UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2018

☐	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)

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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller reporting company ☐
		(Do not check if a	Emerging growth company ☒
		smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

As of ~~October~~July 31, ~~2017,~~2018, ~~14,412,365~~26,478,590 common ~~units and 11,905,138 subordinated~~ units were outstanding.

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ENVIVA PARTNERS, LP

QUARTERLY REPORT ON FORM 10‑Q

TABLE OF CONTENTS

		Page
CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS		1
GLOSSARY OF TERMS		3
PART I—FINANCIAL INFORMATION		4
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of ~~Income~~Operations	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statement of Changes in Partners’ Capital	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	910
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3539
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5456
Item 4.	Controls and Procedures	5557
PART II—OTHER INFORMATION		5658
Item 1.	Legal Proceedings	5658
Item 1A.	Risk Factors	5658
Item 2.	Unregistered Sales of Equity Securities	58
Item 6.	Exhibits	5659

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CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS

Certain statements and information in this Quarterly Report on Form 10‑Q (this “Quarterly Report”) may constitute “forward‑looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward‑looking statements, which are generally not historical in nature. These forward‑looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. Although management believes that these forward‑looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward‑looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward‑looking statements include, but are not limited to, those summarized below:

the volume and quality of products that we are able to ~~sell;~~produce or source and sell, which could be adversely affected by, among other things, operating or technical difficulties at our plants or deep-water marine terminals;

the ~~price~~prices at which we are able to sell our products;

failure of the Partnership’s customers, vendors and shipping partners to pay or perform their contractual obligations to the Partnership;

the creditworthiness of our ~~financial~~contract counterparties;

the amount of low‑cost wood fiber that we are able to procure and process, which could be adversely affected by, among other things, operating or financial difficulties suffered by our suppliers;

~~the amount of products that we are able to produce, which could be adversely affected by, among other things, operating difficulties;~~

changes in the price and availability of natural gas, coal or other sources of energy;

changes in prevailing economic conditions;

our inability to complete acquisitions, including acquisitions from our sponsor, or to realize the anticipated benefits of such acquisitions;

~~unanticipated ground, grade or water conditions;~~

inclement or hazardous ~~weather~~environmental conditions, including extreme precipitation, temperatures and flooding;

~~environmental hazards;~~fires, explosions or other accidents;

~~fires, explosions or~~the timing and extent of our ability to recover the costs associated with the fire at the Chesapeake terminal through our insurance policies and the exercise of our other ~~accidents;~~contractual rights;

changes in domestic and foreign laws and regulations (or the interpretation thereof) related to renewable or low‑carbon energy, the forestry products industry, the international shipping industry or power generators;

changes in the regulatory treatment of biomass in core and emerging ~~markets for utility‑scale generation;~~markets;

our inability to acquire or maintain necessary permits or rights for our production, transportation ~~and~~or terminaling operations;

~~inability to obtain necessary production equipment or replacement parts;~~

~~operating or technical difficulties or failures at our plants or deep‑water marine terminals;~~

~~Table of Contents~~

~~labor disputes;~~

~~inability of our customers to take delivery of our products;~~

changes in the price and availability of transportation;

changes in foreign currency exchange ~~rates;~~

or interest rates and the failure of our hedging arrangements to effectively reduce our exposure to ~~interest and foreign currency exchange rate risk;~~the risks related thereto;

risks related to our indebtedness;

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~~customer rejection of our products due to~~ our failure to maintain effective quality control systems at our production plants and deep‑water marine ~~terminals;~~terminals, which could lead to the rejection of our products by our customers;

changes in the quality specifications for our products that are required by our customers;

labor disputes;

the effects of the ~~approval of the United Kingdom of the~~anticipated exit of the United Kingdom ~~(“Brexit”)~~ from the European Union ~~and the implementation of Brexit, in each case,~~ on our and our customers’ businesses; and

our ability to borrow funds and access capital markets.

Please read the risks described in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. All forward‑looking statements in this Quarterly Report are expressly qualified in their entirety by the foregoing cautionary statements.

Readers are cautioned not to place undue reliance on forward‑looking statements and we undertake no obligation to update or revise any such statements after the date they are made, whether as a result of new information, future events or otherwise.

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GLOSSARY OF TERMS

biomass: any organic biological material derived from living organisms that stores energy from the sun.

~~CIF~~: Cost, Insurance and Freight. Where a contract for the sale of goods contains CIF shipping terms, the seller is obligated to procure and pay the costs, including insurance and freight, necessary to bring the goods to the named port of destination, but title and risk of loss are transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment.

co‑fire: the combustion of two different types of materials at the same time. For example, biomass is sometimes fired in combination with coal in existing coal plants.

cost pass‑through: a mechanism in commercial contracts that passes costs through to the purchaser.

~~FIFO~~metric ton: ~~first‑in, first‑out method of valuing inventory.~~

~~FOB~~: Free On Board. Where a contract for the sale of goods contains FOB shipping terms, the seller completes delivery when the goods pass the ship’s rail at the named port of shipment, and the buyer must bear all costs and risk of loss from such point.

~~GAAP: generally accepted accounting principles in the United States.~~

~~General Partner: Enviva Partners GP, LLC, the general partner of the Partnership.~~

~~Hancock JV: a joint venture between our sponsor and Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company.~~

MT:one metric ton, which is equivalent to 1,000 kilograms. One MTmetric ton equals 1.1023 short tons.

~~MTPY: metric tons per year.~~

net calorific value: the amount of usable heat energy released when a fuel is burned completely and the heat contained in the water vapor generated by the combustion process is not recovered. The European power industry typically uses net calorific value as the means of expressing fuel energy.

off‑take contract: an agreement between a producer of a resource and a buyer of a resource to purchase a certain volume of the producer’s future production.

~~Partnership: Enviva Partners, LP.~~

~~sponsor: Enviva Holdings, LP, and, where applicable, its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC.~~

stumpage: the price paid to the underlying timber resource owner for the raw material.

utility‑grade wood pellets: wood pellets meeting minimum requirements generally specified by industrial consumers and produced and sold in sufficient quantities to satisfy industrial‑scale consumption.

~~weighted‑average remaining term: the average of the remaining terms of our customer contracts, excluding contingent contracts, with each agreement weighted by the amount of product to be delivered each year under such agreement.~~

wood fiber: cellulosic elements that are extracted from trees and used to make various materials, including paper. In North America, wood fiber is primarily extracted from hardwood (deciduous) trees and softwood (coniferous) trees.

wood pellets: energy‑dense, low‑moisture and uniformly‑sized units of wood fuel produced from processing various wood resources or byproducts.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except ~~for~~ number of units)


	September 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
	(unaudited)				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	9,453	$	466	$	13,790	$	524
Accounts receivable, net of allowance for doubtful accounts of $0 as of September 30, 2017 and $24 as of December 31, 2016		49,855		77,868
Accounts receivable, net of allowance for doubtful accounts of $0 as of June 30, 2018 and December 31, 2017						45,351		79,185
Related-party receivables		7,748		7,634		5,346		5,412
Inventories		34,477		29,764		36,175		23,536
Assets held for sale		3,354		3,044
Prepaid expenses and other current assets		1,186		1,939		2,680		1,006
Total current assets		106,073		120,715		103,342		109,663

Property, plant and equipment, net of accumulated depreciation of $104.6 million as of September 30, 2017 and $80.8 million as of December 31, 2016		495,366		516,418
Intangible assets, net of accumulated amortization of $10.3 million as of September 30, 2017 and $9.1 million as of December 31, 2016		140		1,371
Property, plant and equipment, net of accumulated depreciation of $135.6 million as of June 30, 2018 and $117.1 million as of December 31, 2017						553,240		562,330
Intangible assets, net of accumulated amortization of $10.5 million as of June 30, 2018 and $10.3 million as of December 31, 2017						—		109
Goodwill		85,615		85,615		85,615		85,615
Other long-term assets		2,040		2,049		6,235		2,394
Total assets	$	689,234	$	726,168	$	748,432	$	760,111

Liabilities and Partners’ Capital
Current liabilities:
Accounts payable	$	3,122	$	9,869	$	15,620	$	7,554
Related-party payables		19,948		11,118		25,617		26,398
Accrued and other current liabilities		30,710		38,432		33,736		29,363
Related-party accrued liabilities		372		382		604		—
Current portion of interest payable		10,625		4,414		5,029		5,029
Current portion of long-term debt and capital lease obligations		5,008		4,109		7,168		6,186
Total current liabilities		69,785		68,324		87,774		74,530
Long-term debt and capital lease obligations		338,115		346,686		422,372		394,831
Related-party long-term payable						74,000		74,000
Long-term interest payable		860		770		950		890
Other long-term liabilities		3,274		871		4,710		5,491
Total liabilities		412,034		416,651		589,806		549,742
Commitments and contingencies
	��
Partners’ capital:
Limited partners:
Common unitholders—public (13,065,204 and 12,980,623 units issued and outstanding at September 30, 2017 and December 31, 2016, respectively)		228,961		239,902
Common unitholder—sponsor (1,347,161 units issued and outstanding at September 30, 2017 and December 31, 2016)		16,532		18,197
Subordinated unitholder—sponsor (11,905,138 units issued and outstanding at September 30, 2017 and December 31, 2016)		106,164		120,872
Common unitholders—public (14,567,746 and 13,073,439 units issued and outstanding at June 30, 2018 and December 31, 2017, respectively)						214,009		224,027
Common unitholder—sponsor (11,905,138 and 1,347,161 units issued and outstanding at June 30, 2018 and December 31, 2017, respectively)						78,504		16,050
Subordinated unitholder—sponsor (no units issued and outstanding at June 30, 2018 and 11,905,138 units issued and outstanding at December 31, 2017)						—		101,901
General partner (no outstanding units)		(67,875)		(67,393)		(133,821)		(128,569)
Accumulated other comprehensive (loss) income		(3,885)		595
Accumulated other comprehensive loss						(66)		(3,040)
Total Enviva Partners, LP partners’ capital		279,897		312,173		158,626		210,369
Noncontrolling partners’ interests		(2,697)		(2,656)
Total partners’ capital		277,200		309,517
Total liabilities and partners’ capital	$	689,234	$	726,168	$	748,432	$	760,111

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Income~~Operations

(In thousands, except per unit amounts)

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2017		2016 (Recast)		2017		2016 (Recast)		2018		2017 (Recast)		2018		2017 (Recast)
Product sales	$	125,422		103,577	$	366,142	$	323,269	$	129,674	$	121,673	$	252,472	$	240,720
Other revenue(1)		6,036		7,217		14,387		14,486		2,427		5,874		5,430		9,270
Net revenue		131,458		110,794		380,529		337,755		132,101		127,547		257,902		249,990
Cost of goods sold, excluding depreciation and amortization(1)		100,403		80,420		293,421		258,019		105,723		99,172		226,761		195,889
Loss on disposal of assets		1,237		1,523		3,242		1,679		244		2,005		244		2,005
Depreciation and amortization		8,700		6,434		26,085		20,429		9,818		10,039		19,122		19,397
Total cost of goods sold		110,340		88,377		322,748		280,127		115,785		111,216		246,127		217,291
Gross margin		21,118		22,417		57,781		57,628		16,316		16,331		11,775		32,699
General and administrative expenses(1)		7,131		8,708		21,826		22,025		7,287		6,870		14,091		15,633
Income from operations		13,987		13,709		35,955		35,603
Income (loss) from operations										9,029		9,461		(2,316)		17,066
Other income (expense):
Interest expense		(7,652)		(3,314)		(23,062)		(9,535)		(9,047)		(7,710)		(17,692)		(15,417)
Related-party interest expense		—		(51)		—		(561)
Other (expense) income		(1)		2		(198)		274
Other income (expense)										3,562		(254)		4,217		(197)
Total other expense, net		(7,653)		(3,363)		(23,260)		(9,822)		(5,485)		(7,964)		(13,475)		(15,614)
Net income		6,334		10,346		12,695		25,781
Net income (loss)										3,544		1,497		(15,791)		1,452
Less net loss attributable to noncontrolling partners’ interests		5		1,366		41		3,467		—		1,196		—		2,515
Net income attributable to Enviva Partners, LP	$	6,339	$	11,712	$	12,736	$	29,248
Less: Pre-acquisition loss from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner		—		(1,321)		—		(3,332)
Enviva Partners, LP limited partners’ interest in net income	$	6,339	$	13,033	$	12,736	$	32,580
Net income per limited partner common unit:
Net income (loss) attributable to Enviva Partners, LP									$	3,544	$	2,693	$	(15,791)	$	3,967
Less: Pre-acquisition loss from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner										—		(1,169)		—		(2,430)
Enviva Partners, LP limited partners’ interest in net income (loss)									$	3,544	$	3,862	$	(15,791)	$	6,397
Net income (loss) income per limited partner common unit:
Basic	$	0.20	$	0.51	$	0.40	$	1.28	$	0.08	$	0.12	$	(0.70)	$	0.20
Diluted	$	0.19	$	0.50	$	0.37	$	1.26	$	0.08	$	0.11	$	(0.70)	$	0.19
Net income per limited partner subordinated unit:
Net income (loss) per limited partner subordinated unit:
Basic	$	0.20	$	0.51	$	0.40	$	1.28	$	0.08	$	0.12	$	(0.70)	$	0.20
Diluted	$	0.20	$	0.50	$	0.40	$	1.26	$	0.08	$	0.12	$	(0.70)	$	0.20
Weighted-average number of limited partner units outstanding:
Common—basic		14,412		12,919		14,400		12,878		18,597		14,405		16,518		14,392
Common—diluted		15,385		13,480		15,343		13,420		19,728		15,359		16,518		15,275
Subordinated—basic and diluted		11,905		11,905		11,905		11,905		7,804		11,905		9,855		11,905

(1) See Note 11, Related-Party Transactions

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

Three Months Ended

Nine Months Ended


September 30,

September 30,


2017

2016 (Recast)

2017

2016 (Recast)

Net income

$
6,334

$
10,346

$
12,695

$
25,781

Other comprehensive loss:





Net unrealized losses on cash flow hedges

(1,788)

(105)

(4,641)

(105)

Reclassification of net losses realized into net income

55

—

161

—

Total other comprehensive loss

(1,733)

(105)

(4,480)

(105)

Total comprehensive income

4,601

10,241

8,215

25,676

Less:

Pre-acquisition loss from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner

—

(1,321)

—

(3,332)

Total comprehensive income subsequent to Enviva Pellets Sampson, LLC Drop-Down

4,601

11,562

8,215

29,008

Less:

Comprehensive loss attributable to noncontrolling partners’ interests

5

1,366

41

3,467

Comprehensive income attributable to Enviva Partners, LP partners

$
4,606

$
12,928

$
8,256

$
32,475


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017 (Recast)		2018		2017 (Recast)
Net income (loss)	$	3,544	$	1,497	$	(15,791)	$	1,452
Other comprehensive income (loss):
Net unrealized gains (losses) on cash flow hedges		4,365		(1,950)		3,037		(2,747)
Reclassification of net gains realized into net income (loss)		(64)		—		(63)		—
Total other comprehensive income (loss)		4,301		(1,950)		2,974		(2,747)
Total comprehensive income (loss)		7,845		(453)		(12,817)		(1,295)
Less:
Pre-acquisition loss from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner		—		(1,169)		—		(2,430)
Total comprehensive income (loss) subsequent to Enviva Port of Wilmington, LLC Drop-Down		7,845		716		(12,817)		1,135
Less:
Comprehensive loss attributable to noncontrolling partners’ interests		—		(1,196)		—		(2,515)
Comprehensive income (loss) attributable to Enviva Partners, LP partners	$	7,845	$	1,912	$	(12,817)	$	3,650

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Partners’ Capital

(In thousands)

(Unaudited)

Limited Partners’ Capital

Common

Common

Subordinated

Accumulated

General

Units—

Units—

Units—

Other

Non-

Total

Partner

Public

Sponsor

Sponsor

Comprehensive

controlling

Partners'



Interest

Units

Amount

Units

Amount

Units

Amount

Income

Interests

Capital

Partners’ capital, December 31, 2016

$
(67,393)

12,981

$
239,902

1,347

$
18,197

11,905

$
120,872

$
595

$
(2,656)

$
309,517
Distributions to unitholders, distribution equivalent and incentive distribution rights

(1,567)

—

(23,313)

—

(2,236)

—

(19,762)

—

—

(46,878)
Issuance of units through Long-Term Incentive Plan

—

21

497

—

—

—

—

—

—

497
Issuance of common units, net

—

63

1,715

—

—

—

—

—

—

1,715
Unit-based compensation

—

—

4,616

—

—

—

—

—

—

4,616
Excess consideration over Enviva Pellets Sampson, LLC net assets

(482)

—

—

—

—

—

—

—

(482)
Other comprehensive loss

—

—

—

—

—

—

—

(4,480)

—

(4,480)
Net income (loss)

1,567

—

5,544

—

571

—

5,054

—

(41)

12,695
Partners’ capital, September 30, 2017

$
(67,875)

13,065

$
228,961

1,347

$
16,532

11,905

$
106,164

$
(3,885)

$
(2,697)

$
277,200


			Limited Partners’ Capital
			Common			Common			Subordinated			Accumulated
	General		Units—			Units—			Units—			Other		Total
	Partner		Public			Sponsor			Sponsor			Comprehensive		Partners'
	Interest		Units	Amount		Units	Amount		Units	Amount		(Loss) Income		Capital
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		(2,394)	—		(18,583)	—		(785)	—		(14,822)		—		(36,584)
Issuance of units through Long-Term Incentive Plan		(5,564)	221		559	(82)		(1,301)	—		—		—		(6,306)
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		312			3,411	—		—	—		—		—		3,723
Other comprehensive income		—	—		—	—		—	—		—		2,974		2,974
Net income (loss)		2,394	—		(8,981)	—		(629)	—		(8,575)		—		(15,791)
Partners’ capital, June 30, 2018	$	(133,821)	14,567	$	214,009	11,905	$	78,504	—	$	—	$	(66)	$	158,626

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended
	June 30,
		2018		2017 (Recast)
Cash flows from operating activities:
Net (loss) income	$	(15,791)	$	1,452
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		19,439		19,406
Amortization of debt issuance costs, debt premium and original issue discounts		548		768
General and administrative expense incurred by the First Hancock JV prior to Enviva Port of Wilmington, LLC Drop-Down		—		821
Loss on disposal of assets		244		2,005
Unit-based compensation		3,823		3,280
Fair value changes in derivatives		(2,923)		238
Unrealized loss on foreign currency transactions		29		—
Change in operating assets and liabilities:
Accounts receivable, net		33,806		24,757
Related-party receivables		66		(3,042)
Prepaid expenses and other assets		(297)		(157)
Assets held for sale		—		(72)
Inventories		(12,021)		1,103
Other long-term assets		—		48
Derivatives		(947)		(1,335)
Accounts payable, accrued liabilities and other current liabilities		8,436		(4,110)
Related-party payables		(3,445)		1,011
Accrued interest		60		(104)
Other current liabilities		—		(288)
Other long-term liabilities		206		377
Net cash provided by operating activities		31,233		46,158
Cash flows from investing activities:
Purchases of property, plant and equipment		(5,879)		(15,912)
Insurance proceeds from property loss		1,130		—
Net cash used in investing activities		(4,749)		(15,912)
Cash flows from financing activities:
Principal payments on debt and capital lease obligations		(2,984)		(2,436)
Cash paid related to debt issuance costs		—		(209)
Proceeds from common unit issuance under the At-the-Market Offering Program, net		241		1,715
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder		(36,469)		(29,992)
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		(1,665)		—
Proceeds and payments on revolving credit commitments		30,000		(6,500)
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		—		6,139
Net cash used in financing activities		(13,218)		(29,631)
Net increase in cash, cash equivalents and restricted cash		13,266		615
Cash, cash equivalents and restricted cash, beginning of period		524		466
Cash, cash equivalents and restricted cash, end of period	$	13,790	$	1,081

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Continued)

(In thousands)

(Unaudited)

Nine Months Ended



September 30,


2017

2016 (Recast)

Cash flows from operating activities:

Net income

$
12,695

$
25,781

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

26,096

20,452

Amortization of debt issuance costs and original issue discounts

1,161

1,338

Impairment of inventory

—

890

General and administrative expense incurred by Hancock JV prior to Enviva Pellets Sampson, LLC Drop-Down

—

561

Loss on disposal of assets

3,242

1,679

Unit-based compensation

5,113

2,662

Unrealized loss on foreign currency transactions

(13)

—

Change in operating assets and liabilities:

Accounts receivable, net

28,026

1,880

Related-party receivables

(2,766)

(280)

Prepaid expenses and other assets

53

638

Assets held for sale

(310)

—

Inventories

(4,401)

(8,850)

Other long-term assets

86

6,668

Derivatives

(1,442)

—

Accounts payable

(5,725)

(7,479)

Related-party payables

9,475

(1,056)

Accrued liabilities

(1,015)

5,670

Accrued interest

6,301

137

Other current liabilities

(249)

(241)

Deferred revenue and deposits

—

4,535

Other long-term liabilities

—

126

Net cash provided by operating activities

76,327

55,111

Cash flows from investing activities:

Purchases of property, plant and equipment

(14,289)

(54,237)

Premiums paid for purchased options

—

(78)

Proceeds from the sale of property, plant and equipment

—

1,763

Net cash used in investing activities

(14,289)

(52,552)

Cash flows from financing activities:

Principal payments on debt and capital lease obligations

(29,886)

(36,960)

Principal payments on related-party debt

—

(282)

Cash paid related to debt issuance costs

(209)

(22)

Proceeds from common unit issuance under the At-the-Market Offering Program, net

1,715

5,619

Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder

(46,323)

(37,841)

Distributions to sponsor

—

(5,002)

Payment of deferred offering costs

—

(591)

Proceeds from borrowings on Revolving Credit Commitments

20,000

34,500

Contributions from sponsor related to Enviva Pellets Sampson, LLC Drop-Down

1,652

—

Proceeds from contributions from Hancock JV

—

57,288

Net cash (used in) provided by financing activities

(53,051)

16,709

Net increase in cash and cash equivalents

8,987

19,268

Cash and cash equivalents, beginning of period

466

2,128

Cash and cash equivalents, end of period

$
9,453

$
21,396

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

$
4,413

$
19,912

Property, plant and equipment acquired under capital leases

1,124

1,578

Property, plant and equipment transferred from inventories

172

63

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

Distributions included in liabilities

937

449

Application of short-term deposit to fixed assets

258

—

Offering issuance costs included in accrued liabilities

—

22

Debt issuance costs included in accrued liabilities

—

135

Depreciation capitalized to inventories

483

498

Non-cash capital contributions from Hancock JV prior to Enviva Pellets Sampson, LLC Drop-Down

—

2,345

Supplemental information:

Interest paid

$
15,508

$
8,619


	Six Months Ended
	June 30,
		2018		2017 (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	$	7,682	$	12,173
Property, plant and equipment acquired under capital lease obligations		960		1,124
Property, plant and equipment transferred from inventories		2		260
Distributions included in liabilities		1,056		1,044
Withholding tax payable associated with Long-Term Incentive Plan vesting		2,715		—
Conversion of subordinated units to common units		78,504		—
Depreciation capitalized to inventories		1,075		61
Supplemental information:
Interest paid	$	17,143	$	14,692

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

(1) Description of Business and Basis of Presentation

Description of Business

~~Description of Business~~

Enviva Partners, LP (the “Partnership”) ~~is a publicly traded Delaware limited partnership formed on November 12, 2013, as a wholly owned subsidiary of Enviva Holdings, LP (together with its wholly owned~~ ~~subsidiaries Enviva MLP Holdco, LLC and~~ ~~Enviva Development Holdings, LLC, where applicable, the “sponsor”). Through its interests in Enviva, LP and Enviva GP, LLC, the general partner of Enviva, LP, the Partnership~~ supplies utility-grade wood pellets primarily to major power generators under long-term, take-or-pay off-take contracts. The Partnership procures wood fiber and processes it into utility-grade wood pellets and loads the finished wood pellets into railcars, trucks and barges that are transported to deep-water marine terminals, where they are received, stored and ultimately loaded onto oceangoing vessels for transport to the Partnership’s principally European customers.

The Partnership owns and operates six industrial-scale wood pellet production plants located in the Mid-Atlantic and Gulf Coast regions of the United States. Wood pellets are exported from athe Partnership’s wholly owned dry-bulk, deep-water marine terminal in Chesapeake, Virginia ~~from a deep-water marine~~(the “Chesapeake terminal”) and terminal assets in Wilmington, North Carolina (the “Wilmington terminal”), ~~acquired from a joint venture between the sponsor and certain affiliates of John Hancock Life Insurance Company (the “Hancock JV”) on October 2, 2017 (see Note 18,~~ ~~Subsequent Events~~) and from third-party deep-water marine terminals in Mobile, Alabama and Panama City, Florida, under a short-term and a long-term contract, respectively.

Basis of Presentation

On December 14, 2016, under the terms of a contribution agreement by and among the Partnership and the Hancock JV (the “Sampson Contribution Agreement”), the Hancock JV sold to the Partnership 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 County, North Carolina (the “Sampson plant”). The acquisition (the “Sampson Drop-Down”) included the Sampson plant, an approximate ten-year, 420,000 metric tons per year (“MTPY”) take-or-pay off-take contract with DONG Energy Thermal Power A/S, an approximate 15-year, 95,000 MTPY off-take contract with the 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 Hancock JV, the issuance of 1,098,415 unregistered common units representing limited partnership interests in the Partnership (the “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, and the elimination of $1.2 million of related-party receivables and payables, net, included in the net assets on the date of acquisition. The Partnership accounted for the Sampson Drop-Down as a combination of entities under common control at historical cost in a manner similar to a pooling of interests. Accordingly, the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016 were retrospectively recast to reflect the Sampson Drop-Down as if it had occurred on May 15, 2013, the date Sampson was originally organized (see Note 2, ~~Transactions Between Entities Under Common Control~~).

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments and accruals that are necessary for a fair presentation of the results of all periods presented herein and are of a normal recurring nature. The results reported in these statements are not necessarily indicative of the results that may be reported for the entire year. These statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.

Enviva Port of Wilmington, LLC

On October 2, 2017, pursuant to the terms of a contribution agreement (the “Wilmington Contribution Agreement”) between the Partnership and Enviva Wilmington Holdings, LLC, a joint venture between Enviva Development Holdings, LLC, a wholly owned subsidiary of Enviva Holdings, LP (the “sponsor”), Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) (the “First Hancock JV”), the Partnership acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”), which owns the Wilmington terminal assets. The purchase price, which was $130.0 million, 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 (see Note 10, Long-Term Debt and Capital Lease Obligations) and cash on hand. The acquisition (the “Wilmington Drop-Down”) included the Wilmington terminal and a long-term terminal services agreement with the sponsor (the “Holdings TSA”) to handle throughput volumes sourced by the sponsor from the wood pellet production plant in Greenwood, South Carolina (the “Greenwood plant”). On February 16, 2018, Enviva Pellets Greenwood, LLC (“Greenwood”), a wholly owned subsidiary of Enviva JV Development Company, LLC, a joint venture between Enviva Development Holdings, LLC, a wholly owned subsidiary of the sponsor, Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.), acquired the Greenwood plant (the “Greenwood Acquisition”). In connection with the Greenwood Acquisition, the Holdings TSA, which provides for deficiency payments to Wilmington if quarterly minimum throughput requirements are not met, was amended and assigned by the sponsor to Greenwood (see Note 11, Related-Party Transactions).

910

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

~~annual audited~~

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 June 30, 2018 and December 31, 2017, the $74.0 million is included in related-party long-term payable on the condensed consolidated balance sheets.

Wilmington also entered into a throughput option agreement with the sponsor that granted 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 future wood pellet production plants.

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 unaudited interim condensed consolidated financial statements for the periods prior to the three and ~~notes thereto included~~six months ended June 30, 2017 were retrospectively recast to reflect the acquisition of the First Hancock JV’s interests in Wilmington as if it had occurred on May 15, 2013, the date Wilmington was originally organized (see Note 3, Transactions Between Entities Under Common Control).

(2) Significant Accounting Policies

During interim periods, the Partnership follows the accounting policies disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, ~~2016, as filed~~2017 except for the adoption on January 1, 2018 of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”). The adoption changed the ~~SEC.~~

~~Certain prior period amounts related to loss on disposal of assets have been reclassified to~~Partnership’s accounting policies for revenue recognition and cost of goods ~~sold from general and administrative expenses to conform to current period presentation.~~sold.

~~Use of Estimates~~

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 unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

~~Summary of Significant Accounting Policies~~Revenue Recognition

The ~~accounting policies~~Partnership primarily earns revenue by supplying wood pellets to its customers under off-take contracts, the majority of the commitments under which are ~~set forth~~long-term in nature. The Partnership refers to the structure of its off-take contracts as “take-or-pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions that ensure the Partnership will be compensated in the case of a customer’s failure to accept all or a part of the contracted volumes or termination of a contract. The Partnership’s long-term off-take contracts define the annual volume of wood pellets that a customer is required to purchase and the Partnership is required to sell, the fixed price per metric ton (“MT”) for product satisfying a base net calorific value and other technical specifications. These prices are fixed for the entire term, and are subject to adjustments which may include annual inflation-based adjustments or price escalators, price adjustments for product specifications, as well as, in some instances, price adjustments due to changes in underlying indices. In addition to sales of the Partnership’s product under these long-term off-take contracts, the Partnership routinely sells wood pellets under shorter-term contracts, which range in volume and

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

tenor and, in some cases, may include only one specific shipment. Because each of the Partnership’s off-take contracts is a bilaterally negotiated agreement, the Partnership’s revenue over the duration of such contracts does not generally follow observable current market pricing trends. The Partnership’s performance obligations under these contracts include the delivery of wood pellets, and are aggregated into metric tons. The Partnership accounts for each MT as a single performance obligation. The Partnership’s revenue from the sales of wood pellets it produces is recognized as “Product sales” upon satisfaction of the Partnership’s performance obligation when control transfers to the customer at the time of loading wood pellets onto a ship.

Depending on the specific off‑take contract, shipping terms are either Cost, Insurance and Freight (“CIF”), Cost and Freight (“CFR”) or Free on Board (“FOB”). Under a CIF contract, the Partnership procures and pays for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. Under a CFR contract, the Partnership procures and pays for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping under CIF and CFR contracts after control has passed to the customer is considered a fulfillment activity rather than a performance obligation and associated expenses are included in the price to the customer. Under FOB contracts, the customer is directly responsible for shipping costs.

In some cases, the Partnership may purchase shipments of product from third-party suppliers and resell them in back-to-back transactions (“purchase and sale transactions”). The Partnership has determined that it is the principal in these transactions because it controls the pellets prior to transferring them to the customer and therefore recognizes related revenue on a gross basis in “Product sales.”

In instances in which a customer requests the cancellation, deferral or acceleration of a shipment, the customer may pay a fee, which is included in “Other revenue.”

The Partnership recognizes third- and related-party terminal services revenue ratably over the contract term at its ports, 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 performed by the Partnership. The consideration is generally fixed for minimum quantities and above the minimum are generally billed based on a per-ton rate.

The Partnership expects to recognize approximately $5.8 billion in revenue from its remaining performance obligations related to “Product sales” and “Other revenue” with fixed consideration. The Partnership’s off-take contracts expire at various times through 2035. The Partnership’s terminal services contracts extend to 2026. Remaining performance obligations are as follows:



	Period from July 1, 2018 to December 31, 2018		2019		Thereafter		Total
Product sales	$	333,448	$	608,630	$	4,827,159	$	5,769,237
Other revenue		354		708		1,180		2,242
Total revenue	$	333,802	$	609,338	$	4,828,339	$	5,771,479

Variable consideration from off-take contracts arises from several pricing features outlined in the Partnership’s ~~Annual Report~~off-take contracts, pursuant to which such contract pricing may be adjusted in respect of particular shipments to reflect differences between certain contractual quality specifications of the wood pellets as measured both when the wood pellets are loaded onto ships and unloaded at the discharge port as well as certain other contractual adjustments.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Variable consideration from terminal services contracts arises from price increases based on ~~Form 10-K~~agreed inflation indices and from above-minimum throughput quantities or services, which were not material for the ~~year~~three and six months ended June 30, 2018.

The Partnership allocates variable consideration under its off-take and terminal services contracts entirely to each performance obligation to which variable consideration relates. The estimate of variable consideration represents the amount that is not more likely than not to be recovered. For the three and six months ended June 30, 2018, the Partnership recognized an insignificant amount of revenue related to performance obligations satisfied in previous periods.

Under the Partnership’s off-take contracts, customers are obligated to pay the majority of the purchase price prior to the arrival of the ship at the customers’ discharge port. The remaining portion is paid after the wood pellets are unloaded at the discharge port. The Partnership generally recognizes revenue prior to the issuance of an invoice to the customer. Accounts receivable related to “Product sales” as of June 30, 2018 and December 31, ~~2016. There have been no changes~~2017 was $38.6 million and $78.0 million, respectively.

Cost of Goods Sold

Cost of goods sold includes the cost to ~~these policies during~~produce and deliver wood pellets to customers, reimbursable shipping related costs associated with specific off-take contracts with CIF and CFR shipping terms, and costs associated with purchase and sale transactions. Raw material, production and distribution costs associated with delivering wood pellets to our owned and leased marine terminals and third‑ and related-party wood pellet purchase costs are capitalized as a component of inventory. Fixed production overhead, including the ~~nine months ended September 30, 2017.~~related depreciation expense, is allocated to inventory based on the normal capacity of the production plants. These costs are reflected in cost of goods sold when inventory is sold. Distribution costs associated with shipping wood pellets to customers and amortization of favorable acquired customer contracts are expensed as incurred. Inventory is recorded using the first-in, first-out method (“FIFO”), which requires the use of judgment and estimates. Given the nature of the 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.

~~Recent and Pending~~Recently Adopted Accounting ~~Pronouncements~~Standards

In ~~August 2017,~~May 2014, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued Accounting Standards Update (“ASU”) ~~No.~~2014-09, Revenue from Contracts with Customers. ASU 2014-09 and subsequent amendments were codified as ASC 606. ASC 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Partnership recognizes revenue under ASC 606 and all related amendments, which it adopted on January 1, 2018, using the modified retrospective transition method.

The Partnership determined that, upon adoption of the ASC 606, its off-take contracts will continue to be classified as “Product sales.” Revenue is recognized at the point in time at which control of the wood pellets passes to the customer as the wood pellets are loaded onto shipping vessels, which is consistent with the timing of revenue recognition under the Partnership’s legacy accounting policy. However, the adoption of ASC 606 impacted the basis of presentation for purchase and sale transactions. Prior to the adoption of ASC 606, the Partnership reported revenue from purchase and sale transactions net of costs paid to third-party suppliers, which was classified as “Other revenue.” Subsequent to the adoption of ASC 606, the Partnership recognizes revenue on a gross basis in “Products sales” when it determines that it

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

acts as a principal and controls the wood pellets before they are transferred to the customer. The decision as to whether to recognize revenue on a gross or net basis requires significant judgment.

Recoveries from customers for certain costs incurred at the discharge port under the Partnership’s off-take contracts were reported in “Product sales” prior to the adoption of ASC 606. Under ASC 606, these recoveries are not considered a part of the transaction price, and therefore are excluded from “Product sales” and included as an offset to “Cost of goods sold.”

The Partnership disaggregates its revenue into two categories: “Product sales” and “Other revenue.” These categories best reflect the nature, amount, timing and uncertainty of the Partnership’s revenue and cash flows.

Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, whereas prior comparative reporting periods have not been adjusted and continue to be reported under the accounting standards in effect for such periods. The Partnership did not have a transition adjustment as a result of adopting ASC 606.

The table below indicates the impact of the adoption of ASC 606 on revenue and cost of goods sold for the three and six months ended June 30, 2018:


	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
	As Reported		Adoption of ASC 606		Without Adoption of ASC 606		As Reported		Adoption of ASC 606		Without Adoption of ASC 606
Product sales	$	129,674	$	614	$	130,288	$	252,472	$	(5,607)	$	246,865
Other revenue		2,427		39		2,466		5,430		(14)		5,416
Cost of goods sold		115,785		653		116,438		246,127		(5,621)		240,506
Gross margin	$	16,316	$	—	$	16,316	$	11,775	$	—	$	11,775

In January 2017, the FASB issued ASU 2017‑01, Business Combinations (Topic 805): Clarifying the Definition of a Business, to provide guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the assets acquired (or disposed of) are not considered a business. The Partnership adopted ASU 2017-01 as of January 1, 2018, which may have an impact on the accounting for future acquisitions.

In November 2016, the FASB issued ASU 2016‑18, Statement of Cash Flows (Topic 230)—Restricted Cash: A Consensus of the FASB Emerging Issues Task Force, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance addresses the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. The Partnership adopted ASU 2016-18 as of January 1, 2018. As of June 30, 2018 and 2017, the Partnership had no amounts held as restricted cash.

In August 2016, the FASB issued ASU 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 statement of cash flows with the objective of reducing the existing diversity in practice.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

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 Partnership adopted ASU 2016-18 as of January 1, 2018 and there was no material effect on how cash receipts and cash payments are presented and classified in the condensed consolidated statement of cash flows occurred.

Recently Issued Accounting Standards not yet Adopted

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815)~~—Targeted~~-Targeted Improvements to Accounting for Hedging Activities. ASU ~~No.~~ 2017-12 expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 requires a modified retrospective transition method which requires the recognition of the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Partnership is in the process of evaluating the impact of the adoption of ASU ~~No.~~ 2017-12 on its ~~condensed~~ consolidated financial statements.

In January 2017, the FASB issued ASU ~~No.~~ 2017-04, ~~Intangibles—~~Intangibles - Goodwill and Other. ASU ~~No.~~ 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the new standard, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This standard will be implemented prospectively in 2020 for all future goodwill impairment tests and will simplify such evaluations.

In February 2016, the FASB issued ASU 2016-02, Leases. Under the new pronouncement, an entity is required to recognize right-of-use (“ROU”) assets and lease liabilities arising from a lease for all non-cancellable leases. The Partnership ~~does not expect~~is expected to apply this guidance to all non-cancellable leases with a term of more than 12 months. The new guidance is effective for public entities for fiscal year and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted. Upon adoption, a lessee and a lessor would recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Partnership established its implementation plan and is evaluating the impact of adoption on its business processes and accounting and information systems. The Partnership currently expects that the adoption of ~~ASU No. 2017-04 to~~this standard could have a material impact on ~~its condensed~~the consolidated ~~financial statements.~~

~~In January 2017,~~balance sheet. While the ~~FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying~~Partnership continues to assess potential impacts of the ~~Definition~~standard, the Partnership currently expects there to be a material recognition 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 ofnew ROU assets and ~~activities~~lease liabilities related to real estate, machinery and equipment operating leases. The Partnership is ~~not a~~still assessing if other business supply

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is allowed (1) for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and (2) for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. Entities will be required to apply the guidance retrospectively when adopted. The Partnership is in the process of evaluating the impact of the adoption of ASU No. 2017-01 on its condensed consolidated financial statements.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230)—Restricted Cash: A Consensus of the FASB Emerging Issues Task Force~~, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance addresses the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet,arrangements contain leases under the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption in an interim period is permitted, but any adjustments must be reflected as of the beginning of the fiscal year that includes such interim period. Entities will be required to apply the guidance retrospectively when adopted.pronouncement. The Partnership does not expect ~~the~~a significant change in leasing activity prior to adoption of the ~~new standard to have a material effect on the presentation~~ASU.

(3) Transactions Between Entities Under Common Control

Recast of ~~changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in its condensed consolidated statements of cash flows.~~

~~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 statement 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, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. 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

~~Table of Contents~~

~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated~~Historical Financial Statements ~~(Continued)~~

~~(In thousands, except number of units, per unit amounts and unless otherwise noted)~~

~~(Unaudited~~)

~~earliest date practicable.~~ 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 its condensed consolidated~~financial 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~~three 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 years 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 presented using a modified retrospective approach. Early adoption is permitted. Although the Partnership is continuing to assess all potential qualitative and quantitative impacts of the standard, the Partnership currently expects the new standard to impact its accounting for equipment under operating leases.

~~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 revenue and cash flows arising from contracts with customers. In March 2016, the FASB issued ASU No. 2016-08, ~~Revenue from Contracts with Customers—Principal versus Agent Considerations. ASU No. 2016-08 clarifies the implementation guidance on principal versus agent considerations. In May 2016, the FASB issued ASU No. 2016-12,~~ ~~Revenue from Contracts with Customers, which provides narrow scope improvements and practical expedients related to ASU No. 2014-09. ASU No. 2014-09 and subsequent amendments~~six months ended June 30, 2017 have been ~~codified~~recast to reflect the Wilmington Drop-Down as ~~Accounting Standards Codification (“ASC”) 606,~~ ~~Revenue from Contracts with Customers. ASC 606 is effective for annual reporting periods beginning after December~~if it had occurred on May 15, ~~2017, including interim periods within that reporting period.~~2013, the date Wilmington was originally organized. The ~~Partnership will adopt ASC 606 effective January 1, 2018. The Partnership currently expects~~historical net equity amounts of Wilmington prior 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~~the Wilmington Drop-Down were attributed to ~~lead~~Enviva Partners GP, LLC, the ~~assessment and implementation~~general partner of ~~ASC 606 and has finalized its implementation plans. In connection with the implementation plan,~~ the Partnership ~~has completed its initial evaluation~~(the “General Partner”) and any non-controlling interest.

The following table presents the changes to previously reported amounts in the unaudited condensed consolidated balance sheet as of ~~its off-take contracts to identify material performance obligations. The Partnership determined that revenue related to its off-take contracts will be recognized at the point~~June 30, 2017 included in ~~time at which control of the wood pellets passes to the customer, as the wood pellets are loaded onto shipping vessels, which is consistent with the timing of revenue recognition under~~ the Partnership’s ~~current accounting policy. ASC 606 permits an entity to account~~quarterly report on Form 10-Q 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. Additionally, the Partnership has concluded that certain transactions currently presented on a net basis in other revenue will be recognized as principal sales on a gross basis under ASC 606. The Partnership continues to evaluate the impact of the adoption on its business processes and accounting and information systems.quarter ended June 30, 2017:


	As of June 30, 2017
	As		Enviva Port of
	Reported		Wilmington, LLC		Total (Recast)
Cash and cash equivalents	$	1,081	$	—	$	1,081
Accounts receivable, net		53,111		—		53,111
Related-party receivables		9,241		205		9,446
Inventories		28,413		98		28,511
Prepaid expenses and other current assets		4,869		39		4,908
Total current assets		96,715		342		97,057
Property, plant and equipment, net of accumulated depreciation		504,447		76,429		580,876
Goodwill		85,615		—		85,615
Other long-term assets		3,026		60		3,086
Total assets	$	689,803	$	76,831	$	766,634

Accounts payable	$	5,145	$	508	$	5,653
Related-party payables		11,335		720		12,055
Accrued and other current liabilities		43,568		4,630		48,198
Total current liabilities		60,048		5,858		65,906
Long-term debt and capital lease obligations		339,262		201		339,463
Other long-term liabilities		3,020		1,377		4,397
Total liabilities		402,330		7,436		409,766
Total partners’ capital		287,473		69,395		356,868
Total liabilities and partners’ capital	$	689,803	$	76,831	$	766,634

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

~~(2) Transactions Between Entities Under Common Control~~

~~Recast of Historical Financial Statements~~

The condensed consolidated financial statements for the three and nine months ended September 30, 2016 have been recast to reflect the Sampson Drop-Down as if it had occurred on May 15, 2013, the date Sampson was originally organized. The historical net equity amounts of Sampson prior to the Sampson Drop-Down transaction date were attributed to the General Partner and any noncontrolling interest.

The following table presents the changes to previously reported amounts in the unaudited condensed consolidated balance sheet as of September 30, 2016 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended September 30, 2016:

As of September 30, 2016


As

Enviva Pellets




Reported

Sampson, LLC

Total (Recast)

Cash and cash equivalents

$
21,396

$
—

$
21,396

Property, plant and equipment, net of accumulated depreciation

394,243

137,400

531,643

Goodwill

85,615

—

85,615

Other assets

65,394

7,766

73,160

Total assets

$
566,648

$
145,166

$
711,814

Accounts payable

$
1,726

$
946

$
2,672

Accrued and other current liabilities

23,623

18,949

42,572

Total long-term debt

206,690

1,114

207,804

Other liabilities

6,350

1,410

7,760

Total liabilities

238,389

22,419

260,808

Total partners’ capital

328,259

122,747

451,006

Total liabilities and partners’ capital

$
566,648

$
145,166

$
711,814

The following table presents the changes to previously reported amounts in the unaudited condensed consolidated statements of ~~income~~operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2016:~~2017:


	Three Months Ended September 30, 2016						Three Months Ended June 30, 2017
	As		Enviva Pellets		Total		As		Enviva Port of		Total
	Reported		Sampson, LLC		(Recast)		Reported		Wilmington		(Recast)
Net revenue	$	109,774	$	1,020	$	110,794	$	126,948	$	599	$	127,547
Total cost of goods sold								108,761		2,455		111,216
Gross margin								18,187		(1,856)		16,331
Net income (loss)		13,012		(2,666)		10,346		3,859		(2,362)		1,497
Less net loss attributable to noncontrolling partners’ interests		21		1,345		1,366		3		1,193		1,196
Net income (loss) attributable to Enviva Partners, LP		13,033		(1,321)		11,712		3,862		(1,169)		2,693
Net loss attributable to general partner		—		(1,321)		(1,321)		—		(1,169)		(1,169)
Net income attributable to Enviva Partners, LP limited partners’ interest in net income		13,033		—		13,033		3,862		—		3,862

~~Table of Contents~~

~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(In thousands, except number of units, per unit amounts and unless otherwise noted)~~

~~(Unaudited~~)


	Nine Months Ended September 30, 2016						Six Months Ended June 30, 2017
	As		Enviva Pellets		Total		As		Enviva Port of		Total
	Reported		Sampson, LLC		(Recast)		Reported		Wilmington		(Recast)
Net revenue	$	336,735	$	1,020	$	337,755	$	249,071	$	919	$	249,990
Total cost of goods sold								212,408		4,883		217,291
Gross margin								36,663		(3,964)		32,699
Net income (loss)		32,511		(6,730)		25,781		6,361		(4,909)		1,452
Less net loss attributable to noncontrolling partners’ interests		69		3,398		3,467
Less net income attributable to noncontrolling partners’ interests								36		2,479		2,515
Net income (loss) attributable to Enviva Partners, LP		32,580		(3,332)		29,248		6,397		(2,430)		3,967
Net loss attributable to general partner		—		(3,332)		(3,332)
Net income (loss) attributable to general partner								—		(2,430)		(2,430)
Net income attributable to Enviva Partners, LP limited partners’ interest in net income		32,580		—		32,580		6,397		—		6,397

The following table presents the changes to previously reported amounts in the unaudited condensed consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2016:~~2017:


	Nine Months Ended September 30, 2016						Six Months Ended June 30, 2017
	As		Enviva Pellets		Total		As		Enviva Port of		Total
	Reported		Sampson, LLC		(Recast)		Reported		Wilmington		(Recast)
Net cash provided by (used in) operating activities	$	67,612	$	(12,501)	$	55,111	$	46,697	$	(539)	$	46,158
Net cash used in investing activities		(7,813)		(44,739)		(52,552)		(10,341)		(5,571)		(15,912)
Net cash (used in) provided by financing activities		(40,578)		57,287		16,709		(35,741)		6,110		(29,631)
Net increase in cash and cash equivalents	$	19,221	$	47	$	19,268
Net increase in cash, cash equivalents and restricted cash							$	615	$	—	$	615

~~(3)~~(4) Significant Risks and Uncertainties Including Business and Credit Concentrations

The Partnership’s business is significantly impacted by greenhouse gas emission and renewable energy legislation and regulations in the European Union ~~(the “E.U.”)~~ as well as its member states. If the ~~E.U.~~European Union or its member states ~~significantly modify such legislation or regulations, then the Partnership’s ability to enter into new contracts as the current contracts expire may be materially affected.~~

The Partnership’s primary industrial customers are located in the United Kingdom, Denmark and Belgium. Three customers accounted for 96% and 95% of the Partnership’s product sales during the three and nine months ended September 30, 2017, respectively. Three customers accounted for 99% and 94% of the Partnership’s product sales during the three and nine months ended September 30, 2016, respectively. The following table shows product sales to third-party customers that accounted for 10% or a greater share of consolidated product sales for each of the three and nine months ended:

Three Months Ended

Nine Months Ended



September 30,

September 30,



2017

2016 (Recast)

2017

2016 (Recast)

Customer A

73
%
81
%

68
%
76
%

Customer B

14
%
13
%

15
%
16
%

Customer C

—
%
—
%

—
%
—
%

Customer D

9
%
5
%

12
%
2
%

~~The Partnership’s cash and cash equivalents are placed in or with various financial institutions. The Partnership has not experienced any losses on such accounts.~~

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

significantly modify such legislation or regulations, then the Partnership’s ability to enter into new contracts as the current contracts expire may be materially affected.

The Partnership’s primary industrial customers are located in the United Kingdom, Denmark and Belgium. The following table shows product sales to third-party customers that accounted for 10% or a greater share of consolidated product sales for each of the three months ended:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017 (Recast)		2018		2017 (Recast)
Customer A	71	%	69	%	55	%	66	%
Customer B	12	%	12	%	10	%	15	%
Customer C	16	%	—	%	11	%	—	%
Customer D	—	%	10	%	17	%	13	%

The Partnership’s cash and cash equivalents are placed in or with various financial institutions. The Partnership has not experienced any losses on such accounts.

(5) Inventory Impairment and Asset Disposal

On February 27, 2018, a fire occurred at the Chesapeake terminal, causing damage to equipment and approximately 43,000 MT of wood pellets (the “Chesapeake Terminal Event”). As part of its risk management process, the Partnership maintains certain insurance policies, which are subject to deductibles and sublimits for each covered event. When recovery of all or a portion of property damage loss or other covered expenses through insurance proceeds is probable, a receivable is recorded and the loss or expense is reduced up to the amount of the total loss or expense. No gain is recorded until all contingencies related to the insurance claim have been resolved. Income resulting from business interruption insurance is not recognized until all contingencies related to the insurance recoveries are resolved.

The Partnership believes that substantially all of the costs resulting from the Chesapeake Terminal Event are recoverable through its insurance policies and other contractual rights. Following the Chesapeake Terminal Event, the Partnership commissioned temporary storage, handling and shiploading operations at various locations, including a nearby terminal in Norfolk, Virginia, and began utilizing its Wilmington terminal to ship product from its wood pellet production plants in the Mid-Atlantic region (“business continuity activities”). Although the Chesapeake Terminal returned to operation on June 28, 2018, the Partnership expects costs associated with business continuity activities will continue through the third quarter of 2018 as the Partnership unwinds its extended logistics chain. The Partnership believes that all of its contractual obligations to its off-take customers will be met during 2018.

The Partnership recorded impairment of terminal assets of $0 and $1.1 million during the three and six months ended June 30, 2018, respectively. During the three and six months ended June 30, 2018, write-off of product, inclusive of disposal costs, was $0 and $10.7 million, respectively, which is included in cost of goods sold. Additional costs primarily related to emergency response and business continuity activities of $20.3 million and $36.9 million were incurred during the three and six months ended June 30, 2018, respectively, and are included in cost of goods sold.

As of June 30, 2018, the Partnership has received $23.3 million of insurance proceeds and has recorded $4.0 million of additional insurance recoveries in accounts receivable reflecting the insurance proceeds that are probable of receipt up to the amount of the loss recorded, in connection with the Chesapeake Terminal Event. The Partnership recorded $18.5 million and $26.3 million of insurance recoveries in cost of goods sold during the three and six months ended June 30, 2018, respectively. Of the $18.5 million and $26.3 million of insurance recoveries during the three and six months ended June 30, 2018, respectively, $13.0 million was related to business interruption activities. During the three and six months

Table of Contents

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

ended June 30, 2018, the Partnership received and recognized $0 and $1.1 million, respectively, of insurance recoveries in other income related to lost profit on the sale of the damaged product.

~~(4)~~(6) Property, Plant and Equipment

Property, plant and equipment consisted of the following at:


	September 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Land	$	13,492	$	13,492	$	13,492	$	13,492
Land improvements		42,755		42,148		42,962		42,962
Buildings		140,050		137,092		196,197		196,153
Machinery and equipment		387,643		382,740		414,177		413,349
Vehicles		609		513		635		635
Furniture and office equipment		5,234		5,113		6,073		5,970
Leasehold improvements						987		987
		589,783		581,098		674,523		673,548
Less accumulated depreciation		(104,641)		(80,768)		(135,615)		(117,067)
		485,142		500,330		538,908		556,481
Construction in progress		10,224		16,088		14,332		5,849
Total property, plant and equipment, net	$	495,366	$	516,418	$	553,240	$	562,330

Total depreciation expense was ~~$8.0~~$10.0 million and ~~$24.9~~$19.3 million and ~~$5.7~~$9.6 million and ~~$18.5~~$18.9 million for the three and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ respectively.

~~(5)~~(7) Inventories

Inventories consisted of the following at:


	September 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Raw materials and work-in-process	$	6,447	$	7,689	$	5,529	$	4,516
Consumable tooling		14,385		11,978		16,119		14,447
Finished goods		13,645		10,097		14,527		4,573
Total inventories	$	34,477	$	29,764	$	36,175	$	23,536

~~(6)~~(8) Derivative Instruments

The Partnership uses derivative instruments to partially offset its business exposure to foreign currency exchange and interest rate risk. The Partnership may enter into foreign currency forward and option contracts to offset some of the foreign currency exchange risk on expected future cash flows and interest rate swaps to offset some of the interest rate risk on expected future cash flows on certain borrowings. The Partnership’s derivative instruments expose it to credit risk to the extent that hedge counterparties may be unable to meet the terms of the applicable derivative instrument. The Partnership seeks to mitigate such ~~risk~~risks by limiting its counterparties to major financial institutions. In addition, the Partnership monitors the potential risk of loss with any one counterparty resulting from credit risk. Management does not expect material losses as a result of defaults by counterparties. The Partnership uses derivative instruments to manage cash flow and does not enter into derivative instruments for speculative or trading purposes.

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Cash Flow Hedges

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”) and Euro (“EUR”). ~~Deliveries under these off-take contracts began in September 2017.~~ The Partnership has entered 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 certain of these instruments as cash flow hedges.

For ~~these~~qualifying cash flow hedges, the effective portion of the gain or loss on the change in fair value is initially reported as a component of accumulated other comprehensive income in partners’ capital and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss, if any, is reported in earnings in the current period. The Partnership considers its cash flow hedges to be highly effective at inception and as of ~~September~~June 30, ~~2017.~~2018. Changes in fair value for derivative instruments not designated as hedging instruments are recorded in earnings.

The Partnership’s outstanding cash flow hedges at ~~September~~June 30, ~~2017~~2018 expire on dates between ~~2017~~2018 and ~~2022.~~2023.

Interest Rate Risk

The Partnership is exposed to fluctuations in interest rates on borrowings under its Senior Secured Credit Facilities. The Partnership entered into a pay-fixed, receive-variable interest rate swap in September 2016 to hedge the interest rate risk associated with its variable rate borrowings under its Senior Secured Credit Facilities. The Partnership elected to discontinue hedge accounting as of December 14, 2016 following the repayment of a portion of its outstanding indebtedness under its Senior Secured Credit Facilities, and subsequently re-designated the interest rate swap for the remaining portion of such outstanding indebtedness during the three months ended March 31, 2017. The Partnership’s interest rate swap expires concurrently with the maturity of the Senior Secured Credit Facilities in April 2020.

The counterparty to the Partnership’s interest rate swap is a major financial institution.

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The fair values of cash flow hedging instruments included in the unaudited condensed consolidated balance sheet as of ~~September~~June 30, ~~2017~~2018 were as follows:


		Asset		Liability			Asset		Liability
	Balance Sheet Location	Derivatives		Derivatives		Balance Sheet Location	Derivatives		Derivatives
Derivatives designated as hedging instruments:
Forward contracts:
Foreign currency exchange forward contracts						Other long-term assets	$	1,957	$	—
Foreign currency exchange forward contracts						Other long-term liabilities		—		1,455
Purchased options:
Foreign currency purchased option contracts						Other long-term assets		1,755		—
Interest rate swap:
Interest rate swap						Other current assets		482		—
Interest rate swap						Other long-term assets		430		—
Total derivatives designated as hedging instruments							$	4,624	$	1,455

Derivatives not designated as hedging instruments:
Forward contracts:
Foreign currency exchange forward contracts						Prepaid and other current assets	$	1,195	$	—
Foreign currency exchange forward contracts						Other long-term assets		1,104
Foreign currency exchange forward contracts	Other current liabilities	$	—	$	580	Accrued and other current liabilities		—		352
Foreign currency exchange forward contracts	Other long-term liabilities		—		2,145	Other long-term liabilities		—		20
Purchased options:
Foreign currency purchased option contracts	Prepaid and other current assets		3		—	Prepaid and other current assets		16		—
Foreign currency purchased option contracts	Other long-term assets		1,150		—	Other long-term assets		105		—
Interest rate swap:
Interest rate swap	Other current assets		82		—
Interest rate swap	Other long-term assets		331		—
Total derivatives designated as hedging instruments		$	1,566	$	2,725
Total derivatives not designated as hedging instruments							$	2,420	$	372

Net gains included in “Other income (expense)” related to the change of fair market value of derivative instruments not designated as hedging instruments during the three and six months ended June 30, 2018, were $3.5 million and $3.1 million, respectively.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The fair values of cash flow hedging instruments included in the condensed consolidated balance sheet as of December 31, ~~2016~~2017 were as follows:


		Asset		Liability			Asset		Liability
	Balance Sheet Location	Derivatives		Derivatives		Balance Sheet Location	Derivatives		Derivatives
Derivatives designated as hedging instruments:
Forward contracts:
Foreign currency exchange forward contracts	Prepaid and other current assets	$	188	$	—	Other long-term liabilities	$	—	$	2,118
Purchased options:
Foreign currency purchased option contracts						Prepaid and other current assets		1,024		—
Interest rate swap:
Interest rate swap						Prepaid and other current assets		220		—
Interest rate swap						Other long-term assets		407		—
Total derivatives designated as 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	Other long-term assets		632		—	Accrued and other current liabilities		—		806
Foreign currency exchange forward contracts	Other long-term liabilities		—		51	Other long-term liabilities		—		528
Purchased options:
Foreign currency purchased option contracts	Other long-term assets		626		—	Prepaid and other current assets		3		—
Total derivatives designated as hedging instruments		$	1,446	$	51
Derivatives not designated as hedging instruments:
Interest rate swap	Other long-term assets	$	484	$	—
Foreign currency purchased option contracts						Other long-term assets		45		—
Total derivatives not designated as hedging instruments							$	172	$	1,334

Net gains included in “Other income (expense)” related to the change of fair market value of derivative instruments not designated as hedging instruments were $0.2 million during the three and six months ended June 30, 2017.

The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive ~~income~~loss and the gains and losses recognized in ~~income~~earnings for the three months ended ~~September~~June 30, ~~2017~~2018 were as follows:

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 exchange contracts

$
(1,484)

Product sales

$
26

Product sales

$
(1)
Foreign exchange contracts

(22)

Other revenue

(30)

Other revenue

—
Purchased options

(294)

Product sales

—

Product sales

—
Interest rate swap

12

Other income (expense)

(51)

Other income (expense)

13

~~Table of Contents~~

~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(In thousands, except number of units, per unit amounts and unless otherwise noted)~~

~~(Unaudited~~)

The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive income and the gains and losses in income for the nine months ended September 30, 2017 were as follows:

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 exchange contracts

$
(3,445)

Product sales

$
26

Product sales

$
(1)
Foreign exchange contracts

(11)

Other revenue

(11)

Other revenue

—
Purchased options

(1,047)

Product sales

—

Product sales

—
Interest rate swap

(138)

Other income (expense)

(176)

Other income (expense)

13

The estimated net amount of existing gains and losses in accumulated other comprehensive income associated with derivative instruments expected to be transferred to the consolidated statements of income during the next twelve months is a gain of approximately $0.8 million, net.

The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive income and the gains and losses in income for the three and nine months ended September 30, 2016 were insignificant.

The Partnership enters into master netting arrangements, which are designed to permit net settlement of derivative transactions among the respective counterparties. If the Partnership had settled all transactions with its respective counterparties at September 30, 2017, the Partnership would have received a net settlement termination payment of $1.2 million, which differs from the recorded fair value of the derivatives. The Partnership presents its derivative assets and liabilities at their gross fair values.

~~The notional amounts of outstanding derivative instruments designated as cash flow hedges associated with outstanding or unsettled derivative instruments as of September 30, 2017 were as follows:~~

Foreign exchange forward contracts in GBP

£
42,570
Foreign exchange purchased option contracts in GBP

£
28,960
Interest rate swap

$
45,578

Amount of

Location of

Gain (Loss)

Location of Gain

Amount of Gain

Gain (Loss)

Reclassified from

(Loss) Recognized in

(Loss) in Other

Reclassified from

Accumulated Other

Earnings on Derivative

Comprehensive

Accumulated Other

Comprehensive

(Ineffective Portion

(Loss) income on

Comprehensive

(Loss) Income

and Amount

Derivative

(Loss) Income

into Earnings

Excluded from

(Effective Portion)

Effectiveness Testing)

Foreign currency exchange forward contracts

3,950

Product sales

—

Product sales

(3)

Foreign currency exchange purchased option contracts

307

Product sales

—

Product sales

—

Interest rate swap

108

Other income (expense)

1822

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive loss and the gains and losses recognized in earnings for the six months ended June 30, 2018 were as follows:

Amount of

Location of

Gain (Loss)

Location of Gain

Amount of Gain

Gain (Loss)

Reclassified from

(Loss) Recognized in

(Loss) in Other

Reclassified from

Accumulated Other

Earnings on Derivative

Comprehensive

Accumulated Other

Comprehensive

(Ineffective Portion

(Loss) income on

Comprehensive

(Loss) Income

and Amount

Derivative

(Loss) Income

into Earnings

Excluded from

(Effective Portion)

Effectiveness Testing)

Foreign currency exchange forward contracts

2,625

Product sales

—

Product Sales

(5)

Foreign currency exchange purchased option contracts

(16)

Product sales

—

Product Sales

—

Interest rate swap

428

Other income (expense)

Amount of

Location of

Gain (Loss)

Location of Gain

Amount of Gain

Gain (Loss)

Reclassified from

(Loss) Recognized in

(Loss) in Other

Reclassified from

Accumulated Other

Income on Derivative

Comprehensive

Accumulated Other

Comprehensive

(Ineffective Portion

Income on

Comprehensive

Income

and Amount

Derivative

Income

into Income

Excluded from

(Effective Portion)

Effectiveness Testing)

Foreign currency exchange forward contracts

(1,428)

Product Sales

—

Product Sales

(1)

Foreign currency exchange forward contracts

—

Other revenue

—

Foreign currency exchange purchased option contracts

(418)

Product Sales

—

Product Sales

—

Interest rate swap

(153)

Other income (expense)

(68)

Other income (expense)

(11)

Amount of

Location of

Gain (Loss)

Location of Gain

Amount of Gain

Gain (Loss)

Reclassified from

(Loss) Recognized in

(Loss) in Other

Reclassified from

Accumulated Other

Earnings on Derivative

Comprehensive

Accumulated Other

Comprehensive

(Ineffective Portion

Income on

Comprehensive

Income

and Amount

Derivative

Income

into Earnings

Excluded from

(Effective Portion)

Effectiveness Testing)

Foreign currency exchange forward contracts

(1,969)

Product sales

—

Product sales

—

Foreign currency exchange forward contracts

Other revenue

—

Foreign currency exchange purchased option contracts

(753)

Product sales

—

Product sales

—

Interest rate swap

(150)

Other income (expense)

(125)

Other income (expense)

—

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

As of June 30, 2018, the estimated net amounts of existing gains and losses in accumulated other comprehensive loss associated with derivative instruments expected to be transferred to the unaudited condensed consolidated statements of operations is a gain of $0.3 million during the next twelve months.

The Partnership enters into master netting arrangements, which are designed to permit net settlement of derivative transactions among the respective counterparties. If the Partnership had settled all transactions with its respective counterparties at June 30, 2018, the Partnership would have made a net settlement termination payment of $5.2 million, which differs insignificantly from the recorded fair value of the derivatives. The Partnership presents its derivative assets and liabilities at their gross fair values.

The notional amounts of outstanding derivative instruments ~~designated~~associated with outstanding or unsettled derivative instruments as ~~cash flow hedges~~of June 30, 2018 were as follows:


Foreign exchange forward contracts in GBP	£	71,415
Foreign exchange purchased option contracts in GBP	£	39,365
Foreign exchange forward contracts in EUR	€	18,460
Foreign exchange purchased option contracts in EUR	€	3,000
Interest rate swap	$	42,566

The notional amounts of outstanding derivative instruments associated with outstanding or unsettled derivative instruments as of December 31, ~~2016~~2017 were as follows:


~~Foreign exchange forward contracts in GBP~~	£	~~25,270~~
~~Foreign exchange purchased option contracts in GBP~~	£	~~8,160~~


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

~~(7)~~(9) Fair Value Measurements

The amounts reported in the unaudited condensed consolidated balance sheets as cash and cash equivalents, accounts receivable, related-party receivables, prepaid expenses and other current assets, accounts payable, related-party payables, ~~and~~ accrued and other current liabilities and related-party accrued liabilities approximate fair value because of the short-term nature of these instruments.

Derivative instruments and long-term debt and capital lease obligations, including the current portion, are classified as Level 2 instruments. The fair value of the Senior Notes (see Note 10, Long-Term Debt and Capital Lease Obligations – Senior Notes) was determined based on observable market prices in a less active market and was categorized as Level 2 in the fair value hierarchy. The fair value of other long-term debt and capital lease obligations classified as Level 2 was determined based on ~~the usage of~~ market prices not quoted on active markets and other observable market data. The carrying amount of derivative instruments approximates fair value as of September 30, 2017 and December 31, 2016. The carrying amount and estimated fair value of long-term debt and capital lease obligations as of September 30, 2017 and December 31, 2016 were as follows:

September 30, 2017

December 31, 2016


Carrying

Fair

Carrying

Fair


Amount

Value

Amount

Value
Senior Notes

$
294,501

$
314,361

$
293,797

$
306,547
Other long-term debt and capital lease obligations

48,622

48,622

56,998

56,998
Total long-term debt and capital lease obligations

$
343,123

$
362,983

$
350,795

$
363,545

~~The fair value of long-term debt and capital lease obligations is estimated based upon rates currently available for debt and capital lease obligations with similar terms and remaining maturities.~~

~~Table of Contents~~

~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(In thousands, except number of units, per unit amounts and unless otherwise noted)~~

~~(Unaudited~~)

~~(8) Goodwill and Other Intangible Assets~~

~~Intangible Assets~~

~~Intangible assets consisted of the following at:~~

September 30, 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

$
(8,560)

$
140

$
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

$
(10,310)

$
140

$
10,450

$
(9,079)

$
1,371

Intangible assets include favorable customer contracts acquired in connection with the Partnership’s purchase of Green Circle Bio Energy, Inc. 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 contract and are closely related to the revenue from the customer contract. The Partnership amortizes the customer contract intangible assets as deliveries are completed during the respective contract terms. During the three and nine months ended September 30, 2017 and 2016, $0.7 million and $1.2 million and $0.7 million and $1.9 million, respectively, of amortization was included in cost of goods sold in the accompanying unaudited condensed consolidated statements of income.

~~The estimated aggregate maturities of amortization expense for the next five years are as follows:~~

October 1, 2017 through December 31, 2017

$
—
Year ending December 31, 2018

140
Year ending December 31, 2019

—
Year ending December 31, 2020

—
Year ending December 31, 2021

—
Thereafter

—
Total

$
140

~~(9) Assets Held for Sale~~

The Partnership has a controlling interest in Enviva Pellets Wiggins, LLC (“Wiggins”), an entity that owns a wood pellet production plant in Stone County, Mississippi (the “Wiggins plant”). Wiggins is a joint venture controlled and consolidated by the Partnership. In December 2016, the Partnership, with the authorization of the Partnership’s board of directors, initiated a plan, and entered into a purchase and sale agreement, to sell the Wiggins plant. In December 2016, the Partnership reclassified the Wiggins plant assets to current assets held for sale and ceased depreciation. On January 20, 2017, the purchase and sale agreement terminated when the buyer failed to pay the purchase price. All operations at the Wiggins plant have ceased and the plant remains available for immediate sale. The Partnership remains in active negotiations with potential purchasers for the Wiggins plant assets.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The carrying amount and estimated fair value of long-term debt and capital lease obligations as of June 30, 2018 and December 31, 2017 were as follows:


	June 30, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Senior Notes	$	352,525	$	367,151	$	352,224	$	374,624
Other long-term debt and capital lease obligations		77,015		77,015		48,793		48,793
Total long-term debt and capital lease obligations	$	429,540	$	444,166	$	401,017	$	423,417

(10) Long-Term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations at carrying value are composed of the following:


	September 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Senior Notes, net of unamortized discount and debt issuance of $5.5 million as of September 30, 2017 and $6.2 million as of December 31, 2016	$	294,501	$	293,797
Senior Secured Credit Facilities, Tranche A-1 Advances, net of unamortized discount and debt issuance costs of $1.1 million as of September 30, 2017 and $1.4 million as of December 31, 2016		39,899		41,651
Senior Secured Credit Facilities, Tranche A-3 Advances, net of unamortized discount and debt issuance costs of $0.1 million as of September 30, 2017 and $0.2 million as of December 31, 2016		4,436		4,489
Senior Secured Credit Facilities, revolving credit commitments, at a Eurodollar Rate of 7.0% at September 30, 2017 and December 31, 2016		—		6,500
Senior Notes, net of unamortized discount, premium and debt issuance of $2.5 million as of June 30, 2018 and $2.8 million as of December 31, 2017					$	352,525	$	352,224
Senior Secured Credit Facilities, Tranche A-1 Advances, net of unamortized discount and debt issuance costs of $0.8 million as of June 30, 2018 and $1.0 million as of December 31, 2017						37,497		39,263
Senior Secured Credit Facilities, Tranche A-3 Advances, net of unamortized discount and debt issuance costs of $0.1 million as of June 30, 2018 and December 31, 2017						4,195		4,372
Senior Secured Credit Facilities, revolving credit commitments						30,000		—
Other loans		2,025		2,759		2,019		2,023
Capital leases		2,262		1,599		3,304		3,135
Total long-term debt and capital lease obligations		343,123		350,795		429,540		401,017
Less current portion of long-term debt and capital lease obligations		(5,008)		(4,109)		(7,168)		(6,186)
Long-term debt and capital lease obligations, excluding current installments	$	338,115	$	346,686	$	422,372	$	394,831

~~Senior Notes Due 2021~~

Senior Notes Due 2021

On November 1, 2016, the Partnership and Enviva Partners 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 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”) to eligible purchasers (the “Senior Notes Offering”) in a private placement under Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “Securities Act”). Interest payments, which commenced on May 1, 2017, are due semi-annually in arrears on May 1 and November 1. In August 2017, holders of 100% of the Senior Notes tendered such notes in exchange for newly issued registered notes ~~(the “Exchange Notes,” and together with the Senior Notes, the “Notes”)~~ with terms substantially identical in all material respects to the Senior Notes (except that the ~~Exchange Notes~~registered notes are not subject to restrictions on transfer). The Partnership recorded $6.4 million in original issue discounts and costs associated with the issuance of the Senior Notes, which have been recorded as a ~~reduction~~deduction to long-term debt and capital lease obligations.

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.

At any time prior to November 1, 2018, the Issuers may redeem up to 35% of the aggregate principal amount of the Notes at a redemption price of 108.5% of the principal amount, plus accrued and unpaid interest, if any, to the

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

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 Enviva Pellets Sampson, LLC (“Sampson”) in December 2016 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 (the “revolving credit commitments”), 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 debt issuance 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.

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 price 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:

at least 65% of the aggregate principal amount of the Senior Notes issued under the Indenture on November 1, 2016, remains outstanding immediately after the occurrence of such redemption (excluding notes held by the Partnership and its subsidiaries); and

the redemption occurs within 120 days of the date of the closing of such equity offering(s).

On and after November 1, 2018, the Issuers may redeem all or a portion of the Senior Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, on the Senior Notes redeemed to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), if redeemed during the twelve-month period beginning November 1 on the years indicated below:


Year:	Percentages
2018	104.250	%
2019	102.125	%
2020 and thereafter	100.000	%

The Senior Notes contain certain non-financial covenants applicable to the Partnership including, but not limited to (1) restricted payments, (2) incurrence of indebtedness and issuance of preferred securities, (3) liens, (4) dividend and other payment restrictions affecting subsidiaries, (5) merger, consolidation or sale of assets, (6) transactions with affiliates, (7) designation of restricted and unrestricted subsidiaries, (8) additional subsidiary guarantees, (9) business activities and (10) reporting obligations.

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017 the Partnership was in compliance with all covenants and restrictions associated with, and no events of default existed under, the Indenture. The Partnership’s obligations under the Indenture ~~are guaranteed by certain of the Partnership’s subsidiaries and secured by liens on substantially all of the Partnership’s assets.~~

~~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 (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) 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. The Partnership is 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, the Partnership entered into the First Incremental Term Loan Assumption Agreement (the “Assumption Agreement”) providing for $36.5 million of incremental borrowings (the “Incremental Term Borrowings” and, together with the Original Credit Facilities, the “Senior Secured Credit Facilities”) under the Credit Agreement. The Incremental Term Borrowings consisted 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, Enviva FiberCo, LLC (“Enviva FiberCo”), an affiliate and a wholly owned subsidiary of the sponsor, became a lender pursuant to the Credit

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

~~Agreement with a purchase of $15.0 million aggregate principal amount~~are guaranteed by certain of the ~~Tranche A-4 borrowings, net of a 1.0% lender fee. On June 30~~, ~~2016, Enviva FiberCo assigned~~Partnership’s subsidiaries and secured by liens on substantially all of ~~its rights and obligations in its capacity as a lender to a third party. The Partnership recorded $0 million and $0.4 million as interest expense related to this indebtedness during~~ the ~~three and nine months ended September 30, 2016, respectively~~.Partnership’s assets.

Senior Secured Credit Facilities

~~On October 17, 2016, the~~The Partnership entered into a ~~second amendment to the Credit Agreement (the “Second Amendment”). Following the consummation of the Sampson Drop-Down, the Second Amendment provided for an increase of the~~credit agreement that governs $100.0 million in revolving credit commitments ~~from $25.0 million to $100.0 million.~~

On December 14, 2016, proceeds from the Senior Notes were used to repay all outstanding indebtedness, including accrued interest, of $74.7 million for Tranche A-2 and $26.5 million for Tranche A-4 under the Senior(the “Senior Secured Credit Facilities, and to repay a portion of the outstanding indebtedness, including accrued interest, of $53.6 million for Tranche A-1 and $5.1 million for Tranche A-3 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.

Facilities”). The Senior Secured Credit Facilities mature in April 2020. Borrowings under the Senior Secured Credit Facilities bear interest, at the Partnership’s 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.

The Senior Secured Credit Facilities include a commitment fee payable on undrawn revolving credit commitments of 0.50% per annum (subject to a stepdown of 0.375% per annum if the Total Leverage Ratio is less than or equal to 2.00:1.00). Letters of credit issued under the Senior Secured Credit Facilities are subject to a fee calculated at the applicable margin for revolving credit facility Eurodollar rate borrowings. As of June 30, 2018, the Partnership had $30.0 million in revolving credit commitments outstanding and the Partnership had no amount outstanding as of December 31, 2017.

As of June 30, 2018, the Partnership had no letters of credit outstanding under the Senior Secured Credit Facilities and had a $4.0 million letter of credit outstanding under the letters of credit facilities as of September 30, 2017 and December 31, 2016. The letter of credit was issued in connection with a contract between the Partnership and a third party in the ordinary course of business.

~~The Partnership had no amount outstanding under the revolving credit commitments as of September 30, 2017. The Partnership had $6.5 million outstanding under the revolving credit commitments~~ as of December 31, ~~2016.~~2017.

The Senior Secured Credit Facilities 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 (1) incur indebtedness, (2) pay dividends or make other distributions, (3) prepay, redeem or repurchase certain debt, (4) make loans and investments, (5) sell assets, (6) incur liens, (7) enter into transactions with affiliates, (8) consolidate or merge and (9) assign certain material contracts to third parties or unrestricted subsidiaries. The Partnership will be restricted from making distributions if an event of default exists under the Senior Secured Credit Facilities or if the interest coverage ratio (determined as the ratio of consolidated EBITDA, as defined in the Senior Secured Credit Facilities, to consolidated interest expense), which is determined quarterly, is less than 2.25:1.00 at such time.

The Partnership is required to maintain, as of the last day of each fiscal quarter, a ratio of total debt to consolidated EBITDA (“Total Leverage Ratio”) 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 Senior Secured Credit Facilities; 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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Partnership was in compliance with all covenants and restrictions associated with, and no events of default existed under, the Senior Secured Credit ~~Agreement.~~Facilities. The Partnership’s obligations under the Senior Secured Credit ~~Agreement~~Facilities are guaranteed by certain of the Partnership’s subsidiaries and secured by liens on substantially all of its assets.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

(11) Related-Party Transactions

Related-party amounts included on the unaudited condensed consolidated statements of operations were as follows for the three and six months ended June 30, 2018 and 2017:


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017 (Recast)		2018		2017 (Recast)
Other revenue	$	1,072	$	3,305	$	2,304	$	3,625
Cost of goods sold		20,912		14,369		36,051		29,651
General and administrative expenses		3,550		3,028		7,514		6,041

Management Services Agreement

On April 9, 2015, the Partnership, ~~Enviva Partners GP, LLC, its general partner (the “General Partner”),~~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 Company, LLC (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)~~(1) the portion of the salary and benefits of the employees engaged in providing the Services reasonably allocable to the Service Recipients; ~~(ii)~~(2) the charges and expenses of any third party retained to provide any portion of the Services; ~~(iii)~~(3) office rent and expenses and other overhead costs incurred in connection with, or reasonably allocable to, providing the Services; ~~(iv)~~(4) amounts related to the payment of taxes related to the business of the Service Recipients; and ~~(v)~~(5) costs and expenses incurred in connection with the formation, capitalization, business or other activities of the Provider pursuant to the MSA.

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~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(In thousands, except number of units, per unit amounts and unless otherwise noted)~~

~~(Unaudited~~)

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 three and ~~nine~~six months ended ~~September~~June 30, ~~2017, the Partnership incurred $14.4~~2018, $13.8 million and ~~$42.6~~$22.5 million, respectively, related to the ~~MSA. Of this amount, during the three and nine months ended September 30, 2017, $9.5 million and $32.3 million, respectively, is~~MSA was included in cost of goods sold, and ~~$3.2~~$3.5 million and ~~$8.6~~$7.5 million, respectively, iswas included in general and administrative expenses, on the unaudited condensed consolidated statements of ~~income.~~operations. At ~~September~~June 30, ~~2017, $1.7~~2018, $2.3 million incurred under the MSA iswas included in finished goods inventory.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, the Partnership incurred $14.4~~2017, $10.8 million and ~~$40.5~~$22.7 million, respectively, related to the ~~MSA. Of this amount, $9.2 million and $26.9 million, respectively, is~~MSA was included in cost of goods sold, and ~~$4.6~~$3.0 million and ~~$13.0~~$6.0 million, respectively, iswas included in general and administrative expenses, on the unaudited condensed consolidated statements of ~~income. At September 30, 2016, $0.6 million incurred under the MSA is included in finished goods inventory.~~operations.

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Partnership had ~~$13.8~~$18.5 million and ~~$10.6~~$19.6 million, respectively, included in related-party payables primarily related to the MSA.

~~Common Control Transactions~~

~~Sampson Drop-Down~~

~~On December 14, 2016, the 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~~).

~~Enviva Port of Wilmington, LLC Acquisition~~

On May 8, 2017, pursuant to a contribution agreement by and between the Partnership and the Hancock JV (the “Wilmington Contribution Agreement”), the Partnership agreed to purchase Enviva Port of Wilmington, LLC (“Wilmington”), a wholly owned subsidiary of the Hancock JV, from the Hancock JV for total consideration of $130.0 million. Wilmington owns the Wilmington terminal. The acquisition of Wilmington (the “Wilmington Drop‑Down”) closed on October 2, 2017 (see Note 18, ~~Subsequent Events~~).

~~Related-Party Indemnification~~

In connection with the Sampson Drop-Down, the Hancock JV agreed to indemnify the Partnership, its affiliates, and its respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Sampson plant. 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 Hancock JV (see Note 1, ~~Description of Business and Basis of Presentation~~) of $6.4 million for reimbursement of such indemnifiable amounts in connection with the Sampson Drop-Down. At September 30, 2017, the related party receivable associated with such amounts was $5.3 million.

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

~~Terminal Services Agreement~~Common Control Transactions

On ~~December 14, 2016,~~October 2, 2017, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Wilmington ~~entered into a terminal services agreement (the “Sampson TSA”~~for total consideration of $130.0 million (see Note 1, Description of Business and Basis of Presentation) ~~regarding wood pellets produced at~~.

Related-Party Indemnification

In connection with the acquisition of Sampson in December 2016 (“Sampson Drop-Down”), the First Hancock JV agreed to indemnify the Partnership, its affiliates, and its respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Sampson plant that were included in the net assets acquired. The Partnership recorded a corresponding related-party receivable from the First Hancock JV of $6.4 million for reimbursement of such indemnifiable amounts. At June 30, 2018 and ~~transported by truck to~~December 31, 2017, the Wilmington terminal. Pursuant to the Sampson TSA, the wood pellets were received, stored and ultimately loaded onto oceangoing vessels for transport to the Partnership’s customers. During the three and nine months ended September 30, 2017, terminal services of $1.0related-party receivable associated with such amounts was $1.7 million and ~~$2.5~~$3.0 million, respectively, were expensed and are included in cost of goods sold on the unaudited condensed consolidated statements of operations. No terminal services were provided by the Wilmington terminal to the Partnership during the three and nine months ended September 30, 2016. The Sampson TSA was terminated inrespectively.

In connection with the Wilmington Drop-Down, the First Hancock JV agreed to indemnify the Partnership, its affiliates, and its 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 Wilmington terminal that were included in the net assets acquired. The Partnership recorded a corresponding related-party receivable from the First Hancock JV of $1.8 million for reimbursement of such indemnifiable amounts. At June 30, 2018 and December 31, 2017, the related-party receivable associated with such amounts was $1.3 million.

Sampson Construction Payments

Pursuant to four payment agreements between the Partnership and the First Hancock JV dated effective as of July 27, 2017, September 30, 2017, December 31, 2017 and June 30, 2018, respectively (together, the “Payment Agreements”), the First Hancock JV agreed to pay an aggregate amount of $2.9 million to the Partnership in consideration for costs incurred by the Partnership to repair or replace certain equipment at the Sampson plant following the consummation of the Sampson Drop-Down. As of June 30, 2018, $1.4 million has been received and $1.5 million is included in related-party receivables on ~~October 2, 2017.~~the condensed consolidated balance sheet.

Terminal Services Agreement

In 2017, Wilmington and the sponsor entered into the Holdings TSA providing for wood pellet receipt, storage, handling and loading services by the Wilmington terminal for the sponsor. 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. During the six months ended June 30, 2018, the Partnership recorded $0.8 million as terminal services revenue, which is included in “Other revenue.” During the three and six months ended June 30, 2017, the Partnership recorded $0.4 million and $0.7 million, respectively, as terminal services revenue, which is included in “Other revenue.”

On February 16, 2018, Greenwood acquired the Greenwood plant and the Holdings TSA was amended and assigned to Greenwood. The terminal services agreement provides for deficiency payments to Wilmington if quarterly minimum throughput requirements are not met. During the three and six months ended June 30, 2018, the Partnership recorded $1.1 million and $1.5 million, respectively, of deficiency fees under the Holdings TSA, which is included in “Other revenue.”

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Enviva FiberCo, LLC

The Partnership purchases raw materials from Enviva FiberCo. Raw material purchases during the three and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 ~~and 2016~~ from ~~Enviva~~ FiberCo were ~~$2.2~~$1.8 million and ~~$6.3~~$3.5 million and ~~$1.0~~$2.3 million and ~~$2.4~~$4.1 million, respectively.

Biomass Purchase Agreement – Hancock JV

On ~~April 9, 2015, Enviva, LP~~September 7, 2016, Sampson entered into a confirmation under a master biomass purchase and sale agreement (the “Biomass Purchase Agreement”) between Enviva, LP and ~~a confirmation thereunder with~~ the First Hancock JV pursuant to which the Hancock JV sold to Enviva, LP, at a fixed price per metric ton, certain volumes of wood pellets per month. The Partnership sold the wood pellets purchased from the Hancock JV to customers under the Partnership’s existing off-take contracts. Such confirmation was terminated on December 11, 2015.

~~On September 7, 2016, Sampson entered into a confirmation under the Biomass Purchase Agreement~~ pursuant to which Sampson agreed to sell to the sponsor 60,000 ~~metric tons~~MT of wood pellets through August 31, 2017. On June 23, 2017, the sponsor satisfied its take-or-pay obligation under the agreement with a $2.7 million payment to the Partnership, which is included in “Other 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 metric tons of wood pellets, and Sampson agreed to sell to Enviva, LP 140,000 metric tons 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.

Biomass Option Agreement – Enviva Holdings, LP

On February 3, 2017, Enviva, LP entered into a master biomass purchase and sale agreement and a confirmation thereunder, which confirmation was amended on April 1, 2017, each with the sponsor (together, the “Option Contract”), pursuant to which Enviva, LP ~~has~~had 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~~had a corresponding right to re-purchase volumes purchased by Enviva, LP 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 Enviva, LP ~~purchases~~purchased more than 45,000 ~~metric tons~~MT of wood pellets pursuant to the Option Contract.

Pursuant to the Option Contract, Enviva, LP purchased $0 and $1.7 million of wood pellets from the sponsor during the three and six months ended June 30, 2018, respectively. During the three and six months ended June 30, 2017, Enviva, LP purchased $1.3 million and $2.9 million, respectively, of wood pellets from the sponsor. The wood pellet purchase amounts are included in cost of goods sold in the Partnership’s unaudited condensed consolidated statements of operations. The Option Contract terminated in accordance with its terms on March 2, 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. As amended, the EVA‑MGT Contract commences in 2019, ramps to full supply in 2021 and continues through 2034. The EVA-MGT Contract is denominated in U.S. Dollars for commissioning volumes in 2019 and in GBP thereafter.

The Partnership entered into a second supply agreement with the First Hancock JV in connection with the Sampson Drop-Down to supply an additional 95,000 MTPY of the contracted volume to the Tees REP. The contract, which is denominated in GBP, commences in 2020 and continues through 2034.

Greenwood Contract

In connection with the Greenwood Acquisition on February 16, 2018, the Partnership entered into a contract with Greenwood 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 production from the Greenwood plant from the acquisition date through March 2022 and has a take-or-pay obligation with respect to 550,000 MTPY of wood pellets (prorated for partial contract years) beginning in mid-2019.

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, pursuant to~~2018, the ~~Option Contract, Enviva, LP~~Partnership purchased $5.2 million and ~~$8.1~~$8.3 million, respectively, of wood pellets from ~~the sponsor,~~Greenwood, which ~~amounts are~~is included in cost of goods ~~sold~~sold. As of June 30, 2018, $6.0 million is included in related-party payables for the Partnership’s ~~unaudited condensed consolidated statements of income.~~wood pellet purchases under the Greenwood Contract.

Long-Term Incentive Plan Vesting

~~Related-Party Indebtedness~~

~~On December 11, 2015, Enviva FiberCo became a lender pursuant~~During the six months ended June 30, 2018, the Partnership paid $4.0 million to the ~~Credit Agreement~~General Partner and the Provider in connection with ~~a purchase~~the settlement of ~~$15.0 million aggregate principal amount~~performance-based phantom unit awards under the Enviva Partners, LP Long-Term Incentive Plan (“LTIP”). As of ~~the Tranche A-4 term borrowings, net of a 1.0% lender fee. On~~ June 30, ~~2016, Enviva FiberCo assigned all of its rights and obligations~~2018, the Partnership had $2.7 million included in ~~its capacity as a lender to a third party. The Partnership recorded $0.4 million as~~ related-party ~~interest expense~~payables related to ~~this indebtedness during the three and nine months ended September 30, 2016. The Partnership did not incur related-party interest expense during the three and nine months ended September 30, 2017.~~

~~Related-Party Notes Payable~~

On January 22, 2016, an indirect wholly owned subsidiary of the Partnership with a noncontrolling interest in Wiggins became the holder of a $3.3 million Wiggins construction loan and working capital line of credit. There were no changeswithholding tax amounts due to the ~~terms of the loans. The loans were paid in full on the October 18, 2016 maturity date. Related-party interest expense~~Provider associated with the ~~related-party notes payable was insignificant during~~vesting of time- and performance-based phantom units under the ~~three and nine months ended September 30, 2016.~~

~~Sampson Construction Payments~~

~~Pursuant to two payment agreements between the Partnership and the Hancock JV dated effective as of July 27, 2017 and September 30, 2017 (together, the “Payment Agreements”~~LTIP (See Note 15, Equity Based Awards), the Hancock JV agreed to pay an aggregate amount of $1.0 million to the Partnership in consideration for costs incurred by the Partnership on or prior to September 30, 2017 to repair or replace certain equipment at the Sampson plant following the consummation of the Sampson Drop-Down..

(12) Income Taxes

The Partnership’s ~~U.S.~~ operations are organized as limited partnerships and entities that are disregarded entities for federal and state income tax purposes. As a result, the Partnership is not subject to U.S. federal orand most state income taxes. The partners and unitholders of the Partnership are liable for these income taxes on their share of the Partnership’s taxable income. Some states impose franchise and capital taxes on the Partnership. Such taxes are not material to the consolidated financial statements and have been included in other income (expense) as incurred.

As of ~~September~~June 30, ~~2017,~~2018, the only periods subject to examination for federal and state income tax returns are 2015 through ~~2016.~~2017. The Partnership believes its income tax filing positions, including its status as a pass-through entity, would be sustained on audit and does not anticipate any adjustments that would result in a material change to its consolidated balance sheet. Therefore, no reserves for uncertain tax positions or interest orand penalties have been recorded. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, no provision for federal or state income taxes has been recorded in the consolidated financial statements.

(13) Commitments and Contingencies

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~~purchase and sale transaction. Smoldering was observed onboard the vessel

~~Table of Contents~~

~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(In thousands, except number of units, per unit amounts and unless otherwise noted)~~

~~(Unaudited~~)

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 the Partnership’s indirectly wholly owned subsidiary, Enviva Pellets Cottondale, LLC (“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 ~~$11.7~~$11.9 million (calculated using exchange rates as of ~~September 29, 2017)~~June 30, 2018), together with other unquantified losses and damages. The Claims provide that the Shipowner would seek indemnification and other damages from Cottondale to the extent that the Shipowner is unsuccessful in its defense of claims raised by the Head Owners against it for damages arising in connection with the Shipping Event.

Although it is reasonably possible that the Shipping Event may result in additional costs 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.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

(14) Partners’ Capital

Common and Subordinated Units - Sponsor

On May 9, 2018, the sponsor sold to third parties all of the 1,265,453 common units held by the sponsor on such date. On May 30, 2018, all of the Partnership’s 11,905,138 previously outstanding subordinated units, which were held by the sponsor, converted into common units on a one‑for‑one basis. As of June 30, 2018, 11,905,138 common units were held by the sponsor.

Allocations of Net Income

The First Amended and Restated Agreement of Limited Partnership of the Partnership (the “Partnership Agreement”) contains provisions for the allocation of net income and loss to the unitholders of the Partnership and the General Partner. For purposes of maintaining partner capital accounts, the Partnership Agreement specifies that items of income and loss shall be allocated among the partners of the Partnership in accordance with their respective percentage ownership interest. Such allocations are made after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions, which are allocated 100% to the General Partner.

Incentive Distribution Rights

Incentive distribution rights (“IDRs”) represent the right to receive increasing percentages ~~(ranging from~~(from 15.0% to 50.0%) of quarterly distributions from operating surplus after distributions in amounts exceeding specified target distribution levels have been achieved by the Partnership. The General Partner currently holds the IDRs, but may transfer these rights at any time.

At-the-Market Offering Program

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 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 the offerings. In August 2016, the Partnership entered into an equity distribution agreement (the “Equity Distribution Agreement”) with certain managers pursuant to which the Partnership 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 three months ended ~~September~~June 30, 2018 and 2017, the Partnership did not sell common units under the ATM Program. During the ~~nine~~six months ended ~~September~~June 30, 2018, the Partnership sold 8,408 common units under the ATM Program for net proceeds of $0.2 million, net of an insignificant amount of commissions. During the six months ended June 30, 2017, the Partnership sold 63,577 common units under the ATM Program for net proceeds of $1.7 million, net of an insignificant amount of commissions. Net proceeds from sales under the ATM Program were used for general partnership purposes.

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Equity Distribution Agreement for net proceeds of $1.7 million, net of an insignificant amount of commissions. Net proceeds from sales under the ATM Program were used for general partnership purposes. No common units were sold under the Equity Distribution Agreement during the three and nine months ended September 30, 2016.

~~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 (see Note 2, ~~Transactions Between Entities Under Common Control~~).

Cash Distributions to Unitholders

The partnership agreement sets forth the calculation to be used to determine the amount of cash distributions that the common and subordinated unitholders and sponsor will receive.

Distributions that have been paid or declared related to the reporting period are considered in the determination of earnings per unit. The following table details the cash distribution paid or declared (in millions, except per unit amounts):

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


								Total
								Payment to
								General
								Partner for
								Incentive
	Declaration	Record	Payment	Distribution		Total Cash		Distribution
Quarter Ended	Date	Date	Date	Per Unit		Distribution		Rights
June 30, 2017	August 2, 2017	August 15, 2017	August 29, 2017	$	0.5700	$	15.0	$	0.7
September 30, 2017	November 2, 2017	November 15, 2017	November 29, 2017	$	0.6150	$	16.2	$	1.1
December 31, 2017	January 31, 2018	February 15, 2018	February 28, 2018	$	0.6200	$	16.3	$	1.1
March 31, 2018	May 3, 2018	May 15, 2018	May 29, 2018	$	0.6250	$	16.5	$	1.3
June 30, 2018	August 1, 2018	August 15, 2018	August 29, 2018	$	0.6300	$	16.7	$	1.4

For purposes of calculating the Partnership’s earnings per unit under the two-class method, common units are treated as participating preferred units, and the subordinated units are treated as the residual equity interest, or common equity. IDRs are treated as participating securities.

Distributions made in future periods based on the current period calculation of cash available for distribution are allocated to each class of equity that will receive the distribution. Any unpaid cumulative distributions are allocated to the appropriate class of equity.

The Partnership determines the amount of cash available for distribution for each quarter in accordance with the Partnership Agreement. The amount to be distributed to common unitholders, subordinated unitholders and IDR holders is based on the distribution waterfall set forth in the Partnership Agreement. Net earnings for the quarter are allocated to each class of partnership interest based on the distributions to be made. ~~Additionally, if, during~~On May 30, 2018, the subordination period ended in accordance with the Partnership ~~does not have enough~~Agreement and the subordinated units were converted into common units on a one-for-one basis (see Note 16, Net Income per Limited Partner).

Accumulated Other Comprehensive (Loss) Income

Comprehensive (loss) income consists of two components: net (loss) income and other comprehensive (loss) income. Other comprehensive (loss) income refers to revenue, expenses and gains and losses that pursuant to GAAP are included in comprehensive (loss) income but excluded from net income (loss). The Partnership’s other comprehensive (loss) income for three and six months ended June 30, 2018 and 2017 consists of unrealized gains and losses related to derivative instruments accounted for as cash available to make the required minimum distribution to the common unitholders, the Partnership will allocate net earnings to the common unitholders based on the amount of distributions in arrears. When actual cash distributions are made based on distributions in arrears, those cash distributions will not be allocated to the common unitholders, as such earnings were allocated in previous quarters.flow hedges.

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

~~Accumulated Other Comprehensive Income~~

~~Comprehensive income consists of two components: net income and~~The following table presents the changes in accumulated 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 consists of unrealized gains and losses related to derivative instruments accounted for as cash flow hedges. Changes in other comprehensive incomeloss for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016 were insignificant.~~2018:


	Unrealized
	Losses on
	Derivative
	Instruments
Balance at December 31, 2017	$	(3,040)
Net unrealized gain		3,037
Reclassification of net gain realized into earnings		(63)
Accumulated other comprehensive loss at June 30, 2018	$	(66)

The following table presents the changes in accumulated other comprehensive ~~income~~loss for the ~~nine~~six months ended ~~September~~June 30, 2017:


	Unrealized		Unrealized
	Losses on		Losses on
	Derivative		Derivative
	Instruments		Instruments
Balance at December 31, 2016	$	595	$	595
Net unrealized losses		(4,641)		(2,853)
Reclassification of net losses realized into net income		161
Accumulated other comprehensive loss	$	(3,885)
Reclassification of net losses realized into earnings				106
Accumulated other comprehensive loss at June 30, 2017			$	(2,152)

~~Noncontrolling~~Non-controlling Interests—Enviva Pellets Wiggins, LLC

~~At September 30,~~Prior to December 28, 2017, ~~and December 31, 2016,~~ the Partnership ~~held 20.0 million of the 30.0 million outstanding voting Series B units in Wiggins, which represented~~had a 67% controlling interest in ~~Wiggins.~~Enviva Pellets Wiggins, LLC (“Wiggins”). On December 28, 2017, Wiggins was dissolved along with associated non-controlling interests. Upon dissolution, no amounts were distributed to the non-controlling interest holders and all intercompany balances were forgiven.

In December 2016, the Partnership, with the authorization of the Partnership’s board of directors, initiated a plan, and entered into a purchase and sale agreement, to sell the Wiggins plant. In December 2016, the Partnership reclassified the Wiggins plant assets to current assets held for sale and ceased depreciation. On January 20, 2017, the purchase and sale agreement terminated when the buyer failed to pay the purchase price. All operations at the Wiggins plant have ceased and the plant remains available for immediate sale. The Partnership remains in active negotiations with potential purchasers for the Wiggins plant assets.

~~Noncontrolling~~Non-controlling Interests—First Hancock JV

~~Sampson~~Wilmington was a wholly owned subsidiary of the First Hancock JV prior to the consummation of the ~~Sampson~~Wilmington Drop-Down. The Partnership’s financial statements have been recast to include the financial results of ~~Sampson~~Wilmington as if the consummation of the ~~Sampson~~Wilmington Drop-Down had occurred on May 15, 2013, the date ~~Sampson~~Wilmington was originally organized. The ~~Partnership’s financial statements include~~interests of the First Hancock JV’s ~~noncontrolling interest~~third-party investors in Wilmington for ~~the~~ periods prior to the ~~consummation of~~related drop-down transactions have been reflected as a non-controlling interest in the ~~Sampson Drop-Down.~~Partnership’s financial statements. The Partnership’s unaudited condensed consolidated statements of ~~income~~operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 include net losses of ~~$1.3~~$1.1 million and ~~$3.4~~$2.4 million, respectively, attributable to the ~~noncontrolling~~non-controlling interests in ~~Sampson.~~Wilmington.

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

(15) Equity-Based Awards

The following table summarizes information regarding phantom unit awards (the “Affiliate Grants”) to employees of the Provider ~~under the Enviva Partners, LP Long-Term Incentive Plan (“LTIP”)~~ who provide services to the Partnership ~~(the “Affiliate Grants”):~~under the LTIP:


				Performance-Based			Total Affiliate Grant			Time-Based			Performance-Based			Total Affiliate Grant
	Phantom Units			Phantom Units			Phantom Units			Phantom Units			Phantom Units			Phantom Units
		Weighted-			Weighted-			Weighted-			Weighted-			Weighted-			Weighted-
		Average			Average			Average			Average			Average			Average
		Grant Date			Grant Date			Grant Date			Grant Date			Grant Date			Grant Date
		Fair Value			Fair Value			Fair Value			Fair Value			Fair Value			Fair Value
	Units	(per unit)(1)		Units	(per unit)(1)		Units	(per unit)(1)		Units	(per unit)(1)		Units	(per unit)(1)		Units	(per unit)(1)
Nonvested December 31, 2016	346,153	$	19.32	235,355	$	19.46	581,508	$	19.37
Nonvested December 31, 2017										595,866	$	22.32	111,104	$	25.52	706,970	$	22.82
Granted	298,102	$	25.64	107,806	$	25.41	405,908	$	25.58	361,253	$	29.11	141,954	$	28.76	503,207	$	29.01
Adjusted										—	$	—	15,915	$	18.19	15,915	$	18.19
Forfeitures	(34,206)	$	22.00	—	$	—	(34,206)	$	22.00	(44,896)	$	25.38	(7,125)	$	28.95	(52,021)	$	25.87
Vested	—	$	—	—	$	—	—	$	—	(170,499)	$	21.84	(45,059)	$	23.80	(215,558)	$	22.25
Nonvested September 30, 2017	610,049	$	22.26	343,161	$	21.33	953,210	$	21.92
Nonvested June 30, 2018										741,724	$	25.55	216,789	$	27.35	958,513	$	25.96

(1)

Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.

At June 30, 2018, $2.7 million is included in related-party payables to the Provider to satisfy the withholding tax requirements associated with 170,499 time-based phantom unit awards and 45,059 performance-based phantom unit awards that vested under the LTIP during the three months ended June 30, 2018. On December 31, 2017, 139,810 performance-based phantom unit awards vested. Upon settlement of the performance-based phantom unit awards on January 31, 2018, the Partnership paid $2.3 million to the General Partner who then acquired 81,708 common units at a market price of $28.65 per unit from a wholly owned subsidiary of the sponsor to satisfy its obligations under the LTIP. The Partnership also paid $1.7 million to the Provider to satisfy the withholding tax requirements associated with such units. The Provider recognized an additional $0.1 million in expense for the change in fair value of these awards between the vesting and settlement dates of such awards, which was allocated to the Partnership in the same manner as other corporate expenses.

The following table summarizes information regarding phantom unit awards ~~under the LTIP~~ to certain non-employee directors of the General Partner (the “Director Grants”): under the LTIP:

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, 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 September 30, 2017

15,840

$
25.25

—

$
—

15,840

$
25.25


	Time-Based			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, 2017	15,840	$	25.25		—	$	—		15,840	$	25.25
Granted	13,964	$	28.65		—	$	—		13,964	$	28.65
Vested	(15,840)	$	25.25		—	$	—		(15,840)	$	25.25
Nonvested June 30, 2018	13,964	$	28.65		—	$	—		13,964	$	28.65

(1)

Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.

On February 3, 2017, Director Grants valued at $0.4 million were granted and vest on the first anniversary of the grant date, February 3, 2018. On May 4, 2017, the Director Grants that were nonvested at December 31, 2016 vested and common units were issued. In addition, 3,280 common units were granted and issued to non-employee directors of the General Partner as compensation for services performed on the General Partner’s board of directors during the nine months ended September 30, 2017.

The distribution equivalent rights (“DERs”) associated with the Director Grants and the Affiliate Grants entitle the recipients to receive payments equal to any distributions made by the Partnership to the holders of common units within 60 days following the record date for such distributions. The DERs associated with the performance-based Affiliate Grants will remain outstanding and unpaid from the grant date until the earlier of the settlement or forfeiture of the

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

In February 2018, Director Grants valued at $0.4 million were granted and vest on the first anniversary of the grant date. In February 2018, the Director Grants that were nonvested at December 31, 2017 vested and common units were issued.

The distribution equivalent rights (“DERs”) associated with the Affiliate Grants and the Director Grants subject to time-based vesting entitle the recipients to receive payments equal to any distributions made by the Partnership to the holders of common units within 60 days following the record date for such distributions. The DERs associated with the Affiliate Grants subject to performance-based vesting will remain outstanding and unpaid from the grant date until the earlier of the settlement or forfeiture of the related ~~Affiliate Grants. Payments~~performance-based phantom units.

Unpaid DER amounts related to ~~DERs~~the performance-based Affiliate Grants at June 30, 2018 were $1.1 million, of which $0.6 million are included in related-party accrued liabilities and $0.5 million are included in other long-term liabilities on the consolidated balance sheets. Unpaid DER amounts related to the performance-based Affiliate Grants at December 31, 2017 were $0.9 million, of which $0.7 million are included in accrued liabilities and $0.2 million are included in other long-term liabilities. DER distributions related to the time-based Affiliate Grants were $1.2 million for the six months ended June 30, 2018. DER distributions were insignificant for the three ~~and nine~~ months ended ~~September~~June 30, ~~2016 were not significant.~~2018.

(16) Net Income (Loss) per Limited Partner Unit

Net income (loss) per unit applicable to limited partners (including subordinated unitholders) is computed by dividing limited partners’ interest in net income (loss), after deducting any incentive distributions, by the weighted-average number of outstanding common and subordinated units. The Partnership’s net income (loss) is allocated to the limited partners in accordance with their respective ownership percentages, after giving effect to priority income allocations for incentive distributions, if any, to the holder of the IDRs, pursuant to the Partnership Agreement, which are declared and paid following the close of each quarter. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to the Partnership’s unitholders are determined in relation to actual distributions declared and are not based on the net income (loss) allocations used in the calculation of earnings per unit.

On May 30, 2018, the requirements under the Partnership Agreement for the conversion of all of the Partnership’s subordinated units into common units were satisfied and the subordination period for such subordinated units ended. As a result, all of the Partnership’s 11,905,138 outstanding subordinated units converted into common units on a one-for-one basis. The conversion did not impact the amount of the cash distribution paid or the total number of the Partnership’s outstanding units representing limited partner interests. The Partnership’s net income was allocated to the general partner and the limited partners, including the holders of the subordinated units and IDR holders in accordance with the Partnership Agreement.

In addition to the common and subordinated units, the Partnership has also identified the IDRs and phantom units as participating securities and uses the two-class method when calculating the net income (loss) per unit applicable to limited partners, which is based on the weighted-average number of common units and subordinated units outstanding during the period. Diluted net income per unit includes the effects of potentially dilutive time-based and performance-based phantom units on the Partnership’s common units. Basic and diluted earnings per unit applicable to subordinated limited partners are the same because there are no potentially dilutive subordinated units outstanding.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The following ~~provides a reconciliation~~computation of net income ~~and the assumed allocation of net income under the two-class method for purposes of computing net income~~(loss) per limited partner unit is as follows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~2017:


	Three Months Ended September 30, 2017
	Common		Subordinated		General		Three Months Ended June 30, 2018
	Units		Units		Partner		Common		Subordinated		General
	(in thousands)						Units		Units		Partner
Weighted-average common units outstanding—basic		14,412		11,905		—		18,597		7,804		—
Effect of nonvested phantom units		973		—		—		1,131		—		—
Weighted-average common units outstanding—diluted		15,385		11,905		—		19,728		7,804		—


	Three Months Ended September 30, 2017								Three Months Ended June 30, 2018
	Common		Subordinated		General				Common		Subordinated		General
	Units		Units		Partner		Total		Units		Units		Partner		Total
	(in thousands, except per unit amounts)
Distributions declared	$	8,863	$	7,322	$	1,063	$	17,248	$	11,750	$	4,931	$	1,400	$	18,081
Earnings less than distributions	��	(5,974)		(4,935)		—		(10,909)		(10,240)		(4,297)		—		(14,537)
Net income attributable to partners	$	2,889	$	2,387	$	1,063	$	6,339	$	1,510	$	634	$	1,400	$	3,544
Weighted-average units outstanding—basic		14,412		11,905						18,597		7,804
Weighted-average units outstanding—diluted		15,385		11,905						19,728		7,804
Net income per limited partner unit—basic	$	0.20	$	0.20
Net income per limited partner unit—diluted	$	0.19	$	0.20
Net income per limited partner unit—basic and diluted									$	0.08	$	0.08


	Six Months Ended June 30, 2018
	Common		Subordinated		General
	Units		Units		Partner
Weighted-average common units outstanding—basic		16,518		9,855		—
Effect of nonvested phantom units		—		—		—
Weighted-average common units outstanding—diluted		16,518		9,855		—


	Six Months Ended June 30, 2018
	Common		Subordinated		General
	Units		Units		Partner		Total
Distributions declared	$	20,788	$	12,403	$	2,664	$	35,855
Earnings less than distributions		(32,347)		(19,299)		—		(51,646)
Net (loss) income attributable to partners	$	(11,559)	$	(6,896)	$	2,664	$	(15,791)
Weighted-average units outstanding—basic and diluted		16,518		9,855
Net loss per limited partner unit—basic and diluted	$	(0.70)	$	(0.70)


	Three Months Ended June 30, 2017
	Common		Subordinated		General
	Units		Units		Partner
Weighted-average common units outstanding—basic		14,405		11,905		—
Effect of nonvested phantom units		954		—		—
Weighted-average common units outstanding—diluted		15,359		11,905		—

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Nine Months Ended September 30, 2017


Common

Subordinated

General


Units

Units

Partner

(in thousands)
Weighted-average common units outstanding—basic

14,400

11,905

—
Effect of nonvested phantom units

943

—

—
Weighted-average common units outstanding—diluted

15,343

11,905

—


	Nine Months Ended September 30, 2017
	Common		Subordinated		General				Three Months Ended June 30, 2017
	Units		Units		Partner		Total		Common		Subordinated		General
	(in thousands, except per unit amounts)								Units		Units		Partner		Total
Distributions declared	$	25,077	$	20,715	$	2,269	$	48,061	$	8,215	$	6,786	$	669	$	15,670
Earnings less than distributions		(19,345)		(15,980)		—		(35,325)		(6,466)		(5,342)		—		(11,808)
Net income attributable to partners	$	5,732	$	4,735	$	2,269	$	12,736	$	1,749	$	1,444	$	669	$	3,862
Weighted-average units outstanding—basic		14,400		11,905						14,405		11,905
Weighted-average units outstanding—diluted		15,343		11,905						15,359		11,905
Net income per limited partner unit—basic	$	0.40	$	0.40					$	0.12	$	0.12
Net income per limited partner unit—diluted	$	0.37	$	0.40					$	0.11	$	0.12


	Three Months Ended September 30, 2016
	Common		Subordinated		General		Six Months Ended June 30, 2017
	Units		Units		Partner		Common		Subordinated		General
	(in thousands)						Units		Units		Partner
Weighted-average common units outstanding—basic		12,919		11,905		—		14,392		11,905		—
Effect of nonvested phantom units		561		—		—		883		—		—
Weighted-average common units outstanding—diluted		13,480		11,905		—		15,275		11,905		—


	Three Months Ended September 30, 2016
	Common		Subordinated		General				Six Months Ended June 30, 2017
	Units		Units		Partner		Total		Common		Subordinated		General
	(in thousands, except per unit amounts)								Units		Units		Partner		Total
Distributions declared	$	6,970	$	6,310	$	302	$	13,582	$	16,214	$	13,393	$	1,206	$	30,813
Earnings less than distributions		(345)		(204)		—		(549)		(13,371)		(11,045)		—		(24,416)
Net income attributable to partners	$	6,625	$	6,106	$	302	$	13,033	$	2,843	$	2,348	$	1,206	$	6,397
Weighted-average units outstanding—basic		12,919		11,905						14,392		11,905
Weighted-average units outstanding—diluted		13,480		11,905						15,275		11,905
Net income per limited partner unit—basic	$	0.51	$	0.51					$	0.20	$	0.20
Net income per limited partner unit—diluted	$	0.50	$	0.50					$	0.19	$	0.20

~~Table of Contents~~

~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(In thousands, except number of units, per unit amounts and unless otherwise noted)~~

~~(Unaudited~~)

Nine Months Ended September 30, 2016


Common

Subordinated

General


Units

Units

Partner

(in thousands)
Weighted-average common units outstanding—basic

12,878

11,905

—
Effect of nonvested phantom units

542

—

—
Weighted-average common units outstanding—diluted

13,420

11,905

—

Nine Months Ended September 30, 2016


Common

Subordinated

General



Units

Units

Partner

Total

(in thousands, except per unit amounts)
Distributions declared

$
20,280

$
18,632

$
716

$
39,628
Earnings less than distributions

(3,723)

(3,325)

—

(7,048)
Net income attributable to partners

$
16,557

$
15,307

$
716

$
32,580
Weighted-average units outstanding—basic

12,878

11,905

Weighted-average units outstanding—diluted

13,420

11,905

Net income per limited partner unit—basic

$
1.28

$
1.28

Net income per limited partner unit—diluted

$
1.26

$
1.26

(17) Supplemental Guarantor Information

The Partnership and its wholly owned finance subsidiary, Enviva Partners Finance Corp., are the co-issuers of the 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.~~, Wiggins,~~ 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. ~~Wiggins is a non-Subsidiary Guarantor and unrestricted subsidiary that permanently ceased operations in January of 2017, and the assets of Wiggins are currently classified as held for sale.~~ Other than certain restrictions arising under the Senior Secured Credit ~~Agreement~~Facilities and the Indenture (see Note 10, Long-Term Debt and Capital Lease Obligations), there are no significant restrictions on the ability of any restricted subsidiary to ~~(i)~~(1) pay dividends or make any other distributions to the Partnership or any of its restricted subsidiaries or ~~(ii)~~(2) make loans or ~~advances~~Borrowings to the Partnership or any of its restricted subsidiaries.

~~(18) Subsequent Events~~

~~Wilmington Drop-Down~~

On October 2, 2017, pursuant to the terms of the Wilmington Contribution Agreement, the Hancock JV sold to the Partnership all of the issued and outstanding limited liability company interests in Wilmington for 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 the revolving credit commitments under the Senior Secured Credit Facilities and cash on hand.

Wilmington owns the Wilmington terminal and was a party to the Sampson TSA, which was terminated in connection with the Wilmington Drop-Down. Wilmington is also a party to a long-term terminal services agreement with

~~Table of Contents~~

~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(In thousands, except number of units, per unit amounts and unless otherwise noted)~~

~~(Unaudited~~)

the sponsor to receive, store and load approximately 500,000 MTPY of wood pellets sourced by the sponsor from a third-party production plant. The terminal services agreement for production from the third-party production plant provides for deficiency payments 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 Hancock JV and Enviva Pellets Hamlet, LLC (“Hamlet”) to receive, store and load wood pellets from the Hancock JV’s proposed production plant in Hamlet, North Carolina (the “Hamlet plant”) when the Hancock JV completes construction of the Hamlet plant. The Wilmington Hamlet TSA also provides for deficiency payments 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 Hancock JV would enter into the Wilmington Hamlet TSA and the Partnership would make a final payment of $74.0 million to the Hancock JV, subject to certain adjustments, 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.

~~The Partnership will account 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.~~

~~Senior Notes Due 2021 – Additional Notes~~

On October 10, 2017, pursuant to the Indenture, the Issuers issued and sold an additional $55.0 million in aggregate principal amount of the 8.5% senior unsecured notes due November 1, 2021 (the “Additional Notes”) to a purchaser (the “Additional Notes Purchaser”) at 106.25% of par value plus accrued interest from May 1, 2017. The Additional Notes were issued pursuant to the Indenture, have the same terms as the Notes and will be treated together with the Notes as a single class for all purposes under the Indenture. The sale of the Additional 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 connection with the issuance and sale of the Additional Notes, the Issuers, the guarantors party thereto and the Additional Notes Purchaser entered into a registration rights agreement pursuant to which the Issuers and the guarantors agreed to use reasonable best efforts to file a registration statement with the SEC to offer to exchange the Additional Notes for newly issued registered notes with terms substantially identical in all material respects to the Additional Notes (except that the registered notes will not be subject to restrictions on transfer) (the “Additional Notes Exchange Offer”, and such notes, the “Registered Additional Notes”), and cause the registration statement to become effective within 180 days of the closing date (the “Target Registration Date”) of the Additional Notes offering. The Partnership expects to register the Additional Notes no later than the Target Registration Date.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Enviva Partners, LP, together with its subsidiaries (“we,” “us,” “our,” or “the Partnership”), is a Delaware limited partnership formed on November 12, 2013. Our sponsor is Enviva Holdings, LP (and, where applicable, its wholly owned subsidiary Enviva Development Holdings, LLC) and references to our General Partner refer to Enviva Partners GP, LLC, a wholly owned subsidiary of our sponsor. References to the ~~“Hancock~~“First Hancock JV” refer to Enviva Wilmington Holdings, LLC, a joint venture between our sponsor, Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company.

The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis in Part II‑Item 7 of our Annual Report on Form 10‑K for the year ended December 31, ~~2016~~2017 (the ~~“2016~~“2017 Form 10‑K”), as filed with the U.S. Securities and Exchange Commission (the “SEC”). Our ~~2016~~2017 Form 10‑K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations. You should also read the following discussion and analysis together with the risk factors set forth in the ~~2016~~2017 Form 10‑K and the factors described under “Cautionary Statement Regarding Forward‑Looking Information” in this Quarterly Report on Form 10‑Q.

Basis of Presentation

The following discussion of our historical performance and financial condition is derived from our audited consolidated financial statements and unaudited condensed consolidated financial statements.

On ~~December 14, 2016,~~October 2, 2017, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Enviva ~~Pellets Sampson,~~Port of Wilmington, LLC (“~~Sampson”~~Wilmington”) for total consideration of ~~$175.0 million. Sampson owns a wood pellet production plant in Sampson County, North Carolina~~$130.0 million (the ~~“Sampson plant”). The acquisition (the “Sampson~~“Wilmington Drop‑Down”) ~~also included two off‑take contracts and related third‑party shipping contracts.~~.

Our unaudited condensed consolidated financial statements for periods prior to ~~December 14, 2016~~October 2, 2017 have been retroactively recast to reflect the consummation of the ~~Sampson~~Wilmington Drop‑Down as if it had occurred on May 15, 2013, the date ~~Sampson~~Wilmington was 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, with any excess consideration over cost being recorded as a distribution in partners’ capital.~~cost.

Business Overview

We are the world’s largest supplier by production capacity of utility‑grade wood pellets to major power generators. We own and operate six industrial‑scale production plants in the Southeastern United States that have a combined wood pellet production capacity of ~~2.8~~2.9 million metric tons per year (“MTPY”). We also own adry-bulk, deep‑water marine terminal assets at the Port of ~~Chesapeake.~~Chesapeake (the “Chesapeake terminal”) and the Port of Wilmington, North Carolina (the “Wilmington terminal”). All of our facilities are located in geographic regions with low input costs and favorable transportation logistics. Owning these cost‑advantaged assets, the output from which is fully contracted, in a rapidly expanding industry provides us with a platform to generate stable and growing cash flows that should enable us to increase our per‑unit cash distributions over time, which is our primary business objective.

Our sales strategy is to fully contract the production capacity of the Partnership. During ~~2017,~~2018, contracted volumes under our existing off‑take contracts are approximately equal to the full production capacity of our production plants. Our off‑take contracts provide for sales of ~~2.7~~2.9 million metric tons (“MT”) of wood pellets in ~~2017~~2018 and have a weighted‑average remaining term of ~~9.7~~9.0 years from ~~October~~July 1, ~~2017.~~2018. We intend to continue expanding our business by taking advantage of the growing demand for our product that is driven by the conversion of coal‑fired power generation and combined heat and power plants to co‑fired or dedicated biomass‑fired plants, principally in ~~the United Kingdom,~~ Europe and, increasingly, in South Korea and Japan.

Inventory Impairment and Asset Disposal

On February 27, 2018, a fire occurred at the Chesapeake terminal, causing damage to equipment and approximately 43,000 MT of wood pellets (the “Chesapeake Terminal Event”). In order to continue to meet our contractual obligations to our customers, we commissioned temporary wood pellet storage, handling and ship loading operations (“business continuity activities”) at nearby locations. The wood pellets from our production plants in the Mid-Atlantic region have

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been delivered to such temporary locations as well as to the Wilmington terminal which increased our distribution costs. Although we incurred incremental costs from the extended logistics chain, our arrangements provided a durable solution as we worked to return the Chesapeake terminal back into operation. The Chesapeake Terminal returned to operation on June 28, 2018.

We incurred costs of the Chesapeake Terminal Event, including emergency response costs, inventory and asset write-offs, and inventory disposal. During the three and six months ended June 30, 2018, we have incurred costs related to the value of lost inventory, inclusive of disposal costs, of $0 and $10.7 million, respectively, and emergency response costs of $1.8 million and $12.4 million, respectively. Amounts associated with replacing or repairing damaged assets were $7.5 million and $9.4 million during the three and six months ended June 30, 2018, respectively. We believe that substantially all of the costs resulting from the Chesapeake Terminal Event are recoverable through insurance or other contractual rights. The costs related to the Chesapeake Terminal Event, which are included in our financial results as a reduction of net income, have been added back in our calculation of adjusted EBITDA. Our adjusted EBITDA calculation during the three and six months ended June 30, 2018, included an addback of $4.7 million of costs, offset by $5.5 million of insurance recoveries and $28.0 million of costs, offset by $12.1 million of insurance recoveries, respectively, in our calculation of adjusted EBITDA.

Business continuity activities have also reduced adjusted EBITDA during the three and six months ended June 30, 2018. The incremental costs of our extended logistics chain were $15.6 million, offset by $13.0 million of insurance recoveries and $19.6 million, offset by $13.0 million of insurance recoveries for the three and six months ended June 30, 2018, respectively. We expect substantially all of these operational costs to be recoverable under our insurance policies or other contractual rights, but the timing of such costs and their associated recovery will not occur simultaneously. Given the timing mismatch, our reported adjusted EBITDA for the first two quarters of 2018 includes variability that does not reflect the underlying ratable performance of the business, and our quarterly distribution coverage ratios are not comparable to those for previously reported periods or our targets for the full year.

As of June 30, 2018, we have recognized approximately $27.3 million of insurance recoveries related to the Chesapeake Terminal Event including $4.0 million in accounts receivable. We expect to recognize additional recoveries of approximately $24.0 million through insurance or other contractual rights for costs incurred through June 30, 2018.

How We Evaluate Our Operations

Adjusted Gross Margin per Metric Ton

We use adjusted gross margin per metric ton to measure our financial performance. We define adjusted gross margin as gross margin excluding asset disposals and depreciation and amortization included in cost of goods sold. We believe adjusted gross margin per metric ton is a meaningful measure because it compares our revenue‑generating activities to our operating costs for a view of profitability and performance on a per metric ton basis. Adjusted gross margin per metric ton will primarily be affected by our ability to meet targeted production volumes and to control direct and indirect costs associated with procurement and delivery of wood fiber to our production plants and the production and distribution of wood pellets.

Adjusted EBITDA

We view adjusted EBITDA as an important indicator of our financial performance. We define adjusted EBITDA as net income or loss excluding depreciation and amortization, interest expense, income tax expense, early retirement of debt obligations, non‑cash unit compensation expense, asset impairments and disposals, changes in the fair value of derivative instruments and certain items of income or loss that we characterize as unrepresentative of our ongoing ~~operations.~~operations including certain expenses incurred related to the Chesapeake Terminal Event (consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repair costs, offset by insurance recoveries received). Adjusted EBITDA is a supplemental measure used by our management and other users of our financial statements, such as investors, commercial banks and research analysts, to assess the financial performance of our assets without regard to financing methods or capital structure.

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Distributable Cash Flow

We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures and interest expense net of amortization of debt issuance costs, debt premium and original issue discounts. We use distributable cash flow as a performance metric to compare the cash‑generating performance of the Partnership from period to period and to compare the cash‑generating performance for specific periods to the cash distributions (if any) that are expected to be paid to our unitholders. We do not rely on distributable cash flow as a liquidity measure.

Non‑GAAP Financial Measures

Adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with accounting principles generally accepted in the United States (“GAAP”). We believe that the presentation of these non‑GAAP financial measures provides useful information to investors in assessing our financial condition and results of operations. Our non‑GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non‑GAAP financial measures has important limitations as an analytical tool because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider adjusted gross margin per metric ton, adjusted EBITDA or distributable cash flow in isolation or as substitutes for analysis of our results as reported under GAAP. Our definitions of these non‑GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

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The following tables present a reconciliation of each of 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:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended				Six Months Ended
	2017		2016 (Recast)		2017		2016 (Recast)		June 30,				June 30,
									2018		2017 (Recast)		2018		2017 (Recast)
	(in thousands, except per metric ton)								(in thousands, except per metric ton)
Reconciliation of gross margin to adjusted gross margin per metric ton:
Metric tons sold		668		534		1,919		1,714		699		628		1,347		1,251
Gross margin	$	21,118	$	22,417	$	57,781	$	57,628	$	16,316	$	16,331	$	11,775	$	32,699
Loss on disposal of assets		1,237		1,523		3,242		1,679		244		2,005		244		2,005
Depreciation and amortization		8,700		6,434		26,085		20,429		9,818		10,039		19,122		19,397
Adjusted gross margin	$	31,055	$	30,374	$	87,108	$	79,736	$	26,378	$	28,375	$	31,141	$	54,101
Adjusted gross margin per metric ton	$	46.49	$	56.88	$	45.39	$	46.52	$	37.74	$	45.18	$	23.12	$	43.25

Three Months Ended

Nine Months Ended


September 30,

September 30,


2017

2016 (Recast)

2017

2016 (Recast)


(in thousands)

Reconciliation of adjusted EBITDA and distributable cash flow to net income:

Net income

$
6,334

$
10,346

12,695

$
25,781

Add:





Depreciation and amortization

8,703

6,439

26,096

20,452

Interest expense

7,652

3,365

23,062

10,096

Non-cash unit compensation expense

1,833

1,162

5,113

2,662

Asset impairments and disposals

1,237

1,523

3,242

1,679

Transaction expenses

297

49

3,250

108

Adjusted EBITDA

26,056

22,884

73,458

60,778

Less:









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

7,259

2,919

21,901

8,758

Maintenance capital expenditures

857

1,375

2,870

2,758

Distributable cash flow attributable to Enviva Partners, LP

17,940

18,590

48,687

49,262

Less: Distributable cash flow attributable to incentive distribution rights

1,063

303

2,269

716

Distributable cash flow attributable to Enviva Partners, LP limited partners

$
16,877

$
18,287

$
46,418

$
48,546

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	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017 (Recast)		2018		2017 (Recast)
	(in thousands)
Reconciliation of adjusted EBITDA and distributable cash flow to net income (loss):
Net income (loss)	$	3,544	$	1,497	$	(15,791)	$	1,452
Add:
Depreciation and amortization		10,031		10,044		19,439		19,406
Interest expense		9,047		7,710		17,692		15,417
Non-cash unit compensation expense		2,480		1,566		3,823		3,280
Asset impairments and disposals		244		1,981		244		2,005
Changes in the fair value of derivative instruments		(3,463)		—		(2,694)		—
Chesapeake Terminal Event, net		(804)		—		15,786		—
Transaction expenses		(7)		551		146		3,083
Adjusted EBITDA		21,072		23,349		38,645		44,643
Less:
Interest expense, net of amortization of debt issuance costs, debt premium and original issue discount		8,772		7,323		17,145		14,648
Maintenance capital expenditures		1,226		1,561		1,614		2,013
Distributable cash flow attributable to Enviva Partners, LP		11,074		14,465		19,886		27,982
Less: Distributable cash flow attributable to incentive distribution rights		1,400		669		2,664		1,206
Distributable cash flow attributable to Enviva Partners, LP limited partners	$	9,674	$	13,796	$	17,222	$	26,776

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 ~~Sampson~~Wilmington to us on ~~December 14, 2016.~~October 2, 2017. Our ~~historical~~unaudited condensed consolidated financial statements have been retroactively recast to reflect the contribution of our sponsor’s interest in ~~Sampson~~Wilmington as if the contributions had occurred on May 15, 2013, the date ~~Sampson~~Wilmington was originally organized. The recast amounts for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 primarily include ~~general and administrative~~ expenses associated with ~~plant development and commissioning costs incurred during~~ the ~~construction~~initial ramp of the ~~Sampson plant. We do not expect to incur these costs going forward as the plant began producing wood pellets during the fourth quarter of 2016.~~

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~~We began deliveries under a new long‑term off‑take contract in December 2016.~~ In connection with the Sampson Drop‑Down, the Hancock JV assigned to us a ten‑year, take‑or‑pay off‑take contract with DONG Energy Thermal Power A/S (the “DONG Contract”). The DONG Contract commenced September 1, 2016Wilmington terminal and provides for sales of 360,000 MTPY for the first delivery year and 420,000 MTPY for years two through ten. The contract, accompanied by our increased production capacity from the Sampson plant, will have a material effect on our product sales and resulting gross margin.minimal terminal services revenues.

We issued ~~$300.0~~$55.0 million in aggregate principal amount of senior unsecured notes in a private placement to eligible ~~purchasers.~~purchasers. On ~~November 1, 2016,~~October 10, 2017, we ~~and Enviva Partners Finance Corp.,~~completed the issuance to an institutional investor in a ~~wholly owned subsidiary~~private placement transaction of ~~the Partnership formed on October 3, 2016 for the purpose of being the co‑issuer of the notes, issued $300.0~~an additional $55.0 million in aggregate principal amount of ~~8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes��) to eligible purchasers in~~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 ~~private placement~~single class for all purposes under ~~Rule 144A and Regulation S~~the Indenture.

The sale of the ~~Securities Act~~additional Senior Notes at a purchase price of ~~1933, as amended (the “Securities Act”), which~~$58.4 million resulted in ~~net~~gross proceeds of ~~$293.6~~approximately $60.0 million, after including accrued interest of $2.1 million and deducting estimated expenses ~~and underwriting discounts~~ of ~~$6.4~~approximately $0.5 million. ~~On December 14, 2016, a portion of the net~~The proceeds from the Senior Notes Offering, together with cash on hand and the issuance of 1,098,415 unregistered common units representing limited partnership interests in the Partnership (the “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, funded the consideration payable for the Sampson Drop‑Down. The remainder of the net proceeds from the Senior Notes Offering waswere used to repay certain outstanding term loan indebtedness under our Senior Secured Credit Facilities. As a result, our unaudited condensed consolidated financial statements reflect the outstanding debt and interest expense associated with the Senior Notes.

~~We repaid a portion of the Original Credit Facilities and increased the capacity of~~borrowings on 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 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, 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 borrowingscommitments under the Senior Secured Credit ~~Facilities. Following~~Facilities (the “revolving credit commitments”), which were used to fund the ~~consummation~~Wilmington Drop-Down, and for general partnership purposes.

In December 2017, the holder of 100% of the ~~Sampson Drop‑Down and repayment of a portion of the~~additional Senior ~~Secured Credit Facilities, the limit under our revolving credit commitments was increased from $25.0 million to $100.0 million pursuant~~Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the ~~Second Amendment.~~additional Senior Notes (except that the registered notes are not subject to restrictions on transfer).

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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. ~~These~~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 an FOB ~~contract,~~contracts, the customer is directly responsible for shipping costs. ~~Our customer~~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.

We adopted a new revenue recognition standard, ASC 606, Revenue from Contracts with Customers, on January 1, 2018. Upon adoption of Financial Accounting Standards Board Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), our off-take contracts will continue to be classified as “Product sales.” However, the adoption of ASC 606 impacted the basis of presentation in certain arrangements where in which we purchase shipments of product from third-party suppliers and resell them in back-to-back transactions to customers (“purchase and sale transactions”). Prior to the adoption of ASC 606, we reported revenue from purchase and sale transactions net of costs paid to third-party suppliers, which was classified as “Other revenue.” Subsequent to the adoption of ASC 606, we recognize revenue on a gross basis in “Products sales” when we determine that we act as a principal and control the wood pellets before they are transferred to the customer. Recoveries from customers for certain costs incurred at the discharge port under our off-take contracts were reported in “Product sales” prior to the adoption of ASC 606. Under ASC 606, these recoveries are not considered a part of the transaction price, and therefore are excluded from “Product sales” and included as an offset to “Cost of goods sold.” Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, whereas prior comparative reporting periods have not been adjusted and continue to be reported under the accounting standards in effect for such periods. We did not have a transition adjustment as a result of adopting ASC 606.

We have incurred costs associated with the Chesapeake Terminal Event. During the three and six months ended June 30, 2018, we incurred a total of $20.3 million and $48.6 million, respectively, of expenses related to the Chesapeake Terminal Event.

Costs included in cost of goods sold of $20.3 million and $36.8 million, respectively, were incurred during the three and six months ended June 30, 2018 and primarily consist of costs related to emergency response and temporary storage, handling and shiploading operations. During the six months ended June 30, 2018, we incurred a $1.1 million impairment of terminal assets and a $10.7 million write-off of product, inclusive of disposal costs, which are included in cost of goods sold. As of June 30, 2018, we have received $23.3 million of insurance recoveries and recorded $4.0 million of additional insurance recoveries in accounts receivable reflecting insurance proceeds that are probable of receipt up to the amount of the loss recorded and subsequently received in July 2018. We recorded $26.2 million of insurance recoveries in cost of goods sold and recognized $1.1 million of insurance recoveries in other income related to lost profit on the sale of the damaged product during the six months ended June 30, 2018.

We expect substantially all of these operational costs to be recoverable under our insurance policies and other contractual rights, but the timing of such costs and the associated insurance recoveries will likely not match, which would result in fluctuations of amounts in cost of goods sold from period to period. Given this potential timing mismatch, our results of operations and cash flows, as well as ~~the timing and size of shipments during the year, can result in material fluctuations in revenue recognized between periods, but these terms generally have little impact on gross margin.~~our non-GAAP financial measures, may not be comparable to those for previously reported periods.

How We Generate Revenue

Overview

We primarily earn revenue by supplying wood pellets to our customers under ~~off‑take~~off-take contracts, the majority of the commitments under which are ~~long‑term~~long-term in nature. We refer to the structure of our off-take contracts as ~~“take‑or‑pay”~~“take-or-pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions that ensure we will be compensated in the case of a customer’s failure to accept all or a part of the contracted volumes or

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termination of ~~the contract.~~a contract by a customer. Each ~~contract~~of our long-term off-take contracts defines the annual volume of wood pellets that a customer is required to purchase and we are required to sell, the fixed price per MTmetric ton for product satisfying a base net calorific value and other technical specifications. These prices are fixed for the entire term, and are subject to adjustments which may include annual ~~inflation‑based~~inflation-based adjustments ~~and~~or price escalators, price adjustments for product specifications, as well as,

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in some instances, price adjustments ~~for product specifications and~~due to changes in underlying ~~costs.~~indices. In addition to sales of our product under these ~~long‑term, take‑or‑pay~~long-term, off-take contracts, we routinely sell ~~volumes~~wood pellets under ~~shorter‑term~~shorter-term contracts, which range in volume and tenor and, in some cases, may include only one specific shipment. Because each of our off-take contracts is a bilaterally negotiated agreement, our revenue over the duration of ~~these~~such contracts does not generally follow ~~spot~~observable current market pricing trends. Our performance obligations under these contracts include the delivery of wood pellets, and are aggregated into metric tons. We account for each metric ton as a single performance obligation. Our revenue from the sale of wood pellets we produce is recognized as “Product sales” upon satisfaction of the performance obligation when ~~the goods are shipped, title and risk of loss passes, the sales price~~control transfers to the customer ~~is fixed, and collectability is reasonably assured.~~at the time of loading wood pellets onto a ship.

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. ~~These~~Under a CFR contract, we procure and pay for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping under CIF and CFR contracts after control has passed to the customer is considered a fulfillment activity rather than a performance obligation and associated expenses are included in the price to the ~~customer and, as such, are included in revenue and cost of goods sold.~~customer. Under an FOB ~~contract,~~contracts, the customer is directly responsible for shipping costs. ~~Our~~

For purchase and sale transactions, we have determined that we are the principal in these transactions because we control the pellets prior to transferring them to the customer ~~shipping terms, as well as the timing~~ and ~~size of shipments during the year, can result in material fluctuations in~~recognize revenue ~~recognized between periods but generally have little impact~~ on a 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~~basis 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 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 in which a customer requests the cancellation, deferral or acceleration of a shipment, the 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 uspay a fee, ~~including reimbursement of any incremental costs,~~ which is included in “Other revenue.”

We recognize third- and related-party terminal services revenue ratably over the contract term at our ports, 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 as we perform those services. The consideration is fixed for quantities up to the minimum in the contract. Above-minimum quantities are billed based on a per-ton rate.

Contracted Backlog

As of ~~October~~July 1, ~~2017,~~2018, we had approximately ~~$5.5~~$5.8 billion of product sales backlog for firm contracted product sales to power generators. Backlog represents the revenue to be recognized under existing contracts assuming deliveries occur as specified in the contracts. Contracted future product sales denominated in foreign currencies, excluding revenue hedged with foreign currency forward contracts, are included in U.S. Dollars at ~~October~~July 2, ~~2017~~2018 forward rates.

~~Our~~Following our adoption of ASC 606, our expected future product sales revenue under our contracted backlog as of ~~October~~July 1, ~~2017~~2018 is as follows (in millions):

Period from October 1, 2017 to December 31, 2017

$
85
Year ending December 31, 2018

543
Year ending December 31, 2019 and thereafter

4,829
Total product sales contracted backlog

$
5,457


Period from July 1, 2018 to December 31, 2018	$	333
Year ending December 31, 2019		609
Year ending December 31, 2020 and thereafter		4,827
Total product sales contracted backlog	$	5,769

Costs of Conducting Our Business

Cost of Goods Sold

Cost of goods sold includes the ~~costs~~cost to produce and deliver ~~our~~ wood pellets to ~~customers.~~customers, reimbursable shipping related costs associated with specific off-take contracts with CIF or CFR shipping terms and costs associated with purchase and

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sale transactions. 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 ~~(i.e., the price paid to the underlying timber resource owner for the raw material)~~ 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.

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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~~third‑ and ~~third‑party~~related-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 ~~under~~pursuant to which we are responsible for arranging shipping. Certain of our off‑take contracts include pricing adjustments for volatility in fuel prices, which allow us to pass the majority of fuel price‑risk associated with shipping through to our customers.

Additionally, as deliveries are made, ~~during the applicable contract term,~~ we amortize the purchase price of acquired customer contracts that were recorded as intangible ~~assets.~~assets during the applicable contract term.

Costs associated with purchase and sale transactions are included in cost of goods sold.

Raw material, production and distribution costs associated with delivering our wood pellets to our ~~deep‑water~~owned and leased 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 ~~actual wood pellet production.~~the normal capacity of the production plants. 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 Company, LLC (“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 ~~salary~~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 unaudited condensed consolidated financial statements have been recast to reflect the contribution of our sponsor’s interest in ~~Sampson~~Wilmington as if the contribution had occurred on May 15, 2013, the date ~~Sampson~~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 ~~Sampson~~ Wilmington

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Drop‑Down, ~~Sampson~~Wilmington incurred general and administrative costs related to ~~plant~~ development activities, which included startup and commissioning ~~costs~~activities prior to beginning operations as well as incremental overhead costs related to construction activities. We do not expect to incur these costs going ~~forward as the plant began producing~~forward.

Results of Operations

Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017



	Three Months Ended
	June 30,
	2018		2017 (Recast)		Change
	(in thousands)
Product sales	$	129,674	$	121,673	$	8,001
Other revenue (1)		2,427		5,874		(3,447)
Net revenue		132,101		127,547		4,554
Cost of goods sold, excluding depreciation and amortization (1)		105,723		99,172		6,551
Loss on disposal of assets		244		2,005		(1,761)
Depreciation and amortization		9,818		10,039		(221)
Total cost of goods sold		115,785		111,216		4,569
Gross margin		16,316		16,331		(15)
General and administrative expenses (1)		7,287		6,870		417
Income from operations		9,029		9,461		(432)
Interest expense		(9,047)		(7,710)		1,337
Other income		3,562		(254)		(3,816)
Net income		3,544		1,497		2,047
Less net loss attributable to noncontrolling partners’ interests		—		1,196		(1,196)
Net income attributable to Enviva Partners, LP	$	3,544	$	2,693	$	851
(1) See Note 11, Related-Party Transactions

Product sales

Revenue related to product sales for wood pellets produced or procured by us increased to $129.7 million for the three months ended June 30, 2018 from $121.7 million for the three months ended June 30, 2017. The $8.0 million, or 7%, increase was primarily attributable to an 11% increase in sales volumes during the ~~fourth quarter~~three months ended June 30, 2018 as compared to the three months ended June 30, 2017. The increase in product sales was partially offset by a decrease in pricing during the three months ended June 30, 2018 due primarily to customer contract mix.

Other revenue

Other revenue decreased by $3.4 million during the three months ended June 30, 2018 as compared to the three months ended June 30, 2017. During the three months ended June 30, 2018, other revenue consisted primarily of ~~2016.~~$1.2 million in fees received from a customer requesting scheduling accommodations and $1.1 million of deficiencies fees under a terminal services agreement (see Note 11, Related-Party Transactions). During the three months ended June 30, 2017, other revenue consisted primarily of a $2.7 million payment under a take-or-pay obligation received from a related-party (see Note 11, Related-Party Transactions) and $1.9 million related to purchase and sale transactions.

Cost of goods sold

Cost of goods sold increased to $115.8 million for the three months ended June 30, 2018 from $111.2 million for the three months ended June 30, 2017. The $4.6 million, or 4%, increase was primarily attributable to an increase in our sales volumes and costs associated with the Chesapeake Terminal Event, net of insurance recoveries.

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~~Results of Operations~~Gross margin

~~Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016~~

Three Months Ended


September 30,




2017

2016 (Recast)

Change

(in thousands)

Product sales

$
125,422

$
103,577

$
21,845

Other revenue

6,036

7,217

(1,181)

Net revenue

131,458

110,794

20,664

Cost of goods sold, excluding depreciation and amortization

100,403

80,420

19,983

Loss on disposal of assets

1,237

1,523

(286)

Depreciation and amortization

8,700

6,434

2,266

Total cost of goods sold

110,340

88,377

21,963

Gross margin

21,118

22,417

(1,299)

General and administrative expenses

7,131

8,708

(1,577)

Income from operations

13,987

13,709

278

Interest expense

(7,652)

(3,314)

4,338

Related-party interest expense

—

(51)

(51)

Other (expense) income

(1)

2

3

Net income

6,334

10,346

(4,012)

Less net loss attributable to noncontrolling partners’ interests

5

1,366

(1,361)

Net income attributable to Enviva Partners, LP

$
6,339

$
11,712

$
(5,373)

~~Product sales~~

~~Revenue related to product sales (either produced or procured) increased to $125.4~~Gross margin remained consistent at $16.3 million for the three months ended ~~September~~June 30, ~~2017 from $103.6 million for~~2018 and June 30, 2017. Gross margin was impacted by the three months ended September 30, 2016. The $21.8 million increase was attributable to greater sales volumes, primarily relating to tons sold under the contract acquired in connection with the Sampson Drop-Down, and was partially offset by lower pricing due to contract mixfollowing factors during the three months ended ~~September~~June 30, ~~2017~~2018 as compared to the three months ended ~~September~~June 30, ~~2016.~~

~~Other revenue~~

Other revenue decreased to $6.0 million for the three months ended September 30, 2017 from $7.2 million for the three months ended September 30, 2016 primarily due to a decrease in the fees we earned related to customer requests to cancel, defer or accelerate shipments. During the three months ended September 30, 2017, we earned $2.2 million related to these fees compared to $5.7 million during the three months ended September 30, 2016. Offsetting the decrease was $3.2 million related to sales of wood pellets sourced from third-party pellet producers and delivered to our customers during the three months ended September 30, 2017 compared to $0.4 million during the three months ended September 30, 2016. In these back-to-back transactions, title and risk of loss immediately transfers to the ultimate purchasers; accordingly, such transactions are presented on a net basis. Other revenue also includes revenue derived from terminal services (see Note 11, ~~Related-Party Transactions~~).

~~Cost of goods sold~~

~~Cost of goods sold increased to $110.3million for the three months ended September 30, 2017 from $88.4 million for the three months ended September 30, 2016. The $21.9 million increase was primarily attributable to an increase in~~

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sales volumes and depreciation expense. The three months ended September 30, 2017 included approximately $2.2 million of incremental depreciation expense related to machinery and equipment at the Sampson plant. There was no depreciation expense incurred during the three months ended September 30, 2016 related to the Sampson plant. The increase was offset by a $0.3 million decrease in loss on disposal of assets during the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily attributable to growth and maintenance capital projects at our wood pellet production plants.

~~Gross margin~~

We earned gross margin of $21.1 million and $22.4 million for the three months ended September 30, 2017 and 2016, respectively. The change in gross margin was primarily attributable to the following:2017:

~~A $5.3 million increase in~~Lower production costs of our wood pellets primarily from increased plant utilization and other costs, increased gross margin ~~due to higher sales volumes. Our wood pellet sales volumes increased~~ by ~~approximately 134,000 MT during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, representing a 25% increase~~.

~~Offsetting the above was:~~

A $2.3 million decrease in gross margin due to an increase in depreciation expense during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The increase is attributable to incremental depreciation expense related to machinery and equipment at the Sampson plant.$6.3 million.

~~A $2.1 million decrease~~An 11% increase in sales volumes increased gross margin ~~during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 due to the mix of customer and shipping contracts~~.by $2.5 million.

~~A $1.2 million decrease in~~Lower loss on asset disposals increased gross margin ~~due to decreased other revenue during the three months ended September 30, 2017, as described above under the heading “Other revenue~~.”by $1.8 million.

~~A $0.6 million decrease in~~Lower pricing, primarily driven by customer contract mix, decreased gross margin by $5.8 million.

Lower other revenue decreased gross margin by $3.4 million, primarily due to ~~higher production costs~~a $2.7 million payment received during the three months ended ~~September~~June 30, 2017 as ~~compared~~described above.

Expenses incurred related to the Chesapeake Terminal Event decreased gross margin by $1.4 million. During the three months ended ~~September~~June 30, ~~2016. The increase in production~~2018, we incurred $15.6 million of costs, ~~was primarily attributable to lower plant utilization during the three months ended September 30, 2017, which was partially~~ offset by ~~lower raw material~~$13.0 million of insurance recoveries, related to business continuity activities. We also incurred $1.8 million of incremental emergency response expenses and $2.9 million of repair costs, ~~during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016~~.offset by $5.5 million of insurance recoveries.

Adjusted gross margin per metric ton


	Three Months Ended						Three Months Ended
	September 30,						June 30,
	2017		2016 (Recast)		Change		2018		2017 (Recast)		Change
	(in thousands except per metric ton)						(in thousands except per metric ton)
Metric tons sold		668		534		134		699		628		71
Gross margin	$	21,118	$	22,417	$	(1,299)	$	16,316	$	16,331	$	(15)
Loss on disposal of assets		1,237		1,523		(286)		244		2,005		(1,761)
Depreciation and amortization		8,700		6,434		2,266		9,818		10,039		(221)
Adjusted gross margin	$	31,055	$	30,374	$	681	$	26,378	$	28,375	$	(1,997)
Adjusted gross margin per metric ton	$	46.49	$	56.88	$	(10.39)	$	37.74	$	45.18	$	(7.45)

We earned an adjusted gross margin of ~~$31.1~~$26.4 million, or ~~$46.49~~$37.74 per MT, for the three months ended ~~September~~June 30, ~~2017~~2018. Excluding the costs and anrecoveries associated with the Chesapeake Terminal Event, we would have earned adjusted gross margin of ~~$30.4~~$28.2 million, or ~~$56.88~~$40.40 per MT. Adjusted gross margin was $28.4 million, or $45.18 per MT, for the three months ended ~~September~~June 30, ~~2016. Excluding~~2017. Adjusting for the ~~fees earned in other revenue described above, we earned an~~impact of ASC 606 for comparison purposes, adjusted gross margin ~~of $28.8 million, or $43.15~~per metric ton would have been $42.35 per MT ~~and $24.7 million, or $46.25 per MT, during~~for the three months ended ~~September~~June 30, ~~2017 and 2016, respectively.~~2017. The factors impacting the change in adjusted gross margin are described above under the heading “Gross margin.”

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General and administrative expenses

General and administrative expenses were ~~$7.1~~$7.3 million for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~$8.7~~$6.9 million for the three months ended ~~September~~June 30, ~~2016.~~2017.

During the three months ended ~~September~~June 30, ~~2017,~~2018, general and administrative expenses included allocated expenses of ~~$3.2~~$3.4 million that were incurred under the MSA, ~~$1.8~~$1.4 million of direct expenses ~~$1.8~~and $2.5 million of non‑cash unit compensation expense associated with unit‑based awards under the Enviva Partners, LP Long-Term Incentive Plan (the “LTIP”)~~, $0.2~~.

During the three months ended June 30, 2017, general and administrative expenses included allocated expenses of $3.0 million that were incurred under the MSA, $1.6 million of direct expenses, $1.6 million of non-cash unit

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compensation associated with unit-based awards under the LTIP and $0.7 million of expenses associated with the cessation of operations of the wood pellet production plant owned by ~~Enviva Pellets~~ Wiggins ~~LLC (“Wiggins”)~~ and ~~$0.1 million related to transaction expenses.~~

~~During the three months ended September 30, 2016, general and administrative expenses included allocated expenses of $3.3 million that were incurred under the MSA, $3.2~~million related to plant development activities prior to the consummation of the Sampson Drop‑Down, $1.0 million of direct expenses and $1.2 million of non‑cash unit compensation expense associated with unit‑based awards under the LTIP.other costs.

Interest expense

We incurred $9.0 million of interest expense during the three months ended June 30, 2018 and $7.7 million of interest expense during the three months ended ~~September~~June 30, ~~2017 and $3.3 million of interest expense during the three months ended September 30, 2016.~~2017. The increase in interest expense was primarily attributable to the ~~issuance of our~~incremental interest payable on the Senior Notes issued in ~~November 2016.~~October 2017 primarily to fund the Wilmington Drop-Down. Please read “—Senior Notes Due 2021” below.

Adjusted EBITDA


	Three Months Ended						Three Months Ended
	September 30,						June 30,
	2017		2016 (Recast)		Change		2018		2017 (Recast)		Change
	(in thousands)						(in thousands)
Reconciliation of adjusted EBITDA to net income:
Reconciliation of adjusted EBITDA to net loss:
Net income	$	6,334	$	10,346	$	(4,012)	$	3,544	$	1,497	$	2,047
Add:
Depreciation and amortization		8,703		6,439		2,264		10,031		10,044		(13)
Interest expense		7,652		3,365		4,287		9,047		7,710		1,337
Non-cash unit compensation expense		1,833		1,162		671		2,480		1,566		914
Asset impairments and disposals		1,237		1,523		(286)		244		1,981		(1,737)
Changes in the fair value of derivative instruments								(3,463)		—		(3,463)
Chesapeake Terminal Event, net								(804)		—		(804)
Transaction expenses		297		49		248		(7)		551		(558)
Adjusted EBITDA	$	26,056	$	22,884	$	3,172	$	21,072	$	23,349	$	(2,277)

We generated adjusted EBITDA of $21.1 million for the three months ended June 30, 2018 compared to adjusted EBITDA of $23.3 million for the three months ended June 30, 2017. The $2.2 million decrease was primarily attributable to the factors described above under the heading “Gross margin,” including the $2.6 million of expenses incurred, net of insurance recoveries, related to business continuity activities following the Chesapeake Terminal Event. Excluding the costs and recoveries associated with the Chesapeake Terminal Event, we would have earned Adjusted EBITDA of $23.7 million during the three months ended June 30, 2018. Distributable Cash Flow

The following is a reconciliation of adjusted EBITDA to distributable cash flow:


	Three Months Ended
	June 30,
	2018		2017 (Recast)		Change
	(in thousands)
Adjusted EBITDA	$	21,072	$	23,349	$	(2,277)
Less:
Interest expense, net of amortization of debt issuance costs, debt premium and original issue discount		8,772		7,323		1,449
Maintenance capital expenditures		1,226		1,561		(335)
Distributable cash flow attributable to Enviva Partners, LP		11,074		14,465		(3,391)
Less: Distributable cash flow attributable to incentive distribution rights		1,400		669		731
Distributable cash flow attributable to Enviva Partners, LP limited partners	$	9,674	$	13,796	$	(4,122)

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Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017


	Six Months Ended
	June 30,
	2018		2017 (Recast)		Change
	(in thousands)
Product sales	$	252,472	$	240,720	$	11,752
Other revenue (1)		5,430		9,270		(3,840)
Net revenue		257,902		249,990		7,912
Cost of goods sold, excluding depreciation and amortization (1)		226,761		195,889		30,872
Loss on disposal of assets		244		2,005		(1,761)
Depreciation and amortization		19,122		19,397		(275)
Total cost of goods sold		246,127		217,291		28,836
Gross margin		11,775		32,699		(20,924)
General and administrative expenses (1)		14,091		15,633		(1,542)
(Loss) income from operations		(2,316)		17,066		(19,382)
Interest expense		(17,692)		(15,417)		2,275
Other income (expense)		4,217		(197)		(4,414)
Net (loss) income		(15,791)		1,452		(17,243)
Less net loss attributable to noncontrolling partners’ interests		—		2,515		(2,515)
Net (loss) income attributable to Enviva Partners, LP	$	(15,791)	$	3,967	$	(19,758)
(1) See Note 11, Related-Party Transactions

Product sales

Revenue related to product sales for wood pellets produced or procured by us increased to $252.5 million for the six months ended June 30, 2018 from $240.7 million for the six months ended June 30, 2017. The $11.8 million, or 5%, increase was primarily attributable to an 8% increase in sales volumes partially offset by a decrease in pricing due primarily to customer contract mix. The increase in product sales is also attributable to the adoption of ASC 606, which resulted in purchase and sale transactions being recorded on a gross basis in product sales during the six months ended June 30, 2018, compared to on a net basis in other revenue during the six months ended June 30, 2017 (see Note 2, Significant Accounting Policies).

Other revenue

Other revenue decreased by $3.8 million during the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. The decrease was primarily driven by a $2.7 million payment under a take-or-pay obligation received from a related-party during the six months ended June 30, 2017 (see Note 11, Related-Party Transactions) and the adoption of ASC 606. Under ASC 606, we act as the principal in certain purchase and sale transactions and we recorded revenue on a gross basis in product sales as compared to a net basis in other revenue under the previous standard.

Cost of goods sold

Cost of goods sold increased to $246.1 million for the six months ended June 30, 2018 from $217.3 million for the six months ended June 30, 2017. The $28.8 million increase was primarily attributable to $22.4 million in expenses related to the Chesapeake Terminal Event, an increase in our sales volumes and $8.7 million attributable to the adoption of ASC 606, which resulted in all costs from our purchase and sale transactions to be recorded in cost of goods sold compared to recorded on a net basis in other revenue during the six months ended June 30, 2017.

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Gross margin

Gross margin was $11.8 million for the six months ended June 30, 2018 and $32.7 million for the six months ended June 30, 2017. The $20.9 million decrease in gross margin was primarily attributable to the following:

Expenses incurred related to the Chesapeake Terminal Event decreased gross margin by $22.4 million. During the six months ended June 30, 2018, we incurred $19.6 million of costs, offset by $13.0 million of insurance recoveries, related to business continuity activities. The Chesapeake Terminal Event also resulted in $12.4 million of emergency response expenses, $6.0 million of asset disposal and repair costs, partially offset by $5.3 million of insurance recoveries, and $10.7 million related to the disposal of approximately 43,000 MT of inventory, partially offset by $8.0 million of cargo insurance recoveries.

A $3.8 million decrease in other revenues as described above.

Lower pricing, primarily driven by customer contract mix, decreased gross margin by $3.1 million.

Offsetting the above were:

Lower production costs of our wood pellets, primarily from increased plant utilization, increased gross margin by $4.2 million.

An increase in sales volumes increased gross margin by $1.5 million. Excluding the impact of ASC 606, we would have sold 1,295,000 MT during the six months ended June 30, 2018, or approximately 44,000 MT more than the comparable prior-year period.

Lower loss on asset disposals increased gross margin by $1.8 million.

Adjusted gross margin per metric ton


	Six Months Ended
	June 30,
	2018		2017 (Recast)		Change
	(in thousands except per metric ton)
Metric tons sold		1,347		1,251		96
Gross margin	$	11,775	$	32,699	$	(20,924)
Loss on disposal of assets		244		2,005		(1,761)
Depreciation and amortization		19,122		19,397		(275)
Adjusted gross margin	$	31,141	$	54,101	$	(22,960)
Adjusted gross margin per metric ton	$	23.12	$	43.25	$	(20.13)

We earned an adjusted gross margin of $31.1 million, or $23.12 per MT, for the six months ended June 30, 2018. Excluding the costs and recoveries associated with the Chesapeake Terminal Event, we would have earned adjusted gross margin of $53.5 million, or $39.74 per MT. Adjusted gross margin was $54.1 million, or $43.25 per MT, for the six months ended June 30, 2017. Adjusting for the impact of ASC 606 for comparison purposes, adjusted gross margin per metric ton would have been $40.46 per MT for the six months ended June 30, 2017. The factors impacting the change in adjusted gross margin are described above under the heading “Gross margin.”

General and administrative expenses

General and administrative expenses were $14.1 million for the six months ended June 30, 2018 and $15.6 million for the six months ended June 30, 2017.

During the six months ended June 30, 2018, general and administrative expenses included allocated expenses of $7.3 million that were incurred under the MSA, $3.0 million of direct and other expenses and $3.8 million of non‑cash unit compensation expense associated with the grant of unit‑based awards under the LTIP.

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During the six months ended June 30, 2017, general and administrative expenses included allocated expenses of $6.0 million that were incurred under the MSA, $3.3 million of direct and other expenses, $3.3 million of non-cash unit compensation associated with unit-based awards under the LTIP, $1.6 million related to transaction expenses on consummated and unconsummated transactions and $1.4 million of expenses associated with the cessation of operations of the wood pellet production plant owned by Wiggins.

Interest expense

We incurred $17.7 million of interest expense during the six months ended June 30, 2018 and $15.4 million of interest expense during the six months ended June 30, 2017. The increase in interest expense was primarily attributable to the incremental interest payable on the Senior Notes issued in October 2017 primarily to fund the Wilmington Drop-Down. Please read “—Senior Notes Due 2021” below.

Adjusted EBITDA


	Six Months Ended
	June 30,
	2018		2017 (Recast)		Change
	(in thousands)
Reconciliation of adjusted EBITDA to net (loss) income:
Net (loss) income	$	(15,791)	$	1,452	$	(17,243)
Add:
Depreciation and amortization		19,439		19,406		33
Interest expense		17,692		15,417		2,275
Non-cash unit compensation expense		3,823		3,280		543
Asset impairments and disposals		244		2,005		(1,761)
Changes in the fair value of derivative instruments		(2,694)		—		(2,694)
Chesapeake Terminal Event, net		15,786		—		15,786
Transaction expenses		146		3,083		(2,937)
Adjusted EBITDA	$	38,645	$	44,643	$	(5,998)

We generated adjusted EBITDA of ~~$26.1~~$38.6 million for the ~~three~~six months ended ~~September~~June 30, ~~2017~~2018 compared to adjusted EBITDA of ~~$22.9~~$44.6 million for the ~~three~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~$3.2~~$6.0 million ~~increase was attributable to an increase in adjusted gross margin as described above as well as a~~ decrease ~~in general and administrative expenses, which~~ was primarily attributable to ~~plant development activities~~the factors described above under the heading “Gross margin,” including the expenses incurred, net of insurance recoveries, related to business continuity activities following the ~~Sampson plant incurred~~Chesapeake Terminal Event. Excluding the costs and recoveries associated with the Chesapeake Terminal Event, we would have earned adjusted EBITDA of $45.3 million during the ~~three~~six months ended ~~September~~June 30, ~~2016.~~2018.

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Distributable Cash Flow

The following is a reconciliation of adjusted EBITDA to distributable cash flow:

Three Months Ended

September 30,


2017

2016 (Recast)

Change


(in thousands)

Adjusted EBITDA

$
26,056

$
22,884

$
3,172

Less:







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

7,259

2,919

4,340

Maintenance capital expenditures

857

1,375

(518)

Distributable cash flow attributable to Enviva Partners, LP

17,940

18,590

(650)

Less: Distributable cash flow attributable to incentive distribution rights

1,063

303

760

Distributable cash flow attributable to Enviva Partners, LP limited partners

$
16,877

$
18,287

$
(1,410)

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

Nine Months Ended


September 30,




2017

2016 (Recast)

Change

(in thousands)

Product sales

$
366,142

$
323,269

$
42,873

Other revenue

14,387

14,486

(99)

Net revenue

380,529

337,755

42,774

Cost of goods sold, excluding depreciation and amortization

293,421

258,019

35,402

Related-party interest expense

3,242

1,679

1,563

Depreciation and amortization

26,085

20,429

5,656

Total cost of goods sold

322,748

280,127

42,621

Gross margin

57,781

57,628

153

General and administrative expenses

21,826

22,025

(199)

Income from operations

35,955

35,603

352

Interest expense

(23,062)

(9,535)

13,527

Related-party interest expense

—

(561)

(561)

Other (expense) income

(198)

274

472

Net income

12,695

25,781

(13,086)

Less net loss attributable to noncontrolling partners’ interests

41

3,467

(3,426)

Net income attributable to Enviva Partners, LP

$
12,736

$
29,248

$
(16,512)

~~Product sales~~

Revenue related to product sales (either produced or procured) increased $42.8 million to $366.1 million for the nine months ended September 30, 2017 from $323.3 million for the nine months ended September 30, 2016. The increase was largely attributable to greater sales volumes, primarily relating to tons sold under the contract acquired in connection with the Sampson Drop-Down. During the nine months ended September 30, 2017, we sold 1,919,000 MT of wood pellets compared to 1,714,000 MT of wood pellets sold during the nine months ended September 30, 2016, a 12% increase.

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~~Other revenue~~

Other revenue for the nine months ended September 30, 2017 remained consistent with the nine months ended September 30, 2016. Other revenue during both periods was primarily attributable to shipments purchased from third-party pellet producers and delivered into our long-term off-take contracts. In these back-to-back transactions, title and risk of loss immediately transfers to the ultimate purchasers; accordingly, such transactions are presented on a net basis. Other revenue also includes revenue derived from terminal services and transactions that capitalize on market dislocations, some of which, as disclosed in the consolidated financial statements, were with related parties (see Note 11, ~~Related-Party Transactions~~).

~~Cost of goods sold~~

Cost of goods sold increased to $322.7 million for the nine months ended September 30, 2017 from $280.1 million for the nine months ended September 30, 2016. The $42.6 million increase was primarily attributable to increased sales volumes and increased depreciation expense. The nine months ended September 30, 2017 included approximately $6.8 million of incremental depreciation expense related to machinery and equipment at the Sampson plant. There was no depreciation expense incurred during the nine months ended September 30, 2016 related to the Sampson plant. We incurred $3.2 million of expense associated with the disposal of assets during the nine months ended September 30, 2017, which was primarily attributable to growth and maintenance capital projects at our wood pellet production plants. We incurred $1.7 million of expense associated with the disposal of assets during the nine months ended September 30, 2016.

~~Gross margin~~

We earned gross margin of $57.8 million and $57.6 million for the nine months ended September 30, 2017 and nine months ended September 30, 2016, respectively. The gross margin increase of $0.2 million was primarily attributable to the following:

A $7.9 million increase in gross margin due to higher sales volumes. Our wood pellet sales volumes increased by approximately 205,000 MT during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, representing a 12% increase, which is principally attributable to sales under the ~~contract acquired in connection with the Sampson Drop-Down~~.

~~A $1.2 million increase in gross margin during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 due to the mix of customer and shipping contracts~~.

~~A $0.7 million increase in gross margin due to lower amortization costs as acquired contracts reach the end of their respective contract terms.~~

~~Offsetting the above were:~~

An increase in depreciation expense during the nine months ended September 30, 2017, which decreased gross margin by $6.4 million as compared to the nine months ended September 30, 2016. The increase is attributable to incremental depreciation expense related to machinery and equipment at the Sampson plant.

An increase of $1.6 million in loss on the disposal of assets during the nine months ended September 30, 2017, which is primarily attributable to growth and maintenance capital projects at our wood pellet production plants.

A $1.2 million decrease in gross margin due to higher production and shipping costs during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase in production and shipping costs is primarily attributable to lower plant utilization during the nine months ended September 30, 2017, which was partially offset by lower raw material costs during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.

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~~Adjusted gross margin per metric ton~~

Nine Months Ended


September 30,



2017

2016 (Recast)

Change

(in thousands except per metric ton)

Metric tons sold

1,919

1,714

205

Gross margin

$
57,781

$
57,628

$
153

Loss on disposal of assets

3,242

1,679

1,563

Depreciation and amortization

26,085

20,429

5,656

Adjusted gross margin

$
87,108

$
79,736

$
7,372

Adjusted gross margin per metric ton

$
45.39

$
46.52

$
(1.13)

We earned an adjusted gross margin of $87.1 million, or $45.39 per MT, for the nine months ended September 30, 2017 and an adjusted gross margin of $79.7 million, or $46.52 per MT, for the nine months ended September 30, 2016. The factors impacting this increase in adjusted gross margin are described above under the heading “Gross margin.”

~~General and administrative expenses~~

~~General and administrative expenses were $21.8 million for the nine months ended September 30, 2017 and $22.0 million for the nine months ended September 30, 2016.~~

During the nine months ended September 30, 2017, general and administrative expenses included allocated expenses of $8.4 million that were incurred under the MSA, $5.0 million of direct expenses, $5.1 million of non‑cash unit compensation expense associated with unit‑based awards under the LTIP, $1.6 million related to transaction expenses on consummated and unconsummated transactions and $1.7 million of expenses associated with the cessation of operations of the wood pellet production plant owned by Wiggins.

During the nine months ended September 30, 2016, general and administrative expenses included allocated expenses of $9.3 million that were incurred under the MSA, $6.4 million related to plant development activities prior to the consummation of the Sampson Drop‑Down, $3.5 million of direct expenses, $2.7 million of non‑cash unit compensation expense associated with unit‑based awards under the LTIP and $0.1 million related to transaction expenses.

~~Interest expense~~

We incurred $23.1 million of interest expense during the nine months ended September 30, 2017, and $9.5 million of interest expense during the nine months ended September 30, 2016. The increase in interest expense from the prior year was primarily attributable to our increase in long‑term debt outstanding. Please read “—Senior Notes Due 2021” below.

~~Related‑party interest expense~~

On December 11, 2015, under our Senior Secured Credit Facilities, we obtained incremental borrowings in the amount of $36.5 million and Enviva FiberCo became a lender with the purchase of $15.0 million aggregate principal amount of the incremental borrowings. On June 30, 2016, Enviva FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. During the nine months ended September 30, 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 the nine months ended September 30, 2017. Please read “—Senior Secured Credit Facilities” below.

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~~Adjusted EBITDA~~

Nine Months Ended


September 30,



2017

2016 (Recast)

Change

(in thousands)

Reconciliation of adjusted EBITDA to net income:

Net income

$
12,695

$
25,781

$
(13,086)

Add:





Depreciation and amortization

26,096

20,452

5,644

Interest expense

23,062

10,096

12,966

Non-cash unit compensation expense

5,113

2,662

2,451

Asset impairments and disposals

3,242

1,679

1,563

Transaction expenses

3,250

108

3,142

Adjusted EBITDA

$
73,458

$
60,778

$
12,680

We generated adjusted EBITDA of $73.5 million for the nine months ended September 30, 2017 compared to adjusted EBITDA of $60.8 million for the nine months ended September 30, 2016. The $12.7 million increase in adjusted EBITDA was attributable to the $7.4 million increase in adjusted gross margin described above and a decrease in general and administrative expenses primarily attributable to the $6.4 million of plant development activities related to the Sampson plant incurred during the nine months ended September 30, 2016.

~~Distributable Cash Flow~~

~~The following is a reconciliation of adjusted EBITDA to distributable cash flow:~~


	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2017		2016 (Recast)		Change		2018		2017 (Recast)		Change
	(in thousands)						(in thousands)
Adjusted EBITDA	$	73,458	$	60,778	$	12,680	$	38,645	$	44,643	$	(5,998)
Less:
Interest expense, net of amortization of debt issuance costs and original issue discount		21,901		8,758		13,143
Interest expense, net of amortization of debt issuance costs, debt premium costs and original issue discount								17,145		14,648		2,497
Maintenance capital expenditures		2,870		2,758		112		1,614		2,013		(399)
Distributable cash flow to Enviva Partners, LP limited partners		48,687		49,262		(575)		19,886		27,982		(8,096)
Less: Distributable cash flow attributable to incentive distribution rights		2,269		716		1,553		2,664		1,206		1,458
Distributable cash flow attributable to Enviva Partners, LP limited partners	$	46,418	$	48,546	$	(2,128)	$	17,222	$	26,776	$	(9,554)

Liquidity and Capital Resources

Overview

We expect our 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 our primary liquidity needs are to fund working capital, service our debt, maintain cash reserves, finance maintenance capital expenditures and pay distributions. We believe cash generated from our operations will be sufficient to meet the short‑term working capital requirements of our business. 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.

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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~~$43.7 million per year, based on the number of common ~~and subordinated~~ units outstanding as of ~~September~~June 30, ~~2017,~~2018, to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses. Because it is our intent to distribute at least the minimum quarterly distribution on all of our units on a quarterly basis, we expect that we will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund future acquisitions and expansions.

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 ~~$26.8~~$1.8 million at ~~September~~June 30, ~~2017~~2018 and ~~$51.9~~$34.6 million at December 31, ~~2016.~~2017. The primary components of changes in non‑cash working capital were the following:

Accounts receivable, net and related‑party receivables

A decrease in accounts receivable, net of allowance for doubtful accounts and related‑party receivables, decreased non‑cash working capital by ~~$27.9~~$33.9 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to December 31, ~~2016,~~2017, primarily due to the timing, volume and size of product shipments. Related‑party receivables at June 30, 2018 and December 31, ~~2016~~2017 included ~~$1.6~~$3.0 million and $4.9 million, respectively, due from the First Hancock JV related to the Sampson ~~Drop‑Down.~~Drop-Down and the Wilmington Drop-Down.

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Inventories

Our inventories consist of raw materials, work‑in‑process, consumable tooling and finished goods. An increase in inventory increased non-cash working capital by ~~$4.7~~$12.6 million at ~~September~~June 30, ~~2017~~2018 compared to December 31, ~~2016.~~2017. The increase was primarily attributable to a ~~$3.5~~$9.9 million increase in finished goods inventory due to the timing, volume and size of product shipments primarily attributable to the Chesapeake Terminal Event. In addition, we had a $1.0 million increase in raw material inventory and a ~~$2.4~~$1.7 million increase in consumable tooling inventories to support the reliability of our planned production levels. ~~The increase in inventory was partially offset by a $1.2 million decrease in raw material inventory.~~

Accounts payable, related‑party payables, accrued liabilities and related‑party accrued liabilities

~~A decrease~~An increase in accounts payable, related‑party payables and accrued liabilities at ~~September~~June 30, ~~2017~~2018 as compared to December 31, ~~2016 increased~~2017 decreased non‑cash working capital by ~~$5.6~~$12.3 million and was primarily attributable to ~~a decrease~~an increase in shipping and trading sales liabilities due to timing and volume of product ~~shipments.~~shipments as well as an increase of $15.7 million in liabilities due primarily to the Chesapeake Terminal Event. Related‑party payables at ~~September~~June 30, ~~2017~~2018 consisted of ~~$13.8~~$18.5 million related to the MSA compared to ~~$10.6~~$19.6 million at December 31, ~~2016.~~

~~Current portion of interest payable~~

An increase in the current portion of interest payable at September 30, 2017 compared to December 31, 2016 decreased non‑cash working capital by $6.2 million. The current portion of interest payable is primarily related to accrued interest on our Senior Notes. Please read “—Senior Notes Due 2021” below.

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2017.

Cash Flows

The following table sets forth a summary of our net cash flows from operating, investing and financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively:


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2017		2016 (Recast)		2018		2017 (Recast)
	(in thousands)				(in thousands)
Net cash provided by operating activities	$	76,327	$	55,111	$	31,233	$	46,158
Net cash used in investing activities		(14,289)		(52,552)		(4,749)		(15,912)
Net cash used in financing activities		(53,051)		16,709		(13,218)		(29,631)
Net increase in cash and cash equivalents	$	8,987	$	19,268	$	13,266	$	615

Cash Provided by Operating Activities

Net cash provided by operating activities was ~~$76.3~~$31.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$55.1~~$46.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~increase~~decrease of ~~$21.2~~$15.0 million was primarily attributable to the following:

A ~~$23.7 million increase related to accounts receivable,~~decrease in net income, excluding depreciation and ~~related‑party receivables~~amortization, of $17.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~increase~~decrease in ~~accounts receivable during the nine months ended September 30, 2017 was~~net income, excluding depreciation and amortization, is primarily attributable to the ~~timing, volume~~Chesapeake Terminal Event (see Note 5, Inventory Impairment and ~~size of product shipments.~~Asset Disposal).

A ~~$6.2~~ $13.1 million ~~increase~~decrease in cash flows provided by operating activities related to ~~the current portion of interest payable~~an increase in inventories during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. The current portion of interest payable is primarily related to accrued interest on our Senior Notes. Please read “Senior Notes Due 2021” below.~~

A $5.6 million increase related to accounts payable, related‑party payables and accrued liabilities during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.2017. The increase during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was primarily attributable to the timing and size of ~~payments of related-party payables.~~product shipments.

Offsetting the above was:

A $12.2 million increase in cash flows provided by operating activities related to a decrease in ~~net income, excluding depreciation~~accounts receivable and ~~amortization, of $7.4 million~~related-party receivables during the ~~nine~~six months ended ~~September~~June 30, ~~2017 as~~2018 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. The decrease in net income, excluding depreciation and amortization, is~~2017. This increase during the six months ended June 30, 2018 was primarily attributable to ~~a $13.0 million increase in interest expense. Please read “—Senior Notes Due 2021” below.~~the timing, volume and size of product shipments.

~~During~~A $8.1 million increase in cash flows provided by operating activities related to an increase in accounts payable, related-party payables, accrued liabilities and other current liabilities during the ~~nine~~six months ended ~~September~~June 30, ~~2016 we received~~2018

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compared to the ~~return of a $6.7 million deposit in accordance~~six months ended June 30, 2017. The increase during the six months ended June 30, 2018 was primarily attributable to accrued expenses associated with the ~~terms of a customer contract.~~Chesapeake Terminal Event.

Cash Used in Investing Activities

Net cash used in investing activities was ~~$14.3~~$4.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$52.6~~$15.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The ~~decrease in cash used in investing activities of $40.0 million was related to a decrease in~~six months ended June 30, 2017 include purchases of property, plant and equipment ~~as a result of~~related to the completion of ~~construction~~both the Sampson Plant and the Wilmington Terminal. The $4.7 million of ~~our Sampson plant, which commenced operations during the fourth quarter of 2016. Of the $14.3 million~~cash used for property, plant and equipment during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018 includes approximately ~~$4.8~~$3.7 million related to projects intended to increase the production capacity of our plants, ~~$2.9~~$1.6 million ~~was used~~of capital expenditures to maintain ~~our equipment~~operations and ~~machinery and $6.6~~$0.5 million ~~related to construction costs at the Sampson plant previously incurred by the~~

~~Table~~ of ~~Contents~~

~~sponsor, which were accrued by the Partnership as a purchase price adjustment in connection~~capital expenditures associated with the ~~Sampson Drop-Down.~~rebuilding of the Port of Chesapeake, offset by $1.1 million of insurance recoveries received.

Cash Used in Financing Activities

Net cash used in financing activities was ~~$53.1~~$13.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to net cash ~~provided by~~used in financing activities of ~~$16.7~~$29.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. Net cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 primarily consisted of ~~$46.3~~$36.5 million of distributions paid to our unitholders, $2.3 million paid to the General Partner to purchase performance-based phantom units for the LTIP and ~~$9.9~~$1.7 million paid to satisfy the withholding tax requirements associated with the LTIP vesting. The net cash used in financing activities was offset by $30.0 million of revolver borrowings, net, during the six months ended June 30, 2018.

Net cash used in financing activities for the six months ended June 30, 2017 primarily consisted of $18.9 million of repayments ~~net,~~ for our debt and capital lease ~~obligations.~~

~~Net cash provided~~obligations and $30.0 million of distributions paid to our unitholders, partially offset by ~~financing activities for the nine months ended September 30, 2016 primarily consisted of~~$6.1 million in capital contributions made by the First Hancock JV prior to the ~~Sampson Drop‑Down of $57.3~~Wilmington Drop-Down and $10.0 million ~~and $5.6 million of~~in proceeds from ~~common unit issuances~~borrowings under ~~the At-the-Market Offering Program. These amounts were partially offset by cash distributions to~~ our ~~unitholders of $37.8 million, a $5.0 million distribution to our sponsor and repayments, net, of principal on debt of $2.7 million.~~Senior Secured Credit Facilities.

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 ~~party~~ thereto entered into an indenture, as amended or supplemented (the “Indenture”), pursuant to which wethe Issuers issued $300.0 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”) to eligible purchasers (the “Senior Notes Offering”) in a private placement under Rule 144A and Regulations S of the Securities Act ~~which resulted~~of 1933, as amended (the “Securities Act”). Interest payments commenced on May 1, 2017 and are due semi-annually in ~~net proceeds of $293.6 million after deducting expenses~~arrears on May 1 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 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 September 30, 2017. The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by substantially all of our existing subsidiaries and our future restricted subsidiaries that guarantee certain of our indebtedness.

November 1. 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~~the registered notes are not subject to restrictions on transfer). The Partnership recorded $6.4 million in original issue discounts and costs associated with the issuance of Senior Notes, which have been recorded as a deduction to long-term debt and capital lease obligations.

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 Enviva Pellets Sampson, LLC in December 2016 and $159.8 million to repay borrowings, including accrued interest, under the Senior Secured Credit ~~Facilities~~Facilities.

On ~~April 9, 2015, we entered into~~October 10, 2017, pursuant to the ~~Credit Agreement providing for~~Indenture, the ~~Original Credit Facilities. The Original Credit Facilities consisted of (i) $99.5~~Issuers issued and sold an additional $55.0 million in aggregate principal amount of ~~Tranche A‑~~Senior Notes to a purchaser (the “Additional Notes Purchaser”) at 106.25% of par value plus accrued interest from May 1, ~~borrowings, (ii) $75.0 million aggregate principal amount~~2017. The additional Senior Notes have the same terms as the Senior Notes. The sale of ~~Tranche A‑2~~the additional Senior Notes resulted in gross proceeds to the Issuers of approximately $60.0 million. The proceeds were used to repay 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 October 17, 2016, we entered into the Second Amendment. The Second Amendment provided for an increase in the~~Partnership’s revolving credit commitments, ~~under our Senior Secured Credit Facilities from $25.0 million~~which were used to ~~$100.0 million upon~~fund the ~~consummation of~~Wilmington Drop-Down, and for general partnership purposes.

In December 2017, 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. On December 11, 2015, Enviva FiberCo became a lender pursuantAdditional Notes Purchaser tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the ~~Credit Agreement~~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 ~~purchase of $15.0~~single class for all purposes under the Indenture. We recorded $0.9 million ~~aggregate principal amount of the Tranche A-4 borrowings, net of a 1.0% lender fee. On June 30, 2016, Enviva FiberCo assigned all of its~~in debt issuance costs and $3.4 million in

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~~rights and obligations in its capacity~~premiums associated with the issuance of the additional Senior Notes, which have been recorded as a ~~lender~~net addition to ~~a third party. The Partnership recorded $0 million~~long-term debt and ~~$0.4 million as interest expense related to this indebtedness during the three and nine months ended September 30, 2016, respectively~~.capital lease obligations.

On December 14, 2016, proceeds from the Senior Notes were used to repay all outstanding indebtedness, including accrued interest, of $74.7 million for Tranche A‑2 and $26.5 million for Tranche A‑4 under the Senior Secured Credit Facilities ~~and to repay~~

We entered into a ~~portion of the outstanding indebtedness, including accrued interest, of $53.6~~credit agreement that governs $100.0 million ~~for Tranche A‑1 and $5.1 million for Tranche A‑3, under the Senior~~in revolving credit commitments (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 obligations related to the repayments.~~

Facilities”). 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.

The Senior Secured Credit ~~Agreement~~Facilities include a commitment fee payable on undrawn revolving credit commitments of 0.50% per annum (subject to a stepdown of 0.375% per annum if the Total Leverage Ratio is less than or equal to 2.00:1.00). Letters of credit issued under the Senior Secured Credit Facilities are subject to a fee calculated at the applicable margin for revolving credit Eurodollar rate borrowings. As of June 30, 2018, we had $30.0 million in revolving credit commitments outstanding and we had no amount outstanding as of December 31, 2017.

We had a $4.0 million letter of credit outstanding under the Senior Secured Credit Facilities as of December 31, 2017. The letter of credit was issued in connection with a contract between us and a third party in the ordinary course of business. On January 11, 2018, the letter of credit was cancelled as it was no longer contractually required. As of June 30, 2018, we had no letters of credit outstanding under the letters of credit facility.

The Senior Secured Credit Facilities 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)~~(1) incur indebtedness, ~~(ii)~~(2) pay dividends or make other distributions, ~~(iii)~~(3) prepay, redeem or repurchase certain debt, ~~(iv)~~(4) make loans and investments, ~~(v)~~(5) sell assets, ~~(vi)~~(6) incur liens, ~~(vii)~~(7) enter into transactions with affiliates, ~~(viii)~~(8) consolidate or merge and (ix) assign certain material contracts to third parties or unrestricted subsidiaries. An event of default could result in us having to accelerate the repayment of our borrowings prior to the due dates 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 Senior Secured Credit ~~Agreement~~Facilities or if the interest coverage ratio (determined as the ratio of consolidated EBITDA, as defined in the Senior Secured Credit ~~Agreement,~~Facilities, to consolidated interest ~~expense,~~expense), which is determined ~~quarterly)~~quarterly, is less than 2.25:1.00 at such time.

~~Pursuant to the Credit Agreement, we~~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 Senior Secured Credit ~~Agreement;~~Facilities; 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 ~~September~~June 30, ~~2017, our Total Leverage Ratio was 2.96:1.00, as calculated in accordance with the Credit Agreement, which was less than the maximum of 4.25:1.00. As of September 30, 2017,~~2018, we were in compliance with the Total Leverage Ratio and all other covenants and restrictions associated with, and no events of default existed under, the Senior Secured Credit ~~Agreement.~~Facilities. Our obligations under the Senior Secured Credit ~~Agreement~~Facilities 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 statement 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 an equity distribution agreement (the “Equity~~the Equity Distribution ~~Agreement”)~~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 three months ended ~~September~~June 30, ~~2017,~~2018, we did not sell common units under the ~~Equity Distribution Agreement.~~ATM program. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we sold ~~63,577~~8,408 common units under the ~~Equity Distribution Agreement~~ATM program for net proceeds of ~~$1.7~~$0.2 million, net of an insignificant amount of commissions. Net proceeds from sales under the ATM Program were used for general partnership purposes. As of ~~September~~June 30, ~~2017, $88.9~~2018, $88.4 million remained available for issuance under the ATM Program.

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Off‑Balance Sheet Arrangements

As of ~~September~~June 30, ~~2017,~~2018, we did not have any off‑balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S‑K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.

~~Recent Accounting Pronouncements~~

~~In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815)—Targeted Improvements to Accounting for Hedging Activities~~. ASU No. 2017-12 expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We are in the process of evaluating the impact of the adoption of ASU No. 2017-12 on our condensed consolidated financial statements, including potential early adoption.

~~In January 2017, the FASB issued ASU No. 2017‑04,~~ ~~Intangibles—Goodwill and Other~~. ASU No. 2017‑04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the new standard, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of ASU No. 2017‑04 to have a material impact on our results of operations, financial position and cash flows.

~~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 all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is allowed (1) for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and (2) for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. Entities will be required to apply the guidance retrospectively when adopted. We are in the process of evaluating the impact of the adoption of ASU No. 2017‑01 on our condensed consolidated financial statements.

~~In November 2016, the FASB issued ASU No. 2016‑18,~~ ~~Statement of Cash Flows (Topic 230)—Restricted Cash: A Consensus of the FASB Emerging Issues Task Force~~, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance addresses the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance

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requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption in an interim period is permitted, but any adjustments must be reflected as of the beginning of the fiscal year that includes such interim period. Entities will be required to apply the guidance retrospectively when adopted. We do not expect the adoption of the new standard to have a material effect on the presentation of changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in our consolidated statements of cash flows.

~~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 statement 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, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. 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. We do 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 our 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 years 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 presented using a modified retrospective approach. Early adoption is permitted. Although we are continuing to assess all potential qualitative and quantitative impacts of the standard, we currently expect the new standard to impact our accounting for equipment under operating leases.

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~~2014-09 and subsequent amendments have been codified as Accounting Standards Code (“ASC”) 606,~~ ~~Revenue from Contracts with Customers~~. ASC 606 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. We will adopt ASC 606 effective January 1, 2018. We currently expect 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. We have established a cross-functional team to lead the assessment and implementation of ASC 606 and have finalized our implementation plans. In connection with the implementation plan, we have completed our initial evaluation of our off-take contracts to identify material performance obligations. We determined that revenue related to our off-take contracts will be recognized at the point in time at which control of the wood pellets passes to the customer, as the wood pellets are loaded onto shipping vessels, which is consistent with the timing of revenue recognition under our current accounting policy. 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. We have elected to account for shipping and handling activities as a fulfillment activity, consistent with its current policy. Additionally, we have concluded that certain transactions currently presented on a net basis in other revenue will be recognized as principal sales on a gross basis under ASC 606. We continue to evaluate the impact of the adoption on our business processes and accounting and information systems.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. We provide expanded discussion of our significant accounting policies, estimates and judgments in our ~~2016~~2017 Form 10‑K. We believe these accounting policies reflect our significant estimates and assumptions used in preparation of our financial statements. There have been no significant changes to our critical accounting policies and estimates since December 31, ~~2016.~~2017 except for the adoption of ASC 606. The adoption changed the Partnership’s accounting policies for revenue recognition and cost of goods sold. For changes in our accounting policy for revenue recognition, see Note 2, Significant Accounting Policies. As a result of the adoption of ASC 606, our accounting policy for cost of goods sold now includes costs associated with purchase and sale transactions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information about market risks for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 does not differ materially from that disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk” in the ~~2016~~2017 Form 10‑K, other than as described below:

Interest Rate Risk

At ~~September~~June 30, ~~2017,~~2018, our total debt had a carrying value of ~~$343.1~~$429.5 million and fair value of ~~$363.0~~$444.2 million.

Although we seek to mitigate our interest rate risk through ~~the~~ interest rate ~~swap described below,~~swaps, we ~~were~~are exposed to fluctuations in interest rates on borrowings under the Senior Secured Credit Facilities. 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.

The applicable margin is ~~(i)~~(1) for Tranche A‑1 and Tranche A‑3 base rate borrowings, ~~3.10% through April 2017,~~ 2.95% ~~thereafter~~ through April 2018 and 2.80% thereafter, ~~(ii)~~(2) for Tranche A‑1 and Tranche A‑3 Eurodollar rate borrowings, ~~4.10% through April 2017,~~ 3.95% thereafter through April 2018 and 3.80% thereafter, ~~and (iii)~~(3) for revolving facility base rate borrowings, 3.25%, and (4) 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 ~~September~~June 30, ~~2017, $44.3~~2018, $41.7 million, net of unamortized discount of ~~$1.2~~$0.9 million, of Tranche A‑1 and Tranche A‑3 borrowings remained outstanding under our Senior Secured Credit Facilities.

In September 2016, we entered into a pay‑fixed, receive‑variable interest rate swap agreement to fix our exposure to fluctuations in London Interbank Offered Rate based interest ~~rates.~~rates (the “interest rate swap”). The interest rate swap commenced on September 30, 2016 and expires concurrently with the maturity of the Senior Secured Credit Facilities in April 2020. ~~The Partnership~~We elected to discontinue hedge accounting as of December 14, 2016 following ~~the~~ repayment of a portion of ~~such~~our outstanding indebtedness under the Senior Secured Credit Facilities, and subsequently re‑designated the interest rate swap for the remaining portion of ~~the~~such outstanding indebtedness during the ~~nine~~three months ended ~~September~~June 30, ~~2017.~~2018. We enter into derivative instruments to

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manage cash flow. We do not enter into derivative instruments for speculative or trading purposes. The counterparty to our interest rate swap agreement is a major financial institution. As a result, we have no significant interest rate risk on our Tranche A‑1 and Tranche A‑3 borrowings as of ~~September~~June 30, ~~2017.~~2018.

Credit Risk

Substantially all of our revenue was from long‑term, take‑or‑pay off‑take contracts with three customers for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~two customers for the three and nine months ended September 30, 2016.~~2017. Most of our customers are major power generators in Europe. This

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concentration of counterparties operating in a single industry and geographic area may increase our overall exposure to credit risk, in that the counterparties may be similarly affected by changes in economic, political, regulatory or other conditions. If a customer defaults or if any of our contracts expire in accordance with their terms, and we are unable to renew or replace these contracts, our gross margin and cash flows and our ability to make cash distributions to our unitholders may be adversely affected. Although we have entered into hedging arrangements in order to minimize our exposure to fluctuations in foreign currency exchange and interest rates, our derivatives also expose us to credit risk to the extent that counterparties may be unable to meet the terms of our hedging agreements.

Foreign Currency Exchange Risk

We primarily are ~~primarily~~ exposed to fluctuations in foreign currency exchange rates related to contracts pursuant to which deliveries of wood pellets will be settled in British Pound Sterling (“GBP”) and Euro (“EUR”). ~~Deliveries under these contracts began in September 2017.~~ We have entered into forward contracts and purchased options to hedge a portion of our forecasted revenue for these customer contracts. We have designated and accounted for the forward contracts and purchased options as cash flow hedges of anticipated ~~foreign currency GBP denominated~~GBP-denominated revenue and, therefore, the effective portion of the changes in fair value on these instruments will be recorded as a component of accumulated other comprehensive income in partners’ capital and will be reclassified to revenue in the consolidated statements of ~~income~~operations in the same period in which the underlying revenue transactions occur. Our EUR-denominated forward contracts and purchased options are adjusted to fair value through earnings in the current period.

As of ~~September~~June 30, ~~2017,~~2018, we had notional amounts of ~~42.6~~71.4 million GBP and 18.5 million EUR under foreign currency forward contracts and ~~29.0~~39.4 million GBP and 3.0 million EUR under foreign currency purchased options that expire between ~~2017~~2018 and ~~2022.~~2023. At ~~September~~June 30, ~~2017,~~2018, the unrealized ~~gain (loss)~~loss (gain) associated with foreign currency forward contracts and foreign currency purchased options of approximately ~~($2.7)~~$0.5 million and ~~($1.2)~~$(1.2) million, respectively, are included in other comprehensive ~~income.~~income (loss).

We do not utilize foreign exchange contracts for speculative or trading purposes. The counterparties to our foreign exchange contracts are major financial institutions.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)‑15(e) and 15(d)‑15(e) under the Securities Exchange Act of 1934, as amended) was carried out under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of our General Partner. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of our General Partner concluded that the design and operation of these disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017,~~2018, the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

During the quarter ended ~~September~~June 30, ~~2017,~~2018, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes from the legal proceedings disclosed in the section entitled “Legal Proceedings” in the 2017 Form 10‑~~Q for the quarter ended June 30, 2017.~~K.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the section entitled “Risk Factors” in the ~~2016~~2017 Form 10‑K.

Item 2. Unregistered Sales of Equity Securities


Issuer Purchases of Equity Securities
						Maximum number
						(or approximate)
				Total number		dollar value) of
				of common units		common units that
				purchased as part		may yet be
	Total number of			of publicly		purchased under
	common units	Price paid per		announced plans		the plans or
Period	purchased	common unit		or programs		programs
January 2018	—	$	—		—		—
February 2018 (1)	81,708	$	28.65		—		—
March 2018	—	$	—		—		—

⁽¹⁾

On February 1, 2018, the General Partner purchased a total of 81,708 common units from affiliates of Enviva Holdings, LP at a price of $28.65 per common unit and used the common units to satisfy the vesting of performance-based phantom units.

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Item 6. Exhibits

The information required by this Item 6 is set forth in the Exhibit Index accompanying this Quarterly Report on Form 10‑Q and is incorporated herein by reference.

Exhibit Index


Exhibit Number		Description

3.1		Certificate of Limited Partnership of Enviva Partners, LP (Exhibit 3.1, Form S‑1 Registration Statement filed October 28, 2014, File No. 333‑199625)
3.2		First Amended and Restated Agreement of Limited Partnership of Enviva Partners, LP, dated May 4, 2015, by Enviva Partners GP, LLC (Exhibit 3.1, Form 8‑K filed May 4, 2015, File No. 001‑37363)
4.1*3.3 10.1		Amendment No. 1 to the First ~~Supplemental Indenture dated December 14, 2016 to Indenture dated November 1, 2016, among~~Amended and Restated Agreement of Limited Partnership of Enviva Partners, LP, effective as of December 18, 2017, by Enviva Partners ~~Finance Corp.~~GP, LLC (Exhibit 3.1, Form 8-K filed December 21, 2017, File No. 001-37363). Separation Agreement and ~~the subsidiary guarantors party thereto~~
4.2*		~~Second Supplemental Indenture dated July 6, 2017 to Indenture dated November 1, 2016, among~~General Release of Claims, effective as of June 4, 2018, between Enviva ~~Partners, LP, Enviva Partners Finance Corp.~~Management Company, LLC and ~~the subsidiary guarantors party thereto~~
4.3*		~~Third Supplemental Indenture dated October 2, 2017 to Indenture dated November 1, 2016, among Enviva Partners, LP, Enviva Partners Finance Corp. and the subsidiary guarantors party thereto~~Stephen F. Reeves (Exhibit 10.1, Form 8-K filed June 4, 2018, File No.001-37363).
~~4.4~~10.2		~~Registration Rights~~Employment Agreement, dated as of ~~October 10, 2017, by~~May 30, 2018 and ~~among~~effective as of June 4, 2018, between Enviva ~~Partners, LP, Enviva Partners Finance Corp., the subsidiary guarantors party thereto~~Management Company, LLC and ~~FS Global Credit Opportunities Fund~~Shai Even (Exhibit ~~4.1,~~10.2, Form 8-K filed ~~October 11, 2017,~~June 4, 2018, File No. 001-37363).
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
32.1**		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
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.

** Furnished herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: ~~November 2, 2017~~August 8, 2018


ENVIVA PARTNERS, LP

By:	Enviva Partners GP, LLC, its general partner


By:	/s/ ~~STEPHEN F. REEVES~~Shai Even
	Name:	~~Stephen F. Reeves~~Shai Even
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

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	As of September 30, 2016
	As		Enviva Pellets
	Reported		Sampson, LLC		Total (Recast)
Cash and cash equivalents	$	21,396	$	—	$	21,396
Property, plant and equipment, net of accumulated depreciation		394,243		137,400		531,643
Goodwill		85,615		—		85,615
Other assets		65,394		7,766		73,160
Total assets	$	566,648	$	145,166	$	711,814

Accounts payable	$	1,726	$	946	$	2,672
Accrued and other current liabilities		23,623		18,949		42,572
Total long-term debt		206,690		1,114		207,804
Other liabilities		6,350		1,410		7,760
Total liabilities		238,389		22,419		260,808
Total partners’ capital		328,259		122,747		451,006
Total liabilities and partners’ capital	$	566,648	$	145,166	$	711,814


Foreign exchange forward contracts in GBP	£	42,570
Foreign exchange purchased option contracts in GBP	£	28,960
Interest rate swap	$	45,578


	September 30, 2017				December 31, 2016
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Senior Notes	$	294,501	$	314,361	$	293,797	$	306,547
Other long-term debt and capital lease obligations		48,622		48,622		56,998		56,998
Total long-term debt and capital lease obligations	$	343,123	$	362,983	$	350,795	$	363,545


			September 30, 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	$	(8,560)	$	140	$	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	$	(10,310)	$	140	$	10,450	$	(9,079)	$	1,371


October 1, 2017 through December 31, 2017	$	—
Year ending December 31, 2018		140
Year ending December 31, 2019		—
Year ending December 31, 2020		—
Year ending December 31, 2021		—
Thereafter		—
Total	$	140


Period from October 1, 2017 to December 31, 2017	$	85
Year ending December 31, 2018		543
Year ending December 31, 2019 and thereafter		4,829
Total product sales contracted backlog	$	5,457