| ||
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, | ||
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 | ||
Enviva Partners, LP
(Exact name of registrant as specified in its charter)
|
| |||
Enviva Partners, LP | ||||
| (Exact name of registrant as specified in its charter) | ||||
| Delaware | 46-4097730 | |||
| (State or other jurisdiction | (I.R.S. Employer | |||
of incorporation or organization) | Identification No.) | |||
7200 Wisconsin Ave, Suite 1000 | ||||
Bethesda, MD | 20814 | |||
(Address of principal executive offices) | (Zip code) | |||
| (301) 657-5560 | ||||
| (Registrant’s telephone number, including area code) | ||||
(301) 657-5560
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| 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 Interests | EVA | New York Stock Exchange |
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. ☐
| Large accelerated filer ☐ | Accelerated filer ☒ | ||||
Non-accelerated filer ☐ | Smaller reporting company ☐ | ||||
| Emerging growth company ☒ | ||||
Documents Incorporated by Reference: None.
| Documents Incorporated by Reference: | ||||
| None | ||||
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
changes in the price and availability of transportation;
1
|
|
|
|
| changes in the quality specifications for our products that are required by our customers; |
| labor disputes; |
|
|
|
|
2
2
3
3
| ITEM 1. | BUSINESS |
Wewood pellet production plants and wood pellets sourced from our affiliates and third parties were formed on November 12, 2013 asapproximately 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 wholly owned subsidiaryproduct sales backlog of $10.6 billion and have a total weighted-average remaining term of 11.4 years from February 1, 2020. Under our sponsor. On April 9, 2015,current product sales backlog, our plants are fully contracted through 2025. Assuming all volumes under the firm and contingent long-term off-take contracts held by our sponsor contributed certain ofand the Sponsor JV were included with our Predecessor’s assetsproduct sales backlog for firm and liabilitiescontingent contracted product sales, our product sales backlog would increase to us. On May 4, 2015, we completed an initial public offering (the “IPO”) of common units representing limited partner interests in$19.6 billion and the Partnership (“common units”). Our assets and operations are organized into a single reportable segment and are all located and conducted in the United States. Please read Part II, Item 8. “Financial Statements and Supplementary Data—Notetotal weighted-average remaining term from February 1, Description of Business and Basis of Presentation” for further discussion regarding our formation and organization.
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 transported2020 would increase to our owned or leased deep‑water marine terminal assets, where they are received, stored and ultimately loaded onto oceangoing vessels for transport to our principally European customers.
13.8 years.
4
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.
Industry Overview
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 and Asia 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, 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.
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 is an attractive benefit for power generators whose generation assets are no longer viable as coal plants due to the expiration of operating permits or the introduction of taxes or other restrictions on fossil fuel usage or emissions of GHGs and other pollutants.
There also continues to be significant growth in the European and Asian demand for wood pellets as the preferred fuel source and lower‑cost alternative to delivered fossil fuels for district heating loops, for heating homes and commercial buildings and for the production of process heat at industrial sites. Increasingly, wood pellets are also being sought as a raw material input for bio‑based substitutes for traditional fossil fuel‑based fuels and chemicals. As these markets further develop, there will continue to be opportunities for utility‑grade wood pellet producers to serve this growing demand.
Recent Developments
Wilmington Drop‑Down
On October 2, 2017, pursuant to the terms of a contribution agreement by and between the Partnership and the First Hancock JV (the “Wilmington Contribution Agreement”), the First Hancock JV sold to the Partnership all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”), which owns the Wilmington terminal. We refer to this transaction as the “Wilmington Drop-Down.”
The purchase price for Wilmington was $130.0 million, which included an initial payment of $54.6 million, net of an approximate purchase price adjustment of $1.4 million. The initial payment was funded with borrowings from revolving credit commitments and cash on hand. We accounted for the Wilmington 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 the acquisition were retrospectively recast to reflect the acquisition as if it had occurred on May 15, 2013, the date Wilmington was originally organized.
The Wilmington terminal, which is capable of receiving product by rail and truck, has the capacity to store up to 90,000 metric tons (“MT”) ofinto utility-grade wood pellets and load up to Panamax-sized vessels. It utilizes state-of-the-art handling equipment and storage infrastructure designed to maintain product quality and safety with throughput capacity of up to 3.0 million MTPY of wood pellets.
5
Wilmington will handle up to approximately 600,000 MTPY of throughput from our wood pellet production plant located in Sampson, North Carolina (the “Sampson plant”) and is party to a long-term terminal services agreement with Enviva Pellets Greenwood, LLC, a wholly owned subsidiary of the Second Hancock JV (“Greenwood”). Wilmington will handle throughput volumes sourced from Greenwood’s wood pellet production plant located in Greenwood, South Carolina (the “Greenwood plant”). The terminal services agreement with Greenwood provides for deficiency payments to Wilmington if minimum throughput requirements are not met.
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 loadfinished 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 providesinto railcars, trucks and barges for deficiency paymentstransportation to Wilmington if minimum throughput requirementsdeep-water marine terminals, where they are not met. Pursuant to the Wilmington Contribution Agreement, following notice of the anticipated firstreceived, stored and ultimately loaded onto oceangoing vessels for delivery of wood pellets to the Wilmington terminal from the Hamlet plant, Wilmington, Hamlet, and the First Hancock JV would enter into the Wilmington Hamlet TSA and the Partnership would make a final payment of $74.0 million in cash or common units 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 the 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 the sponsor’s potential wood pellet production plants.
Senior Notes Due 2021
On November 1, 2016, we issued $300.0 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”) to eligible purchasers in a private placement transaction. In August 2017, holders of 100% of the Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical to the Senior Notes (except that the registered notes are not subject to restrictions on transfer).
On October 10, 2017, we completed the issuance to an institutional investor in a private placement transaction of an additional $55.0 million in aggregate principal amount of Senior Notes at a price of 106.25% of par plus accrued interest from May 1, 2017. The additional Senior Notes have the same terms as our outstanding Senior Notes.
The sale of the additional Senior Notes at a purchase price of $58.4 million resulted in gross proceeds of approximately $60.0 million, after including accrued interest of $2.1 million and deducting estimated expenses of approximately $0.5 million. The net proceeds were used to repay the borrowings on our revolving credit facility that were used to fund the Wilmington Drop-Down and for general partnership purposes.
In December 2017, the holder of the additional Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical to such additional Senior Notes (except that the registered notes are not subject to restrictions on transfer). The additional Senior Notes will be treated together with the outstanding Senior Notes as a single class for all purposes under the Indenture.
Sale of the Wiggins Plant
In December 2016, we initiated a plan to sell our 110,000 MTPY production plant located in Wiggins, Mississippi and related assets (the “Wiggins plant”). We sold the Wiggins plant to a third-party buyer for a purchase price of $0.4 million on December 27, 2017, and on December 28, 2017, Enviva Pellets Wiggins, LLC (“Wiggins”), the owner of the Wiggins plant, was dissolved. We recorded a loss on the sale of $0.8 million, net, upon deconsolidation.
At‑the‑Market Offering Program
On August 8, 2016, we filed a prospectus supplement to our shelf registration filed with the U.S. Securities Exchange Act Commission (“SEC”) on June 24, 2016, for the continuous offering of up to $100.0 million of common
6
units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings. In August 2016, we also entered into an equity distribution agreement (the “Equity Distribution Agreement”) with certain managers pursuant to which we may offer and sell common units from time to time through or to one or more of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).
During the years ended December 31, 2017 and 2016, we sold 71,368 and 358,593 common units, respectively, under the Equity Distribution Agreement for net proceeds of $1.9 million, net of an insignificant amount of commissions, during 2017, and net proceeds of $9.3 million, net of $0.1 million of commissions, during 2016. Accounting and other fees of approximately $0.2 million were offset against the proceeds during 2017. Deferred issuance costs of approximately $0.4 million, primarily consisting of legal, accounting and other fees, were offset against the proceeds during 2016. Net proceeds from sales under the ATM Program were used for general partnership purposes. As of February 16, 2018, $88.6 million of common units remained available for issuance under the ATM Program.
Assets and Operations
Our Production Plants
We own and operate six industrial‑scaleseven industrial-scale wood pellet production plants strategically located in the Mid‑AtlanticMid-Atlantic and the Gulf Coast regions of the United States, geographic areas in which wood fiber resources are plentiful and readily available. TheseOur plants are
Mid‑Atlantic
|
|
|
|
|
|
|
|
| Current |
|
|
|
| Annual |
|
| Operations |
| Production |
Plant Location |
| Commenced |
| (MTPY) |
Ahoskie, North Carolina |
| 2011 |
| 400,000 |
Northampton, North Carolina |
| 2013 |
| 550,000 |
Sampson, North Carolina |
| 2016 |
| 545,000 |
Southampton, Virginia |
| 2013 |
| 550,000 |
Total |
|
|
| 2,045,000 |
| Plant Location | Operations Commenced | Production (MTPY) | ||||
| Ahoskie, North Carolina | 2011 | 415,000 | ||||
| Northampton, North Carolina (1) | 2013 | 550,000 | ||||
| Southampton, Virginia (1) | 2013 | 545,000 | ||||
| Sampson, North Carolina (2) | 2016 | 555,000 | ||||
| Hamlet, North Carolina (3) | 2019 | 500,000 | ||||
| Total | 2,565,000 | |||||
| (1) | Production capacities for the Northampton and Southampton plants do not include increased production capacity pursuant to ongoing expansion projects. We expect to commence the production ramp for the Northampton and Southampton plant expansions in the second and third quarters of 2020, respectively. |
| (2) | We expect the Sampson plant to increase production capacity to 600,000 MTPY during 2020. |
| (3) | The Hamlet plant currently has a production capacity of approximately 500,000 MTPY. We expect the Hamlet plant to reach its nameplate production capacity of approximately 600,000 MTPY by the end of 2020. |
wood pellets.
We are currently engaged in an expansion project to increase the wood pellet production of the Northampton plant to 750,000 MTPY. We expect to commence the production ramp for the Northampton plant expansion in the second quarter of 2020.
7
5
The
during 2020.
We are currently engaged in an expansion project to increase the production capacity of the Southampton plant to 745,000 MTPY of wood pellets. We expect to commence the production ramp for the Southampton plant expansion in the third quarter of 2020.
|
|
|
|
|
|
|
|
| Current |
|
|
|
| Annual |
|
|
|
| Production |
Plant Location |
| Acquisition Date |
| (MTPY) |
Cottondale, Florida |
| 2015 |
| 730,000 |
Amory, Mississippi |
| 2010 |
| 120,000 |
Total |
|
|
| 850,000 |
| Plant Location | Acquisition Year | Production (MTPY) | |||
| Cottondale, Florida | 2015 | 760,000 | |||
| Amory, Mississippi | 2010 | 120,000 | |||
| Total | 880,000 | ||||
Production from760,000 MTPY of wood pellets.
terminal.
MTPY of wood pellets.
8
Logistics and Storage Capabilities
To‑Port Logistics and Port Infrastructure
We site our production plants tois sited in robust fiber baskets in the Southeast United States that sustainably support our growth operations with low-grade fiber. Our sites 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 our Chesapeake terminal and Wilmington terminal and the Panama City terminal. 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, 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 Ahoskie, Northampton, and Southampton 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 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 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 the need for excess storage.
9
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 warehouse service 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 throughput 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 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 9% of our common units, all of our subordinated units and 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 the right of first offer it granted to us in connection with our IPO.
In November 2014, Enviva Development Holdings, LLC (“Development Holdings”) entered into the First Hancock JV with Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) 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 the Second Hancock JV with Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) 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 Hancock JVs; together, they are responsible for managing the activities of the First Hancock JV and the Second Hancock JV (together, the “Hancock JVs”), including the development and construction of the development projects of the Hancock JVs.
Our Sponsor’s Assets and Development Projects
Hamlet Plant
The First Hancock JV has secured permits and commenced construction of the Hamlet plant, which is strategically sited in an attractive wood fiber basket and will be constructed using our “build‑and‑copy” approach, using substantially the same design and equipment as the Sampson plant. Production from the Hamlet plant, once completed, will be terminaled at the Wilmington terminal.
Greenwood Plant
As its first investment, the Second Hancock JV, through a wholly owned subsidiary, entered into an agreement to purchase the Greenwood plant. Upon closing, 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. The production of the
10
Greenwood plant initially will be sold to the Partnership under a take-or-pay off-take contract and will continue to be exported from the Partnership’s 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 an agreement 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, which would service new, regionally proximate production plants, including a potential production plant in Lucedale, Mississippi.
In connection with the closing of the IPO 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 that 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 above, 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.
Customers
For the year ended December 31, 2017, we generated substantially all of our revenues from sales under long‑term take‑or‑pay off‑take contracts with customers outside of the United States. We seek to fully contract our production capacity through long‑term off‑take contracts and supplement such agreements with smaller contracts of intermediate or short duration to take advantage of opportunities in the market.
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 costs under CIF and CFR contracts are included in the price to the customer and, as such, are included in revenue andstructural cost of goods sold. Under FOB contracts,advantage over many other fiber baskets around the customer is directly responsible for shipping costs. We seek to enter into fixed-price shipping contracts with reputable shippers matchingworld. Although “stumpage,” the terms and volumes of our contracts for which we are responsible for arranging shipping.
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”), MGT Teesside Limited (“MGT”) (through two contracts with the First Hancock JV) and RWE Supply and Trading GmbH (“RWE”).
Drax Contracts. We began selling utility‑grade wood pellets pursuant to a take-or-pay off-take contract with Drax (the “First Drax Contract”) on April 1, 2013. We supplied 468,750 MTindustry term for the first delivery year and will supply 1.0 million MTPYamount of wood pellets through 2022. In connection with the Southampton Drop‑Down, the First Hancock JV assigned to us a ten‑year contract with Drax (the “Second Drax Contract”). The Second Drax Contract commenced on December 1, 2015, and we supplied 385,000 MTconsideration paid for the first delivery year, supplied 500,000 MT for the second delivery year and will supply 500,000 MTPY for years three through ten.
Ørsted Contract. In connection with the Sampson Drop‑Down, the First Hancock JV assigned to us a ten‑year take‑or‑pay off‑take contract with Ørsted. This contract commenced September 1, 2016 and provides for sales of
11
360,000 MTPY for the first delivery year and 420,000 MTPY for years two through ten. In the fourth quarter of 2017, the Partnership entered into an amendment to the contract with Ørsted for the supply of an incremental 200,000 MT from late 2018 through mid-2021. Ørsted’s obligations under the contract are guaranteed by its parent, Ørsted A/S.
Lynemouth Power Contract. We entered into a take‑or‑pay off‑take contract to supply wood pellets to Lynemouth Power. Lynemouth Power is converting its coal‑fired power station in the United Kingdom to a biomass fired power station. Deliveries under this contract commenced in late 2017, are expected to ramp to full supply of 800,000 MTPY of wood pellets in 2018, and will continue through the first quarter of 2027. The volumes under the Lynemouth Power Contract are denominated in U.S. Dollars, except for 160,000 MTPY that are denominated in British Pound Sterling (“GBP”).
ENGIE Contracts. We began selling 480,000 MTPY of utility‑grade wood pellets to Electrabel, a subsidiary of ENGIE, under a contract that commenced in June 2011 and continued through 2017. In May 2017 we entered into a new agreement to supply a total of 450,000 MT of wood pellets to ENGIE from mid-2017 through and including 2019. We recently entered into two additional agreements with ENGIE to sell 90,000 MT in 2018 and an aggregate 585,000 MT from 2019-2023.
EVA‑MGT Contracts. We have contracted 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”). 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.
In connection with the Sampson Drop‑Down, we entered into a second contract with the First Hancock JV to supply an additional 95,000 MTPY of the contracted volume to the Tees REP. For more information on the EVA‑MGT Contracts, please read Part III, Item 13. “Certain Relationships and Related Transactions, and Director Independence—Agreements with Affiliates—EVA‑MGT Contracts.”
RWE Contracts. We have contracted with RWE pursuant to two confirmations under master agreements to sell 720,000 MT of wood pellets to RWE from our terminal locations and to purchase 720,000 MT of wood pellets from RWE in British Columbia during the period from January 2020 through December 2021.
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 2017; however, our three largest customers accounted for 93% of the Partnership’s product sales in 2017.
We refer to the structure of our 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 compensate us in the case of our customer’s failure to accept all or a part of the contracted volumes or for termination by our 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 provisions 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 sell prompt deliveries of product to new and existing customers. On occasion, we will intermediate dislocations in the market by entering into back-to-back transactions with physical delivery. In some instances, a customer may request to cancel, defer, or accelerate a shipment. Contractually, we will 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‑party wood pellet producers as well as for owners of other bulk commodities.
12
Contracted Backlog
As of February 15, 2018, we had approximately $5.8 billion of product sales backlog for firm contracted product sales to major power generators compared to approximately $5.7 billion as of February 1, 2017. Backlog represents the revenue to be recognized under existing contracts assuming deliveries occur as specified in the contract. Expected future product sales revenue denominated in foreign currencies, excluding revenue hedged with foreign currency forward contracts, are included in U.S. Dollars at February 15, 2018 forward rates. 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 15, 2018 is as follows (in millions):
|
|
|
|
Period February 15, 2018 to December 31, 2018 |
| $ | 523 |
Year Ended December 31, 2019 |
|
| 582 |
Year Ended December 31, 2020 and thereafter |
|
| 4,691 |
Total product sales contracted backlog |
| $ | 5,796 |
Wood Fiber Procurement
Although stumpagefiber, constitutes a small portion of our total cost of delivered products, wood fiber procurement is a vital function of our business and cost‑effectivecost-effective access to wood fiber is an important factor in our pricing stability. Our raw materials are byproducts of traditional timber harvesting, principally
Ourfour primary areas from which we source our wood fiber. As a result, net fiber volume grew by approximately 9.9 billion cubic feet, an increase of 24%. Between 2011,
Standards.
|
|
13
|
|
|
|
|
|
Demand for the non‑merchantable trees,non-merchantable fiber, waste products or byproducts that we use is generally low because they have few competing uses.uses, in part because they cannot be transported cost-effectively. The tops, limbs and other low‑gradelow-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 make room for higher value lumber‑grade timber.support the growth of higher-value lumber-grade trees. U.S. demand for such low gradelow-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.
| (1) | Includes base annual delivery quantity and excludes the impact of the Partnership, our sponsor and the Sponsor JV’s option to increase or decrease the annual delivery quantity under the associated off-take contracts. |
| (2) | As of February 1, 2020, includes all volumes under the firm and contingent off-take contracts held by the Partnership, our sponsor and the Sponsor JV. Although we expect to have the opportunity to acquire these contracts from our sponsor and the Sponsor JV, there can be no guarantee that we will acquire these, or any, contracts from our sponsor or the Sponsor JV. |
| Period from February 1, 2020 to December 31, 2020 | $ | 782 | |
| Year ending December 31, 2021 | 1,043 | ||
| Year ending December 31, 2022 and thereafter | 8,751 | ||
| Total product sales contracted backlog | $ | 10,576 | |
| Period from February 1, 2020 to December 31, 2020 | $ | 782 | |
| Year ending December 31, 2021 | 1,086 | ||
| Year ending December 31, 2022 and thereafter | 17,699 | ||
| Total product sales contracted backlog | $ | 19,567 | |
Employees
Riverstone Funds became the majority owners of our sponsor in March 2010.
14
12
Supplementary Data—Related-Party Transactions” for more information regarding
sponsor and the Sponsor JV.
plants; moreover, complying with these permits, including satisfying testing requirements, can also be costly and 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.
15
Climate Change and Greenhouse Gases
In response
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.
16
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. ThatWhile 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.
17
Principal Executive Offices
18
15
| ITEM 1A. | RISK FACTORS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
our inability to acquire or maintain necessary permits or rights for our production, transportation or terminaling operations;
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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. |
20
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 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. 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.
We
21
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.
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 will in the future 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 Lynemouth Power Contract, 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.
limitations and/or stringent testing requirements to demonstrate compliance 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 pay distributions to our unitholders.
22
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,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 toat 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 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. The current repeal proposal suggests that the EPA has yet to determine when or whether it might promulgate new GHG emissions standards for existing power plants. 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. Also, 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. 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.
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.
our ability to pay distributions to our unitholders.
|
|
23
19
|
|
|
|
Currently, our
24
as swap dealers, may change the cost and availability of the swaps that we use for hedging. Moreover, if any of our swaps do not qualify for the commercial end‑userend-user exception, we may be required to post additional cash margin or collateral, which could impact our liquidity and reduce our ability to use cash for capital expenditures or other partnership purposes.
pay distributions to our unitholders.
January 2020, which is subject to a transition period until the end of 2020 to allow for the negotiation of new trade deals.
These
25
The viability of our customers’ businesses may also affect demand for our products and the results of our business and operations.
|
|
|
|
|
|
|
|
|
|
| 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; |
|
|
26
22
|
|
|
|
|
|
|
|
|
|
If there are significantresources to acquisitions.
27
production is dependent upon infrastructure at our owned, leased and third‑party operatedthird-party-operated ports. Should we suffer a catastrophic failure of the
pellet prices in the broader markets.
28
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.
affected.
|
|
|
|
|
|
|
|
|
|
29
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 partnership or other purposes.
|
|
In addition, revolving borrowings under the Senior Secured Credit Facilitiesour 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.
pay distributions to our unitholders.
pay distributions to our unitholders.
30
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.
31
limited-scope wood pellet purchase and sale transactions. For example, colder periods typically drive increasedwinter months drives greater customer demand for wood pelletspellets. 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 the heating and industrial markets, which can increase pricing for prompt deliveries, while warmer periods typically have the opposite effect. While our contracts generally call for ratable deliveries throughout the year, we are party to one contract that calls for a higher percentage of deliveriesgross margin during the first and fourth calendar quarters.winter months. 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 mayto not be as meaningful as comparisons between longer reporting periods.
|
|
|
|
|
|
|
|
|
|
|
|
32
our General Partner may cause us to borrow funds in order to permit the payment of cash distributions;
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
33
Our General Partner limits its liability regarding our obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
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.
|
|
|
|
|
|
|
|
|
|
35
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.
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.
36
Even if holders of our common units are dissatisfied, they cannot currently remove our General Partner without our sponsor’s consent.
37
We may issue additional units without unitholder approval, which would dilute existing unitholder ownership interests.
|
|
|
|
|
|
|
|
|
|
|
|
All of the subordinated units will convert into common units on a one‑for‑one basis at the end of the subordination period, which is expected to occur in May 2018.
38
terminated without replacement, or our General Partner or its affiliates provided services outside of the scope of the MSA,MSAs, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
requirements.
Toincur additional expenses and devote substantial management effort toward ensuring compliance with the extent that we rely on any of the exemptions availablerequirements applicable to emerging growth companies our unitholders will receive less information about our executive compensation and internal control over financial reporting than issuers
39
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.
40
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 eliminatedto eliminate 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, on January 24, 2017, final regulations regarding which activities give rise to qualifying income within the meaning of Section 7704 of the Code (the “Final Regulations”) were published in the Federal Register. The Final Regulations are effective as of January 19, 2017purposes, current and apply to taxable years beginning on or after January 19, 2017 and, consistent with our private letter ruling, the Final Regulations generally treat income from the production, transportation and marketing of wood pellets as qualifying income. However, there can be no assurance that thereformer legislative proposals would not be further changes to the Treasury Department’s interpretation ofhave eliminated the qualifying income rulesexception for publicly traded partnerships relying on qualifying income from fossil fuel activities. In addition, the Treasury Department has issued, and in a mannerthe future may issue, regulations interpreting those laws that could impact our ability toaffect publicly traded partnerships. We believe we qualify as a partnership for U.S. federal income tax purposes.
Anypurposes under current regulations.
41
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.
Tax‑exempt
42
36
The Tax Cuts and Jobs Act imposes a withholding obligation of 10% of
their current form.
43
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.
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 2. | PROPERTIES |
ITEM 3. LEGAL PROCEEDINGS
| ITEM 3. | LEGAL PROCEEDINGS |
| ITEM 4. | MINE SAFETY DISCLOSURES |
44
39
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.
Although it is reasonably possible that the Shipping Event may result in additional costs and liabilities for our account, responsibility for such costs and liabilities incurred in connection with the Shipping Event is disputed among the various parties involved. If any such costs and liabilities ultimately are allocated to us, a portion may be recovered under insurance. We believe we have meritorious defenses to the Claims, but we are generally unable to predict the timing or outcome of any claims or proceedings, including the Claims, associated with the Shipping Event, or any insurance recoveries in respect thereof. Consequently, we are unable to provide an estimate of the amount or range of possible loss.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
45
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Price Range |
| Cash |
|
|
|
| |||||
Year Ended December 31, 2017: |
| High |
| Low |
| Distributions |
| Record Date |
| Payment Date | |||
Fourth Quarter |
| $ | 31.95 |
| $ | 26.73 |
| $ | 0.620 |
| February 15, 2018 |
| February 28, 2018 |
Third Quarter |
| $ | 30.30 |
| $ | 27.18 |
| $ | 0.615 |
| November 15, 2017 |
| November 29, 2017 |
Second Quarter |
| $ | 30.60 |
| $ | 26.33 |
| $ | 0.570 |
| August 15, 2017 |
| August 29, 2017 |
First Quarter |
| $ | 29.98 |
| $ | 24.60 |
| $ | 0.555 |
| May 18, 2017 |
| May 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Price Range |
| Cash |
|
|
|
| |||||
Year Ended December 31, 2016: |
| High |
| Low |
| Distributions |
| Record Date |
| Payment Date | |||
Fourth Quarter |
| $ | 29.85 |
| $ | 24.45 |
| $ | 0.535 |
| February 15, 2017 |
| February 28, 2017 |
Third Quarter |
| $ | 28.40 |
| $ | 21.02 |
| $ | 0.530 |
| November 14, 2016 |
| November 29, 2016 |
Second Quarter |
| $ | 24.86 |
| $ | 19.31 |
| $ | 0.525 |
| August 15, 2016 |
| August 29, 2016 |
First Quarter |
| $ | 22.60 |
| $ | 13.73 |
| $ | 0.510 |
| May 16, 2016 |
| May 27, 2016 |
As of February 16, 2018,14, 2020, there were 14,445,26833,605,138 common units outstanding held by threesix unitholders of record. Because many of our common units are held by brokers and other institutions on behalf of unitholders, we are unable to estimate the total number of unitholders represented by these unitholders of record. As of February 16, 2018, we also had 11,905,138 subordinated units outstanding. There is no established public market in which the subordinated units are traded. As of February 16, 2018,14, 2020 our sponsor held approximately 9%40% of the common units and all of the subordinated units.
46
Please read Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Revolving Credit Facilities”Facility” for a discussion of the provisions included in our senior secured revolving credit facility that may restrict our ability to make distributions.
Subordination Period
Our partnership agreement provides that, during the subordination period, holders ofpay distributions to our common units have the right to receive distributions from operating surplus (as defined in our partnership agreement) each quarter in an amount equal to $0.4125 per common unit, which amount is defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions from operating surplus may be made to holders of the subordinated units. These units are deemed “subordinated” because for a period of time, referred to as the subordination period, the subordinated units will not be entitled to receive any distributions from operating surplus until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Furthermore, no arrearages will be paid on the subordinated units. We expect the subordination period to expire in May 2018, at which time all of the subordinated units will convert into common units on a one‑for‑one basis.
unitholders.
Unregistered Sales of Securities
On December 14, 2016, a joint venture between our sponsor and Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) (the “First Hancock JV”) contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Enviva Pellets Sampson, LLC (the “Sampson Drop‑Down”). In connection with the Sampson Drop‑Down, we issued a total of 1,098,415 common units at a value of $27.31 per unit, or $30.0 million of common units, to John Hancock Life Insurance Company of New York and John Hancock Life Insurance Company (U.S.A.), each an affiliate of the First Hancock JV, in reliance upon the exemption from the registration requirements in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). For more information on the Sampson Drop‑Down, please read Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Sampson Drop‑Down.”
On December 11, 2015, the First Hancock JV contributed to Enviva, LP all the issued and outstanding limited liability company interests in Enviva Pellets Southampton, LLC. In connection with the Southampton Drop‑Down, we issued 942,023 common units valued at $15.0 million, to a wholly owned subsidiary of our sponsor in reliance upon the exemption from the registration requirements in Section 4(a)(2) of the Securities Act. For more information on the Southampton Drop‑Down, please read Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Southampton Drop‑Down.”
47
40
The financial statements have been retroactively recast to reflect the contribution of our sponsor’s interest in our Predecessor
its subsidiaries. The selected statement of operations and statements of cash flow data for the years ended December 31, 2017, 20162019, 2018 and 20152017 and the balance sheet data as of December 31, 20172019 and 20162018 are derived from our audited consolidated financial statements included in Item 88—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||||||||
|
|
|
| 2016 |
| 2015 |
| 2014 |
| 2013 | |||||
|
| 2017 |
| (Recast) |
| (Recast) |
| (Recast) |
| (Recast) | |||||
|
|
|
|
|
|
|
| (Predecessor) |
| (Predecessor) | |||||
|
| (in thousands, except per metric ton and operating data and per unit data) | |||||||||||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
| $ | 522,250 |
| $ | 444,489 |
| $ | 450,980 |
| $ | 286,641 |
| $ | 176,051 |
Other revenue (1) |
|
| 20,971 |
|
| 19,787 |
|
| 6,394 |
|
| 3,495 |
|
| 3,836 |
Net revenue |
|
| 543,221 |
|
| 464,276 |
|
| 457,374 |
|
| 290,136 |
|
| 179,887 |
Costs of goods sold, excluding depreciation and amortization (1) |
|
| 419,616 |
|
| 357,418 |
|
| 365,061 |
|
| 251,058 |
|
| 152,720 |
Loss on disposal of assets |
|
| 4,899 |
|
| 2,386 |
|
| 2,081 |
|
| 340 |
|
| 223 |
Depreciation and amortization |
|
| 39,904 |
|
| 27,700 |
|
| 30,692 |
|
| 18,971 |
|
| 11,827 |
Total cost of goods sold |
|
| 464,419 |
|
| 387,504 |
|
| 397,834 |
|
| 270,369 |
|
| 164,770 |
Gross margin |
|
| 78,802 |
|
| 76,772 |
|
| 59,540 |
|
| 19,767 |
|
| 15,117 |
General and administrative expenses (1) |
|
| 30,107 |
|
| 33,098 |
|
| 23,922 |
|
| 16,958 |
|
| 16,150 |
Disposal and impairment of assets held for sale |
|
| 827 |
|
| 9,991 |
|
| — |
|
| — |
|
| — |
Total general and administrative |
|
| 30,934 |
|
| 43,089 |
|
| 23,922 |
|
| 16,958 |
|
| 16,150 |
Income (loss) from operations |
|
| 47,868 |
|
| 33,683 |
|
| 35,618 |
|
| 2,809 |
|
| (1,033) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (31,744) |
|
| (15,643) |
|
| (10,558) |
|
| (8,724) |
|
| (5,460) |
Related-party interest expense |
|
| — |
|
| (578) |
|
| (1,154) |
|
| — |
|
| — |
Early retirement of debt obligation |
|
| — |
|
| (4,438) |
|
| (4,699) |
|
| (73) |
|
| — |
Other income |
|
| (1,751) |
|
| 439 |
|
| 979 |
|
| 22 |
|
| 1,019 |
Total other expense, net |
|
| (33,495) |
|
| (20,220) |
|
| (15,432) |
|
| (8,775) |
|
| (4,441) |
Income (loss) before income tax expense |
|
| 14,373 |
|
| 13,463 |
|
| 20,186 |
|
| (5,966) |
|
| (5,474) |
Income tax expense |
|
| — |
|
| — |
|
| 2,623 |
|
| 15 |
|
| 23 |
Net income (loss) |
|
| 14,373 |
|
| 13,463 |
|
| 17,563 |
|
| (5,981) |
|
| (5,497) |
Less net loss attributable to noncontrolling partners’ interests |
|
| 3,140 |
|
| 5,804 |
|
| 2,859 |
|
| 304 |
|
| 58 |
Net income (loss) attributable to Enviva Partners, LP |
| $ | 17,513 |
| $ | 19,267 |
| $ | 20,422 |
| $ | (5,677) |
| $ | (5,439) |
Less: Predecessor (loss) income to May 4, 2015 (prior to IPO) |
| $ | — |
| $ | — |
|
| (2,132) |
|
| 264 |
|
| (5,439) |
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 |
| $ | 20,562 |
| $ | 24,608 |
| $ | 19,042 |
| $ | — |
| $ | — |
Net income per limited partner common unit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.65 |
| $ | 0.95 |
| $ | 0.80 |
|
|
|
|
|
|
Diluted |
| $ | 0.61 |
| $ | 0.91 |
| $ | 0.79 |
|
|
|
|
|
|
Net income per limited partner subordinated unit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.65 |
| $ | 0.93 |
| $ | 0.80 |
|
|
|
|
|
|
Diluted |
| $ | 0.65 |
| $ | 0.93 |
| $ | 0.79 |
|
|
|
|
|
|
(1) See Part II, Item 8. “Financial Statements and Supplementary Data—Note 13, Related-Party Transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
| Year Ended December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| (in thousands, except per metric ton and operating data and per unit data) | |||||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||
| Product sales | $ | 674,251 | $ | 564,010 | $ | 522,250 | $ | 444,489 | $ | 450,980 | |||||||||
Other revenue (1) | 10,142 | 9,731 | 20,971 | 19,787 | 6,394 | ||||||||||||||
| Net revenue | 684,393 | 573,741 | 543,221 | 464,276 | 457,374 | ||||||||||||||
Costs of goods sold, excluding depreciation and amortization (1) | 549,701 | 461,735 | 419,616 | 357,418 | 365,061 | ||||||||||||||
| Loss on disposal of assets | 3,103 | 2,386 | 4,899 | 2,386 | 2,081 | ||||||||||||||
| Depreciation and amortization | 50,521 | 40,179 | 39,904 | 27,700 | 30,692 | ||||||||||||||
| Total cost of goods sold | 603,325 | 504,300 | 464,419 | 387,504 | 397,834 | ||||||||||||||
| Gross margin | 81,068 | 69,441 | 78,802 | 76,772 | 59,540 | ||||||||||||||
| General and administrative expenses | 11,897 | 10,545 | 14,975 | 15,862 | 7,335 | ||||||||||||||
| Related-party management services agreement fee | 24,492 | 17,096 | 15,132 | 17,236 | 16,587 | ||||||||||||||
| Disposal and impairment of assets held for sale | — | — | 827 | 9,991 | — | ||||||||||||||
| Total general and administrative expenses | 36,389 | 27,641 | 30,934 | 43,089 | 23,922 | ||||||||||||||
| Income from operations | 44,679 | 41,800 | 47,868 | 33,683 | 35,618 | ||||||||||||||
| Other income (expense): | |||||||||||||||||||
| Interest expense | (39,344 | ) | (36,471 | ) | (31,744 | ) | (15,643 | ) | (10,558 | ) | |||||||||
| Related-party interest expense | — | — | — | (578 | ) | (1,154 | ) | ||||||||||||
| Early retirement of debt obligation | (9,042 | ) | (751 | ) | — | (4,438 | ) | (4,699 | ) | ||||||||||
| Other income (expense) | 764 | 2,374 | (1,751 | ) | 439 | 979 | |||||||||||||
| Total other expense, net | (47,622 | ) | (34,848 | ) | (33,495 | ) | (20,220 | ) | (15,432 | ) | |||||||||
| (Loss) income before income tax expense | (2,943 | ) | 6,952 | 14,373 | 13,463 | 20,186 | |||||||||||||
| Income tax expense | — | — | — | — | 2,623 | ||||||||||||||
| Net (loss) income | (2,943 | ) | 6,952 | 14,373 | 13,463 | 17,563 | |||||||||||||
| Less net loss attributable to noncontrolling partners’ interests | — | — | 3,140 | 5,804 | 2,859 | ||||||||||||||
| Net (loss) income attributable to Enviva Partners, LP | $ | (2,943 | ) | $ | 6,952 | $ | 17,513 | $ | 19,267 | $ | 20,422 | ||||||||
| Less: Predecessor loss to May 4, 2015 (prior to IPO) | $ | — | $ | — | $ | — | $ | — | $ | (2,132 | ) | ||||||||
| 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 | ) | ||||||||||||
| 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 | ) | |||||||||||
| Enviva Partners, LP partners’ interest in net (loss) income | $ | (2,943 | ) | $ | 6,952 | $ | 20,562 | $ | 24,608 | $ | 19,042 | ||||||||
| Net (loss) income per limited partner common unit: | |||||||||||||||||||
| Basic | $ | (0.54 | ) | $ | 0.04 | $ | 0.65 | $ | 0.95 | $ | 0.80 | ||||||||
| Diluted | $ | (0.54 | ) | $ | 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 15, Related-Party Transactions” | |||||||||||||||||||
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Year Ended December 31, | ||||||||||||||||||||||||||||||||
|
|
|
| 2016 |
| 2015 |
| 2014 |
| 2013 | ||||||||||||||||||||||||
|
| 2017 |
| (Recast) |
| (Recast) |
| (Recast) |
| (Recast) | Year Ended December 31, | |||||||||||||||||||||||
|
|
|
|
|
|
|
| (Predecessor) |
| (Predecessor) | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||
|
| (in thousands, except per metric ton and operating data and per unit data) | (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 |
| $ | 87,095 |
| $ | 55,804 |
| $ | 65,857 |
| $ | 28,992 |
| $ | (7,557) | $ | 53,860 | $ | 84,053 | $ | 87,095 | $ | 55,804 | $ | 65,857 | |||||||||
Investing activities |
|
| (28,601) |
|
| (111,124) |
|
| (103,490) |
|
| (17,174) |
|
| (115,799) | (177,483 | ) | (26,002 | ) | (28,601 | ) | (111,124 | ) | (103,490 | ) | |||||||||
Financing activities |
|
| (58,436) |
|
| 53,658 |
|
| 39,173 |
|
| (14,789) |
|
| 115,235 | 130,216 | (56,115 | ) | (58,436 | ) | 53,658 | 39,173 | ||||||||||||
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Adjusted EBITDA(1) |
| $ | 102,381 |
| $ | 79,291 |
| $ | 71,710 |
| $ | 22,182 |
| $ | 12,101 | |||||||||||||||||||
Adjusted gross margin per metric ton(1) |
| $ | 45.38 |
| $ | 45.55 |
| $ | 38.89 |
| $ | 25.91 |
| $ | 29.18 | |||||||||||||||||||
Maintenance capital expenditures(2) |
|
| 4,353 |
|
| 5,187 |
|
| 4,359 |
|
| 515 |
|
| — | |||||||||||||||||||
Distributable cash flow(1) |
|
| 67,731 |
|
| 59,775 |
|
| 57,245 |
|
| 14,964 |
|
| 7,650 | |||||||||||||||||||
Adjusted net income(1) | $ | 33,388 | $ | 22,221 | $ | 14,373 | $ | 17,901 | $ | 22,262 | ||||||||||||||||||||||||
Adjusted gross margin per metric ton(1) | 42.54 | 38.81 | 45.38 | 45.55 | 38.89 | |||||||||||||||||||||||||||||
Adjusted EBITDA(1) | 141,275 | 102,631 | 102,381 | 79,291 | 71,710 | |||||||||||||||||||||||||||||
Maintenance capital expenditures(2) | 6,922 | 4,872 | 4,353 | 5,187 | 4,359 | |||||||||||||||||||||||||||||
Distributable cash flow(1) | 98,460 | 63,789 | 67,731 | 59,775 | 57,245 | |||||||||||||||||||||||||||||
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total metric tons sold |
|
| 2,724 |
|
| 2,346 |
|
| 2,374 |
|
| 1,508 |
|
| 931 | 3,564 | 2,983 | 2,724 | 2,346 | 2,374 | ||||||||||||||
Balance Sheet Data (at period end): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Cash and cash equivalents |
| $ | 524 |
| $ | 466 |
| $ | 2,128 |
| $ | 592 |
| $ | 3,558 | $ | 9,053 | $ | 2,460 | $ | 524 | $ | 466 | $ | 2,128 | |||||||||
Total assets |
|
| 760,111 |
|
| 801,376 |
|
| 688,209 |
|
| 388,395 |
|
| 395,018 | 994,818 | 748,770 | 760,111 | 801,376 | 688,209 | ||||||||||||||
Long-term debt and capital lease obligations (including current portion) |
|
| 401,017 |
|
| 351,080 |
|
| 207,632 |
|
| 90,481 |
|
| 95,539 | |||||||||||||||||||
| Long-term debt and finance lease obligations (including current portion) | 603,020 | 432,655 | 401,017 | 351,080 | 207,632 | |||||||||||||||||||||||||||||
Total liabilities |
|
| 549,742 |
|
| 424,514 |
|
| 266,539 |
|
| 110,781 |
|
| 123,607 | 762,242 | 602,054 | 549,742 | 424,514 | 266,539 | ||||||||||||||
Partners’ capital |
|
| 210,369 |
|
| 376,862 |
|
| 421,670 |
|
| 277,614 |
|
| 271,411 | 232,576 | 146,716 | 210,369 | 376,862 | 421,670 | ||||||||||||||
| (1) | For more information, please read |
| (2) | Maintenance capital expenditures are cash expenditures |
Non‑GAAP
49
Adjusted EBITDA
We view adjusted EBITDA as an important indicator of our financial performance.
50
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, | ||||||||||||||||||||||
|
|
|
| 2016 |
| 2015 |
| 2014 |
| 2013 | ||||||||||||||
|
| 2017 |
| (Recast) |
| (Recast) |
| (Recast) |
| (Recast) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| (Predecessor) |
| (Predecessor) | ||||||||||||
|
| (in thousands, except per metric ton) |
|
|
| |||||||||||||||||||
Reconciliation of gross margin to adjusted gross margin per metric ton: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Metric tons sold |
|
| 2,724 |
|
| 2,346 |
|
| 2,374 |
|
| 1,508 |
|
| 931 | |||||||||
Gross margin |
| $ | 78,802 |
| $ | 76,772 |
| $ | 59,540 |
| $ | 19,767 |
| $ | 15,117 | |||||||||
Loss on disposal of assets |
|
| 4,899 |
|
| 2,386 |
|
| 2,081 |
|
| 340 |
|
| 223 | |||||||||
Depreciation and amortization |
|
| 39,904 |
|
| 27,700 |
|
| 30,692 |
|
| 18,971 |
|
| 11,827 | |||||||||
Adjusted gross margin |
| $ | 123,605 |
| $ | 106,858 |
| $ | 92,313 |
| $ | 39,078 |
| $ | 27,167 | |||||||||
Adjusted gross margin per metric ton |
| $ | 45.38 |
| $ | 45.55 |
| $ | 38.89 |
| $ | 25.91 |
| $ | 29.18 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Year Ended December 31, | ||||||||||||||||||||||
|
|
|
| 2016 |
| 2015 |
| 2014 |
| 2013 | ||||||||||||||
|
| 2017 |
| (Recast) |
| (Recast) |
| (Recast) |
| (Recast) | ||||||||||||||
|
|
|
|
|
|
|
|
| (Predecessor) |
| (Predecessor) | |||||||||||||
|
|
|
|
| (in thousands) |
|
|
| ||||||||||||||||
Reconciliation of adjusted EBITDA and distributable cash flow to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income (loss) |
| $ | 14,373 |
| $ | 13,463 |
|
| 17,563 |
| $ | (5,981) |
| $ | (5,497) | |||||||||
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Depreciation and amortization |
|
| 40,361 |
|
| 27,735 |
|
| 30,738 |
|
| 19,009 |
|
| 11,887 | |||||||||
Interest expense |
|
| 31,744 |
|
| 16,221 |
|
| 11,712 |
|
| 8,724 |
|
| 5,460 | |||||||||
Early retirement of debt obligation |
|
| — |
|
| 4,438 |
|
| 4,699 |
|
| 73 |
|
| — | |||||||||
Purchase accounting adjustment to inventory |
|
| — |
|
| — |
|
| 697 |
|
| — |
|
| — | |||||||||
Non-cash unit compensation expense |
|
| 5,014 |
|
| 4,230 |
|
| 704 |
|
| 2 |
|
| 5 | |||||||||
Income tax expense |
|
| — |
|
| — |
|
| 2,623 |
|
| 15 |
|
| 23 | |||||||||
Asset impairments and disposals |
|
| 5,726 |
|
| 12,377 | (1) |
| 2,081 |
|
| 340 |
|
| 223 | |||||||||
Changes in the fair value of derivative instruments |
|
| 1,565 |
|
| — |
|
| — |
|
| — |
|
| — | |||||||||
Transaction expenses |
|
| 3,598 |
|
| 827 |
|
| 893 |
|
| — |
|
| — | |||||||||
Adjusted EBITDA |
| $ | 102,381 |
| $ | 79,291 |
| $ | 71,710 |
| $ | 22,182 |
| $ | 12,101 | |||||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest expense, net of amortization of debt issuance costs, debt premium and original issue discount |
|
| 30,297 |
|
| 14,329 |
|
| 10,106 |
|
| 6,703 |
|
| 4,451 | |||||||||
Maintenance capital expenditures |
|
| 4,353 |
|
| 5,187 |
|
| 4,359 |
|
| 515 |
|
| — | |||||||||
Distributable cash flow attributable to Enviva Partners, LP |
| $ | 67,731 |
| $ | 59,775 |
| $ | 57,245 |
| $ | 14,964 |
| $ | 7,650 | |||||||||
Less: Distributable cash flow attributable to incentive distribution rights |
|
| 3,398 |
|
| 1,077 |
|
| — |
|
| — |
|
| — | |||||||||
Distributable cash flow attributable to Enviva Partners, LP limited partners |
| $ | 64,333 |
| $ | 58,698 |
| $ | 57,245 |
| $ | 14,964 |
| $ | 7,650 | |||||||||
| Year Ended December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Reconciliation of net (loss) income to adjusted net income: | |||||||||||||||||||
| Net (loss) income | $ | (2,943 | ) | $ | 6,952 | $ | 14,373 | $ | 13,463 | $ | 17,563 | ||||||||
| Chesapeake Incident and Hurricane Events | (1,155 | ) | 12,951 | — | — | — | |||||||||||||
| MSA Fee Waivers | 22,600 | — | — | — | — | ||||||||||||||
| Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events | 1,705 | 1,567 | — | — | — | ||||||||||||||
| Early retirement of debt obligation | 9,042 | 751 | — | 4,438 | 4,699 | ||||||||||||||
| Commercial Services | 4,139 | — | — | — | — | ||||||||||||||
| Adjusted net income | $ | 33,388 | $ | 22,221 | $ | 14,373 | $ | 17,901 | $ | 22,262 | |||||||||
| Year Ended December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| (in thousands, except per metric ton) | |||||||||||||||||||
| Reconciliation of gross margin to adjusted gross margin per metric ton: | |||||||||||||||||||
| Gross margin | $ | 81,068 | $ | 69,441 | $ | 78,802 | $ | 76,772 | $ | 59,540 | |||||||||
| Loss on disposal of assets | 3,103 | 2,386 | 4,899 | 2,386 | 2,081 | ||||||||||||||
| Depreciation and amortization | 50,521 | 40,179 | 39,904 | 27,700 | 30,692 | ||||||||||||||
| Chesapeake Incident and Hurricane Events | (1,085 | ) | 7,799 | — | — | — | |||||||||||||
| Changes in unrealized derivative instruments | 4,588 | (4,032 | ) | — | — | — | |||||||||||||
| MSA Fee Waivers | 5,000 | — | — | — | — | ||||||||||||||
| Acquisition costs | 4,296 | — | — | — | — | ||||||||||||||
| Commercial Services | 4,139 | — | — | — | — | ||||||||||||||
| Adjusted gross margin | $ | 151,630 | $ | 115,773 | $ | 123,605 | $ | 106,858 | $ | 92,313 | |||||||||
| Metric tons sold | 3,564 | 2,983 | 2,724 | 2,346 | 2,374 | ||||||||||||||
| Adjusted gross margin per metric ton | $ | 42.54 | $ | 38.81 | $ | 45.38 | $ | 45.55 | $ | 38.89 | |||||||||
| Year Ended December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Reconciliation of net (loss) income to adjusted EBITDA and distributable cash flow: | |||||||||||||||||||
| Net (loss) income | $ | (2,943 | ) | $ | 6,952 | $ | 14,373 | $ | 13,463 | $ | 17,563 | ||||||||
| Add: | |||||||||||||||||||
| Depreciation and amortization | 51,581 | 40,745 | 40,361 | 27,735 | 30,738 | ||||||||||||||
| Interest expense | 39,344 | 36,471 | 31,744 | 16,221 | 11,712 | ||||||||||||||
| Income tax expense | — | — | — | — | 2,623 | ||||||||||||||
| Early retirement of debt obligation | 9,042 | 751 | — | 4,438 | 4,699 | ||||||||||||||
| Non-cash unit compensation expense | 5,410 | 6,229 | 5,014 | 4,230 | 704 | ||||||||||||||
Asset impairments and disposals(1) | 3,103 | 2,386 | 5,726 | 12,377 | 2,081 | ||||||||||||||
Chesapeake Incident and Hurricane Events(2) | (1,155 | ) | 12,951 | — | — | — | |||||||||||||
| Changes in the fair value of derivative instruments | 4,588 | (4,032 | ) | 1,565 | — | — | |||||||||||||
MSA Fee Waivers(3) | 22,600 | — | — | — | — | ||||||||||||||
| Purchase accounting adjustment to inventory | — | — | — | — | 697 | ||||||||||||||
| Acquisition costs | 5,566 | 178 | 3,598 | 827 | 893 | ||||||||||||||
| Commercial Services | 4,139 | — | — | — | — | ||||||||||||||
| Adjusted EBITDA | $ | 141,275 | $ | 102,631 | $ | 102,381 | $ | 79,291 | $ | 71,710 | |||||||||
| Less: | |||||||||||||||||||
| Interest expense, net of amortization of debt issuance costs, debt premium, original issue discount, interest expense on the redemption of the 2021 Notes, and impact from incremental borrowings related to Chesapeake Incident and Hurricane Events | 35,893 | 33,970 | 30,297 | 14,329 | 10,106 | ||||||||||||||
| Maintenance capital expenditures | 6,922 | 4,872 | 4,353 | 5,187 | 4,359 | ||||||||||||||
| Distributable cash flow attributable to Enviva Partners, LP | 98,460 | 63,789 | 67,731 | 59,775 | 57,245 | ||||||||||||||
| Less: Distributable cash flow attributable to incentive distribution rights | 11,425 | 5,867 | 3,398 | 1,077 | — | ||||||||||||||
| Distributable cash flow attributable to Enviva Partners, LP limited partners | $ | 87,035 | $ | 57,922 | $ | 64,333 | $ | 58,698 | $ | 57,245 | |||||||||
| (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, |
| (2) | Insurance recoveries related to the Chesapeake Incident and Hurricane Events for expenses recorded in 2018. |
| (3) | Expenses waived under agreements with Enviva Management. For more information on MSA Fee Waivers, see Note 15, Related-Party Transactions. |
51
45
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
References in this Annual Report to the “Predecessor,” “our Predecessor,” “we,” “our,” “us” or like terms for periods prior to April 9, 2015 refer to Enviva, LP and its subsidiaries (other than Enviva Pellets Cottondale, LLC). References to the “Partnership,” “we,” “our,” “us” or like terms for periods on and after April 9, 2015similar expressions refer to Enviva Partners, LP, andincluding its subsidiaries. References to “our 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 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.Management and its affiliates who provide services to the Partnership. References to the “First Hancock JV” and the “Second Hancock“Sponsor JV” refer to Enviva Wilmington Holdings, LLC and Enviva JV Development Company, LLC, respectively, which areis a joint venturesventure between our sponsor Hancock Natural Resource Group, Inc. and certain other affiliates of 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.
The following discussion of our historical performance and financial condition is derived
On December 11, 2015, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Southampton together with an off‑take contract and a related third-party shipping contract for total consideration of $131.0 million pursuant to the terms of a contribution agreement between the Partnership and the First Hancock JV (the “Southampton 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.
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”).
The consolidated financial statements for periods prior to our initial public offering (“the IPO”) include the results of our Predecessor and its subsidiaries and include all revenues, costs, assets and liabilities attributed to our Predecessor after the elimination of all intercompany accounts and transactions. The consolidated financial statements for the period after the IPO pertain to our operations. Our consolidated 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 had occurred at the beginning of the periods presented, the contribution of Enviva Cottondale Acquisition II, LLC (“Acquisition II”) as if the contribution had occurred on January 5, 2015, which is the date on which our sponsor
52
acquired Green Circle Bio Energy, Inc. (“Green Circle”), which owned the Cottondale plant, the Southampton Drop‑Down as if it occurred on April 9, 2015, the date Southampton was originally conveyed to the First Hancock JV and the Sampson Drop‑Down and the Wilmington Drop-Down as if they had occurred on May 15, 2013, the date Sampson and Wilmington were originally organized. Entities contributed by or distributed to our sponsor or the First Hancock JV are considered entities under common control and are recorded at historical cost.
Business Overview
We are the world’s largest suppliermanaging member of the Hamlet JV, which is partially owned by production capacityJohn Hancock Life Insurance Company (U.S.A.) and certain of utility‑gradeits affiliates (collectively, where applicable, “John Hancock”). We accounted for the Hamlet JV as a consolidated subsidiary, not as a joint venture, following the Hamlet Drop-Down. For more information regarding our rights and obligations with respect to the Hamlet JV, see Note 17, Partners’ Capital-Hamlet JV.
harvest.
long-term, take-or-pay off-take contracts. Our off‑takelong-term, take-or-pay off-take contracts provide for a product sales backlog of 2.9 million metric tons (“MT”) of wood pellets in 2018$10.6 billion and have a total weighted-average remaining term of 9.511.4 years from February 15, 2018. We intend to continue expanding1, 2020. Under our businesscurrent product sales backlog, our plants are fully contracted through 2025. Assuming all volumes under the firm and contingent long-term off-take contracts held by taking advantage ofour sponsor and the growing demand forSponsor JV were included with our product that is driven bysales backlog for firm and contingent contracted product sales, our product sales backlog would increase to $19.6 billion and the conversiontotal weighted-average remaining term from February 1, 2020 would increase to 13.8 years.
Recent Developments
Wilmington Drop‑Down
On October 2, 2017, pursuantform. Due to the termsuninterruptible nature of our customers’ fuel consumption, our customers require a contribution agreement between the Partnership and the First Hancock JV (the “Wilmington Contribution Agreement”), the First Hancock JV sold to the Partnership all of the issued and outstanding limited liability company interests in Wilmington, which owns the Wilmington terminal.
The purchase price for Wilmington was $130.0 million, which included an initial payment of $54.6 million, net of an approximate purchase price adjustment of $1.4 million. The initial payment was funded with borrowings from revolving credit commitments and cash on hand. We accounted for the Wilmington 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 the acquisition were retrospectively recast to reflect the acquisition as if it had occurred on May 15, 2013, the date Wilmington was originally organized.
The Wilmington terminal, which is capable of receiving product by rail and truck, has the capacity to store up to 90,000 MTreliable supply of wood pellets that meet stringent product specifications. We have built our operations and load upassets to Panamax-sized vessels. It utilizes state-of-the-art handling equipmentdeliver and storage infrastructure designed to maintaincertify the highest levels of product quality and safetyour 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
Wilmington will handle up to approximately 600,000 MTPY of throughput from the Sampson plant and is party to a long-term terminal services agreement with Enviva Pellets Greenwood, LLC, aits wholly owned subsidiary Enviva Partners Finance Corp., issued $550.0 million and $50.0 million, respectively, in principal amount of 6.5% senior unsecured notes due January 15, 2026 (the “2026 Notes”) in private placements under Rule 144A and Regulation S of the Second Hancock JV (“Greenwood”). Wilmington will handle throughput volumes sourced from Greenwood’s wood pellet production plant located in Greenwood, South CarolinaSecurities Act of 1933, as amended (the “Greenwood plant”“Securities Act”). The terminal services agreement with Greenwood provides, for deficiency payments to Wilmington if minimum throughput requirements are not met.
53
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$600.0 million. We received gross proceeds of approximately $601.8 million from the First Hancock JV’s proposed production plant in Hamlet, North Carolina (the “Hamlet plant”) whenofferings and net proceeds of approximately $595.8 million after deducting commissions and expenses. We used 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 terminalnet proceeds from the Hamlet plant, Wilmington, Hamlet, and the First Hancock JV would enter into the Wilmington Hamlet TSA and the Partnership would make a final payment of $74.0offerings (1) to redeem our existing $355.0 million in cash or common units representing limited partnership interests in the Partnership (“common units”) 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 the 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 the sponsor’s potential wood pellet production plants.
Senior Notes Due 2021
On November 1, 2016, we issued $300.0 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior“2021 Notes”) to eligible purchasers in a private placement transaction. In August 2017, holders of 100%, including payment of the Senior Notes tendered such notesrelated redemption premium, (2) to repay borrowings under our senior secured revolving credit facility, including payment of the related accrued interest and (3) for general partnership purposes. Interest payments are due semi-annually in arrears on January 15 and July 15 of each year, commencing July 15, 2020.
On October 10, 2017, we completed the issuance and redemption of equity interests in the Hamlet JV, guarantees of indebtedness and fundamental changes, including mergers and acquisitions, asset sales and liquidation and dissolution of the Hamlet JV, require the approval of the members of the Hamlet JV.
the delivery of wood fiber to our plants in the Mid-Atlantic region were temporarily closed.
Sale of the Wiggins Plant
In December 2016, we initiated a plan to sell our 110,000 MTPY production plant located in Wiggins, Mississippi and related assets (the “Wiggins plant”). We sold the Wiggins plant to a third-party buyer for a purchase price of $0.4 million on December 27, 2017, and on December 28, 2017, Enviva Pellets Wiggins, LLC (“Wiggins”), the owner of the Wiggins plant, was dissolved. We recorded a loss onperformance obligation. Our revenue from the sale of $0.8 million, net,wood pellets we produce is recognized upon deconsolidation.
At‑the‑Market Offering Program
On August 8, 2016, we filed a prospectus supplementsatisfaction of the performance obligation when control transfers to our shelf registration filed with the U.S. Securities Exchange Act Commission (“SEC”) on June 24, 2016, for the continuous offering of up to $100.0 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factorscustomer at the time of loading wood pellets onto a ship.
| Period from February 1, 2020 to December 31, 2020 | $ | 782 | |
| Year ending December 31, 2021 | 1,043 | ||
| Year ending December 31, 2022 and thereafter | 8,751 | ||
| Total product sales contracted backlog | $ | 10,576 | |
| Period from February 1, 2020 to December 31, 2020 | $ | 782 | |
| Year ending December 31, 2021 | 1,086 | ||
| Year ending December 31, 2022 and thereafter | 17,699 | ||
| Total product sales contracted backlog | $ | 19,567 | |
During the years ended December 31, 2017 and 2016, we sold 71,368 and 358,593, respectively, under the Equity Distribution Agreement for net proceeds of $1.9 million, net of an insignificant amount of commissions, during 2017, and net proceeds of $9.3 million, net of $0.1 million of commissions, during 2016. Accounting and other fees of approximately $0.2 million were offset against the proceeds during 2017. Deferred issuance costs of approximately $0.4 million, primarily consisting of legal, accounting and other fees, were offset against the proceeds during 2016. Net proceeds from sales under the ATM Program were used for general partnership purposes. As of February 16, 2018, $88.6 million of common units remained available for issuance under the ATM Program.
How We Evaluate Our Operations
We view adjusted EBITDA as an important indicator of our financial performance.
Non‑GAAP
Factors Impacting Comparability of Our Financial Results
Our future results of operations and cash flows may not be comparable to our historical consolidated results of operations and cash flows, principally for the following reasons:
Our sponsor contributed its interest in Wilmington to us on October 2, 2017.Our consolidated financial statements have been retroactively 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. The recast amounts for the years ended December 31, 2017, 2016 and 2015 primarily include general and administrative expenses associated with terminal development costs incurred during the construction of the Wilmington terminal. We do not expect to incur these costs going forward as the terminal began operations during the fourth quarter of 2016. The amount paid in excess of historical cost is recorded as a deemed dividend to the General Partner.
We increased our production capacity with the Sampson Drop-Down and began deliveries under a new long‑term off‑take contract in December 2016. In connection with the Sampson Drop‑Down, the First Hancock JV assigned to us a ten‑year, take‑or‑pay off‑take contract with Ørsted (the “Ørsted Contract”). The Ørsted Contract commenced on September 1, 2016 and provides for sales of 360,000 MTPY for the first delivery year and 420,000 MTPY for years two through ten. In the fourth quarter of 2017, we entered into an amendment to the Ørsted Contract for the supply of an incremental 200,000 MT from late 2018 through mid-2021. Ørsted’s obligations under the Ørsted Contract are guaranteed by its parent, Ørsted A/S.The Ørsted Contract, accompanied by our increased production capacity from the Sampson plant, will have a material effect on our product sales and resulting gross margin.
We issued $300.0 million in aggregate principal amount of senior unsecured notes in a private placement to eligible purchasers.On November 1, 2016, we and Enviva Partners Finance Corp., a wholly owned subsidiary of the Partnership formed on October 3, 2016 for the purpose of being the co‑issuer of the notes, issued $300.0 million in aggregate principal amount of Senior Notes to eligible purchasers in a private placement under Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “Securities Act”), which resulted in net proceeds of $293.6 million after deducting estimated expenses and underwriting discounts of $6.4 million. On December 14, 2016, a portion of the net proceeds from the Senior Notes Offering, together with cash on hand and 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 Life Insurance Company (U.S.A.), funded the consideration payable for the Sampson Drop‑Down. The remainder of the net proceeds from the Senior Notes Offering was used to repay certain outstanding term loan indebtedness under our Senior Secured Credit Facilities. As a result, our consolidated financial statements reflect the outstanding debt and interest expense associated with the Senior Notes.
We issued $55.0 million in aggregate principal amount of senior unsecured notes in a private placement to eligible purchasers. On October 10, 2017, we completed the issuance to an institutional investor in a private placement transaction of an additional $55.0 million in aggregate principal amount of Senior Notes. The additional Senior Notes have the same terms as our outstanding Senior Notes. The additional Senior Notes will be treated together with the Senior Notes as a single class for all purposes under the Indenture.
The sale of the additional Senior Notes at a purchase price of $58.4 million resulted in gross proceeds of approximately $60.0 million, after including accrued interest of $2.1 million and deducting estimated expenses of approximately $0.5 million. The proceeds were used to repay borrowings on our revolving credit facility, which were used to fund the Wilmington Drop-Down, and for general partnership purposes.
In December 2017, the holder of 100% of the additional Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the additional Senior Notes (except that the registered notes are not subject to restrictions on transfer).
We repaid a portion of the Original Credit Facilities and increased the capacity of our revolving credit facility. On April 9, 2015, we entered into a credit agreement (the “Credit Agreement”) providing for a $199.5 million aggregate principal amount of senior secured credit facilities (the “Original Credit Facilities”). We entered into an
56
assumption agreement on December 11, 2015, providing for $36.5 million of incremental term loan borrowings (the “Incremental Term Borrowings” and, together with the Original Credit Facilities, the “Senior Secured Credit Facilities”) under the Credit Agreement. In October 2016, we entered into a second amendment to the Credit Agreement (the “Second Amendment”), which became effective upon the closing of the Sampson Drop‑Down. Upon the consummation of the Sampson Drop‑Down, a portion of the net proceeds from the Senior Notes Offering, together with cash on hand, was used to repay in full the outstanding principal and accrued interest on the Tranche A‑2 and Tranche A‑4 borrowings and to repay a portion of the outstanding principal and accrued interest on the Tranche A‑1 and Tranche A‑3 borrowings under the Senior Secured Credit Facilities. Following the consummation of the Sampson Drop‑Down and repayment of a portion of the Senior Secured Credit Facilities, the limit under our revolving credit commitments was increased from $25.0 million to $100.0 million pursuant to the Second Amendment.
Revenue and costs for deliveries to customers can vary significantly between periods depending upon the mix of customers and specific shipment and reimbursement for expenses, including the then‑current cost of fuel.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 costs under CIF and CFR contracts are included in the price to the customer and, as such, are included in revenue and cost of goods sold. Under FOB contracts, the customer is directly responsible for shipping costs. We have entered into fixed-price shipping contracts with reputable shippers matching the terms and volumes of our contracts for which we are responsible for arranging shipping.
How We Generate Revenue
Overview
We primarily earn revenue by supplying wood pellets to our customers under off‑take contracts, the majority of the commitments under which are long term in nature. We refer to the structure of our 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 case a customer fails to accept all or a part of the contracted volumes or terminates the contract. Each contract defines the annual volume of wood pellets that a customer is required to purchase and we are required to sell, the fixed price per MT for product satisfying a base net calorific value and other technical specifications. These prices are fixed for the entire term, subject to annual inflation‑based adjustments and price escalators, as well as, in some instances, price adjustments for product specifications and changes in underlying costs. In addition to sales of our product under these long‑term, take‑or‑pay 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 contracts is a bilaterally negotiated agreement, our revenue over the duration of these contracts does not generally follow spot market pricing trends. Our revenue from the sale of wood pellets is recognized when the goods are shipped, title and risk of loss passes to the customer, the sales price to the customer is fixed and determinable, and collectability is reasonably assured.
Depending on the specific off‑take contract, shipping terms are either CIF, CFR or 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 are included in the price to the customer and, as such, are included in revenue and cost of goods sold. Under FOB contracts, the customer is directly responsible for shipping costs. Our customer shipping terms, as well as the timing and size of shipments during the year, can result in material fluctuations in our revenue recognized between periods but generally have little impact on gross margin.
The majority of the wood pellets we supply to our customers is produced at our production plants, the sales of which are included in “Product Sales.” We also fulfill our contractual commitments and take advantage of dislocations in market supply and demand by purchasing from and selling to third‑party market participants, including, in some
57
cases, our customers. In these back‑to‑back transactions where title and risk of loss are immediately transferred to the ultimate purchaser, revenue is recorded net of costs paid to the third‑party supplier. This revenue is included in “Other revenue.”
In some instances, a customer may request to cancel, defer, or accelerate a shipment. Contractually, we will 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.”
Contracted Backlog
As of February 15, 2018, we had approximately $5.8 billion of product sales backlog for firm contracted product sales to power generators compared to approximately $5.7 billion as of February 1, 2017. 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, 2018 forward rates. 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 15, 2018 is as follows (in millions):
|
|
|
|
Period from February 15, 2018 to December 31, 2018 |
| $ | 523 |
Year ending December 31, 2019 |
|
| 582 |
Year ending December 31, 2020 and thereafter |
|
| 4,691 |
Total product sales contracted backlog |
| $ | 5,796 |
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. The principal 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 Southeastern United States, a region with plentiful wood fiber resources. We manage the supply of raw materials into our plants through a mixture of short‑term and long‑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 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 sponsor and 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 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
58
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.
Additionally, as deliveries are made, we amortize the purchase price of acquired customer contracts that were recorded as intangible assets during the applicable contract term.
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 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.
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 accumulated in the financial accounting system 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.
59
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Year Ended |
|
| |||||
|
| December 31, |
|
| |||||
|
| 2017 |
| 2016 (Recast) |
| 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) |
Disposal and impairment of assets held for sale |
|
| 827 |
|
| 9,991 |
|
| (9,164) |
Total general and administrative |
|
| 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 |
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | Change | Chesapeake Incident and Hurricane Events | Net Change | ||||||||||||||||
| 2019 | 2018 | ||||||||||||||||||
| (in thousands) | |||||||||||||||||||
| Product sales | $ | 674,251 | $ | 564,010 | $ | 110,241 | $ | 300 | $ | 109,941 | |||||||||
Other revenue (1) | 10,142 | 9,731 | 411 | — | 411 | ||||||||||||||
| Net revenue | 684,393 | 573,741 | 110,652 | 300 | 110,352 | ||||||||||||||
Cost of goods sold(1) | 549,701 | 461,735 | 87,966 | (8,584 | ) | 96,550 | |||||||||||||
| Loss on disposal of assets | 3,103 | 2,386 | 717 | — | 717 | ||||||||||||||
| Depreciation and amortization | 50,521 | 40,179 | 10,342 | — | 10,342 | ||||||||||||||
| Total cost of goods sold | 603,325 | 504,300 | 99,025 | (8,584 | ) | 107,609 | |||||||||||||
| Gross margin | 81,068 | 69,441 | 11,627 | 8,884 | 2,743 | ||||||||||||||
| General and administrative expenses | 11,897 | 10,545 | 1,352 | (5,222 | ) | 6,574 | |||||||||||||
| Related-party management services agreement fee | 24,492 | 17,096 | 7,396 | — | — | ||||||||||||||
| Total general and administrative expenses | 36,389 | 27,641 | 8,748 | (5,222 | ) | 13,970 | |||||||||||||
| Income from operations | 44,679 | 41,800 | 2,879 | 14,106 | (11,227 | ) | |||||||||||||
| Interest expense | (39,344 | ) | (36,471 | ) | (2,873 | ) | (138 | ) | (2,735 | ) | |||||||||
| Early retirement of debt obligation | (9,042 | ) | (751 | ) | (8,291 | ) | — | (8,291 | ) | ||||||||||
| Other income (expense) | 764 | 2,374 | (1,610 | ) | — | (1,610 | ) | ||||||||||||
| Net (loss) income | $ | (2,943 | ) | $ | 6,952 | $ | (9,895 | ) | $ | 13,968 | $ | (23,863 | ) | ||||||
(1) See Part II, Item 8. “Financial Statements and Supplementary Data—Note 15, Related-Party Transactions” | |||||||||||||||||||
Other revenue
Other revenuethe year ended December 31, 2018.
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | Change | |||||||||
| (in thousands, except per metric ton) | |||||||||||
| Reconciliation of gross margin to adjusted gross margin per metric ton: | |||||||||||
| Gross margin | $ | 81,068 | $ | 69,441 | $ | 11,627 | |||||
| Loss on disposal of assets | 3,103 | 2,386 | 717 | ||||||||
| Depreciation and amortization | 50,521 | 40,179 | 10,342 | ||||||||
| Chesapeake Incident and Hurricane Events | (1,085 | ) | 7,799 | (8,884 | ) | ||||||
| Changes in the fair value of derivative instruments | 4,588 | (4,032 | ) | 8,620 | |||||||
| MSA Fee Waivers | 5,000 | — | 5,000 | ||||||||
| Acquisition costs | 4,296 | — | 4,296 | ||||||||
| Commercial Services | 4,139 | — | 4,139 | ||||||||
| Adjusted gross margin | $ | 151,630 | $ | 115,773 | $ | 35,857 | |||||
| Metric tons sold | 3,564 | 2,983 | 581 | ||||||||
| Adjusted gross margin per metric ton | $ | 42.54 | $ | 38.81 | $ | 3.73 | |||||
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | Change | |||||||||
| (in thousands) | |||||||||||
| Reconciliation of net (loss) income to adjusted net income: | |||||||||||
| Net (loss) income | $ | (2,943 | ) | $ | 6,952 | $ | (9,895 | ) | |||
| Chesapeake Incident and Hurricane Events | (1,155 | ) | 12,951 | (14,106 | ) | ||||||
| MSA Fee Waivers | 22,600 | — | 22,600 | ||||||||
| Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events | 1,705 | 1,567 | 138 | ||||||||
| Early retirement of debt obligation | 9,042 | 751 | 8,291 | ||||||||
| Commercial Services | 4,139 | — | 4,139 | ||||||||
| Adjusted net income | $ | 33,388 | $ | 22,221 | $ | 11,167 | |||||
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | Change | |||||||||
| (in thousands) | |||||||||||
| Reconciliation of net (loss) income to adjusted EBITDA: | |||||||||||
| Net (loss) income | $ | (2,943 | ) | $ | 6,952 | $ | (9,895 | ) | |||
| Add: | |||||||||||
| Depreciation and amortization | 51,581 | 40,745 | 10,836 | ||||||||
| Interest expense | 39,344 | 36,471 | 2,873 | ||||||||
| Early retirement of debt obligation | 9,042 | 751 | 8,291 | ||||||||
| Non-cash unit compensation expense | 5,410 | 6,229 | (819 | ) | |||||||
| Asset impairments and disposals | 3,103 | 2,386 | 717 | ||||||||
| Chesapeake Incident and Hurricane Events | (1,155 | ) | 12,951 | (14,106 | ) | ||||||
| Changes in the fair value of derivative instruments | 4,588 | (4,032 | ) | 8,620 | |||||||
| MSA Fee Waivers | 22,600 | — | 22,600 | ||||||||
| Acquisition costs | 5,566 | 178 | 5,388 | ||||||||
| Commercial Services | 4,139 | — | 4,139 | ||||||||
| Adjusted EBITDA | $ | 141,275 | $ | 102,631 | $ | 38,644 | |||||
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | Change | |||||||||
| (in thousands) | |||||||||||
| Adjusted EBITDA | $ | 141,275 | $ | 102,631 | $ | 38,644 | |||||
| Less: | |||||||||||
| Interest expense, net of amortization of debt issuance costs, debt premium, original issue discount, interest expense on the redemption of the 2021 Notes, and impact from incremental borrowings related to Chesapeake Incident and Hurricane Events | 35,893 | 33,970 | 1,923 | ||||||||
| Maintenance capital expenditures | 6,922 | 4,872 | 2,050 | ||||||||
| Distributable cash flow attributable to Enviva Partners, LP | 98,460 | 63,789 | 34,671 | ||||||||
| Less: Distributable cash flow attributable to incentive distribution rights | 11,439 | 5,867 | 5,572 | ||||||||
| Distributable cash flow attributable to Enviva Partners, LP limited partners | $ | 87,021 | $ | 57,922 | $ | 29,099 | |||||
| Year Ended December 31, | Change | Chesapeake Incident and Hurricane Events | Net Change | ||||||||||||||||
| 2018 | 2017 | ||||||||||||||||||
| (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 (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 | 10,545 | 14,975 | (4,430 | ) | 5,161 | (9,591 | ) | ||||||||||||
| Related-party management services agreement fee | 17,096 | 15,132 | 1,964 | — | 1,964 | ||||||||||||||
| 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 15, Related-Party Transactions” | |||||||||||||||||||
and cost of goods sold because we acted as principal in the transactions.
60
Loss on disposal of assets
We incurred $4.9 million and $2.4 million of expense associated with the disposal of assets during the yearsyear ended December 31, 2017 and 2016, respectively, which2018 as 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 disposalfollowing:
Gross margin
We earnedunrealized derivative instruments (see Note 10,
|
|
|
|
|
|
Offsetting the above was:
|
|
|
|
|
|
Adjusted gross margin per metric ton
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
| |||||
|
| 2017 |
| 2016 (Recast) |
| 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) |
| Year Ended December 31, | |||||||||||
| 2018 | 2017 | Change | |||||||||
| (in thousands, except per metric ton) | |||||||||||
| Reconciliation of gross margin to adjusted gross margin per metric ton: | |||||||||||
| 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 the fair value of derivative instruments | (4,032 | ) | — | (4,032 | ) | ||||||
| Adjusted gross margin | $ | 115,773 | $ | 123,605 | $ | (7,832 | ) | ||||
| Metric tons sold | 2,983 | 2,724 | 259 | ||||||||
| Adjusted gross margin per metric ton | $ | 38.81 | $ | 45.38 | $ | (6.57 | ) | ||||
61
General and administrative expenses
our ongoing operations.
Related-party We also incurred $1.6 million in interest expense
On December 11, 2015, on revolving borrowings under our Senior Secured Credit Facilities, we obtained incremental borrowings insenior secured revolving credit facility to fund timing differences between expenses incurred and associated insurance recoveries related to 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.
Chesapeake Incident.
Other (expense) income
year ended December 31, 2018 primarily consists of $1.8 million of insurance proceeds received for lost margin on product sales related to the Chesapeake Incident.
62
| Year Ended December 31, | |||||||||||
| 2018 | 2017 | Change | |||||||||
| (in thousands) | |||||||||||
| Reconciliation of net income to adjusted net income: | |||||||||||
| 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 and Hurricane Events | 1,567 | — | 1,567 | ||||||||
| Early retirement of debt obligation | 751 | — | 751 | ||||||||
| Adjusted net income | $ | 22,221 | $ | 14,373 | $ | 7,848 | |||||
59
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
| |||||
|
| 2017 |
| 2016 (Recast) |
| 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 |
| Year Ended December 31, | |||||||||||
| 2018 | 2017 | Change | |||||||||
| (in thousands) | |||||||||||
| Reconciliation of net income to adjusted EBITDA: | |||||||||||
| 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 | ||||||||
| Acquisition costs | 178 | 3,598 | (3,420 | ) | |||||||
| Adjusted EBITDA | $ | 102,631 | $ | 102,381 | $ | 250 | |||||
administrative expenses.”
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
| |||||
|
| 2017 |
| 2016 (Recast) |
| Change | |||
|
| (in thousands) | |||||||
Adjusted EBITDA |
| $ | 102,381 |
| $ | 79,291 |
| $ | 23,090 |
Less: |
|
|
|
|
|
|
|
|
|
Interest expense, net of amortization of debt issuance costs, debt premium and original issue discount |
|
| 30,297 |
|
| 14,329 |
|
| 15,968 |
Maintenance capital expenditures |
|
| 4,353 |
|
| 5,187 |
|
| (834) |
Distributable cash flow attributable to Enviva Partners, LP |
|
| 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 |
63
| 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, 2016 Compared to Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
| |||||
|
| 2016 (Recast) |
| 2015 (Recast) |
| Change | |||
|
| (in thousands) | |||||||
Product sales |
| $ | 444,489 |
| $ | 450,980 |
| $ | (6,491) |
Other revenue (1) |
|
| 19,787 |
|
| 6,394 |
|
| 13,393 |
Net revenue |
|
| 464,276 |
|
| 457,374 |
|
| 6,902 |
Cost of goods sold, excluding depreciation and amortization (1) |
|
| 357,418 |
|
| 365,061 |
|
| (7,643) |
Loss on disposal of assets |
|
| 2,386 |
|
| 2,081 |
|
| 305 |
Depreciation and amortization |
|
| 27,700 |
|
| 30,692 |
|
| (2,992) |
Total cost of goods sold |
|
| 387,504 |
|
| 397,834 |
|
| (10,330) |
Gross margin |
|
| 76,772 |
|
| 59,540 |
|
| 17,232 |
General and administrative expenses (1) |
|
| 33,098 |
|
| 23,922 |
|
| 9,176 |
Impairment of assets held for sale |
|
| 9,991 |
|
| — |
|
| 9,991 |
Total general and administrative expenses |
|
| 43,089 |
|
| 23,922 |
|
| 19,167 |
Income from operations |
|
| 33,683 |
|
| 35,618 |
|
| (1,935) |
Interest expense |
|
| (15,643) |
|
| (10,558) |
|
| (5,085) |
Related-party interest expense |
|
| (578) |
|
| (1,154) |
|
| 576 |
Early retirement of debt obligation |
|
| (4,438) |
|
| (4,699) |
|
| 261 |
Other income (expense) |
|
| 439 |
|
| 979 |
|
| (540) |
Net income (loss) before income tax expense |
|
| 13,463 |
|
| 20,186 |
|
| (6,723) |
Income tax expense |
|
| — |
|
| 2,623 |
|
| (2,623) |
Net income |
|
| 13,463 |
|
| 17,563 |
|
| (4,100) |
Less net loss attributable to noncontrolling partners’ interests |
|
| 5,804 |
|
| 2,859 |
|
| 2,945 |
Net income attributable to Enviva Partners, LP |
| $ | 19,267 |
| $ | 20,422 |
| $ | (1,155) |
(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) were largely consistent for the year ended December 31, 2016 as compared to the year ended December 31, 2015.
Other revenue
Other revenue increased to $19.8 million for the year ended December 31, 2016 compared to $6.4 million for the year ended December 31, 2015. The $13.4 million increase was primarily attributable to the following:
|
|
|
|
|
|
64
Cost of goods sold
Cost of goods sold decreased to $387.5 million for the year ended December 31, 2016 from $397.8 million for the year ended December 31, 2015. The $10.3 million decrease was primarily attributable to lower raw material and production costs and lower amortization expense as acquired customer contracts reach the end of their respective contract terms.
Gross margin
We earned gross margin of $76.8 million and $59.5 million for the years ended December 31, 2016 and 2015, respectively. The gross margin increase of $17.2 million was primarily attributable to the following:
|
|
|
|
|
|
Offsetting the above was:
|
|
|
|
Adjusted gross margin per metric ton
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
| |||||
|
| 2016 (Recast) |
| 2015 (Recast) |
| Change | |||
|
| (in thousands except per metric ton) | |||||||
Metric tons sold |
|
| 2,346 |
|
| 2,374 |
|
| (28) |
Gross margin |
| $ | 76,772 |
| $ | 59,540 |
| $ | 17,232 |
Loss on disposal of assets |
|
| 2,386 |
|
| 2,081 |
|
| 305 |
Depreciation and amortization |
|
| 27,700 |
|
| 30,692 |
|
| (2,992) |
Adjusted gross margin |
| $ | 106,858 |
| $ | 92,313 |
| $ | 14,545 |
Adjusted gross margin per metric ton |
| $ | 45.55 |
| $ | 38.89 |
| $ | 6.66 |
We earned an adjusted gross margin of $106.9 million, or $45.55 per metric ton, for the year ended December 31, 2016 and an adjusted gross margin of $92.3 million, or $38.89 per metric ton, for the year ended December 31, 2015. The factors impacting adjusted gross margin are detailed above under the heading “Gross margin.”
General and administrative expenses
General and administrative expenses were $33.1 million for the year ended December 31, 2016 and $23.9 million for the year ended December 31, 2015. During the year ended December 31, 2016, general and administrative expenses included allocated expenses of $14.2 million that were incurred under the MSA, $2.4 and $7.0 million related to development activities prior to the Wilmington Drop-Down and the Sampson Drop‑Down,
65
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 related to acquisition transaction expenses. During the year ended December 31, 2015, we incurred $16.2 million under the MSA, $0.6 million and $1.6 million related to development activities prior to the Wilmington Drop-Down and Sampson Drop‑Down, respectively, $3.6 million of direct expenses, $0.7 million of compensation expense associated with unit‑based awards, $0.4 million of accounting, legal and other expenses related to our Reorganization activities and $0.9 million of expenses related to acquisition transaction expenses.
Impairment of assets held for sale
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 $15.6 million of interest expense during the year ended December 31, 2016 and $10.6 million during the year ended December 31, 2015. On November 1, 2016, the proceeds from the Senior Notes were deposited into an escrow account pending completion of the Sampson Drop‑Down. On December 14, 2016, a portion of the proceeds, together with cash on hand, were used to repay a portion of the Senior Secured Credit Facilities. As a result, we incurred interest expense on both the Senior Notes and the Senior Secured Credit Facilities during the escrow period. Please read “—Senior Notes Due 2021” below.
Related-party interest expense
We incurred $0.6 million of related-party interest expense during the year ended December 31, 2016 and $1.2 million of related-party interest expense during the year ended December 31, 2015. On December 11, 2015, under our Senior Secured Credit Facilities, we obtained incremental borrowings in the amount of $36.5 million. FiberCo became a lender with the purchase of $15.0 million aggregate principal amount of the incremental borrowing advances. On June 30, 2016, FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. During the year ended December 31, 2016, we incurred $0.4 million of related-party interest expense associated with this related-party debt.
In connection with the January 5, 2015 acquisition of Cottondale (formerly owned by Green Circle), the sponsor made a term advance of $36.7 million to Cottondale under a revolving note and advanced Acquisition II $50.0 million under a note payable. Cottondale repaid $4.8 million of the outstanding principal of the term advance in March 2015. As a result of the sponsor’s contribution of Acquisition II, which owned Cottondale, to the Partnership on April 9, 2015, we recorded $81.9 million of outstanding principal and $0.9 million of accrued interest related to the term advance and note payable. In connection with the closing of the IPO on May 4, 2015, we repaid the term advance and note payable outstanding principal of $81.9 million and accrued interest of $1.1 million to the sponsor. We incurred $1.1 million of related-party interest expense for the term advance and note payable for the year ended December 31, 2015.
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 the existing Senior Secured Credit Facilities. The amounts were amortized over the term of the debt and were expensed on December 14, 2016 when we repaid $158.1 million outstanding under the existing Senior Secured Credit Facility.
We incurred a $4.7 million charge during the year ended December 31, 2015 for the write‑off of debt issuance costs and original issue discount associated with the $120.0 million aggregate principal amount of senior secured credit facilities (the “Prior Senior Secured Credit Facilities”). The amounts were amortized over the term of the debt and were expensed on April 9, 2015 when we repaid all amounts outstanding under the Prior Senior Secured Credit Facilities.
66
Income tax expense
During the year ended December 31, 2016, we incurred no income tax expense. During the year ended December 31, 2015, we incurred income tax expense of $2.7 million related to the separate activity of the Cottondale plant from the date of acquisition on January 5, 2015 through April 8, 2015. During this period, Green Circle was a corporate subsidiary of the predecessor entity of Acquisition II. Green Circle, which is now Cottondale, and Acquisition II were each treated as corporations for federal income tax purposes until April 7, 2015 and April 8, 2015, respectively. Prior to the contribution of Acquisition II to us on April 9, 2015, the financial results of the predecessor entity of each of Acquisition II and Green Circle were included in the consolidated federal income tax return of the tax paying entity, Acquisition I.
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
| |||||
|
| 2016 (Recast) |
| 2015 (Recast) |
| Change | |||
|
| (in thousands) | |||||||
Reconciliation of adjusted EBITDA to net income: |
|
|
|
|
|
|
|
|
|
Net income |
| $ | 13,463 |
| $ | 17,563 |
| $ | (4,100) |
Add: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 27,735 |
|
| 30,738 |
|
| (3,003) |
Interest expense |
|
| 16,221 |
|
| 11,712 |
|
| 4,509 |
Early retirement of debt obligation |
|
| 4,438 |
|
| 4,699 |
|
| (261) |
Purchase accounting adjustment to inventory |
|
| — |
|
| 697 |
|
| (697) |
Non-cash unit compensation expense |
|
| 4,230 |
|
| 704 |
|
| 3,526 |
Income tax expense |
|
| — |
|
| 2,623 |
|
| (2,623) |
Asset impairments and disposals |
|
| 12,377 |
|
| 2,081 |
|
| 10,296 |
Transaction expenses |
|
| 827 |
|
| 893 |
|
| (66) |
Adjusted EBITDA |
| $ | 79,291 |
| $ | 71,710 |
| $ | 7,581 |
We generated adjusted EBITDA of $79.3 million for the year ended December 31, 2016 compared to $71.7 million for the year ended December 31, 2015. The $7.6 million improvement in adjusted EBITDA was primarily attributable to the $14.5 million increase in adjusted gross margin discussed in further detail above. Offsetting the increase to adjusted gross margin was a $7.3 million increase in general and administrative expenses related to development activities prior to the Wilmington Drop-Down and the Sampson Drop‑Down as discussed above under “—General and administrative expenses.”
Distributable cash flow
The following is a reconciliation of adjusted EBITDA to distributable cash flow:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
| |||||
|
| 2016 (Recast) |
| 2015 (Recast) |
| Change | |||
|
| (in thousands) | |||||||
Adjusted EBITDA |
| $ | 79,291 |
| $ | 71,710 |
| $ | 7,581 |
Less: |
|
|
|
|
|
|
|
|
|
Interest expense, net of amortization of debt issuance costs, debt premium costs and original issue discount |
|
| 14,329 |
|
| 10,106 |
|
| 4,223 |
Maintenance capital expenditures |
|
| 5,187 |
|
| 4,359 |
|
| 828 |
Distributable cash flow to Enviva Partners, LP limited partners |
|
| 59,775 |
|
| 57,245 |
|
| 2,530 |
Less: Distributable cash flow attributable to incentive distribution rights |
|
| 1,077 |
|
| — |
|
| 1,077 |
Distributable cash flow attributable to Enviva Partners, LP limited partners |
| $ | 58,698 |
| $ | 57,245 |
| $ | 1,453 |
67
Liquidity and Capital Resources
Our principal liquidity requirements for the year ended December 31, 2016 were to fund working capital, service our debt, maintain cash reserves, finance growth and maintenance capital expenditures, pay distributions and fund a portion of the Sampson Drop‑Down. We met our liquidity needs in 2016 with a combination of funds generated through operations, net proceeds from the Senior Notes Offering, borrowings under our revolving credit commitments and proceeds from the sales of common units under our ATM Program.
We expect ourprimary sources of liquidity to include cash and cash equivalent balances, cash generated from operations, borrowings under our revolving credit commitments and, from time to time, debt and equity offerings, including under our ATM Program. We operate in a capital‑intensive industry, and ourofferings. Our primary liquidity needsrequirements are to fund working capital, service our debt, maintain cash reserves, finance plant acquisitions and plant expansion projects, finance maintenance capital expenditures and pay distributions. We believe cash on hand, cash generated from our operations and the availability of our revolving credit commitments will be sufficient to meet the short‑term working capital requirements of our business.primary liquidity requirements. However, future capital expenditures 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 minimum quarterly distribution is $0.4125 per common and subordinated unit per quarter, which equates to approximately $10.9 million per quarter, or approximately $43.4 million per year, based on the number
Non‑Cash Working Capital
Non‑cash working capital is the amount by which current assets, excluding cash, exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. Our non‑cash working capital was $34.6 million at December 31, 2017 and $45.9 million at December 31, 2016. The primary components of changes in non‑cash working capital were the following:
Accounts receivable, net and related-party receivables
Accounts receivable, net and related-party receivables decreased non‑cash working capital by $1.3 million during the year ended December 31, 2017 as compared to December 31, 2016. The decrease in accounts receivable was primarily attributablecertain limitations, pursuant to the numbereffective shelf registration statement.
Inventories
Our inventories consistconditions set forth in such agreement, of raw materials, work‑in‑process, consumable tooling and finished goods. Inventories decreasedup to $23.5 million at December 31, 2017 from $29.9 million at December 31, 2016. The decrease in inventory was attributable to a $5.5 million decrease in finished goods inventory due to the timing, volume and size of product shipments and a $3.2 million decrease in raw material inventories to support the reliability of our planned production
68
levels. The decrease in inventory was partially offset by a $2.3 million increase in consumable tooling and spare parts inventory.
Assets held for sale
Assets held for sale decreased $3.0 million at December 31, 2017. At December 2016, we initiated a plan to sell the Wiggins plant and reflected $3.0 million as the carryingan aggregate sales amount of $100.0 million (the “ATM Program”).
Accounts payable, related-party payables, accrued liabilities and related-party accrued liabilities
The decrease in accounts payable, related-party payables, accrued liabilities and related-party accrued liabilities at December 31, 2017 as compared to December 31, 2016 increased non‑cash working capital by $3.1 million and was primarily attributable to a decrease in shipping and trading sales liabilities due to timing and volume of product shipments. Related-party payables at December 31, 2017 included $19.6 million related to the MSA, compared to $10.9 million related to the MSA at December 31, 2016. The increase is attributable to the timing of payments at year end.
Current portion of interest payable
An increase in the current portion of interest payable at December 31, 2017 compared to December 31, 2016 decreased non-cash working capital by $0.6 million. The current portion of interest payable is primarily related to
accrued interest on our Senior Notes. Please read “—Senior Notes Due 2021” below.
Current portion of long-term debt and capital lease obligations
An increase in the current portion of long-term debt and capital lease obligations at December 31, 2017 compared to December 31, 2016 decreased non-cash working capital by $2.0 million due to payments related to the Senior Secured Credit Facilities.
ATM Program.
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 (Recast) |
| 2015 (Recast) | |||
|
|
|
|
|
|
| |||
|
| (in thousands) | |||||||
Net cash provided by operating activities |
| $ | 87,095 |
| $ | 55,804 |
| $ | 65,857 |
Net cash used in investing activities |
|
| (28,601) |
|
| (111,124) |
|
| (103,490) |
Net cash (used in) provided by financing activities |
|
| (58,436) |
|
| 53,658 |
|
| 39,173 |
Net increase (decrease) in cash and cash equivalents |
| $ | 58 |
| $ | (1,662) |
| $ | 1,540 |
| Year Ended December 31 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 53,860 | $ | 84,053 | $ | 87,095 | |||||
| Net cash used in investing activities | (177,483 | ) | (26,002 | ) | (28,601 | ) | |||||
| Net cash provided by (used in) financing activities | 130,216 | (56,115 | ) | (58,436 | ) | ||||||
| Net increase in cash and cash equivalents | $ | 6,593 | $ | 1,936 | $ | 58 | |||||
|
|
69
|
|
|
Cash Used in Investing Activities
Net cash provided by financing activities during the year ended December 31, 2016 related primarily to proceeds from the Partnership's Senior Notes offering and the Sampson Drop-Down. Net proceeds of $293.6 million from our Senior Notes were used to repay 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.
Net cash provided by financing activities during the year ended December 31, 2015 related primarily to borrowings under our Senior Secured Credit Facilities of $230.1 million and IPO proceeds of $215.1 million. Also contributing to net cash provided by financing activities were capital contributions made by the First Hancock JV prior to the Wilmington Drop-Down and the Sampson Drop-Down of $43.6 million and $62.0 million, respectively. These amounts were partially offset by $199.6 million of repayments, net, to our debt and capital lease obligations, $297.2 million in distributions to our sponsor and the payment of cash distributions to unitholders of $16.9 million.
Senior Notes Due 2021
On November 1, 2016, we and our wholly owned subsidiary, Enviva Partners Finance Corp. (together, the “Issuers”), Wilmington Trust, National Association, as trustee, and the guarantors thereto entered into an indenture, as amended or supplemented (the “Indenture”), pursuant to which we issued $300.0 million in aggregate principal amount of Senior Notes to eligible purchasers (the “Senior Notes Offering”) in a private placement under the Securities Act, which resulted in net proceeds of $293.6 million after deducting expenses and underwriting discounts of $6.4 million. On December 14, 2016, a portion of the net proceeds from the Senior Notes, together with cash on hand and the issuance of $30.0 million in common units to the First Hancock JV, funded the consideration payable in connection with the Sampson Drop‑Down. The remainder of the net proceeds from the Senior Notes was used to repay certain outstanding term loan indebtedness under our Senior Secured Credit Facilities. We were in compliance with the covenants and restrictions associated with, and no events of default existed under, the Indenture as of December 31, 2017. The Senior
70
63
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. In August 2017, holders of 100% 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 such registered notes are not subject to restrictions on transfer).
On October 10, 2017, pursuant to the Indenture, the Issuers issued and sold an additional $55.0 million in aggregate principal amount of the Senior Notes to a purchaser (the “Additional Notes Purchaser”) at 106.25% of par value plus accrued interest from May 1, 2017. The additional Senior Notes were issued pursuant to the Indenture and have the same terms as the Senior Notes. The sale of the additional Senior Notes resulted in gross proceeds to the Issuers of approximately $60.0 million. The proceeds were used to repay borrowings under the Partnership’s 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 Additional Notes Purchaser 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). The additional Senior 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 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.
Senior Secured Credit Facilities
On April 9, 2015, we entered into the Credit Agreement providing for the Original Credit Facilities. The Original Credit Facilities consisted of (i) $99.5 million aggregate principal amount of Tranche A‑1 borrowings, (ii) $75.0 million aggregate principal amount of Tranche A‑2 borrowings and (iii) up to $25.0 million aggregate principal amount of revolving credit commitments. We are also able to request loans under incremental facilities under the Credit Agreement on the terms and conditions and in the maximum aggregate principal amounts set forth therein, provided that lenders provide commitments to make loans under such incremental facilities.
On December 11, 2015, we entered into the First Incremental Term Loan Assumption Agreement (the “Assumption Agreement”) providing for the Incremental Term Borrowings under the Credit Agreement. The Incremental Term Borrowings consist of (i) $10.0 million aggregate principal amount of Tranche A‑3 borrowings and (ii) $26.5 million aggregate principal amount of Tranche A‑4 borrowings.
On December 11, 2015, FiberCo became a lender pursuant to the Credit Agreement with a purchase of $15.0 million aggregate principal amount of the Tranche A-4 borrowings, net of a 1.0% lender fee. On June 30, 2016, FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. The Partnership recorded $0 and $0.4 million as interest expense related to this indebtedness during the three and nine months ended September 30, 2016, respectively.
On October 17, 2016, we entered into the Second Amendment. The Second Amendment provided for an increase in the revolving credit commitments under our Senior Secured Credit Facilities from $25.0 million to $100.0 million upon the consummation of the Sampson Drop‑Down, the repayment of outstanding principal and accrued interest on the Tranche A‑2 and Tranche A‑4 borrowings and the receipt of certain associated deliverables.
| Contractual Obligations | Total | 2020 | 2021-2022 | 2023-2024 | 2025 and Beyond | |||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Long-term debt (1) | $ | 600,000 | $ | — | $ | — | $ | — | $ | 600,000 | ||||||||||
| Finance leases (2) | 7,538 | 4,584 | 2,573 | 381 | — | |||||||||||||||
| Other long-term debt (3) | 2,006 | 2,006 | — | — | — | |||||||||||||||
| Operating leases (4) | 80,570 | 4,140 | 7,609 | 7,291 | 61,530 | |||||||||||||||
| Interest payments (5) | 238,386 | 23,723 | 78,144 | 78,019 | 58,500 | |||||||||||||||
| Purchase obligations (6) | 11,644 | 11,644 | — | — | — | |||||||||||||||
| Shipping commitments (7) | 928,486 | 80,606 | 158,150 | 145,485 | 544,245 | |||||||||||||||
| Other purchase commitments (8) | 612,964 | 220,632 | 286,423 | 105,909 | — | |||||||||||||||
| $ | 2,481,594 | $ | 347,335 | $ | 532,899 | $ | 337,085 | $ | 1,264,275 | |||||||||||
71
The Senior Secured Credit Facilities mature in April 2020. Borrowings under the Senior Secured Credit Facilities 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. Principal and interest are payable quarterly.
We had $4.0 million outstanding under the letter of credit facility 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. The amount required to be secured with the letter of credit under the contract may be adjusted or cancelled based on the specific third‑party contract terms. The amount outstanding as of December 31, 2017 is subject to automatic extensions through the termination date of the letter of credit facility. The letter of credit is not cash collateralized, and there are no unreimbursed drawings under the letter of credit as of December 31, 2017. On January 11, 2018, the letter of credit was cancelled as it was no longer contractually required.
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 (i) incur indebtedness, (ii) pay dividends or make other distributions, (iii) prepay, redeem or repurchase certain debt, (iv) make loans and investments, (v) sell assets, (vi) incur liens, (vii) enter into transactions with affiliates, (viii) consolidate or merge and (ix) assign certain material contracts to third parties or unrestricted subsidiaries. An event of default could result in the acceleration of our obligation to repay our borrowings and may cause a net settlement of our derivative instruments with the respective counterparties. We will be restricted from making distributions if an event of default exists under the Credit Agreement or if the interest coverage ratio (determined as the ratio of consolidated EBITDA, as defined in the Credit Agreement, to consolidated interest expense, determined quarterly) is less than 2.25:1.00 at such time.
Pursuant to the Credit Agreement, we are required to maintain, as of the last day of each fiscal quarter, a ratio of total debt to consolidated EBITDA (“Total Leverage Ratio”), as defined in the Credit Agreement, of not more than a maximum ratio, initially set at 4.25:1.00 and stepping down to 3.75:1.00 during the term of the Credit Agreement; provided that the maximum permitted Total Leverage Ratio will be increased by 0.50:1.00 for the period from the consummation of certain qualifying acquisitions through the end of the second full fiscal quarter thereafter.
As of December 31, 2017, our Total Leverage Ratio was 3.67:1.00, as calculated in accordance with the Credit Agreement, which was less than the maximum ratio of 4.75:1.00. As of December 31, 2017, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the Credit Agreement. Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our and their assets.
At‑the‑Market Offering Program
On August 8, 2016, we filed a prospectus supplement to our shelf registration filed with the SEC on June 24, 2016, for the registration of the continuous offering of up to $100.0 million of common units, in amounts, at prices, and on terms to be determined by market conditions and other factors at the time of our offerings. In August 2016, we also entered into the Equity Distribution Agreement with certain managers pursuant to which we may offer and sell common units from time to time through or to one or more of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement, of up to an aggregate sales amount of $100.0 million.
During the year ended December 31, 2017, we sold 71,368 common units under the Equity Distribution Agreement 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 16, 2018, $88.6 million remained available for issuance under the ATM Program.
72
Contractual Obligations
The following table presents our contractual obligations and other commitments as of December 31, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2023 and | |||||
Contractual Obligations |
| Total |
| 2018 |
| 2019 - 2020 |
| 2021 - 2022 |
| Beyond | |||||
|
| (in thousands) | |||||||||||||
Long-term debt(1) |
| $ | 399,756 |
| $ | 4,927 |
| $ | 39,829 |
| $ | 355,000 |
| $ | — |
Other loans and capital leases |
|
| 5,158 |
|
| 3,283 |
|
| 1,382 |
|
| 493 |
|
| — |
Operating leases |
|
| 76,087 |
|
| 3,737 |
|
| 5,567 |
|
| 5,258 |
|
| 61,525 |
Interest expense(2) |
|
| 123,794 |
|
| 33,171 |
|
| 64,430 |
|
| 26,193 |
|
| — |
Purchase obligations(3) |
|
| 3,514 |
|
| 3,514 |
|
| — |
|
| — |
|
| — |
Shipping commitments (4) |
|
| 443,584 |
|
| 58,690 |
|
| 115,194 |
|
| 117,479 |
|
| 152,221 |
Other purchase commitments(5) |
|
| 202,971 |
|
| 31,034 |
|
| 74,371 |
|
| 90,992 |
|
| 6,574 |
|
| $ | 1,254,864 |
| $ | 138,356 |
| $ | 300,773 |
| $ | 595,415 |
| $ | 220,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
| (2) | Finance leases are related to machinery, equipment and other assets included in property, plant and equipment. |
| |
| (3) | Other long-term debt primarily consists of a note payable held by Enviva Pellets Amory, LLC (“Amory”), a wholly owned subsidiary of the Partnership. |
| (4) | Operating leases are related to real estate, machinery, equipment and other assets with an initial term of longer than 12 months. |
| (5) | Cash obligations for interest expense reflect, as of December 31, |
| ||
| (6) | At December 31, |
| ||
| (7) | In order to mitigate volatility in our shipping costs, we have entered into |
| ||
| (8) | 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. |
73
64
time of loading wood pellets onto a ship.
74
In some cases, we may purchase shipments of product from a third‑party supplierthird-party suppliers and resell them in back‑to‑backback-to-back transactions (“purchase and sale transactions”). We determined that immediately transfer title and risk of losswe are the principal in such transactions because we control the pellets prior to transferring them to the ultimate purchaser. Thus,customer and therefore we recognize the related revenue from these transactions is recorded net of costs paid to the third‑party supplier. We record this revenue as “Other revenue.”
on a gross basis in product sales.
Other revenue also includes
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-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.
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 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.
Additionally, as deliveries are made, we amortize the purchase price of acquired customer contracts that were recorded as intangible assets during the applicable contract term.
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.
75
technological advances or other factors show that a different life would be more appropriate. Changes in useful lives are recognized prospectively.
Long‑Lived
Long‑lived
Goodwill |
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 on December 1 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, 20172019 and 2016, the Partnership2018, we identified one reporting unit that corresponded to the Partnership’sour one segment andreportable segment. We have selected the fourth fiscal quarterDecember 1 to perform itsour annual goodwill impairment test.
value. If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, the Partnership will perform a two‑step impairment test. Under the first step, the fair value ofexceeds the reporting unit is compared with its carrying value, (including goodwill). Ifthen no further testing is necessary; otherwise, the fairPartnership must perform a two-step quantitative assessment of goodwill. The Partnership may elect to bypass the qualitative assessment and proceed directly to performing a two-step quantitative assessment.
76
67
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, 2017 and 2016, the Partnership 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. The Partnership did not record any goodwill impairment for the years ended December 31, 2017 and 2016 (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 |
The applicable margin is (i) for Tranche A‑1 and Tranche A‑3 base rate borrowings, 2.95% through April 2018 and 2.80% thereafter, (ii) for Tranche A‑1 and Tranche A‑3 Eurodollar rate borrowings, 3.95% through April 2018 and 3.80% thereafter, (iii) for revolving facility base rate borrowings, 3.25%, and (iv) for revolving facility Eurodollar rate borrowings, 4.25%. We repaid in full the outstanding principal and accrued interest on the Tranche A‑2 and Tranche A‑4 borrowings upon the consummation of the Sampson Drop‑Down. As of December 31, 2017, $43.6 million, net of unamortized discount of $1.1 million, of Tranche A‑1 and Tranche A‑3 borrowings remained outstanding under our Senior Secured Credit Facilities.
77
Credit Risk
As ofoperations. At December 31, 2017, we had notional2019 and December 31, 2018, no unrealized amounts of 46.5 million GBP underassociated with foreign currency forward contracts and 34.1 million GBP under foreign currency purchased options that expire between 2018 and 2022.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, arewere included in other comprehensive income.
78
69
ITEM 8.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
79
70
of Enviva Partners, LP:
LP
to 2019.
February 22, 2018
80
72
2018
|
|
|
|
|
|
| ||||||||
|
|
|
| 2016 | ||||||||||
|
| 2017 |
| (Recast) | ||||||||||
|
|
|
|
| 2019 | 2018 | ||||||||
Assets |
|
|
|
| ||||||||||
Current assets: |
|
|
|
|
|
| ||||||||
Cash and cash equivalents |
| $ | 524 |
| $ | 466 | $ | 9,053 | $ | 2,460 | ||||
Accounts receivable, net of allowance for doubtful accounts of $0 as of December 31, 2017 and $24 as of December 31, 2016 |
|
| 79,185 |
|
| 77,868 | ||||||||
| Accounts receivable | 72,421 | 54,794 | ||||||||||||
| Insurance receivables | 275 | 5,140 | ||||||||||||
Related-party receivables |
|
| 5,412 |
|
| 8,056 | — | 1,392 | ||||||
Inventories |
|
| 23,536 |
|
| 29,936 | 32,998 | 31,490 | ||||||
Assets held for sale |
|
| — |
|
| 3,044 | ||||||||
Prepaid expenses and other current assets |
|
| 1,006 |
|
| 1,979 | 5,342 | 2,235 | ||||||
Total current assets |
|
| 109,663 |
|
| 121,349 | 120,089 | 97,511 | ||||||
|
|
|
|
|
|
| ||||||||
Property, plant and equipment, net of accumulated depreciation of $117.1 million as of December 31, 2017 and $80.8 million as of December 31, 2016 |
|
| 562,330 |
|
| 590,916 | ||||||||
Intangible assets, net of accumulated amortization of $10.3 million as of December 31, 2017 and $9.1 million as of December 31, 2016 |
|
| 109 |
|
| 1,371 | ||||||||
| Property, plant and equipment, net | 751,780 | 557,028 | ||||||||||||
| Operating lease right-of-use assets | 32,830 | — | ||||||||||||
Goodwill |
|
| 85,615 |
|
| 85,615 | 85,615 | 85,615 | ||||||
Other long-term assets |
|
| 2,394 |
|
| 2,125 | 4,504 | 8,616 | ||||||
Total assets |
| $ | 760,111 |
| $ | 801,376 | $ | 994,818 | $ | 748,770 | ||||
|
|
|
|
|
|
| ||||||||
Liabilities and Partners’ Capital |
|
|
|
|
|
| ||||||||
Current liabilities: |
|
|
|
|
|
| ||||||||
Accounts payable |
| $ | 7,554 |
| $ | 9,993 | $ | 18,985 | $ | 15,551 | ||||
Related-party payables |
|
| 26,398 |
|
| 11,472 | ||||||||
| Related-party payables, net | 304 | 28,225 | ||||||||||||
| Deferred consideration for drop-downs due to related-party | 40,000 | 74,000 | ||||||||||||
Accrued and other current liabilities |
|
| 29,363 |
|
| 44,531 | 59,066 | 41,400 | ||||||
Related-party accrued liabilities |
|
| — |
|
| 382 | ||||||||
Current portion of interest payable |
|
| 5,029 |
|
| 4,414 | 3,427 | 5,434 | ||||||
Current portion of long-term debt and capital lease obligations |
|
| 6,186 |
|
| 4,165 | ||||||||
| Current portion of long-term debt and finance lease obligations | 6,590 | 2,722 | ||||||||||||
Total current liabilities |
|
| 74,530 |
|
| 74,957 | 128,372 | 167,332 | ||||||
Long-term debt and capital lease obligations |
|
| 394,831 |
|
| 346,915 | ||||||||
Related-party long-term payable |
|
| 74,000 |
|
| — | ||||||||
| Long-term debt and finance lease obligations | 596,430 | 429,933 | ||||||||||||
| Long-term operating lease liabilities | 33,469 | — | ||||||||||||
Long-term interest payable |
|
| 890 |
|
| 770 | — | 1,010 | ||||||
Other long-term liabilities |
|
| 5,491 |
|
| 1,872 | 3,971 | 3,779 | ||||||
Total liabilities |
|
| 549,742 |
|
| 424,514 | 762,242 | 602,054 | ||||||
Commitments and contingencies |
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
| ||||||||
Partners’ capital: |
|
|
|
|
|
| ||||||||
Limited partners: |
|
|
|
|
|
| ||||||||
Common unitholders—public (13,073,439 and 12,980,623 units issued and outstanding at December 31, 2017 and December 31, 2016, respectively) |
|
| 224,027 |
|
| 239,902 | ||||||||
Common unitholder—sponsor (1,347,161 units issued and outstanding at December 31, 2017 and December 31, 2016) |
|
| 16,050 |
|
| 18,197 | ||||||||
Subordinated unitholder—sponsor (11,905,138 units issued and outstanding at December 31, 2017 and December 31, 2016) |
|
| 101,901 |
|
| 120,872 | ||||||||
| Common unitholders—public (19,870,436 and 14,573,452 units issued and outstanding at December 31, 2019 and 2018, respectively) | 300,184 | 207,612 | ||||||||||||
| Common unitholder—sponsor (13,586,375 and 11,905,138 units issued and outstanding at December 31, 2019 and 2018, respectively) | 82,300 | 72,352 | ||||||||||||
General partner (no outstanding units) |
|
| (128,569) |
|
| (40,713) | (101,739 | ) | (133,687 | ) | ||||
Accumulated other comprehensive (loss) income |
|
| (3,040) |
|
| 595 | ||||||||
| Accumulated other comprehensive income | 23 | 439 | ||||||||||||
Total Enviva Partners, LP partners’ capital |
|
| 210,369 |
|
| 338,853 | 280,768 | 146,716 | ||||||
Noncontrolling partners’ interests |
|
| — |
|
| 38,009 | ||||||||
Total partners’ capital |
|
| 210,369 |
|
| 376,862 | ||||||||
| Noncontrolling interest | (48,192 | ) | — | |||||||||||
| Total partners' capital | 232,576 | 146,716 | ||||||||||||
Total liabilities and partners’ capital |
| $ | 760,111 |
| $ | 801,376 | $ | 994,818 | $ | 748,770 | ||||
See accompanying notes to consolidated financial statements.
81
73
Operations
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 | ||
|
| 2017 |
| (Recast) |
| (Recast) | |||
|
|
|
|
|
|
|
|
| |
Product sales |
| $ | 522,250 |
| $ | 444,489 |
| $ | 450,980 |
Other revenue (1) |
|
| 20,971 |
|
| 19,787 |
|
| 6,394 |
Net revenue |
|
| 543,221 |
|
| 464,276 |
|
| 457,374 |
Cost of goods sold, excluding depreciation and amortization (1) |
|
| 419,616 |
|
| 357,418 |
|
| 365,061 |
Loss on disposal of assets |
|
| 4,899 |
|
| 2,386 |
|
| 2,081 |
Depreciation and amortization |
|
| 39,904 |
|
| 27,700 |
|
| 30,692 |
Total cost of goods sold |
|
| 464,419 |
|
| 387,504 |
|
| 397,834 |
Gross margin |
|
| 78,802 |
|
| 76,772 |
|
| 59,540 |
General and administrative expenses (1) |
|
| 30,107 |
|
| 33,098 |
|
| 23,922 |
Disposal and impairment of assets held for sale |
|
| 827 |
|
| 9,991 |
|
| — |
Total general and administrative expenses |
|
| 30,934 |
|
| 43,089 |
|
| 23,922 |
Income from operations |
|
| 47,868 |
|
| 33,683 |
|
| 35,618 |
Other income (expense): |
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (31,744) |
|
| (15,643) |
|
| (10,558) |
Related-party interest expense |
|
| — |
|
| (578) |
|
| (1,154) |
Early retirement of debt obligation |
|
| — |
|
| (4,438) |
|
| (4,699) |
Other (expense) income |
|
| (1,751) |
|
| 439 |
|
| 979 |
Total other expense, net |
|
| (33,495) |
|
| (20,220) |
|
| (15,432) |
Income before income tax expense |
|
| 14,373 |
|
| 13,463 |
|
| 20,186 |
Income tax expense |
|
| — |
|
| — |
|
| 2,623 |
Net income |
|
| 14,373 |
|
| 13,463 |
|
| 17,563 |
Less net loss attributable to noncontrolling partners’ interests |
|
| 3,140 |
|
| 5,804 |
|
| 2,859 |
Net income attributable to Enviva Partners, LP |
| $ | 17,513 |
| $ | 19,267 |
| $ | 20,422 |
Less: Predecessor loss to May 4, 2015 (prior to IPO) |
| $ | — |
| $ | — |
| $ | (2,132) |
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) |
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) |
Enviva Partners, LP limited partners’ interest in net income |
| $ | 20,562 |
| $ | 24,608 |
| $ | 19,042 |
Net income per limited partner common unit: |
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.65 |
| $ | 0.95 |
| $ | 0.80 |
Diluted |
| $ | 0.61 |
| $ | 0.91 |
| $ | 0.79 |
Net income per limited partner subordinated unit: |
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.65 |
| $ | 0.93 |
| $ | 0.80 |
Diluted |
| $ | 0.65 |
| $ | 0.93 |
| $ | 0.79 |
Weighted-average number of limited partner units outstanding: |
|
|
|
|
|
|
|
|
|
Common—basic |
|
| 14,403 |
|
| 13,002 |
|
| 11,988 |
Common—diluted |
|
| 15,351 |
|
| 13,559 |
|
| 12,258 |
Subordinated—basic and diluted |
|
| 11,905 |
|
| 11,905 |
|
| 11,905 |
|
|
|
|
|
|
|
|
|
|
(1) See Note 13, Related-Party Transactions |
|
|
|
|
|
|
|
|
|
| 2019 | 2018 | 2017 | |||||||||
| Product sales | $ | 674,251 | $ | 564,010 | $ | 522,250 | |||||
Other revenue (1) | 10,142 | 9,731 | 20,971 | ||||||||
| Net revenue | 684,393 | 573,741 | 543,221 | ||||||||
Cost of goods sold (1) | 549,701 | 461,735 | 419,616 | ||||||||
| Loss on disposal of assets | 3,103 | 2,386 | 4,899 | ||||||||
| Depreciation and amortization | 50,521 | 40,179 | 39,904 | ||||||||
| Total cost of goods sold | 603,325 | 504,300 | 464,419 | ||||||||
| Gross margin | 81,068 | 69,441 | 78,802 | ||||||||
| General and administrative expenses | 11,897 | 10,545 | 14,975 | ||||||||
| Related-party management services agreement fee | 24,492 | 17,096 | 15,132 | ||||||||
| Disposal of assets held for sale | — | — | 827 | ||||||||
| Total general and administrative expenses | 36,389 | 27,641 | 30,934 | ||||||||
| Income from operations | 44,679 | 41,800 | 47,868 | ||||||||
| Other income (expense): | |||||||||||
| Interest expense | (39,344 | ) | (36,471 | ) | (31,744 | ) | |||||
| Early retirement of debt obligation | (9,042 | ) | (751 | ) | — | ||||||
| Other income (expense) | 764 | 2,374 | (1,751 | ) | |||||||
| Total other expense, net | (47,622 | ) | (34,848 | ) | (33,495 | ) | |||||
| Net (loss) income | (2,943 | ) | 6,952 | 14,373 | |||||||
| Less net loss attributable to noncontrolling partners’ interests | — | — | 3,140 | ||||||||
| Net (loss) income attributable to Enviva Partners, LP | $ | (2,943 | ) | $ | 6,952 | $ | 17,513 | ||||
| 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 | ) | |||||||
| Enviva Partners, LP limited partners’ interest in net (loss) income | $ | (2,943 | ) | $ | 6,952 | $ | 20,562 | ||||
| Net (loss) income per limited partner common unit: | |||||||||||
| Basic | $ | (0.54 | ) | $ | 0.04 | $ | 0.65 | ||||
| Diluted | $ | (0.54 | ) | $ | 0.04 | $ | 0.61 | ||||
| Net income per limited partner subordinated unit: | |||||||||||
| Basic | $ | — | $ | 0.04 | $ | 0.65 | |||||
| Diluted | $ | — | $ | 0.04 | $ | 0.65 | |||||
| Weighted-average number of limited partner units outstanding: | |||||||||||
| Common—basic | 31,791 | 21,533 | 14,403 | ||||||||
| Common—diluted | 31,791 | 22,553 | 15,351 | ||||||||
| Subordinated—basic and diluted | — | 4,893 | 11,905 | ||||||||
(1) See Note 15, Related-Party Transactions | |||||||||||
1
82
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 | ||
|
| 2017 |
| (Recast) |
| (Recast) | |||
|
|
|
|
|
|
|
|
| |
Net income |
| $ | 14,373 |
| $ | 13,463 |
| $ | 17,563 |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
Net unrealized losses on cash flow hedges |
|
| (5,463) |
|
| (246) |
|
| — |
Reclassification of net losses realized into net income |
|
| 1,828 |
|
| — |
|
| — |
Total other comprehensive loss |
|
| (3,635) |
|
| (246) |
|
| — |
Total comprehensive income |
|
| 10,738 |
|
| 13,217 |
|
| 17,563 |
Less: |
|
|
|
|
|
|
|
|
|
Predecessor loss prior to IPO |
|
| — |
|
| — |
|
| (2,132) |
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 |
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) |
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) |
Total comprehensive income subsequent to IPO, Enviva Pellets Southampton, LLC Drop-Down, Enviva Pellets Sampson, LLC Drop-Down and Enviva Port of Wilmington, LLC Drop-Down |
|
| 13,787 |
|
| 18,558 |
|
| 16,183 |
Less: |
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to noncontrolling partners’ interests |
|
| (3,140) |
|
| (5,804) |
|
| (2,859) |
Comprehensive income attributable to Enviva Partners, LP partners |
| $ | 16,927 |
| $ | 24,362 |
| $ | 19,042 |
| 2019 | 2018 | 2017 | |||||||||
| Net (loss) income | $ | (2,943 | ) | $ | 6,952 | $ | 14,373 | ||||
| Other comprehensive (loss) income: | |||||||||||
| Net unrealized (losses) gains on cash flow hedges | (146 | ) | 5,655 | (5,463 | ) | ||||||
| Reclassification of net (gains) losses on cash flow hedges realized into net (loss) income | (288 | ) | (2,178 | ) | 1,828 | ||||||
| Currency translation adjustment | — | 2 | — | ||||||||
| Total other comprehensive (loss) income | (434 | ) | 3,479 | (3,635 | ) | ||||||
| Total comprehensive (loss) income | (3,377 | ) | 10,431 | 10,738 | |||||||
| 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 | ) | |||||||
| Total comprehensive (loss) income subsequent to Enviva Port of Wilmington, LLC Drop-Down | (3,377 | ) | 10,431 | 13,787 | |||||||
| Less: | |||||||||||
| Comprehensive loss attributable to noncontrolling partners’ interests | — | — | (3,140 | ) | |||||||
| Comprehensive (loss) income attributable to Enviva Partners, LP partners | $ | (3,377 | ) | $ | 10,431 | $ | 16,927 | ||||
83
75
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Limited Partners’ Capital |
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
| Common |
| Common |
| Subordinated |
| Accumulated |
|
|
|
| |||||||||||||
|
|
|
|
| General |
| Units— |
| Units— |
| Units— |
| Other |
| Non- |
| Total | |||||||||||||
|
| Net Parent |
| Partner |
| Public |
| Sponsor |
| Sponsor |
| Comprehensive |
| controlling |
| Partners' | ||||||||||||||
|
| Investment |
| Interest |
| Units |
| Amount |
| Units |
| Amount |
| Units |
| Amount |
| Income |
| Interests |
| Capital | ||||||||
Partners' capital December 31, 2014 (Recast) |
|
| 271,495 |
|
| (1,661) |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 7,780 |
|
| 277,614 |
Contribution of Enviva Cottondale Acquisition II, LLC |
|
| 132,765 |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 132,765 |
Expenses incurred by sponsor |
|
| 3,088 |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 3,088 |
Net proceeds from IPO, net of deferred IPO costs |
|
| — |
|
| — |
| 11,500 |
|
| 208,911 |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 208,911 |
Distribution to sponsor associated with IPO |
|
| (176,702) |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (176,702) |
Allocation of net Parent investment to sponsor |
|
| (228,514) |
|
| — |
| — |
|
| — |
| 405 |
|
| 7,518 |
| 11,905 |
|
| 220,996 |
|
| — |
|
| — |
|
| — |
Distribution to sponsor associated with Enviva Pellets Southampton, LLC Drop-Down |
|
| — |
|
| (46,637) |
| — |
|
| — |
| — |
|
| (3,015) |
| — |
|
| (88,681) |
|
| — |
|
| — |
|
| (138,333) |
Issuance of units associated with Enviva Pellets Southampton, LLC Drop-Down |
|
| — |
|
| — |
| — |
|
| — |
| 942 |
|
| 15,000 |
| — |
|
| — |
|
| — |
|
| — |
|
| 15,000 |
Issuance of units through Long-Term Incentive Plan |
|
| — |
|
| — |
| 3 |
|
| 42 |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 42 |
Distributions to unitholders and distribution equivalent rights |
|
| — |
|
| — |
| — |
|
| (8,287) |
| — |
|
| (285) |
| — |
|
| (8,369) |
|
| — |
|
| — |
|
| (16,941) |
Non-cash Management Services Agreement expenses |
|
| — |
|
| — |
| — |
|
| 662 |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 662 |
Contribution of Enviva Pellets Sampson, LLC |
|
| — |
|
| 35,433 |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 36,267 |
|
| 71,700 |
Contribution of Enviva Port of Wilmington, LLC |
|
| — |
|
| 12,997 |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 13,304 |
|
| 26,301 |
Net (loss) income |
|
| (2,132) |
|
| 3,512 |
| — |
|
| 9,160 |
| — |
|
| 401 |
| — |
|
| 9,481 |
|
| — |
|
| (2,859) |
|
| 17,563 |
Balance as of December 31, 2015 (Recast) |
|
| — |
|
| 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 loss |
|
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 595 |
|
| — |
|
| 595 |
Net (loss) income |
|
| — |
|
| (4,625) |
| — |
|
| 11,033 |
| — |
|
| 1,307 |
| — |
|
| 11,552 |
|
| — |
|
| (5,804) |
|
| 13,463 |
Partners’ capital, December 31, 2016 (Recast) |
|
| — |
|
| (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 |
| 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, 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 | |||||||||||||||||||||||||
| Excess consideration over Enviva Wilmington Holdings, LLC net assets and initial recognition of its noncontrolling interest | 5,422 | — | — | — | — | — | — | — | (48,192 | ) | (42,770 | ) | ||||||||||||||||||||||||
| Distributions to unitholders, distribution equivalent and incentive distribution rights | (9,821 | ) | — | (51,906 | ) | — | (34,452 | ) | — | — | — | — | (96,179 | ) | ||||||||||||||||||||||
| Issuance of units through Long-Term Incentive Plan | (1,882 | ) | 97 | 72 | — | — | — | — | — | — | (1,810 | ) | ||||||||||||||||||||||||
| Issuance of common units, net | — | 5,200 | 146,278 | — | — | — | — | — | — | 146,278 | ||||||||||||||||||||||||||
| Issuance of units associated with the Hamlet Drop-Down | — | — | — | 1,681 | 50,000 | — | — | — | — | 50,000 | ||||||||||||||||||||||||||
| Non-cash Management Services Agreement expenses | 23,687 | — | 5,310 | — | — | — | — | — | — | 28,997 | ||||||||||||||||||||||||||
| Reimbursable amounts under Make-Whole Agreement | 4,721 | — | — | — | — | — | — | — | — | 4,721 | ||||||||||||||||||||||||||
| Cumulative effect of accounting change - derivative instruments | — | — | (10 | ) | — | (8 | ) | — | — | 18 | — | — | ||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | (434 | ) | — | (434 | ) | ||||||||||||||||||||||||
| Net income (loss) | 9,821 | — | (7,172 | ) | — | (5,592 | ) | — | — | — | — | (2,943 | ) | |||||||||||||||||||||||
| Partners’ capital, December 31, 2019 | $ | (101,739 | ) | 19,870 | $ | 300,184 | 13,586 | $ | 82,300 | — | $ | — | $ | 23 | $ | (48,192 | ) | $ | 232,576 | |||||||||||||||||
84
76
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 | ||
|
| 2017 |
| (Recast) |
| (Recast) | |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
| $ | 14,373 |
| $ | 13,463 |
| $ | 17,563 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 40,361 |
|
| 27,735 |
|
| 30,738 |
Amortization of debt issuance costs, debt premium and original issue discounts |
|
| 1,448 |
|
| 1,893 |
|
| 1,606 |
Impairment of inventory |
|
| — |
|
| 890 |
|
| — |
Impairment of assets held for sale |
|
| — |
|
| 9,991 |
|
| — |
General and administrative expense incurred by sponsor |
|
| — |
|
| — |
|
| 475 |
General and administrative expense incurred by the First Hancock JV prior to Enviva Pellets Sampson, LLC Drop-Down |
|
| — |
|
| 2,343 |
|
| 2,364 |
General and administrative expense incurred by the First Hancock JV prior to Enviva Port of Wilmington, LLC Drop-Down |
|
| 1,343 |
|
| 1,744 |
|
| 1,396 |
Allocation of income tax expense from Enviva Cottondale Acquisition I, LLC |
|
| — |
|
| — |
|
| 2,663 |
Early retirement of debt obligation |
|
| — |
|
| 4,438 |
|
| 4,699 |
Loss on assets held for sale |
|
| 827 |
|
| — |
|
| — |
Loss on disposal of assets |
|
| 4,899 |
|
| 2,386 |
|
| 2,081 |
Unit-based compensation |
|
| 5,014 |
|
| 4,230 |
|
| 704 |
De-designation of foreign currency forwards and options |
|
| 1,593 |
|
| — |
|
| — |
Unrealized loss on foreign currency transactions |
|
| (3) |
|
| — |
|
| — |
Change in fair value of interest rate swap derivatives |
|
| — |
|
| — |
|
| 23 |
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
| (1,317) |
|
| (39,218) |
|
| (3,577) |
Related-party receivables |
|
| 1,577 |
|
| 237 |
|
| (176) |
Prepaid expenses and other assets |
|
| 341 |
|
| 768 |
|
| (115) |
Assets held for sale |
|
| (479) |
|
| — |
|
| — |
Inventories |
|
| 5,758 |
|
| (8,411) |
|
| (22) |
Other long-term assets |
|
| — |
|
| 6,698 |
|
| (6,051) |
Derivatives |
|
| (1,720) |
|
| (1,284) |
|
| — |
Accounts payable, accrued liabilities and other current liabilities |
|
| (2,331) |
|
| 19,379 |
|
| 6,718 |
Related-party payables |
|
| 15,733 |
|
| 3,625 |
|
| 4,121 |
Accrued interest |
|
| (1,330) |
|
| 4,433 |
|
| 105 |
Deferred revenue and deposits |
|
| — |
|
| (486) |
|
| 425 |
Other long-term liabilities |
|
| 1,008 |
|
| 950 |
|
| 117 |
Net cash provided by operating activities |
|
| 87,095 |
|
| 55,804 |
|
| 65,857 |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (28,744) |
|
| (112,887) |
|
| (100,216) |
Payment of acquisition related costs |
|
| — |
|
| — |
|
| (3,573) |
Proceeds from the sale of property, plant and equipment |
|
| 143 |
|
| 1,763 |
|
| 299 |
Net cash used in investing activities |
|
| (28,601) |
|
| (111,124) |
|
| (103,490) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Principal payments on debt and capital lease obligations |
|
| (82,954) |
|
| (204,216) |
|
| (199,638) |
Principal payments on related-party debt |
|
| — |
|
| (3,391) |
|
| — |
Cash paid related to debt issuance costs |
|
| (540) |
|
| (6,390) |
|
| (6,287) |
Termination payment for interest rate swap derivatives |
|
| — |
|
| — |
|
| (146) |
Cash restricted for debt service |
|
| — |
|
| — |
|
| 11,640 |
IPO proceeds, net |
|
| — |
|
| — |
|
| 215,050 |
Distributions to sponsor |
|
| — |
|
| (5,002) |
|
| (297,185) |
Proceeds from common unit issuance under the At-the-Market Offering Program, net |
|
| 1,938 |
|
| 9,300 |
|
| — |
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder |
|
| (64,325) |
|
| (51,376) |
|
| (16,883) |
Proceeds from debt issuance |
|
| 131,952 |
|
| 349,500 |
|
| 230,140 |
Proceeds from contributions from sponsor |
|
| — |
|
| — |
|
| 12,387 |
Distribution to sponsor related to Enviva Pellets Sampson, LLC Drop-Down |
|
| — |
|
| (139,604) |
|
| — |
Proceeds from contributions from the First Hancock JV prior to Enviva Pellets Sampson, LLC Drop-Down |
|
| — |
|
| 61,972 |
|
| 68,059 |
Distributions to sponsor related to Enviva Port of Wilmington, LLC Drop-Down |
|
| (55,929) |
|
| — |
|
| — |
Contributions from sponsor related to Enviva Pellets Sampson, LLC Drop-Down |
|
| 1,652 |
|
| — |
|
| — |
Proceeds from contributions from the First Hancock JV prior to Enviva Port of Wilmington, LLC Drop-Down |
|
| 9,965 |
|
| 43,574 |
|
| 24,000 |
Payment of deferred offering costs |
|
| (195) |
|
| (709) |
|
| (1,964) |
Net cash (used in) provided by financing activities |
|
| (58,436) |
|
| 53,658 |
|
| 39,173 |
Net increase (decrease) in cash and cash equivalents |
|
| 58 |
|
| (1,662) |
|
| 1,540 |
Cash and cash equivalents, beginning of period |
|
| 466 |
|
| 2,128 |
|
| 588 |
Cash and cash equivalents, end of period |
| $ | 524 |
| $ | 466 |
| $ | 2,128 |
| 2019 | 2018 | 2017 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net (loss) income | $ | (2,943 | ) | $ | 6,952 | $ | 14,373 | ||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 51,581 | 40,745 | 40,361 | ||||||||
| MSA Fee Waivers | 22,600 | — | — | ||||||||
| Amortization of debt issuance costs, debt premium and original issue discounts | 1,243 | 1,093 | 1,448 | ||||||||
| General and administrative expense incurred by the Hamlet JV prior to Enviva Port of Wilmington, LLC and Enviva Pellets Sampson, LLC Drop-Downs | — | — | 1,343 | ||||||||
| Early retirement of debt obligation | 9,042 | 751 | — | ||||||||
| Loss on disposal of assets and assets held for sale | 3,103 | 2,386 | 5,726 | ||||||||
| Unit-based compensation | 5,410 | 6,229 | 5,014 | ||||||||
| De-designation of foreign currency forwards and options | — | (1,947 | ) | 1,593 | |||||||
| Fair value changes in derivatives | 3,701 | (7,464 | ) | — | |||||||
| Unrealized loss on foreign currency transactions, net | 177 | 23 | (3 | ) | |||||||
| Change in operating assets and liabilities: | |||||||||||
| Accounts and insurance receivables | (16,330 | ) | 19,230 | (1,317 | ) | ||||||
| Related-party receivables | 1,392 | 2,720 | 1,577 | ||||||||
| Prepaid expenses, assets held for sale and other current and long-term assets | (358 | ) | (182 | ) | (138 | ) | |||||
| Inventories | (1,889 | ) | (7,843 | ) | 5,758 | ||||||
| Derivatives | 1,770 | 4,907 | (1,720 | ) | |||||||
| Accounts payable, accrued liabilities and other current liabilities | 9,287 | 14,916 | (2,331 | ) | |||||||
| Related-party payables and accrued liabilities | (27,933 | ) | 173 | 15,733 | |||||||
| Deferred revenue | 3,887 | — | — | ||||||||
| Accrued interest | (5,148 | ) | 367 | (1,330 | ) | ||||||
| Operating lease liabilities | (4,826 | ) | — | — | |||||||
| Other long-term liabilities | 94 | 997 | 1,008 | ||||||||
| Net cash provided by operating activities | 53,860 | 84,053 | 87,095 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property, plant and equipment | (111,269 | ) | (27,132 | ) | (28,744 | ) | |||||
| Payment in relation to the Hamlet Drop-Down | (74,700 | ) | — | — | |||||||
| Insurance proceeds from property loss | — | 1,130 | — | ||||||||
| Proceeds from the sale of property, plant and equipment | — | — | 143 | ||||||||
| Other | 8,486 | — | — | ||||||||
| Net cash used in investing activities | (177,483 | ) | (26,002 | ) | (28,601 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from senior secured revolving credit facility | 453,000 | 299,250 | 131,952 | ||||||||
| Principal payments on senior secured revolving credit facility | (526,000 | ) | (226,250 | ) | (81,000 | ) | |||||
| Principal payments on other long-term debt and finance lease obligations | (358,311 | ) | (46,466 | ) | (1,954 | ) | |||||
| Cash paid related to debt issuance costs and deferred offering costs | (7,560 | ) | (2,495 | ) | (735 | ) | |||||
| Distributions, proceeds from contributions and contributions associated with Enviva Pellets Sampson, LLC and Enviva Port of Wilmington, LLC Drop-Downs from our sponsor and Hamlet JV | — | — | (44,312 | ) | |||||||
| Proceeds from common unit issuances, net | 96,822 | 241 | 1,938 | ||||||||
| Payment of deferred consideration for Wilmington Drop-Down | (24,300 | ) | — | — | |||||||
| Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder | (95,659 | ) | (73,518 | ) | (64,325 | ) | |||||
| Proceeds from debt issuance | 601,777 | — | — | ||||||||
| 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 | (1,910 | ) | (4,536 | ) | — | ||||||
| Payments in relation to the Hamlet Drop-Down | (99 | ) | — | — | |||||||
| Cash paid for redemption premium from early retirement of debt | (7,544 | ) | — | — | |||||||
| Net cash provided by (used in) financing activities | 130,216 | (56,115 | ) | (58,436 | ) | ||||||
| Net increase in cash, cash equivalents and restricted cash | 6,593 | 1,936 | 58 | ||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 2,460 | 524 | 466 | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 9,053 | $ | 2,460 | $ | 524 | |||||
85
77
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 | ||
|
| 2017 |
| (Recast) |
| (Recast) | |||
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 |
| $ | 2,653 |
| $ | 14,255 |
| $ | 23,222 |
Property, plant and equipment acquired under capital leases |
|
| 1,956 |
|
| 1,753 |
|
| 39 |
Property, plant and equipment transferred from inventories |
|
| 226 |
|
| 926 |
|
| 319 |
Contribution of Enviva Pellets Cottondale, LLC non-cash assets |
|
| — |
|
| — |
|
| 122,529 |
Transfer of Enviva Pellets Wiggins, LLC assets to assets held for sale |
|
| — |
|
| 13,035 |
|
| — |
Application of deferred IPO costs to partners' capital |
|
| — |
|
| — |
|
| 5,913 |
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 long-term related-party payable |
|
| 74,000 |
|
| — |
|
| — |
Retained matters from the First Hancock JV included in related-party receivables |
|
| 585 |
|
| — |
|
| — |
Distributions included in liabilities |
|
| 741 |
|
| 955 |
|
| 58 |
Application of short-term deposit to fixed assets |
|
| 258 |
|
| — |
|
| — |
Distribution due to sponsor |
|
| — |
|
| — |
|
| 5,002 |
Debt issuance costs included in accrued liabilities |
|
| — |
|
| 139 |
|
| 36 |
Distribution of Enviva Pellets Cottondale, LLC assets to sponsor |
|
| — |
|
| — |
|
| 319 |
Non-cash adjustments to financed insurance and prepaid expenses |
|
| — |
|
| — |
|
| 105 |
Application of sales tax accrual to fixed assets |
|
| — |
|
| — |
|
| 73 |
Contribution to tax accounts of sponsor |
|
| — |
|
| — |
|
| 35 |
Depreciation capitalized to inventories |
|
| (427) |
|
| 344 |
|
| 211 |
Due from the First Hancock JV for Enviva Pellets Sampson, LLC Drop-Down |
|
| — |
|
| 1,652 |
|
| — |
Non-cash capital contributions from sponsor |
|
| — |
|
| — |
|
| 339 |
Non-cash capital contributions from the First Hancock JV prior to Enviva Pellets Sampson, LLC Drop-Down |
|
| — |
|
| 8,230 |
|
| 1,277 |
Non-cash capital contributions from the First Hancock JV prior to Enviva Port of Wilmington, LLC Drop-Down |
|
| — |
|
| 393 |
|
| 906 |
Supplemental information: |
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 31,513 |
| $ | 11,191 |
| $ | 9,935 |
See accompanying notes to consolidated financial statements.
86
| 2019 | 2018 | 2017 | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Common unit issuance for deferred consideration for Wilmington Drop-Down | $ | 49,700 | $ | — | $ | — | |||||
| Common unit issuance for the Hamlet Drop-Down | 50,000 | — | — | ||||||||
| 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 | 3,421 | 8,939 | 2,653 | ||||||||
| Property, plant and equipment acquired under finance leases | 6,493 | 3,512 | 1,956 | ||||||||
| Property, plant and equipment transferred from inventories | — | 2 | 226 | ||||||||
| Property, plant and equipment capitalized interest | 2,104 | 158 | — | ||||||||
| Deferred consideration to sponsor included in related-party payable | 40,000 | — | 74,000 | ||||||||
| Retained matters from the Hamlet JV included in related-party receivables | — | — | 585 | ||||||||
| Distributions included in liabilities | 2,180 | 1,659 | 741 | ||||||||
| 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 | 779 | 103 | — | ||||||||
| Depreciation capitalized to inventories | 186 | 567 | (427 | ) | |||||||
| Supplemental information: | |||||||||||
| Interest paid, net of capitalized interest | $ | 41,190 | $ | 35,222 | $ | 31,513 | |||||
78
ENVIVA PARTNERS, LP AND SUBSIDIARIES
The Partnership ownsUnited Kingdom (the “U.K.”), Europe and operates sixincreasingly Japan.
Basis2019, we began to consolidate the Hamlet JV as a variable interest entity of Presentation
On January 5, 2015,which we are the sponsor acquired Green Circle, which ownedprimary beneficiary. As managing member, we have the wood pellet production plant located in Cottondale, Florida (the “Cottondale plant”). The sponsor converted Green Circle into a Delaware limited liability company and changedsole power to direct the nameactivities that most impact the economics of the entity to “Enviva Pellets Cottondale, LLC.”
In April 2015,Hamlet JV. Additionally, as the Partnership became the owner of the Predecessor, Enviva GP, LLC and Enviva Cottondale Acquisition II, LLC (“Acquisition II”), the former owner of Enviva Pellets Cottondale, LLC (“Cottondale”) throughClass B Units represent a contribution by the sponsor. The primary assets contributed to the Partnership by the sponsor included five industrial-scale wood pellet production plants, a wholly owned deep-water marine terminal and long-term contractual arrangements to sell the wood pellets produced at the plants to third parties and associated shipping contracts.
On May 4, 2015, the Partnership completed its IPO (see Note 2, Initial Public Offering). In connection with the IPO, under a contribution agreement between the sponsor, Enviva MLP Holdco, LLC, Enviva Cottondale Acquisition I, LLC, a wholly owned subsidiary of the sponsor, the Predecessor and the Partnership, Acquisition II merged into the Partnership and the Partnership contributed itscontrolling interest in Cottondale to the Predecessor. Cottondale was contributed byHamlet JV, we account for the sponsor in exchange for subordinated units representing limited partner interests in the Partnership.
On December 11, 2015, under the terms ofHamlet JV as a contribution agreement between the Partnership and the First Hancockconsolidated subsidiary, not as a joint venture. The Hamlet JV the Partnership acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Enviva Pellets Southampton, LLC (“Southampton”) for total consideration of $131.0 million. The acquisition (the “Southampton Drop-Down”) includedowns a wood pellet production plant in Southampton County, VirginiaHamlet, North Carolina (the “Southampton“Hamlet plant”), and a ten-year 500,000firm, 15-year take-or-pay off-take contract with a customer for the delivery of nearly 1.0 million metric tons per year (“MTPY”) take-or-pay off-take contract andof wood pellets, following a related third-party ten-year shipping contract. The Partnership accounted forramp period.
87
ENVIVA PARTNERS, LP AND SUBSIDIARIES
acquisition
On December 14, 2016,
Onaccounting.
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 the Partnership will make a final payment of $74.0 million in cash or common units to the First Hancock JV, subject to certain conditions, as deferred consideration for the Wilmington Drop-Down. At December 31, 2017, the $74.0 million is included in related-party long-term payable on the consolidated balance sheets.
Wilmington also entered into a throughput option agreement with the 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 the sponsor’s potential wood pellet production plants.
The PartnershipDrop-Down was accounted for the Wilmington Drop-Down as a combination of entities under common control at historical costcarryover basis in a manner similar to a pooling of interests. Accordingly, the consolidated financial statements for the periods prior to October 2, 2017, have beenwere retrospectively recast to reflect theour acquisition of the First HancockHamlet JV’s
88
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
interests in Wilmington as if it had occurred on May 15, 2013, the date Wilmington was originally organized (see Note 4, Transactions Between Entities Under Common Control).
Prior to December 28, 2017, the Partnershiporganized.
|
|
|
|
Enviva Materials, LLC
Enviva Pellets Perkinston, LLC
Enviva Pellets Sampson, LLC (“Sampson”)
Enviva Port
89
ENVIVA PARTNERS, LP AND SUBSIDIARIES
(2) Initial Public Offering
On May 4, 2015, the Partnership completed an initial public offering (“IPO”) of 11,500,000 common units, which included a 1,500,000 common unit over-allotment option that was exercised in full by the underwriters at a price to the public of $20.00 per unit ($18.80 per common unit, net of underwriting discounts and commissions) and constituting approximately 48.3% of the Partnership’s outstanding limited partner interests. The net proceedsaccompanying notes. Actual results could differ materially from the IPO of approximately $215.1 million after deducting the underwriting discount and structuring fee were used to (i) repay intercompany indebtedness related to the acquisition of Green Circle in the amount of approximately $83.0 million and (ii) distribute approximately $86.7 million to the sponsor related to its contribution of assets to the Partnership in connection with the IPO, with the Partnership retaining $45.4 million for general partnership purposes, including offering expenses.
(3) Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the accounts of the Partnership and its wholly owned and controlled subsidiaries. All intercompany accounts and transactions have been eliminated.
Reclassifications
Certain prior period amounts related to loss on disposal of assets have been reclassified to cost of goods sold from general and administrative expenses to conform to current period presentation. Certain prior period amounts related to the contribution of Sampson included in general partner interest have been reclassified on the consolidated statements of changes in partners’ capital to non-controlling interests from the general partner interest to conform to current period presentation.
90
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Common Control Transactions
As the acquisition of Cottondale, the Southampton Drop-Down, the Sampson Drop-Down and the Wilmington Drop-Down represented transfers of entities under common control, the consolidated financial statements and related information presented have been recast to include the historical results of Cottondale effective January 5, 2015, the date the Partnership’s sponsor acquired Acquisition II, Southampton effective April 9, 2015, the date Southampton was originally conveyed to the First Hancock JV and Sampson and Wilmington effective May 15, 2013, the date Sampson and Wilmington were originally organized.
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 the Partnership’s consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Segment and Geographic Information
Operating segments are defined as components of an enterprise about which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Partnership views its operations and manages its business as one operating segment. All long-lived assets of the Partnership are located in the United States.
91
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Cash and Cash Equivalents
losses.
inventories, which requires the use of judgment and estimates. 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.
The Partnership
time of loading wood pellets onto a ship.
92
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
timing and size of shipments during the year, can result in material fluctuations in our revenue recognized between periods but generally have little impact on gross margin.
In some cases, the Partnershipwe may purchase shipments of product from third-party suppliers and resell them in back-to-back transactions (“purchase and sale transactions”). We recognize revenue on a gross basis in product sales when we determine that immediately transfer title and riskwe act as a principal by having control of lossthe wood pellets before they are transferred to the ultimate purchaser. Thus,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 from these transactions is recordedon a gross or net basis requires significant judgment.
Consolidated Financial Statements (Continued)
Other revenue also includes
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-MT 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.
The Partnership uses derivative instruments
recognized any ineffectiveness in earnings.
As of December 31, 2019 and 2018, we only apply hedge accounting treatment to interest rate swaps.
93
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
To qualify for hedge accounting, the item to be hedged must cause an exposure risk and the Partnershipwe must have an expectation that the related hedging instrument will be effective at reducing or mitigating that exposure. In accordance with the hedging requirements, the Partnership documentswe document all hedging relationships at inception and includesinclude 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. The PartnershipWe also formally assesses,assess, both at the hedge’s 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.
Foreign Currency Hedges
The Partnership may hedge a portion of its foreign currency exposure associated with revenue under off-take contracts not denominated in U.S. Dollars. The Partnership has designated a portion of its foreign currency forward contracts and foreign currency purchased options as cash flow hedges. These derivatives are used to hedge certain revenue transactions forecasted generally within the next 60-month period.
Interest Rate Hedges
The Partnership utilizes an interest rate swap to hedge its cash flow exposure to fluctuations in variable-based interest rates under borrowings. The Partnership entered into a pay-fixed, receive-variable interest rate swap in September 2016 to hedge the interest rate risk associated with Tranche A-1 and Tranche A-3 of the Senior Secured Credit Facilities. The Partnership discontinued hedge accounting as of December 14, 2016 following the repayment of Tranche A-1 and A-3 of the Senior Secured Credit Facilities (see Note 12, Long-Term Debt and Capital Lease Obligations). Interest expense for the year ended December 31, 2017 included the reclassification of an insignificant amount representing the effective portion reported as a component of accumulated other comprehensive income.
The Predecessor previously used derivative financial instruments to manage its exposure to fluctuations in interest rates on long-term debt as required per the terms of the Prior Senior Secured Credit Facilities (see Note 12, Long-Term Debt and Capital Lease Obligations). The Predecessor recognized the interest rate swaps on the consolidated balance sheet at fair value. The Predecessor’s interest rate swap agreements were not designated as hedges; therefore, the gain or loss was recognized in the consolidated statement of income in interest expense. In connection with the repayment of the Prior Senior Secured Credit Facilities in April 2015 (see Note 12, Long-Term Debt and Capital Lease Obligations), the Predecessor terminated the interest rate swaps and paid a termination fee of $0.1 million.
94
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
historical experience and other relevant information. The useful lives of assets 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.
| ||||
| Asset | Estimated useful life | |||
Land improvements | 15 to 17 years | |||
Buildings | 5 to 40 years | |||
Machinery and equipment | 2 to 25 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 | |||
cash flows.
Discounts and Premiums
Gains or losses on debt extinguishment include any associated unamortized debt issuance costs and original issue discount.
straight-line method.
95
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Partnership’sour one reportable segment. The Partnership hasWe have selected the fourth fiscal quarterDecember 1 to perform itsour annual goodwill impairment test.
The Partnership first performs
If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, the Partnership will perform a two-step impairment test. Under the first step,determined the fair value of the reporting unit is compared withexceeded its carrying value (including goodwill). If theamount. 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 unitwas determined based on our market capitalization, which 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 2, 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.
considered a Level 1 Input. For the yearsyear ended December 31, 20172018, we performed a qualitative assessment and 2016, the Partnership 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 requiredof our reporting unit. There have been no impairments to apply the two-step impairment test. The Partnership did not record anycarrying value of the Partnership’s goodwill impairment forduring the years ended December 31, 2017 and 2016periods presented (see Note 10,12, Goodwill and Other Intangible Assets).
In making this qualitative analysis for the years ended December 31, 2017, and 2016, the Partnership evaluated the following economic factors:
|
|
|
|
|
|
|
|
|
|
Intangible Assets
In April 2015, the sponsor contributed net assets to the Partnership associated with the acquisition of Green Circle in January 2015, which included intangible assets related to favorable customer contracts (see Note 1, Description of Business and Basis of Presentation). The Partnership 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 are recoverable through the future revenue streams generated from the customer contracts and are closely related to the revenue from the customer
96
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
contracts. These costs are recorded as an asset and charged to expense as the revenue is recognized (see Note 10, Goodwill and Other Intangible Assets). All other costs, such as general and administrative expenses and costs associated with the negotiation of a contract that is not consummated, are charged to expense as incurred.
Unit-Based Compensation
Impairment of 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, the Partnership first compares 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 considered necessary.
The Partnership applies
|
|
|
|
97
87
| 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. |
Recent and Pending
Standards
Instatements for the period beginning April 2, 2019 reflect the acquisition.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially allHamlet JV, net of the fair valueelimination of $3.0 million of net related-party receivables and payables. The following table outlines the addition of net assets resulting from the Hamlet Drop-Down on April 2, 2019.
| Assets: | |||
| Cash and cash equivalents | $ | 3,426 | |
| Related-party receivables | 241 | ||
| Prepaid expenses and other current assets | 22 | ||
| Property, plant and equipment, net | 140,446 | ||
| Other long-term assets | 8 | ||
| Total assets | 144,143 | ||
| Liabilities: | |||
| Accounts payable | 6,395 | ||
| Related-party payables | 1,923 | ||
| Accrued and other current liabilities | 14,965 | ||
| Finance lease obligations | 3 | ||
| Total liabilities | 23,286 | ||
| Net assets contributed to Partnership | $ | 120,857 | |
98
ENVIVA PARTNERS, LP AND SUBSIDIARIES
restricted cash
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) — Classification of Certain Cash Receipts and Cash Payments, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statements of cash flows with the objective of reducing the existing diversity in practice. The guidance addresses the classification of cash flows related to (1) debt prepayment or extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance, including bank-owned life insurance, (6) distributions received from equity method investees and (7) beneficial interests in securitization transactions. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. An entity will first apply any relevant guidance. If there is no guidance that addresses those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source of use. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. The new guidance will require adoption on a retroactive basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The ASU is effective for the Partnership’s fiscal year 2018, including interim periods. The Partnership does not expect the adoption of the new standard to have a material effect on how cash receipts and cash payments are presented and classified in the consolidated statements of cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases. Under the new pronouncement, an entity is required to recognize assets and liabilities arising from a lease for all leases with a maximum possible term of more than 12 months. A lessee is required to recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset (the underlying asset) for the lease term. For most leases of assets other than property (for example, equipment, aircraft, cars, trucks), a lessee would recognize a right-of-use asset and a lease liability, initially measured at the present value of lease payments and recognize the unwinding of the discount on the lease liability as interest separately from the amortization of the right-of-use asset. For most leases of property (that is, land and/or a building or part of a building), a lessee would recognize a right-of-use asset and a lease liability, initially measured at the present value of lease payments and recognize a single lease cost, combining the unwinding of the discount on the lease liability with the amortization of the right-of-use asset, on a straight-line basis. The new guidance is effective for public entities for fiscal year and interim periods within those fiscal years beginning after December 15, 2018. Upon adoption, a lessee and a lessor would recognize and measure leases at the beginning of the earliest period
99
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
presented using a modified retrospective approach. Early adoption is permitted. The Partnership is in the process of evaluating the impact of adoption on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 provides new guidance on the recognition of revenue and states that an entity should recognize revenue when control of the goods or services transfers to the customer in an amount, that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires significantly expanded disclosure regarding qualitative and quantitative information about the nature, timing and uncertainty of our revenue and cash flows arisingflows.
ASC 606 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Partnership will adopt ASC 606 effective January 1, 2018. The Partnership currently expects to utilize the modified retrospective method of adoption, which will result in the presentation of the cumulative effect of initially applying ASC 606 at the date of initial application. The Partnership has established a cross-functional team to lead the assessment and implementation of ASC 606 and has finalized its implementation plans. In connection with the implementation plan, the Partnership has completed its evaluation of itsbalance thereafter. Our off-take contracts to identify material performance obligations. The Partnership has concluded that the delivery of wood pellets to the customer is the material performance obligation under its off-take contracts. The Partnership also concluded it will aggregate wood pelletsexpire at various times through 2040 and our terminal services contracts extend into metric tons and account for each metric ton as a single performance obligation. The Partnership has determined that revenue related to its2026.
Certain costs incurredships and unloaded at the discharge port and recoverableas well as certain other contractual adjustments.
ASC 606 permits an entity to account for shipping and handling activities occurring after control has passed to the customer as a fulfillment activity rather than as a revenue element. The Partnership has elected to account for shipping and handling activities as a fulfillment activity, consistent with its current policy. The Partnership does not expect to have a material cumulative effect adjustment upon adoption of ASC 606.
(4) Transactions Between Entities Under Common Control
Wilmington Drop-Down
On October 2, 2017, the Partnership acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Wilmington for total consideration of $130.0 million (see Note 1, Description of Business and Basis of Presentation). The acquisition included an initial payment of $54.6 million in cash, net of a purchase price adjustment of $1.4 million, and deferred consideration of $74.0 million in cash or common units, to the First Hancock JV, and the elimination of $1.0 million of related-party receivables and payables, net, included in the net assets on the date of acquisition.
100
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Recast of Historical Financial Statements
The Partnership accounted for the Wilmington 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 October 2, 2017 were retrospectively recast to reflect the acquisition as if it had occurred on May 15, 2013, the date Wilmington was originally organized.
The following table outlines the changes in consolidated net assets resulting from the acquisition of Wilmington on October 2, 2017.
|
|
|
|
Assets: |
|
|
|
Cash |
| $ | — |
Related-party receivables |
|
| 2,914 |
Inventories |
|
| 96 |
Prepaid expenses and other current assets |
|
| 94 |
Property, plant and equipment, net |
|
| 75,474 |
Total assets |
|
| 78,578 |
|
|
|
|
Liabilities: |
|
|
|
Accounts payable |
|
| 195 |
Related-party payables |
|
| 319 |
Accrued and other current liabilities |
|
| 2,864 |
Long-term debt and capital lease obligations |
|
| 243 |
Long-term liabilities |
|
| 1,622 |
Total liabilities |
|
| 5,243 |
Net assets contributed to Partnership |
| $ | 73,335 |
101
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 following table presents the changes to previously reported amounts in the audited consolidated balance sheet as of December 31, 2016 included in the Partnership’s annual report on Form 10-K for the year ended December 31. 2016:
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 | |||||||
|
| As |
| Enviva Port Of |
| Total | |||
|
| Reported |
| Wilmington, LLC |
| (Recast) | |||
Cash and cash equivalents |
| $ | 466 |
| $ | — |
| $ | 466 |
Accounts receivable, net |
|
| 77,868 |
|
| — |
|
| 77,868 |
Related-party receivables |
|
| 7,634 |
|
| 422 |
|
| 8,056 |
Inventories |
|
| 29,764 |
|
| 172 |
|
| 29,936 |
Prepaid expenses and other current assets |
|
| 4,983 |
|
| 40 |
|
| 5,023 |
Total current assets |
|
| 120,715 |
|
| 634 |
|
| 121,349 |
Property, plant and equipment, net of accumulated depreciation |
|
| 516,418 |
|
| 74,498 |
|
| 590,916 |
Goodwill |
|
| 85,615 |
|
| — |
|
| 85,615 |
Other assets |
|
| 3,420 |
|
| 76 |
|
| 3,496 |
Total assets |
| $ | 726,168 |
| $ | 75,208 |
| $ | 801,376 |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 9,869 |
| $ | 124 |
| $ | 9,993 |
Related-party payables |
|
| 11,118 |
|
| 354 |
|
| 11,472 |
Accrued and other current liabilities |
|
| 47,337 |
|
| 6,155 |
|
| 53,492 |
Total long-term debt and capital lease obligations |
|
| 346,686 |
|
| 229 |
|
| 346,915 |
Other liabilities |
|
| 1,641 |
|
| 1,001 |
|
| 2,642 |
Total liabilities |
|
| 416,651 |
|
| 7,863 |
|
| 424,514 |
Total partners’ capital |
|
| 309,517 |
|
| 67,345 |
|
| 376,862 |
Total liabilities and partners’ capital |
| $ | 726,168 |
| $ | 75,208 |
| $ | 801,376 |
The following table presents the changes to previously reported amounts in the audited consolidated statements of income for the years ended December 31, 20162019 and 2015 included in2018, arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services.
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2016 | |||||||
|
| As |
| Enviva Port Of |
| Total | |||
|
| Reported |
| Wilmington, LLC |
| (Recast) | |||
Net revenue |
| $ | 464,276 |
| $ | — |
| $ | 464,276 |
Total cost of goods sold |
|
| 387,289 |
|
| 215 |
|
| 387,504 |
Gross margin |
|
| 76,987 |
|
| (215) |
|
| 76,772 |
Net income (loss) |
|
| 17,723 |
|
| (4,260) |
|
| 13,463 |
Less net loss attributable to noncontrolling partners’ interests |
|
| 3,654 |
|
| 2,150 |
|
| 5,804 |
Net loss attributable to general partner |
|
| (3,231) |
|
| (2,110) |
|
| (5,341) |
Net income attributable to Enviva Partners, LP limited partners’ interest in net income |
|
| 24,608 |
|
| — |
|
| 24,608 |
102
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes2019, product sales revenue was reduced by $0.1 million related to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2015 | |||||||
|
| As |
| Enviva Port Of |
| Total | |||
|
| Reported |
| Wilmington, LLC |
| (Recast) | |||
Net revenue |
| $ | 457,374 |
| $ | — |
| $ | 457,374 |
Total cost of goods sold |
|
| 397,834 |
|
| — |
|
| 397,834 |
Gross margin |
|
| 59,540 |
|
| — |
|
| 59,540 |
Net income (loss) |
|
| 19,460 |
|
| (1,897) |
|
| 17,563 |
Less net income attributable to noncontrolling partners’ interests |
|
| 1,899 |
|
| 960 |
|
| 2,859 |
Net loss attributable to Predecessor |
|
| (2,132) |
|
| — |
|
| (2,132) |
Net income (loss) attributable to general partner |
|
| 4,449 |
|
| (937) |
|
| 3,512 |
Net income attributable to Enviva Partners, LP limited partners’ interest in net income |
|
| 19,042 |
|
| — |
|
| 19,042 |
The following table presents the changes to previously reported amountsperformance obligations satisfied in the audited consolidated statements of cash flows for the years ended December 31, 2016 and 2015 included in the Partnership’s annual report on Form 10-K forprevious periods. For the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2016 | |||||||
|
| As |
| Enviva Port Of |
| Total | |||
|
| Reported |
| Wilmington, LLC |
| (Recast) | |||
Net cash provided by (used in) operating activities |
| $ | 57,393 |
| $ | (1,589) |
| $ | 55,804 |
Net cash used in investing activities |
|
| (69,147) |
|
| (41,977) |
|
| (111,124) |
Net cash provided by financing activities |
|
| 10,092 |
|
| 43,566 |
|
| 53,658 |
Net decrease in cash and cash equivalents |
| $ | (1,662) |
| $ | — |
| $ | (1,662) |
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2015 | |||||||
|
| As |
| Enviva Port Of |
| Total | |||
|
| Reported |
| Wilmington, LLC |
| (Recast) | |||
Net cash provided by (used in) operating activities |
| $ | 66,413 |
| $ | (556) |
| $ | 65,857 |
Net cash used in investing activities |
|
| (80,046) |
|
| (23,444) |
|
| (103,490) |
Net cash provided by financing activities |
|
| 15,173 |
|
| 24,000 |
|
| 39,173 |
Net increase in cash and cash equivalents |
| $ | 1,540 |
| $ | — |
| $ | 1,540 |
The Partnership’s
The Partnership’s primary
103
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 following table shows productProduct 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:
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
|
|
| 2017 |
| (Recast) |
| (Recast) |
|
|
|
|
|
|
|
|
|
Customer A |
| 66 | % | 75 | % | 56 | % |
Customer B |
| 12 | % | 15 | % | 19 | % |
Customer C |
| — | % | — | % | 18 | % |
Customer E |
| 15 | % | — | % | — | % |
| 2019 | 2018 | 2017 | |||
| Customer A | 48% | 46% | 66% | ||
| Customer B | 10% | 11% | 12% | ||
| Customer C | 20% | 16% | 2% | ||
| Customer D | 15% | 17% | 15% | ||
(6) Property, Plantcost of goods sold, and Equipment
Property, plant$
|
|
|
|
|
|
|
|
|
|
| 2016 | ||
|
| 2017 |
| (Recast) | ||
Land |
| $ | 13,492 |
| $ | 13,492 |
Land improvements |
|
| 42,962 |
|
| 42,322 |
Buildings |
|
| 196,153 |
|
| 186,479 |
Machinery and equipment |
|
| 413,349 |
|
| 400,867 |
Vehicles |
|
| 635 |
|
| 522 |
Furniture and office equipment |
|
| 5,970 |
|
| 5,604 |
Leasehold improvements |
|
| 987 |
|
| 742 |
|
|
| 673,548 |
|
| 650,028 |
Less accumulated depreciation |
|
| (117,067) |
|
| (80,781) |
|
|
| 556,481 |
|
| 569,247 |
Construction in progress |
|
| 5,849 |
|
| 21,669 |
Total property, plant and equipment, net |
| $ | 562,330 |
| $ | 590,916 |
Total depreciation expense was $39.1 million, $25.7 million
| 2019 | 2018 | ||||||
| Raw materials and work-in-process | $ | 9,795 | $ | 4,936 | |||
| Consumable tooling | 20,485 | 17,561 | |||||
| Finished goods | 2,718 | 8,993 | |||||
| Total inventories | $ | 32,998 | $ | 31,490 | |||
| 2019 | 2018 | ||||||
| Land | $ | 15,226 | $ | 13,492 | |||
| Land improvements | 56,637 | 44,990 | |||||
| Buildings | 217,167 | 196,574 | |||||
| Machinery and equipment | 588,447 | 434,776 | |||||
| Vehicles | 635 | 635 | |||||
| Furniture and office equipment | 6,822 | 6,148 | |||||
| Leasehold improvements | 1,029 | 987 | |||||
| Property, plant and equipment | 885,963 | 697,602 | |||||
| Less accumulated depreciation | (203,695 | ) | (154,967 | ) | |||
| Property, plant and equipment, net | 682,268 | 542,635 | |||||
| Construction in progress | 69,512 | 14,393 | |||||
| Total property, plant and equipment, net | $ | 751,780 | $ | 557,028 | |||
(7) Inventories
Inventories consisted Total interest capitalized related to construction in progress was $2.1 million and $0.2 million for
104
ENVIVA PARTNERS, LP AND SUBSIDIARIES
(8)
| Operating leases: | ||||
| Operating lease right-of-use assets | $ | 32,830 | ||
| Current portion of operating lease liabilities | $ | 1,439 | ||
| Long-term operating lease liabilities | 33,469 | |||
| Total operating lease liabilities | $ | 34,908 | ||
| Finance leases: | ||||
| Property plant and equipment, net | $ | 7,398 | ||
| Current portion of long-term finance lease obligations | $ | 4,584 | ||
| Long-term finance lease obligations | 2,954 | |||
| Total finance lease liabilities | $ | 7,538 | ||
| Lease Cost | Classification | 2019 | ||||
| Operating lease cost: | ||||||
| Fixed lease cost | Cost of goods sold | $ | 4,814 | |||
| Variable lease cost | Cost of goods sold | 16 | ||||
| Short-term lease costs | Cost of goods sold | 7,309 | ||||
| Total operating lease costs | $ | 12,139 | ||||
| Finance lease cost: | ||||||
| Amortization of leased assets | Depreciation and amortization | 4,159 | ||||
| Variable lease cost | Cost of goods sold | 9 | ||||
| Interest on lease liabilities | Interest expense | 292 | ||||
| Total finance lease costs | $ | 4,460 | ||||
| Total lease costs | $ | 16,599 | ||||
| 2019 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows from operating leases | $ | 4,826 | ||
| Operating cash flows from finance leases | 292 | |||
| Financing cash flows from finance leases | 3,304 | |||
| Assets obtained in exchange for lease obligations: | ||||
| Operating leases | $ | 7,465 | ||
| Finance leases | 6,493 | |||
| Years Ending December 31, | Operating Leases | Finance Leases | Total | |||||||||
| 2020 | $ | 4,140 | $ | 4,906 | $ | 9,046 | ||||||
| 2021 | 3,890 | 2,388 | 6,278 | |||||||||
| 2022 | 3,719 | 332 | 4,051 | |||||||||
| 2023 | 3,710 | 305 | 4,015 | |||||||||
| 2024 | 3,581 | 92 | 3,673 | |||||||||
| Thereafter | 61,530 | — | 61,530 | |||||||||
| Total lease payments | 80,570 | 8,023 | 88,593 | |||||||||
| Less: imputed interest | (45,662 | ) | (485 | ) | (46,147 | ) | ||||||
| Total present value of lease liabilities | $ | 34,908 | $ | 7,538 | $ | 42,446 | ||||||
| Weighted average remaining lease term (years): | |||
| Operating leases | 22 | ||
| Finance leases | 2 | ||
| Weighted average discount rate: | |||
| Operating leases | 8 | % | |
| Finance leases | 6 | % | |
The Partnership uses
Foreign Currency Exchange Risk
The Partnership is primarily exposed to fluctuations in foreign currency exchange rates related to off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”). Deliveries under one of these contracts began in late 2017. The Partnership has and may continue to enter into foreign currency forward contracts, purchased option contracts or other instruments to partially manage this risk and has designated and may continue to designate these instruments as cash flow hedges. During December 2017, the Partnership determined that certain transactions were no longer probable of occurring within the forecasted time period. The Partnership discontinued hedge accounting and recognized gains and losses accumulated in other comprehensive income related to these hedging relationships in other expense on the consolidated statements of income.
The Partnership’s outstanding cash flow hedges at December 31, 2017 expire on dates between 2019 and 2022.
Interest Ratehedging instruments are recognized in earnings.
The Partnership is
The counterparty to the Partnership’s interest rate swap is a major financial institution.
The fair values of cash flow hedging instruments included in the consolidated balance sheet ashedges.
105
ENVIVA PARTNERS, LP AND SUBSIDIARIES
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 |
| Other current assets |
|
| 220 |
|
| — |
Interest rate swap |
| Other long-term assets |
|
| 407 |
|
| — |
Total derivatives designated as hedging instruments |
|
|
| $ | 1,651 |
| $ | 2,118 |
|
|
|
|
|
|
|
|
|
Derivatives not designated as 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 assets |
|
| 45 |
|
| — |
Total derivatives not designated as hedging instruments |
|
|
| $ | 172 |
| $ | 1,334 |
|
|
|
|
|
|
|
|
|
The fair valuesIn August 2018, due to 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 not probable that the timing of the forecasted revenues associated with the hedged transactions would occur as originally scheduled. As a result, 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. In connection with the discontinuation of cash flow hedging instruments includedhedge accounting, we have recorded the on-going changes in the condensed consolidated balance sheetfair value of foreign currency derivatives as product sales or cost of sales depending on the nature of the item being hedged.
| Asset (Liability) | ||||||||
| Balance Sheet Classification | 2019 | 2018 | ||||||
| Designated as hedging instruments: | ||||||||
| Interest rate swap | ||||||||
| Other current assets | $ | 56 | $ | 508 | ||||
| Other long-term assets | — | 118 | ||||||
| Total derivatives designated as hedging instruments | $ | 56 | $ | 626 | ||||
| Not designated as hedging instruments: | ||||||||
| Foreign currency exchange forward contracts: | ||||||||
| Other current assets | $ | 277 | $ | 794 | ||||
| Other long-term assets | 331 | 1,810 | ||||||
| Other current liabilities | (735 | ) | (68 | ) | ||||
| Other long-term liabilities | (1,055 | ) | (179 | ) | ||||
| Foreign currency purchased option contracts: | ||||||||
| Other current assets | 131 | 22 | ||||||
| Other long-term assets | 1,443 | 3,348 | ||||||
| Total derivatives not designated as hedging instruments | $ | 392 | $ | 5,727 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| Asset |
| Liability | ||
|
| Balance Sheet Location |
| Derivatives |
| Derivatives | ||
Derivatives designated as hedging instruments: |
|
|
|
|
|
| ||
Forward contracts: |
|
|
|
|
|
|
|
|
Foreign currency exchange forward contracts |
| Prepaid and other current assets |
| $ | 188 |
| $ | — |
Foreign currency exchange forward contracts |
| Other long-term assets |
|
| 632 |
|
| — |
Foreign currency exchange forward contracts |
| Other long-term liabilities |
|
| 626 |
|
| — |
Purchased options: |
|
|
|
|
|
|
|
|
Foreign currency purchased option contracts |
| Other long-term liabilities |
|
| — |
|
| 51 |
Total derivatives designated as hedging instruments |
|
|
| $ | 1,446 |
| $ | 51 |
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
Interest rate swap |
| Other long-term assets |
| $ | 484 |
| $ | — |
106
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount of |
|
|
|
| |||
|
|
|
|
| Location of |
| Gain (Loss) |
| Location of Gain |
| Amount of Gain | ||
|
| Amount of Gain |
| Gain (Loss) |
| Reclassified from |
| (Loss) Recognized in |
| (Loss) Recognized in | |||
|
| (Loss) in Other |
| Reclassified from |
| Accumulated Other |
| Income on Derivative |
| Income on Derivative | |||
|
| Comprehensive |
| Accumulated Other |
| Comprehensive |
| (Ineffective Portion |
| (Ineffective Portion | |||
|
| Income on |
| Comprehensive |
| Income |
| and Amount |
| and Amount | |||
|
| Derivative |
| Income |
| into Income |
| Excluded from |
| Excluded from | |||
|
| (Effective Portion) |
| (Effective Portion) |
| (Effective Portion) |
| Effectiveness Testing) |
| Effectiveness Testing) | |||
Foreign currency exchange forward contracts |
| $ | (4,126) |
| Product sales |
| $ | (15) |
| Other income (expense) |
| $ | (1,237) |
Foreign currency exchange purchased option 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) | |||||
| Interest rate swap | (146 | ) | Interest expense | 288 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount of |
|
|
|
| |||
|
|
|
|
| Location of |
| Gain (Loss) |
| Location of Gain |
| Location of Gain | ||
|
| Amount of Gain |
| Gain (Loss) |
| Reclassified from |
| (Loss) Recognized in |
| (Loss) Recognized in | |||
|
| (Loss) in Other |
| Reclassified from |
| Accumulated Other |
| Income on Derivative |
| Income on Derivative | |||
|
| Comprehensive |
| Accumulated Other |
| Comprehensive |
| (Ineffective Portion |
| (Ineffective Portion | |||
|
| Income on |
| Comprehensive |
| Income |
| and Amount |
| and Amount | |||
|
| Derivative |
| Income |
| into Income |
| Excluded from |
| Excluded from | |||
|
| (Effective Portion) |
| (Effective Portion) |
| (Effective Portion) |
| Effectiveness Testing) |
| Effectiveness Testing) | |||
Foreign currency exchange forward contracts |
| $ | 770 |
| Product sales |
| $ | — |
| Product sales |
| $ | 1 |
Foreign currency exchange forward contracts |
|
| — |
| Other revenue |
|
| — |
| Other revenue |
|
| — |
Interest rate swap |
|
| — |
| Other income (expense) |
|
| — |
| Other income (expense) |
|
| — |
Foreign currency exchange purchased option contracts |
|
| (175) |
| Product sales |
|
| — |
| Product sales |
|
| — |
Certain cash flow hedges related to foreign currency exchange risk previously designated as hedges ceased to qualify for hedge accounting treatment and the Partnership discontinued hedge accounting for such hedged transactions on December 31, 2017. As of December 31, 2017, $1.6 million of loss included in accumulated other comprehensive income was reclassified to earnings. As of December 31, 2017, the estimated net amounts of existing gains and losses in accumulated other comprehensive income associated with derivative instruments expected to be transferred to the consolidated statement of income is a gain of $0.1 million during the next twelve months.
The Partnership enters
| Amount of Gain in Other Comprehensive Income on Derivative (Effective Portion) | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Effective Portion) | Amount of Gain 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 | Product sales | — | Product sales | (470 | ) | |||||||||
| Interest rate swap | 374 | Interest expense | 231 | Interest expense | (13 | ) | |||||||||
107
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 notional amounts of outstanding derivative instruments associated with outstanding or unsettled derivative instruments as of December 31, 20172019 and 2018 were as follows:
|
|
|
|
Foreign exchange forward contracts in GBP |
| £ | 46,465 |
Foreign exchange purchased option contracts in GBP |
| £ | 34,050 |
Foreign exchange forward contracts in EUR |
| € | 5,350 |
Interest rate swap |
| $ | 44,756 |
The Prior Credit Agreement required the Predecessor to swap a minimum of 50% of the term loan balance outstanding under the Prior Senior Secured Credit Facilities. In connection with the issuance of the Prior Senior Secured Credit Facilities (see Note 12, Long-Term Debt and Capital Lease Obligations), the Predecessor entered into floating-to-fixed interest rate swaps (the Partnership received a floating market rate and paid a fixed interest rate) to manage the interest rate exposure related to the Prior Senior Secured Credit Facilities. All indebtedness outstanding under the Prior Senior Secured Credit Facilities was repaid in full on April 9, 2015, and the Partnership terminated the related rate interest rate swaps and paid a termination fee of $0.1 million.
The Partnership did not have derivative instruments designated as cash flow hedges during the year ended December 31, 2015.
(9)
| 2019 | 2018 | ||||||
| Foreign exchange forward contracts in GBP | £ | 50,575 | £ | 42,170 | |||
| Foreign exchange purchased option contracts in GBP | £ | 43,415 | £ | 39,365 | |||
| Foreign exchange forward contracts in EUR | € | — | € | 14,300 | |||
| Foreign exchange purchased option contracts in EUR | € | 1,200 | € | 1,675 | |||
| Interest rate swap | $ | 34,354 | $ | 39,829 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 |
| December 31, 2016 | ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair | ||||
|
| Amount |
| Value |
| Amount |
| Value | ||||
Senior Notes |
| $ | 352,224 |
| $ | 374,624 |
| $ | 293,797 |
| $ | 306,547 |
Other long-term debt and capital lease obligations |
|
| 48,793 |
|
| 48,793 |
|
| 57,283 |
|
| 57,283 |
Total long-term debt and capital lease obligations |
| $ | 401,017 |
| $ | 423,417 |
| $ | 351,080 |
| $ | 363,830 |
The fair value of the long-term debt and capitalfinance lease obligations are estimated based upon rates currently available for debt and capitalfinance lease obligations with similar terms and remaining maturities.
108
| December 31, 2019 | December 31, 2018 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
| 2026 Notes | $ | 593,476 | $ | 644,250 | $ | — | $ | — | |||||||
| 2021 Notes (1) | — | — | 352,843 | 359,943 | |||||||||||
| Other long-term debt and finance lease obligations | 9,544 | 9,544 | 79,812 | 79,812 | |||||||||||
| Total long-term debt and finance lease obligations | $ | 603,020 | $ | 653,794 | $ | 432,655 | $ | 439,755 | |||||||
ENVIVA PARTNERS, LP AND SUBSIDIARIES
(1) Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(10) Goodwill and Other Intangible Assets
Intangible Assets
Intangible assets consistedwere redeemed in December 2019 from proceeds from the issuance of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 |
| December 31, 2016 | ||||||||||||||
|
|
|
|
| Gross |
|
|
|
| Net |
| Gross |
|
|
|
| Net | ||||
|
| Amortization |
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying | |||||||
|
| Period |
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | |||||||
Favorable customer contracts |
| 3 | years |
| $ | 8,700 |
| $ | (8,591) |
| $ | 109 |
| $ | 8,700 |
| $ | (7,468) |
| $ | 1,232 |
Wood pellet contract |
| 6 | years |
|
| 1,750 |
|
| (1,750) |
|
| — |
|
| 1,750 |
|
| (1,611) |
|
| 139 |
Total intangible assets |
|
|
|
| $ | 10,450 |
| $ | (10,341) |
| $ | 109 |
| $ | 10,450 |
| $ | (9,079) |
| $ | 1,371 |
Intangible assets include favorable customer contracts acquired in connection with the Partnership’s purchase of Green Circle in January 2015. The Partnership also recorded payments made to acquire a six-year wood pellet contract with a European utility in 2010 as an intangible asset. These costs are recoverable through the future revenue streams generated from the associated contract2026 Notes. For more information, see Note 14, Long-Term Debt and are closely related to the revenue from the customer contracts. The Partnership amortizes the customer contract intangible assets as deliveries are completed during the respective contract terms. During the years ended December 31, 2017, 2016 and 2015, of $1.3 million, $2.0 million and $6.0 million, respectively, of amortization was included in cost of goods sold in the accompanying consolidated statements of income. The remaining amortization expense of $0.1 million will be recognized in 2018.
Finance Lease Obligations.
In 2015, the Partnership recorded an addition to goodwill of
(11)2010.
The Partnership had a controlling interest in Wiggins, an entity that owned a wood pellet plant in Stone County, Mississippi. and Dissolution
The Partnership worked with prospective buyers throughout 2017, including the buyer from the December 2016 agreement. On December 27, 2017, the Partnershipwe 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. Onoperations. In December 28, 2017, Wiggins was dissolved.
| 2019 | 2018 | ||||||
| 2026 Notes, net of unamortized discount, premium and debt issuance of $6.5 million as of December 31, 2019 | $ | 593,476 | $ | — | |||
| 2021 Notes, net of unamortized discount, premium and debt issuance of $2.2 million as of December 31, 2018 | — | 352,843 | |||||
| Senior secured revolving credit facility | — | 73,000 | |||||
| Other loans | 2,006 | 2,015 | |||||
| Finance leases | 7,538 | 4,797 | |||||
| Total long-term debt and finance lease obligations | 603,020 | 432,655 | |||||
| Less current portion of long-term debt and finance lease obligations | (6,590 | ) | (2,722 | ) | |||
| Long-term debt and finance lease obligations, excluding current installments | $ | 596,430 | $ | 429,933 | |||
109
ENVIVA PARTNERS, LP AND SUBSIDIARIES
(12) Long-Term Debt
Senior Notes Due 2021
On November 1, 2016, the PartnershipDecember 12, 2019, Enviva Partners, LP, with its wholly owned subsidiary Enviva Partners Finance Corp., issued $550.0 million and Enviva Finance Corp. (together with the Partnership, the “Issuers”), Wilmington Trust, National Association, as trustee, and the guarantors party thereto entered into an indenture, as amended or supplemented (the “Indenture”) pursuant to which the Issuers issued $300.0$50.0 million, respectively, in aggregate principal amount of 8.5%6.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”) to eligible purchasers (the “Senior Notes Offering”)January 15, 2026 in a private placementplacements under Rule 144A and Regulation S of the Securities Act of 1933, as amended, for a total combined aggregate principal amount outstanding of $600.0 million. 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 2021 (the “Securities Act”“2021 Notes”)., including payment of the related redemption premium, (2) repay borrowings under our senior secured revolving credit facility, including payment of the related accrued interest, and (3) for general partnership purposes. Interest payments commenced on May 1, 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. We recorded $6.6 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). The Partnership recorded $6.4 million indebt issuance costs. original issue discountsdiscount and costspremium associated with the issuance of the Senior2026 Notes, which have been recorded as a deduction to long-term debt and capital leaseobligations.
The Partnership 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.
On October 10, 2017, pursuant to the Indenture, the Issuers issued and sold an additional $55.0 million in aggregate principal amount of Senior Notes to a purchaser (the “Additional Notes Purchaser”) at 106.25% of par value plus accrued interest from May 1, 2017. The additional Senior Notes have the same terms as the Senior Notes. The sale of the additional Senior Notes resulted in gross proceeds to the Issuers of approximately $60.0 million. The proceeds were used to repay borrowings under the Partnership’s 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 Additional Notes Purchaser 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). The additional Senior Notes will be treated together with the Senior Notes as a single class for all purposes under the Indenture. The Partnership 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 capitalfinance lease obligations.
At any time prior to November 1, 2018, the Issuers may redeem up to 35% of the aggregate principal amount of the Senior Notes (including any additional notes) issued under the Indenture at a redemption prices of 108.5% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, in an amount not greater than the net cash proceeds of one or more equity offerings by the Partnership, provided that:
|
|
|
|
On and after November 1, 2018, the IssuersWe 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 and, in some cases, plus a make-whole premium.
110
ENVIVA PARTNERS, LP AND SUBSIDIARIES
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 to Consolidated Financial Statements (Continued)
(In thousands, except numberand were expensed in December 2019 when we repaid $355.0 million of units, per unit amounts and unless otherwise noted)
|
|
|
|
Year: |
| Percentages |
|
2018 |
| 104.250 | % |
2019 |
| 102.125 | % |
2020 and thereafter |
| 100.000 | % |
aggregate principal amount of the 2021 Notes. The Senior2021 Notes contain certain non-financial covenants applicable toearly redemption was funded from the Partnership including, but not limited to (1) restricted payments, (2) incurrence of indebtedness and issuance of preferred securities, (3) liens, (4) dividendthe 2026 Notes.
0.50% per annum. As of December 31, 20172019 and 2016, the Partnership was2018, amounts paid were not material.
Senior Secured Credit Facilities
On April 9, 2015, the Partnership entered into a Credit Agreement (the “Credit Agreement”) providing for $199.5 million aggregate principal amount of senior secured credit facilities (the “Original Credit Facilities”). The Original Credit Facilities consisted of $174.5 million aggregate principal amount of borrowings and revolving credit commitments in an aggregate principal amount at any time outstanding, taken together with the face amount of letters of credit, not in excess of $25.0 million.
On December 11, 2015, the Partnership entered into the First Incremental Term Loan Assumption Agreement (the “Assumption Agreement”) providing for $36.5 million aggregate principal amount of incremental borrowings (the “Incremental Term Advances” and, together with the Original Credit Facilities, the “Senior Secured Credit Facilities”) under the Credit Agreement. In addition, on December 11, 2015, FiberCo, an affiliate and a wholly owned subsidiary of the Partnership’s sponsor, purchased $15.0 million aggregate principal amount of the borrowings, net of a 1.0% lender fee. On June 30, 2016, FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. The Partnership recorded $0.4 million as interest expense to this indebtedness during the year ended December 31, 2016.
On October 17, 2016, the Partnership entered into the Second Amendment to the Credit Agreement (the “Second Amendment”) under the Partnership’s Senior Secured Credit Facilities. Following the Sampson Drop-Down, the Second Amendment provided for an increase from $25.0 million to $100.0 million of the revolving credit commitments.
On December 14, 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, the Partnership recorded a $4.4 million loss on early retirement of debt obligation related to the repayments.
The Senior Secured Credit Facilities include a commitment fee payable on undrawn revolving credit facility commitmentsis not guaranteed by the Hamlet JV or secured by liens on its assets.
111
ENVIVA PARTNERS, LP AND SUBSIDIARIES
| Year Ending December 31: | ||||
| 2020 | $ | 6,590 | ||
| 2021 | 2,278 | |||
| 2022 | 295 | |||
| 2023 | 291 | |||
| 2024 and thereafter | 600,090 | |||
| Long-term debt and finance lease obligations | 609,544 | |||
| Unamortized premium | 1,735 | |||
| Unamortized debt issuance costs | (8,259 | ) | ||
| Total long-term debt and finance lease obligations | $ | 603,020 | ||
The Partnership can request loans under incremental facilities under the Credit Agreement2017, respectively.
The Credit Agreement contains certain covenants, restrictions and events of default including, but not limited to, a change of control restriction and limitations on the Partnership’s ability to (i) incur indebtedness, (ii) pay dividends or make other distributions, (iii) prepay, redeem or repurchase certain debt, (iv) make loans and investments, (v) sell assets, (vi) incur liens, (vii) enter into transactions with affiliates, (viii) consolidate or merge and (ix) assign certain material contracts to third parties or unrestricted subsidiaries. The Partnership will be restricted from making distributions if an event of default exists under the Credit Agreement or if the interest coverage ratio (determined as the ratio of consolidated EBITDA, as defined in the Credit Agreement, to consolidated interest expense, determined quarterly) is less than 2.25:1.00 at such time.
years ended December 31:
| 2019 | 2018 | 2017 | |||||||||
| Other revenue | $ | 1,789 | $ | 3,545 | $ | 5,912 | |||||
| Cost of goods sold | 111,491 | 84,148 | 69,445 | ||||||||
| General and administrative expenses | 24,492 | 17,096 | 15,132 | ||||||||
As of December 31, 2017 and December 31, 2016, the Partnership was in compliance with all covenants and restrictions associated with, and no events of default existed under, the Credit Agreement. The obligations under the Credit Agreement are guaranteed by certain of the Partnership’s subsidiaries and secured by liens on substantially all assets.
Prior Senior Secured Credit Facilities
In November 2012, the Predecessor entered into the Credit and Guaranty Agreement (the “Prior Credit Agreement”) that provided for a $120.0 million aggregate principal amount of senior secured credit facilities (the “Prior Senior Secured Credit Facilities”). All outstanding indebtedness under the Prior Senior Secured Credit Facilities was repaid in full, including related accrued interest, in the amount of $82.2 million on April 9, 2015. The Partnership funded the repayment with a portion of borrowings under the Original Credit Facilities. For the year ended December 31, 2015, the Partnership recorded a $4.7 million loss on early retirement of debt obligation related to the repayment.
Related-Party Notes Payable
On January 22, 2016, a non-controlling interest holderall direct or indirect internal or third-party expenses incurred by Enviva Management in Wiggins became the holder of the $3.3 million Wiggins 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 construction loan and working capital line outstanding principal of $3.1 million and an insignificant amount of accrued interest were repaid in full by Wiggins on the October 18, 2016 maturity date.
In connection with the January 5, 2015 acquisitionprovision of Cottondale (formerly ownedsuch services. The MSAs include rent-related amounts for noncancelable operating leases for office space in Maryland and North Carolina held by Green Circle),our sponsor. Under the sponsor made a term advanceHamlet JV MSA, to the extent allocated costs exceed the annual management fee, the additional costs are recorded with an increase to partners’ capital.
112
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Acquisition II, $50.0 million
In connection with the closing of the IPO on May 4, 2015, the related-party notes payable outstanding principal of $81.9 million and related accrued interest of $1.1 millionour MSAs were repaid by the Partnership to the sponsor. as follows:
| As of December 31, | 2019 | 2018 | ||||||
| Finished goods inventory | $ | 419 | $ | 1,244 | ||||
| Related-party payables | 18,703 | 19,015 | ||||||
| For the Year Ended December 31, | 2019 | 2018 | 2017 | |||||||||
| Cost of goods sold | $ | 63,377 | $ | 52,280 | $ | 49,875 | ||||||
| General and administrative expenses | 24,492 | 17,096 | 15,132 | |||||||||
Long-term debt, at carrying value are composed ofHamlet JV MSA were waived and recorded as an increase to partners’ capital.
|
|
|
|
|
|
|
|
|
|
|
| 2016 | |
|
| 2017 |
| (Recast) | ||
Senior Notes, net of unamortized discount, premium and debt issuance of $2.8 million as of December 31, 2017 and $6.2 million as of December 31, 2016 |
| $ | 352,224 |
| $ | 293,797 |
Senior Secured Credit Facilities, Tranche A-1 Advances, net of unamortized discount and debt issuance costs of $1.0 million as of December 31, 2017 and $1.4 million as of December 31, 2016 |
|
| 39,263 |
|
| 41,651 |
Senior Secured Credit Facilities, Tranche A-3 Advances, net of unamortized discount and debt issuance costs of $0.1 million as of December 31, 2017 and $0.2 million as of December 31, 2016 |
|
| 4,372 |
|
| 4,489 |
Senior Secured Credit Facilities, revolving credit commitments, at a Eurodollar Rate of 7.0% at December 31, 2016 |
|
| — |
|
| 6,500 |
Other loans |
|
| 2,023 |
|
| 2,759 |
Capital leases |
|
| 3,135 |
|
| 1,884 |
Total long-term debt and capital lease obligations |
|
| 401,017 |
|
| 351,080 |
Less current portion of long-term debt and capital lease obligations |
|
| (6,186) |
|
| (4,165) |
Long-term debt and capital lease obligations, excluding current installments |
| $ | 394,831 |
| $ | 346,915 |
The aggregate maturities of long-term debt and capital lease obligations, net of unamortized discount and debt issuance costs, are as follows:
|
|
|
|
Year Ended December 31: |
|
|
|
2018 |
| $ | 5,097 |
2019 |
|
| 5,301 |
2020 |
|
| 35,828 |
2021 |
|
| 354,788 |
2022 |
|
| 3 |
Thereafter |
|
| — |
Total long-term debt and capital lease obligations |
| $ | 401,017 |
Depreciation expense relating to assets held under capital lease obligations was $0.7 million, $0.2 million and $0.1 million for each of the yearsyear ended December 31, 2019, $19.7 million was recorded as an increase to partners’ capital and $7.7 million was recorded in cost of goods sold pursuant to the agreements we entered into on the date of acquisition of the Hamlet JV. The increases to partners’ capital are comprised of expenses waived under the First EVA MSA Fee Waiver and the Hamlet JV MSA Fee Waiver and reimbursement of construction cost overruns in excess of budgeted capital expenditures for the Hamlet plant. The net reduction in cost of goods sold comprises our receipt of a cost of cover deficiency fee from our sponsor pursuant to the Make-Whole Agreement as a result of Hamlet Operator’s failure to meet specified production levels, offset by the agreed-upon price due to Hamlet Operator for the pellets produced by the Hamlet plant that we have sold.
113
100
(13)
Related-party amounts included onIndemnification
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 (Recast) |
| 2015 (Recast) | |||
|
|
| |||||||
Other revenue |
| $ | 5,912 |
| $ | — |
| $ | — |
Cost of goods sold |
|
| 69,445 |
|
| 41,467 |
|
| 22,268 |
General and administrative expenses |
|
| 15,132 |
|
| 17,236 |
|
| 16,587 |
Management Services Agreement
On April 9, 2015, the Partnership, the General Partner, Enviva, LP, Enviva GP, LLC and certain subsidiaries of Enviva, LP (collectively, the “Service Recipients”) entered into a five-year Management Services Agreement (the “MSA”) with Enviva Management (the “Provider”), a wholly owned subsidiary of the sponsor, pursuant to which the Provider provides the Service Recipients with operations, general administrative, management and other services (the “Services”). Under the terms of the MSA, the Service Recipients 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 provision of the Services, including, without limitation: (i) the portion of the salary and benefits of the employees engaged in providing the Services reasonably allocable to the Service Recipients; (ii) the charges and expenses of any third party retained to provide any portion of the Services; (iii) office rent and expenses and other overhead costs incurred in connection with, or reasonably allocable to, providing the Services; (iv) amounts related to the payment of taxes related to the business of the Service Recipients; and (v) costs and expenses incurred in connection with the formation, capitalization, business or other activities of the Provider pursuant to the MSA.
Direct or indirect internal or third-party expenses incurred are either directly identifiable or allocated to the Partnership 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 the Partnership. Each month, the Provider allocates the actual costs accumulated in the financial accounting system using these estimates. The Provider also charges the Partnership for any directly identifiable costs such as goods or services provided at the Partnership’s request.
During the year ended December 31, 2017, the Partnership incurred $65.5 million related to the MSA. Of this amount, $49.9 million is included in cost of goods sold and $15.1 million is 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, the Partnership incurred $56.0 million related to the MSA. Of this amount, $37.9 million is included in cost of goods sold and $17.2 million is included in general and administrative expenses on the consolidated statements of income. At December 31, 2016, $0.9 million incurred under the MSA is included in finished goods inventory.
During the year ended December 31, 2015, the Partnership incurred $39.4 million related to the MSA. Of this amount, $22.3 million is included in cost of goods sold and $16.6 million is included in general and administrative expenses on the consolidated statements of income.
As of December 31, 2017, the Partnership had $19.6 million included in related-party payables primarily related to the MSA. As of December 31 2016, the Partnership had $10.9 million included in related-party payables primarily related to the MSA.
114
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Common Control Transactions
Cottondale
On January 5, 2015, the sponsor acquired Green Circle, which owned the Cottondale plant. Acquisition I contributed Green Circle to the Partnership in April 2015 in exchange for subordinated units in the Partnership. Prior to such contribution, the sponsor converted Green Circle into a Delaware limited liability company and changed the name of the entity to “Enviva Pellets Cottondale, LLC” (see Note 1, Description of Business and Basis of Presentation).
Southhampton Drop-Down
In connection with the closing of the Senior Secured Credit Facilities (see Note 12, Long-Term Debt and Capital Lease Obligations), on December 11, 2015, under the terms of a contribution agreement between the Partnership and the First HancockHamlet JV the First Hancock JV contributed to Enviva, LP, all of the issued and outstanding limited liability company interests in Southampton for total consideration of $131.0 million (see Note 1, Description of Business and Basis of Presentation).
Sampson 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 Sampson for total consideration of $175.0 million (see Note 1, Description of Business and Basis of Presentation(the “Sampson Drop-Down”), which owns a wood pellet production plant in Sampson County, North Carolina (the “Sampson plant”).
Wilmington Drop-Down
On October 2, 2017, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Wilmington for total consideration of $130.0 million (see Note 1, Description of Business and Basis of Presentation).
Related-Party Indemnification
In connection with the Sampson Drop-Down and the First HancockWilmington Drop-Down, the Hamlet JV agreed to indemnify the Partnership, itsus, our affiliates and its respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims (“Retained Matters”) related to the construction of the Sampson plant that were included in the net assets contributed. At December 31, 2016, accrued liabilities related to such indemnifiable amounts included $6.4 million related to work performed by certain vendors. The Partnership recorded a corresponding related-party receivable from the First Hancock JV of $6.4 million for reimbursement of such indemnifiable amounts. At December 31, 2017, the related-party receivable associated with such amounts was $3.0 million.
In connection with the Wilmington Drop-Down, the First Hancock JV agreed to indemnify the Partnership, its affiliates, and itsour 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 ofSampson plant and the Wilmington terminal that were included in the net assets contributed. The Partnershipwe acquired.
As of December 31, 2019, any reimbursement of indemnifiable amounts were eliminated upon consolidation.
115
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Partnershipus to repair or replace certain equipment at the Sampson plant following the consummation of the Sampson Drop-Down.
Terminal Services Agreements
On As of December 14, 2016, Enviva, LP31, 2018, $2.9 million was received and Wilmingtonno further amounts are outstanding.
In connection withincluded the Wilmington Drop-Down, Wilmington and theHoldings TSA, pursuant to which our sponsor entered intoagreed to deliver a terminal services agreement dated October 2, 2017 providingminimum of 125,000 MT of wood pellets per quarter 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 thesuch terminal services. The Holdings TSA remains in effect until September 1, 2026. During the year ended December 31, 2019, there was no terminal services revenue from our sponsor. During the years ended December 31, 2018 and 2017, the Partnershipwe recorded $0.8 million and $2.8 million, respectively, as terminal services revenue from our sponsor, which is included in “Otherother revenue.” The Partnership had no terminal services revenue
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 the Partnership’s sponsor, Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) (the “Second Hancock JV”).
Enviva FiberCo, LLC
The Partnership purchases raw materials from FiberCo. Raw material purchases during the years ended December 31, 2017 and 2016 from FiberCo were $8.5 million and $3.7 million, respectively. Raw material purchases from FiberCo were insignificant for the year ended December 31, 2015.
2017.
On April 9, 2015, Enviva, LP
On September 7, 2016, Sampson entered into a confirmation under the Biomass Purchase Agreement pursuant to which Sampson agreed to sell to theour sponsor 60,000 MT of wood pellets through August 31, 2017. On June 23, 2017, theour sponsor satisfied its take-or-pay obligation under the agreement with a $2.7 million payment to the Partnership,us, which is included in “Otherother revenue.”
On September 26, 2016, Enviva, LP and Sampson entered into two confirmations under the Biomass Purchase Agreement pursuant to which Enviva, LP agreed to sell to Sampson 140,000 MT of wood pellets, and Sampson agreed to sell to Enviva, LP 140,000 MT of wood pellets. The confirmation pursuant to which Enviva, LP agreed to sell wood pellets to Sampson under the Biomass Purchase Agreement was terminated in connection with the Sampson Drop-Down.
116
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Biomass Option Agreement – Enviva Holdings, LP
On
accordance with its terms in March 2018.
EVA-MGT Contracts
In January 2016 the Partnership 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 GBP thereafter.
The Partnership entered into a second supply agreement with the First Hancock JVMSA, in connection with the Sampson Drop‑Down to supply an additional 95,000 MTPYvesting and settlement of performance-based phantom unit awards granted under the contracted volume toLTIP. During the Tees REP. The contract, which is denominatedyear ended December 31, 2019, no common units were purchased from our sponsor in GBP, commences in 2019connection with the vesting and continues through 2034.
(14)settlement of performance-based phantom unit awards granted under the LTIP.
The Partnership’s
The Partnership’s consolidated statement
117
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Acquisition I, LLC, and Acquisition II were each treated as a corporation for federal income tax purposes until April 7, 2015 and April 8, 2015, respectively. Prior
(15) Partners’ Capital
In connection with the closing of the IPO, the Partnership recapitalized the outstanding limited partner interests held by the sponsor into 405,138 common units and 11,905,138 subordinated units representing a 51.7% ownership interest in the Partnership as of the closing of the IPO. On December 11, 2015, the Partnership issued 942,023 common units to a wholly owned subsidiary of the sponsor in connection with the Southampton Drop-Down. In addition, the sponsor is the owner of the General Partner and81,708 common units, which were used to satisfy our obligation to settle vested performance-based phantom unit awards granted under the General Partner holdsLTIP. On May 9, 2018, our sponsor sold to third parties all of the IDRs.
Subordinated Units
1,265,453 common units held by our sponsor on such date. All of theour subordinated units, will convertwhich at the time were held by our sponsor, converted into common units on a one‑for‑oneone-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 our sponsor. On April 2, 2019, in connection with the Hamlet Drop-Down, we issued 1,681,237 common units, or $50.0 million in common units, to our sponsor.
terms and conditions set forth in such agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).
(Loss)
At-the-Market Offering Program
On August 8, 2016, the Partnership filed a prospectus supplement to the shelf registration filed with the SEC on June 24, 2016, for the registration
118
ENVIVA PARTNERS, LP AND SUBSIDIARIES
During the year ended December 31, 2016, the Partnership sold 358,593 common units under the Equity Distribution Agreement for net proceeds of $9.3 million, net of $0.1 million of commissions. Deferred issuance costs of approximately $0.4 million, primarily consisting of legal, accounting and other fees, were offset against the proceeds. 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, the Partnership issued 1,098,415 unregistered common units at a price of $27.31 per unit, or $30.0 million of common units, to affiliates of John Hancock Life Insurance Company (U.S.A.) (see Note 4, Transactions Between Entities Under Common Control).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payment to | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| General | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Partner for | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Incentive | |
|
| Declaration |
| Record |
| Payment |
| Distribution |
| Total Cash |
| Distribution | |||
Quarter Ended |
| Date |
| Date |
| Date |
| Per Unit |
| Distribution |
| Rights | |||
March 31, 2016 |
| May 4, 2016 |
| May 16, 2016 |
| May 27, 2016 |
| $ | 0.5100 |
| $ | 12.6 |
| $ | 0.2 |
June 30, 2016 |
| August 3, 2016 |
| August 15, 2016 |
| August 29, 2016 |
| $ | 0.5250 |
| $ | 13.0 |
| $ | 0.3 |
September 30, 2016 |
| November 2, 2016 |
| November 14, 2016 |
| November 29, 2016 |
| $ | 0.5300 |
| $ | 13.3 |
| $ | 0.3 |
December 31, 2016 |
| February 1, 2017 |
| February 15, 2017 |
| February 28, 2017 |
| $ | 0.5350 |
| $ | 14.1 |
| $ | 0.4 |
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 |
| Quarter Ended | Declaration Date | Record Date | Payment Date | Distribution Per Unit | Total Cash Distribution | Total Payment to General Partner for Incentive Distribution Rights | ||||||||||||
| 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 | |||||||||
| March 31, 2019 | May 2, 2019 | May 20, 2019 | May 29, 2019 | $ | 0.6450 | $ | 21.6 | $ | 2.3 | |||||||||
| June 30, 2019 | July 31, 2019 | August 15, 2019 | August 29, 2019 | $ | 0.6600 | $ | 22.1 | $ | 2.8 | |||||||||
| September 30, 2019 | October 30, 2019 | November 15, 2019 | November 29, 2019 | $ | 0.6700 | $ | 22.4 | $ | 3.1 | |||||||||
| December 31, 2019 | January 29, 2020 | February 14, 2020 | February 28, 2020 | $ | 0.6750 | $ | 22.7 | $ | 3.3 | |||||||||
The Partnership determines
119
accumulated other comprehensive income:
Balance at December 31, 2017 $ (3,040 ) Net unrealized gains on cash flow hedges 5,655 Reclassification of net gains on cash flow hedges realized into net income (2,178 ) Currency translation adjustment 2 Accumulated other comprehensive income at December 31, 2018 439 Net unrealized losses on cash flow hedges (146 ) Reclassification of net gains on cash flow hedges realized into net loss (288 ) Cumulative effect of accounting change - derivative instruments 18 Accumulated other comprehensive income at December 31, 2019 $ 23
Accumulated Other Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, and gains and losses that under GAAP are included in comprehensive income but excluded from net income. The Partnership’s other comprehensive income for 2017 and 2016 consists of unrealized gains and losses related to derivative instruments accounted for as cash flow hedges. There was no other comprehensive income for the year ended December 31, 2015.
The following table presents the changes in accumulated other comprehensive income:
| |||
| |||
| |||
| |||
|
|
| |
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
|
| |
Noncontrolling Interests—Enviva Pellets Wiggins, LLC
On December 27, 2017, the Partnershipwe 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, which is included in general and administrative expenses. OnIn December 28, 2017, Wiggins was dissolved along with associated noncontrolling interests.dissolved. Upon dissolution, no amounts were distributed to the non-controlling interest holders and all intercompany balances were forgiven (see Note 11,13, Assets Held for Sale and Dissolution).
Sampsonin exchange for capital contributions at a price of $1.00 for each Class A Unit.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(16)(18) Equity-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance-Based |
| Total Affiliate Grant | ||||||
|
| Phantom Units |
| Phantom Units |
| Phantom Units | |||||||||
|
|
|
| Weighted- |
|
|
| Weighted- |
|
|
| Weighted- | |||
|
|
|
| Average |
|
|
| Average |
|
|
| Average | |||
|
|
|
| Grant Date |
|
|
| Grant Date |
|
|
| Grant Date | |||
|
|
|
| Fair Value |
|
|
| Fair Value |
|
|
| Fair Value | |||
|
| Units |
| (per unit)(1) |
| Units |
| (per unit)(1) |
| Units |
| (per unit)(1) | |||
Nonvested December 31, 2014 |
| — |
| $ | — |
| — |
| $ | — |
| — |
| $ | — |
Granted |
| 200,351 |
| $ | 20.62 |
| 81,803 |
| $ | 20.36 |
| 282,154 |
| $ | 20.54 |
Forfeitures |
| (12,230) |
| $ | 21.26 |
| — |
| $ | — |
| (12,230) |
| $ | 21.26 |
Vested |
| — |
| $ | — |
| — |
| $ | — |
| — |
| $ | — |
Nonvested December 31, 2015 |
| 188,121 |
| $ | 20.58 |
| 81,803 |
| $ | 20.36 |
| 269,924 |
| $ | 20.51 |
Granted |
| 207,404 |
| $ | 18.32 |
| 174,045 |
| $ | 19.16 |
| 381,449 |
| $ | 18.71 |
Forfeitures |
| (49,372) |
| $ | 19.93 |
| (20,493) |
| $ | 20.57 |
| (69,865) |
| $ | 20.11 |
Vested |
| — |
| $ | — |
| — |
| $ | — |
| — |
| $ | — |
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 |
| 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, 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 | |||||||||||
| 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 | |||||||||||
| (1) | Determined by dividing the aggregate grant date fair value of awards by the number of awards issued. |
Phantom units subject to the
121
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 Affiliate Grants granted during 20172019 and 2018 was $10.6$18.7 million and $16.6 million, respectively, based on the market price per unit on the applicable date of grant. These units are accounted for as if they are distributed byThe grant date fair value of performance-based Affiliate Grants is reported based on the Partnership.probable outcome of the performance conditions on the grant date. The fair value of the Affiliate Grants is remeasuredexpensed by Enviva Management at the Provider at each reporting period until the awardgrant date. Compensation expense is settled. Compensation cost recorded each period will vary based on the change in the award’sgrant date fair value. Changes in unit-based compensation expense due to passage of time, forfeitures, probability of meeting required performance conditions and final settlements are recorded as adjustments to unit-based compensation expense and partners’ capital. For awards with performance goals, theperformance-based Affiliate Grants, expense is accrued only if the performance goals are considered to be probable of occurring. The Provider
during the fourth quarter of 2017, $1.6 million of unit-based compensation with respect to performance-based Affiliate Grants was reversed as the related performance goals were not met. As performance goals were met during 2018, no unit-based compensation with respect to performance-based Affiliate Grants expense was adjusted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance-Based |
| Total Director Grant | ||||||
|
| Phantom Units |
| Phantom Units |
| Phantom Units | |||||||||
|
|
|
| Weighted- |
|
|
| Weighted- |
|
|
| Weighted- | |||
|
|
|
| Average |
|
|
| Average |
|
|
| Average | |||
|
|
|
| Grant Date |
|
|
| Grant Date |
|
|
| Grant Date | |||
|
|
|
| Fair Value |
|
|
| Fair Value |
|
|
| Fair Value | |||
|
| Units |
| (per unit)(1) |
| Units |
| (per unit)(1) |
| Units |
| (per unit)(1) | |||
Nonvested December 31, 2014 |
| — |
| $ | — |
| — |
| $ | — |
| — |
| $ | — |
Granted |
| 14,112 |
| $ | 21.26 |
| — |
| $ | — |
| 14,112 |
| $ | 21.26 |
Forfeitures |
| — |
| $ | — |
| — |
| $ | — |
| — |
| $ | — |
Vested |
| — |
| $ | — |
| — |
| $ | — |
| — |
| $ | — |
Nonvested December 31, 2015 |
| 14,112 |
| $ | 21.26 |
| — |
| $ | — |
| 14,112 |
| $ | 21.26 |
Granted |
| 17,724 |
| $ | 22.57 |
| — |
| $ | — |
| 17,724 |
| $ | 22.57 |
Forfeitures |
| — |
| $ | — |
| — |
| $ | — |
| — |
| $ | — |
Vested |
| (14,112) |
| $ | 21.26 |
| — |
| $ | — |
| (14,112) |
| $ | 21.26 |
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 |
| Time-Based Phantom Units | ||||||
| Units | Weighted-Average Grant Date Fair Value (per unit)(1) | |||||
| Nonvested December 31, 2017 | 15,840 | $ | 25.25 | |||
| Granted | 13,964 | $ | 28.65 | |||
| Vested | (15,840 | ) | $ | 25.25 | ||
| 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 | |||
| (1) | Determined by dividing the aggregate grant date fair value of awards by the number of awards issued. |
On
The remaining vesting period.
122
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Unpaid DER amountsdistributions unpaid related to the performance-based Affiliate Grants atwere as follows as of December 31, 2017 were $0.9 million. Unpaid DER amounts of $0.7 million are included in accrued liabilities and $0.2 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, 2016 were $0.6 million. Unpaid DER amounts of $0.4 million are included in accrued liabilities and $0.2 million are included in other long-term liabilities on the consolidated balance sheets. DER distributions are paid by an affiliate and were $1.0 million and $0.7 million for the years ended December 31, 2017 and 2016, respectively, and were insignificant for the year ended December 31, 2015. At December 31, 2017 and 2016, $0 and $0.4 million, respectively, of DER distributions are included in related-party accrued liabilities.
(17)31:
| 2019 | 2018 | |||||||
| Accrued liabilities | $ | 397 | $ | 419 | ||||
| Other long-term liabilities | 1,193 | 312 | ||||||
| Total unpaid DERs | $ | 1,590 | $ | 731 | ||||
123
| 2019 | 2018 | 2017 | |||||||||
| Net (loss) income available to partners | $ | (5,822 | ) | $ | 6,952 | $ | 14,373 | ||||
| Less net loss attributable to noncontrolling partners’ interests | — | — | 3,140 | ||||||||
| Net (loss) income available to Enviva Partners, LP | $ | (5,822 | ) | $ | 6,952 | $ | 17,513 | ||||
| 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 | ) | |||||||
| Enviva Partners, LP limited partners’ interest in net (loss) income | $ | (5,822 | ) | $ | 6,952 | $ | 20,562 | ||||
| Less: Distributions declared on: | |||||||||||
| Common units | $ | 88,761 | $ | 54,604 | $ | 34,033 | |||||
| Subordinated units through end of subordination period | — | 12,407 | 28,096 | ||||||||
| IDRs | 11,439 | 5,867 | 3,398 | ||||||||
| Total distributions declared | 100,200 | 72,878 | 65,527 | ||||||||
| Earnings less than distributions | $ | (106,022 | ) | $ | (65,926 | ) | $ | (44,965 | ) | ||
| Year Ended December 31, 2019 | Common Units | General Partner | ||||
| Weighted-average common units outstanding—basic | 31,791 | — | ||||
| Effect of nonvested phantom units | — | — | ||||
| Weighted-average common units outstanding—diluted | 31,791 | — | ||||
| Year Ended December 31, 2019 | Common Units | General Partner | Total | |||||||||
| Distributions declared | $ | 88,761 | $ | 11,439 | $ | 100,200 | ||||||
| Earnings less than distributions | (106,022 | ) | — | (106,022 | ) | |||||||
| Net (loss) income available to partners | $ | (17,261 | ) | $ | 11,439 | $ | (5,822 | ) | ||||
| Weighted-average units outstanding—basic and diluted | 31,791 | |||||||||||
| Net loss per limited partner unit—basic and diluted | $ | (0.54 | ) | |||||||||
The computation of net income (loss) per limited partner unit is a follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 | |||
|
| 2017 |
| (Recast) |
| (Recast) | |||
|
|
|
|
|
|
|
|
| |
Net income |
| $ | 14,373 |
| $ | 13,463 |
| $ | 17,563 |
Less net loss attributable to noncontrolling partners’ interests |
|
| 3,140 |
|
| 5,804 |
|
| 2,859 |
Net income attributable to Enviva Partners, LP |
| $ | 17,513 |
| $ | 19,267 |
| $ | 20,422 |
Less: Predecessor loss to May 4, 2015 (prior to IPO) |
| $ | — |
| $ | — |
|
| (2,132) |
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 income from inception to December 13, 2016 from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner |
|
| — |
|
| (3,231) |
|
| (1,815) |
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) |
|
| (937) |
Enviva Partners, LP limited partners’ interest in net income |
| $ | 20,562 |
| $ | 24,608 |
| $ | 19,042 |
Less: Distributions declared on: |
|
|
|
|
|
|
|
|
|
Common units |
| $ | 34,033 |
| $ | 26,933 |
| $ | 14,282 |
Subordinated units |
|
| 28,096 |
|
| 24,167 |
|
| 13,846 |
IDRs |
|
| 3,398 |
|
| 1,077 |
|
| — |
Total distributions declared |
|
| 65,527 |
|
| 52,177 |
|
| 28,128 |
Earnings less than distributions |
| $ | (44,965) |
| $ | (27,569) |
| $ | (9,086) |
Basic and diluted net income per limited partner unit is follows:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2017 | |||||||
|
| Common |
| Subordinated |
| General | |||
|
| Units |
| Units |
| 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 |
| Subordinated |
| General |
|
|
| |||
|
| Units |
| Units |
| 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 |
|
| — |
| $ | 1.30 |
Net income per limited partner unit—diluted |
| $ | 0.61 |
| $ | 0.65 |
|
| — |
| $ | 1.26 |
124
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, 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, 2016 | |||||||
|
| Common |
| Subordinated |
| General | |||
|
| Units |
| Units |
| 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 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2016 | ||||||||||
|
| Common |
| Subordinated |
| General |
|
| ||||
|
| Units |
| Units |
| 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 |
| $ | — |
| $ | 1.88 |
Net income per limited partner unit—diluted |
| $ | 0.91 |
| $ | 0.93 |
| $ | — |
| $ | 1.84 |
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2015 | |||||||
|
| Common |
| Subordinated |
| General | |||
|
| Units |
| Units |
| Partner | |||
|
|
| |||||||
Weighted-average common units outstanding—basic |
|
| 11,988 |
|
| 11,905 |
|
| — |
Effect of nonvested phantom units |
|
| 270 |
|
| — |
|
| — |
Weighted-average common units outstanding—diluted |
|
| 12,258 |
|
| 11,905 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2015 | ||||||||||
|
| Common |
| Subordinated |
| General |
|
| ||||
|
| Units |
| Units |
| Partner |
| Total | ||||
|
|
| ||||||||||
Distributions declared |
| $ | 14,282 |
| $ | 13,846 |
| $ | — |
| $ | 28,128 |
Earnings less than distributions |
|
| (4,721) |
|
| (4,365) |
|
| — |
|
| (9,086) |
Net income attributable to partners |
| $ | 9,561 |
| $ | 9,481 |
| $ | — |
| $ | 19,042 |
Weighted-average units outstanding—basic |
|
| 11,988 |
|
| 11,905 |
|
|
|
|
|
|
Weighted-average units outstanding—diluted |
|
| 12,258 |
|
| 11,905 |
|
|
|
|
|
|
Net income per limited partner unit—basic |
| $ | 0.80 |
| $ | 0.80 |
| $ | — |
| $ | 1.60 |
Net income per limited partner unit—diluted |
| $ | 0.79 |
| $ | 0.79 |
| $ | — |
| $ | 1.58 |
| 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 available to partners | $ | 884 | $ | 201 | $ | 5,867 | $ | 6,952 | ||||||||
| Weighted-average units outstanding—basic and diluted | 21,533 | 4,893 | ||||||||||||||
| Net income per limited partner unit—basic and diluted | $ | 0.04 | $ | 0.04 | ||||||||||||
125
| 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 available 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 | ||||||||||||
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(18)(20) Commitments and Contingencies
Shipping Event
During the fourth quarter of 2016, the Partnership re-purchased a shipment of wood pellets from one customer and subsequently sold it to another customer in a back-to-back 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, on June 8, 2017, the Shipowner submitted claims against Cottondale (the “Claims”) alleging damages of approximately $11.8 million (calculated using exchange rates as of December 31, 2017), 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.
Although it is reasonably possible that the Shipping Event may result in additional costs and liabilities for the Partnership’s account, responsibility for such costs and liabilities incurred in connection with the Shipping Event is disputed among the various parties involved. If any such costs and liabilities ultimately are allocated to the Partnership, a portion may be recovered under insurance. The Partnership believes it has meritorious defenses to the Claims, but is generally unable to predict the timing or outcome of any claims or proceedings, including the Claims, associated with the Shipping Event, or any insurance recoveries in respect thereof. Consequently, the Partnership is unable to provide an estimate of the amount or range of possible loss.
Operating Leases
The MSA fee charged by Enviva Holdings, LP to the Partnership includes rent related amounts for a noncancelable operating lease for office space in Maryland and North Carolina held by Enviva Holdings, LP. Other rent expense was insignificant for the years ended December 31, 2017, 2016 and 2015.
On February 20, 2015, the Wilmington terminal 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 which 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 15, 2021. The total estimated base rent payments over the life of the lease are estimated at $4.7 million.
On May 4, 2016, the Wilmington terminal and NCSPA entered into a second amendment to the Lease, which includes 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 estimated at $1.9 million annually.
Future minimum lease payments, excluding those charged under the MSA fee, for noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2017 are as follows:
|
|
|
|
2018 |
| $ | 3,737 |
2019 |
|
| 2,829 |
2020 |
|
| 2,738 |
2021 |
|
| 2,723 |
2022 |
|
| 2,535 |
Thereafter |
|
| 61,525 |
Total future minimum lease payments |
| $ | 76,087 |
126
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
The Partnership hasWe have entered into throughput agreements expiring between 2021 throughin 2023 to receive terminal and stevedoring services at the Partnership’s port facilities.certain of our terminals. 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 prices index, for a defined period of time, ranging from monthly to annual basis.annually. At December 31, 2017, the Partnership2019, we had approximately $35.3$12.2 million related to firm commitments under thesuch terminal services and stevedoring services agreements. For the years ended December 31, 2019, 2018 and 2017, 2016 and 2015, terminal services and stevedoring services expenses were $11.3 million, $9.8 million and $10.6 million, $10.3 million, and $7.1 million, respectively.
The Partnership has
The Partnership has
2017, respectively.
|
|
|
|
2018 |
| $ | 25,244 |
2019 |
|
| 27,294 |
2020 |
|
| 56,313 |
2021 |
|
| 93,033 |
2022 |
|
| 6,674 |
Thereafter |
|
| 6,674 |
Total |
| $ | 215,232 |
|
|
|
|
| 2020 | $ | 220,632 | |
| 2021 | 211,073 | ||
| 2022 | 75,350 | ||
| 2023 | 55,265 | ||
| 2024 | 50,644 | ||
| Total | $ | 612,964 | |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(19) Subsequent Events
Long-Term Incentive Plan
On January 31, 2018, 2018, the Board granted 13,964 Director Grants and 359,843 Affiliate Grants in tandem with corresponding DERs. The Director Grants vest on the first anniversary of the grant date. Of the total Affiliate Grants, 243,442 phantom units vest on the third anniversary of the grant date and 116,401 phantom units vest on the performance of specific milestones. The fair value of the Director Grants and Affiliate Grants was $10.7 million based on the market price per unit on the date of the grant.
Greenwood Contract
On February 16, 2018, the Partnership entered into a contract with a wholly owned subsidiary of the Second Hancock JV to purchase wood pellets produced by the Greenwood plant (the “Greenwood Contract”). Pursuant to the Greenwood Contract, the Partnership has agreed, subject to certain conditions, to purchase all of the production from the Greenwood plant from the date of acquiring the Greenwood plant through March 2022 and has a take-or-pay obligation for 550,000 MTPY (prorated for partial contract years) beginning in mid-2019.
(20)(21) Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First |
| Second |
| Third |
| Fourth |
|
|
| ||||
For the Year Ended December 31, 2017 |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Total | |||||
|
| (Recast) |
| (Recast) |
| (Recast) |
|
|
|
| |||||
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 |
| For the Year Ended December 31, 2019 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||||||
| Net revenue | $ | 158,369 | $ | 168,079 | $ | 157,405 | $ | 200,540 | $ | 684,393 | ||||||||||
| Gross margin | 9,907 | 16,507 | 26,466 | 28,188 | 81,068 | |||||||||||||||
| Net (loss) income | (8,923 | ) | (3,801 | ) | 8,852 | 929 | (2,943 | ) | ||||||||||||
| Enviva Partners, LP limited partners’ interest in net (loss) income | (8,923 | ) | (3,801 | ) | 8,852 | 929 | (2,943 | ) | ||||||||||||
| Basic (loss) income per limited partner common unit | $ | (0.42 | ) | $ | (0.20 | ) | $ | 0.15 | $ | (0.10 | ) | $ | (0.54 | ) | ||||||
| Diluted (loss) income per limited partner common unit | $ | (0.42 | ) | $ | (0.20 | ) | $ | 0.15 | $ | (0.10 | ) | $ | (0.54 | ) | ||||||
| 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 | |||||||||
128
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First |
| Second |
| Third |
| Fourth |
|
|
| ||||
For the Year Ended December 31, 2016 |
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Total | |||||
|
| (Recast) |
| (Recast) |
| (Recast) |
| (Recast) |
| (Recast) | |||||
Net revenue |
| $ | 107,252 |
| $ | 119,709 |
| $ | 110,794 |
| $ | 126,521 |
| $ | 464,276 |
Gross margin |
|
| 15,754 |
|
| 19,457 |
|
| 22,417 |
|
| 19,144 |
|
| 76,772 |
Net income (loss) |
|
| 4,933 |
|
| 9,144 |
|
| 9,028 |
|
| (9,642) |
|
| 13,463 |
Enviva Partners, LP limited partners’ interest in net income (loss) |
|
| 7,494 |
|
| 12,053 |
|
| 13,033 |
|
| (7,972) |
|
| 24,608 |
Basic income (loss) per limited partner common unit |
| $ | 0.30 |
| $ | 0.48 |
| $ | 0.51 |
| $ | (0.34) |
| $ | 0.95 |
Diluted income (loss) per limited partner common unit |
| $ | 0.29 |
| $ | 0.47 |
| $ | 0.50 |
| $ | (0.34) |
| $ | 0.91 |
Basic income (loss) per limited partner subordinated unit |
| $ | 0.30 |
| $ | 0.48 |
| $ | 0.51 |
| $ | (0.32) |
| $ | 0.93 |
Diluted income (loss) per limited partner subordinated unit |
| $ | 0.29 |
| $ | 0.47 |
| $ | 0.50 |
| $ | (0.32) |
| $ | 0.93 |
129
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(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.
130
ITEM 9.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
| ITEM 9A. | CONTROLS AND PROCEDURES |
Not applicable.
131
We have agreed to indemnify and hold KPMG LLP (KPMG) harmless against and from any and all legal costs and expenses incurred by KPMG in successful defense of any legal action or proceeding that arises as a result of KPMG’s consent to the incorporation by reference of KPMG’s audit reports on the Partnership’s and Enviva Wilmington Holdings, LLC’s financial statements incorporated by reference into the Partnership’s registration statements on Form S-8 (File No. 333-236150 and 333-203756) and Form S-3 (333-232247).
113
| ITEM 9B. | OTHER INFORMATION |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
2019.
132
115
Name of Beneficial Owner | Age | Position With Our General Partner | ||||||||||
John K. Keppler |
| Chairman, President and Chief Executive Officer | ||||||||||
|
| Executive Vice President and Chief Financial Officer | ||||||||||
Thomas Meth |
| Executive Vice President, Sales and Marketing | ||||||||||
William H. Schmidt, Jr. |
| Executive Vice President, Corporate Development and General Counsel | ||||||||||
E. Royal Smith |
| Executive Vice President, Operations | ||||||||||
|
| Executive Vice President, | Human Capital | |||||||||
Yanina A. Kravtsova | 43 | Executive Vice President, Communications, Public and Environmental Affairs | ||||||||||
| Raymond J. Kaszuba, III |
| Senior Vice President, Finance and Treasurer | ||||||||||
Ralph Alexander |
| Director | ||||||||||
John C. Bumgarner, Jr. |
| Director | ||||||||||
Jim H. Derryberry | 75 | Director | ||||||||||
| Robin J. A. Duggan |
| Director | ||||||||||
|
|
| ||||||||||
Christopher B. Hunt |
| Director | ||||||||||
William K. Reilly |
| Director | ||||||||||
Gary L. Whitlock |
| Director | ||||||||||
Carl L. Williams |
| Director | ||||||||||
Janet S. Wong |
| Director | ||||||||||
133
116
Michael B. Hoffman. Mr. Hoffman has served as a director on the board of directors of our General Partner since our inception in November 2013. Mr. Hoffman is a partner of Riverstone, where he is principally responsible for investments in power and renewable energy for Riverstone’s funds. Mr. Hoffman is co‑head of Riverstone’s Renewable Energy Funds I and II. Before joining Riverstone in 2003, Mr. Hoffman was senior managing director and head of the mergers and acquisitions advisory business of The Blackstone Group for 15 years, where he also served on the firm’s principal group investment committee as well as its executive committee. Prior to joining Blackstone, Mr. Hoffman was managing director and co‑head of the mergers and acquisitions department of Smith Barney, Harris Upham & Co. In addition to serving on the boards of a number of Riverstone portfolio companies and their affiliates, Mr. Hoffman is chairman of the board of directors of Onconova Therapeutics Inc. He is also a member of the board of trustees of The Rockefeller University. We believe Mr. Hoffman’s extensive leadership and financial expertise enable him to contribute significant managerial, strategic and financial oversight skills to the board of directors of our General Partner and our management team.
134
Ralph Alexander. Mr. Alexander has served as director on the board of directors of our General Partner since our inception in November 2013. Mr. Alexander has served as the President and CEO of Talen Energy since December 2016. He became affiliated with Riverstone Holdings LLC in September 2007. For nearly 25 years, Mr. Alexander 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, he 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 currently serveshas 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.
135
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.
Janet S. Wong. Ms. Wong has served as a director on the board of directors of our General Partner since April 2015. Since January 2013, Ms. Wong has served as an Executive Advisor for Ascend, a non‑profit professional organization that enables its members, corporate partners and the community to realize the leadership potential of Pan‑Asians in global corporations. At Ascend, Ms. Wong has been a co‑developer and instructor for its Executive Insight courses. In 2015, Ms. Wong was elected to serve on the Audit Committee for the American Heart Association as well as the Budget Review Subcommittee. In addition, she serves on the Louisiana Tech University Foundation Board and the College 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 was the Central Region 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. She holds a Master of Professional Accountancy from Louisiana Tech University and a Master of Taxation from Golden Gate University. We believe Ms. Wong’s audit expertise and her professional and leadership experience enable her to provide essential guidance to the board of directors of our General Partner and our management team.
Christopher B. Hunt. Mr. Hunt has served as a director on the board of directors of our General Partner since April 2016. Mr. Hunt is a managing director of Riverstone 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.
136
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.
137
Any matters approved by the conflicts committee will be conclusively deemed to be approved by us and all of our partners and not a breach by our General Partner of any duties it may owe us or our unitholders. Due to the related‑party nature of the Wilmington Drop‑Down, the
Compensation Committee
As a limited partnership listed on the NYSE, we are not required to have a compensation committee. However, in connection with our IPO, the board of directors of our General Partnerhas established a compensationhealth, safety, sustainability and environmental committee consisting of Mr. Alexander, Mr. Bumgarner and Mr. Hoffman 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 benefits of the non‑employee members of the board.
Health, Safety, Sustainability and Environmental Committee
In connection with our IPO, the board of directors of our General Partner formed a Health, Safety, Sustainability and Environmental Committee (the “HSSE committee”) consisting of Mr. Duggan and Mr. Reilly. The HSSE committee assists the board of directors of our General Partner in fulfilling its oversight responsibilities with respect to the board’s and our continuing commitment to (i)(1) 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, (ii)(2) sustainability, including sustainable forestry practices, (iii)(3) delivering environmental benefits to our customers, the forests from which we source our wood fiber and the communities in which we operate and (iv)(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.
138
and marking the envelope containing each communication as “Unitholder Communication with Directors” and clearly identifying the intended recipient(s) of the communication. Communications will be relayed to the intended recipient of the board of directors of our General Partner pursuant to the Communications Policy, which is available on the “Investors“Investor Relations” section of our website at http://www.envivabiomass.com. Any communications withheld under the Communications Policy will nonetheless be recorded and available for any director who wishes to review them.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a)
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, 2017, Mr. Gary Whitlock, a member of the board of directors of our General Partner, failed to 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 August 2, 2017, Mr. Whitlock was issued 505 common units in connection with his annual compensation. The Form 4 required to be filed by Mr. Whitlock in connection with this issuance was filed on October 27, 2017.
ITEM 11. EXECUTIVE COMPENSATIONContents
| ITEM 11. | EXECUTIVE COMPENSATION |
Management Company, LLC (“Enviva Management”).
|
|
|
|
|
|
139
affiliates, and such decisions are not subject to any approval by us or our General Partner’s board of directors or any committees thereof. Other than awards that may be granted under the LTIP, Enviva Management and its affiliates have the ultimate decision‑making authority with respect to the total compensation of our executive officers and employees.
officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unit |
| All Other |
|
|
| ||
Name and Principal Position |
| Year |
| Salary ($) |
| Bonus ($)(1) |
| Awards(2) |
| Compensation(3) |
| Total ($) | |||||
John K. Keppler |
| 2017 |
| $ | 214,000 |
| $ | 313,200 |
| $ | 534,997 |
| $ | 4,889 |
| $ | 1,067,086 |
(Chairman of the Board of |
| 2016 |
| $ | 212,913 |
| $ | 433,350 |
| $ | 440,998 |
| $ | — |
| $ | 1,087,261 |
Directors, President and Chief |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Royal Smith |
| 2017 |
| $ | 255,000 |
| $ | 191,250 |
| $ | 382,505 |
| $ | 9,925 |
| $ | 838,680 |
(Executive Vice President, |
| 2016 |
| $ | 253,758 |
| $ | 261,900 |
| $ | 146,881 |
| $ | 6,600 |
| $ | 669,139 |
Operations) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen F. Reeves |
| 2017 |
| $ | 193,000 |
| $ | 142,500 |
| $ | 385,997 |
| $ | 5,368 |
| $ | 726,865 |
(Executive Vice President and |
| 2016 |
| $ | 250,075 |
| $ | 243,875 |
| $ | 376,342 |
| $ | 5,168 |
| $ | 875,460 |
Chief Financial Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name and Principal Position | Year | Salary | Bonus (1) | Unit Awards (2) | All Other Compensation (3) | Total | ||||||||||||||||
| John K. Keppler | 2019 | $ | 170,885 | $ | 204,300 | $ | 642,712 | $ | 2,100 | $ | 1,019,997 | |||||||||||
| (Chairman of the Board of Directors, President and Chief Executive Officer) | 2018 | $ | 190,248 | $ | 269,925 | $ | 784,014 | $ | 2,355 | $ | 1,246,542 | |||||||||||
| E. Royal Smith | 2019 | $ | 238,606 | $ | 160,650 | $ | 522,318 | $ | 5,880 | $ | 927,454 | |||||||||||
| (Executive Vice President, Operations) | 2018 | $ | 178,480 | $ | 110,149 | $ | 728,566 | $ | 4,496 | $ | 1,021,691 | |||||||||||
| Shai S. Even (4) | 2019 | $ | 109,614 | $ | 105,060 | $ | 273,594 | $ | 2,100 | $ | 490,368 | |||||||||||
| (Executive Vice President and Chief Financial Officer) | 2018 | $ | 98,780 | $ | 168,096 | $ | 467,487 | $ | 835 | $ | 735,198 | |||||||||||
| (1) |
|
| (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 |
| (3) | Amounts reported in the “All Other Compensation” column reflect employer contributions to the |
| (4) | Amounts reported for Mr. Even for 2018 reflect compensation received beginning on June 4, 2018, the date Mr. Even assumed employment with Enviva Management. |
140
NARRATIVE DISCLOSURE TO THE SUMMARY COMPENSATION TABLE
Effective April 9, 2015, the
On February 1, 2017, the
141
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Option Awards(1) |
| Unit Awards | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Incentive |
| Equity | ||
|
| Number |
| Number of |
|
|
|
|
|
|
|
|
| Plan Awards: |
| Incentive | ||
|
| of Securities |
| Securities |
|
|
|
|
|
|
|
|
| Number of |
| Plan Awards: | ||
|
| Underlying |
| Underlying |
|
|
|
|
|
|
|
|
| Unearned |
| Market Value | ||
|
| Unexercised |
| Unexercised |
|
|
|
|
| Number of |
| Market Value |
| Performance- |
| of Unearned | ||
|
| Options |
| Options |
| Option |
| Option |
| Units That |
| of Units That |
| based Units |
| Units That | ||
|
| Unexercisable |
| Exercisable |
| Exercise |
| Expiration |
| Have Not |
| Have Not |
| That Have |
| Have Not | ||
Name |
| (#)(2) |
| (#)(3) |
| Price ($) |
| Date ($) |
| Vested(#)(5) |
| Vested($)(6) |
| Not Vested(#) |
| Vested($)(7) | ||
John K. Keppler |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C-1 Units |
| — |
| 232,941 |
| N/A | (4) | N/A | (4) |
|
|
|
|
|
|
|
|
|
Class C-2 Units |
| — |
| 666,000 |
| N/A | (4) | N/A | (4) |
|
|
|
|
|
|
|
|
|
Class E-1 Units |
| — |
| 275,000 |
| N/A | (4) | N/A | (4) |
|
|
|
|
|
|
|
|
|
Phantom Units |
|
|
|
|
|
|
|
|
| 69,544 |
| $ | 1,922,892 |
| 34,772 |
| $ | 961,446 |
E. Royal Smith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C-4 Units |
| — |
| 175,000 |
| N/A | (4) | N/A | (4) |
|
|
|
|
|
|
|
|
|
Class E-1 Units |
| — |
| 25,000 |
| N/A | (4) | N/A | (4) |
|
|
|
|
|
|
|
|
|
Phantom Units |
|
|
|
|
|
|
|
|
| 17,130 |
| $ | 487,470 |
| 8,815 |
| $ | 243,735 |
Stephen F. Reeves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C-2 Units |
| — |
| 200,000 |
| N/A | (4) | N/A | (4) |
|
|
|
|
|
|
|
|
|
Class E-1 Units |
| — |
| 225,000 |
| N/A | (4) | N/A | (4) |
|
|
|
|
|
|
|
|
|
Phantom Units |
|
|
|
|
|
|
|
|
| 41,256 |
| $ | 1,140,728 |
| 20,628 |
| $ | 570,364 |
| 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 Units That Have Not Vested (6) | Equity Incentive Plan Awards: Market Value of Unearned Units That Have Not Vested (5) | ||||||||||||||||
| John K. Keppler | ||||||||||||||||||||||||
| Class C-1 Units | — | 232,941 | N/A | N/A | ||||||||||||||||||||
| Class C-2 Units | — | 660,000 | N/A | N/A | ||||||||||||||||||||
| Class E-1 Units | — | 275,000 | N/A | N/A | ||||||||||||||||||||
| Phantom Units | 121,903 | $ | 4,548,201 | 93,544 | $ | 3,490,127 | ||||||||||||||||||
| E. Royal Smith | ||||||||||||||||||||||||
| Class C-4 Units | — | 175,000 | N/A | N/A | ||||||||||||||||||||
| Class E-1 Units | — | 25,000 | N/A | N/A | ||||||||||||||||||||
| Phantom Units | 48,319 | $ | 1,802,782 | 29,623 | $ | 1,105,235 | ||||||||||||||||||
| Shai S. Even | ||||||||||||||||||||||||
| Phantom Units | 32,170 | $ | 1,200,263 | 32,170 | $ | 1,200,263 | ||||||||||||||||||
| (1) | The equity awards |
| (2) |
|
| Awards reflected as “Exercisable” are |
| ||
| (3) | These equity awards are not traditional |
| ||
| (4) | The amounts in this column reflect outstanding time-based phantom |
| Name | Vesting Date | Number of Time-Based Phantom Units to Vest |
| John K. Keppler | ||
| February 1, 2020 | 26,485 | |
| January 31, 2021 | 30,367 | |
| June 4, 2021 | 16,502 | |
| January 30, 2022 | 48,549 | |
| E. Royal Smith | ||
| February 1, 2020 | 8,911 | |
| January 31, 2021 | 9,438 | |
| June 4, 2021 | 16,502 | |
| January 30, 2022 | 13,468 | |
| Shai S. Even | ||
| June 4, 2021 | 14,027 | |
| January 30, 2022 | 18,143 | |
| ||
| (5) | The amounts reflected in this column represent the market value of |
| ||
| (6) | The |
142
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. MatchingAll matching contributions made during the first three years of an individual’s employment vest under the plan are subject to afollowing the satisfaction of an initial three‑year cliff vesting schedule.schedule; thereafter, all matching contributions vest immediately. All contributions under the plan are subject to certain annual dollar limitations, which are periodically adjusted for changes in the cost of living.
as required by law.
Underemployment agreement.
143
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) or solicit their employer’s or its affiliates’ employees, in each case, during the term of the agreement and for a period of one year thereafter.
Officers or employees of our predecessor or our sponsor or its affiliates who also serve as
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fees Earned |
| Common |
| Phantom |
|
| ||||
|
| or Paid in |
| Unit |
| Unit |
|
| ||||
Name |
| Cash ($)(1) |
| Awards ($)(2) |
| Awards ($)(3) |
| Total ($) | ||||
John C. Bumgarner, Jr. |
| $ | 191,000 |
| $ | — |
| $ | 99,990 |
| $ | 290,990 |
William K. Reilly |
| $ | 76,500 |
| $ | 22,618 |
| $ | 99,990 |
| $ | 199,108 |
Gary L. Whitlock |
| $ | 60,000 |
| $ | 56,009 |
| $ | 99,990 |
| $ | 215,999 |
Janet S. Wong |
| $ | 119,250 |
| $ | 17,259 |
| $ | 99,990 |
| $ | 236,499 |
| Name | Fees Earned in Cash | Unit Awards (1) | Total | |||||||||
| John C. Bumgarner, Jr. | $ | 193,121 | $ | 100,011 | $ | 293,132 | ||||||
| William K. Reilly | 121,421 | 100,011 | 221,432 | |||||||||
| Gary L. Whitlock | 146,121 | 100,011 | 246,132 | |||||||||
| Janet S. Wong | 162,621 | 100,011 | 262,632 | |||||||||
| Ralph Alexander (2) | 94,000 | — | 94,000 | |||||||||
| Jim H. Derryberry (2) | 96,500 | — | 96,500 | |||||||||
| Robin J. A. Duggan (2) | 93,750 | — | 93,750 | |||||||||
| Christopher B. Hunt (2) | 94,500 | — | 94,500 | |||||||||
| Carl L. Williams (2) | 101,250 | — | 101,250 | |||||||||
| (1) |
|
|
|
|
|
| (2) | Compensation of the Sponsor Directors for their service on the |
144
127
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Percentage of |
|
|
|
|
|
|
|
|
| Percentage of |
| Common and |
|
|
|
|
| Percentage of |
| Subordinated |
| Subordinated |
| Subordinated |
|
|
| Common Units |
| Common Units |
| Units |
| Units |
| Units |
|
|
| Beneficially |
| Beneficially |
| Beneficially |
| Beneficially |
| Beneficially |
|
Name of Beneficial Owner |
| Owned(1) |
| Owned |
| Owned |
| Owned |
| Owned |
|
Enviva Holdings, LP(2)(3)(4) |
| 1,265,453 |
| 8.8 | % | 11,905,138 |
| 100 | % | 50.0 | % |
Enviva Partners GP, LLC |
| — |
| — | % | — |
| — |
| — | % |
Goldman Sachs Asset Management(5) |
| 905,988 |
| 6.3 | % | — |
| — |
| 3.4 | % |
ClearBridge Investments, LLC(6) |
| 665,000 |
| 4.6 | % | — |
| — |
| 2.5 | % |
FS Global Credit Opportunities Fund(7) |
| 656,974 |
| 4.6 | % | — |
| — |
| 2.5 | % |
John K. Keppler |
| 24,558 |
| * |
| — |
| — |
| * | % |
Stephen F. Reeves |
| 12,492 |
| * |
| — |
| — |
| * | % |
E. Royal Smith |
| 4,205 |
| * |
| — |
| — |
| * | % |
Ralph Alexander |
| — |
| — | % | — |
| — |
| — | % |
John C. Bumgarner, Jr.(8) |
| 179,023 |
| 1.2 | % | — |
| — |
| * | % |
Robin J. A. Duggan |
| — |
| — | % | — |
| — |
| — | % |
Michael B. Hoffman |
| — |
| — | % | — |
| — |
| — | % |
Christopher B. Hunt |
| — |
| — | % | — |
| — |
| — | % |
William K. Reilly |
| 23,598 |
| * |
| — |
| — |
| * | % |
Gary L. Whitlock |
| 11,903 |
| * |
| — |
| — |
| * | % |
Carl L. Williams |
| — |
| — | % | — |
| — |
| — | % |
Janet S. Wong |
| 20,727 |
| * |
| — |
| — |
| * | % |
All directors and executive officers as a group (16 persons) |
| 306,124 |
| 2.1 | % | — |
| — |
| 1.2 | % |
| Name of Beneficial Owner | Common Units Beneficially Owned(1) | Percentage of Common Units Beneficially Owned | ||||
| Enviva Holdings, LP(2)(3)(4) | 13,586,375 | 40.43 | % | |||
| Enviva Partners GP, LLC | — | — | % | |||
| John Hancock Life Insurance Company (U.S.A.)(5) | 1,691,627 | 5.03 | % | |||
| ValueAct Holdings GP, LLC(6) | 2,104,261 | 6.26 | % | |||
| John K. Keppler | 73,754 | * | ||||
| E. Royal Smith | 15,788 | * | ||||
| Shai S. Even | — | — | ||||
| Ralph Alexander | — | — | ||||
| John C. Bumgarner, Jr.(7) | 185,830 | * | ||||
| Robin J. A. Duggan | — | — | ||||
| Jim H. Derryberry | — | — | ||||
| Christopher B. Hunt | — | — | ||||
| William K. Reilly | 30,405 | * | ||||
| Gary L. Whitlock | 20,510 | * | ||||
| Carl L. Williams | — | — | ||||
| Janet S. Wong | 27,534 | * | ||||
| All directors and executive officers as a group (17 persons) | 432,730 | 1.29 | % | |||
* Less than 1% of common units outstanding.
| |
| * | Less than 1% of common units outstanding. |
| (1) | This column does not include phantom |
| (2) | Of this aggregate amount beneficially owned, (i) Enviva MLP Holdco, LLC, a wholly owned subsidiary of Enviva Holdings, LP, has 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 dispositive power over 6,007,454 common units, (iii) Enviva Development Holdings, LLC, a wholly owned subsidiary of Enviva Holdings, LP has shared voting |
145
| (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 |
| (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) | John Hancock Life Insurance Company (U.S.A.) has beneficial ownership of 1,691,627 common units. It is an indirect, wholly owned subsidiary of Manulife Financial Corporation. |
| |
| (6) | ValueAct Holdings GP, LLC has beneficial ownership of |
| ||
| (7) |
|
|
|
| These |
146
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
| Number of |
|
|
|
|
|
| securities |
|
|
|
|
|
| remaining |
|
|
|
|
|
| available for |
|
| Number of |
|
|
| future issuance |
|
| securities to be |
| Weighted- |
| under equity |
|
| issued upon |
| average exercise |
| compensation |
|
| exercise of |
| price of |
| plans (excluding |
|
| outstanding |
| outstanding |
| securities |
|
| options, warrants |
| options, warrants |
| reflected in |
|
| and rights |
| and rights ($) |
| column (a)) |
Plan category |
| (a)(2) |
| (b)(3) |
| (c)(4) |
Equity compensation plans approved by security holders(1) |
| 1,091,947 |
| n/a |
| 2,738,182 |
Equity compensation plans not approved by security holders |
| — |
| — |
| — |
Total |
| 1,091,947 |
| n/a |
| 2,738,182 |
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)(2) | Weighted- average exercise price of outstanding options, warrants and rights ($) (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) | 1,322,820 | n/a | 690,414 | ||||||
| Equity compensation plans not approved by security holders | — | — | — | ||||||
| Total | 1,322,820 | n/a | 690,414 | ||||||
| (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 (i) the aggregate number of common units issuable upon settlement of outstanding time-based phantom units and (ii) the aggregate number of common units issuable upon settlement of outstanding performance-based phantom units based on the performance target, under the LTIP as of December 31, |
| (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, |
Our General Partner does not receive 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 paid to persons who perform services for us or on our behalf and expenses allocated to our General Partner by its affiliates. Under our for all other shipments. On January 22, 2016, the Partnership entered into a Contingent Novation Agreement relating to the Tees REP with the Hamlet JV and MGT pursuant to which, in the event MGT terminates the MGT Contract or we notify MGT that we wish to terminate the EVA-MGT Contract, MGT may become a party to the EVA-MGT Contract in lieu of the Hamlet JV, subject to the terms thereof. 131 - Sponsor - John Hancock 2, 2019. 132 were reflected separately in current assets and current liabilities. totality of the circumstances involved. Year Ended December 31, (in thousands) 2017 2016 2015 Audit Fees(1) $ 1,902 $ 1,205 $ 1,040 Audit-Related Fees — — — Tax Fees — — — All Other Fees — — — Total $ 1,902 $ 1,205 $ 1,040 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. 136 Financial Statements—Please read Part II, Item 8. “Financial Statements and Supplementary Data—Index to Financial Statements.” 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. Exhibits—Exhibits required to be filed by Item 601 of Regulation S‑K set forth below are incorporated herein by reference. 137 10.2† 10.3† 10.8† 10.9† 10.10† 10.11† Exhibit 23.1* 31.1* 31.2* 32.1** 32.2** 101.INS XBRL Instance Document 101.SCH 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 Document * Filed herewith. 139 By: Enviva Partners GP, LLC, as its sole general partner Date: February By: /s/ JOHN K. KEPPLERITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 16, 2018,14, 2020, our sponsor owned 1,265,45313,586,375 common units and 11,905,138 subordinated units representing approximately 50%an approximate 40% 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‑economicnon-economic general partner interest in us and owns all our incentive distribution rights.arm’s‑lengtharm’s-length negotiations. These terms are not necessarily at least as favorable to the parties to these transactions and agreements as the terms that could have been obtained from unaffiliated third parties.and subordinated units for four quarters, our General Partner and its affiliates would receive antotal annual distributiondistributions of approximately $21.9$22.4 million on their common units.147MSA,MSAs, 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 MSAMSAs were terminated without replacement, or our General Partner or its affiliates provided services outside of the scope of the MSA,MSAs, 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.non‑economicnon-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.Sampson Contribution AgreementOn December 14, 2016, we consummated the transactions contemplated by a contribution agreement (the “Sampson Contribution Agreement”) with the First Hancock JV, which is a joint venture between our sponsor, Hancock Natural Resource Group, Inc., and certain other affiliates of John Hancock Life Insurance Company (U.S.A.). Under the terms of the Contribution Agreement, we acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Enviva Pellets Sampson, LLC (“Sampson”) for total consideration of $175.0 million. Sampson owns a wood pellet production plant in Sampson Country, North Carolina (the “Sampson plant”), that is expected to produce 500,000 MTPY of wood pellets in 2017 and to reach its full production capacity of approximately 600,000 MTPY in 2019. The acquisition (the “Sampson Drop‑Down”) included the Sampson plant, a ten‑year 420,000 MTPY take‑or‑pay off‑take contract, a 15‑year, 95,000 MTPY off‑take contract with the First Hancock JV, and related third‑party shipping contracts. The Sampson Drop‑Down 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 common units at a value of $27.31, or an aggregate value of $30.0 million, to affiliates of John Hancock Life Insurance Company (U.S.A.).We also entered into the Terminal Services Agreement by and between Enviva, LP and Wilmington pursuant to which Wilmington agreed to provide terminal services at the Wilmington terminal for production from the Sampson plant.On 2, 2017, pursuant to the terms of a contribution agreement with the First Hancock JVEnviva Wilmington Holdings, LLC (the “Wilmington Contribution Agreement”“Hamlet JV”), 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. TheThe 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 thea marine terminal in Wilmington, terminalNorth Carolina (the “Wilmington terminal”) and a long-term terminal services agreement (the “Holdings TSA”) with the Partnership’sour sponsor to receive, handle and store throughput volumes sourced by theour sponsor from a wood pellet production plant in Greenwood, South Carolina.Carolina (the “Greenwood plant”).terminal services agreement with the Partnership’s sponsorHoldings TSA provides for deficiency payments to Wilmington if quarterly minimum throughput requirements are not met. The Wilmington terminal will handle upapproximately 600,000 MTPY of throughput from the Partnership’s production plant in Sampson County, North Carolina.In addition,Hamlet JV as the second and final payment for the Wilmington Contribution Agreement contemplates thatDrop-Down. Such payment consisted of (i) approximately $24.0 million in cash, of which approximately $23.0 million was distributed to John Hancock Life Insurance Company (U.S.A.) (collectively, as applicable, “John Hancock”) and approximately $1.0 million was retained by the Hamlet JV and (ii) the issuance of 1,691,627 common units, or approximately $50.0 million in common units, which were distributed to John Hancock.will enterentered into a long-term terminal services agreement (the “Wilmington Hamlet“Wilmington-Hamlet TSA”) with the First HancockHamlet JV and Enviva Pellets Hamlet, LLC, (“Hamlet”a wholly owned subsidiary of the Hamlet JV that owns the wood pellet production plant in Hamlet, North Carolina (the “Hamlet plant”), pursuant to which the Wilmington terminal agreed to receive, handle, store and load wood pellets from the First Hancock JV’s proposed production plant in148Hamlet, North Carolina (the “Hamlet plant”) when the First Hancock JV completes construction of the Hamlet plant. The Wilmington HamletWilmington-Hamlet TSA also provides for deficiency payments to Wilmington if minimum throughput requirements are not met. PursuantWilmington Contribution Agreement, following noticedirectors was $0.5 million.the anticipated first delivery ofEnviva Pellets Sampson, LLC (the “Sampson Drop-Down”), which owns a wood pellets to the Wilmington terminalpellet production plant in Sampson, North Carolina (the “Sampson plant”), from the Hamlet plant, Wilmington,JV, the 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 or 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 the 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 IndemnificationIn 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 (“Retained Matters”) 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 WilmingtonSampson plant that were included in the net assets contributed.threecertain payment agreements we entered into with the First HancockHamlet JV dated effective as of July 27, 2017, September 30, 2017, and December 31, 2017 (together,prior to the “Payment Agreements”),Hamlet Drop-Down, the First HancockHamlet JV agreed to pay an aggregate amount of $1.4$2.9 million to us in consideration for costs incurred by us to repair or replace certain equipment at the Sampson plant following the consummationSampson Drop-Down. As of the Sampson Drop-Down.Terminal Services AgreementsIn connection with the Wilmington Drop-Down, WilmingtonDecember 31, 2019, $2.9 million has been received and the sponsor entered into a terminal services agreement dated October 2, 2017 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.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, Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) (“Second Hancock JV”).EVA‑MGTno further amounts are outstanding.First HancockHamlet JV to supply 375,000 MTPYmetric tons per year (“MTPY”) of wood pellets (the “EVA‑MGT Contract”) to MGT Teesside Limited’s (“MGT”) Tees Renewable Energy Plant (the “Tees REP”), which is under development. In exchange for a fee, the Partnership amended the EVA-MGT Contract to delay delivery of volumes originally scheduled for 2019 until 2020 and cancel volumes originally scheduled for 2020. The EVA‑MGT ContractEVA-MGT contract commences in 2019,2020, ramps to full supply in 2021 and continues through 2034. The EVA-MGT Contract is denominated in U.S. Dollars for commissioning volumesone shipment in 20192020 and in British Pound Sterling (“GBP”) thereafter.First HancockHamlet JV in connection with the Sampson Drop‑DownDrop-Down to supply an additional 95,000 MTPYmetric tons per year (“MTPY”) of the contracted volume to the Tees REP. In connection with the Hamlet Drop-Down, on March 20, 2019 we amended the Second Supply Agreement, whereby option volumes excisable by the Hamlet JV in 2019 were added for the Hamlet JV to meet its delivery obligations under its long-term, take-or-pay off-take contract with MGT (the “MGT Contract”) existing as of the date thereof. In exchange for a fee, we further amended the Second Supply Agreement on November 22, 2019 to cancel certain volumes originally scheduled for 2020. The contract, whichSecondary Supply Agreement is denominated in GBP, commences in 20192021 and continues through 2034.2034.149the IPO,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 (i) common units issued (or issuable) to our sponsor pursuant to the IPO Contribution Agreement, (ii) subordinated units and (iii) common units issuable upon conversion of the subordinated units pursuant to the terms of the partnership agreement (together, the “Registrable Securities”) it holds.sponsor. Under the registration rights agreement, our sponsor will have the right to request that we register the sale of Registrable Securities held by it, and our sponsor will have the right to require us to make available shelfpiggyback registration statements permitting sales of Registrable Securities into the market from time to time over an extended period,rights, 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 the Registrable Securitiescommon units held by our sponsor andor any permitted transferee will be entitled to these registration rights.Purchase In accordance with the registration rights agreement, we registered all of our sponsor’s common units for resale, subject to certain limitations, pursuant to our effective registration statement on Form S-3, filed with the SEC on June 21, 2019.IPO,Second Payment, on May 4, 2015,April 2, 2019 we entered into a registration rights agreement with John Hancock covering the resale of the common units issued by us to John Hancock through such date. The registration rights agreement included provisions dealing with indemnification and contribution and allocation of expenses. We registered all of John Hancock’s common units for sale, subject to certain limitations, pursuant to an effective shelf registration statement.willagreed to provide to us for a period of five years following the closing of our IPO,with 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 theits joint venture with John Hancock JVs)(the “Sponsor JV”)) owns and proposes to sell (each, a “ROFO Asset”). for a five-year period. Pursuant to an amendment, the term of the purchase rights agreement was extended to May 2021 and will automatically renew on an annual basis unless either party provides notice of termination within 60 days prior to the end of the then-current term.thenotice of our 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, theour 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 theour sponsor entity selling such ROFO Assets, superior to the most recent offer proposed by us.Biomass Purchase Agreement – Hancock JVOn September 7, 2016, Sampsonconfirmation under the Biomass Purchase Agreementcontribution agreement dated April 2, 2019 with our sponsor pursuant to which Sampson agreedour sponsor contributed to sellus all of the issued and outstanding Class B Units in the Hamlet JV for $165.0 million, subject to certain adjustments (the “Hamlet Drop-Down”). The $165.0 million purchase price consisted of (1) a cash payment of $24.7 million, net of a purchase price adjustment of $0.3 million, (2) the sponsor 60,000 MTissuance of wood pellets through August 31, 2017. On1,681,237 unregistered common units at a value of $29.74 per unit, or $50.0 million of common units, (3) $50.0 million in cash paid on June 23, 2017,28, 2019, (4) $40.0 million in cash paid on January 2, 2020 and (5) the sponsor satisfied its take-or-pay obligation underelimination of $3.0 million of net related-party receivables and payables included in the agreement.Biomass Option Agreement – Enviva Holdings, LPOn February 3, 2017,net assets of the Hamlet JV on the date of acquisition. We became a member of the Hamlet JV when we entered into a master biomass purchase and sale agreement and a confirmation thereunder, which confirmation was amendedacquired the Class B Units on the date of the Hamlet Drop-Down. The closing of the Hamlet Drop-Down occurred on April 1, 2017, each with the sponsor (together, the “Option Contract”), pursuant to which we have the option to purchase certain volumes of wood pellets from the sponsor, from time to time at a price per metric ton determined by reference to a market index. The sponsor has a corresponding right to re-purchase volumes purchased by us pursuant to the Option Contract at a price per metric ton determined by reference to such market index at then-prevailing rates in the event that we purchase more than 45,000 MT of wood pellets pursuant to the Option Contract.AgreementOnAgreements 9, 2015, all of our employees and members of 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.EVA MSA. The EVA 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.150sponsor. Rawyear ended December 31, 2019, cost of cover deficiency fees net of raw material purchases was $0.5 million. During 2018 and 2017 raw material purchases were $7.1 million and $8.5 million, respectively. There were no cost of cover deficiency fees from FiberCo recorded during the years ended December 31, 2018 and 2017.2016December 2019. Under the amended confirmation,$8.5 millionnot intended to be set off and $3.7 million, respectively.expectedrequired to bring to the attention of the chief executive officer or the board any conflict or potential conflict of interest that may arise between the director or any affiliate of the director, on the one hand, and us or our General Partner on the other. 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.also provides that the board may determine on our behalf thatapprove certain contracts (“Affiliated Contracts”) between us, on the one hand, and the General Partner and any of its affiliates, on the other hand, are fair and reasonable and in our best interests, so long as the board reasonably determines that such contracts are on terms and conditions(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 relationships between all partiescircumstances involved. Transactions described abovewere enteredeither 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, services related to the production, storage, terminaling or transportation of biomass, 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 prior to or in connection withaccount the IPO were not reviewed according to such procedures.“Directors,“Directors, Executive Officers and Corporate Governance”Governance” for information regarding the directors of our General Partner and independence requirements applicable to the board of directors of our General Partner and its committees.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES auditor forauditors during the years ended December 31, 2017, 20162019 and 2015.2018, respectively. The following table presents fees paid for professional audit services rendered by KPMGof our annual consolidated financial statements and for the audit of our151annual financial statementsother services for the years ended December 31, 2017, 20162019 and 2015, and fees for other services rendered by KPMG: Year Ended December 31, (in thousands) 2019 2018 $ 1,439 $ 1,490 10 — Tax fees — — 11 — Total $ 1,460 $ 1,490 (1) (2) Fees for non-audit services related to internal controls in compliance preparation for Section 404 of the Sarbanes-Oxley Act. (3) Fees for use of the EY global accounting and financial reporting research tool. Non‑AuditNon-Audit Servicespre‑approvepre-approve the engagement. Audit committee pre‑approvalpre-approval of audit and non‑auditnon-audit services is not required if the engagement for the services is entered into pursuant to pre‑approvalpre-approval policies and procedures established by the audit committee. The chairman of the audit committee has the authority to grant pre‑approvals,pre-approvals, provided such approvals are within the pre‑approvalpre-approval policy and presented to the audit committee at a subsequent meeting.KPMGEY as our independent auditor to conduct the audit of our consolidated financial statements for the year ended December 31, 20172019 and all of the services described above.152(a) Certain documents are filed as a part of this Annual Report and are incorporated by reference and found on the pages below. 1. 2. 3. 153Exhibit
NumberExhibitExhibit 2.1 3.1 3.2 3.3 3.4* 4.1 4.2 4.3 4.34.44.5 10.14.64.7* 10.1* 10.4 10.510.610.7 10.12†10.13†154Exhibit
NumberExhibit10.1410.15†10.1610.1710.13† 10.1810.1610.1910.20*21.1*10.18 10.19† 10.20† 10.21*† 10.22*† 10.23*† 10.25*† 16.1 21.1* 24.1*23.3* 24.1* Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10‑K) 155ENVIVA PARTNERS, LP 22, 2018John K. Keppler John K. Keppler
156
140
|
|
| ||||||
Name | Title | Date | ||||||
| /s/ JOHN K. KEPPLER | Chairman, President and Chief Executive Officer | February | ||||||
John K. Keppler | (Principal Executive Officer) | |||||||
/s/ | Executive Vice President and Chief Financial Officer | February 26, 2020 | ||||||
| Shai S. Even | (Principal Accounting Officer and Principal Financial Officer) |
| ||||||
| ||||||||
|
|
| ||||||
| ||||||||
|
|
| ||||||
| ||||||||
/s/ RALPH ALEXANDER | Director | February | ||||||
Ralph Alexander | ||||||||
/s/ | Director | February | ||||||
| ||||||||
/s/ JIM H. DERRYBERRY | Director | February 26, 2020 | ||||||
| Jim H. Derryberry | ||||||||
| /s/ ROBIN J. A. DUGGAN | Director | February | ||||||
Robin J. A. Duggan | ||||||||
/s/ | Director | February | ||||||
| ||||||||
/s/ WILLIAM K. REILLY | Director | February | ||||||
William K. Reilly | ||||||||
/s/ GARY L. WHITLOCK | Director | February 26, 2020 | ||||||
| Gary L. Whitlock | ||||||||
| /s/ CARL L. WILLIAMS | Director | February 26, 2020 | ||||||
| Carl L. Williams | ||||||||
| /s/ JANET S. WONG | Director | February | ||||||
Janet S. Wong | ||||||||
|
|
| ||||||
| ||||||||
|
|
| ||||||
| ||||||||
157