BETHESDA, Md.--(BUSINESS WIRE)--Enviva Inc. (NYSE: EVA) (“Enviva,” the “Company,” “we,” “us,” or “our”) today announced financial and operating results and declared a dividend for the second quarter of 2022. Enviva also announced four contract additions, including the conversion of a previously announced memorandum of understanding (“MOU”) and a letter of intent (“LOI”) to binding contracts, a new German contract, and the upsizing of an existing contract.
- Reported a net loss of $27.3 million for the second quarter of 2022, as compared to $24.9 million for the second quarter of 2021, and reported adjusted EBITDA for the second quarter of 2022 of $39.5 million as compared to $25.7 million for the second quarter of 2021; Enviva declared a dividend of $0.905 per share for the second quarter of 2022, an 11% increase over the distribution for the second quarter of 2021
- Reaffirmed full-year 2022 financial guidance, which includes net income (loss) in the range of a $30 million net loss to $10 million of net income, adjusted EBITDA in the range of $230 million to $270 million, and full-year 2022 dividend of $3.62 per share
- Announced four contract additions, with customers across a range of use cases, with terms and conditions reflecting the current strong pricing environment for wood biomass:
- Conversion of an MOU with an industrial products customer to a take-or-pay off-take contract, with a tenor of 15 years and deliveries starting in 2023; volumes anticipated to ramp to approximately 600,000 metric tons per year (“MTPY”) by 2031
- Conversion of an LOI with a German manufacturer to a take-or-pay off-take contract, with a tenor of 10 years and deliveries starting in the third quarter of 2022, with volumes expected to be approximately 60,000 MTPY
- First take-or-pay off-take contract with a new German customer that delivers wood pellets into the European thermal heating market; contract tenor is 5 years, with deliveries expected to commence by the end of 2022, and then volumes ramping to approximately 150,000 MTPY
- A new tranche of contracted deliveries to a longstanding European Union-based customer which is expected to total 720,000 incremental metric tons (“MT”) through 2027
“For the second quarter of 2022, Enviva delivered results at the top end of our expectations, and I’m pleased to report that many of the short-term challenges we experienced in the first half of the year are proving either transitory or manageable over time,” said John Keppler, Chairman and Chief Executive Officer. “While the broader energy markets continue to demonstrate volatility and uncertainty, we are excited to highlight the success we are realizing in near-term, higher priced sales, and converting new customer opportunities into long-term, take-or-pay supply contracts with durable pricing increases, including terms and conditions that should enable us to extend our track record of delivering stable cash flows that grow sustainably well into the future. As a result, we are not only on track to deliver a very strong back half of the year, but, as previously described, we see material margin expansion for the business not only in 2023, but also in 2024 and beyond.”
Keppler continued, “The sheer volume and size of market opportunities with high-quality counterparties across a range of use cases, from renewable energy generation to displacement of fossil fuel-based carbon in hard-to-abate industries, is creating an unprecedented pace of contracting for us, which in turn is underwriting the acceleration of our capacity expansions. We have recently commenced construction of our plant in Epes, Alabama, we are making swift progress on our plans to start construction of a new plant in Bond, Mississippi, and we have recently filed for a permit for a highly accretive expansion of our Ahoskie, North Carolina plant. The growth in our production volume outlook, coupled with the strong pricing environment for biomass, is driving our expectations for an adjusted EBITDA compound annual growth rate of over 25% from 2022 to 2024. This tremendous, fully contracted growth profile, combined with the strong, stable dividend we are paying, makes us well positioned to continue our track record of generating significant returns for our investors, even in an environment of potential economic contraction.”
Second-Quarter 2022 Financial Results
$ millions, unless noted
Adjusted Gross Margin*
Net (Loss) Income
Adjusted Net (Loss) Income*
Distributable Cash Flow*
Adjusted Gross Margin $/metric ton*
*Adjusted gross margin, adjusted net (loss) income, adjusted EBITDA, distributable cash flow, and adjusted gross margin per MT are non-GAAP financial measures. For a reconciliation of non-GAAP measures to their most directly comparable GAAP measure please see the Non-GAAP Financial Measures section below
**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 second quarter of 2022 was $296.3 million as compared to $286.0 million and $285.0 million for the second quarter of 2021 on a recast and non-recast basis, respectively. The increase of approximately 4% year-over-year was driven primarily by an increase in average sales price per ton, as a result of annual price escalators in our contracts as well as the elevated pricing environment for biomass. Enviva was able to help address dislocations in our customers’ and other producers’ supply chains during the second quarter of 2022, rescheduling certain contracted deliveries into future periods, which enabled prompt deliveries at elevated pricing to other customers requiring incremental deliveries. Recent biomass spot market prices, as well as forward curve prices in certain European indices, have exceeded $300 per MT, representing a substantial premium to the current long-term contracted pricing of roughly $200 to $220 per MT across Enviva’s weighted average portfolio, and we were able to capture some of that differential during the second quarter of 2022.
Net revenue for the second quarter of 2022 was dampened given the timing shift of two shipments from June to July, which also drove higher-than-average finished product inventory at the end of the period.
Adjusted gross margin was $54.8 million for the second quarter of 2022, as compared to $51.7 million and $56.1 million for the second quarter of 2021 on a recast and non-recast basis, respectively. Adjusted gross margin per MT (“AGM/MT”) for the second quarter of 2022 was $42.94, as compared to $37.80 and $41.02 per MT for the second quarter of 2021 on a recast and non-recast basis, respectively. The year-over-year increase in both adjusted gross margin on a recast basis and AGM/MT was primarily driven by higher pricing due to the same factors which benefited net revenue during the period. The year-over-year decrease in adjusted gross margin on a non-recast basis is primarily due to a decrease in product sales volumes resulting from a reduction in procured volumes as a result of lower availability of third-party pellets resulting from the war in Ukraine and related sanctions.
Adjusted EBITDA for the second quarter of 2022 was $39.5 million, as compared to $25.7 million and $48.9 million for the second quarter of 2021 on a recast and non-recast basis, respectively.
Distributable cash flow (“DCF”) for the second quarter of 2022 was $21.3 million, as compared to $5.7 million and $33.0 million for the second quarter of 2021 on a recast and non-recast basis, respectively.
Enviva’s liquidity as of June 30, 2022, which included cash on hand (including cash generally restricted to funding a portion of the costs of the acquisition, construction, equipping, and financing of our Epes plant) and availability under our $570.0 million senior secured revolving credit facility, was $184.1 million. Enviva’s liquidity as of June 30, 2022 does not include any proceeds resulting from the tax-exempt green bonds issued in July 2022.
Notable Capital Markets Activity
In July 2022, the Industrial Development Authority of Sumter County, Alabama completed the issuance of $250 million in aggregate principal amount of tax-exempt green bonds and loaned the proceeds to Enviva. The tax-exempt green bonds, which were issued at par, bear an annual interest rate of 6% and mature in 2052, with the option for holders to redeem at par in 2032. The net proceeds to Enviva of $246 million will be used to fund a portion of the costs associated with the acquisition, construction, equipping, and financing of Enviva’s fully contracted wood pellet production plant currently under construction in Epes, Alabama. This is the first time Enviva has accessed the municipal bond market, which is expected to provide an attractive financing option for future greenfield projects, including our planned production plant in Bond, Mississippi, for which the Mississippi Business Finance Corporation, the proposed conduit issuer, has approved an inducement resolution to issue similar tax-exempt bonds to finance the project.
Enviva also amended and restated its senior secured revolving credit facility (the “Amended & Restated Credit Facility”) on June 30, 2022. The Amended & Restated Credit Facility extends the maturity to June 2027 from April 2026 and includes other improved terms and conditions which add incremental flexibility as compared to the terms of the credit facility prior to the amendment. The amended terms and additional flexibility more appropriately reflect the conversion of the Company from a master limited partnership to a corporation at the end of 2021, and the benefits of the increased scale, diversification, and accelerating growth plans of Enviva, while continuing to maintain the conservative financial policies to which the Company is committed.
Additionally, on June 24, 2022, Enviva was added to both the Russell 3000 and Russell 1000 indices. Since Enviva’s conversion from a master limited partnership to a corporation on December 31, 2021, Enviva has significantly increased both its passive and international investor ownership, which was a key objective of the simplification and corporate conversion transactions.
On August 3, 2022, Enviva’s board of directors declared a dividend of $0.905 per share for the second quarter of 2022, an increase of 11% over the corresponding period in 2021. The quarterly dividend will be paid on Friday, August 26, 2022, to shareholders of record as of the close of business on Monday, August 15, 2022. The dividend declared for the second quarter of 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 two quarters of 2022.
$ millions, unless noted
Net Income (Loss)
(30.0) - 10.0
230.0 - 270.0
165.0 - 205.0
Dividend per Common Share
Total Capital Expenditures
255.0 - 275.0
1 For 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; 3 Not meaningful.
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 due to the predictable seasonality in our business as well as, in this case, the ramp of production at our newest plant in Lucedale, Mississippi. Like previous years, we also expect over two-thirds of our forecasted annual adjusted EBITDA to be generated in the second half of 2022. Importantly, we are projecting a significant step-up in results for the fourth quarter of 2022 as compared to the third quarter of 2022. Based on what we know today, we are projecting adjusted EBITDA for the third quarter of 2022 to be roughly 50% higher than results for the second quarter of 2022, with the fourth quarter of 2022 alone representing around 40% of 2022 adjusted EBITDA.
“In addition to our increased production and improving supply chain conditions, the constructive pricing environment, particularly in Europe, is expected to not only provide modest opportunities late in the year to drive incremental margin and cash flow, but also set the stage for a substantial increase in annual adjusted EBITDA for 2023 and beyond,” said Thomas Meth, President. “Put simply, the price escalation and pass-through provisions in our contracts are durable and effective and we are realizing price increases at a higher rate than the cost pressures we have seen within portions of our operations. Given the cost reductions we see in some of the transitory costs, notably logistics and diesel, and the structural cost reductions we are generating from improved fixed cost absorption across our asset base, we expect material margin expansion over the next twelve to eighteen months and beyond.”
Enviva reaffirmed its capital expenditures guidance range for full-year 2022 of $255 million to $275 million (inclusive of capitalized interest). Currently, Enviva is evaluating a potential increase to its capital expenditures guidance range related to the opportunity to accelerate purchases of long-lead time equipment associated with the construction of Enviva’s greenfield plant in Bond, Mississippi. Enviva continues to expect to build new plants at a project-level return of an approximately 5 times adjusted EBITDA investment multiple.
“As we outlined when we announced our simplification and conversion transactions, 2022 represents a transition year for us as we settle into our new corporate structure and commence the execution of our plans to double in size over the next five years. We are very pleased with our recent tax-exempt green bond financing, which not only provides attractive financing today, but also offers a replicable structure for future greenfield project financing down the road,” said Shai Even, Executive Vice President and Chief Financial Officer. “We are projecting meaningful year-over-year step-changes in the cash flow generation of our asset base, as we bring new fully contracted capacity online in a favorable pricing environment for our products. Going forward, our capital allocation policy is focused on reinvesting retained cash flows into our business, while maintaining ample liquidity and conservative leverage, and preserving a stable dividend that has the opportunity to grow over time.”
Contracting and Market Update
In the current geopolitical environment, customers’ purchasing decisions are being driven by both the urgent need to decarbonize their supply chains while seeking to secure reliable, affordable, low-carbon feedstocks over the long term. Countries and companies are not only facing 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 creates an increased ability to pay for our customers, but is further complicated by the fact that there are limited large-scale alternatives available for renewable baseload and dispatchable power and heat generation, and even fewer low-carbon feedstocks to substitute in hard-to-abate sectors. As a result, our current customers are increasingly looking for supply in a structurally short market and are willing and able to collaborate with suppliers like Enviva to develop mutually beneficial solutions, including pricing new contracted volumes at terms more reflective of the current pricing environment in which pricing for prompt delivery of biomass has almost doubled in the past year and also, at times, repricing original contracted volumes at a significant premium to our historical weighted average contract prices in consideration of the overall transaction.
Today, Enviva announced the conversion of an MOU with a European industrial customer to a take-or-pay off-take contract pursuant to which Enviva will supply wood pellets to be used in facilities across continental Europe and the United Kingdom as a replacement feedstock for lignite coal and natural gas in the manufacturing of an industrial product. Enviva announced this MOU in February 2022 and, as expected, the binding contract was completed within six months of the MOU signing. Initial shipments are expected to start during 2023, with planned volumes ramping to approximately 600,000 MTPY by 2031. The contract has a 15-year tenor and is subject to certain conditions precedent.
Enviva also announced the conversion of the LOI signed in May 2022 to a binding take-or-pay off-take contract 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. The initial shipment is expected to be delivered during the third quarter of 2022, with delivered volumes expected to be approximately 60,000 MTPY. This contract, which serves a new industrial vertical for Enviva, has a 10-year tenor and is subject to certain conditions precedent.
Furthermore, Enviva announced the signing of a binding take-or-pay off-take contract with another new German customer to provide wood pellets to be used primarily in thermal heating systems. The contract has a 5-year tenor, with planned volumes ramping to approximately 150,000 MTPY, subject to certain conditions precedent. The initial shipment is expected to be delivered during the second half of 2022.
Additionally, Enviva announced the upsizing of a contract with a longstanding, European Union-based customer under which deliveries of an incremental 720,000 MT are expected over the contract’s remaining term through 2027, at prices that more closely reflect the favorable current market environment. Incremental volumes are expected to be supplied largely from our expanding production capacity.
Consistent with the strategy we have outlined, Enviva continues to steadily diversify its customer base, not only by the number of companies served, but also the geographies in which they are located, and the industries in which they operate. As of July 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 opportunities in Germany and Poland), to Asia (including incremental demand in Japan and emerging potential in Taiwan), as well as in developing industrial segments across the globe (including steel, cement, lime, chemicals, sustainable aviation fuel (“SAF”), biomethanol, and biodiesel). We are 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 expected to represent approximately 1.5 million to 2 million MTPY.
European Union - Progress on the Renewable Energy Directive Update
European Union policymakers have long recognized that sustainable biomass is a renewable, low-carbon, baseload, and dispatchable heat and power source. Today, bioenergy accounts for almost 60% of renewable energy used in Europe, addressing each of the urgent and critical issues facing the EU – decarbonization, affordability, and security of its energy supply.
EU policymakers are currently updating the Renewable Energy Directive (“RED III”), which was put in place in 2009 and revised in 2018 (“RED II”), and establishes common rules and targets for the development of renewable energy across all sectors of the economy to help the EU reach its ambitious energy and climate goals. These were increased by the European Green Deal with the goal of reducing net greenhouse gas emissions by 55% by 2030.
RED III is part of a package amending or creating 15 climate and energy laws to increase and accelerate climate mitigation, which includes reviewing existing criteria for sustainable biomass. The final law will be a negotiated piece of legislation reflecting a compromise position of the “trilogue” which includes the EU Parliament, EU Council of Ministers (“Council”), and EU Commission. Both the Council and the Commission have published proposals and positions on RED III which outline which renewable energy sources qualify for subsidies and keep the biomass sustainability framework from RED II largely intact. The proposal from the EU Parliament will likely be finalized this fall in a plenary session. We were encouraged by the recent vote of the EU Parliament’s Industry Research and Energy (“ITRE”) Committee making further progress on the proposal, in particular their decision to expand the scenarios under which power-only plants using forest biomass can continue to receive support. This step demonstrates the alignment of the ITRE Committee not only with four of the six other EU Parliament committees, but also the Council and the Commission on the importance of sustainable biomass to the EU’s efforts to mitigate climate change.
According to leading scientific advisory panels and policy makers, in order for the EU to reach their objective of climate neutrality by 2050, biomass use in power and heat plants alone will need to double. As such we strongly believe that the final compromise on the biomass sustainability criteria will remain consistent with Enviva’s practices and the leading academic and scientific research and data which has consistently supported the essential role of sustainable bioenergy as a climate change solution.
Germany’s Chancellor Olaf Scholz recently said “We have to get out of coal, oil and gas, … We will now ensure that the expansion of renewable energies finally moves forward. Wind power on the high seas, on land, solar energy, biomass. We need all of these to produce electricity and to be able to produce hydrogen so that we have an industrial future without CO2 emissions.” Chancellor Scholz has pledged that Germany will proceed with its plan for adoption of renewable sources such as wind, biomass, solar energy, and hydrogen to reach net-zero emissions by 2045.
Recently, the Taiwan Power Company (“Taipower”), Taiwan’s state-owned electric company, announced plans to convert a large coal-fired unit of the Hsinta Power Plant to biomass in order to meet the Taiwanese government’s policy objectives around increasing renewable energy generation. The project is scheduled to produce approximately 3,000 gigawatt hours of renewable energy after 2025, which translates into demand for roughly 1.
Vice President, Investor Relations