Enviva Reports First-Quarter 2022 Results, Updates Guidance, and Announces Inaugural Agreements with German Customers

Enviva Reports First-Quarter 2022 Results, Updates Guidance, and Announces Inaugural Agreements with German Customers




Enviva Reports First-Quarter 2022 Results, Updates Guidance, and Announces Inaugural Agreements with German Customers

BETHESDA, Md.–(BUSINESS WIRE)–Enviva Inc. (NYSE: EVA) (“Enviva,” “we,” “us,” or “our”) today announced financial and operating results and declared a dividend for first-quarter 2022. Enviva also revised certain 2022 guidance metrics to reflect the impacts of short-term challenges, and announced its first two long-term agreements with German customers.

Highlights:

  • Enviva reported a net loss of $45.3 million for the first quarter of 2022, as compared to $23.2 million for the first quarter of 2021, and reported adjusted EBITDA for the first quarter of 2022 of $36.6 million as compared to $21.7 million for the first quarter of 2021
  • In light of the short-term challenges impacting produced volumes and logistics costs in the first quarter of 2022, Enviva updated certain full-year 2022 guidance metrics, including revising net income (loss) to a range of a $30 million net loss to $10 million of net income, and adjusted EBITDA to a range of $230 million to $270 million. Based on the updated guidance, projected adjusted EBITDA for 2022 (using the midpoint of the 2022 range and the non-recast number for 2021) is forecast to increase approximately 10% over 2021
  • Enviva declared a dividend of $0.905 per share for the first quarter of 2022, which represents a 15.3% increase over first-quarter 2021 and reaffirmed full-year 2022 dividend guidance, with dividends of $3.62 per share expected for 2022, an increase of approximately 10% over 2021
  • Enviva announced the signing of a new memorandum of understanding (“MOU”) for a 1,000,000 metric tons per year (“MTPY”), 10 to 15-year, take-or-pay fuel supply agreement to supply a new German utility customer. The MOU is expected to convert to a firm contract over the next 12 months, with initial deliveries projected as early as 2024
  • Enviva announced the signing of a new letter of intent (“LOI”) for a 100,000 MTPY, 10-year, take-or-pay fuel supply agreement with a new German customer that serves a new industrial use case for Enviva, and is expected to convert to a firm contract during the second half of 2022, with initial deliveries projected as early as 2023
  • Enviva announced a partnership with Rhenus Group, a leading German logistics service provider, to develop an in-bound logistics supply chain from strategic European port terminals to industrial corridors throughout Germany, which expands our value chain further downstream and should enable us to capture incremental margin while better serving Enviva’s growing customer base in Germany

“As I have often said, although we have been insulated from so many of the logistics, supply chain, pandemic, and now geopolitical-related challenges facing the broader global economy, we are not immune. As we previewed during our last earnings call in March, the first quarter of 2022 likely was going to be a challenge for us, as our seasonally softest quarter was also impacted by dampened production due to Omicron-related absenteeism at our plants and labor-related and other pressures experienced by our rail and trucking providers,” said John Keppler, Chairman and Chief Executive Officer. “Although the effects were more impactful than we originally anticipated, we believe that the pandemic-related issues are largely behind us and are optimistic that the efforts that our logistics partners are making will soon put their challenges firmly in the rear-view mirror as well.”

Keppler continued, “Notwithstanding the short-term operational headwinds we’ve experienced, the growth opportunities in our business have never been stronger, and we are very pleased to announce today not only our first MOU with a large German power producer, but also an LOI to serve a completely new industrial vertical for us, and an agreement to develop incremental downstream infrastructure capabilities and accretive investment opportunities in partnership with a German logistics company.

I am also very encouraged by the durable margin expansion we are seeing from the constructive pricing environment for our long-term off-take contracts and by our fully contracted new capacity acceleration. As we look forward into 2023, we expect pricing strength and increased volumes to drive significant growth over 2022. Today, based on information we have available about our contracted volumes, pricing, and cost tower, we are forecasting an adjusted EBITDA range of $305 million to $335 million for 2023, with adjusted gross margin of approximately $50 per metric ton, a notably higher full-year expectation than we have guided to historically.”

First-Quarter 2022 Financial Results

$ millions, unless noted

1Q22

 

1Q21 Recast

Presentation*

 

1Q21 Non-Recast*

(As Reported)

 

Net Revenue

233.0

 

241.6

 

241.0

 

Adjusted Gross Margin

50.7

 

45.6

 

49.1

 

Net Loss

(45.3

)

(23.2

)

(1.5

)

Adjusted Net (Loss) Income

(6.4

)

(23.0

)

7.4

 

Adjusted EBITDA

36.6

 

21.7

 

46.3

 

Distributable Cash Flow

25.3

 

5.2

 

30.4

 

Adjusted Gross Margin $/metric ton

46.27

 

39.73

 

42.73

 

*Please refer to the Non-GAAP Financial Measures section below for a description of recast and non-recast presentations; the recast presentation was required for GAAP purposes due to the simplification transaction announced on October 15, 2021.

Net revenue for the first quarter of 2022 was $233.0 million as compared to $241.6 million and $241.0 million for the first quarter of 2021 on a recast and non-recast basis, respectively. During the first quarter of 2022, several factors contributed to lower year-over-year net revenue results, including plant level labor-related absenteeism associated with the Omicron variant of COVID-19, which lowered plant availability and reduced produced volumes, and supply chain labor-related and other challenges, which led to curtailed production at our plants when rail cars and trucks were not available to transport finished product to our port terminals. Likewise, the delayed in-service date of our Lucedale, Mississippi plant to the end of March 2022, was a result of labor-related and supply chain issues faced by our construction contractors.

Adjusted gross margin was $50.7 million for the first quarter of 2022, as compared to $45.6 million and $49.1 million for the first quarter of 2021, on a recast and non-recast basis, respectively. Adjusted gross margin per metric ton (“AGM/MT”) for the first quarter of 2022 was $46.27, as compared to $39.73 and $42.73 per MT for the first quarter of 2021 on a recast and non-recast basis, respectively. The year-over-year increase in both adjusted gross margin and AGM/MT was primarily driven by higher pricing due to customer contract mix and annual contract price escalators increasing revenue per MT. The favorable pricing benefit, which is expected to be durable for full-year 2022 and beyond, was offset by several factors which are not expected to persist with the same level of significance for the remainder of the year, including: (i) higher logistics costs to mitigate the labor-related and other challenges in our logistics supply chain, including contracting with incremental logging, wood-hauling, and wood pellet transportation providers in a higher-cost environment, (ii) incremental costs related to increased employee overtime and contract labor to partially cover plant employee absenteeism, and (iii) higher delivered wood pricing as a result of higher diesel prices experienced by our independent fiber supply chain partners.

Overall for the first quarter of 2022, production curtailments were most acute in January, with production recovering steadily in February and March and with the Omicron-related labor challenges now being behind us. Additionally, thus far into the second quarter of 2022, delivered fiber costs are on their traditionally seasonal downward trend.

Adjusted EBITDA for the first quarter of 2022 was $36.6 million, as compared to $21.7 million and $46.3 million for the first quarter of 2021 on a recast and non-recast basis, respectively.

Distributable cash flow (“DCF”) for the first quarter of 2022 was $25.3 million, as compared to $5.2 million and $30.4 million for the first quarter of 2021 on a recast and non-recast basis, respectively.

Enviva’s liquidity as of March 31, 2022, which included cash on hand and availability under its $570 million revolving credit facility, was $280 million.

Dividend

On May 4, 2022, Enviva’s board of directors declared a dividend of $0.905 per share for first-quarter 2022, an increase of 15.3% over the corresponding period in 2021. The quarterly dividend will be paid on Friday, May 27, 2022, to shareholders of record as of the close of business on Monday, May 16, 2022.

The dividend declared for first-quarter 2022 is consistent with Enviva’s dividend guidance for 2022. Enviva expects to pay a dividend of $3.62 per share for full-year 2022, with quarterly dividends of $0.905 per share expected to be declared for the remaining three quarters of 2022.

2022 Revised Guidance Outlook

$ millions, unless noted

2022 Revised1

2022 Original

2021 Reported2

 

Net Income (Loss)

(30.0) – 10.0

42.0 – 67.0

(145.3

)

Adjusted EBITDA

230.0 – 270.0

275.0 – 300.0

226.1

 

DCF

165.0 – 205.0

210.0 – 235.0

167.8

 

Dividend per Common Share

$3.62/share

$3.62/share

$3.30/share

 

Total Capital Expenditures

255.0 – 275.0

255.0 – 275.0

NM3

 

1For a reconciliation of forward-looking non-GAAP measures to their most directly comparable GAAP measure, please see the Non-GAAP Financial Measures section below; 2 2021 results are presented on a recast basis for net loss, and a non-recast basis for adjusted EBITDA and DCF; 3Not meaningful.

Enviva is revising its full-year 2022 guidance expectations for net income (loss), adjusted EBITDA, and DCF based on the following factors:

  • Lower production: as a result of labor, production, and logistics challenges described above for the first quarter of 2022, we estimate that lowered produced and sold volumes will have an impact of approximately $10 million for 2022
  • Timing shift of Lucedale plant start-up: as a result of labor and contractor shortages, compounded by supply chain disruptions, which delayed the start-up of our Lucedale, Mississippi production facility by approximately 3 months, we are lowering forecasted produced and sold volumes for 2022 which will have an estimated impact of $10 million for 2022
  • Fewer purchased volumes: as a result of the limited physical liquidity in the industrial wood pellet market compounded by production challenges experienced by third-party pellet producers, we expect to have fewer opportunities to generate other revenue and estimate a reduction in gross margin for 2022 of approximately $10 million
  • Accelerating greenfield developments: Enviva is accelerating its capacity expansion timeline in response to significant commercial demand momentum, which is expected to increase selling, general, and administrative expenses for 2022 by approximately $5 million
  • Pricing uplift: slightly offsetting the above factors is approximately $5 million of benefit Enviva expects to realize in 2022 as result of pricing escalation in its current contracts and contracting in a generally more favorable environment, which is expected to be durable from second-half 2022 and beyond

Inclusive of the guidance changes outlined above, Enviva continues to forecast solid growth for 2022 as compared to 2021, notably maintaining more than 10% year-over-year growth in adjusted EBITDA and DCF (based on the midpoint of ranges). Because of the visibility and durability of our long-term contracted cash flows, Enviva continues to expect to increase full-year 2022 dividends by 10% as compared to 2021. Enviva continues to forecast that quarterly dividends for 2022 will be $0.905 per share per quarter, or $3.62 per share for the full year.

Enviva’s quarterly income and cash flow are subject to seasonality and the mix of customer shipments made, which varies from period to period. Our business usually experiences higher seasonality during the first quarter of the year as compared to subsequent quarters, as colder and wetter winter weather increases costs of procurement and production at our plants. We expect this to be the case in 2022 and, similar to previous years, we expect net income, adjusted EBITDA, and DCF for the second half of 2022 to be significantly higher than for the first half of the year. We project that approximately one-third of adjusted EBITDA will be generated in the first half of 2022, with two-thirds being generated in the second half of 2022.

Enviva reaffirmed total capital expenditures guidance (inclusive of capitalized interest) in the range of $255 million to $275 million for full-year 2022, including the commencement of construction for our Epes, Alabama facility, a 1.1 million MTPY plant designed and permitted to be the largest wood pellet production facility in the world. Construction of this fully contracted plant is expected to take between 14 and 16 months, and when the plant is operating at its full run-rate, it is expected to generate approximately $65 million in annualized adjusted EBITDA. This implies a better than 5x multiple of invested capital, which is significantly improved over the approximately 7.5x multiple we previously paid to our former sponsor for drop-down acquisitions.

Total capital expenditures are scheduled to be back-end weighted for 2022, with roughly 60% of the spend expected to be incurred during the second half of 2022.

“With respect to forecast financial performance for 2022, based on our current production levels, pricing, and cost position, we expect second-quarter adjusted EBITDA to look a lot like the first, and for the second half of the year to be a significant step up, accounting for approximately two-thirds of our expected annualized adjusted EBITDA,” said Shai Even, Chief Financial Officer. “Our Lucedale plant is now operating, the Epes facility is about to begin construction, and we just announced our next highly accretive investment opportunity at a greenfield plant site in Bond, Mississippi with planned construction starting in early 2023. These new projects will help not only major power generators around the world secure sustainable renewable fuel, but also help industrial leaders in hard-to-abate sectors secure renewable feedstocks. Because we are accelerating our highly accretive capacity expansion plans, we do expect leverage to be at the top end of our range for 2022 and early 2023 before trending downward.”

Contracting and Market Update

In the current geopolitical environment, security of energy supply is equally as important of a driver of customers’ purchasing decisions as the energy transition itself. Countries and companies are not only facing extremely high and volatile fossil fuel prices while they navigate toward net-zero goals, but they now also need to revisit the long-term security of supply for the carbon feedstocks they are sourcing. This congruence is further complicated by the fact that there are limited large-scale alternatives available for renewable baseload and dispatchable power and heat generation, and even fewer low-carbon feedstocks to substitute in hard-to-abate sectors. With this as a backdrop, demand for Enviva’s sustainably sourced woody biomass products and fuels has never been stronger.

Today, Enviva announced the signing of its first MOU with a German customer. The MOU, which is for a 10 to 15-year tenor, is with a large utility that is focused on the safe and weather-independent supply of energy. Enviva’s wood pellets will displace coal usage in one of the utility’s power plants in Germany, with delivered volumes expected to be at least 1,000,000 MTPY. The MOU is for a take-or-pay fuel supply agreement and is expected to convert to a firm contract within the next 12 months, with initial deliveries projected to start as early as 2024.

Enviva also announced the signing of an LOI with a new German industrial customer that intends to use Enviva’s wood pellets to phase out fossil fuels and generate green process heat in manufacturing facilities in Germany. This LOI for a 10-year take-or-pay, fuel supply agreement serves a completely new industrial vertical for Enviva, in addition to the agreements with customers for two new industrial use cases previously announced, and is expected to convert to a firm contract during the second half of 2022. Delivered volumes are expected to be about 100,000 MTPY, with initial deliveries starting as early as 2023.

Further, to facilitate the delivery of wood pellets to its growing customer base in Germany, Enviva is partnering with Rhenus Group, one of Germany’s leading logistics service providers, to develop an in-bound logistics supply chain from strategic port terminals to industrial corridors throughout Germany. As part of the agreement, Enviva and Rhenus will consider highly accretive incremental capital investment opportunities into import reception, storage, transloading, and other facilities similar to Enviva’s currently owned and operated dry-bulk, U.S.-based export facilities that provide important operating leverage to Enviva’s current business model.

As noted, Enviva is rapidly diversifying its customer base, not only by the number of companies served, but also the geographies in which they are located and the industries in which they operate. As of May 1, 2022, Enviva’s total weighted-average remaining term of take-or-pay off-take contracts is approximately 14.5 years, with a total contracted revenue backlog of over $21 billion. This contracted revenue backlog is complemented by a customer sales pipeline exceeding $40 billion, which includes contracts in various stages of negotiation.

Our customer sales pipeline comprises long-term, take-or-pay off-take opportunities in our traditional markets for biomass-fired power and heat generation in geographies ranging from the United Kingdom to the European Union (including emerging opportunities in Germany and Poland), to Asia (including incremental demand in Japan and emerging potential in Taiwan), as well as in developing industrial segments across the globe (including steel, cement, lime, chemicals, sustainable aviation fuel, biomethanol, and biodiesel). We are negotiating long-term wood pellet supply contracts with several leading industrial companies in each of these hard-to-abate sectors that are actively and urgently pursing large-scale decarbonization. Over the next 12 months, we expect to progress negotiations and convert several sales pipeline opportunities, including MOUs, into binding contracts.

IPCC Report: Climate Change 2022: Mitigation of Climate Change

The United Nations’ Intergovernmental Panel on Climate Change (IPCC) issued its latest report on April 4, 2022. The report reiterates that to combat climate change, much more bioenergy is needed. The IPCC’s models project bioenergy use must rise significantly, from 30 exajoules at present, to between 75 and 248 EJ by 2050, in order to avoid the catastrophic implications of climate change.

The report states that “bioenergy could be a high-value and large-scale mitigation option to support many different parts of the energy system. Bioenergy could be particularly valuable for sectors with limited alternatives to fossil fuels (e.g., aviation and heavy industry) and production of chemicals and products and carbon dioxide removal via BECCS or biochar.”

The report also highlights that carbon capture is vital, and that carbon dioxide removal technologies, such as bioenergy with carbon capture and storage (BECCS), are “unavoidable if net zero CO2 or GHG emissions are to be achieved.” The report highlights that BECCS could double the potential role of bioenergy in reducing humanity’s carbon emissions.

Dr. Gert-Jan Naburrs, Coordinating Lead Author of the IPCC Sixth Assessment Report for Agriculture and Forestry, reinforced the importance of biomass as a pathway to mitigating climate change, stating, “The fact that the use of woody biomass under the right conditions leads to less net CO2 emissions than combustion of coal or gas is virtually undisputed within science, as is also apparent from the reports of the Intergovernmental Panel on Climate Change.”

Sustainability Update

The challenges of the current geopolitical environment remind us that the work ahead to mitigate the effects of climate change now will be hard and likely contentious.

As a pioneer in the biomass industry, we’ve built a business focused on our core values: caring about people and our communities, fighting climate change by displacing coal, and ensuring that we are growing more trees, managing our business under industry leading sustainability practices that ensure that we are delivering favorable impact to energy and the environment in line with the IPCC guidance.

We source our renewable wood fiber from the U.S. Southeast, a region where forests are primarily owned by private landowners. These sustainably managed forests have grown by 40% over the last 25 years, while supplying more than 20% of global demand for forest products, including bioenergy, making it one of the most vibrant, robust, and growing forest resources in the world. Further, far from depleting timber resources, USDA data shows that forests in Enviva’s own supply base have increased by 21% over the last ten years since we began our operations because of the positive impact and long-term markets that Enviva creates for landowners to keep their landholdings in forest and, in fact, plant more trees. Enviva leads the industry in sustainability and responsible sourcing, strictly adhering to our Responsible Sourcing Policy and our industry-leading Track & Trace® technology to ensure we are keeping our forests healthy, thriving, and growing.

All of the wood we procure, regardless of its form, is low-value wood. In the competitive market for sawtimber and other high-value wood, landowners can receive six to nine times more than the price for fiber that Enviva pays, eliminating any incentive for the landowner to sell high-value wood to us for a lower price. There are, however, few buyers in our regions today for the residual tops, limbs, and commercial thinnings – what used to be sold as pulpwood – neither are there natural markets for the understory, diseased or crooked trunks and trees, that are byproducts of a traditional sawtimber harvest and impediments to replanting and regrowth after the higher value timber sales have occurred. As a result, by turning low value/unmarketable wood from a harvest into productive, low-carbon renewable fuels and feedstocks, we are symbiotic with the broader forest products sector, delivering tangible benefits for the climate as well as economic value to landowners.

Enviva and its certified sustainable supply chain and forestry practices provide a proven low-carbon, renewable resource globally, to nations that lead the world in climate-forward policies moving us closer to a net-zero planet. In addition to broad ranging international support for bioenergy, its importance domestically has received consistent bipartisan support in the U.S. On Earth Day, President Biden also signed an Executive Order recognizing the role American forests play in wildfire resilience and climate change mitigation with the White House specifically highlighting in its Fact Sheet its wide-ranging support for healthy forest economies, including grants to expand markets for innovative wood products and wood energy that support sustainable forest management.

Asset Update

Enviva continues on a path to more than double production capacity over the next five years, from 6.2 million MTPY to approximately 13 million MTPY. Enviva’s Lucedale, Mississippi plant has commenced production, and is on track to reach nameplate capacity of 750,000 MTPY by the end of this year.

Contacts

Investor Contact:
Kate Walsh

Vice President, Investor Relations

Investor.Relations@envivabiomass.com

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