OREANDA-NEWS. Enviva Partners, LP (NYSE:EVA) (the “Partnership” or “we”) today reported financial and operating results for the first quarter of 2016.

Highlights for the First Quarter of 2016:

  • Generated net income of $7.5 million and adjusted EBITDA of $18.5 million, up from $2.5 million and $16.9 million, respectively, for the first quarter in 2015
  • Increased the quarterly distribution by more than 10 percent to $0.5100 per unit
  • Reaffirmed 2016 guidance including full-year distributions of at least $2.10 per unit, excluding any impact of potential acquisitions

“I am very pleased with our solid operating and financial performance in what for seasonal reasons has historically been our highest cost quarter,” said John Keppler, Chairman and Chief Executive Officer. “That performance lays a strong foundation for the remainder of the year and we continue to expect to distribute at least $2.10 per unit for 2016.”

Financial Results

For the first quarter of 2016, we generated net revenue of $107.3 million on sales of 560 thousand metric tons of wood pellets. Net revenue decreased 6 percent, or $7.1 million, from the corresponding quarter of 2015 with net revenue of $114.3 million on 583 thousand metric tons sold. For the first quarter, we generated net income of $7.5 million compared to $2.5 million for the corresponding quarter in 2015. Adjusted EBITDA improved to $18.5 million in the first quarter of 2016, a 10 percent increase compared to the corresponding period in 2015. The increase was driven by the favorable cost position of our pellets, increased sale and purchase transactions with our customer base, and a $1.7 million payment from a third party supplier that terminated a contract. This increase was partially offset by contract pricing mix and lower sales volumes in the quarter, primarily due to lower carry-in inventory balances at the beginning of 2016 and higher general and administrative expenses associated with being a public company.

The Partnership’s distributable cash flow, net of amounts attributable for incentive distribution rights, increased from $13.9 million for the first quarter of 2015 to $14.8 million for the first quarter of 2016, resulting in a distribution coverage ratio of 1.18 times.

Distribution

As announced yesterday, the board of directors of the Partnership’s general partner (the “Board”) declared a distribution of $0.5100 per common and subordinated unit for the first quarter of 2016. The distribution is more than 10 percent higher than the fourth quarter 2015 distribution. The first quarter distribution will be paid Friday, May 27, 2016, to unitholders of record as of the close of business Monday, May 16, 2016.

Outlook and Guidance

The guidance amounts provided below do not include the impact of any potential acquisitions from the Partnership’s sponsor or others.

The Partnership reaffirms the full-year 2016 guidance provided previously, expecting adjusted EBITDA for full-year 2016 to be in the range of $83.0 million to $87.0 million on net income in the range of $43.0 million to $47.0 million. The Partnership expects to incur maintenance capital expenditures of $4.1 million and interest expense net of amortization of debt issuance costs and original issue discount of $11.9 million in 2016. As a result, the Partnership expects to generate distributable cash flow for full-year 2016 in the range of $67.0 million to $71.0 million, or $2.71 to $2.87 per common and subordinated unit, prior to any incentive distributions paid to the general partner. For full-year 2016, we expect to distribute at least $2.10 per common and subordinated unit.

“With the benefit of the accretive cash flows from the Southampton acquisition, we were able to significantly increase our quarterly distribution,” said Mr. Keppler. “Having just completed our first year as a public company, we have established an early track record of increasing our distribution every quarter and with our solid operating performance, we expect to continue to do so while building coverage throughout the year.”

Market and Contracting Update

Our sales strategy is to fully contract the production capacity of the Partnership. We are fully contracted for 2016 and our portfolio of contracted sales has a weighted-average remaining term of 7.0 years from April 1, 2016, excluding sales under the Partnership’s 15-year contract to supply MGT Power’s Teesside Renewable Energy Plant in the UK, the Partnership’s 10-year contract to the Langerlo facility in Belgium, and the 10-year contract with an affiliate of DONG Energy held by our sponsor.

Potential regulatory advances in key markets and customer momentum continue to demonstrate the significant demand growth expected for the wood pellet industry:

  • In the UK, the Competition and Markets Authority recommended that the UK government, which has announced plans of phasing out all coal-fired power generation by 2025, allocate future new contract for difference (“CfD”) auctions based on the cost-effectiveness of the renewable technology. If this recommendation is adopted by the UK government, new biomass conversion and co-firing projects could be positioned to receive future CfD incentives, especially if total system costs of renewable technologies are taken into account, which is currently under discussion within the UK government. In addition, the UK government confirmed that biomass combined heat and power projects would be eligible to compete for new CfD incentives in an auction planned for late 2016, which may result in additional industrial-scale pellet demand.
  • In the Netherlands, the first of two rounds of applications in 2016 for the renewable incentive program commenced March 22, 2016. Utility scale, biomass co-firing projects were eligible and applied for the renewable incentive program. The budget for the program was substantially increased to 8.0 billion euros for 2016 from 3.5 billion euros in 2015, even as the country also considers an eventual complete phase-out of coal-fired power generation.
  • Energetick? a pr?myslov? holding (EPH), a vertically integrated energy utility with operations throughout Europe, continues to move forward with plans to convert the 420 MW Lynemouth coal facility to wood pellet fuel by the end of 2017. After conversion, this project is expected to generate demand for approximately 1.5 million tons of wood pellets annually.

As announced on February 17, 2016, Enviva Wilmington Holdings, LLC (the “Hancock JV”), our sponsor’s joint venture with affiliates of John Hancock Life Insurance Company executed a new take-or-pay contract to be the sole source supplier for imported biomass fuel to MGT Power’s Teesside Renewable Energy Plant (the “Tees REP”). Of the nearly 1 million metric tons per year (“MTPY”) needed by the Tees REP, 375,000 MTPY will be supplied by the Partnership under an agreement with the Hancock JV. Both contracts are contingent upon Tees REP reaching financial close, which continues to progress.

In December 2015, the Partnership announced an off-take contract, commencing in 2017, to supply wood pellets to the Langerlo power facility in Belgium, which the owner intends to convert from coal to wood pellet fuel. As previously disclosed, affiliates of the facility owner filed for insolvency. Although neither the Langerlo facility nor its owner is part of these filings, we expect these events will, at a minimum, delay the commencement of physical deliveries under the off-take contract, and the impact on our customer’s ability to perform its obligations remains uncertain.

“Demand for our product continues to materialize consistent with the significant increases projected by biomass industry experts for coal-to-biomass conversions, co-firing and broader market growth in Europe, Asia and potentially the U.S.,” said Mr. Keppler. “As the preferred and largest supplier in the marketplace, we believe we are well positioned to not only capitalize on the long-term, structured demand for our product but to also benefit from the near and medium term opportunities that dislocations in the market can create.”

Sponsor Activity

Construction of the 515,000 MTPY production plant in Sampson County, North Carolina (the “Sampson plant”) and a deep-water marine terminal in Wilmington, North Carolina (the “Wilmington terminal”) continues to progress. Major systems at the Sampson plant are in commissioning. The Partnership expects to have the opportunity to acquire the Sampson plant, along with our sponsor’s ten-year off-take contract with an affiliate of DONG Energy, in late 2016 and the Wilmington terminal in 2017. In addition, our sponsor recently received the air permit required to construct a new 500,000 MTPY production plant in Hamlet County, North Carolina that, when completed, will ship the pellets it produces through the Wilmington terminal.

About Enviva Partners, LP

Enviva Partners, LP (NYSE:EVA) is a publicly traded master limited partnership that aggregates a natural resource, wood fiber, and processes it into a transportable form, wood pellets. The Partnership sells a significant majority of its wood pellets through long-term, take-or-pay agreements with creditworthy customers in the United Kingdom and Europe. The Partnership owns and operates six plants in Southampton County, Virginia; Northampton County and Ahoskie, North Carolina; Amory and Wiggins, Mississippi; and Cottondale, Florida. We have a combined production capacity of approximately 2.3 million metric tons of wood pellets per year. In addition, the Partnership owns a deep-water marine terminal at the Port of Chesapeake, Virginia, which is used to export wood pellets. Enviva Partners also exports pellets through the ports of Mobile, Alabama and Panama City, Florida.

               
              Three Months Ended March 31,
              2016   2015
                  (Recast)
              (in thousands, except per metric ton)
   
  Reconciliation of gross margin to adjusted gross margin per metric ton:                
  Metric tons sold             560     583
  Gross margin           $ 15,755   $ 11,655
  Depreciation and amortization             6,881     8,259
  Adjusted gross margin           $ 22,636   $ 19,914
  Adjusted gross margin per metric ton           $ 40.42   $ 34.16
                   
               
              Three Months Ended March 31,
              2016   2015
                  (Recast)
              (in thousands)
   
  Reconciliation of distributable cash flow and adjusted EBITDA to net income:                
  Net income           $ 7,479   $ 2,511
  Add:                
  Depreciation and amortization             6,893     8,270
  Interest expense             3,390     2,718
  Purchase accounting adjustment to inventory             —     697
  Non-cash unit compensation             681     —
  Income tax expense             —     2,667
  Asset impairments and disposals             1     18
  Acquisition transaction expenses             53     —
  Adjusted EBITDA           $ 18,497   $ 16,881
  Less:                
  Interest expense net of amortization of debt issuance costs and original issue discount             2,944     2,213
  Maintenance capital expenditures             551     725
  Distributable cash flow attributable to Enviva Partners, LP             15,002     13,943
  Less: Distributable cash flow attributable to incentive distribution rights             156     —
  Distributable cash flow attributable to Enviva Partners, LP limited partners           $ 14,846   $ 13,943
                   

The following table provides a reconciliation of the estimated range of adjusted EBITDA and Distributable Cash Flow to the estimated range of net income, in each case for the twelve months ending December 31, 2016 (in millions except per unit figures):

             
           

Twelve Months
Ending
December 31, 2016
  Estimated net income         $ 43.0 – 47.0
  Add:          
  Depreciation and amortization         25.4
  Interest expense         13.0
  Non-cash unit compensation         1.2
  Asset impairments and disposals         0.4
  Estimated adjusted EBITDA         $ 83.0 – 87.0
  Less:

Interest expense net of amortization of debt issuance costs and original issue discount

         11.9
  Maintenance capital expenditures         4.1
  Estimated Distributable Cash Flow         $ 67.0 – 71.0
  Estimated Distributable Cash Flow per common and subordinated unit1         $ 2.71 – 2.87
             
       
 

(1)

  

Prior to any incentive distributions paid to our general partner; based on the number of common and subordinated units outstanding at the end of the first quarter of 2016
       

 

Financial Statements

                 
 

ENVIVA PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
                 
 

 

         March 31,
2016		   December 31,
2015
            (unaudited)    
  Assets              
  Current assets:              
  Cash and cash equivalents         $ 3,636   $ 2,175
 

Accounts receivable, net of allowance for doubtful accounts of $132 as of
March 31, 2016 and $85 as of December 31, 2015

           37,853     38,684
  Related party receivables           383     94
  Inventories           27,799     24,245
  Prepaid expenses and other current assets           8,074     2,123
  Total current assets           77,745     67,321
 

Property, plant and equipment, net of accumulated depreciation of $71.1 million as
of March 31, 2016 and $64.7 million as of December 31, 2015

           401,214     405,582
 

Intangible assets, net of accumulated amortization of $7.8 million as
of March 31, 2016 and $7.0 million as of December 31, 2015

           2,626     3,399
  Goodwill           85,615     85,615
  Other long-term assets           502     7,063
  Total assets         $ 567,702   $ 568,980
  Liabilities and Partners’ Capital              
  Current liabilities:              
  Accounts payable         $ 12,602   $ 9,303
  Related party payables           10,724     11,013
  Accrued and other current liabilities           12,830     13,059
  Deferred revenue           270     485
  Current portion of long-term debt and capital lease obligations           3,238     6,523
  Related party current portion of long-term debt           3,414     150
  Total current liabilities           43,078     40,533
  Long-term debt and capital lease obligations           185,872     186,294
  Related party long-term debt           14,636     14,664
  Long-term interest payable           796     751
  Other long-term liabilities           661     586
  Total liabilities           245,043     242,828
  Commitments and contingencies              
  Partners’ capital:              
  Enviva Partners, LP partners’ capital           319,683     323,161
  Noncontrolling partners’ interests           2,976     2,991
  Total partners’ capital           322,659     326,152
  Total liabilities and partners’ capital         $ 567,702   $ 568,980
                 
             
 

ENVIVA PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
(Unaudited)
             
            Three Months Ended March 31,
            2016   2015
                (Recast)
  Product sales         $ 103,445   $ 113,581
  Other revenue           3,807     733
  Net revenue           107,252     114,314
  Cost of goods sold, excluding depreciation and amortization           84,616     94,400
  Depreciation and amortization           6,881     8,259
  Total cost of goods sold           91,497     102,659
  Gross margin           15,755     11,655
  General and administrative expenses           5,017     3,770
  Income from operations           10,738     7,885
  Other income (expense):              
  Interest expense           (3,181)     (1,917)
  Related party interest expense           (209)     (801)
  Other income           131     11
  Total other expense, net           (3,259)     (2,707)
  Income before income tax expense           7,479     5,178
  Income tax expense           —     2,667
  Net income           7,479     2,511
  Less net loss attributable to noncontrolling partners’ interests           15     8
  Net income attributable to Enviva Partners, LP         $ 7,494   $ 2,519
  Less: Predecessor income from January 1, 2015 to March 31, 2015             $ 2,519
  Enviva Partners, LP limited partners’ interest in net income         $ 7,494   $ —
                 
  Net income per common unit:              
  Basic         $ 0.30    
  Diluted         $ 0.29    
                 
  Net income per subordinated unit:              
  Basic         $ 0.30    
  Diluted         $ 0.29    
                 
  Weighted average number of limited partner units outstanding:              
  Common – basic           12,852    
  Common – diluted           13,337    
  Subordinated – basic and diluted           11,905    
                 
             
 

ENVIVA PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
             
            Three Months Ended March 31,
            2016   2015
                (Recast)
  Cash flows from operating activities:              
  Net income         $ 7,479   $ 2,511
  Adjustments to reconcile net income to net cash provided by operating activities:              
  Depreciation and amortization           6,893     8,270
  Amortization of debt issuance costs and original issue discount           446     505
  General and administrative expense incurred by Enviva Holdings, LP           —     475
  Allocation of income tax expense from Enviva Cottondale Acquisition I, LLC           —     2,663
  Loss on disposals and impairments of property, plant and equipment           1     18
  Unit-based compensation expense           681     —
  Change in fair value of interest rate swap derivatives           —     23
  Change in operating assets and liabilities:              
  Accounts receivable           831     (2,778)
  Related party receivables           (289)     —
  Prepaid expenses and other assets           732     401
  Inventories           (3,395)     3,240
  Other long-term assets           (121)     240
  Accounts payable           3,079     3,253
  Related party payables           4,713     328
  Accrued liabilities           155     1,718
  Accrued interest           45     (14)
  Related party accrued interest           —     801
  Deferred revenue           (215)     19
  Other current liabilities           (231)     25
  Net cash provided by operating activities           20,804     21,698
  Cash flows from investing activities:              
  Purchases of property, plant and equipment           (1,853)     (1,272)
  Payment of acquisition related costs           —     (3,572)
  Net cash used in investing activities           (1,853)     (4,844)
  Cash flows from financing activities:              
  Principal payments on debt and capital lease obligations           (29,329)     (12,770)
  Principal payments on related party debt           (89)     (4,800)
  Cash restricted for debt service           —     4,000
  Proceeds from debt issuance           28,500     6,000
  Distributions to unitholders and distribution equivalent rights           (11,570)     —
  Distributions to sponsor           (5,002)     —
  Proceeds from contributions from sponsor           —     10,236
  Net cash (used in) provided by financing activities           (17,490)     2,666
  Net increase in cash and cash equivalents           1,461     19,520
  Cash and cash equivalents, beginning of period           2,175     591
  Cash and cash equivalents, end of period         $ 3,636   $ 20,111
                 
             
 

ENVIVA PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
             
            Three Months Ended March 31,
            2016   2015
                (Recast)
  Non-cash investing and financing activities:              
  Property, plant and equipment acquired and included in accounts payable and accrued liabilities         $ 645   $ 353
  Depreciation capitalized to inventories           198     124
  Contribution of Enviva Pellets Cottondale, LLC non-cash net assets           —     122,529
  Distributions included in liabilities           83     —
  Distribution of Enviva Pellets Cottondale, LLC assets to sponsor           —     319
  Prepaid adjustment for insurance payable           —     25
  Non-cash capital contributions from sponsor           —     1,118
  Supplemental information:              
  Interest paid         $ 2,897   $ 1,401