| |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
March 31, 2019
| |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| |
Delaware (State or other jurisdiction |
| |
of incorporation or organization) | 46-4097730 (I.R.S. Employer Identification No.) | |
7200 Wisconsin Ave, Suite 1000 | ||
Bethesda, MD |
| |
(Address of principal executive offices) | 20814 (Zip code) | |
| Large accelerated filer ☐ | Accelerated filer ☒ | ||
| Non-accelerated filer ☐ | Smaller reporting company ☐ | ||
| Emerging growth company ☒ | ||
| |||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Units | EVA | New York Stock Exchange |
| |||
| Page | |||
i
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the risks described in our Annual Report on Form 10-K for the year ended December 31, 2016.2018. All forward‑lookingforward-looking statements in this Quarterly Report are expressly qualified in their entirety by the foregoing cautionary statements.
2
co‑fireco-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.
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 MT equalskilograms and 1.1023 short tons.
MTPY: metric tons per year.
Partnership: Enviva Partners, LP.
sponsor: Enviva Holdings, LP, and, where applicable, its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC.
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.
3
PART I—FINANCIAL INFORMATION
September 30, December 31, 2017 2016 (unaudited) Assets Current assets: Cash and cash equivalents $ 9,453 $ 466 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 Related-party receivables 7,748 7,634 Inventories 34,477 29,764 Assets held for sale 3,354 3,044 Prepaid expenses and other current assets 1,186 1,939 Total current assets 106,073 120,715 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 Goodwill 85,615 85,615 Other long-term assets 2,040 2,049 Total assets $ 689,234 $ 726,168 Liabilities and Partners’ Capital Current liabilities: Accounts payable $ 3,122 $ 9,869 Related-party payables 19,948 11,118 Accrued and other current liabilities 30,710 38,432 Related-party accrued liabilities 372 382 Current portion of interest payable 10,625 4,414 Current portion of long-term debt and capital lease obligations 5,008 4,109 Total current liabilities 69,785 68,324 Long-term debt and capital lease obligations 338,115 346,686 Long-term interest payable 860 770 Other long-term liabilities 3,274 871 Total liabilities 412,034 416,651 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 General partner (no outstanding units) (67,875) (67,393) Accumulated other comprehensive (loss) income (3,885) 595 Total Enviva Partners, LP partners’ capital 279,897 312,173 Noncontrolling partners’ interests (2,697) (2,656) Total partners’ capital 277,200 309,517 Total liabilities and partners’ capital $ 689,234 $ 726,168 ENVIVA PARTNERS, LP AND SUBSIDIARIES Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 (Recast) 2017 2016 (Recast) Product sales $ 125,422 103,577 $ 366,142 $ 323,269 Other revenue 6,036 7,217 14,387 14,486 Net revenue 131,458 110,794 380,529 337,755 Cost of goods sold, excluding depreciation and amortization 100,403 80,420 293,421 258,019 Loss on disposal of assets 1,237 1,523 3,242 1,679 Depreciation and amortization 8,700 6,434 26,085 20,429 Total cost of goods sold 110,340 88,377 322,748 280,127 Gross margin 21,118 22,417 57,781 57,628 General and administrative expenses 7,131 8,708 21,826 22,025 Income from operations 13,987 13,709 35,955 35,603 Other income (expense): Interest expense (7,652) (3,314) (23,062) (9,535) Related-party interest expense — (51) — (561) Other (expense) income (1) 2 (198) 274 Total other expense, net (7,653) (3,363) (23,260) (9,822) Net income 6,334 10,346 12,695 25,781 Less net loss attributable to noncontrolling partners’ interests 5 1,366 41 3,467 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: Basic $ 0.20 $ 0.51 $ 0.40 $ 1.28 Diluted $ 0.19 $ 0.50 $ 0.37 $ 1.26 Net income per limited partner subordinated unit: Basic $ 0.20 $ 0.51 $ 0.40 $ 1.28 Diluted $ 0.20 $ 0.50 $ 0.40 $ 1.26 Weighted-average number of limited partner units outstanding: Common—basic 14,412 12,919 14,400 12,878 Common—diluted 15,385 13,480 15,343 13,420 Subordinated—basic and diluted 11,905 11,905 11,905 11,905 ENVIVA PARTNERS, LP AND SUBSIDIARIES 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 ENVIVA PARTNERS, LP AND SUBSIDIARIES 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 ENVIVA PARTNERS, LP AND SUBSIDIARIES 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 ENVIVA PARTNERS, LP AND SUBSIDIARIES Description of Business and Basis of Presentation Accounting for Hedging Activities. ENVIVA PARTNERS, LP AND SUBSIDIARIES March 31, 2019, the aggregate amount of revenues from contracts with customers allocated to performance obligations that were unsatisfied or partially satisfied was approximately $7.9 billion. This amount excludes forward prices related to variable consideration including inflation and foreign currency and commodity prices. Also, this amount excludes the effects of related foreign currency derivative contracts as they do not represent contracts with customers. As of April 1, 2019 we expect to recognize approximately 7.0% of our remaining performance obligations as revenue during the remainder of 2019, an additional 11.0% in 2020 and the balance thereafter. Our off-take contracts expire at various times through 2040 and our terminal services contracts extend into 2026. 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 Three Months Ended September 30, 2016 As Enviva Pellets Total Reported Sampson, LLC (Recast) Net revenue $ 109,774 $ 1,020 $ 110,794 Net income (loss) 13,012 (2,666) 10,346 Less net loss attributable to noncontrolling partners’ interests 21 1,345 1,366 Net income (loss) attributable to Enviva Partners, LP 13,033 (1,321) 11,712 Net loss attributable to general partner — (1,321) (1,321) Net income attributable to Enviva Partners, LP limited partners’ interest in net income 13,033 — 13,033 Nine Months Ended September 30, 2016 As Enviva Pellets Total Reported Sampson, LLC (Recast) Net revenue $ 336,735 $ 1,020 $ 337,755 Net income (loss) 32,511 (6,730) 25,781 Less net loss attributable to noncontrolling partners’ interests 69 3,398 3,467 Net income (loss) attributable to Enviva Partners, LP 32,580 (3,332) 29,248 Net loss attributable to general partner — (3,332) (3,332) Net income attributable to Enviva Partners, LP limited partners’ interest in net income 32,580 — 32,580 Nine Months Ended September 30, 2016 As Enviva Pellets Total Reported Sampson, LLC (Recast) Net cash provided by (used in) operating activities $ 67,612 $ (12,501) $ 55,111 Net cash used in investing activities (7,813) (44,739) (52,552) Net cash (used in) provided by financing activities (40,578) 57,287 16,709 Net increase in cash and cash equivalents $ 19,221 $ 47 $ 19,268 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 % ENVIVA PARTNERS, LP AND SUBSIDIARIES September 30, December 31, 2017 2016 Land $ 13,492 $ 13,492 Land improvements 42,755 42,148 Buildings 140,050 137,092 Machinery and equipment 387,643 382,740 Vehicles 609 513 Furniture and office equipment 5,234 5,113 589,783 581,098 Less accumulated depreciation (104,641) (80,768) 485,142 500,330 Construction in progress 10,224 16,088 Total property, plant and equipment, net $ 495,366 $ 516,418 September 30, December 31, 2017 2016 Raw materials and work-in-process $ 6,447 $ 7,689 Consumable tooling 14,385 11,978 Finished goods 13,645 10,097 Total inventories $ 34,477 $ 29,764 ENVIVA PARTNERS, LP AND SUBSIDIARIES Asset Liability Balance Sheet Location Derivatives Derivatives Derivatives designated as hedging instruments: Foreign currency exchange forward contracts Other current liabilities $ — $ 580 Foreign currency exchange forward contracts Other long-term liabilities — 2,145 Purchased options: Foreign currency purchased option contracts Prepaid and other current assets 3 — Foreign currency purchased option contracts Other long-term assets 1,150 — 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 Asset Liability Balance Sheet Location Derivatives Derivatives Derivatives designated as hedging instruments: Forward contracts: Foreign currency exchange forward contracts Prepaid and other current assets $ 188 $ — Foreign currency exchange forward contracts Other long-term assets 632 — Foreign currency exchange forward contracts Other long-term liabilities — 51 Purchased options: Foreign currency purchased option contracts Other long-term assets 626 — Total derivatives designated as hedging instruments $ 1,446 $ 51 Derivatives not designated as hedging instruments: Interest rate swap Other long-term assets $ 484 $ — 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 The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive 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 Foreign exchange forward contracts in GBP £ 42,570 Foreign exchange purchased option contracts in GBP £ 28,960 Interest rate swap $ 45,578 ENVIVA PARTNERS, LP AND SUBSIDIARIES 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 September 30, December 31, 2017 2016 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 Other loans 2,025 2,759 Capital leases 2,262 1,599 Total long-term debt and capital lease obligations 343,123 350,795 Less current portion of long-term debt and capital lease obligations (5,008) (4,109) Long-term debt and capital lease obligations, excluding current installments $ 338,115 $ 346,686 Year: Percentages 2018 104.250 % 2019 102.125 % 2020 and thereafter 100.000 % As of ENVIVA PARTNERS, LP AND SUBSIDIARIES Maryland and North Carolina held by Enviva Holdings, LP. expenses. ENVIVA PARTNERS, LP AND SUBSIDIARIES 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. ENVIVA PARTNERS, LP AND SUBSIDIARIES current liabilities. 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 $ June 30, 2016 August 3, 2016 August 15, 2016 August 29, 2016 $ 0.5250 $ 13.0 $ September 30, 2016 November 2, 2016 November 14, 2016 November 29, 2016 $ 0.5300 $ 13.3 $ December 31, 2016 February 1, 2017 February 15, 2017 February 28, 2017 $ 0.5350 $ 14.1 $ March 31, 2017 May 3, 2017 May 18, 2017 May 30, 2017 $ 0.5550 $ 14.6 $ June 30, 2017 August 2, 2017 August 15, 2017 August 29, 2017 $ 0.5700 $ 15.0 $ September 30, 2017 November 2, 2017 November 15, 2017 November 29, 2017 $ 0.6150 $ 16.2 $ Unrealized Losses on Derivative Instruments Balance at December 31, 2016 $ 595 Net unrealized losses (4,641) Reclassification of net losses realized into net income 161 Accumulated other comprehensive loss $ (3,885) Performance-Based Total Affiliate Grant Phantom Units Phantom Units Phantom Units Weighted- Weighted- Weighted- Average Average Average Grant Date Grant Date Grant Date Fair Value Fair Value Fair Value Units (per unit)(1) Units (per unit)(1) Units (per unit)(1) Nonvested December 31, 2016 346,153 $ 19.32 235,355 $ 19.46 581,508 $ 19.37 Granted 298,102 $ 25.64 107,806 $ 25.41 405,908 $ 25.58 Forfeitures (34,206) $ 22.00 — $ — (34,206) $ 22.00 Vested — $ — — $ — — $ — Nonvested September 30, 2017 610,049 $ 22.26 343,161 $ 21.33 953,210 $ 21.92 Determined by dividing the aggregate grant date fair value of awards by the number of awards issued. 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 subject to U.S. federal and most state income taxes. The unitholders of the Partnership are liable for these income taxes on their share of our taxable income. Some states impose franchise and capital taxes on the Partnership. Such taxes are not material to the condensed consolidated financial statements and have been included in other income (expense) as incurred. Three Months Ended September 30, 2017 Common Subordinated General Units Units Partner (in thousands) Weighted-average common units outstanding—basic 14,412 11,905 — Effect of nonvested phantom units 973 — — Weighted-average common units outstanding—diluted 15,385 11,905 — Three Months Ended September 30, 2017 Common Subordinated General Units Units Partner Total (in thousands, except per unit amounts) Distributions declared $ 8,863 $ 7,322 $ 1,063 $ 17,248 Earnings less than distributions �� (5,974) (4,935) — (10,909) Net income attributable to partners $ 2,889 $ 2,387 $ 1,063 $ 6,339 Weighted-average units outstanding—basic 14,412 11,905 Weighted-average units outstanding—diluted 15,385 11,905 Net income per limited partner unit—basic $ 0.20 $ 0.20 Net income per limited partner unit—diluted $ 0.19 $ 0.20 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 Units Units Partner Total (in thousands, except per unit amounts) Distributions declared $ 25,077 $ 20,715 $ 2,269 $ 48,061 Earnings less than distributions (19,345) (15,980) — (35,325) Net income attributable to partners $ 5,732 $ 4,735 $ 2,269 $ 12,736 Weighted-average units outstanding—basic 14,400 11,905 Weighted-average units outstanding—diluted 15,343 11,905 Net income per limited partner unit—basic $ 0.40 $ 0.40 Net income per limited partner unit—diluted $ 0.37 $ 0.40 Three Months Ended September 30, 2016 Common Subordinated General Units Units Partner (in thousands) Weighted-average common units outstanding—basic 12,919 11,905 — Effect of nonvested phantom units 561 — — Weighted-average common units outstanding—diluted 13,480 11,905 — Three Months Ended September 30, 2016 Common Subordinated General Units Units Partner Total (in thousands, except per unit amounts) Distributions declared $ 6,970 $ 6,310 $ 302 $ 13,582 Earnings less than distributions (345) (204) — (549) Net income attributable to partners $ 6,625 $ 6,106 $ 302 $ 13,033 Weighted-average units outstanding—basic 12,919 11,905 Weighted-average units outstanding—diluted 13,480 11,905 Net income per limited partner unit—basic $ 0.51 $ 0.51 Net income per limited partner unit—diluted $ 0.50 $ 0.50 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. 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 Company (U.S.A.) and certain of its affiliates. 10-Q for information regarding certain risks inherent in our business. following information. Inventory Impairment and Asset Disposal Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 (Recast) 2017 2016 (Recast) (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 Gross margin $ 21,118 $ 22,417 $ 57,781 $ 57,628 Loss on disposal of assets 1,237 1,523 3,242 1,679 Depreciation and amortization 8,700 6,434 26,085 20,429 Adjusted gross margin $ 31,055 $ 30,374 $ 87,108 $ 79,736 Adjusted gross margin per metric ton $ 46.49 $ 56.88 $ 45.39 $ 46.52 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 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 Results of Operations 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) March 31, 2018. The increase in product sales volumes was partially offset by a decrease in pricing during the three months ended March 31, 2019 due primarily to customer contract mix. Offsetting the above Three Months Ended September 30, 2017 2016 (Recast) Change (in thousands except per metric ton) Metric tons sold 668 534 134 Gross margin $ 21,118 $ 22,417 $ (1,299) Loss on disposal of assets 1,237 1,523 (286) Depreciation and amortization 8,700 6,434 2,266 Adjusted gross margin $ 31,055 $ 30,374 $ 681 Adjusted gross margin per metric ton $ 46.49 $ 56.88 $ (10.39) General and administrative expenses March 31, 2018. the Hamlet Transaction and $0.4 million of legal fees related to the Chesapeake Incident. LTIP and $0.2 million of other costs. revolving borrowings under our senior secured revolving credit facility. Three Months Ended September 30, 2017 2016 (Recast) Change (in thousands) Reconciliation of adjusted EBITDA to net income: Net income $ 6,334 $ 10,346 $ (4,012) Add: Depreciation and amortization 8,703 6,439 2,264 Interest expense 7,652 3,365 4,287 Non-cash unit compensation expense 1,833 1,162 671 Asset impairments and disposals 1,237 1,523 (286) Transaction expenses 297 49 248 Adjusted EBITDA $ 26,056 $ 22,884 $ 3,172 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 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) 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) 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 Nine Months Ended September 30, 2017 2016 (Recast) Change (in thousands) Adjusted EBITDA $ 73,458 $ 60,778 $ 12,680 Less: Interest expense, net of amortization of debt issuance costs and original issue discount 21,901 8,758 13,143 Maintenance capital expenditures 2,870 2,758 112 Distributable cash flow to Enviva Partners, LP limited partners 48,687 49,262 (575) Less: Distributable cash flow attributable to incentive distribution rights 2,269 716 1,553 Distributable cash flow attributable to Enviva Partners, LP limited partners $ 46,418 $ 48,546 $ (2,128) Liquidity and Capital Resources Cash Flows Nine Months Ended September 30, 2017 2016 (Recast) (in thousands) Net cash provided by operating activities $ 76,327 $ 55,111 Net cash used in investing activities (14,289) (52,552) Net cash used in financing activities (53,051) 16,709 Net increase in cash and cash equivalents $ 8,987 $ 19,268 Cash Used in Investing Activities Cash Used in Financing Activities LTIP. Critical Accounting Policies and Estimates Foreign Currency Exchange Risk 2023. March 31, 2019. PART II—OTHER INFORMATION 31.2* 32.1** 101.INS* 101.SCH* 101.CAL* 101.DEF* 101.LAB* 101.PRE* * Filed herewith. SIGNATURE By: Enviva Partners GP, LLC, its general partner Executive Vice President and Chief Financial Officer (Principal Financial Officer) for number of units) March 31,
2019 December 31,
2018 (unaudited) Assets Current assets: Cash and cash equivalents $ 106,745 $ 2,460 Accounts receivable 64,904 54,794 Insurance receivables 1,300 5,140 Related-party receivables 13,558 1,392 Inventories 27,999 31,490 Prepaid expenses and other current assets 2,391 2,235 Total current assets 216,897 97,511 Property, plant and equipment, net 560,372 557,028 Operating lease right-of-use assets, net 26,957 — Goodwill 85,615 85,615 Other long-term assets 5,939 8,616 Total assets $ 895,780 $ 748,770 Liabilities and Partners’ Capital Current liabilities: Accounts payable $ 7,667 $ 15,551 Related-party payables and accrued liabilities 17,294 28,225 Deferred consideration for Wilmington Drop-Down due to related-party 74,000 74,000 Accrued and other current liabilities 58,656 41,400 Current portion of interest payable 13,020 5,434 Current portion of long-term debt and finance lease obligations 2,762 2,722 Total current liabilities 173,399 167,332 Long-term debt and finance lease obligations 475,975 429,933 Long-term operating lease liabilities 27,730 — Long-term interest payable 1,040 1,010 Other long-term liabilities 2,165 3,779 Total liabilities 680,309 602,054 Commitments and contingencies Partners’ capital: Limited partners: Common unitholders—public (18,176,319 and 14,573,452 units issued and outstanding at March 31, 2019 and December 31, 2018, respectively) 290,845 207,612 Common unitholder—sponsor (11,905,138 units issued and outstanding at March 31, 2019 and December 31, 2018) 60,011 72,352 General partner (no outstanding units) (135,680 ) (133,687 ) Accumulated other comprehensive income 295 439 Total partners’ capital 215,471 146,716 Total liabilities and partners’ capital $ 895,780 $ 748,770 unaudited condensed consolidated financial statements.4 Three Months Ended
March 31, 2019 2018 Product sales $ 156,599 $ 122,322 1,770 3,002 Net revenue 158,369 125,324 137,392 121,038 Depreciation and amortization 11,070 9,304 Total cost of goods sold 148,462 130,342 Gross margin 9,907 (5,018 ) 9,837 6,804 Income (loss) from operations 70 (11,822 ) Other income (expense): Interest expense (9,633 ) (8,645 ) Other income, net 640 1,132 Total other expense, net (8,993 ) (7,513 ) Net loss $ (8,923 ) $ (19,335 ) Net loss per limited partner common unit: Basic $ (0.42 ) $ (0.78 ) Diluted $ (0.42 ) $ (0.78 ) Net loss per limited partner subordinated unit: Basic $ — $ (0.78 ) Diluted $ — $ (0.78 ) Weighted-average number of limited partner units outstanding: Common—basic 26,759 14,438 Common—diluted 26,759 14,438 Subordinated—basic and diluted — 11,905 unaudited condensed consolidated financial statements.5 Three Months Ended
March 31, 2019 2018 Net loss $ (8,923 ) $ (19,335 ) Other comprehensive loss: Net unrealized losses on cash flow hedges (55 ) (1,328 ) Reclassification of net (gains) losses realized into net loss (107 ) 1 Total other comprehensive loss (162 ) (1,327 ) Total comprehensive loss $ (9,085 ) $ (20,662 ) unaudited condensed consolidated financial statements.6 General
Partner
Interest Limited Partners’ Capital Accumulated
Other
Comprehensive
Income Total
Partners'
CapitalCommon
Units—
Public Common
Units—
Sponsor Units Amount Units Amount Partners' capital, December 31, 2018 $ (133,687 ) 14,573 $ 207,612 11,905 $ 72,352 $ 439 $ 146,716 Distributions to unitholders, distribution equivalent and incentive distribution rights (1,671 ) — (10,269 ) — (7,619 ) — (19,559 ) Issuance of units through Long-Term Incentive Plan (2,129 ) 94 659 — — — (1,470 ) Issuance of common units, net — 3,509 96,661 — — — 96,661 Non-cash Management Services Agreement expenses 136 — 2,072 — — — 2,208 Cumulative effect of accounting change - derivative instruments — — (10 ) — (8 ) 18 — Other comprehensive loss — — — — — (162 ) (162 ) Net income (loss) 1,671 — (5,880 ) — (4,714 ) — (8,923 ) Partners' capital, March 31, 2019 $ (135,680 ) 18,176 $ 290,845 11,905 $ 60,011 $ 295 $ 215,471 General
Partner
Interest Limited Partners’ Capital Accumulated
Other
Comprehensive
Loss Total
Partners'
CapitalCommon
Units—
Public Common
Units—
Sponsor Subordinated
Units—
SponsorUnits Amount Units Amount Units Amount 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 (1,130 ) — (8,833 ) — (784 ) — (7,381 ) — (18,128 ) Issuance of units through Long-Term Incentive Plan (2,129 ) 99 (164 ) (82 ) (1,301 ) — — — (3,594 ) Issuance of common units, net — 8 241 — — — — — 241 Non-cash Management Services Agreement expenses 102 — 931 — — — — — 1,033 Other comprehensive loss — — — — — — — (1,327 ) (1,327 ) Net income (loss) 1,130 — (10,233 ) — (983 ) — (9,249 ) — (19,335 ) Partners' capital, March 31, 2018 $ (130,596 ) 13,180 $ 205,969 1,265 $ 12,982 11,905 $ 85,271 $ (4,367 ) $ 169,259 unaudited condensed consolidated financial statements.7 Three Months Ended
March 31, 2019 2018 Cash flows from operating activities: Net loss $ (8,923 ) $ (19,335 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 11,208 9,408 Amortization of debt issuance costs, debt premium and original issue discounts 295 272 Impairment of inventory — 10,383 Loss on disposal of assets — 1,130 Unit-based compensation 2,472 1,343 Fair value changes in derivatives 2,216 525 Unrealized gains (losses) on foreign currency transactions, net 92 (69 ) Change in operating assets and liabilities: Accounts and insurance receivables (6,359 ) 31,232 Related-party receivables (8,022 ) 1,800 Prepaid expenses and other current and long-term assets (72 ) (50 ) Inventories 3,366 (16,509 ) Derivatives 298 (601 ) Accounts payable, accrued liabilities and other current liabilities (1,229 ) 8,677 Related-party payables and accrued liabilities (12,330 ) (6,501 ) Accrued interest 7,514 7,574 Operating lease liabilities (893 ) — Other long-term liabilities 98 37 Net cash (used in) provided by operating activities (10,269 ) 29,316 Cash flows from investing activities: Purchases of property, plant and equipment (11,279 ) (1,999 ) Net cash used in investing activities (11,279 ) (1,999 ) Cash flows from financing activities: Proceeds from (repayments on) long-term debt and finance lease obligations, net 45,447 (1,172 ) Proceeds from common unit issuances (net in 2018) 100,000 241 Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder (19,614 ) (17,847 ) 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 ) Net cash provided by (used in) financing activities 125,833 (22,784 ) Net increase in cash, cash equivalents and restricted cash 104,285 4,533 Cash, cash equivalents and restricted cash, beginning of period 2,460 524 Cash, cash equivalents and restricted cash, end of period $ 106,745 $ 5,057 Three Months Ended
March 31, 2019 2018 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 $ 11,237 $ 1,587 Property, plant and equipment acquired under finance lease obligations 626 674 Property, plant and equipment transferred from inventories — 2 Property, plant and equipment capitalized interest 102 — Distributions included in liabilities 873 1,352 Withholding tax payable associated with Long-Term Incentive Plan vesting 1,870 — Common unit issuance costs in accrued liabilities 3,339 — Depreciation capitalized to inventories 442 1,037 Supplemental cash flow information: Interest paid $ 1,929 $ 795 unaudited condensed consolidated financial statements.8(the “Partnership”) is a publicly traded Delaware limited partnership formed on November 12, 2013, as a wholly owned subsidiary of Enviva Holdings, LP (togethertogether with its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC, where applicable,(“we,” “us,” “our” or the “sponsor”“Partnership”). 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 procuresWe procure wood fiber and processesprocess it into utility-grade wood pellets and loadsload the finished wood pellets into railcars, trucks and barges that are transportedfor transportation to deep-water marine terminals, where they are received, stored and ultimately loaded onto oceangoing vessels for transportdelivery to the Partnership’sour principally European, customers.The Partnership owns and operatesincreasingly Japanese, customers under long-term, take-or-pay contracts.aour 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.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”). 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 statementsnotes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued byof the U.S. Securities and Exchange Commission (the “SEC”).Act of 1934. Accordingly, they do not include all of the information and footnotesnotes required by GAAP for complete financial statements.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 hereinhave been included. All such adjustments and accruals are of a normal and recurring nature.nature unless disclosed otherwise. All significant intercompany balances and transactions have been eliminated in consolidation. The results reported in thesethe financial statements are not necessarily indicative of the results that may be reported for the entire year. These9ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unit amounts and unless otherwise noted)(Unaudited)annual audited consolidated financial statements and notes thereto included in the Partnership’sour Annual Report on Form 10-K for the year ended December 31, 2016,2018.filed with the SEC.Certain prior period amounts relatedof January 1, 2019 of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, loss on disposal of assets have been reclassified to cost of goods sold from general and administrative expenses to conform to current period presentation.the Partnership’sour unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.Summary of Significant Accounting PoliciesThe accounting policies are set forth in the Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes to these policies during the nine months ended September 30, 2017.Recent and Pending Accounting PronouncementsIn 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. 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—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. The Partnership does not expect the adoption of ASU No. 2017-04 to have a material impact on its condensed consolidated financial statements.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 a10 (Continued)business. The screenthat when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated inlessees to recognize a single identifiableROU 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 itemcorresponding lease liability on the balance sheet for all leases with a term of longer than 12 months and classify leases as operating or finance. Operating lease expense is recorded in a single financial statement line item on a straight-line basis over the new guidance requires a reconciliationlease term. Amortization of the totals inROU asset is the statementcalculated difference between straight-line lease expense and the accretion of cash flows to the related captions in the balance sheet. This reconciliation can be presented eitherinterest on the facelease liability each period.statementASU. We elected to use the effective date as the date of cash flows or in the notesinitial application, as opposed 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 yearearliest comparative period presented in the financial statements; consequently, financial information and disclosures are not presented under the new standard for periods prior to January 1, 2019. We elected the package of three practical expedients under the transition guidance within the new standard, which permitted us to reassess our prior conclusions under the previous guidance concerning lease identification, lease classification and initial direct leasing costs. We elected the practical expedient to not evaluate existing or expired land easements that includes such interim period. Entities will be requiredwere not accounted for as leases under previous guidance. We did not, however, elect the separate practical expedient pertaining to apply the guidance retrospectively when adopted. use of hindsight in determining the lease term for existing leases. We have a significant contract containing both lease and nonlease components, which are accounted for separately. As this contract has fixed payments, the allocation of lease and nonlease components is based on relative standalone price. Partnership does not expect the adoption of the new standard as of January 1, 2019 resulted in the recognition of operating lease ROU assets of $27.4 million, net of $2.1 million of deferred rent liabilities existing as of December 31, 2018, and operating lease liabilities of $29.5 million for operating leases related to have a material effectreal estate, machinery and equipment and other operating leases with terms of longer than 12 months. The amounts recognized as of January 1, 2019 were based on the presentationpresent value of changesthe remaining minimum rental payments under previous leasing standards for existing operating leases. The classification of a lease affects the pattern and classification of expense recognition in the totalincome statement, which is unchanged from under the previous accounting method. The adoption of cash, cash equivalents, restricted cash and restricted cash equivalents in its condensed consolidated statementsthe new standard did not change our accounting for finance leases (which were described as “capital leases” under the previous standard) or impact our results 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 receiptsoperations and cash payments are presentedflows. See Note 8, Leases. classifiedas of January 1, 2019 using the modified retrospective 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 cash flows with the objective of reducing the existing diversitychanges 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 prospectivelypartner’s capital as of the date of adoption of the new standard. Upon adoption of ASU 2017-12, we no longer measure and recognize ineffectiveness related to designated and qualifying cash flow hedges in earnings; as a result, any ineffectiveness is included in accumulated other comprehensive income. On January 1, 2019, we recorded a nominal cumulative effect adjustment to accumulated other comprehensive income and common units in partners’ capital. See Note 9, Derivatives.11
Currently, there are no recently issued accounting standards not yet adopted by us that we expect to be reasonably likely to materially impact the financial position, results of operations or cash flows of the Partnership.Contents (Continued)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 classifiedits condensed 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 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 considerationour off-take contracts, pursuant to which the entity expectssuch contract pricing may be adjusted in respect of particular shipments 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 have been codified as Accounting Standards Codification (“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. The Partnership will adopt ASC 606 effective January 1, 2018. The Partnership currently expects to utilize the modified retrospective method of adoption, which will result in the presentation of the cumulative effect of initially applying ASC 606 at the date of initial application. The Partnership has established a cross-functional team to lead the assessment and implementation of ASC 606 and has finalized its implementation plans. In connection with the implementation plan, the Partnership has completed its initial evaluation 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 in time at which controlreflect differences between certain contractual quality specifications of the wood pellets passes to the customer, as measured both when the wood pellets are loaded onto shipping vessels,ships and unloaded at the discharge port as well as certain other contractual adjustments.is consistent with the timing of revenue recognition under the Partnership’s 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. 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.12ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes 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 ControlRecast of Historical Financial StatementsThe condensed consolidated financial statementswas not material for the three and nine months ended September 30, 2016 have been recastMarch 31, 2019, arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services.reflecteach performance obligation to which variable consideration relates. The estimate of variable consideration represents the Sampson Drop-Down as if it had occurred on May 15, 2013,amount that is not more likely than not to be reversed. For the date Sampson was originally organized. The historical net equity amountsthree months ended March 31, 2019, we recognized $0.1 million of Sampson priorrevenue related to the Sampson Drop-Down transaction date were attributedperformance obligations satisfied in previous periods.the General Partner and any noncontrolling interest.The following table presents the changes to previously reported amounts in the unaudited condensed consolidated balance sheetproduct sales as of September 30, 2016 included in the Partnership’s quarterly report on Form 10-QMarch 31, 2019 and December 31, 2018 were the quarter ended September 30, 2016:future performance obligations associated with off-take contracts.The following table presents the changes to previously reported amounts in the unaudited condensed consolidated statements of income for the threenine months ended September 30, 2016 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended September 30, 2016:13ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unit amounts and unless otherwise noted)(Unaudited)The following table presents the changes to previously reported amounts in the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2016 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended September 30, 2016:(3) Significant Risks and Uncertainties Including Business and Credit ConcentrationsThe Partnership’sOur 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.states and Japan. If the E.U. orEuropean Union, its member states or Japan significantly modify such legislation or regulations, then the Partnership’sour ability to enter into new contracts as the currentour existing contracts expire may be materially affected.The Partnership’s primary 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 productProduct sales to third-party customers that accounted for 10% or a greater share of consolidated product sales for eachare as follows: Three Months Ended
March 31, 2019 2018 Customer A 40 % 38 % Customer B 11 % 7 % Customer C 16 % 6 % Customer D 25 % 34 % threeChesapeake Incident related to asset impairment, inventory write-off and nine months ended:The Partnership’s cashdisposal costs, emergency response costs, asset repair costs and cash equivalents are placedbusiness continuity costs, the latter of which represented incremental costs to commission temporary wood pellet storage and handling and ship loading operations at nearby locations to meet our contractual obligations to our customers. As of March 31, 2018, we had recovered $8.9 million related to the Chesapeake Incident, which included $1.1 million of lost profits. As of December 31, 2018, $3.8 million of probable insurance recoveries for the then-remaining costs not yet recovered were included in or with various financial institutions. The Partnership has not experienced any losses on such accounts.14 (Continued)
(6) Inventories(4) Property, Plant and Equipment March 31,
2019 December 31,
2018Raw materials and work-in-process $ 5,594 $ 4,936 Consumable tooling 17,750 17,561 Finished goods 4,655 8,993 Total inventories $ 27,999 $ 31,490 March 31,
2019 December 31,
2018Land $ 13,492 $ 13,492 Land improvements 44,990 44,990 Buildings 196,574 196,574 Machinery and equipment 436,630 434,776 Vehicles 635 635 Furniture and office equipment 6,148 6,148 Leasehold improvements 987 987 Property, plant and equipment - in service 699,456 697,602 Less accumulated depreciation (165,929 ) (154,967 ) Property, plant and equipment - in service, net 533,527 542,635 Construction in progress 26,845 14,393 Total property, plant and equipment, net $ 560,372 $ 557,028 $8.0$11.2 million and $24.9 million and $5.7 million and $18.5$9.3 million for the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, respectively. Total interest capitalized related to construction in progress was $0.1 million for the three months ended March 31, 2019. We did not capitalize interest related to construction in progress during the three months ended March 31, 2018.Inventories consistedfollowing at:
A discount rate is applied to our leases for balance sheet measurement. As rates are not explicitly defined in the operating and finance lease agreements, we use our incremental borrowing rate for purposes of measuring the ROU assets and lease liabilities for recognized leases. This is a secured interest rate which takes into account our credit rating, the term of our leases, as well as the economic environment in which we operate. Each lease uses a secured interest rate with a term commensurate to the identified lease term.(6) Derivative InstrumentsThe 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 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.15 (Continued)Cash Flow Hedges
Operating leases are included in operating lease right-of-use assets, accrued and other current liabilities and long-term operating lease liabilities on our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, current portion of long-term debt and finance lease obligations and long-term debt and finance lease obligations on our condensed consolidated balance sheets. Changes in right-of-use assets and operating lease liabilities are included net in change in operating lease liabilities on the condensed consolidated statement of cash flows.Foreign Currency Exchange RiskThe Partnership is primarily exposed to fluctuations in foreign currency exchange rates related to off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”). Deliveries under these off-take contracts began in September 2017. The Partnership has and may continue to enter into foreign currency forward contracts, purchased option contracts or other instruments to partially manage this risk and has designated and may continue to designate these instruments as cash flow hedges.Operating lease ROU assets and liabilities and finance leases were as follows at:For these 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 30, 2017.The Partnership’s outstanding cash flow hedges at September 30, 2017 expire on dates between 2017 and 2022.Interest Rate RiskThe 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.The fair values of cash flow hedging instruments included in the unaudited condensed consolidated balance sheet as of September 30, 2017 were as follows:16 March 31,
2019Operating leases: Operating lease ROU assets, gross $ 29,490 Accumulated amortization (2,533 ) Operating lease ROU assets, net $ 26,957 Long-term operating lease liabilities $ 27,730 Current portion of operating lease liabilities 1,393 Total operating lease liabilities $ 29,123 Finance leases: Property, plant and equipment, gross $ 8,461 Accumulated depreciation (3,734 ) Property plant and equipment, net $ 4,727 Current portion of long-term finance lease obligations $ 2,754 Long-term finance lease obligations 1,963 Total finance lease liabilities $ 4,717 Lease Cost Classification Three Months Ended
March 31, 2019Operating lease cost: Fixed lease cost Cost of goods sold $ 1,034 Variable lease cost Cost of goods sold 6 Short-term lease costs Cost of goods sold — Finance lease cost: Amortization of leased assets Depreciation and amortization 719 Variable lease cost Cost of goods sold 4 Interest on lease liabilities Interest expense 52 Total lease cost $ 1,815 (Continued)The fair values ofhedging instruments included ininformation was as follows: Three Months
Ended
March 31, 2019Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 893 Operating cash flows from financing leases 52 Financing cash flows from financing leases 551 Assets obtained in exchange for lease obligations: Operating leases $ — Financing leases 626 condensed consolidated balance sheetaggregate maturities of operating and finance lease liabilities are as follows as of March 31, 2019:Years Ending December 31, Operating Leases Finance Leases Total Remainder of 2019 $ 2,689 $ 2,374 $ 5,063 2020 3,224 1,861 5,085 2021 2,939 605 3,544 2022 2,729 46 2,775 2023 2,678 43 2,721 Thereafter 59,320 4 59,324 Total lease payments 73,579 4,933 78,512 Less: imputed interest (44,456 ) (216 ) (44,672 ) Total present value of lease liabilities $ 29,123 $ 4,717 $ 33,840 20162018 for operating and finance lease liabilities were $73.8 million and $4.8 million, respectively.March 31, 2019 Weighted average remaining lease term (years): Operating leases 27 Finance leases 2 Weighted average discount rate: Operating leases 8 % Finance leases 5 % Asset (Liability) Balance Sheet Classification March 31, 2019 December 31, 2018 Designated as hedging instruments: Interest rate swap Other current assets $ 328 $ 508 Other long-term assets 99 118 Total derivatives designated as hedging instruments $ 427 $ 626 Not designated as hedging instruments: Foreign currency exchange forward contracts: Prepaid and other current assets $ 1,012 $ 794 Other long-term assets 800 1,810 Accrued and other current liabilities (388 ) (68 ) Other long-term liabilities (415 ) (179 ) Foreign currency purchased option contracts: Prepaid and other current assets 49 22 Other long-term assets 2,189 3,348 Total derivatives not designated as hedging instruments $ 3,247 $ 5,727 incomeloss and the gains and losses recognized in incomeearnings for the three months ended September 30, 2017March 31, 2019 were as follows:17 Amount of Loss in Other
Comprehensive
Loss on
Derivative Location of
Gain
Reclassified from
Accumulated Other
Comprehensive
Loss Amount of
Gain
Reclassified from
Accumulated Other
Comprehensive
Loss
into EarningsInterest rate swap (55 ) Interest expense 107 ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unit amounts and unless otherwise noted)(Unaudited)incomeloss and the gains and losses recognized in income for the nine months ended September 30, 2017 were as follows: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 incomeearnings for the three and nine months ended September 30, 2016March 31, 2018 were insignificant.The Partnership entersas follows: Amount of (Loss) Gain
in Other
Comprehensive
Income on
Derivative
(Effective Portion) Location of
Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive
Income
(Effective Portion) Amount of
Loss
Reclassified from
Accumulated Other
Comprehensive
Income
into Income
(Effective Portion) Location of (Loss) Gain
Recognized in
Income on Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing) Amount of Gain
(Loss) Recognized in
Earnings on Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)Foreign currency exchange forward contracts $ (1,325 ) Product sales $ — Product sales $ (1 ) Foreign currency exchange purchased option contracts (323 ) Product sales — Product sales — Interest rate swap 320 Interest expense (1 ) Interest expense 1 the Partnershipwe had settled all transactions with itsour respective counterparties at September 30, 2017, the PartnershipMarch 31, 2019, we would have received a net settlement termination payment of $1.2$3.7 million, which differs insignificantly from the recorded fair value of the derivatives. The Partnership presents itsWe present our derivative assets and liabilities at their gross fair values.designated as cash flow hedges associated with outstanding or unsettled derivative instruments as of September 30, 2017 were as follows:18 March 31,
2019 December 31,
2018Foreign exchange forward contracts in GBP £ 39,435 £ 42,170 Foreign exchange purchased option contracts in GBP £ 39,365 £ 39,365 Foreign exchange forward contracts in EUR € 7,000 € 14,300 Foreign exchange purchased option contracts in EUR € 1,675 € 1,675 Interest rate swap $ 38,460 $ 39,829 (Continued)The notional amounts of outstanding derivative instruments designated as cash flow hedges associated with outstanding or unsettled derivative instruments as of December 31, 2016 were as follows:Foreign exchange forward contracts in GBP£25,270Foreign exchange purchased option contracts in GBP£8,160(7)(10) Fair Value Measurementscapitalfinance lease obligations, including the current portion, are classified as Level 2 instruments. The fair value of the Senior Notesour senior notes (see Note 10,11, Long-Term Debt and CapitalFinance Lease Obligations – Senior Notes Due 2021) 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 capitalfinance 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 fair value of long-term debt and finance lease obligations are based upon rates currently available for debt and finance lease obligations with similar terms and remaining maturities. The carrying amount of derivative instruments approximates fair value as of September 30, 2017 and December 31, 2016. value.capitalfinance lease obligations as of September 30, 2017March 31, 2019 and December 31, 20162018 were as follows: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.19 March 31, 2019 December 31, 2018 Senior notes $ 353,008 $ 368,095 $ 352,843 $ 359,943 Other long-term debt and finance lease obligations 125,729 125,730 79,812 79,812 Total long-term debt and finance lease obligations $ 478,737 $ 493,825 $ 432,655 $ 439,755 ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes 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 AssetsIntangible AssetsIntangible assets consisted of the following at: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:(9) Assets Held for SaleThe 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.20ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unit amounts and unless otherwise noted)(Unaudited)(10)(11) Long-Term Debt and CapitalFinance Lease ObligationsLong-term debt and capital lease obligations at carrying value are composed of the following: March 31,
2019 December 31,
2018Senior notes, net of unamortized discount, premium and debt issuance of $2.0 million as of March 31, 2019 and $2.2 million as of December 31, 2018 $ 353,008 $ 352,843 Senior secured revolving credit facility 119,000 73,000 Other loans 2,012 2,015 Finance leases 4,717 4,797 Total long-term debt and finance lease obligations 478,737 432,655 Less current portion of long-term debt and finance lease obligations (2,762 ) (2,722 ) Long-term debt and finance lease obligations, excluding current installments $ 475,975 $ 429,933 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 are not subject to restrictions on transfer). The Partnership recorded $6.4 million in issue discounts and costs associated with the issuance of the Senior Notes, which have been recorded as a reduction 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 the21ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unit amounts and unless otherwise noted)(Unaudited)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 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 Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, on the 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:The Notes contain certain 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.September 30, 2017March 31, 2019 and December 31, 2016, the Partnership was2018, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the Indenture. The Partnership’sour 8.5% senior unsecured notes due 2021. Our obligations under the Indenturesenior notes are guaranteed by certain of the Partnership’s subsidiaries and secured by liens on substantially all of the Partnership’s assets.Senior Secured Credit FacilitiesOn 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 Credit22ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes 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 of the Tranche A-4 borrowings, net of a 1.0% lender fee. On June 30, 2016, Enviva FiberCo assigned 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.On October 17, 2016, 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 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 Secured Revolving Credit Facilities, and to repay a portionFacilitythe 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 DecemberMarch 31, 2016, the Partnership recorded a $4.4 million loss on early retirement of debt obligation related to the repayments.The Senior Secured Credit Facilities 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 Partnership had a $4.0 million letter of credit outstanding under the letters of credit facilities as of September 30, 20172019 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.As of September 30, 2017 and December 31, 2016, the Partnership was2018, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the Credit Agreement. The Partnership’sour senior secured revolving credit facility. Our obligations under the Credit Agreementsenior secured revolving credit facility are guaranteed by certain of the Partnership’sour subsidiaries and secured by liens on substantially all of itsour assets.(11) Related-Party TransactionsManagement Services AgreementOn April 9, 2015, the Partnership, Enviva Partners GP, LLC, its 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, including, without limitation: (i) the portion of the salary and benefits of the employees engaged in providing the Services reasonably allocable to the Service Recipients; (ii) the charges and expenses of any third party retained to provide any portion of the Services; (iii) office rent and expenses and other overhead costs incurred in connection with, or reasonably allocable to, providing the Services; (iv) amounts related to the payment of taxes related to the business of the Service Recipients; and (v) costs and expenses incurred in connection with the formation, capitalization, business or other activities of the Provider pursuant to the MSA.23 (Continued)Direct Three Months Ended March 31, 2019 2018 Other revenue $ 592 $ 1,232 Cost of goods sold 19,998 15,139 General and administrative expenses 4,213 3,964 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 associatedEnviva Management in connection with the Servicesprovision of the Services. The MSA fee charged by Enviva Holdings, LP to be provided to the Partnership. Each month, the Provider allocates the actual costs accumulatedus includes rent related amounts for non-cancelable operating leases for office space 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.and nine months ended September 30, 2017, the Partnership incurred $14.4March 31, 2019, $13.6 million and $42.6 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, isMSA was included in cost of goods sold and $3.2$4.2 million and $8.6 million, respectively, iswas included in general and administrative expenses on the unaudited condensed consolidated statementsexpenses. As of income. At September 30, 2017, $1.7March 31, 2019, $0.9 million incurred under the MSA iswas included in finished goods inventory.and nine months ended September 30, 2016, the Partnership incurred $14.4March 31, 2018, $8.7 million and $40.5 million, respectively, related to the MSA. Of this amount, $9.2 million and $26.9 million, respectively, isMSA was included in cost of goods sold and $4.6$4.0 million and $13.0 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.September 30, 2017March 31, 2019 and December 31, 2016, the Partnership2018, we had $13.8$9.0 million and $10.6$19.0 million, respectively, included in related-party payables primarily related to the MSA.Sampson Drop-DownOn December 14, 2016, theIn October 2017, we acquired from Enviva Wilmington Holdings, LLC (the “First JV”), a joint venture between our sponsor and John Hancock JV contributed to Enviva, LPLife Insurance Company (U.S.A.) and certain of its affiliates, 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 AcquisitionOn 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 ofwhich owns the Hancock JV, from the Hancock JVWilmington terminal assets (the “Wilmington Drop-Down”), for total consideration of $130.0 million.million, subject to certain conditions. The Wilmington ownsDrop-Down included the Wilmington terminal.terminal assets and a long-term terminal services agreement with our sponsor (the “Holdings TSA”) to handle throughput volumes sourced from Greenwood. The acquisitionpurchase price included $74.0 million of deferred consideration, which is reflected on the condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018. We paid in full the $74.0 million in deferred consideration for the Wilmington (the “Wilmington Drop‑Down”) closedDrop-Down to the First JV on October 2, 2017 (seeApril 1, 2019. See Note 18,17, Subsequent Events).HancockWilmington Drop-Down, the First JV agreed to indemnify the Partnership, itsus, our affiliates and itsour respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Sampson plant. At December 31, 2016, accrued liabilities related to such indemnifiable amountsplant and the Wilmington terminal that were included $6.4 million related to work performed by certain vendors. The Partnership recorded a corresponding related-party receivable fromin 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.net assets24 (Continued)Terminal Services AgreementOn14, 2016, Enviva, LP31, 2018, the related-party receivable associated with such amounts was $4.5 million and Wilmington$0.3 million, respectively.terminal services agreement (the “Sampson TSA”) regardingcontract with Greenwood to purchase wood pellets produced atby the SampsonGreenwood plant through March 2022. We have a take-or-pay obligation with respect to 550,000 metric tons per year (“MTPY”) of wood pellets from July 2019 through March 2022.transported by truckrecorded a cost of cover deficiency fee from Greenwood of approximately $2.9 million from Greenwood as Greenwood was unable to satisfy certain commitments. Of the Wilmington terminal. net $7.6 million, $7.5 million is included in cost of goods sold and $0.1 million is included in finished goods inventory as of March 31, 2019. During the three months ended March 31, 2018, we purchased $3.7 million of wood pellets from Greenwood, of which $3.1 million is included in cost of goods sold.SampsonHoldings TSA, theour sponsor agreed to deliver a minimum of 125,000 MT of wood pellets were received, storedper quarter for receipt, storage, handling and ultimately loaded onto oceangoing vesselsloading services by the Wilmington terminal and pay a fixed fee on a per-ton basis for transport tosuch terminal services. The Holdings TSA remains in effect until September 1, 2026. We did not record any terminal services revenue from our sponsor during the Partnership’s customers.three months ended March 31, 2019. During the three and nine months ended September 30, 2017,March 31, 2018, we recorded $0.8 million as terminal services of $1.0revenue from our sponsor, which is included in other revenue.$2.5$0.4 million, respectively, were expensed andof deficiency fees from Greenwood, which is included in other revenue.sold onsold. The biomass option agreement terminated in accordance with its terms in March 2018.unaudited condensed consolidated statementsFirst JV to supply 375,000 MTPY of operations. No terminal services were provided bywood pellets to MGT Teesside Limited’s Tees Renewable Energy Plant (the “Tees REP”), which is under development. As amended, the Wilmington terminalEVA-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.Partnership during the three and nine months ended September 30, 2016. The Sampson TSA was terminatedFirst JV in connection with the WilmingtonSampson Drop-Down on October 2, 2017.The Partnership purchasesRawOffsetting the raw material purchases during the three and nine months ended September 30, 2017 and 2016March 31, 2019, we recognized $2.9 million of cost of cover deficiency fees from Enviva FiberCo were $2.2 million and $6.3 million and $1.0 million and $2.4 million, respectively.Biomass Purchase Agreement – Hancock JVOn April 9, 2015, Enviva, LP entered intounder a wood supply master biomass purchase and sale agreement (the “Biomass Purchase Agreement”) and a confirmation thereunder with the Hancock JV pursuantas FiberCo was unable to which the Hancock JV sold to Enviva, LP, at a fixed price per metric ton,satisfy 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 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,commitments, which is included in “Other revenue.”On September 26, 2016, Enviva, LP and Sampson entered into two confirmations underrelated-party receivables as of March 31, 2019. During the Biomass Purchase Agreement pursuant to which Enviva, LP agreed to sell to Sampson 140,000 metric tonsthree months ended March 31, 2018 we purchased raw materials of wood pellets, and Sampson agreed to sell to Enviva, LP 140,000 metric tons$1.7 million from FiberCo. No cost of wood pellets. The confirmation pursuant to which Enviva, LP agreed to sell wood pellets to Sampson undercover deficiency fees were recognized during the Biomass Purchase Agreement was terminated in connection with the Sampson Drop-Down.Biomass Option Agreement – Enviva Holdings, LPOn 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 the option to purchase certain volumes of wood pellets from the sponsor, from time to time at a price per metric ton determined by reference to a market index. The sponsor has a corresponding right to re-purchase volumes purchased by 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 more than 45,000 metric tons of wood pellets pursuant to the Option Contract.25 (Continued)During the three and nine months ended September 30, 2017, pursuant to the Option Contract, Enviva, LP purchased $5.2 and $8.1 million, respectively, of wood pellets from the sponsor, which amounts are included in cost of goods sold in the Partnership’s unaudited condensed consolidated statements of income.Related-Party IndebtednessOn December 11, 2015, Enviva FiberCo became a lender pursuant to the Credit Agreement with a purchase of $15.0 million aggregate principal amount 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 in its capacity as a lender to a third party. The Partnership recorded $0.4 million as related-party interest expensepayables 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 PayableOn 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 expenseEnviva Management associated with the related-party notes payablevesting of time-based phantom units under the Enviva Partners, LP Long-Term Incentive Plan (“LTIP”). insignificant during the three and nine months ended September 30, 2016.Sampson Construction PaymentsPursuant 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”), 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 TaxesThe Partnership’s U.S. operations are organized as limited partnerships and entities that are disregarded for federal and state income tax purposes. As a result, the Partnership is not subject to U.S. federal or 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 30, 2017, the periods subject to examination for federal and state income tax returns are 2015 through 2016. 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, interest or penalties have been recorded. For the three and nine months ended September 30, 2017 and 2016, no provision for federal or state income taxes has been recorded in the consolidated financial statements.(13) Commitments and ContingenciesDuring the fourth quarter of 2016, the Partnership re-purchased a shipment of wood pellets from one customer and subsequently sold it to another customer in a back-to-back transaction. Smoldering was observed onboard the vessel26ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes 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 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 million (calculated using exchange rates as of September 29, 2017), together with other unquantified losses and damages. The Claims provide that the Shipowner would seek indemnificationaccrued 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.(14) Partners’ CapitalAllocations of Net IncomeThe 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.(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 Our general partner (“General PartnerPartner”) currently holds the IDRs, but may transfer these rights at any time.On August 8, 2016, the Partnership filed a prospectus supplement 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 Partnershipdated August 8, 2016, we may offer and sell common units from time to time through or to one or morea group of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement,such agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).September 30, 2017, the PartnershipMarch 31, 2019, we did not sell common units under the ATM Program. During the ninethree months ended September 30, 2017, the PartnershipMarch 31, 2018, we sold 63,5778,408 common units under the27ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unit amounts and unless otherwise noted)(Unaudited)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. No common units were sold under the Equity Distribution Agreement during the three and nine months ended September 30, 2016.Sampson Drop-DownAs 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 UnitholdersDistributions 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):0.2 0.3 0.3 0.4 0.5 0.7 1.1 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 the subordination period, the Partnership does not have enough 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.ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unit amounts and unless otherwise noted)(Unaudited)Accumulated Other Comprehensive IncomeComprehensive income consists of two components: net income and other comprehensive income. Other comprehensive income refers to revenue, expenses and gains and losses that under GAAP, are included in comprehensive income but excluded from net income. The Partnership’s other comprehensive income consists of unrealized gains and losses related to derivative instruments accounted for as cash flow hedges. Changes in other comprehensive income for the three and nine months ended September 30, 2016 were insignificant.The following table presents the changes in accumulated other comprehensive income for the nine months ended September 30, 2017:Noncontrolling Interests—Enviva Pellets Wiggins, LLCAt September 30, 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 a 67% controlling interest in Wiggins.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 Interests—Hancock JVSampson was a wholly owned subsidiary of the Hancock JV prior to the consummation of the Sampson Drop-Down. The Partnership’s financial statements have been recast to include the financial results of Sampson as if the consummation of the Sampson Drop-Down had occurred on May 15, 2013, the date Sampson was originally organized. The Partnership’s financial statements include the Hancock JV’s noncontrolling interest for the periods prior to the consummation of the Sampson Drop-Down. The Partnership’s unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2016 include net losses of $1.3 million and $3.4 million, respectively, attributable to the noncontrolling interests in Sampson.29ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unit amounts and unless otherwise noted)(Unaudited)(15)(14) Equity-Based Awardsthe Provider under the Enviva Partners, LP Long-Term Incentive Plan (“LTIP”)Management who provide services to the Partnership (the “Affiliate Grants”): Units Units Units Nonvested December 31, 2018 723,940 $ 25.91 239,512 $ 27.65 963,452 $ 26.34 Granted 334,884 $ 30.16 206,409 $ 30.16 541,293 $ 30.16 Forfeitures (2,881 ) $ 26.43 — $ — (2,881 ) $ 26.43 Vested (141,794 ) $ 18.19 — $ — (141,794 ) $ 18.19 Nonvested March 31, 2019 914,149 $ 28.66 445,921 $ 28.81 1,360,070 $ 28.71 (1) under the LTIP to certain non-employee directors of the General Partner (the “Director Grants”):(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued. Units Nonvested December 31, 2018 13,964 $ 28.65 Granted 13,444 $ 30.16 Vested (13,964 ) $ 28.65 Nonvested March 31, 2019 13,444 $ 30.16 On3, 2017,2019, Director Grants valued at $0.4 million were granted and vest on the first anniversary of the grant date,date. In February 3, 2018. On May 4, 2017,2019, the Director Grants that were nonvested at December 31, 20162018 vested, and common units were issued. In addition, 3,280 common units were granted and issued to non-employee directorsin respect 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.Thesuch vested Director Grants.associated with the Director Grants and the Affiliate Grants entitle the recipientsamounts related 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 outstandingat March 31, 2019 were $1.0 million, of which $0.5 million are included in accrued liabilities and unpaid from$0.5 million are included in other long-term liabilities on the grant date until the earlier of the settlement or forfeiture of the30ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unitcondensed consolidated balance sheets. Unpaid DER amounts and unless otherwise noted)(Unaudited)related Affiliate Grants. Payments related to DERsthe performance-based Affiliate Grants at December 31, 2018 were $0.7 million, of which $0.4 million are included in accrued liabilities and $0.3 million are included in other long-term liabilities.and nine months ended September 30, 2016March 31, 2019. Paid DER distributions related to the time-based Affiliate Grants were $0.5 million for the three months ended March 31, 2018. At March 31, 2019 and December 31, 2018, $0.6 million and $0.9 million, respectively, of DER distributions were included in related-party accrued liabilities.significant. (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’sOur net income (loss) is allocated to the limited partners in accordance with their respective ownership percentages, after giving effect to priority 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’sour 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.and subordinated units, the Partnership haswe have also identified the IDRs and phantom units as participating securities and usesuse 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’sour common units. Basic and diluted earnings per unit previously applicable to subordinated limited partners arepartner units were the same because there are no potentially dilutive subordinated units outstanding.provides a reconciliationcomputation 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 months ended September 30, 2017March 31, 2019 and 2016:31Three Months Ended March 31, 2019 Weighted-average common units outstanding—basic 26,759 — Effect of nonvested phantom units — — Weighted-average common units outstanding—diluted 26,759 — Three Months Ended March 31, 2019 Total Distributions declared $ 21,580 $ 2,270 $ 23,850 Earnings less than distributions (32,773 ) — (32,773 ) Net (loss) income attributable to partners $ (11,193 ) $ 2,270 $ (8,923 ) Weighted-average units outstanding—basic 26,759 Weighted-average units outstanding—diluted 26,759 Net loss per limited partner unit—basic $ (0.42 ) Net loss per limited partner unit—diluted $ (0.42 ) Three Months Ended March 31, 2018 Weighted-average common units outstanding—basic 14,438 11,905 — Effect of nonvested phantom units — — — Weighted-average common units outstanding—diluted 14,438 11,905 — (Continued) Three Months Ended March 31, 2018 Total Distributions declared $ 9,066 $ 7,441 $ 1,264 $ 17,771 Earnings less than distributions (20,380 ) (16,726 ) — (37,106 ) Net (loss) income attributable to partners $ (11,314 ) $ (9,285 ) $ 1,264 $ (19,335 ) Weighted-average units outstanding—basic 14,438 11,905 Weighted-average units outstanding—diluted 14,438 11,905 Net loss per limited partner unit—basic $ (0.78 ) $ (0.78 ) Net loss per limited partner unit—diluted $ (0.78 ) $ (0.78 ) 32Quarter Ended 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 September 30, 2018 October 31, 2018 November 15, 2018 November 29, 2018 $ 0.6350 $ 16.8 $ 1.5 December 31, 2018 January 29, 2019 February 15, 2019 February 28, 2019 $ 0.6400 $ 17.0 $ 1.7 March 31, 2019 May 2, 2019 May 15, 2019 May 29, 2019 $ 0.6450 $ 21.6 $ 2.3 TableDistributions to be made in future periods based on the current period calculation of Contents (Continued)(17)the Notesour senior notes on a joint and several basis. The Partnership has no material independent assets or operations. The Notessenior 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 Credit Agreementsenior secured revolving credit facility and the Indentureindenture governing the senior notes (see Note 10,11, Long-Term Debt and CapitalFinance Lease Obligations)Obligations), there are no significant restrictions on the ability of any restricted subsidiary to (i) pay dividends or make any other distributions to the Partnership or any of its restricted subsidiaries or (ii) make loans or advances to the Partnership or any of its restricted subsidiaries.(18) Subsequent EventsWilmington Drop-DownOn 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 with33ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes 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 NotesOn 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.34“our,”“our” or “the Partnership”the “Partnership”), is a Delaware limited partnership formed on November 12, 2013. Our sponsor is Enviva Holdings, LP (and, where applicable, its wholly owned subsidiarysubsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC) and references to our General Partner refer to Enviva Partners GP, LLC, a wholly owned subsidiary of our sponsor.Enviva Holdings, LP. References to “Enviva Management” refer to Enviva Management Company, LLC, a wholly owned subsidiary of Enviva Holdings, LP, and references to “our employees” refer to the employees of Enviva Management. References to the “Hancock“First JV” and the “Second JV” refer to Enviva Wilmington Holdings, LLC aand Enviva JV Development Company, LLC, respectively, which are joint ventureventures between our sponsor Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company.II‑ItemII-Item 7 of our Annual Report on Form 10‑K10-K for the year ended December 31, 2016 (the “2016 Form 10‑K”),2018 as filed with the U.S. Securities and Exchange Commission (the “SEC”). Our 20162018 Form 10‑K10-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 20162018 Form 10‑K10-K and the factors described under “Cautionary Statement Regarding Forward‑LookingForward-Looking Information” and Item 1A. “Risk Factors” in this Quarterly Report on Form 10‑Q.of our historical performance andabout matters affecting the financial condition is derived from ourand results of operations of the Partnership should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this report and the audited consolidated financial statements and unaudited condensed consolidated financial statements.On December 14, 2016,related notes that are included in the Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Enviva Pellets Sampson, LLC (“Sampson”) for total consideration of $175.0 million. Sampson owns a wood pellet production plant in Sampson County, North Carolina (the “Sampson plant”). The acquisition (the “Sampson Drop‑Down”) also included two off‑take contracts and related third‑party shipping contracts.Our unaudited condensed consolidated2018 Form 10-K. Among other things, those financial statements and the related notes include more detailed information regarding the basis of presentation for periods prior to December 14, 2016 have been retroactively recast to reflect the consummation of the Sampson Drop‑Down as if it had occurred on May 15, 2013, the date Sampson was originally organized. Entities contributed by or distributed to our sponsor or the 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.utility‑gradeutility-grade wood pellets to major power generators. We ownAs of March 31, 2019, we owned and operateoperated six industrial‑scaleindustrial-scale production plants in the Southeastern United States that have a combined wood pellet production capacity of 2.82.9 million metric tons per year (“MTPY”). On April 2, 2019, we acquired our sponsor’s interest in the First JV (the “Hamlet Transaction”), which owns a wood pellet production plant under construction in Hamlet, North Carolina (the “Hamlet plant”). The Hamlet plant is expected to achieve commercial operations (“COD”) in June 2019 and to reach its nameplate production capacity of approximately 600,000 MTPY in 2021. We also own a deep‑waterdry-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‑advantagedcost-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‑unitper-unit cash distributions over time, which is our primary business objective. sales strategy is to fully contract the wood pellet production from our plants under long-term, take-or-pay off-take contracts. During 2019, production capacity offrom our plants and wood pellets sourced from a production plant in Greenwood, South Carolina (the “Greenwood plant”) owned by the Partnership. During 2017,Second JV and from third parties are approximately equal to the contracted volumes under our existing off‑take contracts are approximately equal to the full production capacity of our production plants.long-term, take-or-pay off-take contracts. Our off‑takelong-term, take-or-pay off-take contracts provide for sales of 2.72.9 million metric tons (“MT”) of wood pellets in 20172019 and have a weighted‑averagetotal weighted-average remaining term of 9.710.5 years from October 1, 2017.April 2, 2019. 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‑firedcoal-fired power generation and combined heat and power plants to co‑firedco-fired or dedicated biomass‑firedbiomass-fired plants and construction of newly dedicated biomass-fired plants, principally in the United Kingdom, Europe and increasingly in South KoreaJapan.Japan.Southampton, Virginia (the “Mid-Atlantic Expansions”) by approximately 400,000 MTPY in the aggregate, subject to receiving the necessary permits. We expect to invest a total of approximately $130.0 million in additional wood pellet production assets and emissions control equipment for the expansions and to complete expansion activities in the first half of 2020 with startup shortly thereafter. Capital expenditures on the Mid-Atlantic Expansions through March 31, 2019 were approximately $7.1 million.35Period from April 3, 2019 to December 31, 2019 $ 494 Year ending December 31, 2020 928 Year ending December 31, 2021 and thereafter 8,445 Total product sales contracted backlog $ 9,867 Period from April 3, 2019 to December 31, 2019 $ 494 Year ending December 31, 2020 928 Year ending December 31, 2021 and thereafter 13,004 Total product sales contracted backlog $ 14,426 Contentsand depreciation and amortization, changes in unrealized derivative instruments related to hedged items included in costgross margin, and certain items of goods sold.income or loss that we characterize as unrepresentative of our ongoing operations, including certain expenses incurred related to the Chesapeake Incident and Hurricane Events, consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repair costs, offset by insurance recoveries received. We believe adjusted gross margin per metric ton is a meaningful measure because it comparesrevenue‑generatingrevenue-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.We view adjusted EBITDA as an important indicator of our financial performance. non‑cashnon-cash unit compensation expense, asset impairments and disposals, changes in unrealized derivative instruments related to hedged items included in gross margin and other income and expense, 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 Incident and Hurricane Events, 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.anddebt premium, original issue discounts.discounts and the impact from incremental borrowings related to the Chesapeake Incident and Hurricane Events. 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‑GAAPaccounting principles generally accepted in the United States (“GAAP”).GAAP. We believe that the presentation of these non‑GAAPnon-GAAP financial measures provides useful information to investors in assessing our financial condition and results of operations. Our non‑GAAPnon-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non‑GAAPnon-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 net (loss) income, 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.non‑GAAPnon-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.36The 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:Factors Impacting Comparability of Our Financial ResultsOur 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 to us on December 14, 2016. Our historical condensed consolidated financial statements have been retroactively recast to reflect the contribution of our sponsor’s interest in Sampson as if the contributions had occurred on May 15, 2013, the date Sampson was originally organized. The recast amounts for the three and nine months ended September 30, 2016 primarily include general and administrative expenses associated with plant development and commissioning costs incurred during the construction 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 2016.37We 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, 2016 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.We issued $300.0 million in aggregate principal amount of senior unsecured notes in a private placement to eligible purchasers. On November 1, 2016, we and Enviva Partners Finance Corp., a wholly owned subsidiary of the Partnership formed on October 3, 2016 for the purpose of being the co‑issuer of the notes, issued $300.0 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes���) to eligible purchasers in a private placement under Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “Securities Act”), which resulted in net proceeds of $293.6 million after deducting estimated expenses and underwriting discounts of $6.4 million. On December 14, 2016, a portion of the net proceeds from the Senior Notes Offering, together with cash on hand and the issuance of 1,098,415 unregistered common units 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 was 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 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 borrowings under the Senior Secured Credit Facilities. Following the consummation of the Sampson Drop‑Down and repayment of a portion of the Senior Secured Credit Facilities, the limit under our revolving credit commitments was increased from $25.0 million to $100.0 million pursuant to the Second Amendment.Revenue and costs for deliveries to customers can vary significantly between periods depending upon the 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”) 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 costs are included in the price to the customer and, as such, are included in revenue and cost of goods sold. Under an FOB contract, the customer is directly responsible for shipping costs. Our customer shipping terms, as well as the timing and size of shipments during the year, can result in material fluctuations in revenue recognized between periods, but these terms generally have little impact on gross margin.How We Generate RevenueOverviewWe primarily earn revenue by supplying wood pellets to our customers under off‑take contracts, the majority of the commitments under which are long‑term in nature. We refer to the structure of our contracts as “take‑or‑pay” because they include a firm obligation 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 termination of the contract. Each contract defines the annual volume of wood pellets that a customer is required to purchase and we are required to sell, the fixed price per MT for product satisfying a base net calorific value and other technical specifications. These prices are fixed for the entire term, subject to annual inflation‑based adjustments and price escalators, as well as,38in some instances, price adjustments for product specifications and changes in underlying costs. In addition to sales of our product under these long‑term, take‑or‑pay contracts, we routinely sell volumes under shorter‑term contracts, which range in volume and tenor, and, in some cases, may include only one specific shipment. Because each of our contracts is a bilaterally negotiated agreement, our revenue over the duration of these contracts does not generally follow spot market pricing trends. Our revenue from the sale of wood pellets is recognized when the goods are shipped, title and risk of loss passes, the sales price to the customer is fixed, and collectability is reasonably assured.Depending on the specific off‑take contract, shipping terms are either CIF 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 costs are included in the price to the customer and, as such, are included in revenue and cost of goods sold. Under an FOB contract, the customer is directly responsible for shipping costs. Our customer shipping terms, as well as the timing and size of shipments during the year, can result in material fluctuations in revenue recognized between periods but generally have little impact on gross margin.The majority of the wood pellets we supply to our customers is produced at our production plants, the sales of which are included in “Product sales.” We also fulfill our contractual commitments and take advantage of dislocations in market supply and demand by purchasing from and selling to third‑party market participants, including, in some cases, our customers. In these back‑to‑back transactions, where title and risk of loss are immediately transferred to the ultimate purchaser, revenue is recorded net of costs paid to the third‑party supplier. This revenue is included in “Other revenue.”In some instances, a customer may request to cancel, defer, or accelerate a shipment. Contractually, we will seek to optimize our position by selling or purchasing the subject shipment to or from another party, including in some cases a related party, either within our contracted off‑take portfolio or as an independent transaction on the spot market. In most instances, the original customer pays us a fee, including reimbursement of any incremental costs, which is included in “Other revenue.”Contracted BacklogAs of October 1, 2017, we had approximately $5.5 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 2, 2017 forward rates.Our expected future product sales revenue under our contracted backlog as of October 1, 2017 is as follows (in millions):Costs of Conducting Our BusinessCost of Goods SoldCost of goods sold includes the costs to produce and deliver our wood pellets to customers. The principal expenses incurred to produce and deliver our wood pellets consist of raw material, production and distribution costs.We have strategically located our plants in the Southeastern United States, a region with plentiful wood fiber resources. We manage the supply of raw materials into our plants through a mixture of short‑term and long‑term contracts. Delivered wood fiber costs include stumpage (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.39Production costs at our production plants consist of labor, energy, tooling, repairs and maintenance and plant overhead costs. Production costs also include depreciation expense associated with the use of our plants and equipment and any gain or loss on disposal of associated assets. Some of our off‑take contracts include price escalators that mitigate inflationary pressure on certain components of our production costs. In addition to the wood pellets that we produce at our owned and operated production plants, we selectively purchase additional quantities of wood pellets from our sponsor and third‑party wood pellet producers.Distribution costs include all transportation costs from our plants to our port locations, any storage or handling costs while the product remains at port and shipping costs related to the delivery of our product from our port locations to our customers. Both the strategic location of our plants and our ownership or control of our deep‑water terminals have allowed for the efficient and cost‑effective transportation of our wood pellets. We seek to mitigate shipping risk by entering into long‑term, fixed‑price shipping contracts with reputable shippers matching the terms and volumes of our contracts under 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.Raw material, production and distribution costs associated with delivering our wood pellets to our deep‑water terminals and 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. 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 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 ExpensesWe 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 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 as if the contribution had occurred on May 15, 2013, the date Sampson 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 Drop‑Down, Sampson incurred general and administrative costs related to plant development activities, which included startup and commissioning costs 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 wood pellets during the fourth quarter of 2016.40September 30, 2017March 31, 2019 Compared to Three Months Ended September 30, 2016March 31, 2018 Three Months Ended
March 31, Change Chesapeake Incident and Hurricane Events Net Change 2019 2018 (in thousands) Product sales $ 156,599 $ 122,322 $ 34,277 $ — $ 34,277 1,770 3,002 (1,232 ) — (1,232 ) Net revenue 158,369 125,324 33,045 — 33,045 137,392 121,038 16,354 (16,231 ) 32,585 Depreciation and amortization 11,070 9,304 1,766 — 1,766 Total cost of goods sold 148,462 130,342 18,120 (16,231 ) 34,351 Gross margin 9,907 (5,018 ) 14,925 16,231 (1,306 ) 9,837 6,804 3,033 391 2,642 Income (loss) from operations 70 (11,822 ) 11,892 15,840 (3,948 ) Interest expense (9,633 ) (8,645 ) (988 ) (490 ) (498 ) Other income 640 1,132 (492 ) — (492 ) Net loss $ (8,923 ) $ (19,335 ) $ 10,412 $ 15,350 $ (4,938 ) (eitherfor wood pellets produced or procured)procured by us increased to $125.4$156.6 million for the three months ended September 30, 2017March 31, 2019 from $103.6$122.3 million for the three months ended September 30, 2016.March 31, 2018. The $21.8$34.3 million, or 28%, increase was primarily attributable to greatera 30% increase in 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 mix during the three months ended September 30, 2017March 31, 2019 as compared to the three months ended September 30, 2016.$6.0the three months ended March 31, 2018. The decrease is attributable to a $0.8 million decrease primarily related to a reduction in fees received from customers requesting scheduling accommodations and to a $0.4 million reduction in terminal services revenue.September 30, 2017March 31, 2019 from $7.2$130.3 million for the three months ended September 30, 2016March 31, 2018. The $18.1 million, or 14%, increase was primarily dueattributable to a decrease30% increase 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 millionsales volumes during the three months ended September 30, 2016. Offsetting the decrease was $3.2 million relatedMarch 31, 2019 as compared to sales of wood pellets sourced from third-party pellet producers and delivered to our customers during the three months ended September 30, 2017 comparedMarch 31, 2018. This is partially offset by a decrease in costs of $20.2 million related to $0.4 millionthe Chesapeake Incident that occurred during the three months ended September 30, 2016. In these back-to-back transactions, title and riskfirst quarter 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 soldCost of goods sold2018.$110.3$9.9 million for the three months ended September 30, 2017March 31, 2019 from $88.4$(5.0) million for the three months ended September 30, 2016. The $21.9 million increaseMarch 31, 2018. Gross margin was primarily attributable to an increase in41sales 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 atimpacted by the Sampson plant. There was no depreciation expense incurredfollowing factors 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, 2017March 31, 2019 as compared to the three months ended September 30, 2016, primarily attributable to growth and maintenance capital projects at our wood pellet production plants.Gross marginWe earnedMarch 31, 2018:of $21.1 millionrelated to the Chesapeake Incident (see Note 5, Inventory Impairment and $22.4 million forAsset Disposal).September 30, 2017 and 2016, respectively.March 31, 2019, or approximately 195,000 MT more than the three months ended March 31, 2018. The change in gross margin was primarily attributablelower during the three months ended March 31, 2019 due to seasonal factors that were more significant and that were longer lasting than during the following:three months ended March 31, 2018.·A $5.3 million increase in 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.was:
were:·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.
Costs in connection with the potential acquisition, discussed below under the heading “Adjusted gross margin per metric ton” decreased gross margin by $4.2 million.·A $2.1 million decrease in 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.·A $1.2 million decrease in gross margin due to decreased other revenue during the three months ended September 30, 2017, as described above under the heading “Other revenue.”
An increase in depreciation expense decreased gross margin by $1.8 million.·A $0.6 million decrease in gross margin due to higher production costs during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The increase in production costs was primarily attributable to lower plant utilization during the three months ended September 30, 2017, which was partially offset by lower raw material costs during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. Three Months Ended
March 31, 2019 2018 Change (in thousands except per metric ton) Reconciliation of gross margin to adjusted gross margin per metric ton: Gross margin $ 9,907 $ (5,018 ) $ 14,925 Depreciation and amortization 11,070 9,304 1,766 Chesapeake Incident and Hurricane Events 359 16,590 (16,231 ) Changes in unrealized derivative instruments 2,010 769 1,241 Acquisition costs 4,243 — 4,243 Adjusted gross margin $ 27,589 $ 21,645 $ 5,944 Metric tons sold 843 648 195 Adjusted gross margin per metric ton $ 32.73 $ 33.40 $ (0.67 ) an adjusted gross margin of $31.1$27.6 million, or $46.49$32.73 per MT, for the three months ended September 30, 2017 and an adjustedMarch 31, 2019. Adjusted gross margin of $30.4was $21.6 million, or $56.88$33.40 per MT, for the three months ended September 30, 2016. Excluding the fees earned in other revenue described above, we earned an adjusted gross margin of $28.8 million, or $43.15 per MT, and $24.7 million, or $46.25 per MT, during the three months ended September 30, 2017 and 2016, respectively.March 31, 2018. The factors impacting the change in adjusted gross margin areinclude those described above under the heading “Gross margin.”margin” as well as $4.2 million of incremental costs, which are unrepresentative of our ongoing operations, in connection with our evaluation of a third-party wood pellet production plant we previously had considered, and were considering, purchasing (the “Potential Target”). When we commenced our review, the Potential Target had recently returned to operations following an extended shutdown during a bankruptcy proceeding with the intent of demonstrating favorable operations prior to proceeding to an auction sale process; however, the Potential Target had not yet established a logistics chain through a viable export terminal, given that the terminal through which the plant historically had exported was not operational at the time and was not reasonably certain to become operational in the future. Accordingly, as part of our diligence of the Potential Target, we developed an alternative logistics chain to bring the Potential Target’s wood pellets to market and began purchasing the production of the Potential Target for a trial period. The incremental costs associated with the establishment and evaluation of this new logistics chain primarily consist of barge, freight, trucking, storage, and shiploading services. We have completed our evaluation of the alternative logistics chain and, therefore, do not expect to incur additional costs of this nature in the future.42$7.1$9.8 million for the three months ended September 30, 2017March 31, 2019 and $8.7$6.8 million for the three months ended September 30, 2016.September 30, 2017,March 31, 2019, general and administrative expenses included allocated expenses of $3.2$4.2 million that were incurred under the MSA, $1.8$2.1 million of direct expenses, $1.8$2.4 million of non‑cashnon-cash unit compensation expense associated with unit‑basedunit-based awards under the Enviva Partners, LP Long-Term Incentive Plan (the “LTIP”), $0.2$0.7 million of transaction 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.September 30, 2016,March 31, 2018, general and administrative expenses included allocated expenses of $3.3$4.0 million that were incurred under the MSA, $3.2million related to plant development activities prior to the consummation of the Sampson Drop‑Down, $1.0$1.3 million of direct expenses, and $1.2$1.3 million of non‑cashnon-cash unit compensation expense associated with unit‑basedunit-based awards under the LTIP.$7.7$9.6 million of interest expense during the three months ended September 30, 2017March 31, 2019 and $3.3$8.6 million of interest expense during the three months ended September 30, 2016.March 31, 2018. The increase in interest expense was primarily attributable to the issuance ofan increase in our Senior Notes in November 2016. Please read “—Senior Notes Due 2021” below.EBITDAnet loss Three Months Ended
March 31, 2019 2018 Change (in thousands) Reconciliation of net loss to adjusted net loss: Net loss $ (8,923 ) $ (19,335 ) $ 10,412 Chesapeake Incident and Hurricane Events 289 16,590 (16,301 ) Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events 490 — 490 Adjusted net loss $ (8,144 ) $ (2,745 ) $ (5,399 ) EBITDAnet loss of $26.1$8.1 million for the three months ended September 30, 2017March 31, 2019 compared to adjusted EBITDAnet loss of $22.9$2.7 million for the three months ended September 30, 2016.March 31, 2018. The $3.2$5.4 million increase in adjusted net loss was attributable to an increase in adjusted gross margin as described above as well as athe $15.8 million decrease in generaladjustments related to the Chesapeake Incident and administrative expenses, whichHurricane Events, offset by the $10.4 million decrease in net loss. Three Months Ended
March 31, 2019 2018 Change (in thousands) Reconciliation of net loss to adjusted EBITDA: Net loss $ (8,923 ) $ (19,335 ) $ 10,412 Add: Depreciation and amortization 11,208 9,408 1,800 Interest expense 9,633 8,645 988 Non-cash unit compensation expense 2,472 1,343 1,129 Chesapeake Incident and Hurricane Events 289 16,590 (16,301 ) Changes in the fair value of derivative instruments 2,010 769 1,241 Acquisition costs 4,927 153 4,774 Adjusted EBITDA $ 21,616 $ 17,573 $ 4,043 plant development activities related to the Sampson plantfactors described above under the heading “Gross margin,” including the $16.6 million of expenses incurred, net ofSeptember 30, 2016.March 31, 2018 as well as the $4.2 million in acquisition costs described above under the heading “Adjusted gross margin per metric ton” and an additional $0.7 million in costs, primarily in legal fees related to the Hamlet Transaction.43Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016Product salesRevenue 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.44 Three Months Ended
March 31, 2019 2018 Change (in thousands) Adjusted EBITDA $ 21,616 $ 17,573 $ 4,043 Less: Interest expense, net of amortization of debt issuance costs, debt premium, original issue discount and impact from incremental borrowings related to Chesapeake Incident and Hurricane Events 8,848 8,373 475 Maintenance capital expenditures 928 388 540 Distributable cash flow attributable to Enviva Partners, LP 11,840 8,812 3,028 Less: Distributable cash flow attributable to incentive distribution rights 2,270 1,264 1,006 Distributable cash flow attributable to Enviva Partners, LP limited partners $ 9,570 $ 7,548 $ 2,022 Other revenueOther 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 soldCost 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 marginWe 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, 2016.45Adjusted gross margin per metric tonWe 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 expensesGeneral 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 expenseWe 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 expenseOn 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.46Adjusted EBITDAWe 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 FlowThe following is a reconciliation of adjusted EBITDA to distributable cash flow:OverviewWe expect ourto include cash and cash equivalent balances, cash generated from operations, borrowings under our revolving credit commitments and, from time to time, debt and equity offerings, including under our ATM Program. We operate in a capital‑intensive industry, and ourofferings. Our primary liquidity needsrequirements are to fund working capital, service our debt, maintain cash reserves, finance plant acquisitions and plant expansion projects, finance maintenance capital expenditures and pay distributions. We believe cash on hand, cash generated from our operations and the availability of our revolving credit commitments will be sufficient to meet the short‑term working capital requirements of our business.primary liquidity requirements. However, future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors. Additionally, our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control.47Our minimum quarterly distribution is $0.4125 per common and subordinated unit per quarter, which equates to approximately $10.9 million per quarter, or approximately $43.4 million per year, based on the number of common and subordinated units outstanding as of September 30, 2017, toTo the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses. Because it isexpenses, our intent to distribute at least the minimum quarterly distribution is $0.4125 per common unit per quarter, which equates to approximately $13.8 million per quarter, or approximately $55.2 million per year, based on allthe number of common units outstanding as of May 3, 2019.units on a quarterly basis,long-term operating income or operating capacity. These expenditures typically include certain system integrity, compliance and safety improvements; andthatwill increase our operating income or operating capacity over the long term. Growth capital expenditures include acquisitions or construction of new capital assets or capital improvements such as additions to or improvements on our existing capital assets as well as projects intended to extend the useful life of assets.will rely upon external financing sources, including bank borrowingsapprove, execute and monitor our capital spending.issuance of debt and equity securities,Mid-Atlantic Expansions. We expect to fund future acquisitions and expansions.Non‑cash Working CapitalNon‑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 million at September 30, 2017 and $51.9 million at December 31, 2016. The primary components of changes in non‑cash working capital were the following:Accounts receivable, net and related‑party receivablesA decrease in accounts receivable, net of allowance for doubtful accounts and related‑party receivables, decreased non‑cash working capital by $27.9 million during the nine months ended September 30, 2017 as compared to December 31, 2016, primarily due to the timing, volume and size of product shipments. Related‑party receivables at December 31, 2016 included $1.6 million related to the Sampson Drop‑Down.InventoriesOur 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 million at September 30, 2017 compared to December 31, 2016. The increase was primarily attributable to a $3.5 million increase in finished goods inventory due to the timing, volume and size of product shipments and a $2.4 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 liabilitiesA decrease in accounts payable, related‑party payables and accrued liabilities at September 30, 2017 as compared to December 31, 2016 increased non‑cash working capital by $5.6 million and was primarily attributable to a decrease in shipping and trading sales liabilities due to timing and volume of product shipments. Related‑party payables at September 30, 2017 consisted of $13.8 million related to the MSA compared to $10.6 million at December 31, 2016.Current portion of interest payableAn increasecomplete construction in the current portionfirst half of interest payable at September 30, 2017 compared2020, subject 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.48ninethree months ended September 30, 2017March 31, 2019 and 2016,2018, respectively: Three months Ended
March 31, 2019 2018 (in thousands) Net cash (used in) provided by operating activities $ (10,269 ) $ 29,316 Net cash used in investing activities (11,279 ) (1,999 ) Net cash provided by (used in) financing activities 125,833 (22,784 ) Net increase in cash, cash equivalents and restricted cash $ 104,285 $ 4,533 was $76.3of $29.3 million for the ninethree months ended September 30, 2017 compared to $55.1March 31, 2018. The decrease of $39.6 million for the nine months ended September 30, 2016. The increase of $21.2 million was primarily attributable to the following:·A $23.7 million increase related to accounts receivable, net and related‑party receivables during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase in accounts receivable during the nine months ended September 30, 2017 was primarily attributable to the timing, volume and size of product shipments.·A $6.2 million increase related to the current portion of interest payable during the nine months ended September 30, 2017 compared to the nine months ended September 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. The increase during the nine months ended September 30, 2017 was primarily attributable to the timing of payments of related-party payables.OffsettingA decrease of $37.6 million due to an increase in accounts receivable, including the above was:
impact of $4.9 million of insurance receivables in connection with the Chesapeake Incident during the three months ended March 31, 2018.·A decrease in net income, excluding depreciation and amortization, of $7.4 million during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease in net income, excluding depreciation and amortization, is primarily attributable to a $13.0 million increase in interest expense. Please read “—Senior Notes Due 2021” below.·During the nine months ended September 30, 2016 we received the return of a $6.7 million deposit in accordance with the terms of a customer contract.$14.3$11.3 million for the ninethree months ended September 30, 2017March 31, 2019 compared to $52.6$2.0 million for the ninethree months ended September 30, 2016.March 31, 2018. The decrease in$11.3 million of cash used in investing activities of $40.0 million was related to a decrease in purchases of property, plant and equipment as a result of the completion of construction of our Sampson plant, which commenced operations during the fourth quarter of 2016. Of the $14.3 million used for property, plant and equipment during the ninethree months ended September 30, 2017,March 31, 2019 includes approximately $4.8$5.7 million of capital expenditures related to the Mid-Atlantic Expansions, $4.7 million related to projects intended to increase the productionoperating income or operating capacity of our plants $2.9and $0.9 million was usedof capital expenditures to maintain our equipment and machinery and $6.6 million related to construction costs at the Sampson plant previously incurred by theoperations.49sponsor, which were accrued by the Partnership as a purchase price adjustment in connection with the Sampson Drop-Down.was $53.1of $22.8 million for the ninethree months ended September 30, 2017 compared toMarch 31, 2018. The net cash provided by financing activities primarily consisted of $16.7approximately $100.0 million forin issued common units and $46.0 million of borrowings under our senior secured revolving credit facility, net, during the ninethree months ended September 30, 2016. March 31, 2019. Net cash provided by financing activities was offset by $19.6 million of distributions paid to our unitholders.ninethree months ended September 30, 2017March 31, 2018 primarily consisted of $46.3$17.8 million of distributions paid to our unitholders, and $9.9$2.3 million of repayments, net, for our debt and capital lease obligations.Net cash provided by financing activities for the nine months ended September 30, 2016 primarily consisted of capital contributions made by the Hancock JV priorpaid to the Sampson Drop‑Down of $57.3 million and $5.6 million of proceeds fromgeneral partner to purchase common unit issuances 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 Notes Due 2021On November 1, 2016, we and Enviva Partners Finance Corp., Wilmington Trust, National Association, as trustee, and the guarantors party thereto entered into an indenture, as amended or supplemented (the “Indenture”), pursuant to which we issued $300.0 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”) to eligible purchasers (the “Senior Notes Offering”) in a private placement under the Securities Act, which resulted in net proceeds of $293.6 million after deducting expenses and underwriting discounts of $6.4 million. On December 14, 2016, a portion of the net proceeds from the Senior Notes, together with cash on hand and the issuance of $30.0 million in common units to the 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.In August 2017, holders of 100% of the Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the Senior Notes (except that such registered notes are not subject to restrictions on transfer).Senior Secured Credit FacilitiesOn April 9, 2015, we entered into the Credit Agreement providing for the Original Credit Facilities. The Original Credit Facilities consisted of (i) $99.5 million aggregate principal amount of Tranche A‑1 borrowings, (ii) $75.0 million aggregate principal amount of Tranche A‑2 borrowings and (iii) up to $25.0 million aggregate principal amount of revolving credit commitments. We are also able to request loans under incremental facilities under the Credit Agreement on the terms and conditions and in the maximum aggregate principal amounts set forth therein, provided that lenders provide commitments to make loans under such incremental facilities.On December 11, 2015, we entered into the First Incremental Term Loan Assumption Agreement (the “Assumption Agreement”) providing for the Incremental Term Borrowings under the Credit Agreement. The Incremental Term Borrowings consist of (i) $10.0 million aggregate principal amount of Tranche A‑3 borrowings and (ii) $26.5 million aggregate principal amount of Tranche A‑4 borrowings.On October 17, 2016, we entered into the Second Amendment. The Second Amendment provided for an increase in the revolving credit commitments under our Senior Secured Credit Facilities from $25.0 million to $100.0 million upon the consummation of the Sampson Drop‑Down, the repayment of outstanding principal and accrued interest on the Tranche A‑2 and Tranche A‑4 borrowings and the receipt of certain associated deliverables. On December 11, 2015, Enviva FiberCo became a lender pursuant to the Credit Agreement with a purchase of $15.0 million aggregate principal amount of the Tranche A-4 borrowings, net of a 1.0% lender fee. On June 30, 2016, Enviva FiberCo assigned all of its50rights 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.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 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 obligations related to the repayments.The Senior Secured Credit Facilities mature in April 2020. Borrowingsvesting of LTIP awards and $1.7 million paid to Enviva Management to satisfy tax-withholding requirements associated with the vesting of phantom unit awards 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 Credit Agreement contains certain covenants, restrictions and events of default including, but not limited to, a change of control restriction and limitations on our ability to (i) incur indebtedness, (ii) pay dividends or make other distributions, (iii) prepay, redeem or repurchase certain debt, (iv) make loans and investments, (v) sell assets, (vi) incur liens, (vii) enter into transactions with affiliates, (viii) consolidate or merge and (ix) assign certain material contracts to third parties or unrestricted subsidiaries. An event of default could result in 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 Credit Agreement or if the interest coverage ratio (determined as the ratio of consolidated EBITDA, as defined in the Credit Agreement, to consolidated interest expense, determined quarterly) is less than 2.25:1.00 at such time.Pursuant to the Credit Agreement, we are required to maintain, as of the last day of each fiscal quarter, a ratio of total debt to consolidated EBITDA (“Total Leverage Ratio”), as defined in the Credit Agreement, of not more than a maximum ratio, initially set at 4.25:1.00 and stepping down to 3.75:1.00 during the term of the Credit Agreement; provided that the maximum permitted Total Leverage Ratio will be increased by 0.50:1.00 for the period from the consummation of certain qualifying acquisitions through the end of the second full fiscal quarter thereafter.September 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, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the Credit Agreement. Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our and their assets.At‑the‑Market Offering ProgramOn 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 Distribution Agreement”) with certain managers pursuant to which we may offer and sell common units from time to time through or to one or more of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).During the three months ended September 30, 2017, we did not sell common units under the Equity Distribution Agreement. During the nine months ended September 30, 2017, we sold 63,577 common units under the 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. As of September 30, 2017, $88.9 million remained available for issuance under the ATM Program.51Off‑Balance Sheet ArrangementsAs of September 30, 2017,March 31, 2019, we did not have any off‑balanceoff-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 PronouncementsIn 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 guidancerequires 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.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.532014-09 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.20162018 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, 2016.2018.risksrisk as disclosed in our Annual Report on Form 10-K for the nine monthsyear ended September 30, 2017 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 Form 10‑K,December 31, 2018 other than as described below:Interest Rate RiskAt September 30, 2017, our total debt had carrying value of $343.1 million and fair value of $363.0 million.Although we seek to mitigate our interest rate risk through the interest rate swap described below, we were 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) 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) 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) for revolving facility base rate borrowings, 3.25%, and 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 30, 2017, $44.3 million, net of unamortized discount of $1.2 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. 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 elected to discontinue hedge accounting as of December 14, 2016 following the repayment of a portion of such outstanding indebtedness, and subsequently re‑designated the interest rate swap for the remaining portion of the outstanding indebtedness during the nine months ended September 30, 2017. We enter into derivative instruments to54manage 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 30, 2017.Credit RiskSubstantially all of our revenue was from long‑term, take‑or‑pay off‑take contracts with three customers for the three and nine months ended September 30, 2017 and two customers for the three and nine months ended September 30, 2016. Most of our customers are major power generators in Europe. This concentration of counterparties operating in a single industry 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. 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”). Deliveries under these contracts began in September 2017.foreign currency. 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 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 in the same period in which the underlying revenue transactions occur.September 30, 2017,March 31, 2019, we had notional amounts of 42.639.4 million GBP and 7.0 million EUR under foreign currency forward contracts and 29.039.4 million GBP and 1.7 million EUR under foreign currency purchased options that expire between 20172019 and 2022. At September 30, 2017, the unrealized gain (loss) associated with foreign currency forward contracts and foreign currency purchased options of approximately ($2.7) million and ($1.2) million, respectively, are included in other comprehensive income.September 30, 2017, the end of the period covered by this report.September 30, 2017,March 31, 2019, 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.55fromwith respect to the legal proceedings disclosed in the section entitled “Legal Proceedings” in theour Annual Report on Form 10‑Q10-K for the quarteryear ended June 30, 2017.December 31, 2018.fromwith respect to the risk factors disclosed in our Annual Report on Form 10-K for the section entitled “Risk Factors”year ended December 31, 2018, except for the following:2016 Form 10‑K.expected time frame, including the Hamlet Transaction, or to realize all or any part of the anticipated benefits of such acquisitions, may adversely affect our results of operations.Exhibit
NumberDescriptionDescription 2.1 3.1 3.2 4.1*4.2*4.3*4.410.3*31.1*31.1* XBRL Instance Document XBRL Schema Document XBRL Calculation Linkbase Document XBRL Definition Linkbase Document XBRL Labels Linkbase Document.Document XBRL Presentation Linkbase Document.Document 56November 2, 2017May 8, 2019ENVIVA PARTNERS, LP By: /s/ SHAI EVEN By:/s/ STEPHEN F. REEVESShai Even Name:Stephen F. ReevesTitle:57