to an auction sale process; however, the Potential Target had not yet established a logistics chain through a viable export terminal, given that the terminal through which the plant historically had exported was not operational at the time and was not reasonably certain to become operational in the future. Accordingly, as part of our diligence of the Potential Target, we developed an alternative logistics chain to bring the Potential Target’s wood pellets to market and began purchasing the production of the Potential Target for a trial period. The incremental costs associated with the establishment and evaluation of this new logistics chain primarily consist of barge, freight, trucking, storage, and shiploading services. We have completed our evaluation of the alternative logistics chain and, therefore, do not expect to incur additional costs of this nature in the future.
During the quarter ended December 31, 2019, we received a non-refundable payment of $5.6 million from a customer in consideration for our performance during the quarter of Commercial Services outside of the scope of our existing take-or-pay off-take contract. The customer had requested the Commercial Services, among other things, in order to avoid its exposure to market price volatility associated with its anticipated failure to take required deliveries of certain wood pellet volumes during the fourth quarter of 2019 and first half of 2020 pursuant to the off-take contract. The Commercial Services had a value to the customer of $5.6 million. We included the entire non-refundable payment of $5.6 million in our publicly stated guidance for 2019 in our press release issued October 30, 2019.
Under GAAP, we recognized $1.5 million of the $5.6 million payment as revenue during the fourth quarter of 2019, under the breakage model of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and recorded the remaining $4.1 million as deferred revenue as of December 31, 2019, which was recognized as revenue during the first six months of 2020 in accordance with the original product sales schedule under the off-take contract. For presentation of our non-GAAP measures, including the Non-Recast Presentation, we included the $4.1 million in adjusted net income, adjusted gross margin, adjusted gross margin per MT, and adjusted EBITDA for the year ended December 31, 2019 as such amount relates to our performance of certain Commercial Services, which we completed and for which we were compensated in 2019. The $4.1 million increased adjusted net income, adjusted gross margin per MT, and adjusted EBITDA for the year ended December 31, 2019 and decreased such measures by an equal amount during the first six months of 2020.
Selling, general, administrative, and development expenses
Selling, general, administrative, and development expenses were $129.5 million for the year ended December 31, 2020 and $98.8 million for the year ended December 31, 2019. The $30.7 million increase in total selling, general, administrative, and development expenses is primarily associated with an increase in non-cash equity-based compensation and other expense of $28.9 million.
Depreciation and amortization
Depreciation and amortization expense increased to $85.9 million for the year ended December 31, 2020 from $65.6 million for the year ended December 31, 2019, an increase of $20.3 million or 31%, mainly due to the drop-down of the Hamlet plant from our former sponsor and the acquisition of the production plant located in Waycross, Georgia.
Interest expense
We incurred $46.0 million of interest expense during the year ended December 31, 2020 and $42.0 million during the year ended December 31, 2019. The increase in interest expense from the prior year was primarily attributable to an increase in borrowings as a result of our acquisition of the production plant located in Waycross, Georgia in July 2020.
Early retirement of debt obligation
In 2019, we redeemed all $355.0 million of aggregate principal amount of 2021 Notes and recognized a $9.0 million loss in early retirement of debt obligation consisting of a $7.5 million debt redemption premium and $1.5 million for the write-off of unamortized debt issuance costs, original issue discount and premium. The amounts were amortized over the term of the 2021 Notes and were expensed in December 2019 when we repaid $355.0 million of aggregate principal amount of the 2021 Notes.
Income tax
We incurred $0.2 million of income tax expense during the year ended December 31, 2020 and incurred and income tax benefit of $1.9 million during the year ended December 31, 2019. The decrease in the income tax benefit of $2.1 million was primarily related to income taxes of a corporate subsidiary.
Adjusted net loss
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2020 | | 2019 | | Change |
| (Recast) | | (Recast) | |
| (in thousands) |
| Reconciliation of net loss to adjusted net loss: | | | | | |
| Net loss | $ | (106,324) | | | $ | (134,984) | | | $ | 28,660 | |
| Acquisition and integration costs and other | 7,678 | | | 6,866 | | | 812 | |
| | | | | |
| Early retirement of debt obligation | — | | | 9,042 | | | (9,042) | |
| Commercial Services | (4,139) | | | 4,139 | | | (8,278) | |
| Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events | 2,211 | | | 1,705 | | | 506 | |
| Adjusted net loss | $ | (100,574) | | | $ | (113,232) | | | $ | 12,658 | |
Adjusted EBITDA
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2020 | | 2019 | |
| (Recast) | | (Recast) | |
| (in thousands) |
| Reconciliation of net loss to adjusted EBITDA: | | | | | |
| Net loss | $ | (106,324) | | | $ | (134,984) | | | $ | 28,660 | |
| Add: | | | | | |
| Depreciation and amortization | 85,892 | | | 65,565 | | | 20,327 | |
| Interest expense | 45,996 | | | 42,042 | | | 3,954 | |
| Income tax expense (benefit) | 169 | | | (1,954) | | | 2,123 | |
| Early retirement of debt obligation | — | | | 9,042 | | | (9,042) | |
| Non-cash equity-based compensation and other expense | 39,528 | | | 10,631 | | | 28,897 | |
| Loss on disposal of assets | 8,715 | | | 3,558 | | | 5,157 | |
| Changes in unrealized derivative instruments | 4,328 | | | 4,588 | | | (260) | |
| | | | | |
| Acquisition and integration costs and other | 7,678 | | | 6,866 | | | 812 | |
| Commercial Services | (4,139) | | | 4,139 | | | (8,278) | |
| Adjusted EBITDA | $ | 81,843 | | | $ | 9,493 | | | $ | 72,350 | |
We generated adjusted EBITDA of $81.8 million for the year ended December 31, 2020 compared to $9.5 million for the year ended December 31, 2019. The $72.4 million increase was primarily attributable to the factors described above under the heading “Adjusted gross margin and adjusted gross margin per metric ton.”
Distributable cash flow
The following is a reconciliation of adjusted EBITDA to distributable cash flow:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2020 | | 2019 | |
| (Recast) | | (Recast) | |
| (in thousands) |
| Reconciliation of adjusted EBITDA to distributable cash flow attributable to Enviva | | | | | |
| Adjusted EBITDA | $ | 81,843 | | | $ | 9,493 | | | $ | 72,350 | |
| Less: | | | | | |
| Interest expense, net of amortization of debt issuance costs, debt premium, original issue discount, and impact from incremental borrowings related to Chesapeake Incident and Hurricane Events | 41,206 | | | 37,193 | | | 4,013 | |
| Maintenance capital expenditures | 7,952 | | | 6,922 | | | 1,030 | |
| Distributable cash flow attributable to Enviva | $ | 32,685 | | | $ | (34,622) | | | $ | 67,307 | |
| | | | | |
| | | | | |
Liquidity and Capital Resources
Overview
Our primary sources of liquidity include cash and cash equivalent balances, cash generated from operations, borrowingsavailability under our senior secured revolving credit commitmentsfacility and, from time to time, debt and equity offerings. Our primary liquidity requirementsneeds are to fund working capital, service our debt, maintain cash reserves, finance plant acquisitionsgreenfield construction projects, growth initiatives, and plant expansion projects, finance maintenance capital expenditures, and pay distributions.dividends. We believe cash on hand, cash generated from our operations and the availability of our senior secured revolving credit commitmentsfacility will be sufficient to meet our primary liquidity requirements. However, future capital expenditures, such as expenditures made in relation to acquisitions of plants or terminals, plant development and/or plant expansion projects, and other cash requirements could be higher than we currently expect as a result of various factors. Additionally, our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive, and other factors beyond our control.
Our liquidity as of December 31, 2021, which included cash on hand and availability under our $570.0 million senior secured revolving credit facility, was $116.6 million.
Cash DistributionsDividends
To the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, weWe intend to pay cash dividends to holders of our common units cash distributionsstock of at least the minimum quarterly distribution of $0.4125$3.62 per common unit per quarter, which equatesstock for 2022.
The former owners of our former sponsor have agreed to approximately $11.0reinvest in our common stock all dividends from 9.0 million per quarter, or approximately $43.8of the 16.0 million per year, based on the number of common units outstanding asissued in connection with the Simplification Transaction for the dividends paid for the period beginning with the third quarter of February 15, 2019.2021 through the fourth quarter of 2024.
Capital Requirements
We operate in a capital-intensive industry, which requires significant investments to develop and construct new production and terminal facilities, and maintain and upgrade our existing capital.facilities. Our capital requirements primarily have consisted, and we anticipate will continue to consist, of the following:
•Maintenance capital expenditures, which are cash expenditures incurred to maintain our long-term operating income or operating capacity. These expenditures typically include certain system integrity, compliance, and safety improvements; and
•Growth capital expenditures, which are cash expenditures we expect will increase our operating income or operating capacity over the long-term.long term. Growth capital expenditures include acquisitions or construction of new capital assets or capital improvements such as additions to or improvements on our existing capital assets as well as projects intended to extend the useful life of assets.
The classification of capital expenditures as either maintenance or growth is made at the individual asset level during our budgeting process and as we approve, execute, and monitor our capital spending.
During 2019,We plan to invest $255.0 million to $275.0 million in capital expenditures in 2022. Of that amount, we expect to increaseinvest (i) $210.0 million to $220.0 million primarily on the aggregatecompletion of the production capacityplant under construction in Lucedale Mississippi and the terminal at the Port of our wood pellet production plants in Northampton, North CarolinaPascagoula, Mississippi, and Southampton, Virginia by approximately 400,000 MTPY in the aggregate, subjectconstruction of the Epes plant, (ii) $30.0 million to receiving$35.0 million primarily on the necessary permits. We expectMulti-Plant Expansions, and (iii) $15.0 million to invest a total of approximately $130.0$20.0 million in additional production
assets and emissions control equipment for the expansions. We expect to complete expansion activities in early 2020 with startup shortly thereafter.on maintenance capital expenditures.
Long-Term Debt
Senior2026 Notes Due 2021
As of December 31, 2018, we have $355.0 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”). In 2016,2019, we issued $300.0$600.0 million inof the 2026 Notes. We received gross proceeds of approximately $601.8 million from the offerings and net proceeds of approximately $595.8 million after deducting commissions and expenses.
In July 2020, we issued an additional $150.0 million aggregate principal amount of the Senior2026 Notes and used $139.6 millionat an offering price of 103.75% of the principal amount (the “Additional Notes”). We received net proceeds together with cash on hand, to pay a portion of approximately $153.6 million from the purchase price for the Sampson Drop-DownAdditional Notes offering after deducting discounts and $159.8 million to repay borrowings, including accrued interest under the Senior Secured Credit Facilities. In 2017, we issued an additional $55.0 million in aggregate principal amount of Senior Notes and used the proceeds to repay borrowings under our revolving credit commitments under the senior secured credit facilities, which were used to fund the Wilmington Drop-Down, and for general partnership purposes. Interest payments are due semi-annually in arrears on May 1 and November 1.commissions.
We may redeem all or a portion of the Senior2026 Notesat any time at the applicable redemption prices (expressed as percentages of principal amount) set forth below,price, plus accrued and unpaid interest, if any on the Senior Notes redeemed to the applicable redemption date (subject(subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), if redeemed during the twelve-month period beginning November 1 on the years indicated below:and, in some cases, plus a make-whole premium.
|
| | | |
| Year: | | Percentages |
| 2019 | | 102.125 | % |
| 2020 | | 100.000 | % |
| 2021 and thereafter | | 100.000 | % |
We were in compliance with the covenants and restrictions associated with, and no events of default existed under, the Indenture as of December 31, 2018. The Senior Notes are guaranteed jointly and severally, on a senior unsecured basis by substantially all of our existing subsidiaries and our future restricted subsidiaries that guarantee certain of our indebtedness. For additional information on the 2026 Notes, see Item 8. Financial Statements and Supplemental Data, Note 14, Long-Term Debt and Finance Lease Obligations.
Senior Secured Revolving Credit Facility
In April 2021, we amended our senior secured revolving credit facility see Note 12, Long-Term Debt and Capital Lease Obligations.
Senior Secured Credit Facilities
In October 2018, we amended our credit agreement, increasing the revolving commitments under our senior secured credit facilities from $100.0 million to $350.0 million and extending the maturity from April 2020 to October 2023. We used $41.2 million of our revolving credit commitments to fully repay the previously outstanding term loan borrowings under our senior secured credit facilities. Future borrowings under the senior secured credit facilities will be used to support our growth initiatives, common control acquisitions, and for general partnership purposes.
Our credit agreement matures on the earlier to occur of (1) October 18, 2023 or (2) if the sum of our cash and cash equivalents and borrowing capacity underincrease the revolving credit commitments is less thanfrom $350.0 million to $525.0 million, to extend the summaturity from October 2023 to April 2026, to increase the letter of the amount of the Senior Notes then outstanding andcredit commitment from $50.0 million duringto $80.0 million, and to reduce the 91-day period priorcost of borrowing by 25 basis points. In December 2021, we amended our senior secured revolving credit facility to increase the revolving credit commitments from $525.0 million to $570.0 million and including November 1, 2021 (the maturity dateto permit the issuance of the Senior Notes), the first daycommercial letters of that period on which such liquidity deficiency occurs. credit.
Borrowings under the revolving credit commitmentsfacility bear interest, at our option, at either a Eurodollar rate or at a base rate, in each case, plus an applicable margin. The applicable margin will fluctuate between 1.75%1.50% per annum and 3.00%2.75% per annum, in
the case of Eurodollar rate borrowings, or between 0.75%0.50% per annum and 2.00%1.75% per annum, in the case of base rate loans, in each case, based uponon our Total Leverage Ratio (as defined in our credit agreement) at such time, with 25 basis point increases or decreases for each 0.50 increase or decrease in our Total Leverage Ratio from 2.75:1:00 to 4.75:1:00.
We are required to pay a commitment fee on the daily unused amount under the revolving credit commitments at a rate between 0.25% and 0.50% per annum.
The credit agreement contains certain covenants, restrictions, and events of default including, but not limited to, a change of control restriction and limitations on our ability to (1) incur indebtedness, (2) pay dividends or make other distributions, (3) prepay, redeem or repurchase certain debt, (4) make loans and investments, (5) sell assets, (6) incur liens, (7) enter into transactions with affiliates, (8) consolidate or merge, and (9) assign certain material contracts to third parties or unrestricted subsidiaries.default. We are required to maintain (1) a maximum Total Leverage Ratio at or below 4.755.00 to 1.00 (or 5.005.25 to 1.00 during a Material Transaction Period, as defined
in the credit agreement)Period) and (2) a minimum Interest Coverage Ratio (each as(as defined in theour credit agreement), of not less than 2.25 to 1.00.
As of December 31, 2018,2021, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the credit agreement governing our senior secured revolving credit agreement.facility. Our obligations under the senior secured revolving credit facilitiesfacility are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our assets; however, the senior secured revolving credit facility is not guaranteed by the Hamlet JV or secured by liens on its assets. For additional information on our senior secured revolving credit facilities,facility, see Item 8. Financial Statements and Supplemental Data, Note 12, 14, Long-Term Debt and CapitalFinance Lease Obligations.
At-the-Market Offering ProgramSeller Note
PursuantWe are a party to, and a guarantor of, a promissory note (the “Seller Note”) with a remaining principal balance of $37.5 million. The Seller Note matures in February 2023 and has an equity distribution agreement dated August 8, 2016, we may offerinterest rate of 2.5% per annum. Principal and sell common units from time to timerelated interest payments are due annually through a group of managers, subject to the termsFebruary 2022 and conditions set forth in in such agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).quarterly thereafter.
During the year ended December 31, 2018, we sold 8,408 common units under the ATM Program for net proceeds of $0.2 million, net of an insignificant amount of commissions. During the year ended December 31, 2017, we sold 71,368 common units under the ATM Program for net proceeds of $1.9 million, net of an insignificant amount of commissions. Accounting and other fees of approximately $0.2 million were offset against the proceeds during 2017. Net proceeds from sales under the ATM Program were used for general partnership purposes. As of February 15, 2019, $88.4 million remained available for issuance under the ATM Program.
Cash Flows
The following table sets forth a summary of our net cash flows from operating, investing and financing activities for the years ended December 31, 2018, 20172021 and 2016:2020: | | | | Year Ended December 31 | | Year Ended December 31, |
| 2018 | | 2017 | | 2016 | 2021 | | 2020 |
| (in thousands) | (in thousands) |
| Net cash provided by operating activities | $ | 84,053 |
| | $ | 87,095 |
| | $ | 55,804 |
| Net cash provided by operating activities | $ | 33,390 | | | $ | 14,399 | |
| Net cash used in investing activities | (26,002 | ) | | (28,601 | ) | | (111,124 | ) | Net cash used in investing activities | (332,322) | | | (383,969) | |
| Net cash (used in) provided by financing activities | (56,115 | ) | | (58,436 | ) | | 53,658 |
| |
| Net increase (decrease) in cash and cash equivalents | $ | 1,936 |
| | $ | 58 |
| | $ | (1,662 | ) | |
| Net cash provided by financing activities | | Net cash provided by financing activities | 249,775 | | | 406,521 | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | | Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (49,157) | | | $ | 36,951 | |
Cash Provided by Operating Activities
Net cash provided by operating activities was $84.1 million, $87.1$33.4 million and $55.8$14.4 million for the years ended December 31, 2018, 20172021 and 2016,2020, respectively.
The $3.0 million decrease in cash provided by operating activities during the year ended December 31, 2018 compared to the year ended December 31, 2017 was primarily attributable to the following:
A decrease in net income, excluding depreciation and amortization, of $7.0 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017. The decrease in net income, excluding depreciation and amortization, is primarily attributable to the Chesapeake Incident and Hurricane Events.
A $13.6 million decrease in cash flows provided by operating activities related to an increase in inventories during the year ended December 31, 2018 as compared to December 31, 2017. The increase during the year ended December 31, 2018 was primarily attributable to the timing and size of product shipments.
Offsetting the above was:
A $21.7 million increase in cash flows provided by operating activities related to a decrease in accounts receivable and related-party receivables during the year ended December 31, 2018 as compared to December 31, 2017. This increase during primarily attributable to the timing, volume and size of product shipments.
A $1.7 million increase in cash flows provided by operating activities related to an increase in accounts payable, related-party payables, accrued liabilities and other current liabilities during the year ended December 31, 2018 as compared to December 31, 2017. The increase was primarily attributable to accrued expenses associated with the
Chesapeake Incident and the timing of payments for wood pellets purchased from a related party.
The $31.3$19.0 million increase in cash provided by operating activities during the year ended December 31, 20172021 compared to the year ended December 31, 20162020 was primarily attributable to:
A $30.5due to an increase in cash from changes in working capital of $47.4 million favorable change in operating assets and liabilities during the year ended 2017 compared to 2016 primarily attributable to a decrease in accounts receivable, net, related-party receivables and inventories. The favorable change was partially offset by a decrease in accounts payable, related-party payables and accrued liabilities. The change was primarily attributable to the timing, volume and sizecash from net income (loss) adjusted for non-cash items of product shipments.$28.4 million.
Cash Used in Investing Activities
Net cash used in investing activities was $26.0 million, $28.6$332.3 million and $111.1$384.0 million for the years ended December 31, 2018, 20172021 and 2016,2020, respectively.
The year December 31, 2018 includes $26.0$51.6 million decrease in cash used for property, plant and equipment, which includes $16.9 million related to projects intended to increase the operating income or operating capacity of our plants, $4.9 million of capital expenditures to maintain operations and $5.3 million of capital expenditures associated with the Chesapeake Incident, offset by $1.1 million of insurance recoveries received.
The year ended December 31, 2017 includes purchases of property, plant and equipment related to the completion of both the Sampson plant and Wilmington terminal. Of the $28.6 million in cash used for property, plant and equipmentinvesting activities during the year ended December 31, 2017, approximately $5.72021 compared to the year ended December 31, 2020 was primarily due to the investment of $163.3 million related to projects intended to increasein the acquisition of the production capacityplant located in Waycross, Georgia, last year offset by the increase in capital expenditures of our plants and $4.4 million was used to maintain our equipment and machinery. Of the remaining amount in 2017, $10.2 million was used for the construction of the Sampson plant and $8.4 million was used for the construction of the Wilmington terminal.$111.3 million.
Cash (Used in) Provided by Financing Activities
Net cash (used in) provided by financing activities was $(56.1) million, $(58.4)$249.8 million and $53.7$406.5 million for the years ended December 31, 2018, 20172021 and 2016,2020, respectively. Net cash usedThe $156.7 million decrease in financing activities during the year ended December 31, 2018 related primarily to distributions paid to our unitholders of $73.5 million, a $4.5 million withholding tax payment associated with LTIP vesting, $2.5 million cash paid related to debt issuance costs and a $2.3 million payment to our General Partner to purchase common units related to the vesting of LTIP awards. Offsetting the cash used in financing activities during the year ended December 31, 2018 was $26.5 million, net in debt issuance proceeds.
Net cash used in financing activities during the year ended December 31, 2017 related primarily to distributions paid to our unitholders of $64.3 million, distributions to our sponsor of $55.9 million related to the Wilmington Drop-Down and $83.0 million of repayments, net, on our debt and capital lease obligations. The net cash used in financing activities was partially offset by proceeds of $60.0 million from the additional Senior Notes and $72.0 million of borrowings under our revolving credit commitments.
Net cash provided by financing activities during the year ended December 31, 2016 relatedin 2021, as compared to 2020, was primarily attributable to an increase in cash used to acquire a non-controlling interest of $59.7 million, a reduction in cash from contributed capital to common control entities acquired of $105.0 million, and an increase in cash distribution of $44.8 million, partially offset by an increase in proceeds from our Senior Notes offeringthe issuance of common shares of $24.0 million and the Sampson Drop-Down. Net proceeds from debt issuance net of $293.6 million from our Senior Notes were used to repayrepayment of debt including $158.1 million due under the senior secured credit facilities and to distribute $139.6 million to our sponsor related to the Sampson Drop-Down.of $19.3 million.
Contractual Obligations |
| | | | | | | | | | | | | | | | | | | | |
| Contractual Obligations | | Total | | 2019 | | 2020-2021 | | 2022-2023 | | 2024 and
Beyond |
| | | (in thousands) |
| Long-term debt(1) | | $ | 428,000 |
| | $ | — |
| | $ | 355,000 |
| | $ | 73,000 |
| | $ | — |
|
| Other loans and capital leases | | 6,812 |
| | 2,787 |
| | 4,022 |
| | 3 |
| | — |
|
| Operating leases | | 73,833 |
| | 3,491 |
| | 5,881 |
| | 5,141 |
| | 59,320 |
|
| Interest expense(2) | | 105,951 |
| | 34,536 |
| | 64,462 |
| | 6,953 |
| | — |
|
| Purchase obligations(3) | | 6,347 |
| | 6,347 |
| | — |
| | — |
| | — |
|
| Shipping commitments (4) | | 464,142 |
| | 62,492 |
| | 147,566 |
| | 113,041 |
| | 141,043 |
|
| Other purchase commitments(5) | | 559,402 |
| | 94,578 |
| | 363,066 |
| | 78,621 |
| | 23,137 |
|
| | | $ | 1,644,487 |
| | $ | 204,231 |
| | $ | 939,997 |
| | $ | 276,759 |
| | $ | 223,500 |
|
| |
(1) | Our long-term debt as of December 31, 2018 consisted of $352.8 million of outstanding indebtedness, increased by a premium of $2.4 million and offset by an unamortized discount and debt issuance costs of $4.6 million, under our Senior Notes, and $73.0 million of outstanding revolving credit commitments under our senior secured credit facilities. |
| |
(2) | The cash obligations for interest expense reflect, as of December 31, 2018, (1) interest expense related to $355.0 million of Senior Notes bearing interest at 8.50%, $73.0 million of revolving credit commitments under our senior secured credit facilities bearing interest at a Eurodollar rate plus an applicable margin, adjusted for our pay-fixed, receive-variable interest rate swap, and (2) interest expense related to a note held by Enviva Pellets Amory, LLC, which bears interest at a rate of 6.0%. |
| |
(3) | At December 31, 2018, we had $6.3 million of purchase obligations which consisted of commitments for the purchase of materials, supplies and the engagement of services for the operation of our plants and facilities to be used in the normal course of business. The amounts presented in the table do not include items already recorded in accounts payable or accrued liabilities at December 31, 2018. |
| |
(4) | In order to mitigate volatility in our shipping costs, we have entered into fixed-price shipping contracts with reputable shippers matching the terms and volumes of certain of our off‑take contracts for which we are responsible for arranging shipping. Our contracts with shippers include provisions as to the minimum amount of metric tons per year to be shipped and may also stipulate the number of shipments. Pursuant to these contracts, the terms extend to up to 15 years, charges are based on a fixed‑price per metric ton and, in some cases, there are adjustment provisions for increases in the price of fuel or for other distribution-related costs. The price per metric ton may also vary depending on the loading port and the discharge port. Our shippers commit their resources based on our planned shipments, and we would likely be liable for a portion of their expenses if we deviated from our communicated plans. As of December 31, 2018, we estimate our obligations related to these shipping contracts to be approximately $464.1 million through 2026. These amounts will be offset by the related sales transactions in the same period, which are not included in the table above. |
| |
(5) | Purchase and other commitments consist primarily of commitments under certain wood fiber and wood pellet purchases, handling and terminal and stevedoring service contracts. Some of our suppliers and service providers commit resources based on our planned purchases and require minimum levels of commitments. The supply agreements for the purchase of 1,620,000 MT of wood pellets from British Columbia are fully offset by an agreement to sell 1,620,000 MT of wood pellets to the same counterparty from our terminal locations. The amounts in the table represent an estimate of the costs we would incur under these contracts as of December 31, 2018. Many of our contracts are requirement contracts and currently do not represent a firm commitment to purchase from our suppliers; therefore, they are not reflected in the table above. Under these contracts, we may be liable for the costs incurred on services rendered until termination and the costs of any supplies on hand. |
Off‑Balance Sheet Arrangements
As of December 31, 2018,2021, we did not have any off‑balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S‑K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or a variable interest in unconsolidated entities.
Recently Issued Accounting Pronouncements
See Part II, Item 8. “Financial Statements and Supplementary Data—Note 2, “Significant Accounting Policies —RecentlyPolicies—Recently Adopted Accounting Standards”Standards and “Significant Accounting Policies—Recently Issued Accounting Standards not yet Adopted,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for a description of recently issued and adopted accounting pronouncements.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.
Listed below areFor accounting policies and estimates that we believe are critical to our consolidated financial statements due to the degree of uncertainty regarding the estimates or assumptions involved, which we believe are criticalplease see the following disclosures within the Notes to the understanding of our operations.
Revenue Recognition
We primarily earn revenue by supplying wood pellets to customers under off-take contracts, the majority of the commitments under which are long-term in nature. We refer to the structure of our off-take contracts as “take-or-pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions that ensure we will be compensated in the case of a customer’s failure to accept all or a part of the contracted volumes or termination of a contract. Our long-term off-take contracts define the annual volume of wood pellets that a customer is required to purchase and we are required to sell, the fixed price per metric ton (“MT”) for product satisfying a base net calorific value and other technical specifications. The prices are fixed for the entire term, and are subject to adjustments which may include annual inflation-based adjustments or price escalators, price adjustments for product specifications, as well as, in some instances, price adjustments due to changes in underlying indices. In addition to sales of our product under these long-term off-take contracts, we routinely sell wood pellets under shorter-term contracts, which range in volume and tenor and, in some cases, may include only one specific shipment. Because each of our off-take contracts is a bilaterally negotiated agreement, our revenue over the duration of such contracts does not generally follow observable current market pricing trends. Our performance obligations under these contracts, which we aggregate into metric tons, include the delivery of wood pellets. We account for each MT as a single performance obligation. Our revenue from the sales of wood pellets we produce is recognized as product sales upon satisfaction of our performance obligation when control transfers to the customer at the time of loading wood pellets onto a ship.
Depending on the specific off‑take contract, shipping terms are either Cost, Insurance and Freight (“CIF”), Cost and Freight (“CFR”) or Free on Board (“FOB”). Under a CIF contract, we procure and pay for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. Under a CFR contract, we procure and pay for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping under CIF and CFR contracts after control has passed to the customer is considered a fulfillment activity rather than a performance obligation and associated expenses areConsolidated Financial Statements included in the price to the customer. Under FOB contracts, the customer is directly responsible for shipping costs.
In some cases, we may purchase shipmentsPart II, Item 8. of product from third-party suppliersthis Annual Report on Form 10-K: Note 2, Significant Accounting Policies, specifically about “Business Combinations”, “Inventories”, “Revenue Recognition”, “Cost of Goods Sold”, and resell them in back-to-back transactions (“purchase“Property, Plant and sale transactions”). We determined that we are the principal in such transactions because we control the pellets prior to transferring them to the customerEquipment”, and therefore we recognize the related revenue on a gross basis in product sales.
In instances in which a customer requests the cancellation, deferral or acceleration of a shipment, the customer may pay a fee, which is included in other revenue in satisfaction of the related performance obligation.
We recognize third- and related-party terminal services revenue ratably over the related contract term, which is included in other revenue. Terminal services are performance obligations that are satisfied over time, as customers simultaneously receive and consume the benefits of the terminal services we perform. The consideration is generally fixed for minimum quantities andNote 4, “Acquisition”.
any services above the minimum are generally billed based on a per-ton rate as variable consideration and recognized as services performed. Any deficiency payments receivable and probable of being collected from a customer not meeting quarterly minimum throughput requirements are recognized during the related quarter in satisfaction of the related performance obligation.
Variable consideration from off-take contracts arises from several pricing features outlined in our off-take contracts, pursuant to which such contract pricing may be adjusted in respect of particular shipments to reflect differences between certain contractual quality specifications of the wood pellets as measured both when the wood pellets are loaded onto ships and unloaded at the discharge port as well as certain other contractual adjustments.
Variable consideration from terminal services contracts arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services.
We allocate variable consideration under our off-take and terminal services contracts entirely to each performance obligation to which variable consideration relates. The estimate of variable consideration represents the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved.
Under our off-take contracts, customers are obligated to pay the majority of the purchase price prior to the arrival of the ship at the customers’ discharge port. The remaining portion is paid after the wood pellets are unloaded at the discharge port. We generally recognize revenue prior to the issuance of an invoice to the customer.
Cost of Goods Sold
Cost of goods sold includes the cost to produce and deliver wood pellets to customers, reimbursable shipping-related costs associated with specific off-take contracts with CIF and CFR shipping terms and costs associated with purchase and sale transactions. Raw material, production and distribution costs associated with delivering wood pellets to marine terminals and third- and related-party wood pellet purchase costs are capitalized as a component of inventory. Fixed production overhead, including the related depreciation expense, is allocated to inventory based on the normal capacity of our production plants. These costs are reflected in cost of goods sold when inventory is sold. Distribution costs associated with shipping wood pellets to customers and amortization of favorable acquired customer contracts are expensed as incurred. Inventory is recorded using FIFO, which requires the use of judgment and estimates. The calculation of cost of goods sold is based on estimates used in the valuation of the FIFO inventory and in determining the specific composition of inventory that is sold to each customer.
We have strategically located our plants in the Southeastern United States, a region with plentiful wood fiber resources. We manage the supply of raw materials into our plants primarily through short-term contracts. Delivered wood fiber costs include stumpage as well as harvesting, transportation and, in some cases, size reduction services provided by our suppliers. The majority of our product volumes are sold under long-term off-take contracts that include cost pass-through mechanisms to mitigate increases in raw material and distribution costs.
Production costs at our production plants consist of labor, energy, tooling, repairs and maintenance and plant overhead costs. Production costs also include depreciation expense associated with the use of our plants and equipment and any gain or loss on disposal of associated assets. Some of our off-take contracts include price escalators that mitigate inflationary pressure on certain components of our production costs. In addition to the wood pellets that we produce at our owned and operated production plants, we selectively purchase additional quantities of wood pellets from third-party wood pellet producers.
Distribution costs include all transportation costs from our plants to our port locations, any storage or handling costs while the product remains at port and shipping costs related to the delivery of our product from our port locations to our customers. Both the strategic location of our plants and our ownership or control of our marine terminals has allowed for the efficient and cost‑effective transportation of our wood pellets. We seek to mitigate shipping risk by entering into long-term, fixed-price shipping contracts with reputable shippers matching the terms and volumes of our off‑take contracts pursuant to which we are responsible for arranging shipping. Certain of our off-take contracts include pricing adjustments for volatility in fuel prices, which allows us to pass the majority of the fuel price risk associated with shipping through to our customers under those contracts.
Raw material, production and distribution costs associated with delivering our wood pellets to our owned and leased marine terminals and related- and third-party wood pellet purchase costs are capitalized as a component of inventory. Fixed production overhead, including the related depreciation expense, is allocated to inventory based on the normal capacity of the facilities. These costs are reflected in cost of goods sold when inventory is sold. Distribution costs associated with shipping our wood pellets to our customers and amortization of favorable acquired customer contracts are expensed as incurred. Our inventory is recorded using FIFO, which requires the use of judgment and estimates. Given the nature of our inventory, the
calculation of cost of goods sold is based on estimates used in the valuation of the FIFO inventory and in determining the specific composition of inventory that is sold to each customer.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, which includes the fair values of assets acquired. Equipment under capital leases is stated at the present value of minimum lease payments. Useful lives of assets are based on historical experience and other relevant information. The useful lives are adjusted when changes in the expected physical life of the asset, its planned use, technological advances or other factors show that a different life would be more appropriate. Changes in useful lives are recognized prospectively.
Depreciation is calculated using the straight-line method based on the estimated useful lives of the related assets. Plant and equipment held under capital leases are amortized on a straight‑line basis over the shorter of the lease term or estimated useful life of the asset.
Construction in progress primarily represents expenditures for the development and expansion of facilities. Capitalized interest cost and all direct costs, which include equipment and engineering costs related to the development and expansion of facilities, are capitalized as construction in progress. Depreciation is not recognized for amounts in construction in progress.
Normal repairs and maintenance costs are expensed as incurred. Amounts incurred that extend an asset’s useful life, increase its productivity or add production capacity are capitalized. Direct costs, such as outside labor, materials, internal payroll and benefits costs incurred during the construction of a new plant are capitalized; indirect costs are not capitalized. Repairs and maintenance costs were $32.5 million, $21.4 million and $15.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Asset Impairment Assessments
Long-Lived Assets
Long-lived assets, such as property, plant and equipment and amortizable intangible assets, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that a long-lived asset or asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by that asset or asset group to such asset or asset group’s carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as applicable.
Goodwill
Goodwill represents the purchase price paid for acquired businesses in excess of the identifiable acquired assets and assumed liabilities. Goodwill is not amortized, but is tested for impairment annually and whenever an event occurs or circumstances change such that it is more likely than not that the fair value of the reporting unit is less than its carrying amounts. At December 31, 2018 and 2017, we identified one reporting unit that corresponded to our one reportable segment. We have selected December 1 to perform our annual goodwill impairment test.
We first perform a qualitative assessment to determine whether it is necessary to perform quantitative testing. If this initial qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is more than its carrying value, goodwill is not considered impaired and we are not required to perform the two-step impairment test. Qualitative factors considered in this assessment include (1) macroeconomic conditions, (2) past, current and projected future financial performance, (3) industry and market considerations, (4) changes in the costs of raw materials, fuel and labor and (5) entity-specific factors such as changes in management or customer base.
If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, we will perform a two-step impairment test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.
If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill.
For the years ended December 31, 2018 and 2017, we applied the qualitative test and determined that it was more likely than not that the estimated fair value of the reporting unit substantially exceeded the related carrying value, and, accordingly,
was not required to apply the two-step impairment test. We did not record any goodwill impairment for the years ended December 31, 2018 and 2017 (see Note 10, Goodwill and Other Intangible Assets).
| |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and prices. Historically, our risks have been predominantly related to potential changes in the fair value of our long-term debt due to fluctuations in applicable market interest rates. Our market risk exposure is expected to be limited to
risks that arise in the normal course of business, as we do not engage in speculative, non‑operating transactions, nor do we use financial instruments or derivative instruments for trading purposes.
Interest Rate Risk
At December 31, 2018,2021, our total debt had a carrying value of $432.7 million and fair value of $439.8 million.$1.3 billion.
Although we seek to mitigate a portion of our interest rate risk through interest rate swaps, we are exposed to fluctuations in interest rates on borrowings under theour senior secured revolving credit facilities.facility. Borrowings under the senior secured revolving credit facilitiesfacility bear interest, at our option, at either a base rate plus an applicable margin or at a Eurodollar rate (with a 1.00% floor for term loan borrowings) plus an applicable margin.
In September 2016, we entered into a pay-fixed, receive-variable interest rate swap agreement to fix our exposure to fluctuations in London Interbank Offered Rate-based interest rates. The interest rate swap commenced on September 30, 2016 and expires in April 2020. We elected to discontinue hedge accounting as of December 14, 2016 following repayment of a portion of our outstanding indebtedness under the senior secured credit facilities, and subsequently re-designated the interest rate swap for the remaining portion of such indebtedness during the year ended December 31, 2017. We enter into derivative instruments to manage cash flow. We do not enter into derivative instruments for speculative or trading purposes. As of December 31, 2021, we had no interest rate swaps outstanding. Previously, we entered into pay-fixed, receive-variable interest rate swaps that expired in September 2021 and October 2021 to hedge interest rate risk associated with variable rate borrowings under our senior secured revolving credit facility. The interest rate swaps are not designated and accounted for as cash flow hedges. The counterparty to our interest rate swap agreement is aagreements are major financial institution. As a result, we have no significant interest rate risk on our revolving borrowings as of December 31, 2018.institutions.
There can be no assurance that our interest rate risk-management practices, if any, will eliminate or substantially reduce risks associated with fluctuating interest rates. For more information, please read Part I, Item 1A “Risk Factors—Our exposure to risks associated with foreign currency and interest rate fluctuations, as well as the hedging arrangements we may enter into to mitigate those risks, could have an adverse effect on our financial condition and results of operations.”
Credit Risk
Substantially all of our revenue was from long-term, take-or-pay off-take contracts with threefive customers for the years ended December 31, 20182021, and 2017,2020 and twofour customers for the year ended December 31, 2016. Most2019. During the year ended December 31, 2021, most of our customers arewere major power generators in Europe. This concentration of counterparties operating in a single industry and geographic area may increase our overallresults in an exposure to credit risk, in that the counterparties may be similarly affected by changes in economic, political, regulatory or other conditions. If a customer defaults or if any of our contracts expire in accordance with their terms, and we are unable to renew or replace these contracts, our gross margin and cash flows, andas well as our ability to make cash distributionsdividends to our unitholdersstockholders, may be adversely affected. Although we have entered into hedging arrangements in order to minimize our exposure to fluctuations in foreign currency exchange and interest rates, our derivatives also expose us to credit risk to the extent that counterparties may be unable to meet the terms of our hedging agreements. For more information, please read Part I, Item 1A “Risk Factors—Our exposure to risks associated with foreign currency and interest rate fluctuations, as well as the hedging arrangements we may enter into to mitigate those risks, could have an adverse effect on our financial condition and results of operations and —SubstantiallyWe will derive substantially all of our revenues currentlyfrom six customers in 2022, five of which are generated under contracts with four customers, and the loss of any of them could adversely affectlocated in Europe. If we fail to continue to diversify our business, financial condition,customer base, our results of operations, cash flowsbusiness and financial position and ability to make cash distributions. We may notpay dividends to our stockholders could be able to renew or obtain new and favorable contracts with these customers when our existing contracts expire, which couldmaterially adversely affect our revenues and profitability.” affected.
Foreign Currency Exchange Risk
We primarily are exposed to fluctuations in foreign currency exchange rates related to contracts pursuant to which deliveries of wood pellets will be settled in foreign currency. We have entered into forward contracts and purchased options to hedge a portion of our forecasted revenue for these customer contracts.
As of December 31, 2018,2021, we had notional amounts of 42.257.5 million GBP and 14.311.0 million Euro (“EUR”) under foreign currency forward contracts and 39.47.3 million GBP and 1.7 million EUR under foreign currency purchased optionsoption contracts that expire between 20192022 and 2023.
December 31, 2021, we had no EUR option contracts outstanding.
Historically, we designated and accounted for forward contracts and purchased options as cash flow hedges of anticipated foreign currency denominated revenue and, therefore, the effective portion of the changes in fair value on these instruments was recorded as a component of accumulated other comprehensive income in partners’ capitalequity and was reclassified to revenue in the consolidated statements of incomeoperations in the same period in which the underlying revenue transactions occurred. During the third quarter of 2018, we elected to discontinue hedge accounting for all designated foreign currency cash flow hedges and, as a
result, we had no unrealized loss (gain) associated with foreign currency forward contracts and foreign currency purchased options in accumulated other comprehensive income. During December 2017, we determined that certain transactions were no longer probable of occurring within the forecasted time period. We discontinued hedge accounting for these transactions and a $1.6 million loss included in other comprehensive income related to these hedging relationships was reclassified to other expense on the consolidated statements of income. At December 31, 2018,2021 and 2020, no unrealized amounts other comprehensive income associated with foreign currency forward contracts and foreign currency purchased options are included in other comprehensive income. At December 31, 2017, the unrealized loss associated with foreign currency forward contracts and foreign currency purchased options of approximately $2.1 million and $1.2 million, respectively, were included in other comprehensive income.
We do not utilize foreign exchange contracts for speculative or trading purposes. The counterparties to our foreign exchange contracts are major financial institutions. There can be no assurance that our hedging arrangements or other foreign exchange rate risk-management practices, if any, will eliminate or substantially reduce risks associated with our exposure to fluctuating foreign exchange rates. For more information, please read Part I, Item 1A “Risk Factors—Our exposure to risks associated with foreign currency and interest rate fluctuations, as well as the hedging arrangements we may enter into to mitigate those risks, could have an adverse effect on our financial condition and results of operations.”
| |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
The UnitholdersTo the Stockholders and the Board of Directors
of Enviva Partners, LP:Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Enviva Partners, LPInc. and subsidiaries (the Partnership)Company) as of December 31, 20182021 and 2017,2020, the related consolidated statements of income,operations, comprehensive income,loss, changes in partners’ capital,equity and cash flows for each of the three years in the three‑year period ended December 31, 2018,2021, and the related notes (collectively referred to as the consolidated“consolidated financial statements)statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as ofCompany at December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the three‑year period ended December 31, 2018,2021, in conformity with U.S. generally accepted accounting principles.
ChangeWe also have audited, in accordance with the standards of the Public Company Accounting Principle
As discussedOversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Note 2 toInternal Control-Integrated Framework issued by the consolidated financial statements,Committee of Sponsoring Organizations of the Partnership has changed its method of accounting for revenue effective January 1, 2018 due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606)Treadway Commission (2013 framework) and its subsequent amendments.our report dated March 4, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Partnership’sCompany’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the PartnershipCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
(signed) KPMG LLPCritical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | | | | | | | |
Description of the Matter
| | Completeness of Revenue from Off-Take Contracts As discussed in Note 1 to the consolidated financial statements, the Company primarily earns revenue through long-term take-or-pay contracts that include a defined volume of wood pellets that the customer is required to purchase on an annual basis. Revenue on these contracts is recognized when control transfers to the customer at the time of loading wood pellets onto a ship. Auditing the measurement of revenue at year-end required especially challenging auditor judgment and more extensive audit procedures, including the use of specialists, due to the complexity of determining the quantity of wood pellets transferred to the customer at the end of the year. |
| | | | | | | | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over revenue cut-off for off-take contracts. For example, we tested controls over management’s review of third-party survey results at year-end, and managements rollforward of pellets. Our audit procedures included, among others, evaluating the work of management’s third-party specialist to survey all partially loaded ships at year end to assist in determining the amount of pellets transferred to customers at the end of year. We also performed observations of finished goods held by the Company at or near year-end, and tested management’s rollforward of pellets. We also performed analytical procedures over year-end revenue cut off, made inquiries of employees outside of the accounting department to corroborate the completeness of the vessels being loaded at year-end and inspected a sample of shipping and receiving documentation to test that pellets shipped near year-end were recognized in the appropriate period based on the date of shipment. |
We have served as the Partnership’sCompany’s auditor since 20102019.
McLean,
/s/ Ernst & Young LLP
Tysons, Virginia
March 1, 20194, 2022
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 20182021 and 20172020
(In thousands, except number of units) |
| | | | | | | |
| | 2018 | | 2017 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 2,460 |
| | $ | 524 |
|
| Accounts receivable | 54,794 |
| | 79,185 |
|
| Insurance receivables | 5,140 |
| | — |
|
| Related-party receivables | 1,392 |
| | 5,412 |
|
| Inventories | 31,490 |
| | 23,536 |
|
| Prepaid expenses and other current assets | 2,235 |
| | 1,006 |
|
| Total current assets | 97,511 |
| | 109,663 |
|
| Property, plant and equipment, net | 557,028 |
| | 562,330 |
|
| Goodwill | 85,615 |
| | 85,615 |
|
| Other long-term assets | 8,616 |
| | 2,503 |
|
| Total assets | $ | 748,770 |
| | $ | 760,111 |
|
| Liabilities and Partners’ Capital | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 15,551 |
| | $ | 7,554 |
|
| Related-party payables | 28,225 |
| | 26,398 |
|
| Deferred consideration for Wilmington Drop-Down due to related-party | 74,000 |
| | — |
|
| Accrued and other current liabilities | 41,400 |
| | 29,363 |
|
| Current portion of interest payable | 5,434 |
| | 5,029 |
|
| Current portion of long-term debt and capital lease obligations | 2,722 |
| | 6,186 |
|
| Total current liabilities | 167,332 |
| | 74,530 |
|
| Long-term debt and capital lease obligations | 429,933 |
| | 394,831 |
|
| Deferred consideration for Wilmington Drop-Down due to related-party | — |
| | 74,000 |
|
| Long-term interest payable | 1,010 |
| | 890 |
|
| Other long-term liabilities | 3,779 |
| | 5,491 |
|
| Total liabilities | 602,054 |
| | 549,742 |
|
| Commitments and contingencies |
| |
|
| Partners’ capital: | | | |
| Limited partners: | | | |
| Common unitholders—public (14,573,452 and 13,073,439 units issued and outstanding at December 31, 2018 and December 31, 2017, respectively) | 207,612 |
| | 224,027 |
|
| Common unitholder—sponsor (11,905,138 and 1,347,161 units issued and outstanding at December 31, 2018 and December 31, 2017, respectively) | 72,352 |
| | 16,050 |
|
| Subordinated unitholder—sponsor ( no units issued and outstanding at December 31, 2018 and 11,905,138 units issued and outstanding at December 31, 2017) | — |
| | 101,901 |
|
| General partner (no outstanding units) | (133,687 | ) | | (128,569 | ) |
| Accumulated other comprehensive income (loss) | 439 |
| | (3,040 | ) |
| Total Enviva Partners, LP partners’ capital | 146,716 |
| | 210,369 |
|
| Total liabilities and partners’ capital | $ | 748,770 |
| | $ | 760,111 |
|
| | | | | | | | | | | |
| | | 2020 |
| 2021 | | (Recast) |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 16,801 | | | $ | 66,114 | |
| Restricted cash | 1,717 | | | 1,561 | |
| Accounts receivable | 97,439 | | | 124,212 | |
| Other accounts receivable | 17,826 | | | 15,112 | |
| Inventories | 57,717 | | | 45,224 | |
| Prepaid expenses and other current assets | 7,230 | | | 6,820 | |
| Total current assets | 198,730 | | | 259,043 | |
| Property, plant and equipment, net | 1,498,197 | | | 1,242,421 | |
| Operating lease right-of-use assets | 108,846 | | | 111,927 | |
| Goodwill | 103,928 | | | 99,660 | |
| Other long-term assets | 14,446 | | | 12,943 | |
| Total assets | $ | 1,924,147 | | | $ | 1,725,994 | |
| Liabilities and Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 29,535 | | | $ | 22,398 | |
| Accrued and other current liabilities | 163,306 | | | 147,815 | |
| Current portion of interest payable | 25,060 | | | 24,656 | |
| Current portion of long-term debt and finance lease obligations | 39,105 | | | 14,551 | |
| Related-party note payable | — | | | 20,000 | |
| Deferred revenue | — | | | 4,855 | |
| Total current liabilities | 257,006 | | | 234,275 | |
| Long-term debt and finance lease obligations | 1,232,441 | | | 913,498 | |
| Long-term operating lease liabilities | 122,252 | | | 111,991 | |
| Deferred tax liabilities, net | 36 | | | 25,218 | |
| Other long-term liabilities | 41,748 | | | 31,352 | |
| Total liabilities | 1,653,483 | | | 1,316,334 | |
| Commitments and contingencies | 0 | | 0 |
| Equity: | | | |
| Series A (785.0 million outstanding with liquidation preference of $812.9 million at December 31, 2020) | $ | — | | | $ | (92,703) | |
| Series B (2,500 units outstanding at December 31, 2020) | — | | | 13,865 | |
| Preferred stock, $0.001 par value, 100,000,000 shares authorized, none issued and outstanding at December 31, 2021. | — | | | — | |
| Common stock, $0.001 par value, 600,000,000 shares authorized, 61,137,744 issued and outstanding at December 31, 2021. | 61 | | | — | |
| Additional paid-in capital | 317,998 | | | — | |
| Retained earnings | — | | | — | |
| Accumulated other comprehensive income | 299 | | | — | |
| Total Enviva Inc.'s equity | 318,358 | | | (78,838) | |
| Noncontrolling interests | (47,694) | | | 488,498 | |
| Total equity | 270,664 | | | 409,660 | |
| Total liabilities and equity | $ | 1,924,147 | | | $ | 1,725,994 | |
See accompanying notes to consolidated financial statements.
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Consolidated Statements of IncomeOperations
Years ended December 31, 2018, 20172021, 2020 and 20162019
(In thousands, except per unitunits or share amounts) |
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Product sales | $ | 564,010 |
| | $ | 522,250 |
| | $ | 444,489 |
|
Other revenue (1) | 9,731 |
| | 20,971 |
| | 19,787 |
|
| Net revenue | 573,741 |
| | 543,221 |
| | 464,276 |
|
Cost of goods sold, excluding depreciation and amortization (1) | 461,735 |
| | 419,616 |
| | 357,418 |
|
| Loss on disposal of assets | 2,386 |
| | 4,899 |
| | 2,386 |
|
| Depreciation and amortization | 40,179 |
| | 39,904 |
| | 27,700 |
|
| Total cost of goods sold | 504,300 |
| | 464,419 |
| | 387,504 |
|
| Gross margin | 69,441 |
| | 78,802 |
| | 76,772 |
|
General and administrative expenses (1) | 27,641 |
| | 30,107 |
| | 33,098 |
|
| Disposal and impairment of assets held for sale | — |
| | 827 |
| | 9,991 |
|
| Total general and administrative expenses | 27,641 |
| | 30,934 |
| | 43,089 |
|
| Income from operations | 41,800 |
| | 47,868 |
| | 33,683 |
|
| Other income (expense): | | | | | |
| Interest expense | (36,471 | ) | | (31,744 | ) | | (15,643 | ) |
| Related-party interest expense | — |
| | — |
| | (578 | ) |
| Early retirement of debt obligation | (751 | ) | | — |
| | (4,438 | ) |
| Other income (expense) | 2,374 |
| | (1,751 | ) | | 439 |
|
| Total other expense, net | (34,848 | ) | | (33,495 | ) | | (20,220 | ) |
| Net income | 6,952 |
| | 14,373 |
| | 13,463 |
|
| Less net loss attributable to noncontrolling partners’ interests | — |
| | 3,140 |
| | 5,804 |
|
| Net income attributable to Enviva Partners, LP | $ | 6,952 |
| | $ | 17,513 |
| | $ | 19,267 |
|
| Less: Pre-acquisition loss from inception to December 13, 2016 from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner | $ | — |
| | $ | — |
| | $ | (3,231 | ) |
| Less: Pre-acquisition loss from inception to October 1, 2017 from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner | — |
| | (3,049 | ) | | (2,110 | ) |
| Enviva Partners, LP limited partners’ interest in net income | $ | 6,952 |
| | $ | 20,562 |
| | $ | 24,608 |
|
| Net income per limited partner common unit: | | | | | |
| Basic | $ | 0.04 |
| | $ | 0.65 |
| | $ | 0.95 |
|
| Diluted | $ | 0.04 |
| | $ | 0.61 |
| | $ | 0.91 |
|
| Net income per limited partner subordinated unit: | | | | | |
| Basic | $ | 0.04 |
| | $ | 0.65 |
| | $ | 0.93 |
|
| Diluted | $ | 0.04 |
| | $ | 0.65 |
| | $ | 0.93 |
|
| Weighted-average number of limited partner units outstanding: | | | | | |
| Common—basic | 21,533 |
| | 14,403 |
| | 13,002 |
|
| Common—diluted | 22,553 |
| | 15,351 |
| | 13,559 |
|
| Subordinated—basic and diluted | 4,893 |
| | 11,905 |
| | 11,905 |
|
(1) See Note 13, Related-Party Transactions | | | | | |
| | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| 2021 | | (Recast) | | (Recast) |
| Product sales | $ | 999,190 | | | $ | 830,528 | | | $ | 674,251 | |
| Other revenue | 42,488 | | | 44,434 | | | 9,317 | |
| Net revenue | 1,041,678 | | | 874,962 | | | 683,568 | |
| Operating costs and expenses: | | | | | |
| Cost of goods sold, excluding items below | 861,703 | | | 711,248 | | | 601,869 | |
| Loss on disposal of assets | 10,153 | | | 8,715 | | | 3,558 | |
Selling, general, administrative, and development expenses(1) | 175,108 | | | 129,537 | | | 98,818 | |
| Depreciation and amortization | 91,966 | | | 85,892 | | | 65,565 | |
| Total operating costs and expenses | 1,138,930 | | | 935,392 | | | 769,810 | |
| Loss from operations | (97,252) | | | (60,430) | | | (86,242) | |
| Other (expense) income: | | | | | |
| Interest expense | (56,497) | | | (45,996) | | | (42,042) | |
| Early retirement of debt obligation | (9,377) | | | — | | | (9,042) | |
| Other income, net | 880 | | | 271 | | | 410 | |
| Total other expense, net | (64,994) | | | (45,725) | | | (50,674) | |
| Net loss before income tax (benefit) expense | (162,246) | | | (106,155) | | | (136,916) | |
| Income tax (benefit) expense | (16,975) | | | 169 | | | (1,932) | |
| Net loss | (145,271) | | | (106,324) | | | (134,984) | |
| Less net loss attributable to noncontrolling interests | 23,202 | | | 20,034 | | | 53,480 | |
| Net loss attributable to Enviva Inc. | $ | (122,069) | | | $ | (86,290) | | | $ | (81,504) | |
Net loss per Enviva Inc. unit:(2) | | | | | |
| Basic and diluted | $ | (4.76) | | | $ | (5.39) | | | $ | (5.09) | |
| Weighted-average number of units outstanding: | | | | | |
| Basic and diluted | 25,632 | | | 16,000 | | | 16,000 | |
(1)See Note 15, Related-Party Transactions.See accompanying notes to consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended(2) Effective December 31, 2018, 2017 and 2016
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Net income | $ | 6,952 |
| | $ | 14,373 |
| | $ | 13,463 |
|
| Other comprehensive income (loss): | | | | | |
| Net unrealized gains (losses) on cash flow hedges | 5,655 |
| | (5,463 | ) | | (246 | ) |
| Reclassification of net (gains) losses on cash flow hedges realized into net income | (2,178 | ) | | 1,828 |
| | — |
|
| Currency translation adjustment | 2 |
| | — |
| | — |
|
| Total other comprehensive income (loss) | 3,479 |
| | (3,635 | ) | | (246 | ) |
| Total comprehensive income | 10,431 |
| | 10,738 |
| | 13,217 |
|
| Less: | | | | | |
| Pre-acquisition loss from inception to December 13, 2016 from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner | — |
| | — |
| | (3,231 | ) |
| Pre-acquisition loss from inception to October 1, 2017 from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner | — |
| | (3,049 | ) | | (2,110 | ) |
| Total comprehensive income subsequent to Enviva Pellets Sampson, LLC Drop-Down and Enviva Port of Wilmington, LLC Drop-Down | 10,431 |
| | 13,787 |
| | 18,558 |
|
| Less: | | | | | |
| Comprehensive loss attributable to noncontrolling partners’ interests | — |
| | (3,140 | ) | | (5,804 | ) |
| Comprehensive income attributable to Enviva Partners, LP partners | $ | 10,431 |
| | $ | 16,927 |
| | $ | 24,362 |
|
See accompanying notes2021, units were converted into shares due to consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Changes in Partners’ Capital
Years ended December 31, 2018, 2017 and 2016
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Limited Partners’ Capital | | | | | | |
| | General Partner Interest | | Common Units— Public | | Common Units— Sponsor | | Subordinated Units— Sponsor | | Accumulated Other Comprehensive Income (loss) | | Non- controlling Interests | | Total Partners Capital |
| | | Units | | Amount | | Units | | Amount | | Units | | Amount | | | |
| Partners' capital December 31, 2015 | $ | 3,644 |
| | 11,503 |
| | $ | 210,488 |
| | 1,347 |
| | $ | 19,619 |
| | 11,905 |
| | $ | 133,427 |
| | $ | — |
| | $ | 54,492 |
| | $ | 421,670 |
|
| Cash distributions | (716 | ) | | — |
| | (24,779 | ) | | — |
| | (2,729 | ) | | — |
| | (24,107 | ) | | — |
| | — |
| | (52,331 | ) |
| Issuance of units associated with Enviva Pellets Sampson, LLC Drop-Down | — |
| | 1,098 |
| | 30,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 30,000 |
|
| Issuance of units through Long-Term Incentive Plan | — |
| | 21 |
| | 411 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 411 |
|
| Issuance of common units, net | — |
| | 359 |
| | 8,929 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,929 |
|
| Non-cash Management Services Agreement expenses | — |
| | — |
| | 3,820 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,820 |
|
| Contribution of Enviva Pellets Sampson, LLC | 95,391 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (33,759 | ) | | 61,632 |
|
| Distribution to sponsor | (138,505 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (138,505 | ) |
| Excess consideration over Enviva Pellets Sampson, LLC net assets | (18,534 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (18,534 | ) |
| Contribution of Enviva Port of Wilmington, LLC | 22,632 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 23,080 |
| | 45,712 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 595 |
| | — |
| | 595 |
|
| Net (loss) income | (4,625 | ) | | — |
| | 11,033 |
| | — |
| | 1,307 |
| | — |
| | 11,552 |
| | — |
| | (5,804 | ) | | 13,463 |
|
| Balance as of December 31, 2016 | (40,713 | ) | | 12,981 |
| | 239,902 |
| | 1,347 |
| | 18,197 |
| | 11,905 |
| | 120,872 |
| | 595 |
| | 38,009 |
| | 376,862 |
|
| Distributions to unitholders, distribution equivalent and incentive distribution rights | (2,630 | ) | | — |
| | (31,533 | ) | | — |
| | (3,065 | ) | | — |
| | (27,084 | ) | | — |
| | — |
| | (64,312 | ) |
| Issuance of units through Long-Term Incentive Plan | — |
| | 21 |
| | 503 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 503 |
|
| Issuance of common units, net | — |
| | 71 |
| | 1,744 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,744 |
|
| Non-cash Management Services Agreement expenses | 441 |
| | — |
| | 4,511 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,952 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,635 | ) | | — |
| | (3,635 | ) |
| Excess consideration over Enviva Pellets Sampson, LLC net assets | (744 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (744 | ) |
| Contribution of Enviva Port of Wilmington, LLC Drop-Down | 29,513 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (32,270 | ) | | (2,757 | ) |
| Enviva Port of Wilmington, LLC net assets | (73,335 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (73,335 | ) |
| Excess consideration over Enviva Port of Wilmington, LLC net Assets | (40,683 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (40,683 | ) |
| Enviva Pellets Wiggins, LLC dissolution | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,599 | ) | | (2,599 | ) |
| Net (loss) income | (418 | ) | | — |
| | 8,900 |
| | — |
| | 918 |
| | — |
| | 8,113 |
| | — |
| | (3,140 | ) | | 14,373 |
|
| Partners’ capital, December 31, 2017 | (128,569 | ) | | 13,073 |
| | 224,027 |
| | 1,347 |
| | 16,050 |
| | 11,905 |
| | 101,901 |
| | (3,040 | ) | | — |
| | 210,369 |
|
| Distributions to unitholders, distribution equivalent and incentive distribution rights | (5,326 | ) | | — |
| | (38,241 | ) | | — |
| | (15,845 | ) | | — |
| | (14,822 | ) | | — |
| | — |
| | (74,234 | ) |
| Issuance of units through Long-Term Incentive Plan | (5,675 | ) | | 227 |
| | 511 |
| | (82 | ) | | (1,301 | ) | | — |
| | — |
| | — |
| | — |
| | (6,465 | ) |
| Issuance of common units, net | — |
| | 8 |
| | 241 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 241 |
|
| Sale of common units | — |
| | 1,265 |
| | 13,335 |
| | (1,265 | ) | | (13,335 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Conversion of subordinated units to common units | — |
| | — |
| | — |
| | 11,905 |
| | 78,504 |
| | (11,905 | ) | | (78,504 | ) | | — |
| | — |
| | — |
|
| Non-cash Management Services Agreement expenses | 557 |
| | — |
| | 5,817 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,374 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,479 |
| | — |
| | 3,479 |
|
| Net income (loss) | 5,326 |
| | — |
| | 1,922 |
| | — |
| | 8,279 |
| | — |
| | (8,575 | ) | | — |
| | — |
| | 6,952 |
|
| Partners’ capital, December 31, 2018 | $ | (133,687 | ) | | 14,573 |
| | $ | 207,612 |
| | 11,905 |
| | $ | 72,352 |
| | — |
| | $ | — |
| | $ | 439 |
| | $ | — |
| | $ | 146,716 |
|
See accompanying notes to consolidated financial statements.
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
Years ended December 31, 2021, 2020 and 2019
(In thousands) | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| 2021 | | (Recast) | | (Recast) |
| Net loss | $ | (145,271) | | | $ | (106,324) | | | $ | (134,984) | |
| Other comprehensive income (loss), net of tax of $0: | | | | | |
| Reclassification of net gains on cash flow hedges realized into net loss | — | | | (22) | | | (288) | |
| Currency translation adjustment | 37 | | | 98 | | | 31 | |
| Net unrealized losses on cash flow hedges | — | | | — | | | (146) | |
| Total other comprehensive income (loss) | 37 | | | 76 | | | (403) | |
| Total comprehensive loss | (145,234) | | | (106,248) | | | (135,387) | |
| Less comprehensive loss attributable to noncontrolling interests | 23,202 | | | 20,034 | | | 53,480 | |
| Comprehensive loss attributable to Enviva Inc. | $ | (122,032) | | | $ | (86,214) | | | $ | (81,907) | |
See accompanying notes to consolidated financial statements.
ENVIVA INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
Year ended December 31, 2021
(In thousands, except Series B Units) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A | Series B | Common
Units | Common
Shares | Additional Paid-In Capital | Retained Earnings | Accumulated
Other
Comprehensive
Income | Equity Attributable to Enviva Inc. | Non-controlling Interests | Total Equity |
| Units | Amount | Units | Amount | Units | Amount | Shares | Amount |
| Equity, December 31, 2020 | 784,980 | | $ | (92,703) | | 2,500 | | $ | 13,865 | | — | | $ | — | | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (78,838) | | $ | 488,498 | | $ | 409,660 | |
| Acquisition of noncontrolling interest | — | | (45,388) | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (45,388) | | (108,031) | | (153,419) | |
| Issuance of Enviva Partners, LP common units prior to the Simplification Transaction, net | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 214,510 | | 214,510 | |
| Cash distributions prior to the Simplification Transaction | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (71,471) | | (71,471) | |
| Non-cash equity-based compensation and other expense prior to the Simplification Transaction | — | | — | | 6,900 | | 23,833 | | — | | — | | — | | — | | — | | — | | — | | 23,833 | | 5,191 | | 29,024 | |
| | | | | | | | | | | | | | |
| Contribution of assets | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 389 | | 389 | |
| Other comprehensive income prior to the Simplification Transaction | — | | 12 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 12 | | 11 | | 23 | |
| Net loss prior to the Simplification Transaction | — | | (102,284) | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (102,284) | | (23,229) | | (125,513) | |
| Simplification Transaction | (784,980) | | 240,363 | | (9,400) | | (37,698) | | 16,000 | | 350,924 | | — | | — | | — | | — | | — | | 553,589 | | (553,589) | | — | |
| Distributions after the Simplification Transaction | — | | — | | — | | — | | — | | (52,145) | | — | | — | | — | | — | | — | | (52,145) | | — | | (52,145) | |
| Common units issued in lieu of distributions | — | | — | | — | | — | | 115 | | 7,560 | | — | | — | | — | | — | | — | | 7,560 | | — | | 7,560 | |
| | | | | | | | | | | | | | |
| Non-cash equity-based compensation and other expense after the Simplification Transaction | — | | — | | — | | — | | 6 | | 12,813 | | — | | — | | — | | — | | — | | 12,813 | | — | | 12,813 | |
| Support Payments | — | | — | | — | | — | | — | | 15,446 | | — | | — | | — | | — | | — | | 15,446 | | — | | 15,446 | |
| Other comprehensive income after the Simplification Transaction | — | | — | | — | | — | | — | | 14 | | — | | — | | — | | — | | — | | 14 | | — | | 14 | |
| Net loss after the Simplification Transaction | — | | — | | — | | — | | — | | (19,785) | | — | | — | | — | | — | | — | | (19,785) | | 27 | | (19,758) | |
| C-Corporation Conversion | — | | — | | — | | — | | (16,121) | | (314,827) | | 61,138 | | 61 | | 317,998 | | — | | 299 | | 3,531 | | — | | 3,531 | |
| Equity, December 31, 2021 | — | | $ | — | | — | | $ | — | | — | | $ | — | | 61,138 | | $ | 61 | | $ | 317,998 | | $ | — | | $ | 299 | | $ | 318,358 | | $ | (47,694) | | $ | 270,664 | |
ENVIVA INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity (Continued)
Years ended December 31, 2020 and 2019
(In thousands, except Series B Units)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Previous Units Existing until the Recapitalization of Enviva Inc.(1) | Current Units Created by the Recapitalization(1) | | | |
| Series A | Series B | Series C | Series D | Series E | Series A | Series B | | | |
| Units | Amount | Units | Amount | Units | Amount | Units | Amount | Units | Amount | Units | Amount | Units | Amount | Equity Attributable to Enviva Inc. | Noncontrolling Interests | Total Equity |
| Equity, December 31, 2018 | 250,000 | | $ | 128,179 | | 14,063 | | $ | (2,228) | | 6,045 | | $ | 1,200 | | 113,172 | | $ | 10,276 | | 1,115 | | $ | 386 | | — | | — | | — | | — | | $ | 137,813 | | $ | 295,555 | | $ | 433,368 | |
| Issuance of Enviva Partners, LP common units through Enviva Partners, LP Long Term Incentive Plan | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 583 | | 583 | |
| Issuance of Enviva Partners, LP common units, net | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 146,278 | | 146,278 | |
| Cash distributions | — | | — | | — | | — | | — | | — | | — | | (20) | | — | | — | | — | | — | | — | | — | | (20) | | (74,706) | | (74,726) | |
| Enviva Partners, LP unit-based compensation | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 4,340 | | 4,340 | |
| Enviva Partners, LP common units distributed to noncontrolling interest | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (49,700) | | (49,700) | |
| Contributed capital | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 32,500 | | 32,500 | |
| Other comprehensive loss | — | | (134) | | — | | (8) | | — | | — | | — | | (60) | | — | | — | | — | | — | | — | | — | | (202) | | (201) | | (403) | |
| Net loss | — | | (54,014) | | — | | (3,038) | | — | | — | | — | | (24,452) | | — | | — | | — | | — | | — | | — | | (81,504) | | (53,480) | | (134,984) | |
| Equity, December 31, 2019 | 250,000 | | $ | 74,031 | | 14,063 | | $ | (5,274) | | 6,045 | | $ | 1,200 | | 113,172 | | $ | (14,256) | | 1,115 | | $ | 386 | | — | | — | | — | | — | | $ | 56,087 | | $ | 301,169 | | $ | 357,256 | |
| Acquisition of noncontrolling interest in Greenwood | — | | (41,445) | | — | | (2,331) | | — | | — | | — | | (18,762) | | — | | — | | — | | — | | — | | — | | (62,538) | | (31,121) | | (93,659) | |
| Other comprehensive income prior to recapitalization | — | | 18 | | — | | 1 | | — | | — | | — | | 9 | | — | | — | | — | | — | | — | | — | | 28 | | — | | 28 | |
| Net loss prior to recapitalization | — | | (32,597) | | — | | (1,834) | | — | | — | | — | | (14,756) | | — | | — | | — | | — | | — | | — | | (49,187) | | — | | (49,187) | |
| Recapitalization of Enviva Inc. | (250,000) | | (7) | | (14,063) | | 9,438 | | (6,045) | | (1,200) | | (113,172) | | 47,765 | | (1,115) | | (386) | | 784,980 | | (55,610) | | — | | — | | — | | — | | — | |
| Issuance of Enviva Partners, LP common units, net | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 190,529 | | 190,529 | |
| Cash distributions | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (74,169) | | (74,169) | |
| Enviva Partners, LP unit-based compensation | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 21,311 | | 21,311 | |
| Enviva Inc. unit-based compensation | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 2,500 | | 13,865 | | 13,865 | | — | | 13,865 | |
| Contributed capital | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 100,775 | | 100,775 | |
| Other comprehensive income | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 10 | | — | | — | | 10 | | 38 | | 48 | |
| Net loss | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (37,103) | | — | | — | | (37,103) | | (20,034) | | (57,137) | |
| Equity, December 31, 2020 | — | | $ | — | | — | | $ | — | | — | | $ | — | | — | | $ | — | | — | | $ | — | | 784,980 | | $ | (92,703) | | 2,500 | | $ | 13,865 | | $ | (78,838) | | $ | 488,498 | | $ | 409,660 | |
(1) See Note 17, Equity
See accompanying notes to consolidated financial statements.
ENVIVA INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2018, 20172021, 2020 and 20162019
(In thousands)
| | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| 2021 | | (Recast) | | (Recast) |
| Cash flows from operating activities: | | | | | |
| Net loss | $ | (145,271) | | | $ | (106,324) | | | $ | (134,984) | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | |
| Depreciation and amortization | 92,919 | | | 82,436 | | | 65,565 | |
| Amortization of debt issuance costs, debt premium and original issue discounts | 764 | | | 2,506 | | | 2,138 | |
| Early retirement of debt obligation | 9,377 | | | — | | | 9,042 | |
| Loss on disposal of assets | 10,153 | | | 8,715 | | | 3,558 | |
| Deferred taxes | (21,629) | | | 336 | | | (1,997) | |
| Non-cash equity-based compensation and other expense | 55,924 | | | 39,528 | | | 7,963 | |
| Fair value changes in derivatives | 1,829 | | | 5,294 | | | 3,701 | |
| Unrealized loss on foreign currency transactions, net | 22 | | | 10 | | | 215 | |
| Change in operating assets and liabilities: | | | | | |
| Accounts and other receivables | 24,088 | | | (60,276) | | | (16,569) | |
| Prepaid expenses and other current and long-term assets | 1,723 | | | (12,892) | | | (1,622) | |
| Inventories | (15,398) | | | (1,903) | | | (4,735) | |
| Derivatives | (5,792) | | | (249) | | | 1,770 | |
| Accounts payable, accrued liabilities, and other current liabilities | 50,797 | | | 62,080 | | | 11,190 | |
| Related-party payables | (440) | | | 464 | | | (531) | |
| Deferred revenue | (4,324) | | | (4,139) | | | 3,887 | |
| Accrued interest | (11,241) | | | 8,630 | | | (5,209) | |
| Operating lease liabilities | (7,509) | | | (10,912) | | | (8,464) | |
| Other long-term liabilities | (2,602) | | | 1,095 | | | 9,729 | |
| Net cash provided by (used in) operating activities | 33,390 | | | 14,399 | | | (55,353) | |
| Cash flows from investing activities: | | | | | |
| Purchases of property, plant and equipment | (332,322) | | | (220,998) | | | (145,200) | |
| Payments in relation to the Georgia Biomass Acquisition, net of cash acquired | — | | | (163,299) | | | — | |
| Other | — | | | 328 | | | — | |
| Net cash used in investing activities | (332,322) | | | (383,969) | | | (145,200) | |
| Cash flows from financing activities: | | | | | |
| Proceeds from senior secured revolving credit facility | 1,025,000 | | | 755,500 | | | 453,000 | |
| Principal payments on senior secured revolving credit facility | (679,000) | | | (635,500) | | | (526,000) | |
| Principal payments on Green Term Loan | (325,000) | | | — | | | — | |
| Proceeds from debt issuance | 321,750 | | | 155,625 | | | 601,777 | |
| Support payments | 15,446 | | | — | | | — | |
| Principal payments on other long-term debt and finance lease obligations | (13,188) | | | (10,951) | | | (361,879) | |
| Cash paid related to debt issuance costs and deferred offering costs | (9,401) | | | (3,858) | | | (7,560) | |
| Proceeds from issuance of Enviva Inc. common shares | 214,501 | | | 190,529 | | | 96,822 | |
| Payments for acquisition of noncontrolling interest in Development JV | (153,348) | | | — | | | — | |
| Payment for acquisition of noncontrolling interest in Greenwood and other projects | — | | | (93,659) | | | — | |
| Principal payments on related-party note payable | (20,000) | | | — | | | — | |
| Proceeds from related-party note payable | — | | | 20,000 | | | — | |
| Contributed capital to common control entities acquired | — | | | 105,000 | | | 32,500 | |
| Cash distributions | (116,006) | | | (71,169) | | | (74,732) | |
| Payment for withholding tax associated with Long-Term Incentive Plan vesting | (10,979) | | | (4,996) | | | (1,910) | |
| Cash paid for redemption premium from early retirement of debt | — | | | — | | | (7,544) | |
| Net cash provided by financing activities | 249,775 | | | 406,521 | | | 204,474 | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | (49,157) | | | 36,951 | | | 3,921 | |
| Cash, cash equivalents and restricted cash, beginning of period | 67,675 | | | 30,724 | | | 26,803 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 18,518 | | | $ | 67,675 | | | $ | 30,724 | |
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 6,952 |
| | $ | 14,373 |
| | $ | 13,463 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 40,745 |
| | 40,361 |
| | 27,735 |
|
| Amortization of debt issuance costs, debt premium and original issue discounts | 1,093 |
| | 1,448 |
| | 1,893 |
|
| Impairment of assets held for sale and inventory | — |
| | — |
| | 10,881 |
|
| General and administrative expense incurred by the First Hancock JV prior to Enviva Port of Wilmington, LLC and Enviva Pellets Sampson, LLC Drop-Downs | — |
| | 1,343 |
| | 4,087 |
|
| Early retirement of debt obligation | 751 |
| | — |
| | 4,438 |
|
| Loss on disposal of assets and assets held for sale | 2,386 |
| | 5,726 |
| | 2,386 |
|
| Unit-based compensation | 6,229 |
| | 5,014 |
| | 4,230 |
|
| De-designation of foreign currency forwards and options | (1,947 | ) | | 1,593 |
| | — |
|
| Unrealized loss on foreign currency transactions | 23 |
| | (3 | ) | | — |
|
| Fair value changes in derivatives | (7,464 | ) | | — |
| | — |
|
| Change in operating assets and liabilities: | | | | | |
| Accounts receivable, net | 19,230 |
| | (1,317 | ) | | (39,218 | ) |
| Related-party receivables | 2,720 |
| | 1,577 |
| | 237 |
|
| Prepaid expenses, assets held for sale and other current and long-term assets | (182 | ) | | (138 | ) | | 7,466 |
|
| Inventories | (7,843 | ) | | 5,758 |
| | (8,411 | ) |
| Derivatives | 4,907 |
| | (1,720 | ) | | (1,284 | ) |
| Accounts payable, accrued liabilities and other current liabilities | 14,916 |
| | (2,331 | ) | | 19,379 |
|
| Related-party payables | 173 |
| | 15,733 |
| | 3,625 |
|
| Accrued interest | 367 |
| | (1,330 | ) | | 4,433 |
|
| Other long-term liabilities | 997 |
| | 1,008 |
| | 464 |
|
| Net cash provided by operating activities | 84,053 |
| | 87,095 |
| | 55,804 |
|
| Cash flows from investing activities: | | | | | |
| Purchases of property, plant and equipment | (27,132 | ) | | (28,744 | ) | | (112,887 | ) |
| Insurance proceeds from property loss | 1,130 |
| | — |
| | — |
|
| Proceeds from the sale of property, plant and equipment | — |
| | 143 |
| | 1,763 |
|
| Net cash used in investing activities | (26,002 | ) | | (28,601 | ) | | (111,124 | ) |
| Cash flows from financing activities: | | | | | |
| Principal payments on debt and capital lease obligations | (272,716 | ) | | (82,954 | ) | | (204,216 | ) |
| Principal payments on related-party debt | — |
| | — |
| | (3,391 | ) |
| Cash paid related to debt issuance costs and deferred offering costs | (2,495 | ) | | (735 | ) | | (7,099 | ) |
| Distributions, proceeds from contributions and contributions associated with Enviva Pellets Sampson, LLC and Enviva Port of Wilmington, LLC Drop-Downs from the sponsor and First Hancock JV | — |
| | (44,312 | ) | | (39,060 | ) |
| Proceeds from common unit issuance under the At-the-Market Offering Program, net | 241 |
| | 1,938 |
| | 9,300 |
|
| Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder | (73,518 | ) | | (64,325 | ) | | (51,376 | ) |
| Proceeds from debt issuance | 299,250 |
| | 131,952 |
| | 349,500 |
|
| Payment to General Partner to purchase affiliate common units for Long-Term Incentive Plan vesting | (2,341 | ) | | — |
| | — |
|
| Payment for withholding tax associated with Long-Term Incentive Plan vesting | (4,536 | ) | | — |
| | — |
|
| Net cash (used in) provided by financing activities | (56,115 | ) | | (58,436 | ) | | 53,658 |
|
| Net increase (decrease) in cash, cash equivalents and restricted cash | 1,936 |
| | 58 |
| | (1,662 | ) |
| Cash, cash equivalents and restricted cash, beginning of period | 524 |
| | 466 |
| | 2,128 |
|
| Cash, cash equivalents and restricted cash, end of period | $ | 2,460 |
| | $ | 524 |
| | $ | 466 |
|
See accompanying notes to consolidated financial statements.
72
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Years ended December 31, 2018, 20172021, 2020 and 20162019
(In thousands)
| | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| 2021 | | (Recast) | | (Recast) |
| Non-cash investing and financing activities: | | | | | |
| Property, plant, and equipment acquired included in accounts payable and accrued liabilities | $ | 20,105 | | | $ | 28,231 | | | $ | 13,603 | |
| Enviva Partners, LP common units distributed to noncontrolling interest | — | | | — | | | (49,700) | |
| Supplemental information: | | | | | |
| Interest paid, net of capitalized interest | $ | 14,884 | | | $ | 28,351 | | | $ | 41,190 | |
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Non-cash investing and financing activities: | | | | | |
| The Partnership acquired property, plant and equipment in non-cash transactions as follows: | | | | | |
| Property, plant and equipment acquired included in accounts payable and accrued liabilities | $ | 8,939 |
| | $ | 2,653 |
| | $ | 14,255 |
|
| Property, plant and equipment acquired under capital leases | 3,512 |
| | 1,956 |
| | 1,753 |
|
| Property, plant and equipment transferred from inventories | 2 |
| | 226 |
| | 926 |
|
| Property, plant and equipment capitalized interest | 158 |
| | — |
| | — |
|
| Transfer of Enviva Pellets Wiggins, LLC assets to assets held for sale | — |
| | — |
| | 13,035 |
|
| Related-party long-term debt transferred to third-party long-term debt | — |
| | — |
| | 14,757 |
|
| Third-party long-term debt transferred to related-party long-term debt | — |
| | — |
| | 3,316 |
|
| Deferred consideration to sponsor included in related-party payable | — |
| | 74,000 |
| | — |
|
| Retained matters from the First Hancock JV included in related-party receivables | — |
| | 585 |
| | — |
|
| Distributions included in liabilities | 1,659 |
| | 741 |
| | 955 |
|
| Conversion of subordinated units to common units | 78,504 |
| | — |
| | — |
|
| Application of short-term deposit to fixed assets | — |
| | 258 |
| | — |
|
| Transfer of Enviva Port of Wilmington, LLC Drop-Down consideration to short-term | 74,000 |
| | — |
| | — |
|
| Debt issuance costs included in accrued liabilities | 103 |
| | — |
| | 139 |
|
| Depreciation capitalized to inventories | 567 |
| | (427 | ) | | 344 |
|
| Due from the First Hancock JV for Enviva Pellets Sampson, LLC Drop-Down | — |
| | — |
| | 1,652 |
|
| Non-cash capital contributions from the First Hancock JV prior to Enviva Pellets Sampson, LLC and Enviva Port of Wilmington, LLC Drop-Downs | — |
| | — |
| | 8,623 |
|
| Supplemental information: | | | | | |
| Interest paid | $ | 35,222 |
| | $ | 31,513 |
| | $ | 11,191 |
|
See accompanying notes to consolidated financial statements.
73
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(1) Description of Business and Basis of Presentation
Enviva Partners, LP (together with its subsidiaries, “we,” “us,” “our,” or the(the “Partnership”) isconverted from a Delaware limited partnership to a Delaware corporation (the “Conversion”) named “Enviva Inc.” effective December 31, 2021. The Partnership was formed on November 12, 2013 as a wholly owned subsidiary of Enviva Holdings, LP (together with its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC, where applicable, the “sponsor”(our “ former sponsor” or “Holdings”). Enviva Partners GP, LLC, a wholly owned subsidiary of our former sponsor, was our former general partner (the “ former GP”). References to “Enviva,” the “Company,” “we,” “us,” or “our” refer to (i) Enviva Holdings,Inc. and its subsidiaries for the periods following the Conversion and (ii) Enviva Partners, LP isand its subsidiaries for periods prior to the General Partner (the “General Partner”) ofConversion, except where the Partnership. context otherwise requires.
We procure wood fiber and process it into utility-grade wood pellets and load the finished wood pellets into railcars, trucks and barges for transportation to deep-water marine terminals, where they are received, stored and ultimately loaded onto oceangoing vessels for delivery primarily to our principally European customers under long-term, take-or-pay contracts.off-take contracts to our customers principally in the United Kingdom (the “U.K.”), the European Union, and Japan.
We own and operate six10 industrial-scale wood pellet production plants located in the Mid-Atlantic and Gulf Coast regions ofSoutheastern United States. In addition to the United States.volumes from our plants, we also procure wood pellets from third parties. Wood pellets are exported from our wholly owned deep-water marine terminals interminal at the Port of Chesapeake, Virginia, (the “Chesapeake terminal”) and terminal assets inat the Port of Wilmington, North Carolina, (the “Wilmington terminal”), and from third-party deep-water marine terminals in Mobile, Alabama, and Panama City, Florida, and Savannah, Georgia under a short-term andcontract, a long-term contract, and a lease and associated terminal services agreement, respectively. We are constructing a deep-water marine terminal at the Port of Pascagoula, Mississippi.
Basis of Presentation
As a result of the Conversion, periods prior to December 31, 2021 reflect Enviva as a limited partnership, not a corporation. References to common units for periods prior to the Conversion refer to common units of Enviva Partners, LP, and references to common stock for periods following the Conversion refer to shares of common stock of Enviva Inc. The primary financial impacts of the Conversion to the consolidated financial statements were (i) reclassification of partnership capital accounts to equity accounts reflective of a corporation and (ii) income tax effects.
On the date of the Conversion, each common unit representing a limited partner interest in the Partnership issued and outstanding immediately prior to the Conversion was exchanged for one share of common stock of the Company, par value $0.001 per share.
On October 14, 2021, the Partnership entered into and closed on an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Partnership, our former sponsor, Enviva Partners Merger Sub, LLC (“Merger Sub”), and the limited partners of our former sponsor (the “Holdings Limited Partners”) set forth in the Merger Agreement. Pursuant to the terms of the Merger Agreement, (a) the Company acquired (i) all of the limited partner interests in our former sponsor and (ii) all of the limited liability company interests in the former GP, and (b) the incentive distribution rights directly held by our former sponsor were cancelled and eliminated (collectively, the “Simplification Transaction”). As a result of the Simplification Transaction, the Company acquired certain assets under development, as well as off-take contracts in varying stages of negotiation. The Simplification Transaction also included the acquisition of a workforce that was historically employed by our former sponsor. On October 14, 2021, the Partnership issued 16.0 million common units to the owners of the former sponsor as consideration for the Simplification Transaction.
The Simplification Transaction was a business combination of entities under common control and net assets acquired were combined at their historical costs with a change in reporting entity. Accordingly, the consolidated financial statements have been retroactively recast to reflect the Simplification Transaction as if the Simplification Transaction had occurred on March 18, 2010, the date Holdings was originally organized. While the Partnership was the surviving entity for legal purposes, Holdings is the surviving entity for accounting purposes. As a result, the historical financial results prior to the Simplification are those of Holdings. Prior to the Simplification Transaction, Holdings controlled the Partnership so the financial statements of the Partnership were consolidated into the financial statements of Holdings and the common units of the Partnership held by the public are reflected as a noncontrolling interest.
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Our consolidated financial statements include allthe accounts of the PartnershipEnviva and its wholly owned subsidiaries and controlled subsidiaries.subsidiaries, including a variable interest entity in which we are the primary beneficiary. As managing member, we have the sole power to direct the activities that most impact the economics of the variable interest entity. All intercompany accounts and transactions have been eliminated. We operate and manage our business as one operating segment.
ReclassificationGeorgia Biomass Holding LLC
Prior period amounts related to intangible assets as of DecemberOn July 31, 2017 have been reclassified to other long-term assets on the consolidated balance sheets to conform to current period presentation.
2020, Enviva Pellets Sampson, LLC
In December 2016, we acquired from Enviva WilmingtonWaycross Holdings, LLC, (the “First Hancock JV”), a joint venture between the sponsor and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates (“John Hancock”), all of the issued and outstanding limited liability company interests in Enviva Pellets Sampson, LLC (“Sampson”), which owns a wood pellet production plant in Sampson County, North Carolina (the “Sampson plant”).
The $175.0 million purchase price for Sampson included the payment of $139.6 million in cash, net of a purchase price adjustment of $5.4 million, to the First Hancock JV, the issuance of 1,098,415 unregistered common units at a value of $27.31 per unit, or $30.0 million of common units, to affiliates of John Hancock, and the elimination of $1.2 million of net related-party receivables and payables included in the net assets on the date of acquisition.
The acquisition (the “Sampson Drop-Down”) included the Sampson plant, an approximate 10-year, 420,000 MTPY take-or-pay off-take contract with Ørsted Bioenergy & Thermal Power A/S (formerly “DONG Energy Thermal Power A/S”), an approximate 15-year, 95,000 metric tons per year (“MTPY”) off-take contract with the First Hancock JV and related third-party shipping contracts. We accounted for the Sampson Drop-Down as a combination of entities under common control at historical cost in a manner similar to a pooling of interests. Accordingly, the consolidated financial statements for the periods prior to December 14, 2016 were retrospectively recast to reflect the Sampson Drop-Down as if it had occurred on May 15, 2013, the date Sampson was originally organized.
Enviva Port of Wilmington, LLC
In October 2017, we acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”), which owns the Wilmington terminal assets (the “Wilmington terminal”).
The $130.0 million purchase price for Wilmington included an initial payment of $54.6 million, net of an approximate purchase price adjustment of $1.4 million, and deferred consideration of $74.0 million. The acquisition (the “Wilmington Drop-
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Down”) included the Wilmington terminal and a long-term terminal services agreement with the sponsor (the “Holdings TSA”) to handle throughput volumes sourced by the sponsor from Enviva Pellets Greenwood, LLC (“Greenwood”), a wholly owned subsidiary of Enviva JV Development Company, LLC (the “Second Hancock JV”), a joint venture between the sponsor and John Hancock and certain of its affiliates. Greenwood owns a wood pellet production plant in Greenwood, South Carolina (the “Greenwood plant”). See Note 13, Related-Party Transactions.
The Wilmington Drop-Down was accounted for as a combination of entities under common control at historical cost in a manner similar to a pooling of interests. Accordingly, the consolidated financial statements for the periods prior to October 2, 2017, were retrospectively recast to reflect the acquisition of the First Hancock JV’s interests in Wilmington as if it had occurred on May 15, 2013, the date Wilmington was originally organized.
Enviva Pellets Wiggins, LLC
Prior to December 2017, we held a controlling interest in Enviva Pellets Wiggins, LLC (“Wiggins”), which owned a wood pellet plant in Stone County, Mississippi (the “Wiggins plant”). In December 2017, we sold the Wiggins plant and Wiggins was dissolved. See Note 11, Assets Held for Sale and Dissolution.
Subsidiaries
As of December 31, 2018, the Partnership has 100% ownership of the following:
Enviva Partners Finance Corp. (“Enviva Finance Corp.”), a wholly owned subsidiary of the Partnership formed on October 3, 2016 for the purpose of being a co-issuer of someCompany, acquired all of the Partnership’s indebtedness
Enviva GP,limited liability company interests in Georgia Biomass Holding LLC,
The Partnership has 99.999% ownership a Georgia limited liability company (“Georgia Biomass”), and the indirect owner of Enviva, LP
Enviva GP, LLC has 0.001% ownershipa wood pellet production plant located in Waycross, Georgia (the “Waycross plant”), for a purchase price of Enviva, LP
Enviva, LP has 100% ownership$175.0 million, subject to certain adjustments (the “Georgia Biomass Acquisition”). In August 2020, Georgia Biomass converted to a limited liability company organized under the laws of the following:
State of Delaware under the name Enviva Pellets Amory, LLC (“Amory”)Waycross Holdings Sub, LLC.
Enviva Pellets Ahoskie, LLC
Enviva PortThe Georgia Biomass Acquisition was recorded as a business combination and accounted for using the acquisition method. Assets acquired and liabilities assumed were recognized at fair value on the acquisition date of Chesapeake, LLC
Enviva Pellets Northampton, LLC
Enviva Pellets Southampton, LLC (“Southampton”)
Enviva Pellets Cottondale, LLC (“Cottondale”)
Enviva Energy Services, LLC
Enviva Pellets Sampson, LLC (“Sampson”)
Enviva Port of Wilmington, LLC (“Wilmington”)
Enviva Port of Panama City, LLC
Enviva MLP International Holdings, LLC
Enviva, LP has 99.99% ownershipJuly 31, 2020, and the difference between the consideration transferred, excluding acquisition-related costs and the fair values of the following:assets acquired and liabilities assumed was recognized as goodwill. See Note 4, Acquisition.
Enviva Energy Services Coöperatief, U.A.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Enviva MLP International Holdings has 100% ownership of the following:
Enviva Energy Services (Jersey), Limited
Enviva MLP International Holdings has 0.01% ownership of the following:
Enviva Energy Services Coöperatief, U.A.
(2) Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Common Control TransactionsNoncontrolling Interests
AssetsNoncontrolling interests include third-party equity ownership in Enviva Wilmington Holdings, LLC (the “Hamlet JV”) and businessesEnviva JV Development Company, LLC (the “Development JV”), each of which are limited liability companies. Prior to the Simplification Transaction, noncontrolling interests also included the third-party, public equity ownership in the Partnership. Noncontrolling interests are presented as a component of equity in the accompanying consolidated balance sheet. The allocation for the Hamlet JV was based on the percentage of units held by third-parties and the Partnership until April 1, 2019, after which there was no allocation to third parties primarily as their capital contributions had all been repaid and substantially all of their preferred return on those capital contributions had been paid. For the Development JV, the allocation of income (loss) is based on the percentage of capital contributions from third-parties and the Partnership. In February 2021, the Partnership purchased the third-party member’s interest in the Development JV. See Note 17, Equity.
Business Combinations
Determining whether an entity has acquired a business or an asset (or a group of assets) is critical because the accounting for a business combination differs significantly from our sponsorthat of an asset acquisition. For an acquisition of a business, the general principle is that, when an entity (the acquirer) takes control of another entity (the target), the fair value of the underlying exchange transaction is used to establish a new accounting basis for the acquired entity where the acquirer recognizes and its controlled subsidiaries aremeasures the assets acquired and liabilities assumed at their full fair values as of the date control is obtained. For an acquisition of an asset, a cost accumulation and allocation model is used under which the cost of the acquisition is allocated to the assets acquired and liabilities assumed.
We must first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. Gross assets acquired should exclude cash and cash equivalents, deferred tax assets and goodwill resulting from the effects of deferred tax liabilities. However, the gross assets acquired should include any consideration transferred (plus the fair value of any noncontrolling interest and previously held interest, if any) in excess of
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
the fair value of net identifiable assets acquired. A tangible asset that is attached to and cannot be physically removed and used separately from another tangible asset (or an intangible asset representing the right to use a tangible asset) without incurring significant cost or significant diminution in utility or fair value to either asset (for example, land and building) should be considered a single asset. In that context, we consider a wood pellet production facility to be a single identifiable asset.
We need to apply judgment to determine what is considered “substantially all” because ASC 805 does not provide a bright line for making this assessment. If the “substantially all” threshold is met, the acquired set of assets and activities is not a business. If that threshold is not met, we must evaluate whether the set meets the definition of a business, which consists of inputs and at least one substantive process applied to those inputs that have the ability to contribute to the creation of outputs. If that threshold is not met but the set does not meet the definition of a business, the acquisition would be an asset acquisition.
A business combination is an acquisition of a business and is accounted for as common control transactions wherebyusing the netacquisition method. Identifiable assets acquired and liabilities assumed are combinedrecognized at their historical costs and our consolidated financial statements are adjusted retrospectively to reflect the transaction as if it had occurredfair value on the earliest date during whichacquisition date. Goodwill is calculated as the entities were under common control. If any recognizedexcess of the fair value of the consideration transferred, in such a transaction exceedswhich excludes acquisition-related costs that are expensed, over the carryingfair value of the net assets acquired,recognized and represents the excess is treated as a capital distribution to the General Partner. If the carrying value of thefuture economic benefits arising from other net assets acquired exceeds any recognized consideration transferred including, if applicable, the fairthat could not be individually identified and separately recognized. Fair value of any limited partner units issued, then that excess is treated as a capital contributionmeasurements may require us to make significant estimates and assumptions. A measurement period, which could be up to one year from the General Partner. Todate of acquisition, exists to identify and measure the extentassets acquired and the liabilities assumed. During the measurement period, provisional amounts may be recognized and those amounts may subsequently be prospectively adjusted to reflect any new information about facts and circumstances that such transactions require prior periods to be recast, historical net equity amounts prior to the transaction date are attributed to the General Partner and any noncontrolling partner interestexisted at the historical amount.acquisition date that, if known, would have affected the measurement of these amounts. At the end of the measurement period, any subsequent changes would not be recognized under the acquisition method but would instead follow other accounting principles, which would then generally impact earnings.
Other Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, and gains and losses that under GAAP are included in comprehensive income (loss) but excluded from net income (loss). Other comprehensive income (loss) consists of net unrealized gains and losses related to derivative instruments accounted for as cash flow hedges and foreign currency translation adjustments.
Cash and Cash Equivalents
Cash and cash equivalents consist of short-term, highly liquid investments readily convertible into cash with an original maturity of three months or less.
Restricted Cash
Restricted cash consists of cash collateral for an irrevocable standby letter of credit and an amount held in escrow.
Accounts Receivable
Accounts receivable represent amounts billed and billable under our contracts andthat are recorded at the invoiced amount and billable under our contracts that are pending finalization of prerequisite billing documentation and do not bear interest. As of December 31, 20182021 and 2017,2020, we had no amounts in allowance for doubtful accounts given the lack of historical credit losses and no current expectations of credit losses.
Inventories
Inventories consist of raw materials, work-in-progress, consumable tooling and finished goods. Fixed production overhead, including related depreciation expense, is allocated to inventory based on the normal production capacity of the facilities. To the
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
extent we do not achieve normal production levels, we charge such under-absorption of fixed overhead to cost of goods sold in the period incurred.
Consumable tooling consists of spare parts and tooling to be consumed in the production process. Spare parts are expected to be used within a year and are expensed as used. Tooling items are amortized to expense over an estimated service life generally less than one year.
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Inventories are stated at the lower of cost or marketnet realizable value using the first-in, first-out method (“FIFO”) for all inventories, which requires the use of judgment and estimates.inventories. Raw material, production and distribution costs associated with delivering wood pellets to marine terminals and third- and related-partythird-party wood pellet purchase costs are capitalized as a component of inventory. FixedThese costs and the finished production overhead including the related depreciation expense, is allocated to inventory based on the normal capacity of our production plants. These costs are reflected in cost of goods sold when inventory is sold.
Intangibles
Intangibles primarily consist of favorable or unfavorable customer contracts and an unfavorable shipping contact that were acquired in the Georgia Biomass Acquisition. Intangibles with definite lives are amortized based on the pattern of economic benefit over their estimated useful lives, which are reviewed annually. The intangibles acquired in the Georgia Biomass Acquisition are being amortized on a straight-line basis, as metric tons (“MT”) of wood pellets to be sold or shipped under each contract are constant through the end of such contracts. See Note 12, Goodwill and Other Intangibles.
Revenue Recognition
We primarily earn revenue by supplying wood pellets to customers under off-take contracts, the majority of the commitments under which are long-term in nature. We refer to the structure of ourOur off-take contracts asare considered “take-or-pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions that ensurerequire that we will be compensated in the case of a customer’s failure to accept all or a part of the contracted volumes or termination of a contract. Ourcontract by a customer. Each of our long-term off-take contracts definedefines the annual volume of wood pellets that a customer is required to purchase, and we are required to sell, the fixed price per metric ton (“MT”)MT for product satisfying a base net calorific value and other technical specifications. TheThese prices are generally fixed for the entire term, and arehowever, some may be subject to adjustments which may include annual inflation-based adjustments or price escalators, price adjustments for product specifications, as well as, in some instances, price adjustments due to changes in underlying indices. In addition to sales of our product under these long-term off-take contracts, we routinely sell wood pellets under shorter-term contracts, which range in volume and tenor and, in some cases, may include only one specific shipment. Because each of our off-take contracts is a bilaterally negotiated agreement, our revenue over the duration of such contracts does not generally follow observable current market pricing trends. Our performance obligations under these contracts which we aggregate into metric tons, are the delivery of wood pellets.pellets, which we aggregate into MT. We account for each MT as a single performance obligation. Our revenue from the sales of wood pellets we produce is recognized as product sales upon satisfaction of our performance obligation when control transfers to the customer at the time of loading wood pellets onto a ship. The amount of wood pellets loaded onto a ship is determined by management with the assistance of a third-party specialist.
Depending on the specific off‑take contract, shipping terms are either Cost, Insurance and Freight (“CIF”), Cost and Freight (“CFR”) or Free on Board (“FOB”). Under a CIF contract, we procure and pay for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. Under a CFR contract, we procure and pay for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping under CIF and CFR contracts after control has passed to the customer is considered a fulfillment activity rather than a performance obligation and associated expenses are included in the price to the customer. Under FOB contracts, the customer is directly responsible for shipping costs.
In some cases, we may purchase shipments of product from third-party suppliers and resell them to other parties in back-to-back transactions (“purchase and sale transactions”). We recognize revenue on a gross basis in product sales when we determine that we act as a principal by having control of the wood pellets before they are transferred to the customer. Indicators of control have included being primarily responsible for fulfilling the promise to provide the wood pellets (such as by contracting to sell wood pellets before contracting to buy them), having inventory risk, or having discretion in establishing the sales price for the wood pellets. The decision as to whether to recognize revenue on a gross or net basis requires significant judgment.
In instances in which a customer requests the cancellation, deferral or acceleration of a shipment, the customer may pay a fee, which is included in other revenue in satisfaction of the related performance obligation.
We recognize third- and related-party terminal services revenue ratably over the related contract term, which is included in other revenue. Terminal services are performance obligations that are satisfied over time, as customers simultaneously receive and consume the benefits of the terminal services we perform. The consideration is generally fixed for minimum quantities and any services above the minimum are generally billed based on a per-tonper-MT rate as variable consideration and recognized as services are performed. Any deficiency payments receivable and probable of being collected from a customer not meeting
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
quarterly minimum throughput requirements are recognized during the related quarter in satisfaction of the related performance obligation.
Variable consideration from off-take contracts arises from several pricing features outlined in our off-take contracts, pursuant to which such contract pricing may be adjusted in respect of particular shipments to reflect differences between certain
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
contractual quality specifications of the wood pellets as measured both when the wood pellets are loaded onto ships and unloaded at the discharge port as well as certain other contractual adjustments.
Variable consideration from terminal services contracts arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services.
We allocate variable consideration under our off-take and terminal services contracts entirely to each performance obligation to which variable consideration relates. The estimate of variable consideration represents the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved.
Under our off-take contracts, customers are obligated to pay the majority of the purchase price prior to the arrival of the ship at the customers’ discharge port. The remaining portion is paid after the wood pellets are unloaded at the discharge port. We generally recognize revenue prior to the issuance of an invoice to the customer.
In instances where we have contracts to exchange wood pellets held for sale in the ordinary course of business for similar wood pellets to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange, we account for these exchanges as nonmonetary transactions at the carrying amount of the wood pellets transferred, with no impact to revenue and with no net impact to cost of goods sold once an equal amount of wood pellets have been exchanged. For the sale of the wood pellets received to customers not parties to the exchange, we recognize product sales revenue as described above for off-take contracts. To the extent that these exchanges also include compensation to us for shipping wood pellets, we recognize it as product sales revenue as those wood pellets are loaded and we recognize the shipping costs in cost of goods sold.
Cost of Goods Sold
Cost of goods sold includes the cost to produce and deliver wood pellets to customers, reimbursable shipping-related costs associated with specific off-take contracts with CIF and CFR shipping terms and costs associated with purchase and sale transactions. Distribution costs associated with shipping wood pellets to customers and amortization of favorable acquired customer contracts are expensed as incurred. The calculation of cost of goods sold is based on estimates used in the valuation of the FIFO inventory and in determining the specific composition of inventory that is sold to each customer.
Accrued and Other Current Liabilities
Accrued and other current liabilities primarily includes liabilities related to construction in progress, amounts related to cost of goods sold such as utility costs at our production facilities, distribution costs associated with shipping wood pellets to customers, costs associated with the purchase of wood fiber and wood pellets not yet invoiced and compensation and benefits.
Derivative Instruments
Derivative instruments are classified as either assets or liabilities on a gross basis and carried at fair value and included in prepaid expenses and other current assets, other long-term assets, accrued and other current liabilities and other long-term liabilities on the consolidated balance sheets. Changes inDuring the three years ended December 31, 2021 and since and March 2020, we have no longer applied hedge accounting treatment to any foreign currency and interest rate derivatives, respectively. Derivative instruments that did not or ceased to qualify, or are no longer designated, as accounting hedges are adjusted to fair value are eitherthrough earnings in the current period.
To the extent hedge accounting had previously been applied, it was applied to qualifying cash flow hedges with unrealized changes in their fair value recognized as unrealized gains and losses in accumulated other comprehensive income in partners’ capital or earnings depending on the nature of the underlying exposure, whether the derivative is formally designated as a hedge, and, if designated,equity to the extent to which the hedge is effective. To receive hedge accounting treatment, cash flow hedges mustthey could be highlyconsidered effective in offsetting changes to expected future cash flowsaccordance with the accounting standards on hedged transactions. As of December 31, 2018, we only apply hedge accounting treatment to interest rate swaps.derivatives and hedging applicable during those periods.
The effective portion of qualifying foreign currency forward and option contracts designated as cash flow hedges was reported as a component of accumulated other comprehensive income in partners’ capital and reclassified into revenue in the same period or periods during which the hedged revenue affected earnings. During August 2018, we discontinued hedge accounting for all designated foreign currency cash flow hedges. The effective portion of qualifying interest rate swaps designated as cash flow hedges is reported as a component of accumulated other comprehensive income in partners’ capital andwas reclassified into interest expense in the same period or periods during which the hedged interest expense affects earnings. The ineffective portion of cash flow hedges, if any, is recognized in earnings in the current period. We link derivative instruments that are designated as cash flow hedges to specific assets and liabilities on the consolidated balance sheets or to specific forecasted transactions. We link interest rate swap derivative instruments designated as a hedge using the first payment technique to link the forecasted transaction which is the first LIBOR-based payments on any borrowing.
To qualify for hedge accounting, the item to be hedged must cause an exposure risk and we must have an expectation that the related hedging instrument will be effective at reducing or mitigating that exposure. In accordance with the hedging requirements, we document all hedging relationships at inception and include a description of the risk management objective and strategy for undertaking the hedge, identification of the hedging instrument, the hedged item, the nature of the risk being hedged, the method for assessing effectiveness of the hedging instrument in offsetting the hedged risk and the method of measuring any ineffectiveness. When an event or transaction occurs or the derivative contract expires or the forecasted transaction is no longer probable of occurring, hedge accounting is discontinued. We also formally assess, both at the hedge’s
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
inception and on an ongoing basis, whether the derivative instruments are highly effective in offsetting changes in cash flows of hedged items. If it is determined that a derivative instrument has ceased to be a highly effective hedge, hedge accounting is discontinued prospectively.
Hedge effectiveness for foreign exchange forward contracts designated as cash flow hedges is assessed by comparing the change in the fair value of the hedge contract with the change in the fair value of the forecasted cash flows of the hedged item. For foreign exchange option contracts, hedge effectiveness is assessed based on the hedging instrument’s entire change in fair value. Hedge effectiveness for interest rate swaps is assessed by comparing the change in fair value of the swap with the change in the fair value of the hedged item due to changes in the benchmark interest rate.
Derivative instruments that do not qualify, or no longer qualify, as hedges are adjusted to fair value through earnings in the current period.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, which includes the fair values of assets acquired. Equipment under capitalfinance leases is stated at the present value of minimum lease payments. Useful lives of assets are based on historical experience and other relevant information. The useful lives of assets are adjusted when changes in the expected physical life of the asset, its
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
planned use, technological advances, or other factors show that a different life would be more appropriate. Changes in useful lives are recognized prospectively.
Depreciation is calculated using the straight-line method based on the estimated useful lives of the related assets. Plant and equipment held under capitalfinance leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.
Construction in progress primarily represents expenditures for the development and expansion of facilities. Capitalized interest cost and all direct costs, which include equipment and engineering costs related to the development and expansion of facilities, are capitalized as construction in progress. Depreciation is not recognized for amounts in construction in progress.
Normal repairs and maintenance costs are expensed as incurred. Amounts incurred that extend an asset’s useful life, increase its productivity or add production capacity are capitalized. Direct costs, such as outside labor, materials, internal payroll and benefit costs, incurred during the construction of a new plant are capitalized; indirect costs are not capitalized.
The principal useful lives are as follows:
|
| | | | | | | |
| Asset | | Estimated useful life |
| Land improvements | | 15 to 1725 years |
| Buildings | | 5 to 40 years |
| Machinery and equipment | | 2 to 2530 years |
| Vehicles | | 5 to 6 years |
| Furniture and office equipment | | 2 to 10 years |
| Leasehold improvements | | Shorter of estimated useful life or lease term, generally 10 years |
Costs and accumulated depreciation applicable to assets retired or sold are removed from the accounts and any resulting gain or loss is included in the consolidated statements of income.operations.
Long-lived assets,A long-lived asset (group), such as property, plant and equipment and amortizable intangible assets, areis tested for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset asset(group) may not be recoverable. There were no such indicators or teststhat would require impairment testing to be performed during the years ended December 31, 20182021 and 2017.2020.
Leases
We have operating and finance leases related to real estate, machinery, equipment and other assets where we are the lessee. Operating leases with an initial term of 12 months or less are not recorded on the balance sheet but are recognized as lease expense on a straight-line basis over the applicable lease terms. Operating and finance leases with an initial term longer than 12 months are recorded on the balance sheet and classified as either operating or finance.
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our leases do not contain any material residual value guarantees or restrictive covenants. In addition to fixed lease payments, we have contracts that incur variable lease expense related to usage (e.g. throughput fees, maintenance and repair and machine hours), which are expensed as incurred. Our leases have remaining terms of one to 40 years, some of which include options to extend the leases by up to multiple five-year extensions. Our leases are generally noncancelable. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.
An incremental borrowing rate is applied to our leases for balance sheet measurement. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for a collateralized borrowing over a similar term of the lease payments as of the commencement date.
For contracts that contain lease and nonlease components, nonlease components are separated and accounted for under other relevant accounting standards. We made an accounting policy election to not separate nonlease components from lease
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
components for heavy machinery and equipment and buildings.
Operating leases are included in operating lease ROU assets, accrued and other current liabilities and long-term operating lease liabilities on our consolidated balance sheets. Finance leases are included in property, plant and equipment, the current portion of long-term debt and finance lease obligations and long-term debt and finance lease obligations on our consolidated balance sheets. Changes in ROU assets and operating lease liabilities are included net in change in operating lease liabilities on the consolidated statement of cash flows.
Debt Issuance Costs and Original Issue Discounts and Premiums
Debt issuance costs and original issue discounts and premiums incurred with debt financing are capitalized and amortized over the life of the debt using the straight-line method, which approximates the effective interest method.debt. Amortization expense
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
is included in interest expense. If a debt instrument is retired before its scheduled maturity date, any related unamortized debt issuance costs and original issue discounts and premiums are written-off as gain or loss on debt extinguishment in the same period.
Unamortized debt issuance costs and original issue discounts and premiums related to a recognized debt liability are recognized as a direct deduction from the carrying amount of the related long-term debt.debt and are amortized using the effective interest method. Unamortized debt issuance costs related to our revolving credit commitments are recognized as an asset.asset and are amortized using the straight-line method.
Goodwill
Goodwill represents the purchase price paid for acquired businesses in excess of the identifiable acquired assets and assumed liabilities. Goodwill is not amortized but is tested for impairment annually and whenever an event occurs or circumstances change such that it is more likely than not that the fair value of the reporting unit is less than its carrying amounts. At December 31, 2018 and 2017, we identified
Impairment testing for goodwill is required to be done at the Partnership as having one reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that correspondedcomponent. Enviva Partners represents a single operating segment that has been deemed to our one reportable segment. We have selected December 1 to perform our annual goodwill impairment test.be a single reporting unit.
For the years ended December 31, 20182021 and 2017,2020, we performed a qualitativequantitative assessment using the market approach and determined it was more likely than not that the estimated fair value of the reporting unit substantially exceeded its carrying amount. There have been no impairments to the related carrying value of our reporting unit. Accordingly, we were not required to perform any quantitative or additional testing. We did not record any goodwill impairment forduring the years ended December 31, 2018 and 2017 (seeperiods presented. See Note 10, 12, Goodwill and Other Intangible Assets)Intangibles.
Unit-BasedNon-Cash Equity-Based Compensation and Other Expense
Employees,Our employees, consultants and directors of the General Partner and any of its affiliates are eligible to receive equity awards and other forms of compensation under the Enviva Partners, LPInc. Long-Term Incentive Plan (the “LTIP”). PhantomRestricted stock units issued in tandem with corresponding distributiondividend equivalent rights (“DERs”) are granted to our employees of Enviva Management Company, LLC (“Enviva Management”), a wholly owned subsidiary of the sponsor, who provide services to us and to certain non-employee directors of the General Partner. Phantom unitindependent directors. These equity awards vest subject to the satisfaction of service requirements and/or the achievement of certain performance goals following whichand the grant fair-value of these equity awards are recognized as non-cash equity-based compensation and other expense on a ratable basis over their vesting period. Once these conditions have been met, common unitsstock in the PartnershipCompany will be delivered to the holder of these equity awards. Forfeitures are recognized as they occur. Modifications to these equity awards resulting in incremental fair value over the phantom units. For accounting purposes, units granted to employees of our affiliates (excludingpre-modification fair value are recognized as non-cash equity-based compensation and other expense over the General Partner, the Partnership,remaining vesting period. We also recognize non-cash equity-based compensation and subsidiaries of the Partnership) are treated as if they were distributed by the Partnership. Such affiliates recognize compensationother expense for the phantomrestricted stock units awarded to their employees, a portionindependent directors. As of which is allocatedDecember 31, 2021 and 2020, we have the ability to us under the MSA (see Note 13, Related-Party Transactions-Management Services Agreement and Note 16, Equity-Based Awards). We also recognize compensation expense for phantom units awarded to non-employee directors. Oursettle certain of our outstanding phantomrestricted stock unit awards under the LTIP do notin either cash or common stock at our election. As we reasonably expect to be able to deliver common stock at the settlement date, we have a cash option and are classified all of our outstanding restricted stock unit awards as equity on our balance sheets. See Note 18, Equity-Based Awards.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Fair Value Measurements
We apply authoritative accounting guidance for fair value measurements of financial and nonfinancial assets and liabilities. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
•Level 1 Inputs: Unadjusted, quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
•Level 2 Inputs: Other than quoted prices included in Level 1, inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
•Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
Income taxes
Effective December 31, 2021, Enviva Partners, LP converted from a Delaware limited partnership to a Delaware corporation named Enviva Inc. (the “Conversion”). Following the Conversion, we became subject to U.S. federal, foreign, state, and local corporate income tax. In addition, certain of Enviva’s subsidiaries are subject to federal, state, and local income, franchise, or capital taxes at the entity level and the related tax provision is reflected in the Consolidated Financial Statements. Prior to the Conversion, substantially all of Enviva’s operating subsidiaries were organized as limited partnerships and entities that were disregarded entities for U.S. federal and applicable state income tax purposes. As a result, for taxable periods ending on or prior to the conversion, Enviva’s unitholders are liable for income taxes on their share of Enviva’s taxable income.
As a result of the Conversion, Enviva recognized a step-up in the tax basis of certain assets that will be recovered as the assets are sold or the basis is amortized. The calculation and allocation of the step-up in tax basis to the various assets of the company was determined by management with the assistance of a third-party specialist. The basis information used was based on an estimate of the basis in Enviva Inc. as of December 31, 2021. The final amount of the step-up in tax basis may differ as basis information, including the Partnership’s tax basis in underlying assets and liabilities based on 2021 tax return information, becomes available and is finalized.
Income taxes are accounted for using the asset and liability method of accounting. Under this method, deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the applicable enacted tax rates and laws that will be in effect when such differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. When evaluating the realizability of the deferred tax assets, all evidence, both positive and negative, is considered. Items considered when evaluating the need for a valuation allowance include historical book losses, future reversals of existing temporary differences, tax planning strategies and expectations of future earnings.
For a particular tax‑paying component of an entity and within a particular tax jurisdiction, deferred tax assets and liabilities are offset and presented as a single amount, as applicable, in the accompanying statements of financial condition.
Recently Adopted Accounting Standards
On January 1, 2021, we adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In May 2014,thousands, except number of units, per unit amounts and unless otherwise noted)
recognizing deferred taxes for tax goodwill, and allocating taxes to members of a consolidated group. The adoption did not have a material impact on the Financialfinancial statements.
Recently Issued Accounting Standards Board (“FASB”)not yet Adopted
Currently, there are no recently issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which subsequently was issued as ASC 606. ASC 606 requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amountaccounting standards not yet adopted by us that reflects the consideration to which the entity expectswe expect to be entitledreasonably likely to materially impact our financial position, results of operations or cash flows.
(3)Transactions Between Entities Under Common Control
Recast of Historical Financial Statements
The Simplification Transaction was a business combination of entities under common control and net assets acquired were combined at their historical costs with a change in exchangereporting entity. Accordingly, the consolidated financial statements have been retroactively recast to reflect the Simplification Transaction as if the Simplification Transaction had occurred on March 18, 2010, the date Holdings was originally organized. While the Partnership was the surviving entity for those goods or services.
We recognize revenue under ASC 606 and related amendments, which we adopted as of January 1, 2018, usinglegal purposes, Holdings is the modified retrospective transition method.
We determined that, upon adoption of Accounting Standard Codification (“ASC”) Topic ASC 606, revenue derived from our off-take contracts will continue to be classified as product sales. Revenue is recognized when control ofsurviving entity for accounting purposes. As a result, the wood pellets passeshistorical financial results prior to the customer which occurs as the wood pelletsSimplification are loaded onto shipping vessels, which is consistent with the timingthose of revenue recognition under our legacy accounting policy. However, the adoption of ASC 606 impacted the basis of presentation for purchase and sale transactions.Holdings. Prior to the adoptionSimplification Transaction, Holdings controlled the Partnership so the financial statements of ASC 606, wethe Partnership were consolidated into the financial statements of Holdings and the common units of the Partnership held by the public are reflected as a noncontrolling interest.
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The following table presents changes as a result of the Simplification Transaction for the common control entities acquired to previously reported revenueamounts in the audited consolidated balance sheet as of December 31, 2020 included in Enviva’s annual report on Form 10-K for the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | |
| As of December 31, 2020 |
| As Reported | | Common Control Entities Acquired | | Total (Recast) |
| Assets | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | $ | 10,004 | | | $ | 56,110 | | | $ | 66,114 | |
| Restricted cash | — | | | 1,561 | | | 1,561 | |
| Accounts receivable | 124,212 | | | — | | | 124,212 | |
| Other accounts receivable | — | | | 15,112 | | | 15,112 | |
| Related-party receivables, net | 2,414 | | | (2,414) | | | — | |
| Inventories | 42,364 | | | 2,860 | | | 45,224 | |
| Prepaid expenses and other current assets | 16,457 | | | (9,637) | | | 6,820 | |
| Total current assets | 195,451 | | | 63,592 | | | 259,043 | |
| Property, plant and equipment, net | 1,071,819 | | | 170,602 | | | 1,242,421 | |
| Operating lease right-of-use assets | 51,434 | | | 60,493 | | | 111,927 | |
| Goodwill | 99,660 | | | — | | | 99,660 | |
| Other long-term assets | 11,248 | | | 1,695 | | | 12,943 | |
| Total assets | $ | 1,429,612 | | | $ | 296,382 | | | $ | 1,725,994 | |
| Liabilities and Equity | | | | | |
| Current liabilities: | | | | | |
| Accounts payable | $ | 15,208 | | | $ | 7,190 | | | $ | 22,398 | |
| Accrued liabilities and other current liabilities | 108,976 | | | 38,839 | | | 147,815 | |
| Current portion of interest payable | 24,642 | | | 14 | | | 24,656 | |
| Current portion of long-term debt and finance lease obligations | 13,328 | | | 1,223 | | | 14,551 | |
| Related-party note payable | — | | | 20,000 | | | 20,000 | |
| Deferred revenue | — | | | 4,855 | | | 4,855 | |
| Total current liabilities | 162,154 | | | 72,121 | | | 234,275 | |
| Long-term debt and finance lease obligations | 912,721 | | | 777 | | | 913,498 | |
| Long-term operating lease liabilities | 50,074 | | | 61,917 | | | 111,991 | |
| Deferred tax liabilities, net | 13,217 | | | 12,001 | | | 25,218 | |
| Other long-term liabilities | 15,419 | | | 15,933 | | | 31,352 | |
| Total liabilities | 1,153,585 | | | 162,749 | | | 1,316,334 | |
| Commitments and contingencies | | | | | |
| Total equity | 276,027 | | | 133,633 | | | 409,660 | |
| Total liabilities and equity | $ | 1,429,612 | | | $ | 296,382 | | | $ | 1,725,994 | |
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The following tables present the changes as a result of the Simplification Transaction to previously reported amounts in the audited consolidated statements of operations for the years ended December 31, 2020 and 2019 included in Enviva’s annual report on Form 10-K for the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31. 2020 |
| As Reported | | Common Control Entities Acquired | | Total (Recast) |
| Net revenue | $ | 875,079 | | | $ | (117) | | | $ | 874,962 | |
| Income (loss) from operations | 61,778 | | | (122,208) | | | (60,430) | |
| Net income (loss) | 17,080 | | | (123,404) | | | (106,324) | |
| Less net loss attributable to noncontrolling interests | — | | | 20,034 | | | 20,034 | |
| Net income (loss) attributable to Enviva Inc. | 17,080 | | | (103,370) | | | (86,290) | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| As Reported | | Common Control Entities Acquired | | Total (Recast) |
| Net revenue | $ | 684,393 | | | $ | (825) | | | $ | 683,568 | |
| Income (loss) from operations | 44,679 | | | (130,921) | | | (86,242) | |
| Net loss | (2,943) | | | (132,041) | | | (134,984) | |
| Less net loss attributable to noncontrolling interests | — | | | 53,480 | | | 53,480 | |
| Net loss attributable to Enviva Inc. | (2,943) | | | (78,561) | | | (81,504) | |
The following tables present the changes as a result of the Simplification Transaction to previously reported amounts in the audited consolidated statements of cash flows for the years ended December 31, 2020 and 2019 included in Enviva’s annual report on Form 10-K for the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31. 2020 |
| As Reported | | Common Control Entities Acquired | | Total (Recast) |
| Net cash provided by (used in) operating activities | $ | 119,335 | | | $ | (104,936) | | | $ | 14,399 | |
| Net cash (used in) provided by investing activities | (396,805) | | | 12,836 | | | (383,969) | |
| Net cash provided by financing activities | 278,421 | | | 128,100 | | | 406,521 | |
| Net increase in cash, cash equivalents and restricted cash | $ | 951 | | | $ | 36,000 | | | $ | 36,951 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| As Reported | | Common Control Entities Acquired | | Total (Recast) |
| Net cash provided by (used in) operating activities | $ | 53,860 | | | $ | (109,213) | | | $ | (55,353) | |
| Net cash (used in) provided by investing activities | (177,483) | | | 32,283 | | | (145,200) | |
| Net cash provided by financing activities | 130,216 | | | 74,258 | | | 204,474 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 6,593 | | | $ | (2,672) | | | $ | 3,921 | |
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(4) Acquisition
Purchase Price Allocation
The Georgia Biomass Acquisition closed on July 31, 2020 and was accounted for as a business combination using the acquisition method of accounting. The following table summarizes the purchase price and the fair values of the amounts recorded for identifiable assets acquired and liabilities assumed at the acquisition date of July 31, 2020.
| | | | | | | | | |
| | | | | |
| Purchase price: | | | | | |
| Cash paid by the Partnership at closing | | | | | $ | 168,338 | |
| Reimbursement to the Partnership of certain acquisition-related costs, net | | | | | 161 | |
| Settlement of payable from the Partnership to Georgia Biomass | | | | | (3,684) | |
| Payment in relation to the Georgia Biomass Acquisition | | | | | 164,815 | |
| Receivable from purchase price adjustment | | | | | (850) | |
| | | | | $ | 163,965 | |
| Identified net assets acquired: | | | | | |
| Cash | | | | | $ | 1,516 | |
| Accounts receivable | | | | | 124 | |
| Inventories | | | | | 5,774 | |
| Prepaid expenses and other current assets | | | | | 792 | |
| Intangible assets | | | | | 5,700 | |
| Property, plant and equipment | | | | | 170,603 | |
| Operating lease right-of-use assets | | | | | 14,716 | |
| Accounts payable | | | | | (390) | |
| Accrued and other current liabilities | | | | | (9,472) | |
| Current portion of long-term finance lease obligations | | | | | (926) | |
| Long-term finance lease obligations | | | | | (3,733) | |
| Long-term operating lease liabilities | | | | | (13,356) | |
| Deferred tax liability, net | | | | | (13,148) | |
| Intangible liabilities | | | | | (7,400) | |
| Other long-term liabilities | | | | | (880) | |
| Identifiable net assets acquired | | | | | 149,920 | |
| Goodwill | | | | | 14,045 | |
| Total purchase price | | | | | $ | 163,965 | |
The opening balance sheet from July 31, 2020 has changed since what had been preliminarily included in our consolidated balance sheet as of December 31, 2020. As a result, goodwill decreased by $1.6 million, mainly driven by the change in certain intangible liabilities of $2.5 million resulting from updated information received offset by the impact on deferred taxes. The measurement period has now ended as the purchase price and sale transactionsthe purchase price allocation have been finalized.
The net assets of costs paidGeorgia Biomass were recorded at their estimated fair values. Significant inputs used to third-party suppliers,estimate the fair values of certain net assets acquired included estimates of the: (1) replacement cost for property, plant and equipment as if each asset was new as of the acquisition date, which was classifiedthen adjusted for the depreciation and any obsolescence since the date Georgia Biomass originally acquired that asset; (2) market prices for finished goods inventory and for customer and shipping contracts; (3) incremental borrowing rates as of the acquisition date for leases acquired; and (4) appropriate discount rates.
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Goodwill is calculated as the excess of the fair value of the consideration transferred over the fair value of the net assets recognized and represents the future economic benefits arising from other revenue. Subsequent tonet assets acquired that could not be individually identified and separately recognized. We believe that the adoptionprimary items that generated goodwill include both (1) the value of ASC 606, we recognize revenue on a gross basis in product sales when we determine that we act as a principalthe synergies created between the acquired assets and control the wood pellets before they are transferred to the customer.
Recoveries from customers for certain costs we incurred at the discharge port under our pre-existing assets and long-term, take-or-pay off-take contracts were reported in product sales priorand (2) our expected ability to grow the adoption of ASC 606. Under ASC 606, these recoveries are not considered a partcombined business by leveraging the combined business experience and the expanded footprint. None of the transaction price,goodwill is expected to be deductible for tax purposes.
In connection with the Georgia Biomass Acquisition, acquisition-related costs through December 31, 2020 were approximately $3.9 million and therefore are excluded from product salesincluded within selling, general, administrative, and included as an offset to costdevelopment expenses on the consolidated statements of goods sold.operations. These acquisition-related costs do not include integration costs.
(5) Revenue
We disaggregate our revenue into two categories: product sales and other revenue. Product sales includes sales of wood pellets. Other revenue includes fees associated with customer requests to cancel, defer, or accelerate shipments in satisfaction of the related performance obligation and third- and related-party terminal services fees. Other revenue also includes fees received for other services, including for sales and marketing, scheduling, sustainability, consultation, shipping and risk management services, where the revenue is recognized when we have satisfied the performance obligation and have a right to the corresponding fee. These categories best reflect the nature, amount, timing and uncertainty of our revenue and cash flows.
Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, whereas prior comparative reporting periods have not been adjusted and continue to be reported underPerformance Obligations
As of December 31, 2021, the accounting standards in effect for such periods. We did not have a transition adjustment as a result of adopting ASC 606.
The table below indicates the impact of the adoption of ASC 606 on revenue and cost of goods sold:
|
| | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | As Reported | | Adoption of ASC 606 | | Without Adoption of ASC 606 |
| Product sales | $ | 564,010 |
| | $ | (23,159 | ) | | $ | 540,851 |
|
| Other revenue | 9,731 |
| | 1,723 |
| | 11,454 |
|
| Cost of goods sold | 504,300 |
| | (21,436 | ) | | 482,864 |
|
| Gross margin | $ | 69,441 |
| | $ | — |
| | $ | 69,441 |
|
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other. ASU 2017-04 simplifies the testing for goodwill impairment by eliminating step two of the current goodwill impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carryingaggregate amount of that goodwill.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Under the new guidance, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unitconsideration from contracts with its carrying amount and will recognize an impairment charge equalcustomers allocated to the performance obligations that were unsatisfied or partially satisfied was approximately $18.2 billion. This amount by which the carryingexcludes forward prices related to variable consideration including inflation, foreign currency and commodity prices. Also, this amount exceeds the reporting unit’s fair value. The new guidance should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We early adopted this ASU in connection with our December 2018 annual impairment test.
Recently Issued Accounting Standards not yet Adopted
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation ofexcludes the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. For example, ineffectiveness related to designated and qualifying cash flow hedges no longer needs to be measured so it would be recorded to accumulated other comprehensive income,foreign currency derivative contracts as opposed to being recorded to earnings under the previous guidance. ASU 2017-12 requires a modified retrospective transition method, which requires the recognition of the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We are adopting the standard on January 1, 2019. Wethey do not expect the adoption of ASU 2017-12 will have a material impact on our consolidated financial statements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which established a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leasesrepresent contracts with a term of longer than 12 months. Leases will be classified as either finance or operating leases, with affects the pattern and classification of expense recognition in the income statement.customers. We are adopting this new standard on January 1, 2019. A modified retrospective transition approach was required, whereby the new standard is to be applied to all leases existing at the date of initial application. We elected to use the effective date as its date of initial application, as opposed to the beginning of the earliest comparative period presented in the financial statements. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.
The standard will have a material impact on our consolidated balance sheets, but will not have a material impact on our consolidated income statements. The new standard provided a number of optional practical expedients in transition. We elected the “package of practical expedients,” which permitted us not to reassess our prior conclusions under the previous guidance concerning lease identification, lease classification and initial direct leasing costs. We elected the practical expedient pertaining to land easements. We did not elect the practical expedient pertaining to the use of hindsight. The most significant impact will be the recognition of ROU assets and corresponding lease liabilities related to real estate, machinery, equipment and other operating leases, while our accounting for capital leases will remain substantially unchanged. On adoption, we currently expect to recognize additional ROU assetsapproximately 7.0% of our remaining performance obligations as revenue in the range of $27.0 million to $35.0 million and additional corresponding operating liabilities in the range of $29.0 million to $37.0 million. These amounts are based on the present valueeach of the remaining minimum rental payments under previous leasing standards for existing operating leases, except the ROU asset is less to reflect approximately $2.0 million of deferred rent assets already recorded as of December 31, 2018. We do not expect a significant change to our activities, results of operations, or cash flows from the new standard. We are currently finalizing our analysis of the inventory of leasesyears ending 2022 and 2023 and the schedule of the remaining minimum rental payments as of the adoption date of the incremental borrowing rates as of the adoption date applied to the operating leases, the implementation of the lease accounting system, the controls executed for adoption,balance thereafter. Our off-take contracts expire at various times through 2045 and of the design and implementation of controls to be applied after the adoption.
On June 20, 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, aligning the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date, which would reduce volatilityour terminal services contract expires in our general and administrative expense by no longer having to remeasure the fair value of phantom unit awards under the LTIP to employees of the Provider. Entities will apply the new guidance to equity-classified nonemployee awards for which a measurement date has not been established and liability-classified nonemployee awards that have not been settled as of the date of adoption by recognizing a cumulative-effect adjustment to retained earnings as of the beginning of the annual period
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
of adoption. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are adopting ASU 2018-07 on January 1, 2019.
(3) Revenue2023.
Variable Consideration
Variable consideration from off-take contracts arises from several pricing features in our off-take contracts, pursuant to which such contract pricing may be adjusted in respect of particular shipments to reflect differences between certain contractual quality specifications of the wood pellets as measured both when the wood pellets are loaded onto ships and unloaded at the discharge port as well as certain other contractual adjustments.
Variable consideration from our terminal services contracts, which was not material for the year December 31, 2018,contract arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services.
We allocate There was no variable consideration underfrom our off-take and terminal services contracts entirely to each performance obligation to whichcontract for the year ended December 31, 2021. For the years ended December 31, 2020 and 2019, variable consideration relates. The estimate of variable consideration represents the amount that is not more likely than not to be reversed. from our terminal service contract was insignificant.
For the year ended December 31, 2018,2021 and 2020, we recognized an insignificant amount$0.3 million and $0.1 million, respectively, of product sales revenue related to performance obligations satisfied in previous periods. For the year ended December 31, 2019, product sales revenue was reduced by $0.1 million related to performance obligations satisfied in previous periods.
Contract Balances
Accounts receivable related to product sales as of December 31, 20182021 and December 31, 20172020 were $51.3$91.3 million and $78.0$108.5 million, respectively. Of these amounts, $46.0$61.3 million and $56.3$95.0 million, as of December 31, 20182021 and 20172020 respectively, related to amounts that were not yet billable under our contracts with customers pending finalization of prerequisite billing documentation. The amounts that havehad not been billed are expectedbilled upon receipt of prerequisite billing documentation, where substantially all is typically billed one to betwo weeks after full loading of the vessel, and where the remaining balance is typically billed withinone to two months.weeks after discharge of the vessel.
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
As of December 31, 2018,2021, we had $0.3 million of short-term0 deferred revenue for a service related performance obligation to be satisfied in the first quarter of 2019 and no deferred revenue as of December 31, 2017 for future performance obligations under contracts associated with our customers.
Performance Obligations
off-take contracts. As of December 31, 2018, the aggregated amount from contracts with customers allocated to the2020, we had $4.9 million of deferred revenue for future performance obligations that were unsatisfied or partially satisfied was approximately $7.2 billion. This amount excludes forward prices related to variable consideration including inflation, foreign currency and commodity prices. Also, this amount excludes the effects of the related foreign currency derivativeunder contracts as they do not represent contractsassociated with customers. We expect to recognize approximately 9.2% of our remaining performance obligations as revenue in 2019, an additional 10.8% by 2021 and the balance thereafter. In addition, as of December 31, 2018, we were party to a contract that included performance obligations of $0.6 billion, subject to conditions precedent for the benefit of our customer. During February 2019, the conditions precedent were satisfied. Our off-take contracts expire at various times through 2037 and our terminal services contracts extend into 2026.contracts.
(4)(6) Significant Risks and Uncertainties, Including Business and Credit Concentrations
Our business is significantly impacted by greenhouse gas emission and renewable energy legislation and regulations in the U.K., European Union (“EU”) as well as its member states.states and Japan. If the European UnionU.K., the EU or its member states or Japan significantly modify such legislation or regulations, then our ability to enter into new contracts as the currentour existing contracts expire may be materially affected.
Our currentproduct sales are primarily to industrial customers located in the United Kingdom,U.K., Denmark, Japan, Belgium, and Belgium.the Netherlands. Product sales to third-party customers that accounted for 10% or a greater share of consolidated product sales for each of the years ended December 31 are as follows:
| | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| 2021 | | (Recast) | | (Recast) |
| Customer A | 32 | % | | 40 | % | | 48 | % |
| Customer B | 5 | % | | 9 | % | | 10 | % |
| Customer C | 17 | % | | 23 | % | | 20 | % |
| Customer D | 9 | % | | 11 | % | | 15 | % |
| Customer E | 18 | % | | 8 | % | | — | % |
(7) Inventories
Inventories consisted of the following as of December 31:
| | | | | | | | | | | |
| | | 2020 |
| 2021 | | (Recast) |
| Raw materials and work-in-process | $ | 21,995 | | | $ | 15,360 | |
| Consumable tooling | 22,952 | | | 21,855 | |
| Finished goods | 12,770 | | | 8,009 | |
| Total inventories | $ | 57,717 | | | $ | 45,224 | |
(8) Property, Plant, and Equipment, net
Property, plant, and equipment, net consisted of the following as of December 31:
| | | | | | | | | | | |
| | | 2020 |
| 2021 | | (Recast) |
| Land | $ | 26,414 | | | $ | 26,040 | |
| Land improvements | 61,850 | | | 60,110 | |
| Buildings | 321,577 | | | 316,706 | |
| Machinery and equipment | 859,115 | | | 800,252 | |
| Vehicles | 8,318 | | | 6,176 | |
| Furniture and office equipment | 24,840 | | | 16,711 | |
| Leasehold improvements | 22,101 | | | 7,462 | |
| Property, plant and equipment | 1,324,215 | | | 1,233,457 | |
| Less accumulated depreciation | (395,618) | | | (307,775) | |
| Property, plant and equipment, net | 928,597 | | | 925,682 | |
| Construction in progress | 569,600 | | | 316,739 | |
| Total property, plant and equipment, net | $ | 1,498,197 | | | $ | 1,242,421 | |
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
|
| | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Customer A | 46 | % | | 66 | % | | 75 | % |
| Customer B | 11 | % | | 12 | % | | 15 | % |
| Customer C | 16 | % | | 2 | % | | — | % |
| Customer D | 17 | % | | 15 | % | | — | % |
(5) Inventory ImpairmentTotal depreciation expense and Asset Disposal
On February 27, 2018, a fire occurred at the Chesapeake terminal, causing damage to equipment and approximately 43,000 MT of wood pellets (the “Chesapeake Incident”). As part of our risk management process, we maintain certain insurance policies, which are subject to deductibles and sublimits for each covered event. When recovery of all or a portion of property damage loss or other covered expenses through insurance proceeds is probable, a receivable is recorded and the loss or expense is reduced up to the amount of the total loss or expense. No gain or income resulting from business interruption insurance is recorded until all contingenciescapitalized interest related to construction-in-progress were as follows for the insurance claim have been resolved.years ended December 31:
To meet our contractual obligations to our customers, we incurred incremental costs to commission temporary wood pellet storage | | | | | | | | | | | | | | | | | | | | |
| | | | 2020 | | 2019 |
| | 2021 | | (Recast) | | (Recast) |
| Depreciation expense | | $ | 92,630 | | | $ | 80,372 | | | $ | 64,853 | |
| Capitalized interest related to construction in progress | | 20,166 | | | 9,423 | | | 2,104 | |
We recorded loss on disposal of assets of $10.2 million, $8.7 million and handling and ship loading operations (collectively, “business continuity activities”) at nearby locations. The wood pellets from our production plants in$3.6 million for the Mid-Atlantic region were delivered to such temporary locations as well as to the Wilmington terminal, which increased our distribution costs. We incurred $60.3 million in costs related to asset impairment, inventory write-off and disposal costs, emergency response costs, asset repair costs and business continuity activities as a result of the Chesapeake Incident. During the yearyears ended December 31, 2018, we recognized recoveries of $62.1 million related to the Chesapeake Incident, which included $25.5 million of business continuity insurance recoveries, recorded in cost of goods sold,2021, 2020 and $1.8 million of business interruption insurance recoveries, recorded in other income, for lost profits from both damaged wood pellets and the subsequent reduction2019, respectively, in the productionordinary course of wood pellets. Atoperating our plants.
(9) Leases
Operating lease ROU assets and liabilities and finance leases as of December 31:
| | | | | | | | | | | | | | |
| | | | 2020 |
| | 2021 | | (Recast) |
| Operating leases: | | | | |
| Operating lease right-of-use assets | | $ | 108,846 | | | $ | 111,927 | |
| | | | |
| Current portion of operating lease liabilities | | $ | 8,187 | | | $ | 5,799 | |
| Long-term operating lease liabilities | | 122,252 | | | 111,991 | |
| Total operating lease liabilities | | $ | 130,439 | | | $ | 117,790 | |
| | | | |
| Finance leases: | | | | |
| Property plant and equipment, net | | $ | 25,052 | | | $ | 25,378 | |
| | | | |
| Current portion of long-term finance lease obligations | | $ | 8,074 | | | $ | 10,051 | |
| Long-term finance lease obligations | | 10,358 | | | 11,552 | |
| Total finance lease liabilities | | $ | 18,432 | | | $ | 21,603 | |
Pascagoula leases certain real estate on which it is constructing a marine export terminal facility (the “Enviva System”). In addition, Pascagoula is party to an exclusive lease for terminal assets, on which the Enviva system will depend, to be constructed by Jackson County Port Authority (the “JCPA system”). The leases each have a 20-year term, with 4 five-year renewal options. Total future minimum lease payments over the 40-year life of the Enviva System lease are estimated to be $27.6 million. For the JCPA System, there are two payment options for the exclusive right to use it for what is expected to be approximately $24.0 million plus interest. The JCPA system lease is accounted for as a “build-to-suit” lease and is recorded as construction-in-progress with a related long-term liability in the consolidated balance sheet at $18.0 million as of December 31, 2018, $3.8 million of probable insurance recoveries were included in insurance receivables and subsequently received in February 2019.
(6) Inventories
Inventories consisted of the following at December 31: |
| | | | | | | |
| | 2018 | | 2017 |
| Raw materials and work-in-process | $ | 4,936 |
| | $ | 4,516 |
|
| Consumable tooling | 17,561 |
| | 14,447 |
|
| Finished goods | 8,993 |
| | 4,573 |
|
| Total inventories | $ | 31,490 |
| | $ | 23,536 |
|
(7) Property, Plant and Equipment, net
Property, plant and equipment, net consisted of the following at December 31:2021.
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
|
| | | | | | | |
| | 2018 | | 2017 |
| Land | $ | 13,492 |
| | $ | 13,492 |
|
| Land improvements | 44,990 |
| | 42,962 |
|
| Buildings | 196,574 |
| | 196,153 |
|
| Machinery and equipment | 434,776 |
| | 413,349 |
|
| Vehicles | 635 |
| | 635 |
|
| Furniture and office equipment | 6,148 |
| | 5,970 |
|
| Leasehold improvements | 987 |
| | 987 |
|
| | 697,602 |
| | 673,548 |
|
| Less accumulated depreciation | (154,967 | ) | | (117,067 | ) |
| | 542,635 |
| | 556,481 |
|
| Construction in progress | 14,393 |
| | 5,849 |
|
| Total property, plant and equipment, net | $ | 557,028 |
| | $ | 562,330 |
|
Total depreciation expense was $40.6 million, $39.1 millionOperating and $25.7 millionfinance lease costs were as follows for the years ended December 31, 201831:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2020 | | 2019 |
| Lease Cost | Classification | | 2021 | | (Recast) | | (Recast) |
| Operating lease cost: | | | | | | | |
| Fixed lease cost | Cost of goods sold | | $ | 7,011 | | | $ | 6,557 | | | $ | 9,913 | |
| Selling, general, administrative, and development expenses | | 7,820 | | | 4,916 | | | — | |
| Variable lease cost | Cost of goods sold | | 18 | | | 28 | | | 67 | |
| Selling, general, administrative, and development expenses | | — | | | 268 | | | — | |
| Short-term lease cost | Cost of goods sold | | 8,104 | | | 9,216 | | | 9,121 | |
| Selling, general, administrative, and development expenses | | 528 | | | 187 | | | — | |
| Total operating lease costs | | $ | 23,481 | | | $ | 21,172 | | | $ | 19,101 | |
| Finance lease cost: | | | | | | | |
| Amortization of leased assets | Depreciation and amortization | | $ | 10,574 | | | $ | 8,165 | | | $ | 5,220 | |
| Variable lease cost | Cost of goods sold | | 58 | | | 254 | | | 16 | |
| Selling, general, administrative, and development expenses | | — | | | 231 | | | — | |
| Interest on lease liabilities | Interest expense | | 528 | | | 651 | | | 472 | |
| Total finance lease costs | | $ | 11,160 | | | $ | 9,301 | | | $ | 5,708 | |
| Total lease costs | | $ | 34,641 | | | $ | 30,473 | | | $ | 24,809 | |
Operating and 2017 and 2016, respectively. Total interest capitalized related to construction in progressfinance lease cash flow information was $0.2 millionas follows for the yearyears ended December 31, 2018. We did not capitalize interest to construction in progress during the year ended31:
| | | | | | | | | | | | | | | | | | | | |
| | | | 2020 | | 2019 |
| | 2021 | | (Recast) | | (Recast) |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
| Operating cash flows from operating leases | | $ | 7,509 | | | $ | 10,912 | | | $ | 9,917 | |
| Operating cash flows from finance leases | | 524 | | | 651 | | | 472 | |
| Financing cash flows from finance leases | | 10,688 | | | 8,334 | | | 4,305 | |
| | | | | | |
| Assets obtained in exchange for lease obligations: | | | | | | |
| Operating leases | | $ | 10,491 | | | $ | 55,784 | | | $ | 17,510 | |
| Finance leases | | 8,531 | | | 14,698 | | | 8,253 | |
As of December 31, 2017. At December 31, 2018, we had assets under capital leases with a cost2021, the future minimum lease payments and related accumulated depreciationthe aggregate maturities of $7.8 millionoperating and $3.0 million, respectively. At December 31, 2017, we had assets under capital leases with a cost and related accumulated depreciation of $4.7 million and $1.2 million, respectively.finance lease liabilities are as follows:
(8) Derivative Instruments
We use derivative instruments to partially offset our business exposure to foreign currency exchange and interest rate risk. We may enter into foreign currency forward and option contracts to offset some of the foreign currency exchange risk on expected future cash flows and interest rate swaps to offset some of the interest rate risk on expected future cash flows on certain borrowings. Our derivative instruments expose us to credit risk to the extent that hedge counterparties may be unable to meet the terms of the applicable derivative instrument. We seek to mitigate such risks by limiting our counterparties to major financial institutions. In addition, we monitor the potential risk of loss with any one counterparty resulting from credit risk. Management does not expect material losses as a result of defaults by counterparties. We use derivative instruments to manage cash flow and does not enter into derivative instruments for speculative or trading purposes.
During the year ended December 31, 2018, we recorded a gain of $8.6 million related to changes in the fair value of foreign currency derivatives, of which $8.4 million was included in product sales and $0.2 million is included in cost of goods sold. During the year ended December 31, 2018, we recognized $4.6 million on realized gains related to derivatives settled during the period. | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, | | Operating
Leases | | Finance
Leases | | Total |
| 2022 | | $ | 13,382 | | | $ | 8,445 | | | $ | 21,827 | |
| 2023 | | 16,116 | | | 4,683 | | | 20,799 | |
| 2024 | | 15,545 | | | 1,854 | | | 17,399 | |
| 2025 | | 15,727 | | | 1,405 | | | 17,132 | |
| 2026 | | 15,373 | | | 1,012 | | | 16,385 | |
| Thereafter | | 135,422 | | | 2,018 | | | 137,440 | |
| Total lease payments | | 211,565 | | | 19,417 | | | 230,982 | |
| Less: imputed interest | | (81,126) | | | (985) | | | (82,111) | |
| Total present value of lease liabilities | | $ | 130,439 | | | $ | 18,432 | | | $ | 148,871 | |
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
As of December 31, 2021, the weighted-average remaining lease terms and discount rates for our operating and finance leases were weighted using the undiscounted future minimum lease payments and are as follows:
Cash Flow Hedges | | | | | | | | |
| Weighted average remaining lease term (years): | | |
| Operating leases | | 15 |
| Finance leases | | 4 |
| Weighted average discount rate: | | |
| Operating leases | | 6% |
| Finance leases | | 3% |
Foreign Currency Exchange Risk
(10) Derivative Instruments
We use derivative instruments to partially offset our business exposure to foreign currency exchange risk from expected future cash flows and interest rate risk resulting from certain borrowings. Although the preponderance of our off-take contracts are primarilyU.S. Dollar-denominated, we are exposed to fluctuations in foreign currency exchange rates related to a minority of our off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”) and Euro (“EUR”).
We seek to mitigate the credit risk associated with derivative instruments by limiting our counterparties to major financial institutions. Although we monitor the potential risk of loss due to credit risk, we do not expect material losses as a result of defaults by counterparties. We use derivative instruments to manage cash flow and do not enter into derivative instruments for speculative or trading purposes.
We have entered and may continue to enter into foreign currency forward contracts, purchased option contracts or other instruments to partially manage this risk and, priorrisk. Prior to August 2018, hadwe designated certain of thesederivative instruments as cash flow hedges.
For qualifying cash flow hedges, the effective portion of the gain or loss on the change in fair value is initially reported as a component of accumulated other comprehensive income in partners’ capital and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss, if any, is reported in earnings in the current period. We considered our cash flow hedges to be highly effective at inception.
Due to recent market changes, increases in demand for wood pellets and requests from customers to accommodate the acceleration or deferral of contracted deliveries, we determined that it was no longer probable that the timing of the forecasted revenues associated with the hedged transactions would occur as originally scheduled. As a result, in August In 2018, we discontinued hedge accounting for all designated foreign currency cash flow hedges and recognized the full amount of unrealized net gains included in accumulated other comprehensive income of $1.9 million in earnings. As of December 31, 2018, none of our foreign currency derivative instruments were designated as cash flow hedging instruments.hedges. In connection with the discontinuation of cash flow hedge accounting, we have recorded the on-going changes in the fair value of foreign currency derivatives as product sales or cost of salesgoods sold depending on the nature of the item being hedged.
During December 2017,In 2020, we determined that certain transactions were no longer probable of occurring within the forecasted time period, including the relevant cure period, due to unforeseen circumstances experienced by the customers to which the hedge transactions related. As a result, we discontinued hedge accounting for these transactions and recognized $1.6 million of unrealized losses that were reclassified from accumulated other comprehensive income to earnings.
Our outstanding foreign currency derivative instruments at December 31, 2018 expire on dates between 2020 and 2023.
Interest Rate Risk
We are exposed to fluctuations in interest rates on borrowings under our revolving credit commitments. We entered into a pay-fixed, receive-variable interest rate swapswaps to hedge a portion of the interest rate risk associated with our variable rate borrowings under our prior senior secured revolving credit facilities. We discontinued hedge accounting in 2016 following the repayment of a portion of our outstanding indebtedness under our prior senior secured credit facilities,facility that are not designated and subsequently re-designated theaccounted for as cash flow hedges. The interest rate swap for the remaining portionswaps expired in 2021.
Derivative instruments are classified as Level 2 assets or liabilities based on inputs such as spot and forward benchmark interest rates (such as LIBOR) and foreign exchange rates. The fair value of the indebtedness. Our interest rate swap expires in April 2020. Interest expense for the year endedderivative instruments as of December 31, 2017 included the reclassification of an insignificant amount representing the effective portion reported2021 and 2020 was as a component of accumulated other comprehensive income.follows:
| | | | | | | | | | | | | | |
| | Asset (Liability) |
| | | | 2020 |
| Balance Sheet Classification | 2021 | | (Recast) |
| Not designated as hedging instruments: | | | | |
| Interest rate swaps | Accrued and other current liabilities | $ | — | | | $ | (119) | |
| | | | |
| Foreign currency exchange contracts: | | | | |
| Prepaid expenses and other current assets | $ | 321 | | | $ | 308 | |
| Other long-term assets | 309 | | | 924 | |
| Accrued and other current liabilities | (1,456) | | | (2,224) | |
| Other long-term liabilities | (1,001) | | | (3,508) | |
| Total derivatives not designated as hedging instruments | | $ | (1,827) | | | $ | (4,619) | |
Net unrealized and net realized gains and (losses) recorded to earnings were as follows:
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The fair value of derivative instruments as of December 31, 2018 was as follows: |
| | | | | | | | | |
| | Balance Sheet Location | | Asset Derivatives | | Liability Derivatives |
| Derivatives designated as cash flow hedging instruments: | | | | | |
| Interest rate swaps: | | | | | |
| Interest rate swap | Other current assets | | $ | 508 |
| | $ | — |
|
| Interest rate swap | Other long-term assets | | 118 |
| | — |
|
| Total derivatives designated as cash flow hedging instruments | | | $ | 626 |
| | $ | — |
|
| Derivatives not designated as cash flow hedging instruments: | | | | | |
| Forward contracts: | | | | | |
| Foreign currency exchange forward contracts | Prepaid and other current assets | | $ | 794 |
| | $ | — |
|
| Foreign currency exchange forward contracts | Other long-term assets | | 1,810 |
| | — |
|
| Foreign currency exchange forward contracts | Accrued and other current liabilities | | — |
| | 68 |
|
| Foreign currency exchange forward contracts | Other long-term liabilities | | — |
| | 179 |
|
| Purchased options: | | | | | |
| Foreign currency purchased option contracts | Prepaid and other current assets | | 22 |
| | — |
|
| Foreign currency purchased option contracts | Other long-term assets | | 3,348 |
| | — |
|
| Total derivatives not designated as cash flow hedging instruments | | | $ | 5,974 |
| | $ | 247 |
|
Net gains included in product sales and cost of goods sold related to the change of fair market value of derivative instruments not designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2020 | | 2019 |
| Classification | | Derivative Instrument | | | | 2021 | | (Recast) | | (Recast) |
| Product sales | | Foreign currency derivatives | | Unrealized | | $ | 2,673 | | | $ | (4,327) | | | $ | (4,588) | |
| Product sales | | Foreign currency derivatives | | Realized | | (2,689) | | | 275 | | | 1,664 | |
| Interest expense | | Interest rate swap (1) | | Unrealized | | 119 | | | (167) | | | — | |
(1)Our interest rate swap outstanding during the year ended December 31, 2018 were $8.4 million and $0.2 million, respectively.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The fair value of derivative instruments as of December 31, 2017 were as follows: |
| | | | | | | | | |
| | Balance Sheet Location | | Asset Derivatives | | Liability Derivatives |
| Derivatives designated as cash flow hedging instruments: | | | | | |
| Forward contracts: | | | | | |
| Foreign currency exchange forward contracts | Other long-term liabilities | | $ | — |
| | $ | 2,118 |
|
| Purchased options: | | | | | |
| Foreign currency purchased option contracts | Prepaid and other current assets | | 1,024 |
| | — |
|
| Interest rate swap | | | | | |
| Interest rate swap | Prepaid and other current assets | | 220 |
| | — |
|
| Interest rate swap | Other long-term assets | | 407 |
| | — |
|
| Total derivatives designated as cash flow hedging instruments | | | $ | 1,651 |
| | $ | 2,118 |
|
| | | | | | |
| Derivatives not designated as cash flow hedging instruments: | | | | | |
| Forward contracts: | | | | | |
| Foreign currency exchange forward contracts | Prepaid and other current assets | | $ | 124 |
| | $ | — |
|
| Foreign currency exchange forward contracts | Accrued and other current liabilities | | — |
| | 806 |
|
| Foreign currency exchange forward contracts | Other long-term liabilities | | — |
| | 528 |
|
| Purchased options: | | | | | |
| Foreign currency purchased option contracts | Prepaid and other current assets | | 3 |
| | — |
|
| Foreign currency purchased option contracts | Other long-term liabilities | | 45 |
| | — |
|
| Total derivatives not designated as cash flow hedging instruments | | | $ | 172 |
| | $ | 1,334 |
|
Net gains included in other income (expense) related to the change of fair market value of derivative instruments not2019 was designated as a hedging instruments during the year ended December 31, 2017 were $0.2 million.instrument.
The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive income and the gains and losses recognized in earnings for the year ended December 31, 20182019 were as follows: |
| | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) in Other Comprehensive Income on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Effective Portion) | | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) | | Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) | | Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| Foreign currency exchange forward contracts | $ | 4,532 |
| | Product sales | | $ | — |
| | Product sales | | $ | 2,413 |
|
| Foreign currency exchange purchased option contracts | 749 |
| | Other revenue | | — |
| | Product sales | | (470 | ) |
| Interest rate swap | 374 |
| | Other income (expense) | | 231 |
| | Other income (expense) | | (13 | ) |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive income and the gains and losses recognized in earnings for the year ended December 31, 2017 were as follows: |
| | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) in Other Comprehensive Income on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Effective Portion) | | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) | | Location��of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) | | Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| Foreign currency exchange forward contracts | $ | (4,126 | ) | | Product sales | | $ | (15 | ) | | Other income (expense) | | $ | (1,237 | ) |
| Foreign currency exchange forward contracts | (1,411 | ) | | Other revenue | | — |
| | Other income (expense) | | (368 | ) |
| Interest rate swap | 74 |
| | Other income (expense) | | (221 | ) | | Other income (expense) | | 13 |
|
| | | | | | | | | | | | | | | | | |
| Amount of Gain (Loss) in Other Comprehensive Income on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Effective Portion) | | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) |
| (Recast) | | | | (Recast) |
| Interest rate swap | $ | (146) | | | Interest expense | | $ | 288 | |
We enter into master netting arrangements designed to permit net settlement of derivative transactions among the respective counterparties. If we had settled all transactions with our respective counterparties at December 31, 2018,2021, we would have madereceived a net settlement termination payment of $6.4$1.6 million, which differs insignificantlyby $0.2 million from the recorded fair value of the derivatives. We present our derivative assets and liabilities at their gross fair values.
The notional amounts of outstanding derivative instruments associated with outstanding or unsettled derivative instruments were as of follows as of December 31, 2018 were as follows:31:
| | | | | | | | | | | |
| | | 2020 |
| 2021 | | (Recast) |
| Foreign exchange forward contracts in GBP | £ | 57,500 | | | £ | 143,565 | |
| Foreign exchange purchased option contracts in GBP | £ | 7,275 | | | £ | 51,601 | |
| Foreign exchange forward contracts in EUR | € | 11,000 | | | € | 12,968 | |
| Interest rate swaps | $ | — | | | $ | 70,000 | |
|
| | | | | | | |
| | 2018 | | 2017 |
| Foreign exchange forward contracts in GBP | £ | 42,170 |
| | £ | 46,465 |
|
| Foreign exchange purchased option contracts in GBP | £ | 39,365 |
| | £ | 34,050 |
|
| Foreign exchange forward contracts in EUR | € | 14,300 |
| | € | 5,350 |
|
| Foreign exchange purchased option contracts in EUR | $ | 1,675 |
| | $ | — |
|
| Interest rate swap | $ | 39,829 |
| | $ | 44,756 |
|
(9)(11) Fair Value Measurements
The amounts reported in the consolidated balance sheets as cash and cash equivalents, restricted cash, accounts receivable, related-party receivables,other accounts receivable, prepaid expenses and other current assets, accounts payable, related-party payables, deferred consideration due to related-party and accrued and other current liabilities approximate fair value because of the short-term nature of these instruments.
Derivative instruments and long-term debt and capital lease obligations including the current portion are classified as Level 2 instruments. Derivatives are classified as Level 2 as they are fair valued using inputs that are observable in active markets such as benchmark interest rates and foreign exchange rates (see Note 10, Derivative Instruments). The fair value of our senior notes2026 Notes (see Note 12, 14, Long-Term Debt and CapitalFinance Lease Obligations – Senior Notes) was determined based on observable market prices in a lessan active market and was categorized as Level 2 in the fair value hierarchy. The fair value of other long-term debt and capital lease obligationsthe Seller Note is classified as Level 2 was determinedand is estimated on discounted cash flow analyses based on the usage of market prices not quoted onobservable inputs in active markets and other observable market data. The fair value of the long-term debt and capital lease obligations are based upon rates currently available for debt and capital lease obligations with similar terms and remaining maturities. The carrying amount of derivative instrumentsother long-term debt, which is primarily comprised of the senior secured revolving credit facility that resets based on a market rate, approximates fair value.
The carrying amount and estimated fair value of long-term debt and capital lease obligations as of December 31, 2018 and December 31, 2017 was as follows: |
| | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Senior notes | $ | 352,843 |
| | $ | 359,943 |
| | $ | 352,224 |
| | $ | 374,624 |
|
| Other long-term debt and capital lease obligations | 79,812 |
| | 79,812 |
| | 48,793 |
| | 48,793 |
|
| Total long-term debt and capital lease obligations | $ | 432,655 |
| | $ | 439,755 |
| | $ | 401,017 |
| | $ | 423,417 |
|
(10) Goodwill and Other Intangible Assets
Intangible Assets
Intangible assets consisted of the following at: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortization Period | | December 31, 2018 | | December 31, 2017 |
| | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Favorable customer contracts | 3 years | | $ | 8,700 |
| | $ | (8,700 | ) | | $ | — |
| | $ | 8,700 |
| | $ | (8,591 | ) | | $ | 109 |
|
| Wood pellet contract | 6 years | | 1,750 |
| | (1,750 | ) | | — |
| | 1,750 |
| | (1,750 | ) | | — |
|
| Total intangible assets | | | $ | 10,450 |
| | $ | (10,450 | ) | | $ | — |
| | $ | 10,450 |
| | $ | (10,341 | ) | | $ | 109 |
|
Intangible assets included favorable customer contracts acquired in connection with our purchase of Cottondale in January 2015. We also recorded payments made to acquire a six-year wood pellet off-take contract with a European utility in 2010 as an intangible asset. These costs were recoverable through and were closely related to the future revenue streams generated from the associated contract. We amortized the customer contract intangible assets as deliveries were completed during the respective contract terms. During the years ended December 31, 2018, 2017 and 2016, of $0.1 million, $1.3 million and $2.0 million, respectively, of amortization was included in cost of goods sold in the accompanying consolidated statements of income. As of December 31, 2018, our intangible assets were fully amortized.
Goodwill
Goodwill includes $80.7 million associated with the acquisition of Cottondale by the sponsor and its contribution to us in 2015 and $4.9 million from acquisitions in 2010.
(11) Assets Held for Sale and Dissolution
We formerly held a controlling interest in Wiggins. In December 2016, we initiated a plan to sell the Wiggins plant, which triggered an evaluation of a potential asset impairment. We reclassified the Wiggins plant assets to current assets held for sale and ceased depreciation. The carrying amount of the assets held for sale exceeded the estimated fair value which resulted in a $10.0 million non-cash charge to earnings, which is included in impairment of assets held for sale on the consolidated statements of income. In December 2017, we sold the Wiggins plant to a third-party buyer for a purchase price of $0.4 million and recorded a loss on the sale of $0.8 million, net, upon deconsolidation, consisting of a loss on the sale of $3.4 million and a $2.6 million gain upon deconsolidation, which is included in general and administrative expenses on the consolidated statements of income. In December 2017, Wiggins was dissolved.
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The carrying amount and estimated fair value of long-term debt were as follows as of December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 |
| | | | | Carrying Amount | | Fair Value |
| Carrying Amount | | Fair Value | | (Recast) | | (Recast) |
| 2026 Notes | $ | 747,399 | | | $ | 777,188 | | | $ | 746,875 | | | $ | 796,875 | |
| Seller Note | 36,442 | | | 38,284 | | | 37,571 | | | 40,405 | |
| Other long-term debt | 469,273 | | | 469,273 | | | 142,359 | | | 142,359 | |
| Total long-term debt | $ | 1,253,114 | | | $ | 1,284,745 | | | $ | 926,805 | | | $ | 979,639 | |
(12) Goodwill and Other Intangibles
Goodwill
Goodwill was $103.9 million and $99.7 million at December 31, 2021 and 2020, respectively. Goodwill includes $4.3 million recorded from an acquisition in 2021, $14.0 million recorded associated with the Georgia Biomass Acquisition in 2020, see Note 4, Acquisition, $80.7 million associated with the acquisition of Cottondale in 2015, and $4.9 million from acquisitions in 2010. We did not record any impairment losses during the years ended December 31, 2021, 2020, or 2019.
Intangibles
Intangible assets (liabilities) consisted of the following as of December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount
(Recast) | | Accumulated Amortization
(Recast) | | Net Carrying Amount
(Recast) |
| Favorable customer contracts | $ | 700 | | | $ | (225) | | | $ | 475 | | | $ | 6,200 | | | $ | (5,566) | | | $ | 634 | |
| Assembled workforce | 1,856 | | | (1,726) | | | 130 | | | 1,856 | | | (1,249) | | | 607 | |
| Unfavorable customer contract | (600) | | | 193 | | | (407) | | | (600) | | | 57 | | | (543) | |
| Unfavorable shipping contract | (6,300) | | | 1,648 | | | (4,652) | | | (6,300) | | | 485 | | | (5,815) | |
| Total intangible liabilities, net | $ | (4,344) | | | $ | (110) | | | $ | (4,454) | | | $ | 1,156 | | | $ | (6,273) | | | $ | (5,117) | |
As a result of the Georgia Biomass Acquisition, we recorded intangible assets and liabilities related to favorable off-take contracts that expired in 2020 or expire in December 2024, an unfavorable customer contract that expires in December 2024, and an unfavorable shipping contract that expires in December 2025. During the years ended December 31, 2021, 2020, and 2019 $(0.7) million, $5.5 million, and $0.7 million respectively, of net amortization was included in depreciation and amortization on the consolidated statements of operations.
The estimated aggregate net reduction of amortization expense for the next five years is as follows:
| | | | | |
| Year Ended December 31, | |
| 2022 | $ | 1,010 | |
| 2023 | 1,140 | |
| 2024 | 1,140 | |
| 2025 | 1,164 | |
| 2026 | — | |
| Total | $ | 4,454 | |
(13) Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following as of December 31:
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
| | | | | | | | | | | |
| | | 2020 |
| 2021 | | (Recast) |
| Accrued expenses - compensation and benefits | $ | 22,758 | | | $ | 25,568 | |
| Accrued expenses - wood pellet purchases and distribution costs | 34,819 | | | 50,648 | |
| Accrued expenses - operating costs and expenses | 55,463 | | | 28,805 | |
| Accrued capital expenditures | 21,791 | | | 22,802 | |
| Other accrued expenses and other current liabilities | 28,475 | | | 19,992 | |
| Accrued and other current liabilities | $ | 163,306 | | | $ | 147,815 | |
(12)
(14) Long-Term Debt and CapitalFinance Lease Obligations
Long-term debt and capitalfinance lease obligations at carrying value consisted of the following at December 31: | | | | | | | | | | | |
| | | 2020 |
| 2021 | | (Recast) |
| 2026 Notes, net of unamortized discount, premium and debt issuance of $2.6 million and $3.1 million as of December 31, 2021 and 2020, respectively | $ | 747,399 | | | $ | 746,875 | |
| Senior secured revolving credit facility | 466,000 | | | 120,000 | |
| Seller Note, net of unamortized discount of $1.1 million and $2.4 million as of December 31, 2021 and 2020, respectively | 36,442 | | | 37,571 | |
| Related-party note payable | — | | | 20,000 | |
| Other loans | 3,273 | | | 2,359 | |
| Finance leases | 18,432 | | | 21,244 | |
| Total long-term debt and finance lease obligations | 1,271,546 | | | 948,049 | |
| Less current portion of long-term debt, finance lease obligations, and related-party note payable | (39,105) | | | (34,551) | |
| Long-term debt and finance lease obligations, excluding current installments | $ | 1,232,441 | | | $ | 913,498 | |
|
| | | | | | | |
| | 2018 | | 2017 |
| Senior Notes, net of unamortized discount, premium and debt issuance of $2.2 million as of December 31, 2018 and $2.8 million as of December 31, 2017 | $ | 352,843 |
| | $ | 352,224 |
|
| Senior Secured Credit Facilities, Tranche A-1 Advances, net of unamortized discount and debt issuance costs of $0 as of December 31, 2018 and $1.0 million as of December 31, 2017 | — |
| | 39,263 |
|
| Senior Secured Credit Facilities, Tranche A-3 Advances, net of unamortized discount and debt issuance costs of $0 as of December 31, 2018 and $0.1 million as of December 31, 2017 | — |
| | 4,372 |
|
| Senior Secured Credit Facilities, revolving credit commitments | 73,000 |
| | — |
|
| Other loans | 2,015 |
| | 2,023 |
|
| Capital leases | 4,797 |
| | 3,135 |
|
| Total long-term debt and capital lease obligations | 432,655 |
| | 401,017 |
|
| Less current portion of long-term debt and capital lease obligations | (2,722 | ) | | (6,186 | ) |
| Long-term debt and capital lease obligations, excluding current installments | $ | 429,933 |
| | $ | 394,831 |
|
Senior Notes Due 2021
In November 2016, we and Enviva Partners Finance Corp. entered into an indenture, as amended or supplemented (the “Indenture”), pursuant to whichDecember 2019, we issued $300.0$600.0 million in aggregateprincipal amount of 6.5% senior unsecured notes due January 15, 2026 (the “2026 Notes”). We received gross proceeds of approximately $601.8 million from the 2026 Notes and net proceeds of approximately $595.8 million after deducting commissions and expenses. We used the net proceeds from the 2026 Notes to (1) redeem our existing $355.0 million principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior“2021 Notes”) to eligible purchasers in a private placement under Rule 144A and Regulation S, including payment of the Securities Actrelated redemption premium, (2) repay borrowings under our senior secured revolving credit facility, including payment of 1933, as amendedthe related accrued interest, and (3) for general purposes.
In July 2020, we issued an additional $150.0 million aggregate principal amount of the 2026 Notes at an offering price of 103.75% of the principal amount (the “Securities Act”“Additional Notes”). We received net proceeds of approximately $153.6 million from the Additional Notes offering after deducting discounts and commissions. We used the net proceeds from the Additional Notes offering to fund a portion of the cash consideration for the third-party member of the Development JV’s indirect interest in Enviva Pellets Greenwood Holdings II, LLC (“Greenwood”), and the Georgia Biomass Acquisition, to repay borrowings under our senior secured revolving credit facility and for general purposes.
Interest payments are due semi-annually in arrears on May 1January 15 and November 1. In August 2017, holdersJuly 15 of 100%each year, commencing July 15, 2020. During 2020, we recorded $2.7 million of the Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the Senior Notes (except that the registered notes are not subject to restrictions on transfer). We recorded $6.4 million in issue discounts andpremium offset by debt issuance costs associated with the issuance of the Senior Notes, which have been recorded as a deduction to long-term debt and capital leaseobligations.Additional Notes.
We used $139.6 million of the net proceeds from the Senior Notes, together with cash on hand, to pay a portion of the purchase price for the Sampson Drop-Down and $159.8 million to repay borrowings, including accrued interest, under the senior secured credit facilities.
In October 2017, we issued an additional $55.0 million in aggregate principal amount of Senior Notes at 106.25% of par value. Theadditional Senior Noteshave the same terms as the Senior Notes. We received proceeds of approximately $60.0 million, which were used to repay borrowings under our revolving credit commitments under the senior secured credit facilities, which were used to fund the Wilmington Drop-Down, and for general partnership purposes. In December 2017, the holder tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the Senior Notes (except that the registered notes are not subject to restrictions on transfer). Such additional notes will be treated together with the Senior Notes as a single class for all purposes under the Indenture. We recorded $0.9 million in original issue discounts and costs and $3.4 million in premiums associated with the issuance of the additional Senior Notes, which have been recorded as a net addition to long-term debt and capital lease obligations.
We may redeem all or a portion of the Senior2026 Notes at any time at the applicable redemption prices (expressed as percentages of principal amount),price, plus accrued and unpaid interest, if any, on the Senior Notes redeemed to the applicable redemption date (subject(subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), if redeemed during and, in some cases, plus a make-whole premium.
As of December 31, 2021 and 2020, we were in compliance with the twelve-month period beginning November 1 oncovenants and restrictions associated with, and no events of default existed under, the years indicated below:indenture dated as of December 9, 2019 governing the 2026 Notes. The 2026 Notes are
|
| | | |
| Year: | | Percentages |
| 2019 | | 102.125 | % |
| 2020 | | 100.000 | % |
| 2021 and thereafter | | 100.000 | % |
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The Senior Notes contain certain non-financial covenants applicable to us including, but not limited to (1) restricted payments, (2) incurrenceguaranteed jointly and severally on a senior unsecured basis by most of indebtednessour existing subsidiaries and issuance of preferred securities, (3) liens, (4) dividend and other payment restrictions affecting subsidiaries, (5) merger, consolidation or sale of assets, (6) transactions with affiliates, (7) designation of restricted and unrestricted subsidiaries, (8) additional subsidiary guarantees, (9) business activities and (10) reporting obligations.
As of December 31, 2018 and 2017, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the Indenture. Our obligations under the Indenture aremay be guaranteed by certain of our subsidiaries and secured by liens on substantiallyfuture restricted subsidiaries.
2021 Notes
In December 2019, we redeemed all $355.0 million of our assets.
Senior Secured Credit Facilities
During 2015, we entered into credit agreements providing for $236.0 million aggregate principal amount of senior secured credit facilities. In addition, in 2015, Enviva FiberCo, LLC (“FiberCo”),2021 Notes and recognized a wholly owned subsidiary of our sponsor, purchased $15.0 million aggregate principal amount of borrowings thereunder, net of a 1.0% lender fee. In June 2016, FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. We recorded $0.4 million as related-party interest expense to this indebtedness during the year ended December 31, 2016.
In October 2016, we entered into an amendment to our credit agreement providing for an increase from $25.0 million to $100.0 million of the revolving credit commitments under the senior secured credit facilities effective upon the acquisition of Sampson.
In December 2016, proceeds from the Senior Notes were used to repay outstanding indebtedness, including accrued interest of $159.9 million under the senior secured credit facilities. For the year ended December 31, 2016, we recorded a $4.4$9.0 million loss on the early retirement of debt obligation related toconsisting of a $7.5 million debt redemption premium and $1.5 million for the repayments.write-off of unamortized debt issuance costs, original issue discount and premium. The amounts were amortized over the term of the 2021 Notes and were expensed in December 2019 when we repaid $355.0 million of aggregate principal amount of the 2021 Notes. The 2021 Notes early redemption was funded from the issuance of the 2026 Notes.
The senior secured credit facilities originally matured in April 2020. Borrowings under the senior secured credit facilities bore interest, at our option, at either a base rate plus an applicable margin or at a Eurodollar rate (with a 1.00% floor for term loan borrowings) plus an applicable margin. Principal and interest were payable quarterly. A commitment fee was payable on undrawn revolving credit facility commitments of 0.50% per annum (subject to a stepdown of 0.375% per annum if the Total Leverage Ratio was less than or equal to 2.00:1.00).Senior Secured Revolving Credit Facility
Letters of credit issued under the senior secured credit facilities were subject to a fee calculated at the applicable margin for revolving credit facility Eurodollar rate borrowings. We had a $4.0 million letter of credit outstanding underIn December 2021, we amended our senior secured revolving credit facilities as of December 31, 2017. The letter of credit was issued in connection with a contract between us and a third party, in the ordinary course of business. In January 2018, the letter of credit was canceled as it was no longer contractually required.
We amended our credit agreement in September 2018 to increase the maximum allowable ratio of total debt to consolidated EBITDA (the “Total Leverage Ratio”) to 4.75:1.00 as of the end of each quarter prior to maturity. Prior to the amendment, the Total Leverage Ratio was 4.00:1.00 and was scheduled to decrease to 3.75:1.00 beginning with the quarter ending December 31, 2018 through maturity.
In October 2018, we amended our credit agreementfacility to increase the revolving credit commitments underfrom $525.0 million to $570.0 million and to permit the issuance of commercial letters of credit. In April 2021, we amended our senior secured revolving credit facilitiesfacility to increase the revolving credit commitments from $100.0$350.0 million to $350.0$525.0 million, andto extend the maturity from October 2023 to April 20202026, to October 2023. We used $41.2increase the letter of credit commitment from $50.0 million to $80.0 million, and to reduce the cost of the new revolving credit commitments to fully repay our outstanding term loan borrowings under the senior secured credit facilities. We recorded a $0.8 million loss on early retirement of debt obligation related to such repayment for the year ended December 31, 2018.borrowing by 25 basis points.
The credit agreement matures on the earlier to occur of (1) October 18, 2023 or (2) such date where the sum of our cash and cash equivalents and borrowing capacityBorrowings under the revolving credit commitments under the senior secured credit facilities is less than the sum of the amount of the Senior Notes then outstanding and $50.0 million during the 91-day period prior to and including November 1, 2021 (the maturity date of the Senior Notes), the first day of that period on which such liquidity deficiency occurs. Borrowings under the revolving credit commitmentsthereunder bear interest, at our option, at either a Eurodollar rate or at a base rate, in each case, plus an applicable margin. The applicable margin will fluctuate between 1.75%1.50% per annum and 3.00%2.75% per annum, in the case of Eurodollar rate borrowings, or between 0.75%0.50% per annum and 2.00%1.75% per annum, in the case of
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
base rate loans, in each case, based uponon our Total Leverage Ratio (as defined in our credit agreement) at such time, with 25 basis point increases or decreases for each 0.50 increase or decrease in theour Total Leverage Ratio from 2.75:1:00 to 4.75:1:00.
We are required to pay a commitment fee on the daily unused amount under the revolving credit commitments at a rate between 0.25% and 0.50% per annum. Amounts paid were not material.
As ofDuring the years ended December 31, 2018,2021, 2020 and 2019, commitment fees were $0.8 million, $0.9 million and $0.8 million, respectively.
At December 31, 2021 and 2020, we had $73.0$466.0 million and $120.0 million, respectively, in revolvingoutstanding borrowings under our senior secured revolving credit facilities. We did not have any revolving borrowings thereunder as offacility.
At December 31, 2017.2021 and 2020, we had $4.2 million and $0.3 million, respectively, of letters of credit outstanding under our senior secured revolving credit facility.
The credit agreement contains certain covenants, restrictions and events of default including, but not limited to, a change of control restriction and limitations on our ability to (1) incur indebtedness, (2) pay dividends or make other distributions, (3) prepay, redeem or repurchase certain debt, (4) make loans and investments, (5) sell assets, (6) incur liens, (7) enter into transactions with affiliates, (8) consolidate or merge, and (9) assign certain material contracts to third parties or unrestricted subsidiaries. Moreover, the credit agreement requires usdefault. We are required to maintain (i)(1) a maximum Total Leverage Ratio at or below 4.755.00 to 1.00 (or 5.005.25 to 1.00 during a Material Transaction Period, as defined in the credit agreement)Period) and (2) a minimum Interest Coverage Ratio (each as(as defined in theour credit agreement), of not less than 2.25 to 1.00.
As of December 31, 20182021 and 2017,2020, we were in compliance with all covenants and restrictions associated with, and no events of defaultsdefault existed under, our senior secured revolving credit agreement.facility. Our obligations under the senior secured revolving credit facilitiesfacility are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our assets; however, the senior secured revolving credit facility is not guaranteed by the Hamlet JV or Enviva Pellets Epes, LLC, or secured by liens on their assets.
Related-Party Notes PayableSeller Note
We are a party to, and a guarantor of, a promissory note (the “Seller Note”) with a remaining principal balance of $37.5 million. The Seller Note matures in February 2023 and has an interest rate of 2.5% per annum. Principal and related interest payments are due annually through February 2022 and quarterly thereafter.
Senior Secured Green Term Loan Facility
In January 2016,February 2021, our former sponsor entered into a non-controllingsenior secured green term loan facility (the “Green Term Loan”) providing for $325.0 million principal amount, maturing in February 2026. Interest was priced LIBOR plus 5.50% with a LIBOR floor of 1.00%. Interest was payable in arrears at the end of each interest holder in Wiggins becameperiod and on the holdermaturity date. Subject to our former sponsor’s election, interest periods of a $3.3 million construction loan and working capital line. Related-party interest expense associated with the related-party notes payable was insignificant during the year ended December 31, 2016. The outstanding principalone, two, three, or six months. Our former sponsor received gross proceeds of the construction loan and working capital line of $3.1 million and an insignificant amount of accrued interest were repaid in full by Wiggins at maturity in October 2016.
Debt Issuance Costs and Original Issue Discounts and Premium
Unamortized debt issuance costs, original issue discounts and premium included in long-term debt at December 31, 2018 and 2017, were $2.2 million and $3.9 million, respectively. Unamortized debt issuance costs associated with revolving credit facilities included in long-term assets was $2.5 million at December 31, 2018. There were no unamortized debt issuance costs associated with revolving credit facilities included in long-term assets at December 31, 2017. Amortization expense included in interest expense for the years ended December 31, 2018, 2017 and 2016 was $1.1 million, $1.4 million and $1.9 million, respectively.
Debt Maturities
The aggregate maturities of long-term debt and capital lease obligations, net of unamortized discount and debt issuance costs, are as follows:$325.0
|
| | | |
| Year Ended December 31, | |
| 2019 | $ | 2,098 |
|
| 2020 | 2,766 |
|
| 2021 | 354,788 |
|
| 2022 | 3 |
|
| 2023 | 73,000 |
|
| Total long-term debt and capital lease obligations | $ | 432,655 |
|
Depreciation expense relating to assets held under capital lease obligations was $1.8 million, $0.7 million and $0.2 million for each of the years ended December 31, 2018, 2017 and 2016, respectively.
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(13) million and net proceeds of approximately $317.2 million after deducting original issue discount, commissions, and expenses. Our former sponsor used the net proceeds (1) to purchase the Development JV third-party member’s interest in the Development JV, (2) to repay the Riverstone Loan (see Note 15, Related-Party Transactions), (3) to fund capital expenditure and liquidity reserve cash accounts, and (4) for general purposes. During 2021, our former sponsor repaid $338.7 million of principal amount plus accrued interest. The Green Term Loan was repaid in full during 2021 and no further borrowings are available under the facility.
Related-party amountsDebt Issuance Costs and Premium
Unamortized debt issuance costs and premium included onin long-term debt at December 31, 2021 and 2020 were $3.7 million and $5.5 million, respectively. Unamortized debt issuance costs associated with the consolidated statements of income were the followingsenior secured revolving credit facility included in long-term assets was $2.8 million and $1.5 million at December 31, 2021 and 2020, respectively. Amortization expense included in interest expense for each of the years ended December 31:31, 2021, 2020, and 2019 was $3.9 million, $2.6 million, and $2.6 million, respectively.
Debt Maturities
Our long-term debt matures through 2026 and our finance lease obligations have maturity dates of between 2021 and 2031. The aggregate maturities of long-term debt and finance lease obligations as of December 31, 2021 are as follows:
| | | | | | | | |
| Year Ending December 31: | | |
| 2022 | | $ | 39,105 | |
| 2023 | | 13,461 | |
| 2024 | | 1,973 | |
| 2025 | | 1,581 | |
| 2026 and thereafter | | 1,219,085 | |
| Long-term debt and finance lease obligations | | 1,275,205 | |
| Unamortized premium and debt issuance costs | | (3,659) | |
| Total long-term debt and finance lease obligations | | $ | 1,271,546 | |
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Other revenue | $ | 3,545 |
| | $ | 5,912 |
| | $ | — |
|
| Cost of goods sold | 84,148 |
| | 69,445 |
| | 41,467 |
|
| General and administrative expenses | 17,096 |
| | 15,132 |
| | 17,236 |
|
Management Services Agreement
We are party to a Management Services AgreementRiverstone/Carlyle Renewable and Alternative Energy Fund II, L.P. and certain affiliated entities (the “MSA”) with Enviva Management (the “Provider”“Riverstone Funds”), which expires in April 2020. Underwere the MSA,sole members of our former general partner. On July 22, 2020, Holdings was recapitalized (the “Recapitalization”) and Riverstone Echo Continuation Holdings, L.P. (the “Continuation Fund”) and Riverstone Echo Rollover Holdings, L.P. (the “Rollover Fund”) became the Provider provides us with operations, general administrative, management and other services (the “Services”). Under the MSA, we are required to reimburse the Provider the amount of all direct or indirect internal or third-party expenses incurred by the Provider in connection with the provisionsole members of the Services, including, without limitation: (1)general partner of our former sponsor.
Our former sponsor incurred an annual monitoring fee, which was paid quarterly to the portionRiverstone Funds, equal to 0.4% of the salary and benefitsaverage value of the employees engaged in providingRiverstone Funds’ capital contributions to our former sponsor during each fiscal quarter. We incurred $1.1 million, $1.2 million and $1.1 million of monitoring fee expense during the Services reasonably allocable to us; (2) the charges and expenses of any third party retained to provide any portion of the Services; (3) office rent and expenses and other overhead costs incurred in connection with, or reasonably allocable to, providing the Services; (4) amounts related to the payment of taxes related to the business of the Service Recipients; and (5) costs and expenses incurred in connection with the formation, capitalization, business or other activities of the Provider pursuant to the MSA. We believe the Provider’s assumptions and allocations have been made on a reasonable basis and are the best estimate of the costs that we would have incurred on a stand-alone basis.
Direct or indirect internal or third-party expenses incurred are either directly identifiable or allocated to us by the Provider. The Provider estimates the percentage of salary, benefits, third-party costs, office rent and expenses and any other overhead costs incurred by the Provider associated with the Services to be provided to us. Each month, the Provider allocates the actual costs incurred using these estimates. The Provider also charges us for any directly identifiable costs such as goods or services provided at the Partnership’s request.
During the yearyears ended December 31, 2018, $52.3 million, related to the MSA was included in cost of goods sold2021, 2020 and $17.1 million was included in general and administrative expenses on the consolidated statements of income. At December 31, 2018, $1.2 million incurred under the MSA2019, respectively, which is included in finished goods inventory.
During the year ended December 31, 2017, $49.9 million, related to the MSA is included in cost of goods soldselling, general, administrative, and $15.1 million was included in general and administrative expenses on the consolidated statements of income. At December 31, 2017, $0.5 million incurred under the MSA is included in finished goods inventory.
During the year ended December 31, 2016, $37.9 million, related to the MSA was included in cost of goods sold and $17.2 million was included in general and administrative expenses on the consolidated statements of income.
development expenses. As of December 31, 20182021 and 2017,2020, we had $19.0an insignificant amount and $0.5 million and $19.6 million, respectively,payable related to related-party monitoring fee expense included in related-party payables relatedaccrued and other current liabilities. The monitoring fee was terminated on the date of the Simplification Transaction.
In November 2020, our former sponsor entered into a promissory note with the Continuation Fund and the Rollover Fund for principal amount of $20.0 million (the “Riverstone Loan”). The proceeds of the Riverstone Loan were used (1) to fund a capital call of $15.0 million to the MSA.Development JV, (2) to purchase a project site in the amount of $2.6 million to develop a wood pellet production plant in Epes, Alabama, and (3) for general purposes. In February 2021, our former sponsor repaid $20.1 million of principal amount plus accrued interest.
Common Control Transactions
Sampson Drop-Down
On DecemberOctober 14, 2016, the First Hancock JV contributed to Enviva, LP all2021, our former sponsor distributed 13.6 million common units of the Partnership to the Riverstone Funds. As part of the 16.0 million common units issued and outstanding limited liability company interests in Sampsonexchange for total considerationthe Simplification Transaction, 14.1 million were issued to the Riverstone Funds. The Riverstone Funds have agreed to reinvest in our common stock all dividends from 8.7 million of $175.0 million (see Note 1, Description of Business and Basis of Presentation).
Wilmington Drop-Downthe 14.1
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
In October 2017, we purchased allmillion common units issued in connection with the Simplification Transaction for the dividends paid for the period beginning with the third quarter of 2021 through the fourth quarter of 2024. On the date of the issued and outstanding limited liability company interests in Wilmington for total consideration of $130.0Simplification Transaction, the Riverstone Funds held 27.7 million (the “Wilmington Drop-Down”) (see Note 1, Description of Business and Basis of Presentation). The purchase price for the Wilmington Drop-Down included $74.0 million of deferred consideration and is included as deferred consideration for Wilmington Drop-Down due to related-party on the consolidated balance sheet as of December 31, 2018.
Pursuant to the Wilmington Drop-Down agreement, Wilmington will enter into a long-term terminal services agreement (the “Wilmington Hamlet TSA”) with the First Hancock JV and Enviva Pellets Hamlet, LLC (“Hamlet”) to receive, store and load wood pellets from the First Hancock JV’s production plant in Hamlet, North Carolina (the “Hamlet plant”) when the First Hancock JV completes construction of the Hamlet plant. The Wilmington Hamlet TSA provides for deficiency payments to Wilmington if minimum throughput requirements are not met. Following notice of the anticipated first delivery of wood pellets to the Wilmington terminal from the Hamlet plant, we will enter into the Wilmington Hamlet TSA and make the deferred consideration payment of $74.0 million in cash and/or common units to the First Hancock JV, subject to certain conditions. At December 31, 2018, the $74.0 million was included in related-party payables and at December 31, 2017, was included in related-party long-term payable, on the consolidated balance sheets.
Related-Party Indemnificationunits.
In connection with the Sampson Drop-DownSimplification Transaction, our existing management fee waivers and the Wilmington Drop-Down, the First Hancock JV agreedother former sponsor support agreements associated with our earlier common control acquisitions were consolidated, fixed, and novated to indemnify us, our affiliates, and our respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Sampson plant andformer owners of our former sponsor. As a result, under the Wilmington terminal that were includedconsolidated support agreement, we will receive quarterly payments in the net assets we acquired.
We recorded a related-party receivable from the First Hancock JV of $6.4 million for reimbursement of indemnifiable amounts related to the Sampson Drop-Down. At December 31, 2018 and December 31, 2017, the related-party receivable associated with such amounts was $0.3 million and $3.0 million, respectively.
We recorded a related-party receivable from the First Hancock JV of $1.8 million for reimbursement of indemnifiable amounts related to the Wilmington Drop-Down. At December 31, 2018, the related-party receivable associated with such amounts was insignificant. As of December 31, 2017, the related-party receivable associated with such amounts was $1.3 million.
Sampson Construction Payments
Pursuant to payment agreements between us and the First Hancock JV, the First Hancock JV agreed to pay an aggregate amount of $2.9$55.5 million with respect to us in consideration for costs incurred by us to repair or replace certain equipment atperiods through the Sampson plant following the consummationfourth quarter of 2023.
(16) Income Taxes
As a result of the Sampson Drop-Down. AsConversion, Enviva became subject to U.S. federal, foreign, and state, and local corporate income tax.
In the Conversion, Enviva recognized a step-up in the tax basis of certain assets that will be recovered as the assets are sold or the basis is amortized. The calculation and allocation of the step-up in tax basis to the various assets of the Company was determined by management with the assistance of a third-party specialist. The basis information used was based on an estimate of the basis in Enviva Inc. as of December 31, 2018, $2.9 million has been received2021. Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and no further amountstax bases of assets and liabilities and are outstanding.
Greenwood Contract
In February 2018, we entered into a contract with Greenwoodmeasured using the applicable enacted tax rates and laws that will be in effect when such differences are expected to purchase wood pellets produced byreverse. The final amount of the Greenwood plant through March 2022step-up in tax basis may differ as basis information, including the partnerships’ tax basis in underlying assets and have a take-or-pay obligation with respect to 550,000 MTPYliabilities based on 2021 tax return information, becomes available and is finalized. Enviva assessed the realizability of wood pellets (prorated for partial contract years) beginning in mid-2019 (the “Greenwood contract”the deferred tax assets (“DTAs”) and subjectconcluded that a full valuation allowance for the net DTAs is deemed appropriate as the DTAs were not more likely than not to Greenwood’s optionbe realized under relevant accounting standards. On the date of the Conversion, we recorded an estimated net deferred tax asset of $142.8 million relating to increase or decrease the volume by 10% each contract year.Conversion with a full valuation allowance, resulting in a net zero deferred tax benefit for the deferred taxes relating to the Conversion.
DuringEnviva included income tax benefit of $17.0 million in the consolidated statement of operations for the year ended December 31, 2018, we purchased $26.7 million, net of $0.7 million cost to cover deficiency fees, of wood pellets from Greenwood, of which $26.2 million is included in cost of goods sold and $0.5 million is included in finished goods inventory. As of December 31, 2018, $7.9 million is included in related-party payables2021 as it related to our wood pellet purchases from Greenwood. We did not purchase wood pellets from Greenwood during the activities of corporate subsidiaries and Conversion to corporation. For tax years ended December 31, 20172020 and 2016.2019, we recorded income tax expense of $0.2 million and income tax benefit of $2.0 million.
Holdings TSALoss before income taxes consists of the following:
Pursuant to the Holdings TSA, the sponsor agreed to deliver a minimum of 125,000 MT of wood pellets per quarter for receipt, storage, handling and loading services by the Wilmington terminal and pay a fixed fee on a per-ton basis for such | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| 2021 | | (Recast) | | (Recast) |
| U.S. | $ | (162,246) | | | $ | (106,155) | | | $ | (136,916) | |
| Foreign | 421 | | | 81 | | | 54 | |
| Net loss not subject to federal income tax | 145,040 | | | 102,603 | | | 129,288 | |
| Loss before income tax | $ | (16,785) | | | $ | (3,471) | | | $ | (7,574) | |
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Components of the income tax provision applicable to our federal, state and foreign taxes are as follows:
| | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| 2021 | | (Recast) | | (Recast) |
| Current income tax expense : | | | | | |
| Federal | $ | 4,593 | | | $ | — | | | $ | — | |
| State | 5 | | | — | | | 1 | |
| Foreign | 55 | | | 86 | | | 42 | |
| Total current income tax expense | $ | 4,653 | | | $ | 86 | | | $ | 43 | |
| Deferred income tax (benefit) expense: | | | | | |
| Federal | $ | (21,570) | | | $ | 82 | | | $ | (1,996) | |
| State | (58) | | | 1 | | | (1) | |
| Total deferred income tax (benefit) expense | $ | (21,628) | | | $ | 83 | | | $ | (1,997) | |
| Total income tax (benefit) expense | $ | (16,975) | | | $ | 169 | | | $ | (1,954) | |
The effective income tax rate from continuing operations varies from the U.S. Federal statutory rate principally due to the following:
| | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| 2021 | | (Recast) | | (Recast) |
| Income tax (benefit) expense at statutory federal income tax rate | $ | (34,072) | | | $ | (22,293) | | | $ | (28,752) | |
| Increase (decrease) in income taxes resulting from: | | | | | |
| Partnership earnings not subject to tax | 30,547 | | | 21,564 | | | 27,162 | |
| Recognition/derecognition of deferred tax | (155,980) | | | — | | | — | |
| Valuation allowance | 142,822 | | | — | | | — | |
| Other | (292) | | | 898 | | | (364) | |
| Total income tax (benefit) expense | $ | (16,975) | | | $ | 169 | | | $ | (1,954) | |
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
terminal services. The Holdings TSA remains in effect until September 1, 2026. During the years endedSignificant components of deferred tax assets and liabilities as of December 31, 2018 and 2017, we recorded $0.8 million and $2.8 million, respectively,2021 are as terminal services revenue from the sponsor, which is included in other revenue. The Partnership had no terminal services revenue under the Holdings TSA during the year ended 2016.follows:
In February 2018, the sponsor amended and assigned the Holdings TSA to Greenwood. Deficiency payments are due to Wilmington if quarterly minimum throughput requirements are not met. During the year ended | | | | | | | | | | | |
| | | 2020 |
| 2021 | | (Recast) |
| Deferred tax assets: | | | |
| Federal net operating loss carryforward | $ | 1,033 | | | $ | 9,730 | |
| Accrued bonus and other accrued liabilities | 2,874 | | | — | |
| Operating lease liabilities | 27,906 | | | — | |
| Mark to market derivatives | 391 | | | — | |
| Equity based compensation | 10,681 | | | — | |
| Property, plant and equipment | 122,988 | | | — | |
| Interest expense limitation | — | | | 2,328 | |
| Intangibles | 953 | | | — | |
| Total deferred tax assets | $ | 166,826 | | | $ | 12,058 | |
| Deferred tax liabilities: | | | |
| Prepaids | $ | (548) | | | $ | — | |
| Operating lease right-of-use assets | (23,286) | | | — | |
| Investment in affiliates | — | | | (35,202) | |
| Other | (206) | | | (36) | |
| Total deferred tax liabilities | (24,040) | | | (35,238) | |
| Valuation allowance | (142,822) | | | (2,038) | |
| Net deferred tax liability net valuation allowance | $ | (36) | | | $ | (25,218) | |
As of December 31, 2018,2021, we recorded $2.2have federal net operating loss carryforwards of approximately $4.8 million, out of deficiency fees from Greenwood, which is included$3.6 million will expire in other revenue. We did not have any deficiency fees from Greenwood for the years ended December 31, 2017 and 2016.
In September 2018, Hurricane Florence impacted the rail line on which wood pellets are typically transported from the Greenwood plant2034 to the Wilmington terminal. As a result, Greenwood was unable to satisfy certain commitments under the Holdings TSA and the Greenwood contract and agreed to pay $1.8 million to us as deficiency fees in consideration of these commitments. Consideration of $0.5 million related to the Holdings TSA was included in other revenue and $1.3 million related to the Greenwood contract was included as a reduction of cost of goods sold during the year ended December 31, 2018.
Enviva FiberCo, LLC
We purchase raw materials from Enviva FiberCo, LLC, a wholly owned subsidiary of our sponsor. Such raw material purchases during the years ended December 31, 2018, 2017 and 2016 were $7.1 million, $8.5 million and $3.7 million respectively.
Biomass Purchase Agreement – Hancock JV
In September 2016, Sampson entered into a confirmation under a master biomass purchase and sale agreement between Enviva, LP and the First Hancock JV pursuant to which Sampson agreed to sell to the sponsor 60,000 MT of wood pellets through August 31, 2017. On June 23, 2017, the sponsor satisfied its take-or-pay obligation under the agreement with a $2.7 million payment to us, which is included in other revenue.
Biomass Option Agreement – Enviva Holdings, LP
In February 2017, Enviva, LP entered into an agreement and a confirmation thereunder with the sponsor (together, as amended, the “Option Contract”), pursuant to which Enviva, LP had the option to purchase certain volumes of wood pellets from the sponsor and the sponsor had a corresponding right to re-purchase volumes purchased by Enviva, LP.
During the years ended December 31, 2018 and 2017, Enviva, LP purchased $1.7 million and $11.1 million, respectively, of wood pellets from the sponsor. We did not purchase wood pellets from the sponsor during the year ended December 31, 2016. The Option Contract terminated in accordance with its terms in March 2018.
EVA-MGT Contracts
In January 2016, we entered into a contract (the “EVA‑MGT Contract”) with the First Hancock JV to supply 375,000 MTPY of wood pellets to MGT Teesside Limited’s Tees Renewable Energy Plant (the “Tees REP”), which is under development. As amended, the EVA‑MGT Contract commences in 2019, ramps to full supply in 2021 and continues through 2034. The EVA-MGT Contract is denominated in U.S. Dollars for commissioning volumes in 2019 and in GBP thereafter.
We entered into a second supply agreement with the First Hancock JV in connection with the Sampson Drop‑Down to supply an additional 95,000 MTPY of the contracted volume to the Tees REP. The contract, which is denominated in GBP, commences in 2020 and continues through 2034.
Long-Term Incentive Plan Vesting
During the year ended December 31, 2018, we paid $6.9 million to the General Partner for the purchase of common units from the sponsor, and the satisfaction of related tax withholding obligations of the Provider for which we are responsible under the MSA, in connection with the vesting and settlement of performance-based phantom unit awards granted under the LTIP.
(14) Income Taxes
The Partnership and its operating subsidiaries are organized as limited partnerships and entities that are disregarded entities for federal and state income tax purposes. As a result, we are not subject to U.S. federal and most state income taxes. The partners and unitholders of the Partnership are liable for these income taxes on their share of our taxable income. Some states impose franchise and capital taxes on the Partnership. Such taxes are not material to the consolidated financial statements and have been included in other income (expense) as incurred.2036.
For calendar year 2018,2021, the only periods subject to examination for U.S. federal and state income tax returns are 20162018 through 2018.2020. We believe our income tax filing positions, including our previous status as a pass-through entity, would be sustained on audit and we do not anticipate any adjustments that would result in a material change to our consolidated balance sheet. Therefore, no reserves for uncertain tax positions noror interest and penalties have been recorded. Forrecorded during the years ended December 31, 20182021, 2020, and 2017, no provision for federal2019.
Assessing whether deferred tax assets are realizable requires significant judgement. Enviva considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent that Enviva believes it is more likely than not that all or statesome portion of the asset will not be realized, valuation allowances are established against any deferred tax assets, which increases income taxes has been recordedtax expense in the consolidated financial statements.
Our consolidated financial statements includeperiod when such a determination is made. Enviva Finance Corp., which isassessed the realizability of the DTAs and concluded that a wholly owned C-corporation that was formedfull valuation allowance for the purposenet DTAs is deemed appropriate as the DTAs were not more likely than not to be realized under relevant accounting standards.
The Company conducts its foreign operations through foreign taxable entities and is therefore subject to foreign income taxes. The Company generally has minimal foreign current and deferred income tax expense.
(17) Equity
Conversion
As a result of being the co-issuer of our Senior Notes. There were no activities generated byConversion, periods prior to December 31, 2021 reflect Enviva Finance Corp. during 2018 and 2017, as a result, no provisionlimited partnership, not a corporation. References to common units for federal or state income taxes has been recorded in the consolidated financial statements.
(15) Partners’ Capital
Common and Subordinated Units - Sponsor
In January 2018, the sponsor soldperiods prior to the General Partner 81,708Conversion refer to common units which were usedof Enviva Partners, LP, and references to satisfy our obligationcommon stock for periods following the Conversion refer to settle vested performance-based phantom unit awards granted under the LTIP. On May 9, 2018, the sponsor sold to third parties all of the 1,265,453 common units held by the sponsor on such date. All of our subordinated units, which were previously held by the sponsor, converted into common units on a one-for-one basis at the end of the subordination period on May 30, 2018. As of December 31, 2018, 11,905,138 common units were held by the sponsor.
Allocations of Net Income (Loss)
Net income (loss) is allocated among the partners of the Partnership in accordance with their respective ownership interest percentages after giving effect, where applicable, to priority income allocations in an amount equal to incentive cash distributions, 100% of which are paid to the General Partner.
Incentive Distribution Rights
Incentive distribution rights (“IDRs”) represent the right to receive increasing percentages (from 15.0% to 50.0%) of quarterly distributions from operating surplus after distributions in amounts exceeding specified target distribution levels have been achieved by the Partnership. The General Partner currently holds the IDRs, but may transfer these rights at any time.
At-the-Market Offering Program
Pursuant to an equity distribution agreement dated August 8, 2016, we may offer and sell common units from time to time through a group of managers, subject to the terms and conditions set forth in such agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).
During the year ended December 31, 2018, we sold 8,408 common units under the ATM Program for net proceeds of $0.2 million, net of an insignificant amount of commissions. During the year ended December 31, 2017, we sold 71,368 common units under the ATM Program for net proceeds of $1.9 million, net of $0.1 million of commissions. Accounting and other fees of approximately $0.2 million were offset against the proceeds during the year ended December 31, 2017. We had no accounting and other fees associated with the ATM Program during the year ended December 31, 2018. Net proceeds from sales under the ATM Program were used for general partnership purposes.
Sampson Drop-Down
As partial consideration for the Sampson Drop-Down, we issued 1,098,415 unregistered common units at a price of $27.31 per unit, or $30.0 millionshares of common units, to John Hancock and certainstock of its affiliates.Enviva Inc.
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
On the date of the Conversion, each common unit representing a limited partner interest in the Partnership issued and outstanding immediately prior to the Conversion was exchanged for one share of common stock of the Company, par value $0.001 per share.
Cash DistributionsSimplification Transaction
On October 14, 2021, the Partnership closed on the Simplification Transaction where (a) the Company acquired (i) all of the limited partner interests in our former sponsor and (ii) all of the limited liability company interests in the former GP, and (b) the incentive distribution rights directly held by our former sponsor were cancelled and eliminated. In exchange, the Partnership issued 16.0 million common units, which were distributed to Unitholders
the owners of our former sponsor. The partnershipowners of our former sponsor agreed to reinvest in our common stock all dividends from 9.0 million of the 16.0 million common units issued in connection with the Simplification Transaction during the period beginning with dividends paid for the third quarter of 2021 through the fourth quarter of 2024. Under a consolidated support agreement, sets forth the calculationwe are entitled to be used to determine thereceive quarterly payments (the “Support Payments”) in an aggregate amount of cash distributions that our unitholdersup to $55.5 million with respect to periods from the fourth quarter of 2021 through the first quarter of 2024. See “Noncontrolling Interests – Enviva Partners” below about the capital of the Partnership.
Recapitalization
On the date of the Recapitalization and as of December 31, 2020, the sponsor will receive.
Distributions that have been paidcapital of Holdings consisted of a general partner interest and limited partner interests. The general partner interest was a non-economic, management interest. The general partner was granted full and complete power and authority to manage and conduct the business and affairs of Holdings and to take all such actions as it deemed necessary or declared relatedappropriate to accomplish the purpose of Holdings. The limited partner interests were divided into two series of units, Series A units and Series B units. The limited partner interests of Series A, B and D units issued and outstanding immediately prior to the reporting period are considered inRecapitalization were bought out by holders who received new Series A units, which were issued and outstanding as of the determination of earnings per unit.Recapitalization and December 31, 2020. The following table detailslimited partner interests represented by the cash distribution paid or declared (in millions, except per unit amounts): |
| | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Declaration Date | | Record Date | | Payment Date | | Distribution Per Unit | | Total Cash Distribution | | Total Payment to General Partner for Incentive Distribution Rights |
| March 31, 2017 | | May 3, 2017 | | May 18, 2017 | | May 30, 2017 | | $ | 0.5550 |
| | $ | 14.6 |
| | $ | 0.5 |
|
| June 30, 2017 | | August 2, 2017 | | August 15, 2017 | | August 29, 2017 | | $ | 0.5700 |
| | $ | 15.0 |
| | $ | 0.7 |
|
| September 30, 2017 | | November 2, 2017 | | November 15, 2017 | | November 29, 2017 | | $ | 0.6150 |
| | $ | 16.2 |
| | $ | 1.1 |
|
| December 31, 2017 | | January 31, 2018 | | February 15, 2018 | | February 28, 2018 | | $ | 0.6200 |
| | $ | 16.3 |
| | $ | 1.1 |
|
| March 31, 2018 | | May 3, 2018 | | May 15, 2018 | | May 29, 2018 | | $ | 0.6250 |
| | $ | 16.5 |
| | $ | 1.3 |
|
| June 30, 2018 | | August 1, 2018 | | August 15, 2018 | | August 29, 2018 | | $ | 0.6300 |
| | $ | 16.7 |
| | $ | 1.4 |
|
| September 30, 2018 | | October 31, 2018 | | November 15, 2018 | | November 29, 2018 | | $ | 0.6350 |
| | $ | 16.8 |
| | $ | 1.5 |
|
| December 31, 2018 | | January 29, 2019 | | February 15, 2019 | | February 28, 2019 | | $ | 0.6400 |
| | $ | 17.0 |
| | $ | 1.7 |
|
For purposes of calculating our earnings per unit under the two-class method, common units are treated as participating preferred units,preceding Series C and the subordinatedE units were treatedcanceled as part of the residualRecapitalization.
Series A Units
As of the Recapitalization, Series A units were issued to certain continuing investors and to new investors who purchased the interests of preceding investors. Holdings did not receive any contributions or make any distributions as part of the Recapitalization. The general partner had the ability to call on a total of up to approximately $300.0 million incremental equity interest,commitments to finance future growth projects in exchange for additional units. No amounts were called upon or common equity. IDRs are treated as participating securities.drawn pursuant to the equity commitment.
Distributions made in future periods based on the current period calculationDistribution Rights
All distributable property of cashHoldings legally available for distribution are allocated to each class of equity that will receive the distribution. Any unpaid cumulative distributions are allocatedupon a liquidation event would be distributed as follows:
(a) First: 100% to the appropriate classSeries A Limited Partners in proportion to their respective Unreturned Series A Capital Contributions until the Unreturned Series A Capital Contributions of equity.
We determine the amount of cash available for distribution for each quarter in accordance with our partnership agreement. The amount to be distributed to unitholders and IDR holders is based on the distribution waterfall set forth in our partnership agreement. Net earnings for the quarter are allocated to each class of partnership interest based on the distributions to be made. On May 30, 2018, the subordination period ended in accordance with our partnership agreement and the subordinated units outstanding were converted into common units on a one-for-one basis (see Note 17, Net Income (Loss) perSeries A Limited Partner Unit).have been reduced to $0.
Accumulated Other Comprehensive Income (Loss)(b) Second: 100% to the Series A Limited Partners in proportion to their Unpaid Series A Preference Amounts until the Unpaid Series A Preference Amount of each Series A Limited Partner has been reduced to $0; and
Comprehensive income (loss) consists(c) Thereafter: (i) 85% to the Series A Limited Partners in proportion to their respective Series A Unit Sharing Percentages and (ii) 15% to the Series B Limited Partners in proportion to their respective Series B Unit Sharing Percentages.
Previous Capitalization
Prior to the Recapitalization, the partners’ capital attributable to Enviva Holdings, LP was divided into five classifications: (1) Series A units, (2) Series B units, (3) Series C units, (4) Series D units and (5) Series E units.
Series A Units
Holdings had previously issued 250.0 million Series A units to the previous Series A limited partners. On the date of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, and gains and losses that pursuant to GAAP are included in comprehensive income (loss) but excluded from net income (loss).the Recapitalization, the previously issued Series A units were bought out by holders who received new Series A units.
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Series B Units
Holdings had previously issued 14.1 million Series B units to the previous Series B limited partners in exchange for certain assets. On the date of the Recapitalization, the previously issued Series B units were bought out by holders who received new Series A units.
Series C Units
Holdings had issued 6.0 million Series C units pursuant to restricted unit agreements (“Restricted Unit Agreements”). The following table presentsSeries C units were intended to constitute “profits interests” as defined by the changes in accumulated other comprehensive income:Internal Revenue Service. On the date of the Recapitalization, the previously issued Series C units were cancelled and extinguished for no consideration.
|
| | | |
| | Unrealized Losses on Derivative Instruments |
| Balance at December 31, 2016 | $ | 595 |
|
| Net unrealized losses | (5,463 | ) |
| Reclassification of net losses realized into net income | 1,828 |
|
| Accumulated other comprehensive income at December 31, 2017 | (3,040 | ) |
| Net unrealized losses | 5,655 |
|
| Reclassification of net gains on cash flow hedges realized into net income | (2,178 | ) |
| Currency translation adjustment | 2 |
|
| Accumulated other comprehensive loss at December 31, 2018 | $ | 439 |
|
Holdings had issued an aggregate of 113.2 million Series D units. On the date of the Recapitalization, the issued Series D units were bought out by holders who received new Series A units.
Series E Units
Holdings had issued 1.1 million Series E units pursuant to Restricted Unit Agreements. The Series E units were intended to constitute “profits interests” as defined by the Internal Revenue Service. On the date of the Recapitalization, the previously issued Series E units were cancelled and extinguished for no consideration.
Noncontrolling Interests—Enviva Pellets Wiggins, LLCInterests
Noncontrolling interests of partners’ capital consist of: (1) third-party equity ownership in the Partnership (2) the Hamlet JV and (3) the Development JV.
The Partnership
Prior to the Simplification Transaction, Holdings owned common units of the Partnership representing an approximate 30% limited partner interest. Holdings was an indirect owner of the Partnership’s general partner, which held the intercompany incentive distribution rights (“IDRs”) of the Partnership until December 2017, we31, 2020 and was an indirect owner of MLP Holdco, LLC, which held a 67% controlling interest in Wiggins. In December 2017, we sold the Wiggins plant toIDRs between January 1, 2021 and the Simplification Transaction.
Between January 1, 2021 and the Simplification Transaction, the Partnership issued 4,925,000 of its common units at a third-party buyer for a purchase price of $0.4$45.50 per common unit for total net proceeds of $214.5 million, and recorded a loss on the saleafter deducting $9.5 million of $0.8 million, net, which is included in general and administrative expenses. In December 2017, Wiggins was dissolved. Upon dissolution, no amounts were distributed to the non-controlling interest holders and all intercompany balances were forgiven (see Note 11, Assets Held for Sale).
Noncontrolling Interests—First Hancock JV
Sampson and Wilmington were wholly owned subsidiaries of the First Hancock JV prior to the consummation of the Sampson Drop-Down and the Wilmington Drop-Down. Our consolidated financial statements have been recast to include the financial results of Sampson and Wilmington as if the consummation of the Sampson Drop-Down and Wilmington Drop-Down had occurred on May 15, 2013, the date Sampson and Wilmington were originally organized. The interests of the First Hancock JV’s third-party investors in Sampson and Wilmington for periods prior to the related drop-down transactions have been reflected as a non-controlling interest in our financial statements. Our consolidated statements of income for the years ended December 31, 2018 and 2017 had no non-controlling interests in Sampson, and forissuance costs. During the year ended December 31, 2016 included2020, the Partnership issued 6.2 million common units in a private placement at a price of $32.50 per common unit for gross proceeds of $200.0 million. The Partnership received proceeds of $190.5 million, net losses of $3.3$9.5 million attributable to the non-controlling interests in Sampson.
Our consolidated statements of income for the years ended December 31, 2017, and 2016 included net losses of $3.1 million and $2.2 million, respectively, attributable to the non-controlling interests in Wilmington. We had no non-controlling interests in Wilmington forissuance costs. During the year ended December 31, 2018.2019, the Partnership issued 3.5 million common units in a registered direct offering for net proceeds of approximately $97.0 million, net of $3.0 million of issuance costs.
The partnership agreement of the Partnership contained provisions for the allocation of its net income and loss to its limited partners and its general partner. For purposes of maintaining partners’ capital accounts, items of income and loss were allocated among the limited partners in accordance with their respective percentage ownership interests. Normal allocations according to percentage interests were made after giving effect, if any, to priority income allocations in an amount equal to intercompany IDRs allocated 100% to the Partnership’s general partner through December 31, 2020 and MLP Holdco between January 1, 2020 and the Simplification Transaction. (16)The Partnership had distributed a quarterly cash distribution to its unitholders pursuant to a cash distribution policy. The partnership agreement had set forth the calculation to be used to determine the amount of cash distributions that our unitholders and our former sponsor would receive.
Aside from the distributions made by the Partnership set forth below, no distributions have been made to the pursuant to the Class A – E holders or Class A and B holders subsequent to the recapitalization. The following table details the cash distribution paid or declared by the Partnership (in millions, except per unit amounts):
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Declaration Date | | Record Date | | Payment Date | | Distribution Per Unit | | | | |
| June 30, 2020 | | August 5, 2020 | | August 14, 2020 | | August 28, 2020 | | $ | 0.7650 | | | | | |
| September 30, 2020 | | October 30, 2020 | | November 13, 2020 | | November 27, 2020 | | $ | 0.7750 | | | | | |
| December 31, 2020 | | January 29, 2021 | | February 15, 2021 | | February 26, 2021 | | $ | 0.7800 | | | | | |
| March 31, 2021 | | April 28, 2021 | | May 14, 2021 | | May 28, 2021 | | $ | 0.7850 | | | | | |
| June 30, 2021 | | July 27, 2021 | | August 13, 2021 | | August 27, 2021 | | $ | 0.8150 | | | | | |
| September 30, 2021 | | November 3, 2021 | | November 15, 2021 | | November 26, 2021 | | $ | 0.8400 | | | | | |
| December 31, 2021 | | February 2, 2022 | | February 14, 2022 | | February 25, 2022 | | $ | 0.8600 | | | | | |
Hamlet JV
The capital of the Hamlet JV is divided into two classifications: (1) Class A Units and (2) Class B Units, issued at a price of $1.00 per unit for each class.
Class A Units were issued to the third-party member in exchange for capital contributions at a price of $1.00 for each Class A Unit.
The third-party member had a total capital commitment of $235.2 million and, as of December 31, 2021, the third-party member held 227.0 million Class A Units with a remaining capital commitment amount of $8.2 million.
Class B Units were issued to Enviva in exchange for capital contributions at a price of $1.00 for each Class B Unit.
Enviva had a total capital commitment of $232.2 million and, as of December 31, 2021, held 224.0 million Class B Units with a remaining commitment amount of $8.2 million.
Pursuant to the limited liability company agreement of the Hamlet JV (the “Hamlet JV LLCA”), we are the managing member of the Hamlet JV and have the authority to manage the business and affairs of the Hamlet JV and take actions on its behalf, including adopting annual budgets, entering into agreements, effecting asset sales or biomass purchase agreements, making capital calls, incurring debt, and taking other actions, subject to consent of the third-party member in certain circumstances. The Hamlet JV LLCA also sets forth the capital commitments and limitations thereon from each of the members and provides for the allocation of sale proceeds and distributions among the holders of outstanding Class A Units and Class B Units.
Distributions to the third-party member and to Enviva are made in our reasonable discretion as managing member and are governed by the waterfall provisions of the Hamlet JV LLCA, which provides that distributions, after repayment of revolving borrowings under the Hamlet JV Revolver, are to be made as follows:
•First: To the members in proportion to their relative unreturned capital contributions, then to the members in proportion to their relative unpaid preference amount.
•Thereafter: 25% to the third-party member and 75% to Enviva.
Development JV
Our former sponsor held a controlling interest, and a third-party member held a noncontrolling interest, in the Development JV. In February 2021, we purchased all of the third-party member’s limited liability company interests in Development JV. We paid a first installment of approximately $130.1 million in February 2021 and a final installment of $23.7 million was paid in July 2021.
(18) Equity-Based Awards
Long-Term Incentive Plan (“LTIP”)
The General Partner maintainsWe maintain the LTIP, which provides for the grant, from time to time, at the discretion of theour board of directors of the General Partner or a committee thereof, of unit options, unitshare appreciation rights, restricted shares, restricted stock units phantom units,(“RSUs”), DERs, unit awards, and other awards. The LTIP limits the number of common units that may be delivered pursuant to awards under the plan to 2,738,1823,450,000 common units.shares in accordance with the Plan, which became effective on December 31, 2021. If equity awards granted under the LTIP are forfeited, canceled, exercised, paid in cash, or otherwise terminate or expire without the actual delivery of the underlying common units, the corresponding number of such common units will remain available for delivery pursuant to other awards under the LTIP. The common units issuable pursuant to the LTIP will consist, in whole or in part, of common units acquired in the open market or from any affiliate or any other person, newly issued common units or any combination of the foregoing as determined by the board of directors of the General Partner or a committee thereof.
During 2018, 2017 and 2016, the board of directors of the General Partner granted phantom units in tandem with corresponding DERs to employees of the Provider who provide services to us (the “Affiliate Grants”), and phantom units in tandem with corresponding DERs to certain non-employee directors of the General Partner (the “Director Grants”). The phantom units and corresponding DERs are subject to certain vesting and forfeiture provisions. Award recipients do not have all the rights of a unitholder with respect to the phantom units until the phantom units have vested and been settled. Awards of the
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
underlying common shares, the corresponding number of such common shares will remain available for delivery pursuant to other awards under the LTIP. The common shares issuable pursuant to the LTIP will consist, in whole or in part, of common shares acquired in the open market or from any affiliate or any other person, newly issued common shares, or any combination of the foregoing as determined by our board of directors or a committee thereof.
phantom unitsDuring 2021, 2020, and 2019, our board of directors granted RSUs in tandem with corresponding DERs to our employees (the “Affiliate Grants”) and RSUs in tandem with corresponding DERs to independent members of our board of directors (the “Director Grants”). The RSUs and corresponding DERs are subject to certain vesting and forfeiture provisions. Award recipients do not have all of the rights of a common shareholder with respect to the RSUs until the RSUs have vested and been settled. Awards of the RSUs settled in common unitsshare are settled within 60 days after the applicable vesting date. If a phantom unitRSU award recipient experiences a termination of service under certain circumstances set forth in the applicable award agreement, the unvested phantom unitsRSUs and corresponding DERs (in the case of performance-based Affiliate Grants) are forfeited. Forfeitures are recognized when the actual forfeiture occurs.
Restricted Shares
Certain employees had received Series B units of our former sponsor that were intended to constitute “profits interests” as defined by the Internal Revenue Service that, due to the Simplification Transaction, converted into common units of the Partnership. In August 2020, our former sponsor had issued equity-classified awards where it may issue up to 10,000 Series B units. Our former sponsor had issued 25% initially, or 2,500 Series B units, and expected to issue an additional 25% on each anniversary over the following three years. These Series B units were measured at the grant date fair value, which was estimated using a probability weighted discounted cash flow approach to be approximately $38.5 million where we recognized $23.8 million and $13.9 million as non-cash equity-based compensation and other expense during the years ended December 31, 2021 and 2020, respectively. Of the $23.8 million recognized during the year ended December 31, 2021, $16.6 million was due to the accelerated vesting of all otherwise unvested Series B units as a result of the Simplification Transaction. After the Simplification Transaction, an additional $3.2 million was recognized as non-cash equity-based compensation and other expense during the year ended December 31, 2021 related to common shares of Enviva Inc. subject to restriction into which the Series B units were converted. The common shares subject to restriction will have their restrictions released as follows: one-third on each of December 31, 2022, 2023 and 2024. The unrecognized estimated non-cash equity-based compensation and other expense relating to outstanding common shares subject to restriction at December 31, 2021 was $47.3 million, which will be recognized over the remaining vesting period.
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Affiliate Grants
A summary of the Affiliate Grants for the years ended December 31, 2018, 20172021, 2020, and 20162019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Time-Based Restricted Stock Units | | Performance-Based Restricted Stock Units | | Total Affiliate Grant Restricted Stock Units |
| Units | | Weighted-Average Grant Date Fair Value (per unit)(1) | | Units | | Weighted-Average Grant Date Fair Value (per unit)(1) | | Units | | Weighted-Average Grant Date Fair Value (per unit)(1) |
| Nonvested December 31, 2018 | 723,940 | | | $ | 25.91 | | | 239,512 | | | $ | 27.65 | | | 963,452 | | | $ | 26.34 | |
| Granted | 395,851 | | | $ | 30.41 | | | 219,943 | | | $ | 30.28 | | | 615,794 | | | $ | 30.36 | |
| Forfeitures | (99,999) | | | $ | 28.56 | | | (24,185) | | | $ | 29.82 | | | (124,184) | | | $ | 28.80 | |
| Vested | (145,506) | | | $ | 18.30 | | | — | | | $ | — | | | (145,506) | | | $ | 18.30 | |
| Nonvested December 31, 2019 | 874,286 | | | $ | 28.90 | | | 435,270 | | | $ | 28.84 | | | 1,309,556 | | | $ | 28.88 | |
| Granted | 552,988 | | | $ | 37.98 | | | 387,060 | | | $ | 38.02 | | | 940,048 | | | $ | 38.00 | |
| Forfeitures | (133,273) | | | $ | 33.15 | | | (105,935) | | | $ | 30.89 | | | (239,208) | | | $ | 32.15 | |
| Vested | (232,116) | | | $ | 26.97 | | | (67,881) | | | $ | 28.03 | | | (299,997) | | | $ | 27.21 | |
| Nonvested December 31, 2020 | 1,061,885 | | | $ | 33.52 | | | 648,514 | | | $ | 34.07 | | | 1,710,399 | | | $ | 33.73 | |
| Granted | 378,488 | | | $ | 51.96 | | | 165,549 | | | $ | 48.58 | | | 544,037 | | | $ | 50.93 | |
| Forfeitures | (125,784) | | | $ | 39.49 | | | (49,145) | | | $ | 38.77 | | | (174,929) | | | $ | 39.29 | |
| Vested | (312,528) | | | $ | 30.03 | | | (156,801) | | | $ | 30.52 | | | (469,329) | | | $ | 30.20 | |
| Nonvested December 31, 2021 | 1,002,061 | | | $ | 40.82 | | | 608,117 | | | $ | 38.56 | | | 1,610,178 | | | $ | 39.97 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Time-Based Phantom Units | | Performance-Based
Phantom Units | | Total Affiliate Grant
Phantom Units |
| | Units | | Weighted-
Average
Grant Date
Fair Value
(per unit)(1) | | Units | | Weighted-
Average
Grant Date
Fair Value
(per unit)(1) | | Units | | Weighted-
Average
Grant Date
Fair Value
(per unit)(1) |
| Nonvested December 31, 2016 | 346,153 |
| | $ | 19.32 |
| | 235,355 |
| | $ | 19.46 |
| | 581,508 |
| | $ | 19.37 |
|
| Granted | 301,400 |
| | $ | 25.67 |
| | 111,104 |
| | $ | 25.51 |
| | 412,504 |
| | $ | 25.63 |
|
| Forfeitures | (51,687 | ) | | $ | 21.77 |
| | (95,545 | ) | | $ | 18.36 |
| | (147,232 | ) | | $ | 18.36 |
|
| Vested | — |
| | $ | — |
| | (139,810 | ) | | $ | 20.20 |
| | (139,810 | ) | | $ | 20.20 |
|
| Nonvested December 31, 2017 | 595,866 |
| | $ | 22.32 |
| | 111,104 |
| | $ | 25.52 |
| | 706,970 |
| | $ | 22.82 |
|
| Granted | 398,729 |
| | $ | 29.15 |
| | 171,104 |
| | $ | 28.92 |
| | 569,833 |
| | $ | 29.08 |
|
| Adjusted | — |
| | $ | — |
| | 19,832 |
| | $ | 18.19 |
| | 19,832 |
| | $ | 18.19 |
|
| Forfeitures | (89,119 | ) | | $ | 25.59 |
| | (17,469 | ) | | $ | 25.76 |
| | (106,588 | ) | | $ | 25.62 |
|
| Vested | (181,536 | ) | | $ | 21.42 |
| | (45,059 | ) | | $ | 23.80 |
| | (226,595 | ) | | $ | 21.89 |
|
| Nonvested December 31, 2018 | 723,940 |
| | $ | 25.91 |
| | 239,512 |
| | $ | 27.65 |
| | 963,452 |
| | $ | 26.34 |
|
| |
(1) | Determined by dividing the aggregate grant date fair value of awards by the number of awards issued. |
Time-based Affiliate Grants vest on the third or fourth anniversary of the grant date and performance-based Affiliate Grants vest in three or four years, uponwhere the number of shares that vest depend on achievement of specific performance milestones. We account for the delivery of common unitsshares upon the settlement of vested Affiliate Grants as if such common unitsshares were distributed by us. The fair value of the Affiliate Grants granted during 20182021 and 2020 was $16.6$27.7 million and $35.7 million, respectively, based on the market price per unitshare on the applicable date of grant. The grant date fair value of performance-based Affiliate Grants is reported based on the probable outcome of the performance conditions on the grant date. The fair value of the Affiliate Grants is remeasured byexpensed at the Provider at each reporting period until the awardgrant date. Compensation expense is settled, as these are liability classified from the perspective of the Provider. Compensation cost recorded each period will vary based on the changegrant date fair value. Changes in the fair valuenon-cash equity-based compensation expense due to passage of the awards.time, forfeitures, probability of meeting required performance conditions, and final settlements are recorded as adjustments to non-cash equity-based compensation expense and equity. For awards with performance goals, theperformance-based Affiliate Grants, expense is accrued only ifto the extent that the performance goals are considered to be probable of occurring. The Provider recognizes unit-based
We recognize non-cash equity-based compensation expense for the unitsshares awarded in cost of goods sold and a portion of that expense is allocated to us under the MSA in the same manner as other corporate expenses. Our portion of the unit-based compensation expense is included inselling, general, administrative, and administrativedevelopment expenses. We recognized $4.7$28.0 million, $3.4$25.1 million and $3.1$10.2 million of selling, general, administrative, and administrative expensedevelopment expenses associated with the Affiliate Grants during the years ended December 31, 2018, 20172021, 2020, and 2016,2019, respectively. During the fourth quarter of 2017, $1.6 million of unit-based compensation was reversed as performance goals were not met.
We paid $2.9$11.0 million to the Provider to satisfy the withholding tax requirements associated with 181,536312,528 time-based phantom unit awardsAffiliate Grants and 45,059156,801 performance-based phantom unit awardsAffiliate Grants that vested under the LTIP during the year ended December 31, 2018. In December 2017, 139,810 performance-based phantom unit awards vested and, in connection with the settlement of such awards in January 2018, we2021. We paid $2.3$5.0 million to the General Partner, which then acquired 81,708 common units at a market price of $28.65 per unit from a wholly owned subsidiary of the sponsor for delivery to the recipients under the LTIP. We also paid $1.7 million to the Provider to satisfy the withholding tax requirements associated with such units232,116 time-based Affiliate Grants that vested under the MSA. LTIP during the year ended December 31, 2020. No performance-based Affiliate Grants vested under the LTIP during the year ended December 31, 2019.The Providerunrecognized estimated non-cash equity-based compensation expense relating to outstanding Affiliate Grants at December 31, 2021 was $41.3 million, which will be recognized an additional $0.1 million in expense forover the change in fair value of these awards between theremaining vesting and settlement date, which was allocated to us in the same manner as other corporate expenses.period.
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Director Grants
A summary of the Director Grant unit awards subject to vesting for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, is as follows:
| | | | | | | | | | | |
| Time-Based Phantom Units |
| Units | | Weighted-Average Grant Date Fair Value (per unit)(1) |
| Nonvested December 31, 2018 | 13,964 | | | $ | 28.65 | |
| Granted | 13,264 | | | $ | 30.16 | |
| Vested | (13,964) | | | $ | 28.65 | |
| Nonvested December 31, 2019 | 13,264 | | | $ | 30.16 | |
| Granted | 14,987 | | | $ | 38.37 | |
| Vested | (13,264) | | | $ | 30.16 | |
| Nonvested December 31, 2020 | 14,987 | | | $ | 38.37 | |
| Granted | 14,234 | | | $ | 48.48 | |
| Vested | (14,987) | | | $ | 38.37 | |
| Nonvested December 31, 2021 | 14,234 | | | $ | 48.48 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Time-Based Phantom Units | | Performance-Based Phantom Units | | Total Director Grant Phantom Units |
| | Units | | Weighted- Average Grant Date Fair Value (per unit)(1) | | Units | | Weighted- Average Grant Date Fair Value (per unit)(1) | | Units | | Weighted- Average Grant Date Fair Value (per unit)(1) |
| Nonvested December 31, 2016 | 17,724 |
| | $ | 22.57 |
| | — |
| | $ | — |
| | 17,724 |
| | $ | 22.57 |
|
| Granted | 15,840 |
| | $ | 25.25 |
| | — |
| | $ | — |
| | 15,840 |
| | $ | 25.25 |
|
| Forfeitures | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
| Vested | (17,724 | ) | | $ | 22.57 |
| | — |
| | $ | — |
| | (17,724 | ) | | $ | 22.57 |
|
| Nonvested December 31, 2017 | 15,840 |
| | $ | 25.25 |
| | — |
| | $ | — |
| | 15,840 |
| | $ | 25.25 |
|
| Granted | 13,964 |
| | $ | 28.65 |
| | — |
| | $ | — |
| | 13,964 |
| | $ | 28.65 |
|
| Forfeitures | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
| Vested | (15,840 | ) | | $ | 25.25 |
| | — |
| | $ | — |
| | (15,840 | ) | | $ | 25.25 |
|
| Nonvested December 31, 2018 | 13,964 |
| | $ | 28.65 |
| | — |
| | $ | — |
| | 13,964 |
| | $ | 28.65 |
|
| |
(1) | Determined by dividing the aggregate grant date fair value of awards by the number of awards issued. |
In February 2018,January 2021 and April 2021, Director Grants valued at $0.4$0.6 million were granted and $0.1 million, respectively, and which vest on the first anniversary of the grant date in February 2019.January and April 2022, respectively, were granted. In February 2019,January and August 2020, Director Grants valued at $0.5 million and $0.1 million were granted, which vested on the first anniversary of the grant dates, in January and August 2021, respectively. In January 2021, the Director Grants that were nonvestedunvested at December 31, 20182020 vested and common unitsshares were issued in respect thereof. In addition, 420 common unitsJanuary 2019, Director Grants valued at $0.4 million were granted, and issued to non-employee directorswhich vested on the first anniversary of the General Partner as compensation for services performed on the General Partner’s board of directors during the year ended December 31, 2018. grant date in January 2020.
For the years ended December 31, 20182021, 2020, and 20172019 we recorded $0.8 million, $0.5 million and $0.4 million and $0.5 million, respectively, of non-equity-based compensation expense with respect to the Director Grants. For the year endedThe unrecognized estimated non-cash equity-based compensation cost relating to outstanding Director Grants at December 31, 2016, an insignificant amount of compensation expense with respect to2021 is $0.1 million and will be recognized over the Director Grants was recorded.remaining vesting period.
Dividend Equivalent Rights
DERs associated with the Affiliate Grants and the Director Grants subject to time-based vesting entitle the recipients to receive payments in respect thereof in a per-unitper-share amount that is equal to any distributions made by us to the holders of common unitsshares within 60 days following the record date for such distributions. The DERs associated with the Affiliate Grants subject to performance-based vesting will remain outstanding and unpaid from the grant date until the earlier of the settlement or forfeiture of the related performance-based phantom units.
Unpaid DER amountsdistributions paid related to time-based Affiliate Grants were $3.5 million, $3.9 million and $2.7 million, respectively, for the years ended December 31, 2021, 2020 and 2019. At December 31, 2021 and December 31, 2020, there were no DER distributions unpaid related to time-based Affiliate Grants.
DER distributions unpaid related to the performance-based Affiliate Grants atwere as follows as of December 31, 2018 were $0.7 million. Unpaid DER amounts of $0.4 million are included in accrued liabilities and $0.3 million are included in other long-term liabilities on the consolidated balance sheets. Unpaid DER amounts related to the performance-based Affiliate Grants at December 31, 2017 were $0.9 million, of which $0.7 million are included in accrued liabilities and $0.2 million are included in other long-term liabilities on the consolidated balance sheets. DER distributions related to time- and performance-based Affiliate Grants were $1.8 million and $1.0 million for the years ended December 31, 2018 and 2017, respectively, and were insignificant for the year ended December 31, 2016. At December 31, 2018 and 2017, $0.9 million and $0, respectively, of DER distributions are included in related-party accrued liabilities.31:
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| Accrued liabilities | | $ | 2,690 | | | $ | 1,697 | |
| Other long-term liabilities | | 4,501 | | | 2,942 | |
| Total unpaid DERs related to performance-based Affiliate Grants | | $ | 7,191 | | | $ | 4,639 | |
ENVIVA PARTNERS, LPINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(17)(19) Net Income (Loss)Loss per Limited Partner Unit
Net income (loss)loss per unit applicable to limited partners iswas computed by dividing limited partners’ interest inthe net income (loss), after deducting any incentive distributions,loss attributable to Enviva Inc. by the weighted-average number of outstanding units. Our net income (loss)
As Holdings is allocatedthe surviving entity for accounting purposes, the historical financial results prior to the limited partners in accordance with their respective ownership percentages, after giving effect to priority income allocationsSimplification Transaction are those of Holdings. Given that and the recapitalization, the number of outstanding units for incentive distributions, if any,2019, 2020, and the portion of 2021 prior to the holderSimplification Transaction constitutes the 16.0 million units issued to the owners of the IDRs, whichformer sponsor. For the portion of 2021 that is after the Simplification Transaction, the number of outstanding units are declared and paid following the close of each quarter. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income (loss) allocations used in the calculation of earnings per unit.
On May 30, 2018, the requirements under our partnership agreement for the conversion of all of our subordinated units into common units were satisfied and the subordination period for such subordinated units ended. As a result, all of our 11,905,138 outstanding subordinated units converted into common units on a one-for-one basis. The conversion did not impact the amount of the cash distribution paid or the total number of our outstanding units representing limited partner interests. Our net income (loss) was allocated to the general partner and the limited partners, including the holders of the subordinated units and IDR holders in accordance with our partnership agreement.
In addition to the common units, we have also identified the IDRs and phantom units as participating securities and uses the two-class method when calculating the net income (loss) per unit applicable to limited partners, which is based on the weighted-averageactual number of common units and subordinated units outstandingof the Company during thethat period. Diluted net income per unit includes the effects of potentially dilutive time-based and performance-based phantom units on our common units. Basic and diluted earnings per unit that previously was applicable to subordinated limited partners was the same because there were no potentially dilutive subordinated units outstanding.
The computation of net income (loss) per limited partner unit is a follows for the years ended December 31:
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Net income | $ | 6,952 |
| | $ | 14,373 |
| | $ | 13,463 |
|
| Less net loss attributable to noncontrolling partners’ interests | — |
| | 3,140 |
| | 5,804 |
|
| Net income attributable to Enviva Partners, LP | $ | 6,952 |
| | $ | 17,513 |
| | $ | 19,267 |
|
| Less: Pre-acquisition income from inception to December 13, 2016 from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner | — |
| | — |
| | (3,231 | ) |
| Less: Pre-acquisition income from inception to October 1, 2017 from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner | — |
| | (3,049 | ) | | (2,110 | ) |
| Enviva Partners, LP limited partners’ interest in net income | $ | 6,952 |
| | $ | 20,562 |
| | $ | 24,608 |
|
| Less: Distributions declared on: | | | | | |
| Common units | $ | 54,604 |
| | $ | 34,033 |
| | $ | 26,933 |
|
| Subordinated units through end of subordination period | 12,407 |
| | 28,096 |
| | 24,167 |
|
| IDRs | 5,867 |
| | 3,398 |
| | 1,077 |
|
| Total distributions declared | 72,878 |
| | 65,527 |
| | 52,177 |
|
| Earnings less than distributions | $ | (65,926 | ) | | $ | (44,965 | ) | | $ | (27,569 | ) |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Basic and diluted net income per limited partner unit is follows:
|
| | | | | | | | |
| | Year Ended December 31, 2018 |
| | Common Units | | Subordinated Units | | General Partner |
| Weighted-average common units outstanding—basic | 21,533 |
| | 4,893 |
| | — |
|
| Effect of nonvested phantom units | 1,020 |
| | — |
| | — |
|
| Weighted-average common units outstanding—diluted | 22,553 |
| | 4,893 |
| | — |
|
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Common Units | | Subordinated Units | | General Partner | | Total |
| Distributions declared | $ | 54,604 |
| | $ | 12,407 |
| | $ | 5,867 |
| | $ | 72,878 |
|
| Earnings less than distributions | (53,720 | ) | | (12,206 | ) | | — |
| | (65,926 | ) |
| Net income attributable to partners | $ | 884 |
| | $ | 201 |
| | $ | 5,867 |
| | $ | 6,952 |
|
| Weighted-average units outstanding—basic | 21,533 |
| | 4,893 |
| | | | |
| Weighted-average units outstanding—diluted | 22,553 |
| | 4,893 |
| | | | |
| Net income per limited partner unit—basic | $ | 0.04 |
| | $ | 0.04 |
| |
|
| |
|
|
| Net income per limited partner unit—diluted | $ | 0.04 |
| | $ | 0.04 |
| |
|
| |
|
|
|
| | | | | | | | |
| | Year Ended December 31, 2017 |
| | Common Units | | Subordinated Units | | General Partner |
| Weighted-average common units outstanding—basic | 14,403 |
| | 11,905 |
| | — |
|
| Effect of nonvested phantom units | 948 |
| | — |
| | — |
|
| Weighted-average common units outstanding—diluted | 15,351 |
| | 11,905 |
| | — |
|
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Common Units | | Subordinated Units | | General Partner | | Total |
| Distributions declared | $ | 34,033 |
| | $ | 28,096 |
| | $ | 3,398 |
| | $ | 65,527 |
|
| Earnings less than distributions | (24,631 | ) | | (20,334 | ) | | — |
| | (44,965 | ) |
| Net income attributable to partners | $ | 9,402 |
| | $ | 7,762 |
| | $ | 3,398 |
| | $ | 20,562 |
|
| Weighted-average units outstanding—basic | 14,403 |
| | 11,905 |
| | | | |
| Weighted-average units outstanding—diluted | 15,351 |
| | 11,905 |
| | | | |
| Net income per limited partner unit—basic | $ | 0.65 |
| | $ | 0.65 |
| |
|
| |
|
|
| Net income per limited partner unit—diluted | $ | 0.61 |
| | $ | 0.65 |
| |
|
| |
|
|
|
| | | | | | | | |
| | Year Ended December 31, 2016 |
| | Common Units | | Subordinated Units | | General Partner |
| Weighted-average common units outstanding—basic | 13,002 |
| | 11,905 |
| | — |
|
| Effect of nonvested phantom units | 557 |
| | — |
| | — |
|
| Weighted-average common units outstanding—diluted | 13,559 |
| | 11,905 |
| | — |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Common Units | | Subordinated Units | | General Partner | | Total |
| Distributions declared | $ | 26,933 |
| | $ | 24,167 |
| | $ | 1,077 |
| | $ | 52,177 |
|
| Earnings less than distributions | (14,531 | ) | | (13,038 | ) | | — |
| | (27,569 | ) |
| Net income attributable to partners | $ | 12,402 |
| | $ | 11,129 |
| | $ | 1,077 |
| | $ | 24,608 |
|
| Weighted-average units outstanding—basic | 13,002 |
| | 11,905 |
| | | | |
| Weighted-average units outstanding—diluted | 13,559 |
| | 11,905 |
| | | | |
| Net income per limited partner unit—basic | $ | 0.95 |
| | $ | 0.93 |
| |
|
| |
|
|
| Net income per limited partner unit—diluted | $ | 0.91 |
| | $ | 0.93 |
| |
|
| |
|
|
(18)(20) Commitments and Contingencies
Shipping Event
During the fourth quarter of 2016, we re-purchased a shipment of wood pellets from one customer and subsequently sold it to another customer in a purchase and sale transaction. Smoldering was observed onboard the vessel carrying the shipment, which resulted in damage to a portion of the shipment and one of the vessel’s five cargo holds (the “Shipping Event”). The disponent owner of the vessel (the “Shipowner”) had directly or indirectly chartered the vessel from certain other parties (collectively, the “Head Owners”) and in turn contracted with Cottondale as the charterer of the vessel. Following the mutual appointment of arbitrators in connection with the Shipping Event, in June, 2017, the Shipowner submitted claims against Cottondale (the “Claims”) alleging damages of approximately $11.5 million (calculated using exchange rates as of December 31, 2018), together with other unquantified losses and damages. The Claims provide that the Shipowner would seek indemnification and other damages from Cottondale to the extent that the Shipowner is unsuccessful in its defense of claims raised by the Head Owners against it for damages arising in connection with the Shipping Event. In February 2019, the parties to the arbitration settled the Claims at no incremental cost to us.
As of December 31, 2018, $1.0 million is recorded in insurance receivables related to recovery of legal costs incurred.
Operating Leases
The MSA fee charged by Enviva Holdings, LP to us includes rent related amounts for non-cancelable operating leases for office space in Maryland and North Carolina held by Enviva Holdings, LP. Other rent expense for non-cancelable operating leases was approximately $4.4 million for the year ended December 31, 2018 and insignificant for the years ended December 31, 2017 and 2016.
In February, 2015, Wilmington entered into a Deed of Lease Agreement (the “Lease”) with North Carolina State Ports Authority (“NCSPA”) to lease certain real property at NCSPA’s Wilmington, North Carolina marine terminal for the Wilmington terminal. The Lease has a twenty-one year term, with two five-year renewal options, with annual base rent of $0.2 million that is payable monthly or annually, subject to an annual increase in the producer’s price index for industrial commodities less fuel. No payments are due until September 2021. The total estimated base rent payments over the life of the lease are estimated at $4.7 million. In May 2016, the Lease was amended to include a minimum annual throughput ton fee, subject to an annual increase in producer’s price index up to 1%. The total estimated minimum annual throughput ton fee is $1.9 million for 1.0 million tons annually, where the ultimate fee would increase for throughput above 1.0 million tons annually. Total estimated payments over the life of the agreement are estimated at $71.7 million. During the year ended December 31, 2018, rent expense related to the NCSPA lease was $2.3 million.
Future minimum lease payments, excluding those charged under the MSA, for non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2018 are as follows: |
| | | |
| 2019 | $ | 3,491 |
|
| 2020 | 3,088 |
|
| 2021 | 2,793 |
|
| 2022 | 2,578 |
|
| 2023 | 2,563 |
|
| Thereafter | 59,320 |
|
| Total future minimum lease payments | $ | 73,833 |
|
Commitments
We have entered into throughput agreements expiring between 2022 through 2023 and 2028 to receive terminal and stevedoring services at certain of our terminals.terminals, some of which include options to extend for up to 5 years. The agreements specify a minimum cargo throughput requirement at a fixed price per ton or a fixed fee, subject to an adjustment based on the consumer price index or the producer pricesprice index, for a defined period of time, ranging from monthly to annually. At December 31, 2018,2021, we had approximately $16.3$20.0 million related to firm
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
commitments under such terminal and stevedoring services agreements. For the years ended December 31, 2018, 20172021, 2020 and 2016,2019, terminal and stevedoring services expenses were $9.8$12.3 million, $10.6$9.7 million and $10.3$11.3 million, respectively.
We have entered into long-term arrangements to secure transportation from our plants to our export terminals. Under certain of these agreements, which expire between 20202023 through 2023,2026, we are committed to various annual minimum volumes under multi-year fixed-cost contracts with third-party logistics providers for trucking and rail transportation, subject to increases in the consumer price index and certain fuel price adjustments. For the years ended December 31, 2018, 20172021, 2020 and 2016,2019, ground transportation expenses were $29.8$43.8 million, $23.8$36.6 million and $21.7$34.7 million, respectively.
We have entered into long-term supply arrangements, expiring between 20202023 through 2024,2026, to secure the supply of wood pellets from third-party vendors and related parties. The minimum annual purchase volumes are at a fixed price per MT adjusted for volume, pellet quality and certain shipping-related charges. The supply agreements for the purchase of 1,620,000450,000 MT of wood pellets from British Columbia are fully offset by an agreement to sell 1,620,000450,000 MT of wood pellets to the same counterparty from our terminal locations.locations, where $69.4 million remains to be sold as of December 31, 2021. Under long-term supply arrangements, we purchased approximately $29.5$109.6 million, $25.1 million and $3.5$51.6 million amountsof wood pellets for the years ended December 31, 20182021, 2020 and December 31, 2017,2019, respectively. No amounts were incurred related to these agreements for the year ended December 31, 2016.
Fixed and determinable portions of the minimum aggregate future payments under these firm terminal and stevedoring services, ground transportation and wood pellet supply agreements for the next five years are as follows: |
| | | |
| 2019 | $ | 94,578 |
|
| 2020 | 173,993 |
|
| 2021 | 189,073 |
|
| 2022 | 48,809 |
|
| 2023 | 29,811 |
|
| Thereafter | 23,138 |
|
| Total | $ | 559,402 |
|
| | | | | |
| 2022 | $ | 136,103 | |
| 2023 | 129,292 | |
| 2024 | 100,347 | |
| 2025 | 80,199 | |
| 2026 | 60,328 | |
| Total | $ | 506,269 | |
In order to mitigate volatility in our shipping costs, we have entered into fixed-price shipping contracts with reputable shippers matching the terms and volumes of certain of our off-take contracts for which we are responsible for arranging shipping. Contracts with shippers, expiring between 20192022 through 2034,2039, include provisions as to the minimum amount of MTPY to be shipped and may also stipulate the number of shipments. Pursuant to these contracts, the terms of which extend up to fifteen17 years, charges are based on a fixed-price per MT and, in some cases, there are adjustment provisions for increases in the price of fuel or for other distribution-related costs. The charge per MT varies depending on the loading and discharge port. ForShipping expenses included in cost of goods sold for the years ended December 31, 2018, 20172021, 2020 and 2016, shipping expenses were approximately2019 was $94.7 million, $75.0 million and $64.1 million, $52.2 million, and $41.5 million, respectively, and were included in cost of sales.
(19) Subsequent Events
Long-Term Incentive Plan
In January 2019, the Board granted 13,264 Director Grants and 542,940 Affiliate Grants. The Director Grants vest on the first anniversary of the grant date. Of the total Affiliate Grants, 335,433 time-based phantom units vest on the third anniversary of the grant date and 207,507 performance-based phantom units vest based on the satisfaction of time-based vesting conditions and the achievement performance metrics related to gross distributable cash flow over a three-year performance period. The fair value of the Director Grants and Affiliate Grants was $16.8 million based on the market price per unit on the date of the grant.
(20) Quarterly Financial Data (Unaudited)
The following table presents our unaudited quarterly financial data. The quarterly results of operations for these periods are not necessarily indicative of future results of operations. Certain amounts related to the change in the fair value of derivatives have been reclassified to product sales from other income for the first and second quarters of 2018 to conform to current period presentation. Basic and diluted earnings per unit are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per unit information may not equal annual basic and diluted earnings per unit.respectively.
|
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2018 | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total |
| Net revenue | | $ | 125,324 |
| | $ | 135,596 |
| | $ | 144,148 |
| | $ | 168,673 |
| | $ | 573,741 |
|
| Gross margin | | (5,018 | ) | | 19,811 |
| | 30,119 |
| | 24,529 |
| | 69,441 |
|
| Net (loss) income | | (19,335 | ) | | 3,544 |
| | 13,356 |
| | 9,387 |
| | 6,952 |
|
| Enviva Partners, LP limited partners’ interest in net (loss) income | | (19,335 | ) | | 3,544 |
| | 13,356 |
| | 9,387 |
| | 6,952 |
|
| Basic (loss) income per limited partner common unit | | $ | (0.78 | ) | | $ | 0.08 |
| | $ | 0.45 |
| | $ | 0.29 |
| | $ | 0.04 |
|
| Diluted (loss) income per limited partner common unit | | $ | (0.78 | ) | | $ | 0.08 |
| | $ | 0.43 |
| | $ | 0.28 |
| | $ | 0.04 |
|
| Basic (loss) income per limited partner subordinated unit | | $ | (0.78 | ) | | $ | 0.08 |
| | $ | — |
| | $ | — |
| | $ | 0.04 |
|
| Diluted (loss) income per limited partner subordinated unit | | $ | (0.78 | ) | | $ | 0.08 |
| | $ | — |
| | $ | — |
| | $ | 0.04 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2017 | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total |
| Net revenue | | $ | 122,443 |
| | $ | 127,547 |
| | $ | 132,223 |
| | $ | 161,008 |
| | $ | 543,221 |
|
| Gross margin | | 16,368 |
| | 16,331 |
| | 20,382 |
| | 25,721 |
| | 78,802 |
|
| Net (loss) income | | (45 | ) | | 1,497 |
| | 5,023 |
| | 7,898 |
| | 14,373 |
|
| Enviva Partners, LP limited partners’ interest in net income | | 2,535 |
| | 3,862 |
| | 6,339 |
| | 7,826 |
| | 20,562 |
|
| Basic income per limited partner common unit | | $ | 0.08 |
| | $ | 0.12 |
| | $ | 0.20 |
| | $ | 0.25 |
| | $ | 0.65 |
|
| Diluted income per limited partner common unit | | $ | 0.07 |
| | $ | 0.11 |
| | $ | 0.19 |
| | $ | 0.24 |
| | $ | 0.61 |
|
| Basic income per limited partner subordinated unit | | $ | 0.08 |
| | $ | 0.12 |
| | $ | 0.20 |
| | $ | 0.25 |
| | $ | 0.65 |
|
| Diluted income per limited partner subordinated unit | | $ | 0.08 |
| | $ | 0.12 |
| | $ | 0.20 |
| | $ | 0.25 |
| | $ | 0.65 |
|
(21) Supplemental Guarantor Information
The Partnership and its wholly owned finance subsidiary, Enviva Partners Finance Corp., are the co-issuers of the Senior Notes on a joint and several basis. The Partnership has no material independent assets or operations. The Senior Notes are guaranteed on a senior unsecured basis by certain of the Partnership’s direct and indirect wholly owned subsidiaries (excluding Enviva Partners Finance Corp. and certain recently formed immaterial subsidiaries) and will be guaranteed by the Partnership’s future restricted subsidiaries that guarantee certain of its other indebtedness (collectively, the “Subsidiary Guarantors”). The guarantees are full and unconditional and joint and several. Each of the Subsidiary Guarantors is directly or indirectly 100% owned by the Partnership. Enviva Partners Finance Corp. is a finance subsidiary formed for the purpose of being the co-issuer of the Senior Notes. Other than certain restrictions arising under the Credit Agreement and the Indenture (see Note 12, Long-Term Debt and Capital Lease Obligations), there are no significant restrictions on the ability of any restricted subsidiary to (i) pay dividends or make any other distributions to the Partnership or any of its restricted subsidiaries or (ii) make loans or advances to the Partnership or any of its restricted subsidiaries.
ENVIVA INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(21) Subsequent Event
Issuance of Common Stock
In January 2022, we issued 4,950,000 shares of common shares at a price of $70.00 per share common share for total net proceeds of $334.0 million, after deducting $12.2 million of issuance costs. We intend to use the net proceeds of $334.0 million to fund a portion of our capital expenditures relating to ongoing development projects. We initially used the net proceeds to repay borrowings under our senior secured revolving credit facility.
| |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
| |
ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Exchange Act) was carried out under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of our General Partner.Officer. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based uponon their evaluation, the Chief Executive Officer and Chief Financial Officer of our General Partner concluded that the design and operation of our disclosure controls and procedures were effective as of December 31, 2018,2021, the end of the period covered by this Annual Report.
Internal Control over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting
TheOur management of our General Partner is responsible for establishing and maintaining adequate internal control over financial reporting for us as defined in Rules 13a‑15(f) and 15d‑15(f) of the Exchange Act. Under the supervision of, and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework in 2013, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management of our General Partner concluded that our internal control over financial reporting was effective as of December 31, 2018. This Annual Report on Form 10‑K does not include an attestation report2021. The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, due to a transition period established by rulesas stated in their report which is included in Part II, Item 8. “Financial Statements and Supplementary Data of the SEC for emerging growth companies.this report.”
Inherent Limitations on Effectiveness of Controls
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) that occurred during the three months ended December 31, 20182021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Enviva Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Enviva Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Enviva Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Enviva Inc. and subsidiaries as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, changes in equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated March 4, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tysons, Virginia
March 4, 2022
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ITEM 9B. | OTHER INFORMATION |
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
| |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
On December 31, 2021, we completed our conversion from a master limited partnership named Enviva Partners, LP to a corporation named Enviva Inc. Subsequent to the Conversion, we operate under a customary corporate governance model and are subject to the Delaware General Corporation Law. We are managed and operatedgoverned by theour board of directors (our “Board”) and executive officers of our General Partner. Our unitholders are not entitled to elect our General Partner’s directors or otherwise directly participate in our management or operations. Our General Partner owes certain contractual duties to our unitholders as well as a fiduciary duty to its owners.
As a result of owning our General Partner, our sponsor has the right to appoint all members of the board of directors of our General Partner. In evaluating director candidates, our sponsor will assess whether a candidate possesses the integrity, judgment, knowledge, experience, skill and expertise that are likely to enhance the board’s ability to manage and direct our affairs and business, including, when applicable, to enhance the ability of committees of the board to fulfill their duties.
The board of directors of our General Partner has ten directors, including four directors meeting the independence standards established by the New York Stock Exchange (the “NYSE”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The board of directors met five times during 2018.
All of the executive officers of our General Partner listed below allocate their time between managing the business and affairs of us and our sponsor. The amount of time that our executive officers devote to our business and the business of our sponsor varies in any given year based on a variety of factors. Our executive officers devote as much time to the management of our business as is necessary for the proper conduct of our business and affairs. However, our executive officers’who owe fiduciary duties to our sponsor and other obligations may prevent them from devoting sufficient time to our business and affairs.
We incur general and administrative costs related to our management services agreement with Enviva Managementthe Company LLC (the “MSA”) that cover the corporate salary and overhead expenses associated with our business. If the MSA were terminated without replacement, or our General Partner or its affiliates provided services outside of the scope of the MSA, our partnership agreement would require us to reimburse our General Partner and its affiliates, including our sponsor, for all expenses incurred and payments made on our behalf.stockholders.
Executive Officers and Directors of Our General Partnerthe Company
The following table shows information for theour Board and executive officers and directors of our General Partner. As the owner of our General Partner, our sponsor appoints all members of the board of directors of our General Partner.officers. Directors hold office until their successors have been appointed or qualified or until the earlier of their death, resignation, removal, or disqualification. Executive officers are appointed by and serve at the discretion of the board. There are no family relationships among any of our directors or executive officers. One of our directors and all of our executive officers also serve as executive officers of our sponsor.
|
| | | | | | | | | | | | | |
| Name of Beneficial Owner | | Age | | Position With Our General Partner |
| John K. Keppler | | 4851 |
| | Chairman, President and Chief Executive Officer |
| Shai S. Even | | 5053 |
| | Executive Vice President and Chief Financial Officer |
Thomas Meth | | 46 |
| | Executive Vice President, Sales and Marketing |
| William H. Schmidt, Jr. | | 4649 |
| | Executive Vice President, Corporate Development and General Counsel |
| Thomas Meth | | 49 | | Executive Vice President and Chief Commercial Officer |
| E. Royal Smith | | 4649 |
| Executive Vice President, Operations |
| Roxanne B. Klein | | 45 | | Executive Vice President Operationsand Chief Human Resources Officer |
Joseph N. LaneYanina A. Kravtsova | | 3845 |
| | Executive Vice President, Human CapitalCommunications, Public and Environmental Affairs |
Raymond J. Kaszuba, IIIMichael A. Johnson | | 4056 |
| | Senior Vice President Finance and TreasurerChief Accounting Officer |
James P. GeraghtyRalph Alexander | | 4166 |
| | Vice President, Operations FinanceDirector |
Ralph Alexander | | 63 |
| | Director |
| John C. Bumgarner, Jr. | | 7679 |
| | Director |
| Martin N. Davidson | | 60 | | Director |
| Jim H. Derryberry | | 7477 |
| | Director |
Robin J. A. DugganFauzul Lakhani | | 5234 |
| | Director |
Christopher B. HuntGerrit “Gerrity” L. Lansing, Jr. | | 5549 |
| | Director |
William K. ReillyPierre F. Lapeyre, Jr. | | 7959 |
| | Director |
| David M. Leuschen | | 70 | | Director |
| Jeffrey W. Ubben | | 60 | | Director |
| Gary L. Whitlock | | 6972 |
| | Director |
Carl L. Williams | | 42 |
| | Director |
| Janet S. Wong | | 6063 |
| Director |
| Eva T. Zlotnicka | | 39 | | Director |
John K. Keppler. Mr. Keppler joined the board of directors as Chairman and began serving as President and Chief Executive Officer of the general partner of Enviva Partners, LP in November 2013.He has servedcontinued to serve as Chairman of the board of directors, and President, and Chief Executive Officer of our General Partner since our inception in November 2013.Enviva Inc. Mr. Keppler co-founded Intrinergy, the predecessor to our former sponsor, in 2004. From 2002 to 2004, Mr. Keppler was the Director of Corporate Strategy in the Office of the Vice Chairman with America Online and, prior to that, he was Senior Manager, Business Affairs and Development with America Online from 2001 to 2002. Mr. Keppler holds a B.A. in political economy from the University of California, Berkeley, as well as an MBA from The Darden Graduate School of Business Administration at The University of Virginia. Over the course of Mr. Keppler’s career, he has gained extensive experience growing innovative ideas into successful businesses across a broad range of industries and has developed a wealth of experience in business strategy and operations and a keen knowledge of the renewable energy sector. For the past fourteensixteen years, Mr. Keppler has been responsible for setting our strategic direction and leading the company’sour growth from a start-up company to the world’s leading producer of wood biomass fuels. In light of this experience, we believe that he has the requisite set of skills to serve as a director, as well as Chairman, President and Chief Executive Officer.
Shai S. Even. Mr. Even has servedbegan serving as Executive Vice President and Chief Financial Officer of our General Partner sincethe general partner of Enviva Partners, LP in June 2018.2018 and has continued to serve as Executive Vice President and Chief Financial Officer of Enviva Inc. In this role, Mr. Evenleads Enviva’s finance, accounting, and accounting organizationinformation technology organizations and provides strategic leadership on finance matters. He has over 25 years of experience with operational and strategic finance, including in senior
financial and management roles at master limited partnerships. Most recently, Mr. Even served as Senior Vice President and Chief Financial Officer of Alon USA Energy, Inc. and served as President and Chief Financial Officer of Alon USA Partners, LP. While at Alon, Mr. Even led Alon’s parent company’s successful IPO on the NYSE in 2005 and the successful IPO of Alon’s master limited partnership in 2012. During his tenure at Alon, he led the company’s two major acquisitions and scaled its finance organization to complement the growth of the company. Prior to joining Alon, Mr. Even served as the Chief Financial Officer of DCL Group in Tel Aviv, Israel, and as an auditor with KPMG. Mr. Even holds a bachelor’s degree in Economics and Accounting from Bar-Ilan University and is a certified public accountant.
William H. Schmidt, Jr. Mr. Schmidt began serving as Executive Vice President, Corporate Development and General Counsel of the general partner of Enviva Partners, LP in February 2018 and, prior to that, as Executive Vice President, General Counsel and Secretary in November 2013, and continues to serve as Executive Vice President, Corporate Development and General Counsel of Enviva Inc. He also has served as Executive Vice President, Corporate Development and General Counsel of our former sponsor’s general partner since February 2018 and, prior to that, as Executive Vice President, General Counsel and Secretary since March 2013. Mr. Schmidt also served as President and General Counsel of Enviva Development Holdings, LLC, our former sponsor’s development company. In these capacities, Mr. Schmidt is responsible for our corporate development activities and legal affairs. Prior to joining Enviva, Mr. Schmidt was Senior Vice President and General Counsel of Buckeye GP LLC, the general partner of Buckeye Partners, L.P., a diversified master limited partnership. Mr. Schmidt also was President of Lodi Gas Storage, L.L.C., a subsidiary of Buckeye Partners, L.P., from August 2009 to January 2012. Prior to joining Buckeye in September 2004, Mr. Schmidt practiced law at Chadbourne & Parke LLP, an international law firm that subsequently merged with Norton Rose Fulbright.
Thomas Meth. Mr. Meth has servedbegan serving as Executive Vice President, Sales and Marketing of our General Partner since our inceptionthe general partner of Enviva Partners, LP in November 2013. 2013 and has continued to serve as Executive Vice President and Chief Commercial Officer of Enviva Inc.Hewas also a co-founder of Intrinergy. Mr. Meth is responsible for our commercial customer relations as well as our marketing, sustainability, communicationsmarket development, customer fulfillment and public relationsshipping initiatives. Prior to Intrinergy, Mr. Meth was Head of Sales and Marketing in Europe, the Middle East, and Africa for the Colfax Corporation from 2002 to 2004. From 1993 to 2000, Mr. Meth was Director of Sales for Europay Austria, a consumer financial services company that offered MasterCard, Maestro, and Electronic Purse services. Mr. Meth holds a bachelor of commerce from Vienna University of Economics and Business Administration in Austria as well as an MBA from The Darden Graduate School of Business Administration at The University of Virginia. Mr. Meth was an executive officer of Intrinergy Deutschland Management GmbH (“IDM”) and Enviva Pellets GmbH and Co. KG (“EPD”), which were engaged in pellet manufacturing in Germany unrelated to our core business. Both entities filed for insolvency in Amtsgerichts Straubing, a district court located in Germany, in
November 2010. Our predecessor distributed its indirect interests in IDM and EPD to our sponsor as part of the reorganization in connection with our IPO.
William H. Schmidt, Jr. Mr. Schmidt has served as Executive Vice President, Corporate Development and General Counsel of our General Partner since February 2018 and, prior to that, as Executive Vice President, General Counsel and Secretary since our inception in November 2013. He also has served as Executive Vice President, Corporate Development and General Counsel of our sponsor’s general partner since February 2018 and, prior to that, as Executive Vice President, General Counsel and Secretary since March 2013. Mr. Schmidt also serves as President and General Counsel of Enviva Development Holdings, LLC, our sponsor’s development company. In these capacities, Mr. Schmidt is responsible for our and our sponsor’s corporate development activities and legal affairs. Prior to joining Enviva, Mr. Schmidt was the Senior Vice President and General Counsel of Buckeye GP LLC, the general partner of Buckeye Partners, L.P., a diversified master limited partnership. Mr. Schmidt also was the President of Lodi Gas Storage, L.L.C., a subsidiary of Buckeye Partners, L.P., from August 2009 to January 2012. Prior to joining Buckeye in September 2004, Mr. Schmidt practiced law at Chadbourne & Parke LLP, an international law firm.
E. Royal Smith. Mr. Smith has servedbegan serving as Executive Vice President, Operations of our General Partner and our sponsor sincethe general partner of Enviva Partners, LP in August 2016 and prior to thatas Vice President, Operations sincein April 2014.2014, and continues to serve as Executive Vice President, Operations of Enviva Inc. Previously, he served as Director of Operations, NAA Division of Guilford Performance Textiles, a global textile manufacturing company, from March 2012 to July 2014. From August 2010 to March 2012, Mr. Smith also served as Director of Quality, NAA Division. Prior to joining Guilford, Mr. Smith worked as a Plant Manager at Pactiv, a food packaging manufacturer, from May 2009 to August 2010. Mr. Smith served as General Manager of a facility operated by United Plastics Group International from December 2005 to May 2009, after serving in other roles at the company from April 2002. From January 1999 to September 1999, he served as Production Supervisor of The General Motors Corporation, before serving as Mechanical Device/Tool and Die Supervisor from September 1999 to August 2000. Mr. Smith holds a B.S. in Mechanical Engineering from GMI Engineering and Management Institute.
Joseph N. LaneRoxanne B. Klein. Mr. Lane has servedMs. Klein began serving as Executive Vice President and Chief Human Resources Officer of the general partner of Enviva Partners, LP in December 2021 and continues to serve as Executive Vice President and Chief Human Resources Officer of Enviva Inc. With years of Human Capital of our General PartnerResources leadership experience in the manufacturing industry, Roxanne has an extensive and our sponsor since March 2018. Previously, Mr. Lane was Vice President, Human Resources of Asia Pacific of Milliken & Company since 2015, after holding roles with progressively more responsibility sinceproven background building successful talent acquisition and development teams and driving best practices in people management and social impact. Prior to joining the company in 2001. Over the course of Mr. Lane’s career, he has gained a wealth of valuable experience dealing with talent-related matters associated with scaling organizations, mergers and acquisitions activity, industrial manufacturing and international operations. Mr. Lane received a Bachelor of Science in Business Administration with an emphasis in Human Resources Management from Clemson University in 2003 as well as an MBA from the Babcock Graduate School of Business Administration at Wake Forest University in 2009. He holds the SHRM certification for Senior HR Professionals (SPHR-CP).
Raymond J. Kaszuba, III. Mr. Kaszuba has servedEnviva, Ms. Klein spent six years as Senior Vice President Finance and TreasurerChief Human Resources Officer for Knoll, Inc., one of our General Partnerthe world’s leading global manufacturers of office and our sponsor since June 2018other furniture. Prior to that, she held progressively increasing leadership roles at Knoll from 2007 to 2015 as well as additional Human Resources leadership roles at Praxair, Inc. and Danaher Corporation. Ms. Klein holds a B.B.A. from Temple University and an M.B.A. from DeSales University.
Yanina A. Kravtsova. Ms. Kravtsova began serving as Executive Vice President, Communications, Public & Environmental Affairs of the general partner of Enviva Partners, LP, in December 2019 and, prior to that, as Vice President, Environmental Affairs and Treasurer sinceChief Compliance Officer in October 2018, and continues to serve as Executive Vice President, Communications, Public & Environmental Affairs of Enviva Inc. In her current role, Ms. Kravtsova leads the teams responsible for media, governmental and community relations, as well as environmental permitting of our facilities. Ms. Kravtsova brings to Enviva over 20 years of leadership and senior management experience in the renewable energy and power sector. Prior to joining Enviva, Ms. Kravtsova served as Senior Vice President, General Counsel and Secretary of Terraform Global, Inc. from
February 2015. Ms. Kravtsova was also Legal Head of Renewable Energy Investments at Google Inc. from August 2011 to January 2015. Ms. Kravtsova practiced law at Clifford Chance U.S. LLP, Latham & Watkins LLP, and The World Bank Group, handling international project finance, regulatory, and corporate matters for energy projects.
Michael A. Johnson. Mr. Johnson began serving as Vice President and Chief Accounting Officer of the general partner of Enviva Partners, LP in July 2015. Previously,2021 and continues to serve as Vice President and Chief Accounting Officer of Enviva Inc. In this role, he worked in several treasuryis responsible for managing Enviva’s accounting systems and finance-related positionsfinancial controls with a focus on ensuring timely and accurate internal and external financial reporting and maintaining regulatory compliance. Mr. Johnson is an accomplished finance professional with years of experience as an accounting and controllership leader for public companies within the energy industry. Prior to joining Enviva, he spent three years at Exxon Mobil Corporation, a leadingSandRidge Energy, an oil and natural gas company, for eight years.most recently serving as their Chief Financial Officer. Prior to that, he built a successful 24-year career at Chesapeake Energy Corporation, beginning as Assistant Controller before spending 17 years in the role of Senior Vice President & Chief Accounting Officer. He gained additional audit and financial reporting experience at Phibro Energy Production and Arthur Andersen. Mr. KaszubaJohnson holds a B.S.B.B.A. in Finance and EconomicsAccounting from the University of DaytonTexas and an MBA from the Tepper School of Business at Carnegie Mellon University.
James P. Geraghty. Mr. Geraghty has served as Vice President, Operations Finance of our General Partner and our sponsor since June 2018. Prior to that, he served as Vice President and Controller of our General Partner since our inception in November 2013 and of our sponsor since January 2011. From July 2008 to January 2011, Mr. Geraghty was Project Manager at Rose Financial Services, a consulting firm that specializes in assisting early stage high-growth companies to scale their finance functions in preparation for private and public debt and equity offerings. Prior to that, he was Controller at The George Washington University Hospital since July 2002. From September 1999 to July 2002, Mr. Geraghty worked in the Assurance and Business Advisory Services of Arthur Andersen, LLP. Mr. Geraghty holds a B.S. in Accounting from Mount Saint Mary’s University, an MBA from the George Washington University School of Business and holdsis a Certified Public Accountant accreditation.Accountant.
Ralph Alexander. Mr. Alexander has served as director onjoined the board of directors of our General Partner since our inceptionthe general partner of Enviva Partners, LP in November 2013. Mr. Alexander2013 and has continued to serve as a member of the board of directors of Enviva Inc. He has served as the President and CEOExecutive Chairman of Talen Energy since November 2021, where he previously served as Chairman and CEO from December 2016. He becameMr. Alexander was affiliated with Riverstone Holdings LLC infrom September 2007.2007 to December 2016. For nearly 25 years, Mr. Alexanderhe served in various positions with subsidiaries and affiliates of BP plc, one of the world’s largest oil and gas companies. From June 2004 until December 2006, heMr. Alexander served as Chief Executive Officer of Innovene, BP’s $20 billion olefins and derivatives subsidiary. From 2001 until June 2004, he served as Chief Executive Officer of BP’s Gas, Power and Renewables and Solar segment and was a member of the BP group executive committee. Prior to that, Mr. Alexander served as a Group Vice President in BP’s Exploration and Production segment and BP’s Refinery and Marketing segment. He held responsibilities for various regions of the world, including North America, Russia, the Caspian, Africa, and Latin America. Prior to these positions, Mr. Alexander held various positions in the upstream, downstream, and finance groups of BP. Mr. Alexander has served on the board of Talen Energy
Corporation since June 2015. From December 2014 through December 2016, Mr. Alexander served on the board of EP Energy Corporation. He has previously served on the boards of Foster Wheeler, Stein Mart, Inc., Amyris, and Anglo‑American plc. Mr. Alexander holds an M.S. in Nuclear Engineering from Brooklyn Polytech (now NYU School of Engineering—Polytechnic)Engineering) and an M.S. in Management Science from Stanford University. We believe that Mr. Alexander’s energy and power expertise, experience in international markets, and prior public company directorships enable him to provide critical insight and guidance to our management team and board of directors.
John C. Bumgarner, Jr. Mr. Bumgarner has served as a director onjoined the board of directors of our General Partner sincethe general partner of Enviva Partners, LP in April 2015.2015 and has continued to serve as a member of the board of directors of Enviva Inc. Mr. Bumgarner has been engaged in private investment since November 2002, and currently assists in operating a family-owned,family owned, multi-faceted real estate company. Mr. Bumgarner previously served as Co-Chief Operating Officer and President of Strategic Investments for Williams Communications Group, Inc., a high technology company, from May 2001 to November 2002. Williams Communications Group, Inc. filed a Plan of Reorganization with the U.S. Bankruptcy Court in August 2002. Mr. Bumgarner joined The Williams Companies, Inc., in 1977 and, prior to working at Williams Communications Group, Inc., served as Senior Vice President of Williams Companies Corporate Development and Planning, President of Williams International Company and President of Williams Real Estate Company. He most recently served as a director of Energy Partners, Ltd., an oil and natural gas exploration and production company, from January 2000 to February 2009, and at Market Planning Solutions Inc. from February 1982 until April 2011. Energy Partners, Ltd. filed a Plan of Reorganization with the U. S. Bankruptcy Court in May 2009. Mr. Bumgarner holds a B.S. from the University of Kansas and an M.B.A. from Stanford University. Mr. Bumgarner’s substantial experience as an executive at a conglomerate and as a director on boards of public and private companies engaged in a variety of industries provide him with unique insight that is particularly helpful and valuable to the board of directors of our General Partner.Company.
Jim H. Derryberry. Mr. Derryberry has served as a director onMartin N. Davidson, Ph.D. Dr. Davidson joined the board of directors of our General PartnerEnviva Inc. in December 2021. He is the Johnson & Higgins Professor of Business Administration at the University of Virginia’s Darden School of Business. Dr. Davidson currently serves as senior associate dean and global chief diversity officer for the school. He teaches, conducts research, and consults with global leaders to help them use diversity strategically to drive high performance. His thought leadership has changed how many executives approach inclusion and diversity in their organizations. His book, The End of Diversity as We Know It: Why Diversity Efforts Fail and How Leveraging Difference Can Succeed, co-authored with Heather Wishik, introduces a research-driven roadmap to help leaders more effectively create and capitalize on diversity in organizations. Dr. Davidson has consulted with leaders of a host of global firms, government agencies, and social profit organizations, including Bank of America, The World Health Organization, The Walt Disney Company, Credit Suisse Group, The Nature Conservancy, and the U.S. Navy SEALs. Dr. Davidson has been featured in numerous media outlets, including The New York Times, Bloomberg BusinessWeek, The Wall Street Journal, The Washington Post, National Public Radio, and CNN. He has been a member of the Darden faculty since 1998. Previously, he was a member of the Amos Tuck School of Business faculty at
Dartmouth College. He earned his A.B. from Harvard University and his Ph.D. from Stanford University. Dr. Davidson’s academic research, writing, and consulting on a variety of topics, with a specific emphasis on diversity, equity, and inclusion, will provide immense value to the board of directors.
Jim H. Derryberry. Mr. Derryberry joined the board of directors of the general partner of Enviva Partners, LP in July 2018.2018 and has continued to serve as a member of the board of directors of Enviva Inc. Mr. Derryberry served as a director of USA Compression GP, LLC from January 2013 to April 2018. He is currently a special advisor for Riverstone Holdings LLC where he held the office of Chief Operating Officer and Chief Financial Officer until 2006. Prior to joining Riverstone, Mr. Derryberry was a managing director of J.P. Morgan where he was head of the Natural Resources and Power Group. He had previously served in the Goldman Sachs Global Energy and Power Group where he was responsible for mergers and acquisitions, capital markets financing, and the management of relationships with major energy companies. He also served on the Board of Directors of Magellan GP, LLC, the general partner of Magellan Midstream Partners, L.P, from 2005-2006. Mr. Derryberry has been a member of the Board of Overseers for the Hoover Institution at Stanford University and is a member of the Engineering Advisory Board at the University of Texas at Austin. He received his B.S. and M.S. degrees in engineering from the University of Texas at Austin and earned an M.B.A. from Stanford University. Mr. Derryberry’s substantial experience in the energy and power industries and his operations expertise make him uniquely suited to provide the board of directors with invaluable insight and guidance.
Robin J. A. Duggan.Fauzul Lakhani. Mr. Duggan has served as a director onLakhani joined the board of directors of our General Partner since our inceptionEnviva Inc. in November 2013. Mr. Duggan has been a Managing Director of Riverstone since 2014, and previously served asDecember 2021. He is a Principal of Riverstone for seven years.Holdings L.L.C. Prior to joining Riverstone in 2012, Mr. DugganLakhani was the founder of Commodity Optimization Ventures Ltd., a business that provided advice to clientswith Credit Suisse in the private equity industry, includingGlobal Investment Banking Group. While at Credit Suisse, Mr. Lakhani worked on M&A transactions and capital markets financings, with a focus on the energy sector. Mr. Lakhani graduated with honors from the University of Texas Pacific Group. Before founding his business, he served for over 17 yearsat Austin with a B.B.A. in various positions with subsidiaries and affiliates of BP plc. From 2004 to 2005, Mr. Duggan was the Vice President of European Business Optimization at Innovene, BP’s olefins and derivatives subsidiary, where he was responsible for commercial activity for olefins and refining in Europe and also oversaw Innovene’s successful separation from BP in Europe. From 1999 to 2003, Mr. Duggan held a number of senior level positions in BP’s Petrochemicals segment, including serving as the Performance Unit Leader of the Aromatics and Olefins division, Global Business Manager of the Styrene business unit, and the Planning, Performance and Strategy Manager of the Acetyls business unit. Prior to that time, Mr. Duggan held various positions in BP’s Upstream segment in the United Kingdom, Australia and Venezuela over a period of ten years. Mr. DugganFinance. He currently serves on the boards of a number of Riverstone portfolio companies and their affiliates. He holds a B.A. in biochemistry from Oxford University and an M.S. in management science from Stanford University. Based on his strong background in various aspectsB.B.A. Advisory Board of the energy industry, we believeMcCombs School of Business. Mr. Duggan has the requisite setLakhani’s investment banking and finance background will make him a key asset on our board of skills to serve as a director.directors.
Christopher B. Hunt.Gerrit (“Gerrity”) L. Lansing, Jr. Mr. Hunt has served as a director onLansing joined the board of directors of our General Partner since April 2016. Mr. Hunt is athe general partner of RiverstoneEnviva Partners, LP in October 2020 and joined Riverstone in 2008. In addition to serving on the boards of a number of Riverstone portfolio companies and their affiliates, he also currently serves on the board of directors of NTR Plc. Prior to joining Riverstone, Mr. Hunt ran international power development and generation businesses for BP plc and Enron Corporation. Mr. Hunt received his BA from Wesleyan University and his MBA from Columbia University. He has also completed various post-graduate programs at Harvard University, Stanford University, the Massachusetts Institute of Technology and Oxford University. Mr. Hunt brings extensive experience in the renewable energy, conventional power and natural gas industries to the board of directors of our General Partner.
William K. Reilly. Mr. Reilly has served as a director on the board of directors of our General Partner since April 2015. Mr. Reilly served as Administrator of the U.S. Environmental Protection Agency from 1989 to 1993. From October 1997 to December 2009, Mr. Reilly served as President and Chief Executive Officer of Aqua International Partners, an investment
group which finances water improvements in emerging markets. He also served as Senior Advisor to TPG Capital from September 1994 to December 2016. In 2010, Mr. Reilly was appointed by President Obama as co-chair of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. He currently serves on the board of directors of Royal Caribbean Cruises Ltd. Mr. Reilly served as a director of Conoco Inc. from 1998 until its merger with Phillips Petroleum Company in 2002, and thereafter served as a director of ConocoPhillips until May 2013. From 1993 until April 2012, Mr. Reilly also served on the board of directors of E.I. duPont de Nemours and Company. He has also previously served as the first Payne Visiting Professor at Stanford University, President of the World Wildlife Fund and President of The Conservation Foundation. He is Chairman Emeritus of the World Wildlife Fund and Chairman of the Nicholas Institute for Environmental Policy Solutions at Duke University. Mr. Reilly’s extensive environmental regulatory experience and his service on various other boards make him well qualifiedcontinued to serve as a member of the board of directors of our GeneralEnviva Inc. Mr. Lansing is a Managing Director and Partner of BTG Pactual and allow himHead of BTG Pactual Tangible Assets Group, which includes BTG Pactual Timberland Investment Group (“TIG”). TIG is one of the world’s largest timberland investment managers with more than $3.5 billion under management and investments including more than 2.6 million acres across four continents. Mr. Lansing leads a management team at TIG with more than 800 years of combined experience and which operates in accordance with the UN Principles for Responsible Investment and with first-class sustainable forestry practices including those set forth by the Forest Stewardship Council and Programme for the Endorsement of Forest Certification, as validated by extensive independent audits. Prior to provide uniquehis current role, he was a Founder and valuable perspective on matters criticalChief Executive Officer of Equator, LLC and its Brazilian subsidiary, TTG Brasil Investimentos Florestais Ltda, which was acquired by BTG Pactual in 2012. Prior to our operations.
Gary L. Whitlock.this, as Chief Executive Officer, Mr. Whitlock has served asLansing spent nearly a directordecade building Madison Trading, LLC and Chatham Energy Partners, LLC (acquired by The Intercontinental Exchange). He is on the board of directors of the Nasher Museum of Art at Duke University, the Buckley School in New York City, the National Alliance of Forest Owners, and La Fundación de la Universidad del Valle de Guatemala. Mr. Lansing received his B.A. from Duke University. Mr. Lansing brings proven leadership and significant knowledge and expertise to the board of directors from his years of experience with socially responsible investing in the timberland industry, where he gained insight into sustainable forestry practices and maintained productive, respectful relationships with a broad range of stakeholders.
Pierre F. Lapeyre, Jr. Mr. Lapeyre joined the board of directors of the general partner of Enviva Partners, LP in March 2021 and has continued to serve as a member of the board of directors of Enviva Inc. Mr. Lapeyre is a co-founder and senior managing director of Riverstone Holdings LLC. Prior to co-founding Riverstone in 2000, Mr. Lapeyre was a managing director of Goldman Sachs in its Global Energy & Power Group. Mr. Lapeyre joined Goldman Sachs in 1986 and spent his 14-year investment banking career focused on energy and power and leading client coverage and execution of a wide variety of M&A, IPO, strategic advisory, and capital markets financings for clients across all sectors of the industry. Mr. Lapeyre received his B.S. in Finance/Economics from the University of Kentucky and his M.B.A. from the University of North Carolina at Chapel Hill. Mr. Lapeyre serves on the boards of directors or equivalent bodies of a number of public and private Riverstone portfolio companies and their affiliates, including Centennial Resource Development, Inc., Hyzon Motors, Inc. (f/k/a Decarbonization Plus Acquisition Corporation), Decarbonization Plus Acquisition Corporation IV, and Riverstone Energy Limited, and has previously served on the boards of directors of Decarbonization Plus Acquisition Corporation II (predecessor to Tritium DCFC Limited) and Decarbonization Plus Acquisition Corporation III (predecessor to Solid Power, Inc.). In addition to his duties at Riverstone, Mr. Lapeyre serves on the Executive Committee of the Board of Visitors of the MD Anderson Cancer Center and is a Trustee and Treasurer of The Convent of the Sacred Heart. We believe that Mr. Lapeyre’s considerable energy, private equity, and investment banking experience bring important and valuable skills to our Generalboard of directors.
David M. Leuschen. Mr. Leuschen joined the board of directors of the general partner of Enviva Partners, LP in April 2021 and has continued to serve as a member of the board of directors of Enviva Inc. Mr. Leuschen is the Co-Founder and Senior Managing Director of Riverstone. He sits on the Investment Committees of all the various Riverstone investment vehicles. Prior to co-founding Riverstone in 2000, Mr. Leuschen was a Partner sinceand Managing Director at Goldman Sachs and founder and head of the Goldman Sachs Global Energy and Power Group. Mr. Leuschen was responsible for building the Goldman Sachs energy and power investment banking practice into one of the leading franchises in the global energy and power industry. Mr. Leuschen additionally served as Chairman of the Goldman Sachs Energy Investment Committee, where he was responsible for screening potential direct investments by Goldman Sachs in the energy and power industry. Mr. Leuschen has served as a director of Cambridge Energy Research Associates, Cross Timbers Oil Company (predecessor to XTO Energy), Canadian Non-Operated Resources, L.P. (predecessor to Pipestone Energy Corp.), Decarbonization Plus Acquisition Corporation II (predecessor to Tritium DCFC Limited), Decarbonization Plus Acquisition Corporation III (predecessor to Solid Power, Inc.), and J. Aron Resources. He currently serves on the boards of directors of Riverstone Energy Limited and, Centennial Energy Development. He is also president and sole owner of Switchback Ranch LLC and on the Advisory Board of Big Sky Investment Holdings LLC. Mr. Leuschen serves on a number of nonprofit boards of directors, including as a Trustee of United States Olympic Committee Foundation, a Director of Conservation International, a Director of the Peterson Institute for International Economics, a Founding Member of the Peterson Institute’s Economic Leadership Council, a Director of the Wyoming Stock Growers Association, and a Director of the Montana Land Reliance. Mr. Leuschen received his A.B. from Dartmouth and his M.B.A. from Dartmouth’s Amos Tuck School of Business. We believe that Mr. Leuschen’s considerable energy, private equity, and investment banking experience bring important and valuable skills to our board of directors.
Jeffrey W. Ubben. Mr. Ubben joined the board of directors of the general partner of Enviva Partners, LP in June 2020 and has continued to serve as a member of the board of directors of Enviva Inc. Mr. Ubben is a Founder, Managing Partner, and member of the Management Committee of Inclusive Capital Partners, a San Francisco-based investment firm which partners with companies that enable solutions to address environmental and social problems. Mr. Ubben is a retired Founder of ValueAct Capital, where he was Chief Executive Officer, member of the Management Committee, Chief Investment Officer, and Portfolio Manager. Mr. Ubben also founded and serves as Portfolio Manager of the ValueAct Spring Fund. Prior to founding ValueAct Capital in 2000, Mr. Ubben was a Managing Partner at Blum Capital Partners for more than five years. Mr. Ubben is a director of AppHarvest, Fertiglobe, ExxonMobil Corporation, and Nikola Corporation. Mr. Ubben is a former director of The AES Corporation, where he was a member of the Compensation and Financial Audit Committees. He is the former chairman and director of Martha Stewart Living Omnimedia, Inc., and a former director of Catalina Marketing Corp., Gartner Group, Inc., Mentor Corporation, Misys plc, Sara Lee Corp., Twenty-First Century Fox Inc., Valeant Pharmaceuticals International, Willis Towers Watson plc, and several other public and private companies. In addition, Mr. Ubben serves on the boards of Duke University, The World Wildlife Fund, The Redford Center, and the E.O. Wilson Biodiversity Foundation, and formerly served as Chair of the National Board of the Posse Foundation for nine years. He has a B.A. from Duke University and an M.B.A. from the Kellogg School of Management at Northwestern University. Mr. Ubben’s experience in capital allocation across different industries and strategic thinking will be invaluable to Enviva as the Company seeks to increase stockholder value by enhancing its ESG credentials while playing a leadership role in the energy transition.
Gary L. Whitlock. Mr. Whitlock joined the board of directors of the general partner of Enviva Partners, LP in April 2016.2016 and has continued to serve as a member of the board of directors of Enviva Inc. Mr. Whitlock served as Executive Vice President and Chief Financial Officer of CenterPoint Energy, Inc. (“CenterPoint”) from September 2002 until April 2015. From April 2015 until his retirement on October 1, 2015, he served as Special Advisor to the Chief Executive Officer of CenterPoint. While at CenterPoint, Mr. Whitlock was responsible for accounting, treasury, risk management, tax, strategic planning, business development, emerging businesses, and investor relations. From July 2001 to September 2002, Mr. Whitlock served as Executive Vice President and Chief Financial Officer of the Delivery Group of Reliant Energy, Incorporated (“Reliant”). Prior to joining Reliant, Mr. Whitlock served as Vice President of Finance and Chief Financial Officer of Dow AgroSciences LLC, a subsidiary of The Dow Chemical Company (“Dow”), from 1998 to 2001. He began his career with Dow in 1972, where he held a number of financial leadership positions, both in the United States and globally. While at Dow, Mr. Whitlock served on the boards of directors of various Dow entities. Mr. Whitlock is a Certified Public Accountant and received a BBA in accounting from Sam Houston State University in 1972. He has previously served on the board of directors of Texas Genco Holdings, Inc., the board of directors of the general partner of Enable Midstream Partners, LP from March 2013 to August 2015, the board of directors of KiOR, Inc. from December 2010 to June 2015, the board of directors of CHI St. Luke’s Health System, The Woodlands, and the Leadership Cabinet of Texas Children’s Hospital. Mr. Whitlock brings extensive experience in public company financial management and reporting to the board of directors of our General Partner.Company.
Carl L. Williams. Mr. Williams has served as a director onJanet S. Wong. Ms. Wong joined the board of directors of our General Partner since our inceptionthe general partner of Enviva Partners, LP in November 2013. Mr. Williams isApril 2015 and has continued to serve as a Managing Director at Riverstone. He also serves on the boardsmember of a number of Riverstone portfolio companies and their affiliates. Prior to joining Riverstone in 2008, Mr. Williams was in the Global Natural Resources investment banking group at Goldman, Sachs & Co. from 2005 to 2008. While at Goldman, he focused on mergers and acquisitions and financing transactions in the power generation, alternative energy, oil and gas and refining industries. Prior to that, he held various positions in engineering and strategic sourcing with Lyondell Chemical Company, a supplier of raw materials and technology to the coatings industry, from 1999 to 2004. He received his MBA from Columbia Business School, and holds a B.S. in chemical engineering and a B.A. in economics and managerial studies from Rice University. We believe that Mr. Williams’ extensive experience in, and knowledge of, each of the finance and energy sectors enable him to provide essential guidance to the board of directors of our General PartnerEnviva Inc. She is a licensed Certified Public Accountant and our management team.has more than 30 years of public accounting experience. She is a partner (retired) with KPMG, an international professional
services firm, where she gained extensive industry experience in technology, manufacturing, energy, financial services, and consumer products. Currently, Ms. Wong has served as a directorserves on the board of directorsLucid Group, Inc., a technology manufacturer of our General Partner since April 2015. Since January 2013, Ms. Wong has served as an Executive Advisor for Ascend,electric vehicles and energy storage, where she is Chair of the Audit Committee, Lumentum Holdings Inc., a non‑profit professional organization that enables its members, corporate partnersmarket-leading high technology manufacturer of innovative optical and photonics products, where she is a member of the community to realizeAudit Committee, and Allegiance Bancshares, Inc., a financial services company, where she is a member of the leadership potential of Pan‑Asians in global corporations. At Ascend, Ms. Wong has been a co‑developerCorporate Governance and instructor for its Executive Insight courses.Nominating Committee. In January 2018,addition, she was elected tois on the Board of Trustees for the Computer History Museum. In addition, she serves onMuseum, the Board of the Louisiana Tech University Foundation, Board and the CollegeBoard of Business Advisory Board where she is the immediate past-Chairman. Ms. Wong served as a Partner at Grant Thornton LLP from August 2008 through July 2012, where she wasTri-Cities Chapter of the Central RegionNational Association of Corporate and Partnership Services Lead Partner. In 2008, Ms. Wong retired from the partnership of KPMG, culminating a career with the global firm from 1985 through 2008, where she served as a National Industry Practice Lead Partner. Ms. Wong has extensive experience working with clients in the consumer markets, energy, financial services, manufacturing, and technology sectors. She is a Certified Public Accountant.Directors. She holds a Master of Professional Accountancy from Louisiana Tech University and a Master of Taxation from Golden Gate University. She is a NACD (National Association of Corporate Directors) Certified® Director. We believe Ms. Wong’s audit and financial expertise as well as her leadership and her professional and leadershipgovernance experience enable her to provide essential guidance to the board of directors of our General PartnerCompany and our management team.
Director Independence
TheEva T. Zlotnicka. Ms. Zlotnicka joined the board of directors of our GeneralEnviva Inc. in December 2021. She is a Founder, Managing Partner, has four independent directors: John C. Bumgarner, Jr., William K. Reilly, Gary L. WhitlockPresident, and Janet S. Wong. The NYSE does not requiremember of the Management Committee of Inclusive Capital Partners, a publicly traded partnership such as oursSan Francisco-based investment firm that partners with companies that enable solutions to haveaddress environmental and social problems. Before founding Inclusive Capital Partners, she was a majorityFounder and Managing Director of independent directorsthe ValueAct Spring Fund and Head of Stewardship at ValueAct Capital. Prior to joining ValueAct Capital in 2018, Ms. Zlotnicka spent more than ten years on the sell side. Most recently, she was U.S. lead Sustainability and Environmental, Social and Governance (E.S.G.) equity research analyst at Morgan Stanley. Ms. Zlotnicka is a director of Unifi, Inc., where she serves on the Audit Committee and serves as chairman for the Corporate Governance and Nominating Committee. Ms. Zlotnicka was previously a director of Hawaiian Electric Industries, where she was a member of the Compensation Committee. Ms. Zlotnicka also serves as a member of the Investor Advisory Group for the Sustainability Accounting Standards Board (SASB) and is a member of the Advisory Board of the Institute for Corporate Governance and Finance at N.Y.U. Law. Ms. Zlotnicka also co-founded Women Investing for a Sustainable Economy (WISE), a global professional community. She has two B.S.c. degrees from the University of Pennsylvania, including one from the Wharton School, and an M.B.A and a Master of Environmental Science degree from Yale University. We believe that Ms. Zlotnicka’s experience in sustainable investing and deep background in environmental and social issues will serve as a valuable resource to the board orof directors.
Director Independence
All members of our Board except Mr. Keppler are independent pursuant to establish a compensation committee or a nominating committee. However, our
General Partner is required to have an audit committee of at least three members, and all its members are required to meet the independence and experience standards established by the NYSENew York Stock Exchange (the “NYSE”) and the Securities Exchange Act.Act of 1934, as amended (the “Exchange Act”).
Committees of the Board of Directors
The board of directors of our General PartnerBoard has threefour standing committees: an audit committee, a compensation committee, and a health, safety, sustainability, and environmental committee, and a nominating and corporate governance committee. The board of directors of our General Partner may also form a conflicts committee from time to time.Board met seven times in 2021.
Audit Committee
WeResponsibilities of the audit committee, which are required to haveset forth in the Audit Committee Charter posted on the Company’s website include, among other duties, assisting the Board in fulfilling its oversight responsibilities regarding:
•the integrity of our financial statements,
•compliance with legal and regulatory requirements and corporate policies and controls,
•qualifications, independence, and performance of our independent registered public accounting firm engaged for the purpose of preparing or issuing an audit committeereport or performing other audit, review or attest services for the Company, and
•effectiveness and performance of at least three members, and all the Company’s internal audit function.
The members of the audit committee are required to meet the independence and experience standards established by the NYSE and the Exchange Act. Mr. Bumgarner, Mr. Whitlock, and Ms. Wong, and Mr. Whitlock currently servewith Ms. Wong serving as members of the audit committee. The board determined that all members ofChairperson. In addition, the audit committee are financially literate and are “independent” under the standards of the NYSE and SEC regulations currently in effect. SEC rules also require that a public company disclose whether or not its audit committee has an “audit committee financial expert” as a member. An “audit committee financial expert” is defined as a person who, based on his or her experience, possesses the attributes defined by Regulation S-K Item 407(d)(s)(ii). The board of directors of our General PartnerBoard believes Ms. Wong satisfies the definition of “audit committee financial expert.”
The audit committee assists the boardmet five times during 2021.
Compensation Committee
As a limited partnership listedResponsibilities of the compensation committee, which are set forth in the Compensation Committee Charter that is posted on the NYSE, we are notCompany’s website include, among other duties, the responsibility to:
•review, evaluate, and approve the agreements, plans, policies, and programs of the Company to compensate the Company’s directors and executive officers,
•review and discuss with the Company’s management the Compensation Discussion and Analysis required by SEC regulations, and
•otherwise discharge the Board’s responsibilities relating to have a compensation committee. However,of the board ofCompany’s directors of our General Partner has established aand executive officers.
The compensation committee consisting of Mr. Alexander, Mr. Bumgarner and Mr. Williams to, among other things, administer our long-term incentive plan and establish and review general policies related to, and determine and approve, or make recommendations to the board with respect to, the compensation and benefitsis delegated all authority of the non‑employeeBoard as may be required or advisable to fulfill its purposes. The compensation committee may delegate to any one of its members ofor any subcommittee it may form, the board.
Conflicts Committee
Our General Partner’s board of directors may,responsibility and authority for any particular matter, as it deems appropriate from time to time establish a conflictsunder the circumstances.
The compensation committee may retain and determine funding for legal counsel, compensation consultants, as well as other experts and advisors (collectively, “Committee Advisors”), including the authority to whichretain, approve the board will appoint at least one directorfees payable to, amend the engagement with, and which may be askedterminate any Committee Advisor, as it deems necessary or appropriate to review specific matters thatfulfill its responsibilities. The Compensation Committee assesses the board believes may involve conflictsindependence of interestany Committee Advisor prior to retaining such Committee Advisor, and determines to submit to the conflicts committee for review. The conflicts committee determines if the resolution of the conflict of interest is adverse to the interest of the partnership. on an annual basis thereafter.
The members of the conflictsCompensation Committee are Mr. Bumgarner, Mr. Lapeyre, and Mr. Ubben, with Mr. Bumgarner serving as the Chairperson.
The compensation committee may not be officers or employeesmet five times during 2021.
Nominating and Corporate Governance Committee
Responsibilities of our General Partner or directors, officers or employeesthe nominating and corporate governance committee, which are set forth in the Nominating and Corporate Governance Committee Charter that is posted on the Company’s website include, among other duties, the responsibility to:
•advise the Board, make recommendations regarding appropriate corporate governance practices, and assist the Board in implementing those practices,
•identify individuals qualified to become members of its affiliates, including our sponsor, and must meet the independence standards established byBoard, consistent with the NYSE and the Exchange Act to serve on an audit committee of a board of directors, along with other requirements in our partnership agreement.
Any matterscriteria approved by the conflictsBoard,
•select and recommend to the Board for approval director nominees for election at the annual meetings of stockholders or for appointment to fill vacancies, and
•oversee the evaluation of the Board and management.
The members of the nominating and corporate governance committee will be conclusively deemed to be approved by usare Mr. Alexander, Mr. Lakhani, and all of our partnersMs. Wong, with Mr. Alexander serving as the Chairperson.
The nominating and corporate governance committee was formed upon the Conversion on December 31, 2021; as such, it did not a breach by our General Partner of any duties it may owe us or our unitholders.meet in 2021.
Health, Safety, Sustainability, and Environmental Committee
The boardResponsibilities of directors of our General Partner has established athe health, safety, sustainability, and environmental committee (the “HSSE committee”), which are set forth in the Health, Safety, Sustainability, and Environmental Committee (the “HSSE committee”) consisting of Mr. Duggan and Mr. Reilly. The HSSE committee assistsCharter that is posted on the board of directors of our General PartnerCompany’s website, include, among other duties, assisting the Board in fulfilling its oversight responsibilities with respect to the board’sBoard’s and our continuing commitment to (1) to:
•ensuring the safety of our employees and the public and assuring that our businesses and facilities are operated and maintained in a safe and environmentally sound manner, (2)
•sustainability, including sustainable forestry practices, (3)
•delivering environmental benefits to our customers, the forests from which we source our wood fiber, and the communities in which we operate, and (4)
•minimizing the impact of our operations on the environment.
The HSSE committee reviews and oversees our health, safety, sustainability, and environmental policies, programs, issues, and initiatives, reviews associated risks that affect or could affect us, our employees, and the public, and ensures proper management of those risks and reports to the board on health, safety, sustainability, and environmental matters affecting us, our employees, and the public.
The members of the HSSE committee are non‑employee directors of our General Partner.Mr. Davidson, Mr. Lansing, and Ms. Zlotnicka, with Ms. Zlotnicka serving as the Chairperson.
The HSSE committee met three times during 2021.
Executive Sessions of Non-Management Directors
The board of directors of our General PartnerBoard holds regular executive sessions in which the non-management directors meet without any members of management present. The purpose of these executive sessions is to promote open and candid discussion among the non-management directors. In the event that the non-management directors include directors who are not independent under the listing requirements of the NYSE, then at least once a year, there will be an executive session including only independent directors. The director who presides at these meetings is John C. Bumgarner, Jr. UnitholdersStockholders and any other interested parties may communicate directly with the presiding director or with the non-management directors as a group, by mail addressed to:
Presiding Director c/o General Counsel
Enviva Partners, LPInc.
72007272 Wisconsin Avenue, Suite 10001800
Bethesda, Maryland 20814
Communication with the Board of Directors
As set forth in the Communications Policy adopted by the board of directors of our General Partner, a holder of our unitsA stockholder or other interested party who wishes to communicate with any director of our General Partner may do so by sending communications to the board,Board, any committee of the board,Board, the Chairman of the boardBoard, or any other director to:
General Counsel
Enviva Partners, LPInc.
72007272 Wisconsin Avenue, Suite 10001800
Bethesda, Maryland 20814
and marking the envelope containing each communication as “Unitholder“Stockholder Communication with Directors” and clearly identifying the intended recipient(s) of the communication. Communications will be relayedComments or complaints relating to the intended recipientCompany’s accounting, internal accounting controls, or auditing matters will also be referred to members of the board of directors of our General Partner pursuant to the Communications Policy, which is available on the “Investor Relations” section of our website at www.envivabiomass.com. Any communications withheld under the Communications Policy will nonetheless be recorded and available for any director who wishes to review them.Audit Committee.
Corporate Governance
Our General Partner hasWe have adopted a Code of Business Conduct and Ethics that applies to our General Partner’s directors, officers, and employees, as well as to employees of our subsidiaries or affiliates that perform work for us. The Code of Business Conduct and Ethics also serves as the financial code of ethics for our Chief Executive Officer, Chief Financial Officer, controller, and other senior financial officers. Our General Partner hasWe have also adopted Corporate Governance Guidelines that outline the important policies and practices regarding our governance.
We make available free of charge, within the “Investor Relations” section of our website at www.envivabiomass.com and in print to any interested party who so requests, our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter, HSSE Committee Charter, and HSSENominating and Corporate Governance Committee Charter. Requests for print copies may be directed to Investor Relations, Enviva Partners, LP, 7200Inc., 7272 Wisconsin Ave., Suite 1000,1800, Bethesda, Maryland 20814, or by telephone at (301) 657‑5560. We will post on our website all waivers to or amendments of the Code of Business Conduct and Ethics, which are required to be disclosed by applicable law and the listing requirements of the NYSE. The information contained on, or connected to, our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report we file with or furnish to the SEC.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that the directors and executive officers of our General Partner and all persons who beneficially own more than 10% of our common units file initial reports of ownership and reports of changes in ownership of our common units with the U.S. Securities and Exchange Commission. As a practical matter, we assist the directors and executive officers of our General Partner by monitoring transactions and completing and filing Section 16 reports on their behalf.
Based solely upon our review of copies of filings or written representations from the reporting persons, we believe that, for the year ended December 31, 2018, Mr. Raymond J. Kaszuba III, an officer of our General Partner, did not file, on a timely basis, one report on Form 4 required to be filed under Section 16(a) of the Exchange Act with respect to one transaction. On July 29, 2018, Mr. Kaszuba sold 3,029 of our common units to satisfy his federal income tax withholding obligations in
connection with the vesting of phantom units granted pursuant to the LTIP. The Form 4 required to be filed in connection with this sale was filed on October 10, 2018.
| |
ITEM 11. | EXECUTIVE COMPENSATION |
Neither we nor Enviva Partners GP, LLC (our “General Partner”ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion & Analysis
Background and Business Highlights for 2021
This Compensation Discussion and Analysis (“CD&A”) have any employees. Allexplains the 2021 executive compensation program for the Named Executive Officers (the “NEOs”) identified below. The CD&A will discuss the impact of the Simplification Transaction and Conversion upon our executive officers are currently employedcompensation program for the 2021 year, including by indicating where the entity responsible for making compensation decisions, changed during the year. Accordingly, the period from January 1, 2021 to the closing of the Simplification Transaction, which occurred on October 14, 2021, will be referred to as the “Pre-Simplification Period,” and the period following the Pre-Simplification Period through December 31, 2021, the date of the Conversion, will be referred to as the “Post-Simplification Period.” Our executive compensation program was administered largely by Enviva Management Company, LLC (“Enviva Management”Management Company”)., a wholly owned subsidiary of our former sponsor, during the Pre-Simplification Period. The CD&A concludes with a description of the elements of our compensation program that remained unchanged during the entirety of the 2021 calendar year as they were not materially impacted by either the Simplification Transaction or the Conversion. Throughout this CD&A, references to “Enviva,” “we,” and “our” will refer to our predecessor, Enviva Partners, LP (the “Partnership” or the “Predecessor”), or Enviva Inc., as appropriate for the context. Similarly, references to our “shareholders” or “shares” refer to our “shareholders” or “units,” as applicable, during the period prior to the Conversion. Please read this CD&A together with the tables and related narrative about executive compensation that follow.
The table below lists our NEOs in 2021 whose compensation is described in this CD&A:
| | | | | | | | |
| Executive | | Title |
| John K. Keppler | | Chairman of the Board of Directors, President and Chief Executive Officer |
| Shai S. Even | | Executive Vice President and Chief Financial Officer |
| Thomas Meth | | Executive Vice President and Chief Commercial Officer |
| William H. Schmidt, Jr. | | Executive Vice President, Corporate Development and General Counsel |
| E. Royal Smith | | Executive Vice President, Operations |
Highlights
Our executive compensation philosophy seeks to tie compensation to our financial and operating performance. Specifically, the executive compensation program includes various performance metrics for NEOs that are closely aligned with financial returns to our securityholders and are designed to result in annual and long-term value creation. The performance goals established in the NEOs’ compensation plans are aggressive, and potential awards are intended to provide them an opportunity to earn above-median rewards in return for achieving such aggressive goals.
The 2021 year was a transformative year for us: we continued to operate our growing portfolio of fully contracted wood pellet facilities and deep-water marine terminals while managing the impact of the evolving COVID-19 pandemic on labor, safety, and supply chains and maintaining our role as a leader in sustainability in pursuit of our mission to displace coal, grow more trees, and fight climate change. During the year, we acquired a new wood pellet production plant and a new deep-water marine terminal and completed the Simplification Transaction under which we bought in the General Partner of Enviva Partners, LP, eliminating its incentive distribution rights, and converted from a master limited partnership to a corporation. In addition, as of February 1, 2022, our backlog of fully contracted volumes under our existing take-or-pay contracts is $21.2 billion with a weighted-average remaining term of 14.5 years, as well as a $40+ billion customer contract pipeline, providing for substantial potential future growth for the Company. We also returned $3.30 per share to holders of our common shares in distributions and dividends while maintaining robust liquidity and financial leverage well within the covenants of our debt agreements. The markets responded favorably to these accomplishments. Even after accounting for the approximately 21 million shares of primary equity issued during the course of 2021, which expanded our total shares outstanding by approximately 52%, we closed the year with a 64% total shareholder return (“TSR”), compared to a 29% TSR for the S&P 500 Index and 40% for the Alerian Index.
Track Record of Strong Performance
We are providing compensation disclosurebelieve that satisfies the requirements applicable to emerging growth companies. For 2018, we determined our named executive officers (“Named Executive Officers” or “NEOs”) to be:
John K. Keppler, Chairmancombination of the Boardthree primary components of Directors, Presidentour executive compensation program (annual base salary, annual cash incentive under the AICP, and Chieflong-term equity incentive under the LTIP), coupled with aggressive goal-setting and a pay-for-performance culture, has enabled the Company to deliver strong historical results. We expect to continue this trend into the future.
In 2021, we achieved a total recordable incident rate (“TRIR”) of less than 1.0, which is less than half of the national average for our industry, and substantially reduced certain process and safety risks while confronting a global health pandemic that required us to make adjustments to our daily operations to ensure we could continue to run our plants and terminals in a safe, stable, and reliable manner while maintaining a healthy workforce. As a result, we were able to increase Enviva’s annual adjusted EBITDA by 19% over the prior period and grew its cash distributed to shareholders by 36% over the previous year. In addition, Enviva added over $6 billion to its fully contracted revenue backlog, extending its weighted average remaining contract term by approximately 2 years to 14.5 years and entered agreements with new customers, in new geographies and with new product use cases. Enviva’s 2021 TSR of 64% outperformed the TSR of the Alerian Index of 40% and the TSR of the S&P 500 Index of 29%. For the 3-year period ended December 31, 2021, Enviva’s TSR of 215% outperformed the TSR of the Alerian Index of 6% and the TSR of the S&P 500 of 100%. For the 5-year period ended December 31, 2021, Enviva’s TSR of 285% outperformed the TSR of the Alerian Index of -13% and the TSR of the S&P 500 Index of 133%.
Enviva Financial Highlights
| | | | | |
| (1) | | TSR includes share price appreciation and distributions paid. |
Administration of the Executive Officer;Compensation Program
E. Royal Smith, Executive Vice President, Operations; and
Shai S. Even, Executive Vice President and Chief Financial Officer.As a publicly traded partnership, we did not have any employees. Instead, our employees, including our NEOs, were employed by Enviva Management Company.
The executive officersPartnership was party to management services agreements (the “MSAs”) with Enviva Management Company, pursuant to which Enviva Management Company provided us with employment and management services necessary for the operation of our General Partner split their time between managingbusiness during the Pre-Simplification Period. Although our businessNEOs’ salaries and bonuses were paid, and benefits were provided, directly by Enviva Management Company, we partially reimbursed Enviva Management Company based on the other businesses of our sponsor that are unrelatedcost allocated to us. Exceptus for each NEO pursuant to the MSAs. Other than with respect to equity-based awards that may bewere granted underpursuant to the Enviva Partners, LP Long-Term Incentive Plan (the “LTIP”(“LTIP”), Enviva Management Company generally had all responsibility and authority for compensation‑related decisions for the NEOs, remains with Enviva Management and its affiliates, and such decisions arewere not subject to any approval by us, our General Partner’sthe board of directors or any committees thereof. Other thanthe Compensation Committee (the “Compensation Committee”) of our former general partner (the “former GP”). For a more detailed description of the MSAs and our relationship with Enviva Management Company, see Item 13. “Certain Relationships and Related Transactions, and Director Independence-Other Transactions with Related Persons-Management Services Agreements” in this Annual Report.
The information provided below describes key features of our executive compensation program and summarizes the 2021 cash and LTIP compensation and other benefits received by our NEOs for full-year 2021 on an unallocated basis, even though we were only responsible for partially reimbursing Enviva Management Company pursuant to the MSAs for such compensation and benefits during the Pre-Simplification Period. We are disclosing full, unallocated NEO compensation for fiscal year 2021 because we believe that such disclosure will provide greater comparability to future periods.
Although Enviva Management Company established our NEOs’ base salaries and designed the annual cash incentive award program, we continue to believe that such compensation elements are appropriate and reflect the philosophy of Enviva; accordingly, unless otherwise indicated, we refer to such compensation elements as “ours.”
Executive Compensation Elements Support Our Philosophy and Strategy
Our executive compensation philosophy seeks to tie compensation to our financial and operating performance goals. Specifically, the 2021 executive compensation program included various performance metrics for our NEOs that were closely aligned with financial returns to our shareholders and were designed to result in annual and long-term value creation. The performance goals established in the NEOs’ compensation plans were aggressive, and potential awards were intended to provide them an opportunity to earn above-median rewards in return for achieving such aggressive goals.
Our executive compensation program was designed to attract, retain, reward, and motivate high-performing executive leadership whose talent and expertise enable us to create long-term shareholder value, not only on an absolute basis but also relative to our peers.Furthermore, given that we sit at the forefront of a relatively new and rapidly evolving industry, our success depends in large part on retaining the unique skill sets that our NEOs have developed during their tenure with the Company.Against that backdrop, our executive compensation program consists of three primary components, described below, that contained a substantial portion of at-risk, performance-based compensation, incorporated our financial and operational results, and aligned our NEOs’ interests with those of our shareholders with the ultimate objective of increasing long-term shareholder value.
Competitive compensation opportunities
•Providing competitive compensation opportunities was a key factor in allowing us to attract and retain the caliber of executives we needed to deliver on the aggressive performance goals established under the incentive compensation arrangements in which our NEOs participated.
•Among other factors, each NEO’s 2021 target total direct compensation was determined with reference to market data reflecting executive pay levels among our peer companies and survey data taken from the broader market.
NEO compensation designed to drive and reward long-term growth in shareholder value
•All NEOs’ 2021 compensation included a significant equity compensation component under the LTIP.
•50% of each NEO’s equity compensation was designed to be earned based on achievement of aggressive total shareholder return targets relative to companies in the S&P500.
•Shareholder alignment was further supported by robust ownership guidelines that encouraged a long-term ownership culture among our NEOs.
•In 2020, our NEOs were transitioned to equity-based awards that may be grantedhad a 4-year cliff vesting schedule and an additional TSR modifier in addition to distributable cash flow goals.
Aggressive performance goals
•Aggressive performance goals for incentive-based compensation required exceptional organizational and individual performance, which is the kind of performance we expected from our NEOs.
•Performance at or above these goals should have produced aggregate NEO compensation in the top quartile when compared to the competitive market.
•As evidence of the difficulty of meeting our aggressive goals, our NEOs have received, on average, an 91.6% payout against target compensation under the AICP during the last three years, even as the Partnership’s TSR significantly outperformed that of the Alerian and S&P 500 Indices.
Commitment to best practices
•Significant At-Risk, Variable Compensation: A significant percentage of annual compensation was at-risk, variable and performance-based, such as AICP awards and certain LTIP awards.
•No Guaranteed Bonuses: We did not have in place any annual or multi-year bonus or incentive guarantees for the NEOs.
•No Gross-Ups: No tax gross-ups upon a change in control or with respect to Code Section 409A matters.
•No Individual Supplemental Executive Retirement Plans: There were no executive retirement plans that were different from the ones offered to the broader employee population.
•No Excessive Perquisites: We did not offer excessive perquisites to our NEOs.
•No Hedging: Our Insider Trading Policy prohibits, among other things, hedging transactions relating to our common stock.
•Independent Compensation Consultant: Enviva Management Company engaged an independent compensation consultant (the “Compensation Consultant”) to assist with Enviva Management Company’s and its affiliatesthe Compensation Committee’s regular review of our executive compensation program.
2021 NEO Compensation
Process for Determining Executive Compensation
As discussed above, Enviva Management Company was generally responsible for developing and administering the executive compensation program. Enviva Management Company also provided the Compensation Committee with access to the Compensation Consultant and relevant data in order for the Compensation Committee to have a fulsome picture of the ultimate decision‑makingNEOs’ compensation levels as compared to peers for decision-making purposes.
Role of Compensation Consultant
Enviva Management Company engaged an independent compensation consultant to advise on matters related to executive and non-employee director compensation. When determining compensation for the upcoming 2021 year, Enviva Management Company engaged Meridian Compensation Partners, LLC (“Meridian”) in August 2020.
For 2021, the scope of Meridian’s engagement included a review of our peer group and an executive compensation analysis based on an updated peer group. Meridian did not have authority to make decisions regarding compensation and served solely in an advisory role.
Peer Group and Market Data
Neither peer group data nor broader employment market survey data was a prescription for program design or individual pay levels for Enviva Management Company or the Compensation Committee. Peer data, in combination with broader market survey data, provided a reference point for competitive pay rates and program design for our NEOs. Each year, in cooperation with the Compensation Consultant, Enviva Management Company reviewed the peer group used for the prior year and determined what modifications, if any, would be appropriate for the upcoming year. Factors considered in selecting peers included operations in related industry sectors, comparable market capitalization and revenues, similarity of business strategy and availability and clarity of publicly filed compensation data. We also considered companies tracked as peers of ours by the investment community, although these companies may or may not ultimately have been included in our peer group for presentation herein. For instance, to supplement the executive compensation information derived from our peer group, Enviva Management Company has also considered, on a limited basis, available compensation data from NextEra Energy Partners, LP (“NextEra”). Although similar to us in business focus and structure, NextEra was not formally identified as a peer company for compensation benchmarking purposes due to the lack of available comprehensive pay data. In the peer group review process, we would also consider the impact of simplifications or other corporate-level transactions that had occurred during the past year.
In October 2020, Enviva Management Company determined that the peer group of fourteen companies, listed below, provided an appropriate reference point for considering the compensation arrangements for our NEOs in 2021. In November 2021, after discussions with Meridian, the peer list was re-approved for the general purposes of doing market comparison analysis for the upcoming year, although supplemental compensation data was also considered through general industry surveys provided by Meridian. The peer group is expected to be reviewed again in 2022 to determine if the list below should be modified to reflect the impact of the Simplification and the Conversion for 2023.
2021 Peer Group
| | | | | |
| Atlantica Sustainable Infrastructure plc | Ormat Technologies, Inc. |
| CatchMark Timber Trust, Inc. | PotlatchDeltic Corporation |
| Cheniere Energy, Inc. | Rayonier Advanced Materials Inc. |
| Crestwood Equity Partners LP | Rayonier Inc. |
| Delek US Holdings, Inc. | SunCoke Energy, Inc. |
| Green Plains Inc. | TPI Composites, Inc. |
| Hannon Armstrong | USA Compression Partners, LP |
Key Elements of the Executive Compensation Program
The following discussion provides details regarding the three primary elements of the 2021 compensation program set for our NEOs: base salary, AICP awards, and LTIP awards. Our NEOs also received certain customary health, welfare, and retirement plan benefits from Enviva Management Company that are briefly described below.
Base Salary
Each NEO’s base salary was a fixed component of annual compensation and was set out in such NEO’s employment agreement with Enviva Management Company. Enviva Management Company made all final decisions regarding the NEOs’ salaries based on a review of the specific job duties and functions, individual NEO expertise, and the relative competitiveness of the NEO’s compensation compared to our peers and to the market survey data. Enviva Management Company increased the base salaries for each NEO from 2020 to 2021 by the following percentages: Mr. Keppler, 10.3%; Mr. Even 3.1%; Mr. Meth, 10.4%; Mr. Schmidt, 4.7%; and Mr. Smith, 4.2%. While the base salaries reported in previous filings reported only the portion of the base salary that was allocated to us pursuant to the MSAs, below are the full amounts of the base salaries set for each NEO for the 2021 year pursuant to such NEOs’ then-current employment agreements: | | | | | | | | |
| Name | | 2021 Annual Base Salary |
| John K. Keppler | | $ | 800,000 | |
| Shai S. Even | | 464,000 | |
| Thomas Meth | | 425,000 | |
| William H. Schmidt, Jr. | | 445,000 | |
| E. Royal Smith | | 370,000 | |
Base salaries for each of the NEOs for December 1, 2021 onward were set at the following levels in the most recent employment agreements (as discussed below):
| | | | | | | | |
| Name | | 2022 Annual Base Salary |
| John K. Keppler | | $ | 1,000,000 | |
| Shai S. Even | | 490,000 | |
| Thomas Meth | | 500,000 | |
| William H. Schmidt, Jr. | | 475,000 | |
| E. Royal Smith | | 392,200 | |
Short-Term Cash Incentive Compensation
Each NEO participated in the AICP with respect to the total2021 calendar year. The AICP amounts paid to each NEO with respect to 2021 are disclosed in the Summary Compensation Table under the “Non-Equity Incentive Compensation” column.
Each year the Compensation Committee and Enviva Management Company had discussions regarding the design and the potential values of the AICP awards. However, Enviva Management Company was the sponsor of the AICP and made all final decisions regarding the performance metrics and target compensation levels associated with each participating employee.
Consistent with prior years, Enviva Management Company established an aggregate company bonus pool that was calculated based on performance relative to a single distributable cash flow-based financial target. Enviva Management Company generally set aggressive performance metrics at levels that were designed to be extremely challenging to achieve. A threshold level was set at which the bonus pool could become funded at 50%, and then a stretch target level was determined that could fund the pool at 100% for all target awards Following the determination of the overall AICP bonus pool, individual NEO awards historically were determined by Enviva Management Company based on individual performance goals linked to certain safety, operating, financial, growth, and other targets measured at both the Partnership and our sponsor. The AICP generally determines bonuses based on the following formula: target award amount (based on a percentage of salary), multiplied by company performance factor(s), and adjusted by individual performance factors.
As a consequence of the Simplification Transaction, Enviva Inc. assumed responsibility for decisions regarding actual payments to the NEOs pursuant to the AICP. We adopted an amendment and restatement of the original AICP, which reflected Conversion-related administrative changes similar to those made to the LTIP (discussed below). As of the Conversion date, the name of the AICP is now the “Enviva Inc. Annual Incentive Compensation Plan.”
Following the close of the 2021 calendar year, we made the following decisions regarding the payments due to the NEOs pursuant to the AICP for 2021:
We approved and certified the achievement of the company performance portion of the AICP, which were based on the distributable cash flow performance goals that Enviva Management Company initially set for the 2021 year. The original distributable cash flow goals were determinable for the 2021 year based on actual performance during the Pre-Simplification Period. With respect to the Post-Simplification Period, the original distributable cash flow metric was not determinable based
on actual performance, therefore we determined distributable cash flow performance by forecasting expected performance for the remaining portion of the year. The bonus pool for all participants was funded based on the company’s performance relative to the distributable cash flow performance metric for the year.
We also reviewed the 2021 individual performance goals previously set for the NEO group by Enviva Management Company, as well as taking into consideration each NEO’s impact on our successful and transformative year as well as their respective abilities to manage the challenges and uncertainty created by the COVID-19 pandemic, their impact on our operations and construction activities, as well as their role in our entry into new geographic markets and new customer segments. The actual payments made to each applicable NEO pursuant to the AICP for the 2021 year are reflected in the Summary Compensation Table below within the “Non-Equity Incentive Compensation Awards” column.
Apart from the AICP awards, we have the ability to award, in exceptional circumstances, bonuses structured to address unforeseen events or transactions that were not part of the AICP performance goals at the beginning of the year. The original AICP award design for 2021 did not identify or include the goal of completing the Simplification Transaction and the Conversion. Therefore, due to the unique impact of the Simplification Transaction and the Conversion on our business in 2021, we determined to provide a one-time transaction bonus to Messrs. Keppler, Even and Schmidt in recognition for their efforts to successfully complete these two transactions and the additional responsibilities that each officer had placed upon them with respect to these transactions in the 2021 year. The Simplification Transaction and the Conversion required significant efforts from these three named executive officers during the 2021 year, and the Compensation Committee ultimately determined that the time commitment these transactions required merited special consideration outside of the goals that had originally been part of the AICP awards. This transaction award with respect to Messrs. Even and Schmidt were lieu of any award that they might otherwise have earned pursuant to the AICP for the 2021 year. The transaction bonus amounts are disclosed as “Bonuses” in the Summary Compensation Table.
Target bonus percentages (as compared to base salary amounts) were set in the most recent employment agreements at the following levels, although the agreements did set a specific value for 2021 target bonus amounts, also noted below:
| | | | | | | | | | | | | | |
| Name | Target Bonus (As a Percentage of Base Salary) | 2021 Target Bonus Amount ($) | 2021 Actual AICP Amount ($) | 2021 Transaction Bonus Amount ($) |
| John K. Keppler | 150 | % | $ | 1,200,000 | | $ | 780,000 | | $ | 1,200,000 | |
| Shai S. Even | 125 | % | 556,800 | | N/A | 556,800 | |
| Thomas Meth | 125 | % | 467,500 | | 514,250 | | N/A |
| William H. Schmidt, Jr. | 125 | % | 534,000 | | N/A | 534,000 | |
| E. Royal Smith | 125 | % | 407,000 | | 305,250 | | N/A |
Long-Term Equity Incentive Compensation
Unlike with base salary and AICP awards, we, rather than Enviva Management Company, have always maintained decision-making authority over the LTIP. Following the Simplification Transaction, we amended and restated the LTIP to make certain changes necessitated by the Conversion (described in more detail below), but we retained sponsorship and administrative authority over all LTIP awards. The Simplification Transaction and Conversion-related changes to outstanding LTIP awards made in the Post-Simplification Period are described in more detail below.
The LTIP is intended to promote our long-term success and increase long-term shareholder value by attracting, motivating, and aligning the interests of our independent directors, officers, and other employees with those of our shareholders. Our LTIP provides for the grant of a variety of awards, but the award that we historically determined would most appropriately incentivize and reward our LTIP participants, including the NEOs, was the phantom unit award. Each NEO received a long-term equity incentive award with respect to the 2021 calendar year under the LTIP in the form of phantom units. The terms of our NEOs’ LTIP awards were determined by our board of directors following a recommendation from the Compensation Committee. In 2020, in an effort to further enhance retention and more closely align the LTIP with longer-term shareholder interest, we transitioned the vesting schedule for new equity awards made to our NEOs under the LTIP from a 3-year cliff vesting schedule to a 4-year cliff vesting schedule (and certain outstanding awards in the tables below may reflect the historical 3-year schedules). Beginning in 2021, our NEOs received LTIP awards that were solely on the 4-year vesting schedule.
The 2021 phantom unit grants to our NEOs were divided into 50% time-based phantom units and 50% performance-based phantom units:
•Time-based phantom units vest at the end of a four-year period based on continued service following the grant date.
•Performance-based phantom units vest upon the achievement of specified levels of distributable cash flow per common unit and a TUR percentile over a multi-year period. The performance-based phantom unit awards may vest between 0% and 200% of the target amount granted to each NEO. The Committee may also exercise its discretion with respect to other factors, such as our performance with respect to environmental, social, and governance matters, during the relevant performance period.
Each grant of phantom units included the right to receive distribution equivalent rights (“DERs”). DERs are paid to the holder in cash within 60 days following the vesting of the associated award (if any) and are forfeited if the underlying award was forfeited for any reason. The DERs associated with the time-based phantom units are paid to the holder of the award within the 60-day period immediately following any cash distribution made with respect to our common units. Phantom units could be settled in cash or in common units, at the discretion of our Compensation Committee.
The target value of LTIP awards that each NEO receives annually is set forth in his employment agreement as a percentage of base salary. Although each NEO’s employment agreement was with Enviva Management Company at the beginning of the Pre-Simplification Period, our Board (following recommendations from the Compensation Committee) had decision-making authority over the terms and conditions, such as vesting and forfeiture provisions, of any LTIP award granted in 2021. In determining the LTIP awards granted to the NEOs on January 27, 2021, our Compensation Committee and the full Board considered our performance as well as individual performance for 2020. The grant date fair value of the phantom units awarded in January 2021 is disclosed in the Summary Compensation Table under the Stock Awards column, based on the percentage of the award allocated to us at that time.
The number of phantom units granted to the NEOs in January 2021 is set forth below:
| | | | | | | | | | | | | | |
| Name | | Number of Time-based Phantom Units Granted in 2021 | | Target Number of Performance-based Phantom Units Granted in 2021 |
| John K. Keppler | | 35,168 | | 35,168 |
| Shai S. Even | | 11,998 | | 11,998 |
| Thomas Meth | | 8,792 | | 8,792 |
| William H. Schmidt, Jr. | | 11,507 | | 11,507 |
| E. Royal Smith | | 7,654 | | 7,654 |
For each performance-based phantom unit award granted on January 27, 2021, vesting was originally contingent upon the achievement of certain levels of per-unit distributable cash flow growth and our percentile ranking of TSR for our peer group over the four-year periods. The number of shares of common stock that will vest under each award would have been calculated by multiplying the target number of performance-based awards by the product of (i) the applicable distributable cash flow factor for the award and (ii) the applicable TSR factor for the award. However, the Simplification Transaction and the Conversion resulted in certain changes to the performance goals applicable to the performance awards granted in 2021, as described below.
We amended and restated the LTIP in connection with the Conversion in order to reflect our new corporate structure. For example, references to “common units” were amended to “common stock,” references to “distributions” were amended to “dividends,” phantom unit awards were replaced with restricted stock unit awards, and the administration of the LTIP was modified from our former GP to Enviva Inc. Given that we did not authorize any additional shares of common stock, as a result of the one-to-one conversion of common units to common stock that occurred in connection with the Conversion, 3,450,000 shares of our common stock remain available for delivery pursuant to the amended and restated LTIP. All outstanding awards under the LTIP as of the Conversion date were subject to the administrative changes made in the amended and restated LTIP. The name of the LTIP is now the Enviva Inc. Long-Term Incentive Plan.
The Simplification Transaction and the Conversion did not result in substantive changes to the phantom unit awards made in the 2019 calendar year (including to our NEOs). With respect to the performance-based phantom units granted in the 2020 and 2021 calendar years (including to the NEOs), the performance criteria were modified to reflect the aggregate impact of the Simplification Transaction and Conversion, but with the intention of keeping the potential realizable value of the awards comparable before and after adjustment; consequently, all distributable cash flow-related performance metrics were eliminated, such that the sole performance criterion applicable to such performance-based phantom unit awards (now restricted
stock unit awards) is Enviva’s percentile ranking relative to the companies in the S&P 500 index on the basis of total shareholder return for the applicable performance period (“TSR Factor”), as shown in the table below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Below Threshold | | Threshold | | Target | | Maximum |
| TSR Factor | < 30th percentile | | 30th percentile | | 60th percentile | | ≥ 90th percentile |
Percentage of target earned (“Payout Multiplier”) | 0% | | 50% | | 100% | | 200% |
* If the TSR Factor is between the Threshold and Maximum percentiles, then the Payout Multiplier will be determined by linear interpolation between the Threshold and Target Payout Multipliers or Target and Maximum Payout Multipliers, as applicable.
No changes were made to the performance period applicable to the 2020 and 2021 performance-based phantom units.In addition to the TSR Factor described above, the awards will continue to be subject to all time-based vesting conditions (and forfeiture upon the termination events set forth in the 2020 and 2021 award agreements) for the remainder of the original performance periods.
Beginning with the 2022 year, the most recent employment agreements also set forth a target LTIP award value, set as a percentage of the applicable executive’s base salary as in effect on the first day of the calendar year in which the grant occurs, as follows for each NEO (other than Mr. Keppler).With respect to Mr. Keppler, his employment agreement states that his LTIP target value will equal a multiple of his base salary in effect on the first day of the calendar year in which a grant occurs that equals $3,400,000, which would be 340% of his current base salary of $1,000,000, but will change in the event that his base salary is modified.
| | | | | | | | |
| Name | | Target LTIP Value (As a Percentage of Base Salary) |
| John K. Keppler | | 340 | % |
| Shai S. Even | | 250 | % |
| Thomas Meth | | 250 | % |
| William H. Schmidt, Jr. | | 250 | % |
| E. Royal Smith | | 200 | % |
Other Elements of 2021 Compensation
Retirement and Health and Welfare Plans
We generally offered the same types of retirement, health, and welfare benefits to the NEOs as part of our total executive officers.compensation package as we did to other eligible employees, although our NEOs also received the following: a supplemental individual term life insurance policy and a comprehensive annual physical with customized wellness coaching. The Simplification Transaction and the Conversion did not have a material impact on these plans, and our NEOs participated in these plans on the same terms in the Pre-Simplification Period and the Post-Simplification Period.
Our NEOs currently participate in a 401(k) plan maintained by Enviva Management Company. The 401(k) plan permits all eligible employees, including our NEOs, to make voluntary pre-tax contributions and/or Roth after-tax contributions to the plan. In addition, Enviva Management Company is permitted to make discretionary matching contributions under the plan. All matching contributions made during the first three years of an individual’s employment vest under the plan following the satisfaction of an initial three-year cliff vesting schedule; thereafter, all matching contributions vest immediately. All contributions under the plan are subject to certain annual dollar limitations, which are periodically adjusted as required by law. As with the health and welfare plans, the Simplification and the Conversion didn’t have a material impact on these plans, and NEO participation was not modified for those transactions in 2021.
Security Ownership Requirements
We maintain the “Common Stock Ownership and Retention Guidelines (the “Retention Policy”). The Retention Policy provides that officers who are required to file ownership reports under Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) and certain other officers, as designated from time-to-time by our board of directors or the Compensation Committee, retain at least 50% (and where the individual has not met certain holding requirements by specific timelines, 100%) of common equity awarded under the LTIP (net of any equity withheld or sold to cover tax liabilities upon vesting) until certain ownership requirements are met. The requirements for our NEOs are set forth in the table below:
| | | | | | | | |
| Name | | Multiple of Annualized Base Salary |
| CEO | | 5x |
| Other NEO’s | | 3x |
Stock that counts towards the satisfaction of the retention requirements of the Retention Policy include stock held directly by each NEO, stock owned indirectly by such NEO (e.g., by a spouse or other immediate family member residing in the same household or a trust for the benefit of such NEO or his or her family), and time-based restricted stock granted under the LTIP.
We amended the Retention Policy following the Simplification Transaction and Conversion to address the resulting structural changes within our organization and renamed it “Common Stock Ownership and Retention Guidelines” but did not change the substantive ownership requirements. As of the date of this filing, each of our NEOs was in compliance with the policy.
Incentive Compensation Recoupment Policy
The LTIP and the AICP provide that any award granted pursuant to the applicable plan will be subject to any claw-back or recoupment policies required by law, securities exchange rules, or otherwise, as determined to be appropriate by our board of directors.
Amendments to Employment Agreements
Each of the NEOs was party to an employment agreement with Enviva Management Company during the 2021 year. Consistent with the philosophy in the Pre-Simplification Period regarding employment agreements, our Board determined that we should continue to maintain employment agreements with our NEOs in order to ensure that they will perform their roles for an extended period of time. Certain provisions contained within these employment agreements, such as potential severance benefits (including change in control benefits for certain individuals) and restrictive covenants, are also essential to retaining our talented management team and protecting the interests of our stockholders.
At the time of the Simplification Transaction, the employment agreements for Messrs. Keppler and Even were amended and restated, modifying the definition of a “Change in Control” to align with the new organizational structure resulting from the Simplification Transaction (defined and described in more detail below within the section titled “Potential Payments upon Termination and Change in Control”). In December 2021, each of the remaining NEOs’ employment agreements were amended and restated, with the agreements for Messrs. Keppler and Even being amended and restated a second time, to reflect all Conversion-related items that were not reflected within their Simplification Transaction-related amendments. The December amendments clarified that, following the Conversion, references to the “Partnership” or the “General Partner” would be replaced with “Enviva Inc.,” and references to the “General Partner’s board of directors” would be replaced with references to our “Board.” The December amendments to the employment agreements also set the level of compensation that would be applicable to the NEOs for the relevant portion of the Post-Simplification Period (including a clarification of the target bonus amounts for 2021) as well as certain 2022 compensation levels.
The most recent employment agreements reset the terms of each employment agreement. The new agreements will generally have a one year term that will end on December 1, 2022. That term may be extended and renewed for additional one-year periods if neither party has delivered a written notice of non-renewal within the sixty (60) day period prior to the expiration of the term.
The most recent employment agreements also set new base salaries, target bonus percentages under the AICIP, and target LTIP award values for the NEOs, each as described above.
As noted above, the employment agreements contain potential severance and, with respect to certain NEOs, change in control benefits, as well as certain restrictive covenants. Those potential benefits are described in more detail and quantified within the section titled “Potential Payments upon Termination and Change in Control.”
Compensation Risk Assessment
In accordance with the requirements of Item 402(s) of Regulation S-K, to the extent that risks may arise from our compensation policies and practices for our employees that are reasonably likely to have a material adverse effect on us, we are required to discuss our policies and practices for compensating our employees (including our employees that are not NEOs) as they relate to our risk management practices and risk-taking incentives. We have determined that our compensation policies and practices for our employees, including our NEOs, do not encourage excessive risk-taking and are not reasonably likely to have a material adverse effect on us. Our Compensation Committee routinely assesses our compensation policies and practices and takes this consideration into account as part of its review.
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on the reviews and discussions referred to in the foregoing sentence, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report.
John C. Bumgarner, Jr.
Pierre F. Lapeyre, Jr.,
Jeffrey W. Ubben
NOTE REGARDING EXECUTIVE AND DIRECTOR COMPENSATION TABLES
As further described in the CD&A, all outstanding time-based and performance-based phantom units were converted to restricted stock units upon the Conversion, and all outstanding equity awards held by our NEOs and our directors as of the date of this filing are in the form of restricted stock units. However, at the time of the grant, and throughout the 2021 year, the awards described in the table below were in the form of phantom units, therefore the tables below will generally describe phantom unit awards.
SUMMARY COMPENSATION TABLE
The table below sets forth the annual compensation for our NEOs for the fiscal years ended December 31, 2021, December 31, 2020, and December 31, 2019, to the extent the individual was a “named executive officer” for that year. The compensation disclosed below with respect to the 2019 and 2020 calendar years is the compensation for which we were responsible for partially reimbursing Enviva Management Company pursuant to the MSAs, therefore it only reflects a portion of the compensation that the NEOs received for those years. The compensation disclosed below with respect to the 2021 calendar year is the compensation for the full amount paid to each NEO, irrespective of any allocation between Enviva Inc. and Enviva Management Company, as discussed above. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | | Year | | Salary | | Bonus (1) | | Unit Awards (2) | | Non-Equity Incentive Plan Compensation (1) | | All Other Compensation (3) | | Total |
| John K. Keppler | | 2021 | | $ | 816,986 | | | $ | 1,200,000 | | | $ | 3,400,044 | | | $ | 780,000 | | | $ | 8,700 | | | $ | 6,205,730 | |
| (Chairman of the Board of Directors, President and Chief Executive Officer) | | 2020 | | 182,838 | | | 600,000 | | | 1,631,253 | | | 343,297 | | | 2,138 | | | 2,759,526 | |
| | 2019 | | 170,885 | | | — | | | 642,712 | | | 271,875 | | | 2,100 | | | 1,087,572 | |
| Shai S. Even | | 2021 | | 466,208 | | | 556,800 | | | 1,159,968 | | | — | | | 8,700 | | | 2,191,676 | |
| (Executive Vice President and Chief Financial Officer) | | 2020 | | 112,796 | | | 350,000 | | | 562,518 | | | 170,465 | | | 2,138 | | | 1,197,917 | |
| | 2019 | | 109,614 | | | — | | | 273,594 | | | 121,500 | | | 2,100 | | | 506,808 | |
| Thomas Meth | | 2021 | | 431,370 | | | — | | | 850,012 | | | 514,250 | | | 8,700 | | | 1,804,332 | |
| (Executive Vice President and Chief Commercial Officer) | | 2020 | | 97,097 | | | 75,000 | | | 385,029 | | | 109,381 | | | 2,138 | | | 668,645 | |
| William H. Schmidt, Jr. | | 2021 | | 447,548 | | | 534,000 | | | 1,112,498 | | | — | | | 8,700 | | | 2,102,746 | |
| (Executive Vice President, Corporate Development and General Counsel) | | 2020 | | 85,339 | | | 350,000 | | | 425,002 | | | 107,330 | | | 1,710 | | | 969,381 | |
| E. Royal Smith | | 2021 | | 371,885 | | | — | | | 739,990 | | | 305,250 | | | 8,700 | | | 1,425,825 | |
| (Executive Vice President, Operations) | | 2020 | | 249,389 | | | — | | | 994,046 | | | 282,403 | | | 5,985 | | | 1,531,823 | |
| | 2019 | | 238,606 | | | — | | | 522,318 | | | 167,738 | | | 5,880 | | | 934,542 | |
| | | | | | | | | | | | | | |
(1)Amounts in the Non-Equity Incentive Plan Compensation column with respect to 2019 represent the annual discretionary cash bonuses for each NEO under the AICP, which was operated in a manner to provide performance-based incentive awards in that year, although the amounts were inadvertently reported in prior years within the “Bonus” column and have now been corrected. The AICP awards for the 2020 and 2021 years were also deemed to operate as performance-based incentive awards and are reported within the Non-Equity Incentive Plan Compensation column. Amounts in the “Bonus” column with respect to the 2020 and 2021 years relate to the transaction-based bonuses received by certain NEOs for the 2020 year, and the bonuses provided to Messrs. Keppler, Even and Schmidt relating to the Simplification Transaction and the Conversion in 2021, as applicable. The division of awards between the AICP and transaction-related bonuses for the 2021 year are described in more detail above within the CD&A.
(2)The amounts reflected in this column represent the aggregate grant date fair value of time-based and performance-based phantom units (which include tandem DERs) granted to the NEOs pursuant to the LTIP, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 718, disregarding the estimate of forfeitures. The grant date fair value for time-based phantom unit awards issued in 2021 is based on the closing price of our common units on the date of grant, which was $48.34 per unit for awards granted on January 27, 2021. The grant date fair value of performance-based phantom unit awards is reported based on the probable outcome of the performance conditions on the date of grant. See Note 18, Equity-Based Awards, to our consolidated financial statements for additional detail regarding assumptions underlying the value of these awards. If the maximum amount, rather than the probable amount, were reported in the table with respect to the performance-based phantom units, the
values associated with the 4-year performance-based grants would be as follows: Mr. Keppler, $3,400,043; Mr. Even, $1,159,967, Mr. Meth, $850,011, Mr. Schmidt, $1,112,497, and Mr. Smith, $739,989.
(3)Amounts reported in the “All Other Compensation” column reflect employer contributions to the NEOs’ accounts under the 401(k) plan in which the NEOs participate.
2021 GRANTS OF PLAN-BASED AWARDS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | Estimated Possible Payouts Under Equity Incentive Plan Awards (2) | | | | |
| Name | | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | | All Other Equity Awards (#)(3) | | Grant Date Fair Value ($)(4) |
| John K. Keppler | | | | $ | 600,000 | | | $ | 1,200,000 | | | $ | — | | | | | | | | | | | |
| | 1/27/2021 | | | | | | | | 17,584 | | 35,168 | | 70,336 | | | | $ | 1,700,022 | |
| | 1/27/2021 | | | | | | | | | | | | | | 35,168 | | 1,700,022 | |
| Shai S. Even | | | | 278,400 | | | 556,800 | | | — | | | | | | | | | | | |
| | 1/27/2021 | | | | | | | | 5,999 | | 11,998 | | 23,996 | | | | 579,984 | |
| | 1/27/2021 | | | | | | | | | | | | | | 11,998 | | 579,984 | |
| Thomas Meth | | | | 173,250 | | | 346,500 | | | — | | | | | | | | | | | |
| | 1/27/2021 | | | | | | | | 4,396 | | 8,792 | | 17,584 | | | | 425,006 | |
| | 1/27/2021 | | | | | | | | | | | | | | 8,792 | | 425,006 | |
| William H. Schmidt, Jr. | | | | 267,000 | | | 534,000 | | | — | | | | | | | | | | | |
| | 1/27/2021 | | | | | | | | 5,754 | | 11,507 | | 23,014 | | | | 556,249 | |
| | 1/27/2021 | | | | | | | | | | | | | | 11,507 | | 556,249 | |
| E. Royal Smith | | | | 203,500 | | | 407,000 | | | — | | | | | | | | | | | |
| | 1/27/2021 | | | | | | | | 3,827 | | 7,654 | | 15,308 | | | | 369,995 | |
| | 1/27/2021 | | | | | | | | | | | | | | 7,654 | | 369,995 | |
(1)The values within these columns reflect the threshold and target values of the AICP awards for the 2021 calendar year, as of the date of their grant. At the beginning of the year, Messrs. Even and Schmidt were included within the aggregate company bonus pool; however, as described further above within the CD&A, their bonus awards for the 2021 were deemed to be payable outside of the AICP.
(2)These columns reflect the performance-based phantom units granted to our NEOs during the 2021 calendar year.
(3)This column reflects the time-based phantom units granted to our NEOs during the 2021 calendar year.
(4)As further described in Footnote (2) to the Summary Compensation Table, the values in the “Grant Date Fair Value” column are determined by multiplying (a) the number of phantom units granted (with the probable grant date value for performance-based phantom units to be at target levels) by (b) $48,34, the closing price of our common units on the date of grant.
NARRATIVE DISCLOSURE TO THE SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS TABLE
Management Services Agreements
The amounts set forth in the table above for the 2019 and 2020 years reflect only the portion of compensation expense that is allocatedwas allocable to us pursuant to the management services agreement among us,MSAs. Following the Simplification Transaction, we were responsible for the full amount of compensation paid to our General Partner andNEOs. In order to provide a fulsome picture of NEO compensation in 2021, we are presenting the full amount of compensation paid to our NEOs in 2021 notwithstanding the partial allocation of that amount during the Pre-Simplification Period to Enviva Management (the “MSA”).Company. For a more information aboutdetailed description of the MSA, please read Part III, ItemMSAs and our relationship with Enviva Management Company, see “Item 13. “Certain Relationships and Related Transactions, and Director Independence—Other Transactions with Related Persons—ManagementPersons--Management Services Agreement.”
The disclosures below relating to cash compensation paid by Enviva Management are based on information provided to us by Enviva Management. With the exception of the awards granted under the LTIP, the elements of compensation discussed below are not subject to approvals by the board of directors of our General Partner or any of its committees.
SUMMARY COMPENSATION TABLE
The table below sets forth the annual compensation expensed by us for our Named Executive Officers for the fiscal years ended December 31, 2018 and December 31, 2017. As noted above, the amounts includedAgreements” in the table below reflect only the portion of compensation expense that is allocated to us pursuant to the MSA.
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| | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | | Year | | Salary | | Bonus (1) | | Unit Awards (2) | | All Other Compensation (3) | | Total |
| John K. Keppler | | 2018 | | $ | 190,248 |
| | $ | 269,925 |
| | $ | 784,014 |
| | $ | 2,355 |
| | $ | 1,246,542 |
|
| (Chairman of the Board of | | 2017 | | $ | 214,000 |
| | $ | 313,200 |
| | $ | 534,997 |
| | $ | 4,889 |
| | $ | 1,067,086 |
|
| Directors, President and Chief | | | | |
| | |
| | |
| | |
| | |
|
Executive Officer)
| | | | | | | | | | | | |
| | | | | |
| | |
| | |
| | |
| | |
|
| E. Royal Smith | | 2018 | | $ | 178,480 |
| | $ | 110,149 |
| | $ | 728,566 |
| | $ | 4,496 |
| | $ | 1,021,691 |
|
| (Executive Vice President, | | 2017 | | $ | 255,000 |
| | $ | 191,250 |
| | $ | 382,505 |
| | $ | 9,925 |
| | $ | 838,680 |
|
| Operations) | | | | |
| | |
| | |
| | |
| | |
|
| | | | | | | | | | | | | |
Shai S. Even (4) | | 2018 | | $ | 98,780 |
| | $ | 168,096 |
| | $ | 467,487 |
| | $ | 835 |
| | $ | 735,197 |
|
| (Executive Vice President and | | 2017 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Chief Financial Officer) | | | | |
| | |
| | |
| | |
| | |
|
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(1) | Amounts in this column represent (i) the aggregate amount of the annual discretionary cash bonuses for each NEO under the Enviva Management Annual Incentive Compensation Plan (the “AIC Plan”) for fiscal year 2018 and (ii) additional discretionary cash bonuses awarded for performance from 2016 through 2018. |
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(2) | The amounts reflected in this column represent the grant date fair value of phantom units (which include tandem distribution equivalent rights (“DERs”)) granted to the NEOs pursuant to the LTIP, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 718. The grant date fair value for time-based phantom unit awards is based on the closing price of our common units on the date of grant, which was $28.65 per unit for awards granted on January 31, 2018 and $30.30 per unit for awards granted on June 4, 2018. The grant date fair value of performance-based phantom unit awards is reported based on the probable outcome of the performance conditions on the grant date See Note 16, Equity-Based Awards, to our consolidated financial statements for additional detail regarding assumptions underlying the value of these awards.
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(3) | Amounts reported in the “All Other Compensation” column reflect employer contributions to the NEOs’ accounts under the 401(k) plan in which the NEOs participate. |
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(4) | Amounts reported for Mr. Even reflect compensation received beginning on June 4, 2018, the date Mr. Even assumed employment with Enviva Management. |
NARRATIVE DISCLOSURE TO THE SUMMARY COMPENSATION TABLE
Management Services Agreement
The executive officers of our General Partner are employed by Enviva Management and split their time between managing our business and the other businesses of our sponsor. The amount of time that each executive officer devotes to our business and the other businesses of our sponsor is determined based on a variety of factors, as determined under the MSA. For more information about the MSA, please read Part III, Item 13, “Certain Relationships and Related Transactions, and Director Independence—Other Transactions with Related Persons—Management Services Agreement.”this Annual Report.
Phantom Unit Awards - Named Executive Officersand Restricted Stock Unit Awards
The board of directors ofWe granted time-based and performance-based phantom unit awards to our General Partner granted phantom units underNEOs pursuant to the LTIP in 2021. In connection with the Conversion, all phantom unit awards were converted to Messrs. Keppler and Smith on January 31, 2018 and to Mr. Even on June 4, 2018, the date Mr. Even assumed employment with Enviva Management. One-half of theserestricted stock unit awards, are subject to time-based vestingthe same terms and conditions immediately prior to the Conversion except that for performance-based phantom unit awards granted in the 2020 and will become vested on2021 calendar years, the third anniversaryperformance criteria were modified to reflect the aggregate impact of the grant date so long as the applicable NEO remains continuously employed by Enviva Management or one of our affiliates from the grant date through the applicable vesting date. The other half of these awards vest based on the satisfaction of time-based vesting conditionsSimplification Transaction and the achievement ofConversion; consequently, all DCF-related performance metrics relatedwere eliminated, such that the sole performance criterion applicable to gross distributable cash flow over a three-year performance period ending December 31, 2020. On June 4, 2018,such performance-based phantom unit awards is the board of directors of our general partner granted additional time-based phantom units under the LTIP to Messrs. Keppler and Smith as one-time retention incentives. These awards vest on the third anniversaryTSR Factor. The expected value of the date of grant so long as the applicable NEO remains continuously employed by Enviva Management or one of our affiliates from the grant date through the applicable vesting date. Vested phantom units (less any phantom units withheld to satisfy applicable tax withholding obligations) will be settled through the delivery of common units within 60 days following the applicable vesting date. While a NEO holds unvested phantom units, such NEO is entitled to receive DER payments in respect thereof in a per-unit amount that is equal to any distributions made by us to the holders of our common units. The DERs included with performance-based phantom unitsunit awards was similar immediately before and after the modification. The terms and conditions, including vesting, are paidfurther described above in cash within 60 days following the vesting of the associated phantom units (and are forfeited at the same time the associated phantom units are forfeited). The DERs included with time-based phantom units are paid in cash within 60 days following a cash distribution with respect to our common units.CD&A under “—2021 NEO Compensation.” The potential acceleration and forfeiture events relating to thesethe phantom unitsunit awards (as of December 31, 2021) are described in greater detail under “—Potential Payments Upon Termination or a Change ofin Control” below.
Employment Agreements - Named Executive Officers
Each of our NEOs is a party to an employment agreement with Enviva Management. Mr. Even’s employment agreement has a three-year initial term and Messrs. Keppler’s and Smith’s employment agreements have a one-year initial term. Each employment agreement’s initial term automatically renews annually for successive 12‑month periods unless either party provides written notice of non-renewal at least 60 days prior to a renewal date. Under the employment agreements, our NEOs are each entitled to an annualized base salary and are eligible for discretionary annual bonuses pursuant to the AIC Plan based on performance targets established annually by the board of directors of the general partner of our sponsor or a committee thereof, in its sole discretion. The employment agreements provide that each such annual bonus would have a target value of not less than 150% (in the case of Mr. Keppler), 90% (in the case of Mr. Smith), or 120% (in the case of Mr. Even) of the applicable NEO’s annualized base salary. The employment agreements also provide that the NEOs will be eligible to receive annual awards based on our common units pursuant to the LTIP and that such annual LTIP awards would have target values equal to 325%, 200% and 200% of the annualized base salary of Messrs. Keppler, Smith, and Even, respectively. As discussed below under “—Potential Payments Upon Termination or a Change in Control,” the employment agreements also provide for certain severance payments in the event an NEO’s employment is terminated under certain circumstances.
OUTSTANDING EQUITY AWARDS AT 20182021 FISCAL YEAR‑END
The following table reflects information regarding outstanding equity‑based awards held by our Named Executive OfficersNEOs as of December 31, 2018.2021.As noted above, the awards are discussed as phantom unit awards, although as of the date of this filing they have been converted to restricted stock unit awards as a result of the Conversion.
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| | Unit Awards |
| Name | | Number of Units That Have Not Vested (1) | | Market Value of Units That Have Not Vested (2) | | Equity Incentive Plan Awards: Number of Unearned Units That Have Not Vested (3)(4) | | Equity Incentive Plan Awards: Market Value of Unearned Units That Have Not Vested (2) |
| John K. Keppler | | | | | | | | |
| | 237,842 | | | $ | 16,748,842 | | | 121,046 | | | $ | 8,524,059 | |
| | | | | | | | |
| Shai S. Even | | | | | | | | |
| | 93,501 | | | $ | 6,584,339 | | | 41,612 | | | $ | 2,930,317 | |
| | | | | | | | |
| Thomas Meth | | | | | | | | |
| | 70,084 | | | $ | 4,935,332 | | | 29,062 | | | $ | 2,046,546 | |
| | | | | | | | |
| William H. Schmidt, Jr. | | | | | | | | |
| | 89,487 | | | $ | 6,301,698 | | | 39,475 | | | $ | 2,779,830 | |
| | | | | | | | |
| E. Royal Smith | | | | | | | | |
| | 60,782 | | | $ | 4,280,243 | | | 26,344 | | | $ | 1,855,144 | |
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(1)The amounts in this column reflect outstanding time-based phantom unit awards, which vest as set forth in the table within footnote 4 below, so long as the applicable NEO remains continuously employed by us or one of our affiliates from the grant date through each vesting date. See the section below titled “—Potential Payments Upon Termination or Change in Control” for a description of potential acceleration and forfeiture provisions.
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| | | Option Awards(1) | | Unit Awards |
| Name | | Number of Securities Underlying Unexercised Options Unexercisable | | Number of Securities Underlying Unexercised Options Exercisable (2) | | Option Exercise Price (3) | | Option Expiration Date (3) | | Number of Units That Have Not Vested (4) | | Market Value of Units That Have Not Vested (5) | | Equity Incentive Plan Awards: Number of Unearned Performance- based Units That Have Not Vested (6) | | Equity Incentive Plan Awards: Market Value of Unearned Units That Have Not Vested (5) |
| John K. Keppler | | |
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| Class C-1 Units | | — |
| | 232,941 |
| | N/A | | N/A | | |
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| | |
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| Class C-2 Units | | — |
| | 660,000 |
| | N/A | | N/A | | |
| | |
| | |
| | |
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| Class E-1 Units | | — |
| | 275,000 |
| | N/A | | N/A | | |
| | |
| | |
| | |
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| Phantom Units | | |
| | |
| | | | | | 97,598 |
| | $ | 2,708,345 |
| | 113,704 |
| | $ | 3,155,286 |
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| E. Royal Smith | | |
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| | | | | | |
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| Class C-4 Units | | — |
| | 175,000 |
| | N/A | | N/A | | |
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| | |
| | |
|
| Class E-1 Units | | — |
| | 25,000 |
| | N/A | | N/A | | |
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| | |
| | |
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| Phantom Units | | |
| | |
| | | | | | 39,337 |
| | $ | 1,091,602 |
| | 36,698 |
| | $ | 1,018,370 |
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| Shai S. Even | | |
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| | | | | | |
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| Phantom Units | | |
| | |
| | | | | | 14,027 |
| | $ | 389,249 |
| | 14,027 |
| | $ | 389,249 |
|
(3)The amounts in this column reflect the actual number of common units issued in the 2022 year upon settlement of outstanding performance-based phantom unit awards granted in 2019, even though such awards could have been earned up to 200% of target at maximum performance, and the target number of common units issuable upon settlement of outstanding performance-based phantom unit awards granted in 2020 and 2021, which vest based on achievement of performance metrics with respect to the three-year period ending on December 31, 2022, and the four-year period ending on December 31, 2023 and 2024, respectively, so long as the applicable NEO remains continuously employed by us or one of our affiliates from the grant date through the end of each performance period and until we have certified the applicable performance level for that award. With respect to the 2019 performance-based phantom units, if the number of awards and the value of awards had hit maximum performance payout at 200% of target rather than the actual 186% represented in the table,those numbers would be as follows: Mr. Kepler, 242,979 awards at a value of $17,110,581; Mr. Even, 96,041 awards at a value of $6,763,207; Mr. Meth, 71,825 awards at a value of $5,057,917; Mr. Schmidt, 96,639 awards at a value of $6,453,218; and Mr. Smith, 62,360 at a value of $4,391,391 . See the section below titled “—Potential Payments Upon Termination or Change in Control” for a description of potential acceleration and forfeiture provisions.
(4)The following sub-table reflects the regularly scheduled vesting date for each award that is disclosed as outstanding within the main table above:
| | | | | | | | | | | | | | | | | | | | |
(1)Name | The equity awards that are disclosed in this Outstanding Equity Awards at 2018 Fiscal Year‑End table under Option Awards are incentive units in Enviva Holdings, LP (“Holdings”) that are intended | Vesting Date or Last Date of Performance Period | | Number of Time-based Phantom Units to constitute profits interests for federal tax purposes rather than traditional option awards.Vest | | Number of Performance-based Phantom Units to Vest |
| John K. Keppler | | December 31, 2021 | | 73,384 | | |
(2) | Awards reflected as “Exercisable” are Holdings incentive units that have become vested. |
| January 30, 2022 | | 48,549 | | |
(3) | These equity awards are not traditional options; therefore, there is no exercise price or expiration date associated with them. | December 31, 2022 | | | | 42,939 |
| | January 29, 2023 | | 42,939 | | |
(4) | The amounts in this column reflect outstanding time-based phantom unit awards, which vest as follows, so long as the applicable Named Executive Officer remains continuously employed by Enviva Management or one of our affiliates from the grant date through each vesting date: | December 31, 2023 | | | | 42,939 |
| | January 29, 2024 | | 42,939 | | |
| | December 31, 2024 | | | | 35,168 |
| | January 27, 2025 | | 35,168 | | |
| | |
Name | Vesting Date | Number of Time-Based Phantom Units to Vest | |
John K. KepplerShai S. Even | February 3, 2019 | 24,244December 31, 2021 | | 36,286 | | |
| February 1, 2020 | 26,485January 30, 2022 | | 18,143 | | |
| | December 31, 2022 | | | | 14,807 |
| | January 29, 2023 | | 14,807 | | |
| | December 31, 2023 | | | | 14,807 |
| | January 29, 2024 | | 14,807 | | |
| | December 31, 2024 | | | | 11,998 |
| | January 27, 2025 | | 11,998 | | |
| | | | | | |
| Thomas Meth | | December 31, 2021 | 30,367 | 24,868 | | |
| June 4, 2021 | 16,502January 30, 2022 | | 17,895 | | |
| | December 31, 2022 | | | | 10,135 |
| | January 29, 2023 | | 10,135 | | |
| | December 31, 2023 | | | | 10,135 |
| | January 29, 2024 | | 10,135 | | |
| | December 31, 2024 | | | | 8,792 |
| | January 27, 2025 | | 8,792 | | |
| | | | | | |
| William H. Schmidt, Jr. | | December 31, 2021 | | 30,738 | | |
| | January 30, 2022 | | 21,426 | | |
| | December 31, 2022 | | | | 13,984 |
| | January 29, 2023 | | 13,984 | | |
| | December 31, 2023 | | | | 13,984 |
| | January 29, 2024 | | 13,984 | | |
| | December 31, 2024 | | | | 11,507 |
| | January 27, 2025 | | 11,507 | | |
| | | | | | |
| E. Royal Smith | February 3, 2019 | 4,486December 31, 2021 | | 22,548 | | |
| February 1, 2020 | 8,911January 30, 2022 | | 13,468 | | |
| January | December 31, 20212022 | 9,438 | | | 9,345 |
| June 4, 2021 | 16,502January 29, 2023 | | 9,345 | | |
| | December 31, 2023 | | | | 9,345 |
Shai S. Even | June 4, 2021 | 14,027January 29, 2024 | | 9,345 | | |
| | December 31, 2024 | | | | 7,654 |
| | January 27, 2025 | | 7,654 | | |
| |
(5) | The amounts reflected in this column represent the market value of our common units underlying the phantom unit awards granted to the Named Executive Officers and set forth in the preceding column, computed based on the closing price of our common units on December 31, 2018, which was $27.75 per unit. |
| |
(6) | The amounts in this column reflect the maximum number of outstanding performance-based phantom unit awards granted in 2017 and 2018, which vest based on achievement of performance metrics over a three-year period ending on December 31, 2019 and December 31, 2020, respectively, so long as the applicable Named Executive Officer remains continuously employed by Enviva Management or one of our affiliates from the grant date through the end of each performance period. The actual number of common units earned pursuant these outstanding performance-based phantom unit awards may be significantly less than the amounts set forth in this column based on actual performance through the end of the applicable performance period. |
ADDITIONAL NARRATIVE DISCLOSUREUNITS VESTED IN 2021
Retirement BenefitsThe following table provides information on the vesting of phantom units held by the NEOs in 2021. None of the NEOs held stock options in 2021. The value realized from the vesting of phantom unit awards is equal to the closing price of our common units on the vesting date or the performance certification date for performance awards, as applicable, multiplied by the number of shares acquired. The value is calculated before payment of any applicable withholding or other income taxes.
| | | | | | | | | | | | | | |
| Name | | Number of Units Acquired Upon Vesting (#) | | Value Realized Upon Vesting ($) |
| John K. Keppler | | 100,011 | | | $ | 4,875,515 | |
| Shai S. Even | | 38,574 | | | 1,861,301 | |
| Thomas Meth | | 44,640 | | | 2,169,081 | |
| William H. Schmidt, Jr. | | 52,115 | | | 2,534,445 | |
| E. Royal Smith | | 42,457 | | | 2,062,380 | |
PENSION BENEFITS AND NON-QUALIFIED DEFERRED COMPENSATION
We have not maintained, and do not currently maintain, a defined benefit pension plan or a nonqualified deferred compensation plan providing for retirement benefits. Our Named Executive Officers currently participate
POTENTIAL PAYMENTS UPON TERMINATION AND CHANGE IN CONTROL
Each of our NEOs is party to an employment agreement with us that provides for severance compensation or accelerated vesting of equity awards in the event of certain terminations of employment, including in connection with a 401(k) plan maintained by Enviva Management. The 401(k) plan permits all eligible employees, including the Named Executive Officers, to make voluntary pre‑tax contributions and/or Roth after‑tax contributions to the plan. In addition, Enviva Management is permitted to make discretionary matching contributions under the plan. Matching contributions under the plan are subject to a three‑year cliff vesting schedule. All contributions under the plan are subject to certain annual dollar limitations, which are periodically adjusted as required by law.
Potential Payments Upon Termination or a Changechange in Control
Undercontrol. None of the employment agreements contain any tax reimbursement provisions in the event an NEO receives potential parachute payments under Section 280G of the Code. The outstanding equity awards held by each of the NEOs also contain certain severance and change in control benefits, but as of December 31, 2021, the treatment in the employment agreements and the outstanding equity awards are the same; as a result, there is not a separate description for equity award agreement provisions.
Employment Agreements
The employment agreements provide that, if the applicableNEO terminates employment for good reason or if an NEO’s employment is terminated without “cause,” by thecause, or for death or disability (each applicable NEO for “good reason” or dueterm as defined below), subject to the applicable NEO’s “disability,” then so long as the applicable NEO executes (and does not revoke within the time provided to do so)executing a release in a form satisfactory to Enviva Managementrelease within the time period specified in such NEO’s employment agreement, suchthe NEO will be entitled to receive the following:
•an amount equal to a multiple (the “severance multiplier”) of (a) the NEO’s base salary in effect on the termination date, plus (b) the NEO’s target annual bonus as of the termination date. The severance multiplier is 1.5 for Mr. Keppler and 1.0 for Messrs. Even, Meth, Schmidt, and Smith. The severance multiplier is increased to 2.0 for Mr. Keppler and 1.5 for Messrs. Even and Schmidt if such termination occurs within 12 months following a change in control (as defined below) (a “Change in Control Termination”);
•full vesting of all outstanding awards under the LTIP (which vesting for awards that include a performance requirement (other than continued service) will be based on (i)(a) actual performance if such termination occurs within the six-month period preceding the expiration of the performance period or (ii)(b) target performance if such termination occurs at any other time during the performance period),; and in addition, will receive the following severance benefits:
•reimbursement for continued medical coverage of applicable group health plans. The reimbursement coverage is 18 months for Mr. Keppler:
a severance payment (generally payable in installments) in an aggregate amount equal to 1.5 (or, if such termination occurs withinKeppler and 12 months following a “change in control,” 2.0) times the sum of his annualized based salaryfor Messrs. Even, Meth, Schmidt, and target annual bonus as in effect on the date of such termination; and
monthlySmith. The reimbursement for the amount Mr. Keppler pays for continuation coverage under the employer’s group health plans for upis increased to 18 months following such termination, plus an additional cash payment equal to six times his monthly premium for such coverage in the event his employment terminates within 12 months following a change in controlMessrs. Even and he has not obtained coverage under a group health plan sponsored by another employer within the time period specified in his employment agreement.
Mr. Smith:
a severance payment (generally payable in installments) in an aggregate amount equal to the sum of his annualized base salary and target annual bonus as in effect on the date of such termination; and
monthly reimbursement for the amount Mr. Smith pays for continuation coverage under the employer’s group health plans for up to 12 months following such termination.
Mr. Even:
a severance payment (generally payable in installments) in an aggregate amount equal to the greater of (x) 1.0 (or,Schmidt if such termination occurs within 12 months following a change in control, 1.5) times the sum of his annualized base salary and target annual bonus ascontrol.
Definitions. The following definitions are used in effect on the date of such termination or (y) the number of complete calendar months for the remainder of the initial term of the employment agreement, divided by 12, times the sum of his annualized base salary and target annual bonusagreements as in effect on the date of such termination; and
monthly reimbursement for the amount Mr. Even pays for continuation coverage under the employer’s group health plans for up to the greater of (x) 12 months following such termination (or, up to 18 months if such termination occurs within 12 months following a change in control) or (y) the number of months remaining in the initial term of the Employment Agreement, up to a maximum of 18 months.
For purposes of the employment agreements:follows:
“Cause” means the applicable NEO’s: (i)is defined as:
•a material breach of any applicable policy established by Enviva Management or its affiliates that pertainspertaining to drug and/or alcohol abuse (or health and safety in the case of Mr. Keppler) and is applicable to the NEO, (ii) safety;
•engaging in acts of disloyalty, to the employer or its affiliates, including fraud, embezzlement, theft, commission of a felony or proven dishonestydishonestly; or (iii)
•willful misconduct in the performance of, or willful failure to perform a material function of the NEO’s duties under the employment agreement.
“Good Reason” means,reason” is defined as, without the applicable NEO’s consent and subject to certain notice and cure periods, (i)of the NEO:
•a material diminution in suchthe NEO’s authority, duties, title, or responsibilities, (ii) theresponsibilities;
•a material diminution in suchthe NEO’s annualized base salary, minimum target annual bonus, opportunity or target annual long-term incentive award, (iii) LTIP award;
•the relocation of the geographic location of suchthe NEO’s principal place of employment by more than 100 miles from the location of his principal place of employment as of the effective date of the employment agreementmiles; or (iv) the employer’s
•delivery of a written notice of non‑renewalnon-renewal of the NEO’s employment agreement.
“Disability” existsA “disability” shall exist if the applicable NEO is unable to perform the essential functions of his position, with reasonable accommodation (if applicable), due to an illness or physical or mental impairment or other incapacity that continues for a period in excess of 90 days, whether consecutive or not, in any period of 365 consecutive days. The determination of a disability will be made by
Under the employer after obtaining an opinion from a doctor selected by the employer.
“Change in Control” (foremployment agreements for Messrs. Keppler, Even, and Even) means (i) Schmidt, a “change in control” is defined as:
•the sale or disposal by Holdings of all or substantially all of its assets to any person other than an affiliate of Holdings, (ii) the merger or consolidation of Holdings with or into another entity (other than a merger or consolidation in which unitholders in Holdings immediately prior to such transaction retain a greater than 50% equity interest in the surviving entity), (iii) the failure of the Riverstone Funds and their affiliates to possess the power to direct the management and policies of Holdings, (iv) the saleus of all or substantially all of our assets to any person other than onean affiliate;
•the simplification or consolidation of our affiliates, (v) our merger or consolidationEnviva Inc. with or into another partnership, corporation, or other entity, (otherother than a mergersimplification or consolidation in which our unitholdersthe equityholders of Enviva Inc. immediately prior to such transaction retain a greater than 50% equity interest in the surviving entity)entity; or (vi)
•the failureacquisition by any person or group of the Riverstone Fundsbeneficial ownership of more than 50% of the equity of Enviva Inc. entitled to vote in the election of our board of directors.
Release Obligations and their affiliates to possessRestrictive Covenants
Payments and benefits under the power to direct our management and policies.
employment agreements are conditioned on the execution of a general release of claims by the NEO in favor of us. The employment agreements also contain certain restrictive covenants pursuant to which our NEOs have recognized an obligation to comply with, among other things, certain confidentiality covenants as well as covenants not to compete in a defined market area with Enviva Management (or any of its affiliates to which they have provided services or about which they have obtained confidential information)us or solicit their employer’s or its affiliates’our employees in each case, during the term of the agreement and for a period of one year thereafter.
Director CompensationQuantification of Benefits
Officers or employeesThe following table summarizes the compensation and other benefits that would have become payable to each NEO assuming his employment terminated on December 31, 2021, given the NEO’s base salary as of that date, and, if applicable, the closing price of our sponsorcommon stock on December 31, 2021, which was $70.42. The target annual bonus for the 2021 was the amount set forth in each NEO’s employment agreement in effect on December 31, 2021. In addition, the following table summarizes the compensation that would become payable to Messrs. Keppler, Even, and Schmidt assuming a qualifying termination and a change in control occurred on December 31, 2021.Each of the values below reflects our best estimate of the amounts and benefits that could be payable upon a termination scenario, but amounts cannot be known with certainty until or its affiliates who also serve as directorsunless such an event were to occur.
| | | | | | | | | | | | | | |
| Benefits and Payments | | Change in Control Termination | | Termination Without Cause, for Good Reason or Death or Disability |
| John K. Keppler | | | | |
| Cash Severance | | $ | 4,400,000 | | | $ | 3,300,000 | |
| Accelerated Equity Awards | | 25,634,641 | | | 25,634,641 | |
| Health Benefits | | — | | | — | |
| Total | | $ | 30,034,641 | | | $ | 28,934,641 | |
| Shai S. Even | | | | |
| Cash Severance | | $ | 1,570,200 | | | $ | 1,046,800 | |
| Accelerated Equity Awards | | 9,693,524 | | | 9,693,524 | |
| Health Benefits | | 32,241 | | | 24,152 | |
| Total | | $ | 11,295,965 | | | $ | 10,764,476 | |
| Thomas Meth | | | | |
| Cash Severance | | $ | 967,500 | | | $ | 967,500 | |
| Accelerated Equity Awards | | 7,104,463 | | | 7,104,463 | |
| Health Benefits | | 21,494 | | | 21,494 | |
| Total | | $ | 8,093,457 | | | $ | 8,093,457 | |
| William H. Schmidt, Jr. | | | | |
| Cash Severance | | $ | 1,513,500 | | | $ | 1,009,000 | |
| Accelerated Equity Awards | | 9,233,048 | | | 9,233,048 | |
| Health Benefits | | 36,474 | | | 24,316 | |
| Total | | $ | 10,783,022 | | | $ | 10,266,364 | |
| E. Royal Smith | | | | |
| Cash Severance | | $ | 799,200 | | | $ | 799,200 | |
| Accelerated Equity Awards | | 6,246,536 | | | 6,246,536 | |
| Health Benefits | | 21,494 | | | 21,494 | |
| Total | | $ | 7,067,230 | | | $ | 7,067,230 | |
DIRECTOR COMPENSATION
For the year ended December 31, 2018,2021, directors of our General Partner who are not also officers or employees of our sponsor or its affiliates (“independent directors”)former GP, other than Mr. Keppler, received compensation for their services on our General Partner’sformer GP’s board of directors and committees thereof consisting of:of the items below:
•an annual retainer of $75,000,$85,000,
•an additional annual retainer of $20,000 for services as the chair of the audit committee,
•an additional annual retainer of $17,500 for service as the chair of the compensation committee,
•an additional annual retainer of $15,000 for service as the chair of any standingthe health, safety, sustainability and environmental committee (the “HSSE committee”),
•payment of $2,000 each time such director attended a board meeting,
•payment of $1,750 each time such director attended an audit committee meeting, and
•payment of $1,500 each time such independent director attended a boardany meeting of the compensation committee or committee meeting,the HSSE committee.
Additionally, for the year ended December 31, 2021, directors of our former GP, other than Mr. Keppler and directors who are also officers or employees of Riverstone Holdings LLC or its affiliates (excluding the former GP, the Partnership and
its subsidiaries) (the “Sponsor Directors”), received an annual grant under the LTIP with a grant date fair value of approximately $100,000.$115,000.
Until the earlier of (i) four years after a director other than Mr. Keppler and the Sponsor Directors (such director, an independent director“independent director”) is appointed to the board of directors of our General Partner or (ii) the date on which such independent director first holds an amount of our common units with an aggregate value equal to at least $250,000, one-half of all annual retainers and payments for attending board or committee meetings are paid to such independent director in the form of common units pursuant to the LTIP and the remainder is paid in cash. Each of our independent directors has met the above conditions and 100% of their annual retainers and payments for attending board or committee meetings were paid in cash.Each independent director is reimbursed for out-of-pocket expenses incurred in connection with attending board and committee meetings. Eachmeetings and each director will be fully indemnified by us for actions associated with serving as a director to the fullest extent permitted under Delaware law.
Prior to 2019, the Sponsor Directors did not receive compensation under our director compensation program. Compensation of the Sponsor Directors for their service as a director is paid directly to Riverstone/Carlyle Management LP. With respect to Mr. Ubben, his cash compensation is paid directly to Inclusive Capital Partners, L.P.
As a result of the Conversion, our business and affairs became overseen by our board of directors, rather than the board of directors of our former GP, which oversaw the business and affairs of the Partnership as its general partner prior to the Conversion.
The following table provides information concerning the compensation of our independent directors, other than Mr. Keppler (whose compensation has been reported within the Summary Compensation Table), for the fiscal year ended December 31, 2018.2021, regardless of whether they were serving on our board as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| Name | | Fees Earned in Cash | | Unit Awards (1) | | Total |
| Ralph Alexander (3) | | $ | 101,000 | | | $ | 123,800 | | | $ | 224,800 | |
| John C. Bumgarner, Jr. | | 235,850 | | | 122,661 | | | 358,511 | |
| Martin N. Davidson | | — | | | — | | | — | |
| Jim H. Derryberry (3) | | 99,000 | | | — | | | 99,000 | |
| Christopher B. Hunt (3)(4) | | 25,250 | | | — | | | 25,250 | |
| Fauzul Lakhani (3) | | — | | | — | | | — | |
| Gerrit (“Gerrity”) L. Lansing, Jr. (3) | | 65,125 | | | 56,342 | | | 121,467 | |
| Pierre F. Lapeyre, Jr. (3) | | 71,750 | | | — | | | 71,750 | |
| David M. Leuschen (3) | | 69,750 | | | — | | | 69,750 | |
| William K. Reilly (5) | | 118,500 | | | 122,661 | | | 241,161 | |
| Jeffrey W. Ubben (2) | | 130,950 | | | 124,918 | | | 255,868 | |
| Gary L. Whitlock | | 130,850 | | | 122,661 | | | 253,511 | |
| Carl L. Williams (3)(6) | | 24,750 | | | — | | | 24,750 | |
| Janet S. Wong | | 150,850 | | | 122,661 | | | 273,511 | |
| Eva T. Zlotnicka | | — | | | — | | | — | |
____________________________________________(1)Amounts included in this column reflect the aggregate grant date fair value of phantom units (which include tandem DERs) granted to the independent directors, computed in accordance with FASB ASC Topic 718, disregarding the estimate of forfeitures, in each case pursuant to the LTIP. See Note 18, Equity-Based Awards, for additional detail regarding assumptions underlying the value of these equity awards. The grant date fair value for time-based phantom unit awards issued in 2021 is based on the closing price of our common units on the date of grant, which was $48.34 per unit for awards granted on January 27, 2021 and $49.49 for awards granted on April 29, 2021. As of December 31, 2021, Mr. Bumgarner, Mr. Reilly, Mr. Ubben, Mr. Whitlock, and Ms. Wong held 2,379 unvested phantom units in the aggregate and Mr. Lansing held 2,324 unvested phantom units in the aggregate. Our non-management directors that are not independent do not receive LTIP awards, therefore they do not hold outstanding awards as of December 31, 2021. Amounts in this column also reflect the aggregate grant date fair value of common units granted to the independent directors. The grant date fair value for common unit awards issued in 2021 is based on the closing price of our common units as of the end of the calendar quarter in respect of which the common units were granted, which was $52.41 per
|
| | | | | | | | | | | | |
| Name | | Fees Earned or Paid in Cash | | Unit Awards (1) | | Total |
| John C. Bumgarner, Jr. | | $ | 119,762 |
| | $ | 100,017 |
| | $ | 219,779 |
|
| William K. Reilly | | $ | 110,762 |
| | $ | 100,017 |
| | $ | 210,779 |
|
| Gary L. Whitlock | | $ | 101,762 |
| | $ | 100,017 |
| | $ | 201,779 |
|
| Janet S. Wong | | $ | 116,762 |
| | $ | 100,017 |
| | $ | 216,779 |
|
119
| |
(1) | Amounts included in this column reflect the aggregate grant date fair value of phantom units (which include tandem DERs) granted to the independent directors, computed in accordance with FASB ASC Topic 718, in each case pursuant to the LTIP. See Note 16, Equity-Based Awards, for additional detail regarding assumptions underlying the value of these equity awards. The grant date fair value for the phantom unit awards is based on the closing price of our common units on the grant date of January 31, 2018, which was $28.65 per unit. These phantom unit awards vest in full on January 31, 2019, in each case, so long as the independent director continues to serve on the board of directors of our General Partner through such date. As of December 31, 2018, each independent director held 3,491 unvested phantom units.
common unit for awards granted on July 28, 2021 and $54.09 per common unit for awards granted on November 3, 2021. (2)Mr. Ubben’s cash compensation was paid to directly to Inclusive Capital Partners, L.P., although he received his LTIP grant directly. (3)Compensation of the Sponsor Directors and Mr. Lansing, for a portion of the year, for their service on the Board is paid directly to Riverstone/Carlyle Management LP. Mr. Lansing became an independent director on April 27, 2021, and compensation provided following that date was paid to him directly. (4)Mr. Hunt resigned from the Board on March 10, 2021. (5)Prior to the Conversion, Mr. Reilly served as a director on the board of directors of the former GP. Mr. Reilly was not appointed as a director of the Company in connection with the Conversion. (6)Mr. Williams resigned from the Board on February 5, 2021. PAY RATIO As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Keppler, our Chief Executive Officer. For 2021, our last completed fiscal year: •The median of the annual total compensation of all employees of our company (other than Mr. Keppler) was $64,325; and •The annual total compensation of Mr. Keppler, as reported in the Summary Compensation Table included above, was $6,205,730. •Based on this information, for 2021 the ratio of the annual total compensation of Mr. Keppler to the median of the annual total compensation of all employees was reasonably estimated to be 96 to 1. To identity the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our CEO, we took the following steps: •We determined that, as of December 31, 2021, our employee population consisted of approximately 1,176 individuals with all of these individuals located in the United States. This population consisted of our full-time, part-time, and temporary employees. •We used a consistently applied compensation measure to identify our median employee by comparing the Total Gross Earnings as reflected in our payroll records for 2021, which included, amount of salary or wages, bonuses, compensation received from equity award vesting and distributions (DERs), value of life insurance premiums and gym memberships. •We identified our median employee by consistently applying this compensation measure to all of our employees included in our analysis. Since all of our employees, including our CEO, are located in the United States, we did not make any cost of living adjustments in identifying the median employee. •With respect to the annual total compensation of Mr. Keppler, we used the amount reported in the “Total” column of our 2021 Summary Compensation Table above.
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ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth the beneficial ownership of shares of common unitsstock of Enviva Partners, LPInc. as of February 15, 20192021 held by:
•beneficial owners of 5% or more of our common units;stock;
•each director and named executive officer;NEO; and
•all of our directors and executive officers as a group.
Unless otherwise noted, the address for each beneficial owner listed below is 72007272 Wisconsin Ave., Suite 1000,1800, Bethesda, MD 20814.
| | | | | | | | | | | | | | |
| Name of Beneficial Owner | | Common Stock Beneficially Owned(1) | | Percentage of Common Stock Beneficially Owned |
| Investment Funds Affiliated with Riverstone Holdings, LLC(2) | | 27,797,923 | | | 41.83 | % |
| Inclusive Capital Partners, L.P.(3) | | 5,719,241 | | | 8.61 | % |
| Ralph Alexander | | — | | | — | |
| John C. Bumgarner, Jr.(4) | | 225,204 | | | * |
| Martin N. Davidson | | — | | | — | |
| Jim H. Derryberry | | — | | | — | |
| Shai S. Even | | 352,604 | | | * |
| Michael A. Johnson | | — | | | — | |
| John K. Keppler | | 697,324 | | | 1.05 | % |
| Roxanne B. Klein | | — | | | — | |
| Yanina A. Kravtsova | | 92,419 | | | * |
| Fauzul Lakhani | | — | | | — | |
| Gerrit (“Gerrity”) L. Lansing, Jr. | | 451 | | | * |
| Pierre F. Lapeyre, Jr.(2) | | 27,797,923 | | | 41.83 | % |
| David M. Leuschen(2) | | 27,797,923 | | | 41.83 | % |
| Thomas Meth | | 415,207 | | | * |
| William H. Schmidt, Jr. | | 391,556 | | | * |
| E. Royal Smith | | 260,095 | | | * |
| Jeffrey W. Ubben(3) | | 5,719,241 | | | 8.61 | % |
| Gary L. Whitlock | | 35,917 | | | * |
| Janet S. Wong | | 32,941 | | | * |
| Eva T. Zlotnicka | | — | | | — | |
| All directors and executive officers as a group (20 persons) | | 36,020,882 | | | 54.21 | % |
____________________________________________* Less than 1% of common units outstanding.
(1)This column does not include restricted stock unit awards granted to our directors and officers pursuant to the LTIP.
(2)David M. Leuschen and Pierre F. Lapeyre Jr. are the managing directors of Riverstone Management Group, L.L.C. (“Riverstone Management”), and have or share voting and investment discretion with respect to the securities beneficially owned by Riverstone Management, which is the general partner of Riverstone/Gower Mgmt Co Holdings, L.P., which is the sole member of Riverstone Holdings LLC, which is the sole member of Riverstone Echo GP, LLC, which is the general partner of Riverstone Echo Partners, L.P., which is the sole member of each of Riverstone ECF GP, LLC (“ECF GP”) and Riverstone Echo Rollover GP, LLC (“Echo Rollover GP”). ECF GP is the general partner of Riverstone Echo Continuation Holdings, L.P. (“Echo Continuation Holdings”). Echo Rollover GP is the general partner of Riverstone Echo Rollover Holdings, L.P. (“Echo Rollover Holdings”). Riverstone Enviva Holdings is managed by its members, Echo Continuation Holdings and Echo Rollover Holdings.
|
| | | | | | |
| Name of Beneficial Owner | | Common Units Beneficially Owned(1) | | Percentage of Common Units Beneficially Owned |
| Enviva Holdings, LP(2)(3)(4) | | 11,905,138 |
| | 45.00 | % |
| Enviva Partners GP, LLC | | — |
| | — | % |
| John K. Keppler | | 34,285 |
| | * |
|
| E. Royal Smith | | 6,393 |
| | * |
|
| Shai S. Even | | — |
| | — |
|
| Ralph Alexander | | — |
| | — |
|
| John C. Bumgarner, Jr.(5) | | 182,514 |
| | * |
|
| Robin J.A. Duggan | | — |
| | — |
|
| Jim H. Derryberry | | — |
| | — |
|
| Christopher B. Hunt | | — |
| | — |
|
| William K. Reilly | | 27,089 |
| | * |
|
| Gary L. Whitlock | | 17,194 |
| | * |
|
| Carl L. Williams | | — |
| | — |
|
| Janet S. Wong | | 24,218 |
| | * |
|
| All directors and executive officers as a group (17 persons) | | 354,094 |
| | 1.34 | % |
| |
* | Less than 1% of common units outstanding. |
| |
(1) | This column does not include phantom units granted to our directors and officers pursuant to the LTIP. |
| |
(2) | Of this aggregate amount beneficially owned, (i) Enviva MLP Holdco, LLC, a wholly owned subsidiary of Enviva Holdings, LP, has shared voting power over 5,897,684 common units and shared dispositive power over 5,897,684 common units, (ii) Enviva Cottondale Acquisition I, LLC, a wholly owned subsidiary of Enviva Holdings, LP, has shared voting power over 6,007,454 common units and shared dispositive power over 6,007,454 common units, (iii) Enviva Holdings, LP has shared voting power over 11,905,138 common units and shared dispositive power over 11,905,138 common units, (iv) Enviva Holdings GP, LLC has shared voting power over 11,905,138 common units and shared dispositive power over 11,905,138 common units, (v) R/C Wood Pellet Investment Partnership, L.P. has shared voting power over 11,905,138 common units and shared dispositive power over 11,905,138 common units, (vi) Riverstone/Carlyle Renewable Energy Partners II, L.P. has shared voting power over 11,905,138 common units and shared dispositive power over 11,905,138 common units and (vii) R/C Renewable Energy GP II, L.L.C. has shared voting power over 11,905,138 common units and shared dispositive power over 11,905,138 common units. |
| |
(3) | R/C Renewable Energy GP II, L.L.C is the general partner of Riverstone/Carlyle Renewable Energy Partners II, L.P., which is the general partner of R/C Wood Pellet Investment Partnership, L.P., which is the sole member of Enviva Holdings GP, LLC, which is the general partner of Enviva Holdings, LP, which is the sole member of Enviva MLP Holdco, LLC and Enviva Cottondale Acquisition I, LLC. R/C Renewable Energy GP II, L.L.C. is managed by a four‑person investment committee consisting of Pierre F. Lapeyre, Jr., David M. Leuschen, Daniel A. D’Aniello and Edward J. Mathias. |
| |
(4) | The address for each of R/C Renewable Energy GP II, L.L.C., Riverstone/Carlyle Renewable Energy Partners II, L.P. and R/C Wood Pellet Investment Partnership, L.P. is c/o Riverstone Holdings, LLC, 712 Fifth Avenue, 36th Floor, New York, New York 10019. |
| |
(5) | These 182,514 common units are held by the Bumgarner Family Trust. Mr. Bumgarner has investment control over these units. |
(3)As reported in a Schedule 13D/A filed with the SEC on January 4, 2022, Inclusive Capital Partners, L.P. (“In-Cap”) and Inclusive Capital Partners Spring Fund Manager, L.L.C. (“In-Cap Spring Fund Manager”) or Inclusive Capital Partners Spring Fund Manager II, L.L.C. (“In-Cap Spring Fund II Manager”), have been granted investment and voting discretion over the common stock held by certain funds (the “In-Cap Funds”). In-Cap acts as investment manager to the In-Cap Funds. The managing member of In-Cap Spring Fund Manager and In-Cap Spring Fund II Manager is Inclusive Capital Partners Holdco, L.P. (“In-Cap Holdco”). In-Cap is the general partner of In-Cap Holdco. Inclusive Capital Partners, L.L.C. (“In-Cap LLC”) is the general partner of In-Cap. Mr. Ubben is the controlling member of the management committee of In-Cap LLC.Mr. Ubben holds shares of common stock for the benefit of In-Cap and the In-Cap Funds.
(4)Of these 225,204 shares of common stock, 165,928 are held by the Bumgarner Family Trust. Mr. Bumgarner has investment control over these shares.
Equity Compensation Plan Information
The following table sets forth information with respect to the securities that may be issued under the Enviva Partners, LPInc. Long-Term Incentive Plan (the “LTIP”) as of December 31, 2018.2021.
| | | | | | | | | | | | | | | | | | | | |
| Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)(2) | | Weighted- average exercise price of outstanding options, warrants and rights ($) (b)(3) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)(4) |
| Equity compensation plans approved by security holders(1) | | 1,678,838 | | | n/a | | 3,004,888 | |
| Equity compensation plans not approved by security holders(2) | | — | | | — | | | — | |
| Total | | 1,678,838 | | | n/a | | 3,004,888 | |
(1)The LTIP was approved by the board of directors of the former GP prior to the IPO of Enviva Partners, LP.
(2)We do not have any equity compensation plans that were not approved by our shareholders. The LTIP was amended in January 2020 and January 2021 to increase the number of shares of common stock that may be issued thereunder and was amended and restated as of December 31, 2021 in connection with the Conversion. The amendments to the LTIP did not require shareholder approval under the rules of the NYSE.
(3)The amount in column (a) of this table reflects (i) the aggregate number of shares of common stock issuable upon settlement of outstanding time-based restricted stock units and (ii) the aggregate number of shares of common stock issuable upon settlement of outstanding performance-based restricted stock units assuming a 100% performance factor pursuant to the LTIP as of December 31, 2021. The actual number of shares of common stock that may be issued in settlement of outstanding performance-based restricted stock unit awards is based on a factor of between 0% and 200%. Each outstanding restricted stock unit award reflected within this column (a) represented a time-based or performance-based phantom unit award which was converted to a time-based or performance-based restricted stock unit award, as applicable, on a one-for-one basis in connection with the Conversion.
(4)This column is not applicable because only phantom units (prior to the Conversion) and restricted stock units (following the Conversion) have been granted under the LTIP and phantom units and restricted stock units do not have an exercise price.
(5)The amount in this column reflects the total number of shares of common stock remaining available for future issuance under the LTIP as of December 31, 2021. For additional information about the LTIP and the awards granted thereunder, please read Part III, Item 11. “Executive Compensation.”
|
| | | | | | | | | |
| Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)(2) | | Weighted- average exercise price of outstanding options, warrants and rights ($) (b)(3) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)(4) |
| Equity compensation plans approved by security holders(1) | | 1,372,520 |
| | n/a |
| | 643,204 |
|
| Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
|
| Total | | 1,372,520 |
| | n/a |
| | 643,204 |
|
| |
(1) | The LTIP was approved by the board of directors of our General Partner prior to the IPO. |
| |
(2) | The amount in column (a) of this table reflects the aggregate number of outstanding phantom units under the LTIP as of December 31, 2018. |
| |
(3) | This column is not applicable because only phantom units have been granted under the LTIP and phantom units do not have an exercise price. |
| |
(4) | The amount in this column reflects the total number of common units remaining available for future issuance under the LTIP as of December 31, 2018. For additional information about the LTIP and the awards granted thereunder, please read Part III, Item 11. “Executive Compensation.” |
| |
ITEM 13. | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
As of February 15, 2019, our sponsor owned 11,905,138 common units representing an approximate 45% limited partner interest in us. In addition, our sponsor owns and controls (and appoints all the directors of) our General Partner, which maintains a non-economic general partner interest in us and owns all our incentive distribution rights.
The terms of the transactions and agreements disclosed in this section were determined by and among affiliated entities and, consequently, arewere not the result of arm’s-length negotiations. Thesenegotiations, thus presenting the risk that their terms arewere not necessarily at least as favorable to the parties to these transactions and agreementsinvolved as the terms that could have been obtained from unaffiliated third parties. The foregoing descriptions are not complete and are subject to and qualified in their entirety by reference to the full text of the agreements, which are included as exhibits hereto.
Distributions and Agreements with Affiliates
Payments to OurRiverstone for Affiliated Director Services
Beginning in 2019, we paid Riverstone/Carlyle Management LP, an affiliate of our former sponsor, compensation for the services of the officers or employees of Riverstone Holdings LLC or its affiliates who served as directors on the board of directors of our former General Partner, as well as for services provided by Mr. Lansing. During the year ended December 31, 2021, total compensation related to such expense was $0.6 million.
Agreement and Its AffiliatesPlan of Merger
We generally make 100%On October 14, 2021, the Company entered into an Agreement and Plan of our cash distributionsMerger (the “Merger Agreement”) by and among the Company, its former sponsor, Enviva Partners Merger Sub, LLC, and the limited partners of its former sponsor set forth in the Merger Agreement (the “Holdings Limited Partners”). Pursuant to our unitholders, includingthe terms of the Merger Agreement, (a) the Company acquired (i) all of the limited partner interests in its former sponsor and (ii) all of the limited liability company interests in Enviva Holdings GP, LLC, the general partner of the Company’s former sponsor, and (b) the incentive distribution rights directly held by Enviva MLP Holdco, LLC, a subsidiary of the Company’s former sponsor, were cancelled and eliminated (collectively, the “Simplification Transaction”). In consideration for the Simplification Transaction, the Company issued 16.0 million common units to the Holdings Limited Partners party to the Merger Agreement.
Acquisition I Merger Agreement
On October 14, 2021, the Company entered into an Agreement and Plan of Merger (the “Acquisition I Merger Agreement”) by and among the Company, Enviva Cottondale Acquisition I, LLC (“Acquisition I”), a subsidiary of affiliates of our General Partner.former sponsor, Riverstone Echo Continuation Holdings, L.P. and Riverstone Echo Rollover Holdings, L.P. (the “Riverstone Echo Funds”), and Enviva, Inc. Merger Sub, LLC (“Merger Sub”). Pursuant to the Acquisition I Merger Agreement, Acquisition I agreed to merge with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of the Company (the “Acquisition I Merger”). In connection therewith, the Riverstone Echo Funds received 6.0 million common units, which was the number of common units held directly or indirectly by Acquisition I immediately prior to the Acquisition I Merger.
Registration Rights Agreement
The Company entered into a registration rights agreement (the “Registration Rights Agreement”) on October 14, 2021 with the Holdings Limited Partners pursuant to which, among other things and subject to certain restrictions, the Company agreed to file with the SEC a registration statement on Form S-3 registering for resale certain securities received by such Holdings Limited Partners in connection with the Simplification Transaction. The Registration Rights Agreement also provides the Holdings Limited Partners with customary demand and piggyback registration rights.
Echo Blocker Merger Agreement
On October 14, 2021, the Company entered into an Agreement and Plan of Merger (the “Echo Blocker Merger Agreement”) by and among Riverstone EC Corp, LLC (“Echo Blocker”), the Company, Merger Sub, and Riverstone Echo Continuation Fund Parallel, L.P. (“Riverstone Echo Fund Parallel”). Pursuant to the Echo Blocker Merger Agreement, Riverstone Echo Continuation Fund Parallel received a number of shares of the Company’s common stock equal to the number of common units held by Echo Blocker immediately prior to the merger of Echo Blocker with and into Merger Sub.
Support Agreement
In connection with the Simplification Transaction on October 14, 2021, the Company entered into a support agreement (the “Support Agreement”) by and among the Company, the Holdings Limited Partners party thereto, and certain other persons thereto pursuant to which, among other things, (a) certain of our former sponsor’s (or its subsidiaries’) obligations to provide financial support to us were consolidated, fixed, and novated into fixed payment amounts to be paid solely out of dividends on certain shares of common stock held by certain Holdings Limited Partners, (b) each Holdings Limited Partner party thereto
agreed to reinvest all regular quarterly dividends in respect of a portion of the common stock issued to such Holdings Limited Partner in the Simplification Transaction, for each calendar quarter from the calendar quarter ending September 30, 2021, through and including the calendar quarter ending December 31, 2024, and (c) each Holdings Limited Partner party thereto made certain voting commitments in connection with the Conversion and agreed not to transfer any common units held by such partner until the completion of the unitholder vote regarding the Conversion or the Company’s determination to abandon or terminate the Conversion.
Stockholders Agreement
In connection with the Simplification Transaction, the Company entered into a stockholders’ agreement (the “Stockholders Agreement”) with Riverstone Echo Continuation Holdings, L.P. and Riverstone Echo Rollover Holdings, L.P. and each of their respective affiliates (collectively, the “Riverstone Stockholders”). The Stockholders Agreement provided for the composition of the Company’s initial post-Conversion board of directors. In addition, if distributions exceedfor so long as the minimum quarterly distribution and other higher target distribution levels, our General Partner, or the holder of our incentive distribution rights, will be entitled to increasing percentagesRiverstone Stockholders hold at least 30% of the distributions, up to 50.0%Company’s common stock, the Company agreed that it would not, without the approval of the distributions aboveRiverstone Stockholders, undertake certain specified actions set forth in the highest target distribution level.Stockholders Agreement.
Assuming we have sufficient cash available for distribution to payManagement Services Agreements
EVA MSA
From 2015 through October 14, 2021, the full minimum quarterly distribution onclosing date of the Simplification Transaction, all of our outstanding common units for four quarters,employees and members of management were employed by Enviva Management Company, LLC (“Enviva Management Company”), a wholly owned subsidiary of our General Partnerformer sponsor, and its affiliates would receive total annual distributions of approximately $19.6 million on their common units.
Our General Partner does not receivewe and our former general partner were party to a management fee or other compensation for its management of our partnership, but we reimburse our General Partner and its affiliates for all direct and indirect expenses they incur and payments they make on our behalf. These expenses include salary, bonus, incentive compensation and other amounts paidservices agreement (the “EVA MSA”). Pursuant to persons who perform services for us or on our behalf and expenses allocated to our General Partner by its affiliates. Under ourthe EVA MSA, we are obligated to reimbursereimbursed Enviva Management Company for all direct or indirect costs and expenses incurred by, or chargeable to, Enviva Management in connection with its provision of services necessary for the operation of our business. If the MSA were terminated without replacement, or our General Partner or its affiliates provided services outside of the scope of the MSA, our partnership agreement would require us to reimburse our General Partner and its affiliates for all expenses they incur and payments they make on our behalf. Our partnership agreement does not set a limit on the amount of expenses for which our General Partner and its affiliates may be reimbursed.
If our General Partner withdraws or is removed, its non-economic general partner interest and its incentive distribution rights will either be sold to the new general partner for cash or converted into common units, in each case for an amount equal to the fair market value of those interests.
If we are ever liquidated, the partners, including our General Partner, will be entitled to receive liquidating distributions according to their respective capital account balances.
Agreements with Affiliates
Wilmington Contribution Agreement
In October 2017, pursuant to the terms of a contribution agreement with the First Hancock JV (the “Wilmington Contribution Agreement”), we acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”) for a purchase price of $130.0 million. The purchase price included an initial payment of $54.6 million, net of an approximate purchase price adjustment of $1.4 million. The acquisition (the “Wilmington Drop-Down”) included the Wilmington terminal and a long-term terminal services agreement with our sponsor to handle throughput volumes sourced by the sponsor from a wood pellet production plant in Greenwood, South Carolina. The terminal services agreement with our sponsor provides for deficiency payments to Wilmington if quarterly minimum throughput requirements are not met. The Wilmington terminal will handle up to approximately 600,000 MTPY of throughput from our production plant in Sampson County, North Carolina.
In addition, the Wilmington Contribution Agreement contemplates that Wilmington will enter into a long-term terminal services agreement (the “Wilmington Hamlet TSA”) with the First Hancock JV and Enviva Pellets Hamlet, LLC (“Hamlet”) to receive, store and load wood pellets from the First Hancock JV’s proposed production plant in Hamlet, North Carolina (the “Hamlet plant”) when the First Hancock JV completes construction of the Hamlet plant. The Wilmington Hamlet TSA also provides for deficiency payments to Wilmington if minimum throughput requirements are not met. Pursuant to the Wilmington Contribution Agreement, following notice of the anticipated first delivery of wood pellets to the Wilmington terminal from the Hamlet plant, Wilmington, Hamlet, and the First Hancock JV will enter into the Wilmington Hamlet TSA and we will make a final payment of $74.0 million in cash and common units representing limited partner interests in the Partnership to the First Hancock JV, subject to certain conditions, as deferred consideration for the Wilmington Drop-Down.
Wilmington also entered into a throughput option agreement with our sponsor granting the sponsor, subject to certain conditions, the option to obtain terminal services at the Wilmington terminal at marginal cost throughput rates for wood pellets produced by one of our sponsor’s potential wood pellet production plants.
Related-Party Indemnification
In connection with the Sampson Drop-Down, the First Hancock JV agreed to indemnify us, our affiliates, and our respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Sampson plant that were included in the net assets contributed.
In connection with the Wilmington Drop-Down, the First Hancock JV agreed to indemnify us, our affiliates, and our respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Port of Wilmington that were included in the net assets contributed.
Sampson Construction Payments
Pursuant to payment agreements between us and the First Hancock JV, the First Hancock JV agreed to pay an aggregate amount of $2.9 million to us in consideration for costs incurred by us to repair or replace certain equipment at the Sampson plant following the consummation of the Sampson Drop-Down. As of December 31, 2018, $2.9 million has been received and no further amounts are outstanding.
Holdings TSA
In connection with the Wilmington Drop-Down, Wilmington and the sponsor entered into a terminal services agreement providing for wood pellet receipt, storage, handling and loading services by the Wilmington terminal on behalf of the sponsor (the “Holdings TSA”). Pursuant to the Holdings TSA, which remains in effect until September 1, 2026, the sponsor agreed to deliver a minimum of 125,000 MT per quarter and pay a fixed fee on a per-ton basis for the terminal services.
In February 2018, the Holdings TSA was amended and assigned to Enviva Pellets Greenwood, LLC, a wholly owned subsidiary of Enviva JV Development Company LLC, a joint venture between our sponsor and John Hancock Life Insurance
Company (U.S.A.) and certain of its affiliates (“Second Hancock JV”). Deficiency payments are due to Wilmington if quarterly minimum throughput requirements are not met.
EVA-MGT Contracts
In January 2016 we entered into a contract with the First Hancock JV to supply 375,000 MTPY of wood pellets (the “EVA‑MGT Contract”) to MGT Teesside Limited’s Tees Renewable Energy Plant (the “Tees REP”), which is under development. The EVA-MGT Contract commences in 2019, ramps to full supply in 2021 and continues through 2034. The EVA-MGT Contract is denominated in U.S. Dollars for commissioning volumes in 2019 and in British Pound Sterling (“GBP”) thereafter.
We entered into a second supply agreement with the First Hancock JV in connection with the Sampson Drop-Down to supply an additional 95,000 MTPY of the contracted volume to the Tees REP. The contract, which is denominated in GBP, commences in 2020 and continues through 2034.
Registration Rights Agreement
In connection with our initial public offering (“IPO”) on May 4, 2015, we entered into a registration rights agreement with our sponsor pursuant to which we may be required to register the sale of the common units issued (or issuable) to our sponsor. Under the registration rights agreement, our sponsor will have the right to request that we register the sale of such common units held by it, and our sponsor will have the right to require us to make available shelf registration statements permitting sales of such common units into the market from time to time over an extended period, subject to certain limitations. In addition, the registration rights agreement gives our sponsor piggyback registration rights under certain circumstances. The registration rights agreement also includes provisions dealing with indemnification and contribution and allocation of expenses. All of such common units held by our sponsor and any permitted transferee will be entitled to these registration rights.
Purchase Rights Agreement
In connection with the IPO, we entered into a the Purchase Rights Agreement with our sponsor pursuant to which our sponsor will provide to us, through May 2020, a right of first offer to purchase any wood pellet production plant or deep‑water marine terminal that it, its subsidiaries or any other entity that it controls (including the Hancock JVs) owns and proposes to sell (each, a “ROFO Asset”). We will have thirty days following receipt of the sponsor entity’s intention to sell a ROFO Asset to propose an offer for the ROFO Asset. If we submit an offer, our sponsor will negotiate with us exclusively and in good faith to enter into a letter of intent or definitive documentation for the purchase of the ROFO Asset on mutually acceptable terms. If we are unable to agree to terms within 45 days, the sponsor entity will have 150 days to enter into definitive documentation with a third party purchaser on terms that are, in the good faith judgment of the sponsor entity selling such ROFO Assets, superior to the most recent offer proposed by us.
Biomass Option Agreement – Enviva Holdings, LP
In February 2017, we entered into a master biomass purchase and sale agreement and a confirmation thereunder with the sponsor (together, the “Option Contract”), pursuant to which we have the option to purchase certain volumes of wood pellets from the sponsor and the sponsor has a corresponding right to re-purchase volumes purchased by us. The Option Contract terminated in accordance with its terms in March 2018.
Management Services Agreement
In April 2015, all of our employees and management became employed by Enviva Management, and we and our General Partner entered into the MSA with Enviva Management, pursuant to which Enviva Management provides us with all services necessary for the operation of our business. The MSA has a term of five years, which is automatically renewed unless terminated by us for cause. Enviva Management is also able to terminate the agreement if we fail to reimburse it for its costs and expenses allocable to us.
Pursuant to the MSA, we reimburse Enviva Management for all direct or indirect costs and expenses incurred by, or chargeable to, Enviva Management in connection with the provision of the services, including without limitation, salary and benefits of employees engaged in providing such services, as well as office rent, expenses, and other overhead costs of Enviva Management.Management Company. Enviva Management determinesCompany determined the amount of costs and expenses that iswere allocable to us.
Hamlet JV MSA
Pursuant to a management services agreement between the Hamlet JV and Enviva Management Company (the “Hamlet JV MSA”), Enviva Management Company provided the Hamlet JV with operations, general administrative, management, and other services. As compensation for Enviva Management Company’s services under the Hamlet JV MSA, the Company paid an annual management fee to Enviva Management Company. The Hamlet JV reimbursed Enviva Management Company for all reasonable and necessary costs and expenses (other than general and administrative costs) incurred by, or chargeable to, Enviva Management Company
Enviva Tooling MSA
Pursuant to a management services agreement between Enviva Tooling Services Company, LLC (the “Tooling JV”) and Enviva Management Company (the “Tooling JV MSA”), Enviva Management Company provided the Tooling JV with operations, general administrative, management, and other services. As compensation for Enviva Management Company’s services under the Tooling JV MSA, the Company paid an annual management fee to Enviva Management Company as set forth in the Tooling JV’s budget. The Tooling JV reimbursed Enviva Management Company for all reasonable and necessary costs and expenses incurred by, or chargeable to, Enviva Management Company in connection with the services.
Railcar Subleases
During 2021, we agreed to sublease certain railcars from Enviva Pellets Lucedale, LLC, a wholly owned subsidiary of our sponsor.
Software License
Effective May 1, 2021, we took assignment of certain licenses with Microsoft from our former sponsor.
Lucedale and Pascagoula Contribution Agreement and Off-Take Contracts Assignment
On July 1, 2021, we acquired from our former sponsor all of the limited liability company interests in Enviva JV2 Holdings, LLC, the indirect owner of a wood pellet production plant under construction in Lucedale, Mississippi and a deep-water marine terminal under construction in Pascagoula, Mississippi, for a purchase price of $259.5 million, after accounting for certain adjustments (the “Lucedale-Pascagoula Drop-Down”). In connection therewith, our former sponsor also assigned to
us three long-term, take-or-pay off-take contracts with aggregate annual deliveries of 630,000 MTPY (together with the Lucedale-Pascagoula Drop-Down, the “Acquisitions”).
Other TransactionsLucedale-Pascagoula Drop-Down Make-Whole Agreement
On the date of the Lucedale-Pascagoula Drop-Down, we entered into a make-whole agreement with Related Personsour former sponsor, pursuant to which our former sponsor agreed to (i) guarantee certain cash flows from the production plant under construction in Lucedale, Mississippi during the period from and including the quarter ended on September 30, 2021 through and including the five quarters (or, if the commercial operations date of the production plant under construction in Lucedale, Mississippi is on the first day of a quarter, four quarters) following the quarter in which the commercial operations date of the production plant under construction in Lucedale, Mississippi occurs (the “Make-Whole Term”) and (ii) reimburse us for construction costs in excess of budgeted capital expenditures for the terminal at the Port of Pascagoula, Mississippi and production plant under construction in Lucedale, Mississippi, subject to certain exceptions. We also agreed to pay to our former sponsor quarterly incentive payments for any wood pellets produced by the production plant under construction in Lucedale, Mississippi in excess of forecast production levels during the Make-Whole Term.
Lucedale-Pascagoula Drop-Down Management Services Fee Waiver
On July 1, 2021, we entered into an agreement with Enviva FiberCo, LLCManagement Company, pursuant to which Enviva Management Company agreed to waive an aggregate of $52.5 million in fees that otherwise would have been owned by us under our management services agreement with Enviva Management Company with respect to the period from the closing of the Lucedale-Pascagoula Drop-Down through the fourth quarter of 2023. From January 1, 2022 through December 31, 2024, and prior to the first month during which the production plant under construction in Lucedale, Mississippi produces 62,500 metric tons of wood pellets, Enviva Management Company will waive additional management service fees for any calendar quarter if certain production levels are not met for such quarter. The total amount of such conditional fee waiver is up to $4.0 million.
We purchaseShipping Subcharter Agreement and MSA Fee Waivers
During the third quarter of 2021, we entered into an agreement with our former sponsor pursuant to which we agreed to make shipments of wood pellets during 2022 and 2023. As consideration, we received a waiver on a portion of fees pursuant to our management services agreement with Enviva Management Company.
Wood Fiber Agreement
Prior to the Simplification Transaction, we purchased a portion of our raw materials from Enviva FiberCo,Fiberco, LLC (“FiberCo”), a wholly owned subsidiary of the sponsor. Raw material purchases from FiberCo during 2018, 2017 and 2016 were $7.1 million, $8.5 million and $3.7 million, respectively.
Greenwood Contract
In February 2018, we entered into a contract with Enviva Pellets Greenwood, LLC (“Greenwood”), a wholly owned subsidiary of the Second Hancock JV, which ownsour former sponsor, including through a wood pellet production plantsupply agreement effective July 1, 2021, whereby FiberCo committed to secure incremental stumpage inventory meeting acceptable specification requirements, above inventory levels held as of June 30, 2021, to supply certain of our plants. For all wood fiber delivered pursuant to the agreement, we agreed to pay a $5 per green short ton (”GST”) premium to market pricing. FiberCo agreed to pay deficiency fees of $10 per GST to us in Greenwood, South Carolina (the “Greenwood plant”), to purchase wood pellets produced by the Greenwood plantevent that FiberCo did not satisfy certain volume commitments between July 31 through March 2022 and have a take-or-pay obligation with respect to 550,000 MTPY of wood pellets (prorated for partial contract years) beginning in mid-2019 (the “Greenwood contract”) and subject to Greenwood’s option to increase or decrease the volume by 10% each contract year.December 31, 2021.
Procedures for Review, Approval and Ratification of Transactions with Related Persons
In connection with the closing ofConversion, our IPO, the board of directors ofadopted our General Partner adopted policies for the review, approval and ratification of transactions with related persons. The board adopted a written Code of Business Conduct and Ethics, underpursuant to which a director is expected to bring to the attention of the chief executive officer or the board any conflictcertain conflicts or potential conflictconflicts of interest that may arise between the director or any affiliate of the director,Enviva, on the one hand, and usany director, officer, or our General Partneremployee of Enviva (each, a “Covered Person”), on the other.other, must be brought to the attention of the board of directors if the Covered Person has (i) a direct interest in any such conflict where the amount involved exceeds $120,000 or (ii) a material indirect interest in any such conflict. The resolution of any such conflict or potential conflict should, at the discretion of the board in light of the circumstances, be determined by a majority of the disinterested directors.
Under the provisions of our Code of Business Conduct and Ethics, any executive officer will be required to avoid conflicts of interest unless approved by theour board of directors of our General Partner.
The Code of Business Conduct and Ethics described above was adopted in connection with the closing of our IPO and, as a result, the transactions described above that were entered into prior to or in connection with the IPO were not reviewed according to such procedures.
The board has also adopted a Conflicts of Interest Policy, under which if a conflict or potential conflict of interest arises between our General Partner or its affiliates, on the one hand, and us or our unitholders, on the other hand, the resolution of any such conflict or potential conflict should be addressed by the board of directors of our General Partner in accordance with the provisions of our partnership agreement. At the discretion of the board in light of the circumstances, the resolution may be determined by the board in its entirety or by a conflicts committee meeting the definitional requirements for such a committee under our partnership agreement.
The Conflicts of Interest Policy provides that the board may approve certain contracts (“Affiliated Contracts”) between us, on the one hand, and the General Partner and any of its affiliates, on the other hand, so long as the board reasonably determines that such contracts are on terms (in the aggregate) not less favorable to us than could be obtained on an arm’s‑length basis from an unrelated third party, taking into account the totality of the circumstances involved.
The Conflicts of Interest Policy also provides that either of the Chief Executive Officer or the Chief Financial Officer (each, an “Approving Officer”) of our General Partner have the authority, without prior board approval but subject to board review, to approve certain Affiliated Contracts involving asset transfers or leases in order to promote the proper functioning of our day-to-day business affairs so long as the applicable Approving Officer and the General Counsel of our General Partner determine, after reasonable inquiry, that such Affiliated Contracts are on terms (in the aggregate) not less favorable to us than could be obtained on an arm’s‑length basis from an unrelated third party, taking into account the totality of the circumstances involved.
The Conflicts of Interest Policy was adopted in connection with the closing of our IPO and, as a result, the transactions described above that were entered into prior to or in connection with the IPO were not reviewed according to such procedures.directors.
Director Independence
See Part III, Item 10. “Directors,“Directors, Executive Officers, and Corporate Governance”Governance” for information regarding theour directors of our General Partner and independence requirements applicable to theour board of directors of our General Partner and its committees.
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ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
KPMGITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Ernst & Young LLP (“KPMG”EY”), Tyson, Virginia, Auditor Firm ID: 42, served as our independent auditor forauditors during the years ended December 31, 20182021 and 2017.2020, respectively. The following table presents fees paid for professional audit services rendered by KPMG for the audit of our annual consolidated financial statements and for other services for the years ended December 31, 20182021 and 2017,2020.
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 |
| | (in thousands) |
Audit fees(1) | | $ | 3,100 | | | $ | 2,218 | |
Audit related fees(2) | | 125 | | | 860 | |
All other fees(3) | | 5 | | | 10 | |
| Total | | $ | 3,230 | | | $ | 3,088 | |
____________________________________________(1)Fees for financial statement audit and feesreview services customary under generally accepted auditing standards or for otherthe purpose of rendering an opinion or review on the financial statements related to the fiscal year then ended.
(2)Fees for assurance and related services renderedtraditionally performed by KPMG:independent accountants, including internal control reviews, audits in which we engaged related to an acquisition and to a less-than-wholly subsidiary, and work performed in connection with a registration statement or issuance of a comfort letter.
(3)Fees for use of the EY global accounting and financial reporting research tool.
|
| | | | | | | | |
| | | Year Ended December 31, |
| (in thousands) | | 2018 | | 2017 |
| Audit fees(1) | | $ | 1,490 |
| | $ | 1,902 |
|
| Audit related fees | | — |
| | — |
|
| Tax fees | | — |
| | — |
|
| All other fees | | — |
| | — |
|
| Total | | $ | 1,490 |
| | $ | 1,902 |
|
| |
(1) | Fees for audit services related to the fiscal year consolidated audit, quarterly reviews, registration statements and services that were provided in connection with statutory and regulatory filings. |
Policy for Approval of Audit and Permitted Non-Audit Services
Before the independent registered public accounting firm is engaged by us or our subsidiaries to render audit or non‑audit services, the audit committee must pre-approve the engagement. Audit committee pre-approval of audit and non-audit services is not required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by the audit committee. The chairman of the audit committee has the authority to grant pre-approvals, provided such approvals are within the pre-approval policy and presented to the audit committee at a subsequent meeting.
The audit committee approved the appointment of KPMGEY as our independent auditor to conduct the audit of our consolidated financial statements for the year ended December 31, 20182021 and all of the services described above.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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(a) | Certain documents are filed as a part of this Annual Report and are incorporated by reference and found on the pages below. |
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1. | Financial Statements—Please read Part II, Item 8. “Financial Statements and Supplementary Data—Index to Financial Statements.” |
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2. | All schedules have been omitted because they are either not applicable, not required or the information called for therein appears in the consolidated financial statements or notes thereto. |
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3. | Exhibits—Exhibits required to be filed by Item 601 of Regulation S‑K set forth below are incorporated herein by reference. |
(a) Certain documents are filed as a part of this Annual Report and are incorporated by reference and found on the pages below.
1.Financial Statements—Please read Part II, Item 8. “Financial Statements and Supplementary Data—Index to Financial Statements.”
2. All schedules have been omitted because they are either not applicable, not required or the information called for therein appears in the consolidated financial statements or notes thereto.
3. Exhibits—Exhibits required to be filed by Item 601 of Regulation S‑K set forth below are incorporated herein by reference.
EXHIBIT INDEX
|
| | | | | | | |
Exhibit Number | | Exhibit |
| 2.1 |
| | Contribution Agreement by and betweenamong Enviva WilmingtonDevelopment Holdings, LLC, Enviva Holdings, LP, and Enviva Partners, LP dated May 8, 2017March 21, 2019 (Exhibit 2.1, Form 8‑K8-K filed May 12, 2017,March 25, 2019, File No. 001‑001-37363) |
3.12.2 |
| | CertificateContribution Agreement, dated as of Limited PartnershipJune 18, 2020, by and among Enviva Development Holdings, LLC, Enviva Partners, LP and Enviva Holdings, LP (Exhibit 2.1, Form 8-K filed June 19, 2020, File No. 001-37363) |
| 2.3 | | Membership Interest Membership Interest Purchase and Sale Agreement, dated as of June 18, 2020, by and among Enviva Pellets Waycross Holdings, LLC (as assignee of Enviva Partners, LPLP), RWE Generation SE (as assignee of innogy SE) and innogy Renewables Beteiligungs GMBH (to be renamed RWE Renewables Beteiligungs GmbH) (Exhibit 3.1,2.2, Form S‑1 Registration Statement8-K filed October 28, 2014,June 19, 2020, File No. 333‑199625)001-37363) |
3.22.4 |
| | First AmendedContribution Agreement, dated June 3, 2021, by and Restated among Enviva Development Holdings, LLC, Enviva, LP, and Enviva Holdings, LP (Exhibit 2.1, Form 8-K filed June 7, 2021, File No. 001-37363) |
| 2.5 | | Agreement and Plan of Limited Partnership ofMerger, dated October 14, 2021, by and among Enviva Partners, LP, dated May 4, 2015, by Enviva Holdings LP, EVA Partners GP,Merger Sub, LLC and the other parties named therein (Exhibit 3.1,2.1, Form 8‑K8-K filed May 4, 2015,October 15, 2021, File No. 001‑37363)001-37363) |
3.32.6 |
| | Amendment No. 1 to the First AmendedAgreement and Restated AgreementPlan of Limited Partnership ofMerger, dated October 14, 2021, by and among Enviva Cottondale Acquisition I, LLC, Enviva Partners, LP, effective as of December 18, 2017, by Enviva, Partners GP,Inc. Merger Sub, LLC, Riverstone Echo Continuation Holdings, L.P. and Riverstone Echo Rollover Holdings, L.P. (Exhibit 3.1,2.2, Form 8-K filed December 21, 2017)October 15, 2021, File No. 001-37363) |
4.13.1 |
| | |
| 3.2 | | |
| 4.1 | | Indenture, dated as of November 1, 2016,December 9, 2019, by and among Enviva Partners, LP, Enviva Partners Finance Corp., the subsidiary guarantors party thereto, and Wilmington Trust, National Association, as trustee (Exhibit(incorporated by reference herein to Exhibit 4.1 to the Company’sForm 8‑K8-K filed November 3, 2016,on December 9, 2019, File No. 001‑37363)001-37363) |
| 4.2 |
| | |
4.34.3* |
| | |
| 4.4 | | Registration Rights Agreement, dated May 4, 2015,October 14, 2021, by and among Enviva Partners, LP, the Holdings Limited Partners party thereto and the other parties thereo (Exhibit 4.1, Form 8‑K filed October 15, 2021, File No. 001‑37363) |
| 4.5 | | Stockholders Agreement, dated October 14, 2021, by and among Enviva MLP Holdco,Partners, LP, Riverstone Echo Continuation Holdings, L.P. and Riverstone Echo Rollover Holdings, L.P. (Exhibit 4.2, Form 8‑K filed October 15, 2021, File No. 001‑37363) |
| 10.1 | | License Agreement, dated April 9, 2015, by and among Enviva Holdings, LP, Enviva Partners GP, LLC and Enviva Cottondale Acquisition I, LLCPartners, LP (Exhibit 4.1,10.3, Form 8‑K filed May 4, 2015, File No. 001‑37363) |
10.110.2† |
| | Purchase Rights Agreement, dated May 4, 2015, by and among Enviva Partners, LP, Enviva Partners GP, LLC and Enviva Holdings, LP (Exhibit 10.2, Form 8‑K filed May 4, 2015, File No. 001‑37363) |
10.2† |
| | |
10.3† |
| | Management Services Agreement by and among Enviva Partners, LP, Enviva Partners GP, LLC, Enviva, LP, Enviva GP, LLC, the subsidiaries of Enviva, LP party thereto and Enviva Management Company, LLC, dated as of April 9, 2015 (Exhibit 10.12, Form S‑1 Registration Statement filed April 15, 2015, File No. 333‑199625) |
10.410.3 |
| | Fourth Amendment to Credit Agreement and Second Amendment to Guarantee and Collateral Agreement, dated as of October 18, 2018, by and among Enviva Partners, LP, as Borrower, certain subsidiaries of the Borrower and Barclays Bank PLC, as Administrative Agent and Collateral Agent. (Exhibit 10.1, Form 8-K filed October 19, 2018, File No. 001-37363))
|
10.510.4 |
| | Master BiomassManagement Services Agreement Fee Waiver by and among Enviva, LP, Enviva GP, LLC, Enviva Pellets Ahoskie, LLC, Enviva Pellets Amory, LLC, Enviva Pellets Northampton, LLC, Enviva Pellets Cottondale, LLC, Enviva Port of Chesapeake, LLC, Enviva Energy Services, LLC, Enviva Pellets Sampson, LLC, Enviva Pellets Southampton, LLC, Enviva Port of Panama City, LLC, Enviva Port of Wilmington, LLC and Enviva Management Company, LLC dated April 2, 2019 (Exhibit 10.3, Form 10-Q filed May 9, 2019, File No. 001-37363) |
| 10.5 | | |
| 10.6 | | |
| 10.7† | | |
| 10.8† | | |
| 10.9† | | |
| 10.10† | | |
| 10.11 | | |
| | | | | | | | |
| Exhibit Number | | Exhibit |
| 10.12 | | Purchase Agreement, dated as of June 29, 2020, by and among Enviva Partners, LP, Enviva Partners Finance Corp., the subsidiary guarantors party thereto and Barclays Capital Inc., as representative of the initial purchasers named therein. (Exhibit 10.1, Form 8-K filed June 29, 2020, File No. 001-37363) |
| 10.13 | | |
| 10.14 | | |
| 10.15 | | |
| 10.16 | | |
| 10.17 | | |
| 10.18 | | Management Services Agreement Fee Waiver, dated July 1, 2021, by and among Enviva Partners, LP, Enviva Partners GP, LLC, and the other parties named therein (Exhibit 10.1, Form 8-K filed on July 1, 2021, File No. 001-37363) |
| 10.19 | | Make-Whole Agreement, dated July 1, 2021, by and between Enviva Holdings, LP and Enviva, Wilmington Holdings, LLCLP (Exhibit 10.8,10.2, Form 8‑K8-K filed May 4, 2015,on July 1, 2021, File No. 001‑37363)001-37363) |
10.610.20† |
| | Terminal ServicesEmployment Agreement, dated April 9, 2015, by andas of July 27, 2021, between Enviva Port of Chesapeake,Management Company, LLC and Enviva Wilmington Holdings, LLCMichael A. Johnson (Exhibit 10.7,10.1, Form 8‑K8-K filed May 4, 2015,on August 2, 2021, File No. 001‑37363)001-37363) |
10.710.21 |
| | LicenseSupport Agreement, dated April 9, 2015,October 14, 2021, by and among Enviva Holdings,Partners, LP, the persons set forth on Schedule I attached thereto, and the other parties named therein (Exhibit 10.1, Form 8-K filed October 15, 2021, File No. 001-37363) |
| 10.22 | | Seventh Amendment to Credit Agreement, dated October 14, 2021, by and among Enviva Partners, LP, Enviva, LP, certain other subsidiaries of Enviva Partners, LP, Barclays Bank PLC as administrative agent and collateral agent, and the other lenders and issuing banks party thereto (Exhibit 10.2, Form 8-K filed October 15, 2021, File No. 001-37363) |
| 10.23 | | PRA Termination Agreement, dated October 14, 2021, by and among Enviva Partners, LP, Enviva Partners GP, LLC and Enviva Partners,Holdings, LP (Exhibit 10.3, Form 8‑K8-K filed May 4, 2015,October 15, 2021, File No. 001‑37363)001-37363) |
10.8†10.24 |
| | RRA Termination Agreement, dated October 14, 2021, by and among Enviva Partners, LP, Enviva MLP Holdco, LLC, and Enviva Cottondale Acquisition I, LLC (Exhibit 10.4, Form 8-K filed October 15, 2021, File No. 001-37363) |
| 10.25*† | | |
| 10.26*† | | |
| 10.27*† | | |
| 10.28*† | | |
| 10.29*† | | |
| 10.30 | | |
| 10.31† | | |
| 10.32† | | |
| 10.33*† | | |
10.9†10.34*† |
| | |
10.10†10.35*† |
| | |
| 10.36*† | | |
10.11†10.37 |
| | |
10.12† |
| | |
10.13†* |
| | |
10.14†* |
| | |
10.15 |
| | |
10.16* |
| | |
|
| | | |
Exhibit
Number
| | Exhibit |
10.17* |
| | |
10.18*21.1* |
| |
|
21.1* |
| | |
| 23.1* |
| | |
| 24.1* |
| | Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10‑K) |
| 31.1* |
| | |
| 31.2* |
| | |
| 32.1** |
| | |
| | | | | | | | |
| Exhibit Number | | Exhibit |
| 32.2** |
| | |
101.INS101 |
| | The following financial information from Enviva Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021 formatted in Inline XBRL Instance Document(Extensible Business Reporting Language) includes: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements. |
101.SCH104 |
| | Cover Page Interactive Data File - (formatted as Inline XBRL Schema Document |
101.CAL |
| | XBRL Calculation Linkbase Document |
101.DEF |
| | XBRL Definition Linkbase Document |
101.LAB |
| | XBRL Labels Linkbase Document. |
101.PRE |
| | XBRL Presentation Linkbase Documentand contained in Exhibit 101) |
* Filed herewith.
** Furnished herewith.
† Management Contract or Compensatory Plan or Arrangement
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
|
| | | | | | | |
| | |
| ENVIVA PARTNERS, LPINC. |
| |
| By: | Enviva Partners GP, LLC, as its sole general partner |
| | |
Date: March 1, 20194, 2022 | By: | /s/ JOHN K. KEPPLER |
| | John K. Keppler |
| | Title: Chairman, President and Chief Executive Officer of Enviva Partners GP, LLC, the general partner of Enviva Partners, LP |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of William H. Schmidt, Jr. and Jason E. Paral as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Name | | Title | | Date |
| | | | |
| /s/ JOHN K. KEPPLER | | Chairman, President and Chief Executive Officer | | March 4, 2022 |
| John K. Keppler | | (Principal Executive Officer) | |
| | | | |
| /s/ SHAI S. EVEN | | Executive Vice President and Chief Financial Officer | | March 4, 2022 |
| Shai S. Even | | (Principal Financial Officer) | |
| | | | |
| /s/ MICHAEL A. JOHNSON | | Vice President and Chief Accounting Officer | | March 4, 2022 |
| Michael A. Johnson | | (Principal Accounting Officer) | |
| | | | |
Name | | Title | | Date |
| | | | |
/s/ JOHN K. KEPPLER | | Chairman, President and Chief Executive Officer | | March 1, 2019 |
John K. Keppler | | (Principal Executive Officer) | |
| | | | |
/s/ SHAI S. EVEN | | Executive Vice President and Chief Financial Officer | | March 1, 2019 |
Shai S. Even | | (Principal Financial Officer) | |
| | | | |
/s/ JAMES P. GERAGHTY | | Vice President, Operations Finance | | March 1, 2019 |
James P. Geraghty | | (Principal Accounting Officer) | |
| | | | |
/s/ JIM H. DERRYBERRY | | Director | | March 1, 2019 |
Jim H. Derryberry | | |
| | | | |
| /s/ RALPH ALEXANDER | | Director | | March 1, 20194, 2022 |
| Ralph Alexander | | |
| | | | |
/s/ CARL L. WILLIAMS | | Director | | March 1, 2019 |
Carl L. Williams | | |
| | | | |
/s/ ROBIN J. A. DUGGAN | | Director | | March 1, 2019 |
Robin J. A. Duggan | | |
| | | | |
| /s/ JOHN C. BUMGARNER, JR. | | Director | | March 1, 20194, 2022 |
| John C. Bumgarner, Jr. | | |
| | | | |
/s/ WILLIAM K. REILLYMARTIN N. DAVIDSON | | Director | | March 1, 20194, 2022 |
William K. ReillyMartin N. Davidson | | |
| | | | |
| /s/ JIM H. DERRYBERRY | | Director | | March 4, 2022 |
| Jim H. Derryberry | | |
| | | | |
| /s/ FAUZUL LAKHANI | | Director | | March 4, 2022 |
| Fauzul Lakhani | | |
| | | | |
| /s/ GERRIT L. LANSING, JR. | | Director | | March 4, 2022 |
| Gerrit L. Lansing, Jr. | | |
| | | | |
| /s/ PIERRE F. LAPEYRE, JR. | | Director | | March 4, 2022 |
| Pierre F. Lapeyre, Jr. | | |
| | | | |
| /s/ DAVID M. LEUSCHEN | | Director | | March 4, 2022 |
| David M. Leuschen | | |
| | | | |
| /s/ JEFFREY W. UBBEN | | Director | | March 4, 2022 |
| Jeffrey W. Ubben | | |
| | | | |
| /s/ GARY L. WHITLOCK | | Director | | March 4, 2022 |
| Gary L. Whitlock | | |
| | | | |
| /s/ JANET S. WONG | | Director | | March 1, 20194, 2022 |
| Janet S. Wong | | |
| | | | |
/s/ CHRISTOPHER B. HUNTEVA T. ZLOTNICKA | | Director | | March 1, 20194, 2022 |
Christopher B. HuntEva T. Zlotnicka | | |
| | | | |
/s/ GARY L. WHITLOCK | | Director | | March 1, 2019 |
Gary L. Whitlock | | |
