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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2020
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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Delaware | 46-4097730 | ||||||||||
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7200 Wisconsin | Suite 1000 | Bethesda, | MD | 20814 | ||||||||||
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(301) 657-5560
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| Non-accelerated filer ☐ | Smaller reporting company | ☐ | ||||||
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ENVIVA PARTNERS, LP
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Please read the risks described in our Annual Report on Form 10-K for the year ended December 31, 2016.2019 and the risk factors included herein in Item 1A. Risk Factors. All forward‑lookingforward-looking statements in this Quarterly Report are expressly qualified in their entirety by the foregoing cautionary statements.
CIF: Cost, Insurance and Freight. Where a contract for the sale of goods contains CIF shipping terms, the seller is obligated to procure and pay the costs, including insurance and freight, necessary to bring the goods to the named port of destination, but title and risk of loss are transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment.
co‑fire
cost pass‑through
FIFO: first‑in, first‑out method of valuing inventory.
FOB: Free On Board. Where a contract for the sale of goods contains FOB shipping terms, the seller completes delivery when the goods pass the ship’s rail at the named port of shipment, and the buyer must bear all costs and risk of loss from such point.
GAAP: generally accepted accounting principles in the United States.
General Partner: Enviva Partners GP, LLC, the general partner of the Partnership.
Hancock JV: a joint venture between our sponsor and Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company.
MT:one metric ton, which is equivalent to 1,000 kilograms. One MT equalskilograms and 1.1023 short tons.
MTPY: metric tons per year.
net calorific value: the amount of usable heat energy released when a fuel is burned completely and the heat contained in the water vapor generated by the combustion process is not recovered. The European power industry typically uses net calorific value as the means of expressing fuel energy.
off‑take
Partnership: Enviva Partners, LP.
sponsor: Enviva Holdings, LP, and, where applicable, its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC.
stumpage: the price paid to the underlying timber resource owner for the raw material.
utility‑gradestartup of a plant or completion of a project.
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.
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 2019. 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 % 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 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 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 rates. The Foreign exchange forward contracts in GBP £ 42,570 Foreign exchange purchased option contracts in GBP £ 28,960 Interest rate swap $ 45,578 September 30, 2017 December 31, 2016 Carrying Fair Carrying Fair Amount Value Amount Value Senior Notes $ 294,501 $ 314,361 $ 293,797 $ 306,547 Other long-term debt and capital lease obligations 48,622 48,622 56,998 56,998 Total long-term debt and capital lease obligations $ 343,123 $ 362,983 $ 350,795 $ 363,545 September 30, 2017 December 31, 2016 Gross Net Gross Net Amortization Carrying Accumulated Carrying Carrying Accumulated Carrying Period Amount Amortization Amount Amount Amortization Amount Favorable customer contracts 3 years $ 8,700 $ (8,560) $ 140 $ 8,700 $ (7,468) $ 1,232 Wood pellet contract 6 years 1,750 (1,750) — 1,750 (1,611) 139 Total intangible assets $ 10,450 $ (10,310) $ 140 $ 10,450 $ (9,079) $ 1,371 October 1, 2017 through December 31, 2017 $ — Year ending December 31, 2018 140 Year ending December 31, 2019 — Year ending December 31, 2020 — Year ending December 31, 2021 — Thereafter — Total $ 140 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 minimum throughput requirements are not met. During the three and 2019. Offsetting our raw material purchases during the six months ended June 30, 2019, we recognized $2.9 million of cost of cover deficiency fees, which is included in related-party receivables as of June 30, 2019. As of June 30, 2020, an insignificant amount is included in related-party payables related to raw material purchased from FiberCo. SEC on July 20, 2020. Cash Distributions to Unitholders 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) The following table summarizes information regarding phantom unit awards Performance-Based Total Affiliate Grant Phantom Units Phantom Units Phantom Units Weighted- Weighted- Weighted- Average Average Average Grant Date Grant Date Grant Date Fair Value Fair Value Fair Value Units (per unit)(1) Units (per unit)(1) Units (per unit)(1) Nonvested December 31, 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 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 anticipate any adjustments that would result in a material change to our unaudited condensed consolidated balance sheet. Therefore, 0 reserves for uncertain tax positions or interest and penalties have been recorded. For the three and six months ended June 30, 2020 and 2019, 0 provision for federal or state income taxes has been recorded in the condensed consolidated financial statements. 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 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 Issuance Company (U.S.A.) and certain of its affiliates. 10-Q for information regarding certain risks inherent in our business. are generated in a harvest. We accounted for the Hamlet JV as a consolidated subsidiary, not as a joint venture, following the Hamlet Drop-Down on April 2, 2019. We included all accounts of the Hamlet JV in our consolidated results as of April 2, 2019 as the Class B Units represent a controlling interest in the Hamlet JV. We are generally unrestricted in managing the assets and cash flows of the Hamlet JV; however, certain decisions, such as those relating to the issuance and redemption of equity interests in the Hamlet JV, guarantees of indebtedness and fundamental changes, including mergers and acquisitions, asset sales and liquidation and dissolution of the Hamlet JV, require the approval of the members of the Hamlet JV. For more information regarding the Hamlet Drop-Down, see Note 1, Description of Business and Basis of Presentation-Basis of Presentation-Enviva Wilmington, Holdings, LLC and Note 12, Related-Party Transactions-Hamlet Drop-Down Agreements. 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) plant in Sampson County, North Carolina and the Wilmington terminal in September 2018 and Hurricane Michael caused minor damage to our wood pellet production plant in Jackson County, Florida and the Panama City terminal in October 2018 (collectively, “Hurricane Events”.) 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) Under GAAP, we recognized $1.5 million of the $5.6 million payment as revenue during the fourth quarter of 2019, under the breakage model of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), and recorded the remaining $4.1 million as deferred revenue as of December 31, 2019, to be recognized as revenue during the first six months of 2020 in accordance with the original product sales schedule under the off-take contract. For presentation of our non-GAAP measures, we included the $4.1 million in adjusted net income, adjusted gross margin per metric ton and adjusted EBITDA for the year ended December 31, 2019 as such amount relates to our performance of certain Commercial Services, which we completed and for which we were compensated in 2019. The $4.1 million increased adjusted net income, adjusted gross margin per metric ton and adjusted EBITDA for the year ended December 31, 2019 and decreased such measures by an equal amount during the first six months of 2020, with $1.9 million of the $4.1 reduction occurring during the three months ended June 30, 2020. plant. 2019. 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 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 Distributable Cash Flow 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) 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 Critical Accounting Policies and Estimates Foreign Currency Exchange Risk 2020. 2020. Exhibit Description 31.2* 32.1** * Filed herewith. † Management Contract or Compensatory Plan or Arrangement. ENVIVA PARTNERS, LP By: Enviva Partners GP, LLC, as its sole general partner Executive Vice President and Chief Financial Officer (Principal Financial Officer)for number of units)June 30,
2020December 31,
2019(unaudited) Assets Current assets: Cash and cash equivalents $ 98,101 $ 9,053 Accounts receivable Accounts receivable 82,543 72,421 Related-party receivables, net Related-party receivables, net 8,625 — Inventories 39,723 32,998 Prepaid expenses and other current assets 8,932 5,617 Total current assets 237,924 120,089 Property, plant and equipment, net Property, plant and equipment, net 784,523 751,780 Operating lease right-of-use assets Operating lease right-of-use assets 31,737 32,830 Goodwill 85,615 85,615 Other long-term assets 10,247 4,504 Total assets $ 1,150,046 $ 994,818 Liabilities and Partners’ Capital Current liabilities: Accounts payable $ 20,358 $ 18,985 Related-party payables, net Related-party payables, net — 304 Deferred consideration for drop-down due to related-party Deferred consideration for drop-down due to related-party — 40,000 Accrued and other current liabilities 75,346 59,066 Current portion of interest payable 22,996 3,427 Current portion of long-term debt and finance lease obligations Current portion of long-term debt and finance lease obligations 7,558 6,590 Total current liabilities 126,258 128,372 Long-term debt and finance lease obligations Long-term debt and finance lease obligations 597,510 596,430 Long-term operating lease liabilities Long-term operating lease liabilities 32,980 33,469 Other long-term liabilities 2,818 3,971 Total liabilities 759,566 762,242 Commitments and contingencies Partners’ capital: Limited partners: Common unitholders—public (26,178,817 and 19,870,436 units issued and outstanding at June 30, 2020 and December 31, 2019, respectively) Common unitholders—public (26,178,817 and 19,870,436 units issued and outstanding at June 30, 2020 and December 31, 2019, respectively) 470,924 300,184 Common unitholder—sponsor (13,586,375 units issued and outstanding at June 30, 2020 and December 31, 2019) Common unitholder—sponsor (13,586,375 units issued and outstanding at June 30, 2020 and December 31, 2019) 67,646 82,300 General partner (no outstanding units) (99,899) (101,739) Accumulated other comprehensive income Accumulated other comprehensive income 1 23 Total Enviva Partners, LP partners’ capital 438,672 280,768 Noncontrolling interest Noncontrolling interest (48,192) (48,192) Total partners' capital Total partners' capital 390,480 232,576 Total liabilities and partners’ capital $ 1,150,046 $ 994,818 unaudited condensed consolidated financial statements.Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Product sales $ 155,651 $ 167,202 $ 353,504 $ 323,801 12,061 877 18,685 2,647 Net revenue 167,712 168,079 372,189 326,448 125,047 140,476 288,577 277,868 Depreciation and amortization 14,986 11,096 28,626 22,166 Total cost of goods sold 140,033 151,572 317,203 300,034 Gross margin 27,679 16,507 54,986 26,414 General and administrative expenses 2,096 1,767 3,859 5,308 Related-party management services agreement fees 6,947 9,263 14,636 15,559 Total general and administrative expenses 9,043 11,030 18,495 20,867 Income from operations 18,636 5,477 36,491 5,547 Other (expense) income: Interest expense (10,124) (9,196) (20,518) (18,829) Other (expense) income, net (41) (82) 131 558 Total other expense, net (10,165) (9,278) (20,387) (18,271) Net income (loss) $ 8,471 $ (3,801) $ 16,104 $ (12,724) Net income (loss) per limited partner common unit: Basic and diluted $ — $ (0.20) $ 0.10 $ (0.59) Weighted-average number of limited partner common units outstanding: Basic and diluted 34,082 33,400 33,816 30,098 unaudited condensed consolidated financial statements.Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Net income (loss) $ 8,471 $ (3,801) $ 16,104 $ (12,724) Other comprehensive income (loss): Net unrealized losses on cash flow hedges — (106) — (161) Reclassification of net gains on cash flow hedges realized into net income (loss) (2) (86) (22) (193) Currency translation adjustment (3) — — — Total other comprehensive loss (5) (192) (22) (354) Total comprehensive income (loss) $ 8,466 $ (3,993) $ 16,082 $ (13,078) unaudited condensed consolidated financial statements.StatementStatements of Changes in Partners’ CapitalGeneral
Partner
InterestLimited Partners’ Capital Accumulated
Other
Comprehensive
IncomeNon-Controlling Interest Total
Partners'
CapitalCommon
Units—
PublicCommon
Units—
SponsorUnits Amount Units Amount Partners capital, December 31, 2019 $ (101,739) 19,870 $ 300,184 13,586 $ 82,300 $ 23 $ (48,192) $ 232,576 Distributions to unitholders, distribution equivalent and incentive distribution rights (3,289) — (14,798) — (9,172) — — (27,259) Issuance of units through Long-Term Incentive Plan (3,356) 149 (371) — — — — (3,727) Non-cash Management Services Agreement expenses 3,484 — 2,158 — — — — 5,642 Other comprehensive loss — — — — — (17) — (17) Net income 3,289 — 2,585 — 1,759 — — 7,633 Partners' capital, March 31, 2020 (101,611) 20,019 289,758 13,586 74,887 6 (48,192) 214,848 Distributions to unitholders, distribution equivalent and incentive distribution rights (3,458) — (14,777) — (9,239) — — (27,474) Issuance of units through Long-Term Incentive Plan (160) 6 17 — — — — (143) Issuance of common units, net — 6,154 190,813 — — — — 190,813 Non-cash Management Services Agreement expenses 1,872 — 2,098 — — — — 3,970 Other comprehensive loss — — — — — (5) — (5) Net income 3,458 — 3,015 — 1,998 — — 8,471 Partners' capital, June 30, 2020 $ (99,899) 26,179 $ 470,924 13,586 $ 67,646 $ 1 $ (48,192) $ 390,480 General
Partner
InterestLimited Partners’ Capital Accumulated
Other
Comprehensive
LossNon-controlling interest Total
Partners'
CapitalCommon
Units—
PublicCommon
Units—
SponsorUnits Amount Units Amount Total
Partners'
CapitalPartners’ capital, December 31, 2018 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 Non-cash Management Services Agreement expenses 136 — 2,072 — — — — 2,208 Cumulative effect of accounting change - derivative instruments 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 Partners’ capital, March 31, 2019 (135,680) 18,176 290,845 11,905 60,011 295 — 215,471 Excess consideration over Enviva Wilmington Holdings, LLC net assets and initial recognition of noncontrolling interest Excess consideration over Enviva Wilmington Holdings, LLC net assets and initial recognition of noncontrolling interest 1,283 — — — — — (48,192) (46,909) Distributions to unitholders, distribution equivalent and incentive distribution rights Distributions to unitholders, distribution equivalent and incentive distribution rights (2,271) — (13,720) — (8,763) — — (24,754) Issuance of units through Long-Term Incentive Plan Issuance of units through Long-Term Incentive Plan 247 2 (287) — — — — (40) Issuance of common units, net Issuance of common units, net — 1,692 49,641 — — — — 49,641 Issuance of units associated with the Hamlet Drop-Down Issuance of units associated with the Hamlet Drop-Down — — — 1,681 50,000 — — 50,000 Non-cash Management Services Agreement expenses Non-cash Management Services Agreement expenses 11,226 — 1,013 — — — — 12,239 Reimbursable amounts under Make-Whole Agreement Reimbursable amounts under Make-Whole Agreement 1,502 — — — — — — 1,502 Other comprehensive loss Other comprehensive loss — — — — — (192) — (192) Net income (loss) Net income (loss) 2,271 — (3,609) — (2,463) — — (3,801) Partners’ capital, June 30, 2019 Partners’ capital, June 30, 2019 $ (121,422) 19,870 $ 323,883 13,586 $ 98,785 $ 103 $ (48,192) $ 253,157 unaudited condensed consolidated financial statements.7Six Months Ended
June 30,2020 2019 Cash flows from operating activities: Net income (loss) $ 16,104 $ (12,724) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 29,204 22,456 MSA Fee Waivers 4,757 11,046 Amortization of debt issuance costs, debt premium and original issue discounts 813 595 Loss on disposal of assets 760 350 Unit-based compensation 4,256 3,485 Fair value changes in derivatives (5,347) (346) Unrealized (losses) gains on foreign currency transactions, net (138) 29 Change in operating assets and liabilities: Accounts and insurance receivables (11,406) (4,167) Related-party receivables (2,843) (2,536) Prepaid expenses and other current and long-term assets (14) (340) Inventories (6,270) (18) Derivatives (792) 563 Accounts payable, accrued liabilities and other current liabilities 11,771 (7,079) Related-party payables — (356) Accrued interest 17,718 (578) Deferred revenue (3,152) — Operating lease liabilities (2,169) (2,472) Other long-term liabilities 406 (346) Net cash provided by operating activities 53,658 7,562 Cash flows from investing activities: Purchases of property, plant and equipment (58,839) (49,892) Payment in relation to the Hamlet Drop-Down — (74,700) Other (3,769) — Net cash used in investing activities (62,608) (124,592) Cash flows from financing activities: Proceeds from senior secured revolving credit facility, net — 93,500 Principal payments on other long-term debt and finance lease obligations (2,081) (1,252) Cash paid related to debt issuance and deferred offering costs (1,310) — Proceeds from common unit issuances, net 199,990 96,970 Payment of deferred consideration for the Wilmington Drop-Down — (24,300) Payments in relation to the Hamlet Drop-Down (40,000) — Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder (54,874) (43,473) Payment for withholding tax associated with Long-Term Incentive Plan vesting (3,727) (1,870) Net cash provided by financing activities 97,998 119,575 Net increase in cash, cash equivalents and restricted cash 89,048 2,545 Cash, cash equivalents and restricted cash, beginning of period 9,053 2,460 Cash, cash equivalents and restricted cash, end of period $ 98,101 $ 5,005 Six Months Ended
June 30,2020 2019 Non-cash investing and financing activities: Property, plant and equipment acquired included in liabilities $ 21,296 $ 6,200 Common unit issuance for deferred consideration for Wilmington Drop-Down — 49,700 Common unit issuance for the Hamlet Drop-Down — 50,000 Equity issuance and debt issuance costs included in liabilities 9,740 — Supplemental cash flow information: Interest paid, net of capitalized interest $ (77) $ 18,151 unaudited condensed consolidated financial statements.8(Unaudited)(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 under long-term, take-or-pay off-take contracts to our customers principally in the Partnership’s principally European customers.The Partnership ownsUnited Kingdom (the “U.K.”), Europe and operates sixincreasingly Japan.aour wholly owned deep-water marine terminal inat the Port of Chesapeake, Virginia from a deep-water marineand terminal inassets at the Port of 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 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. These9(Unaudited)annual audited consolidated financial statements and notes thereto included(2) Significant Accounting Policiesthe Partnership’sour Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC.Certain prior period amounts related to loss on disposal of assets have been reclassified to cost of goods sold from general and administrative expenses to conform to current period presentation.the Partnership’sour unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.Summary of SignificantPoliciesThe 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(“ASU”) No. 2017-12, Derivatives and Hedging2016-13 Financial Instruments—Credit Losses (Topic 815)—Targeted Improvements to Accounting326): Measurement of Credit Losses on Financial Instruments which changes how entities measure credit losses for Hedging Activities. ASU No. 2017-12 expands and refines hedge accounting for bothmost 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.assets. 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 shoulddid 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 consolidatedthe financial statements.In January 2017,FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifyingfinancial position, results of operations or cash flows of the DefinitionPartnership.Business,purchase price adjustment of $0.3 million, (2) the issuance of 1,681,237 unregistered common units at a value of $29.74 per unit, or $50.0 million of common units, (3) $50.0 million in an effort to clarifycash, paid on June 28, 2019 and (4) a third and final cash payment of $40.0 million paid on January 2, 2020.definitionactivities of the Hamlet JV, including the development, construction and operation of the Hamlet plant and are the primary beneficiary of the Hamlet JV. We included all accounts of the Hamlet JV in our consolidated results as of the date of the Hamlet Drop-Down as the Class B Units represent a business withcontrolling interest in 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 amendmentsHamlet JV and we are generally unrestricted in this standard provide a screen to determine when an integrated set ofmanaging the assets and activitiescash flows of the Hamlet JV; however, certain decisions, such as those relating to the issuance and redemption of equity interests in the Hamlet JV, guarantees of indebtedness and fundamental changes, including mergers and acquisitions, asset sales and liquidation and dissolution of the Hamlet JV, require the approval of the members of the Hamlet JV.a10
represent contracts with customers. As of June 30, 2020, we expect to recognize approximately 5.0% of our remaining performance obligations as revenue during the remainder of 2020, approximately 12.0% in 2021 and the balance thereafter. Our off-take contracts expire at various times through 2040 and our terminal services contracts extend into 2026.(Unaudited)business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentratedVariable Considerationa single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is allowed (1) for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and (2) for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. Entities will be required to apply the guidance retrospectively when adopted. The Partnership is in the process of evaluating the impact of the adoption of ASU No. 2017-01 on its condensed consolidated financial statements.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230)—Restricted Cash: A Consensus of the FASB Emerging Issues Task Force, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance addresses the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption in an interim period is permitted, but any adjustments must be reflected as of the beginning of the fiscal year that includes such interim period. Entities will be required to apply the guidance retrospectively when adopted. The Partnership does 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 its condensed consolidated statements of cash flows.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows with the objective of reducing the existing diversity in practice. The guidance addresses the classification of cash flows related to (1) debt prepayment or extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance, including bank-owned life insurance, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. An entity will first apply any relevant guidance. If there is no guidance that addresses those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source of use. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. The new guidance will require adoption on a retroactive basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the11ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unit amounts and unless otherwise noted)(Unaudited)earliest date practicable. The Partnership does not expect the adoption of the new standard to have a material effect on how cash receipts and cash payments are presented and classified in its condensed consolidated 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 none for the three and ninesix months ended SeptemberJune 30, 2016 have been recast to reflect the Sampson Drop-Down as if it had occurred on May 15, 2013, the date Sampson was originally organized. The historical net equity amounts of Sampson prior to the Sampson Drop-Down transaction date were attributed to the General Partner2020 and any noncontrolling interest.The following table presents the changes to previously reported amounts in the unaudited condensed consolidated balance sheet as of September 30, 2016 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended September 30, 2016:The following table presents the changes to previously reported amounts in the unaudited condensed consolidated statements of incomenot material for the three and ninesix months ended SeptemberJune 30, 2016 included in2019, arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services.Partnership’s quarterly report on Form 10-Q foramount that is not more likely than not to be reversed. 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 ninethree months ended SeptemberJune 30, 20162020, we reversed an insignificant amount of revenue related to performance obligations satisfied in previous periods. For the six months ended June 30, 2020 we recognized $0.1 million of revenue related to performance obligations satisfied in previous periods. For the three and six months ended June 30, 2019 we recognized $0.3 million and $0.4 million of revenue related to performance obligations satisfied in previous periods.the Partnership’s quarterly report on Form 10-Q for the quarter ended September 30, 2016:back-to-back transactions.(3)(5) Significant Risks and Uncertainties Including Business and Credit ConcentrationsThe Partnership’s(the “E.U.”(“EU”) as well as its member states.states and Japan. If the E.U.U.K., the EU or 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,U.K., 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 each of the three and nine months ended:The Partnership’s cash and cash equivalents are placed in or with various financial institutions. The Partnership has not experienced any losses on such accounts.Three Months Ended
June 30,Six Months Ended
June 30,2020 2019 2020 2019 Customer A 40 % 60 % 37 % 50 % Customer B 13 % 9 % 11 % 10 % Customer C 40 % 23 % 31 % 20 % Customer D — % — % 8 % 12 % 14(Unaudited)
Inventories consisted of the following as of:(4) Property, Plant and EquipmentJune 30,
2020December 31,
2019Raw materials $ 10,050 $ 9,795 Consumable tooling 21,287 20,485 Finished goods 8,386 2,718 Total inventories $ 39,723 $ 32,998 at:as of:June 30,
2020December 31,
2019Land $ 15,226 $ 15,226 Land improvements 56,778 56,637 Buildings 217,163 217,167 Machinery and equipment 605,290 588,447 Vehicles 724 635 Furniture and office equipment 6,822 6,822 Leasehold improvements Leasehold improvements 1,029 1,029 Property, plant and equipment Property, plant and equipment 903,032 885,963 Less accumulated depreciation (232,725) (203,695) Property, plant and equipment, net Property, plant and equipment, net 670,307 682,268 Construction in progress 114,216 69,512 Total property, plant and equipment, net $ 784,523 $ 751,780 $8.0$15.2 million and $24.9 million and $5.7 million and $18.5$29.2 million for the three and ninesix months ended SeptemberJune 30, 20172020, respectively. Total depreciation expense was $11.3 million and 2016,$22.5 million for the three and six months ended June 30, 2019, respectively. For the three and six months ended June 30, 2020, total interest capitalized related to construction in progress was $1.3 million and $2.4 million, respectively. For the three and six months ended June 30, 2019, total interest capitalized related to construction in progress was $0.6 million and $0.7 million, respectively. Accrued amounts for property, plant and equipment and construction in progress included in accrued and other current liabilities were $10.5 million and $9.4 million at June 30, 2020 and December 31, 2019, respectively.(5) InventoriesInventories consistedfollowing at:(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
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our leases do not contain any material residual value guarantees, restrictive covenants or subleases. In addition to fixed lease payments, we have contracts that incur variable lease expense related to usage (e.g. throughput fees, maintenance and repair and machine hours), which are expensed as incurred. Our leases have remaining terms of one to 27 years, some of which include options to extend the leases for up to five years. Our leases are generally noncancelable. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.(Unaudited)
We apply an incremental borrowing rate to our leases for balance sheet measurement. As most of our leases do not provide an implicit rate, we generally use the estimated rate of interest for a collateralized borrowing over a similar term of the lease payments at the lease commencement date as our incremental borrowing rate.Cash Flow Hedges
Operating leases are included in operating lease ROU 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 ROU 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 Risk
Operating lease ROU assets and liabilities and finance leases were as follows:The Partnership is primarily exposed to fluctuations in foreign currency exchange rates related to off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”). Deliveries under 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.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.June 30, 2020 December 31, 2019 Operating leases: Operating lease right-of-use assets $ 31,737 $ 32,830 Current portion of operating lease liabilities $ 1,141 $ 1,439 Long-term operating lease liabilities 32,980 33,469 Total operating lease liabilities $ 34,121 $ 34,908 Finance leases: Property, plant and equipment, net $ 8,117 $ 7,398 Current portion of long-term finance lease obligations $ 5,556 $ 4,584 Long-term finance lease obligations 3,472 2,954 Total finance lease liabilities $ 9,028 $ 7,538
Operating and finance lease costs were as follows: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:16Three Months Ended
June 30,Six Months Ended
June 30,Lease Cost Classification 2020 2019 2020 2019 Operating lease cost: Fixed lease cost Cost of goods sold $ 1,239 $ 1,243 $ 2,506 $ 2,277 Variable lease cost Cost of goods sold — 20 — 26 Short-term lease costs Cost of goods sold 1,980 — 3,915 — Total operating lease costs $ 3,219 $ 1,263 $ 6,421 $ 2,303 Finance lease cost: Amortization of leased assets Depreciation and amortization $ 1,560 $ 765 $ 2,992 $ 1,484 Variable lease cost Cost of goods sold 114 (4) 116 — Interest on lease liabilities Interest expense 115 57 218 109 Total finance lease costs $ 1,789 $ 818 $ 3,326 $ 1,593 Total lease costs $ 5,008 $ 2,081 $ 9,747 $ 3,896 (Unaudited)The fair values ofOperating and finance lease cash flow hedginginformation was as follows:Six Months Ended
June 30,2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 2,169 $ 2,472 Operating cash flows from financing leases 218 109 Financing cash flows from financing leases 2,076 1,248 Assets obtained in exchange for lease obligations: Operating leases $ — $ 7,467 Financing leases $ 3,784 $ 1,080 Years Ending December 31, Operating
LeasesFinance
LeasesTotal Remainder of 2020 $ 1,934 $ 3,202 $ 5,136 2021 3,890 4,062 7,952 2022 3,719 964 4,683 2023 3,710 568 4,278 2024 3,581 199 3,780 Thereafter 61,529 193 61,722 Total lease payments 78,363 9,188 87,551 Less: imputed interest (44,242) (160) (44,402) Total present value of lease liabilities $ 34,121 $ 9,028 $ 43,149 Weighted average remaining lease term (years): Operating leases 22 Finance leases 2 Weighted average discount rate: Operating leases 8 % Finance leases 6 % includedto partially offset our business exposure to foreign currency exchange and interest rate risk.condensed consolidated balance sheet asminority of December 31, 2016 were as follows:The effectsour contracts that are not denominated in US Dollars. Our derivative instruments expose us to credit risk to the extent that hedge counterparties may be unable to meet the terms of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive income andapplicable derivative instrument. We seek to mitigate such risks by limiting our counterparties to major financial institutions. In addition, we monitor the gains and losses in income for the three months ended September 30, 2017 were as follows:17
potential risk of loss with any one counterparty resulting from credit risk. Management does not expect(Unaudited)The effectsmaterial losses as a result of defaults by counterparties. We use derivative instruments to manage cash flow and do not enter into derivative instruments for speculative or trading purposes.hedgeshedges.the related changes in accumulated other comprehensive incomeforward benchmark interest rates (such as LIBOR) and the gains and losses in income for the nine months ended September 30, 2017 were as follows:estimated net amountfair value of existing gains and losses in accumulated other comprehensive income associated with derivative instruments expected to be transferrednot designated as hedging instruments at June 30, 2020 and December 31, 2019 was as follows:Asset (Liability) Balance Sheet Classification June 30, 2020 December 31, 2019 Interest rate swap: Accrued and other current liabilities $ (137) $ — Other long-term liabilities (49) — Foreign currency exchange contracts: Other current assets 2,260 408 Other long-term assets 4,493 1,774 Accrued and other current liabilities — (735) Other long-term liabilities — (1,055) Total derivatives not designated as hedging instruments $ 6,567 $ 392 consolidated statementschange in fair market value of income during the next twelve months is a gain of approximately $0.8interest rate swaps are recorded in interest expense and were $0.1 million net.The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive income and the gains and losses in income$0.2 million for the three and ninesix months ended SeptemberJune 30, 20162020, respectively. Our interest rate swap outstanding at and during the three and six months ended June 30, 2019 was designated as a hedging instrument.insignificant.The Partnership enters$0.1 million during the three months ended June 30, 2020 and were included in product sales. Net unrealized gains related to the change in fair market value of foreign currency derivatives were $6.7 million during the six months ended June 30, 2020 and were included in product sales. Net unrealized gains related to the change in fair market value of foreign currency derivatives were $2.3 million and $0.3 million during the three and six months ended June 30, 2019, respectively, and were included in product sales. which are designed to permit net settlement of derivative transactions among the respective counterparties. If the Partnershipwe had settled all transactions with itsour respective counterparties at SeptemberJune 30, 2017, the Partnership2020, we would have received a net settlement termination payment of $1.2$6.6 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 SeptemberJune 30, 20172020 and December 31, 2019 were as follows:June 30, 2020 December 31, 2019 Foreign exchange forward contracts in GBP £ 40,425 £ 50,575 Foreign exchange purchased option contracts in GBP £ 42,165 £ 43,415 Foreign exchange forward contracts in EUR € 2,500 € — Foreign exchange purchased option contracts in EUR € — € 1,200 Interest rate swap $ 70,000 $ 34,354 18(Unaudited)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 Measurementsrelated-party receivables, prepaid expenses and other current assets, accounts payable, related-party receivables, net, related-party payables, net, and accrued and other current liabilities approximate fair value because of the short-term nature of these instruments.capitalfinance lease obligations, including the current portion, are classified as Level 2 instruments. The fair value of the Senior Notes (see Note 10, Long-Term Debt and Capital Lease Obligations – Senior Notes)our senior notes was determined based on observable market prices in a less active market and was categorized as Level 2 in the fair value hierarchy. The fair value of other long-term debt and 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 the 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 SeptemberJune 30, 20172020 and December 31, 20162019 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.19June 30, 2020 December 31, 2019 Carrying
AmountFair
ValueCarrying
AmountFair
Value2026 Notes $ 594,038 $ 627,750 $ 593,476 $ 644,250 Other long-term debt and finance lease obligations 11,030 11,030 9,544 9,544 Total long-term debt and finance lease obligations $ 605,068 $ 638,780 $ 603,020 $ 653,794 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 capitalLong-term debt and finance lease obligations at carrying value are composed of the following:Senior Notes Due 2021On 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 Seniorfollowing:June 30, 2020 December 31, 2019 2026 Notes, net of unamortized discount, premium and debt issuance of $6.0 million as of June 30, 2020 and $6.5 million as of December 31, 2019 $ 594,038 $ 593,476 Other loans 2,002 2,006 Finance leases 9,028 7,538 Total long-term debt and finance lease obligations 605,068 603,020 Less current portion of long-term debt and finance lease obligations (7,558) (6,590) Long-term debt and finance lease obligations, excluding current installments $ 597,510 $ 596,430 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.SeptemberJune 30, 20172020 and December 31, 2016, the Partnership was2019, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the Indenture.indenture dated as of December 9, 2019 governing the 2026 Notes. The Partnership’s obligations under the Indenture2026 Notes are guaranteed jointly and severally on a senior unsecured basis by our existing subsidiaries (excluding Enviva Partners Finance Corp.) that guarantee certain of our indebtedness and may be 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 “OriginalSenior Secured Revolving Credit Facilities”). The Original Credit Facilities consistedFacility (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 Credit Facilities, and to repay a portion of the outstanding indebtedness, including accrued interest, of $53.6 million for Tranche A-1 and $5.1 million for Tranche A-3 under the Senior Secured Credit Facilities. For the year ended December 31, 2016, the Partnership recorded a $4.4 million loss on early retirement of debt obligation related to the repayments.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, 2017 2020 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 was2019, 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 our assets; however, the senior secured revolving credit facility is not guaranteed by the Hamlet JV or secured by liens on its assets.
We had 0 borrowings under our senior secured revolving credit facility at June 30, 2020 and December 31, 2019.(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(Unaudited)Direct or indirect internal or third-party expenses incurred are either directly identifiable or allocated to the Partnership by the Provider. The Provider estimates the percentage of salary, benefits, third-party costs, office rent and expenses and any other overhead costs incurred by the Provider associated with the Services to be provided to the Partnership. Each month, the Provider allocates the actual costs accumulated in the financial accounting system using these estimates. The Provider also charges the Partnership for any directly identifiable costs such as goods or services provided at the Partnership’s request.During the three and nine months ended September 30, 2017, the Partnership incurred $14.4 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, is(12) Related-Party Transactions in cost of goods sold and $3.2 million and $8.6 million, respectively, is included in general and administrative expenses on the unaudited condensed consolidated statements of income. At September 30, 2017, $1.7 million incurred underoperations were as follows:Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Other revenue $ 658 $ 235 $ 1,264 $ 827 Cost of goods sold 39,739 34,623 75,996 54,621 General and administrative expenses 6,947 9,263 14,636 15,559 MSA is includedHamlet JV are parties to management services agreements (together, the “MSAs”) with Enviva Management Company, LLC , a Delaware limited liability company and wholly owned subsidiary of our sponsor (together with its affiliates that provide services to us, as applicable, “Enviva Management”). Enviva Management provides us with operations, general administrative, management and other services. We reimburse Enviva Management for all direct or indirect internal or third-party expenses it incurs in finished goods inventory.Duringconnection with the threeprovision of such services. The MSAs include rent-related amounts for noncancelable operating leases for office space in Maryland and nine months ended September 30, 2016,North Carolina held by our sponsor.Partnership incurred $14.4 millionHamlet JV’s management services agreement (the “Hamlet JV MSA”), the Hamlet JV pays an annual management fee to Enviva Management and $40.5 million, respectively, related to the MSA. Of this amount, $9.2extent allocated costs exceed the annual management fee, the additional costs are recorded with an increase to partners’ capital. In connection with the Hamlet Drop-Down, Enviva Management waived the Hamlet JV’s obligation to pay approximately $2.7 million and $26.9 million, respectively, isof management fees payable to Enviva Management from the date thereof until July 1, 2020 (the “Hamlet JV MSA Fee Waiver”).in cost of goods soldon the unaudited condensed consolidated balance sheets and $4.6 million and $13.0 million, respectively, is included in general and administrative expenses on the unaudited condensed consolidated statements of income. At Septemberoperations under our MSAs were as follows:June 30, 2020 December 31, 2019 Finished goods inventory $ 1,325 $ 419 Related party payables 8,047 18,703 Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Cost of goods sold $ 14,613 $ 20,159 $ 30,513 $ 33,713 Related-party management services agreement fees 6,947 9,263 14,636 15,559 2016,2020, $0.6 million incurredand $1.3 million, respectively, of fees expensed under the Hamlet JV MSA is included in finished goods inventory.As of September 30, 2017 and December 31, 2016, the Partnership had $13.8 million and $10.6 million, respectively, included in related-party payables relatedwere waived pursuant to the MSA.Common Control Transactions
Hamlet Drop-Down AgreementsSampson Drop-DownDecember 14, 2016, the Hancock JV contributed to Enviva, LP alldate 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).Hamlet Drop-Down:Enviva Port of Wilmington, LLC AcquisitionOn May 8, 2017,•We entered into an agreement with our sponsor, pursuant to a contribution agreementwhich (1) our sponsor agreed to guarantee certain cash flows from the Hamlet plant until June 30, 2020, (2) our sponsor agreed to reimburse us for construction cost overruns in excess of budgeted capital expenditures for the Hamlet plant, subject to certain exceptions, (3) we agreed to pay to our sponsor quarterly incentive payments for any wood pellets produced by the Hamlet plant in excess of forecast production levels through June 30, 2020 and between(4) our sponsor agreed to retain liability for certain claims payable, if any, by the Partnership and the HancockHamlet JV (the “Wilmington Contribution“Make-Whole Agreement”), the Partnership agreed.purchasewaive our obligation to pay an aggregate of approximately $13.0 million in fees payable under our management services agreement with Enviva Port of Wilmington, LLC (“Wilmington”), a wholly owned subsidiary of the Hancock JV, from the Hancock JV for total consideration of $130.0 million. Wilmington owns the Wilmington terminal. The acquisition of Wilmington (the “Wilmington Drop‑Down”) closed on October 2, 2017 (see Note 18, Subsequent Events).Related-Party IndemnificationIn connection with the Sampson Drop-Down, the Hancock JV agreed to indemnify the Partnership, its affiliates, and its respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Sampson plant. At December 31, 2016, accrued liabilities related to such indemnifiable amounts included $6.4 million related to work performed by certain vendors. The Partnership recorded a corresponding related-party receivable from the Hancock JV (see Note 1, Description of Business and Basis of Presentation) of $6.4 million for reimbursement of such indemnifiable amounts in connection with the Sampson Drop-Down. At September 30, 2017, the related party receivable associated with such amounts was $5.3 million.24
Management(Unaudited)Terminal Services AgreementOn December 14, 2016, Enviva, LP and Wilmington(the “EVA MSA”) with respect to the period from the date of the Hamlet Drop-Down through the second quarter of 2020 (the “First EVA MSA Fee Waiver”).a terminalan interim services agreement (the “Sampson TSA”“ISA”) regardingwith Enviva Hamlet Operator, LLC, a wholly owned subsidiary of our sponsor (“Hamlet Operator”), pursuant to which Hamlet Operator, as an independent contractor, agreed to manage, operate, maintain and repair the Hamlet plant and provide other services to the Hamlet JV for the period from July 1, 2019 through June 30, 2020 in exchange for a fixed fee per metric ton (“MT”) of wood pellets produced by the Hamlet plant during such period and delivered at the Sampson plant and transported by truckplace to the Wilmington terminal. Under and during the term of the ISA, Hamlet Operator agreed to (1) pay all operating and maintenance expenses at the Hamlet plant, (2) cover all reimbursable general and administrative expenses associated with the Hamlet plant and (3) pay other costs and expenses incurred by the Hamlet plant to produce and sell the wood pellets delivered to the Wilmington terminal from the Hamlet plant. Our sponsor guarantees all obligations of Hamlet Operator under the ISA.Sampson TSA,agreements we entered into on the date of the Hamlet Drop-Down, during the three and six months ended June 30, 2020, $1.0 million and $3.5 million, respectively, was recorded as an increase to partners’ capital consisting of expenses waived under the First EVA MSA Fee Waiver. Cost of goods sold included $14.6 million and $25.2 million, respectively, net of a cost of cover deficiency fee from our sponsor pursuant to the Make-Whole Agreement as a result of Hamlet Operator’s failure to meet specified production levels, offset by the agreed-upon price due to Hamlet Operator for the wood pellets were received, storedproduced by the Hamlet plant that we have sold. Additionally, at June 30, 2020 and ultimately loaded onto oceangoing vessels for transportDecember 31, 2019, $1.3 million and $0.5 million, respectively, was included in finished goods inventory. As of June 30, 2020, included in related-party receivables, net are $16.1 million related to the Partnership’s customers.ISA and $1.2 million related to the Make-Whole Agreement.ninesix months ended SeptemberJune 30, 2017, terminal services2019, $2.7 million of $1.0EVA MSA fees expensed were waived and recorded as an increase to partners’ capital pursuant to the Second EVA MSA Fee Waiver.$2.5$24.2 million, respectively, were expensedof wood pellets from Greenwood and arerecorded a cost of cover deficiency fee of approximately $0.3 million and $3.3 million, respectively, from Greenwood as it was unable to satisfy certain commitments.on the unaudited condensed consolidated statements of operations. Noand $0.4 million and $0.1 million, respectively, in finished goods inventory.were providedagreement with our sponsor (the “Holdings TSA”). Pursuant to the Holdings TSA, our sponsor agreed to deliver a minimum of 125,000 MT of wood pellets per quarter for receipt, storage, handling and loading services by the Wilmington terminal to the Partnership during the three and nine months endedpay a fixed fee on a per-ton basis for such terminal services. The Holdings TSA remains in effect until September 30, 2016. 1, 2026.SampsonHoldings TSA was terminated in connection with theamended and assigned to Greenwood and deficiency payments are due to Wilmington Drop-Down on October 2, 2017.Enviva FiberCo, LLCThe Partnership purchases raw materials from Enviva FiberCo. Raw material purchases during the three and nine months ended September 30, 2017 and 2016 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 into a master biomass purchase and sale agreement (the “Biomass Purchase Agreement”) and a confirmation thereunder with the Hancock JV pursuant to which the Hancock JV sold to Enviva, LP, at a fixed price per metric ton, certain volumes of wood pellets per month. The Partnership sold the wood pellets purchased from the Hancock JV to customers under the Partnership’s existing off-take contracts. Such confirmation was terminated on December 11, 2015.On September 7, 2016, Sampson entered into a confirmation under the Biomass Purchase Agreement pursuant to which Sampson agreed to sell to the sponsor 60,000 metric tons of wood pellets through August 31, 2017. On June 23, 2017, the sponsor satisfied its take-or-pay obligation under the agreement with a $2.7 million payment to the Partnership, which is included in “Other revenue.”On September 26, 2016, Enviva, LP and Sampson entered into two confirmations under the Biomass Purchase Agreement pursuant to which Enviva, LP agreed to sell to Sampson 140,000 metric tons of wood pellets, and Sampson agreed to sell to Enviva, LP 140,000 metric tons of wood pellets. The confirmation pursuant to which Enviva, LP agreed to sell wood pellets to Sampson under the Biomass Purchase Agreement was terminated in connection with the Sampson Drop-Down.Biomass Option Agreement – Enviva Holdings, 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
if quarterly(Unaudited)ninesix months ended SeptemberJune 30, 2017, pursuant to the Option Contract, Enviva, LP purchased $5.22020 and 2019, we recorded $0.7 million and $8.1$1.3 million and $0.2 million and $0.8 million, respectively, of deficiency fees from Greenwood, which are included in other revenue.pellets fromsupply agreement that provided for deficiency fees in the sponsor, which amounts areevent that FiberCo did not satisfy certain volume commitments. Raw materials purchased and 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 expense related to this indebtedness during the three and ninesix months ended SeptemberJune 30, 2016. The Partnership did not incur related-party interest expense2020, was $0.8 million and $2.2 million, respectively. NaN cost of cover deficiency fees were recognized during the three and ninesix months ended SeptemberJune 30, 2017.Related-Party Notes PayableOn January 22, 2016, an indirect wholly owned subsidiary2020. During the three and six months ended June 30, 2019, we purchased raw materials of the Partnership with a noncontrolling interest in Wiggins became the holder$1.7 million and $3.6 million, respectively, from FiberCo. NaN cost of a $3.3 million Wiggins construction loan and working capital line of credit. Therecover deficiency fees were no changes to the terms of the loans. The loans were paid in full on the October 18, 2016 maturity date. Related-party interest expense associated with the related-party notes payable was insignificantrecognized during the three and nine months ended SeptemberJune 30, 2016.Sampson Construction Paymentstwo payment agreements between the Partnership and the Hancock JV dated effective as of July 27, 2017 and September 30, 2017 (together, the “Payment Agreements”Unit Purchase Agreement, we entered into a registration rights agreement (the “Registration Rights Agreement”), the Hancock JV pursuant to which we agreed to pay an aggregate amount of $1.0 millionfile and maintain a registration statement with respect 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 consummationresale 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 taxescommon units on the Partnership. Such taxes are not materialterms set forth therein. The Registration Rights Agreement also provides certain investors with customary piggyback registratconsolidated 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 ofcommon 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 arbitratorsissued 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 indemnification and other damages from Cottondale to the extent that the Shipowner is unsuccessful in its defense of claims raisedPrivate Placement, which was declared effective 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’ CapitalFirst Amended and Restated Agreement of Limited Partnership of the Partnership (the “Partnership Agreement”)Partnership’s partnership agreement contains provisions for the allocation of net income and loss to the unitholders of the Partnership and the Enviva Partners GP, LLC (“General Partner.Partner”), a wholly owned subsidiary of our sponsor. For purposes of maintaining partner capital accounts, the Partnership Agreementpartnership 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. TheOur General Partner currently holds the IDRs, but may transfer these rightsthem at any time.At-the-Market Offering ProgramOn August 8, 2016, the Partnership filed a prospectus supplement to the shelf registration filed with the SEC on June 24, 2016, for the registration of the continuous offering of up to $100.0 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of the offerings. In August 2016, the Partnership entered into an equity distribution agreement (the “Equity Distribution Agreement”) with certain managers pursuant to which the Partnership may offer and sell common units from time to time through or to one or more of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).During the three months ended September 30, 2017, the Partnership did not sell common units under the ATM Program. During the nine months ended September 30, 2017, the Partnership sold 63,577 common units under the27(Unaudited)Equity Distribution Agreement for net proceeds of $1.7 million, net of an insignificant amount of commissions. Net proceeds from sales under the ATM Program were used for general partnership purposes. No common units were sold under the Equity Distribution Agreement during the three and nine months ended September 30, 2016.Sampson Drop-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).per unitper-unit amounts):0.2 0.3 0.3 0.4 0.5 0.7 1.1 Quarter
EndedDeclaration
DateRecord
DatePayment
DateDistribution
Per UnitTotal Cash
DistributionTotal Payment to General Partner for Incentive Distribution Rights June 30, 2019 July 31, 2019 August 15, 2019 August 29, 2019 $ 0.6600 $ 22.1 $ 2.8 September 30, 2019 October 30, 2019 November 15, 2019 November 29, 2019 $ 0.6700 $ 22.4 $ 3.1 December 31, 2019 January 29, 2020 February 14, 2020 February 28, 2020 $ 0.6750 $ 22.7 $ 3.3 March 31, 2020 April 29, 2020 May 15, 2020 May 29, 2020 $ 0.6800 $ 22.9 $ 3.5 June 30, 2020 August 5, 2020 August 14, 2020 August 28, 2020 $ 0.7650 $ 30.4 $ 7.5 the Partnership’sour 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.units. IDRs are treated as participating securities.The Partnership determinesthe Partnership Agreement.our 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.our partnership agreement. Net earnings for the quarter are allocated to each class of partnership interest based on the distributions to be made. Additionally, if, duringsubordination period, the Partnership does not have enough cash availableLTIP to make the required minimum distributionemployees of Enviva Management and its affiliates who provide services to the common unitholders,Partnership:Time-Based
Phantom UnitsPerformance-Based
Phantom UnitsTotal Affiliate Grant
Phantom UnitsUnits Weighted-Average Grant Date Fair Value (per unit)(1) Units Weighted-Average Grant Date Fair Value (per unit)(1) Units Weighted-Average Grant Date Fair Value (per unit)(1) Nonvested December 31, 2019 874,286 $ 28.90 435,270 $ 28.84 1,309,556 $ 28.88 Granted 534,882 $ 37.91 379,431 $ 37.98 914,313 $ 37.94 Forfeitures (97,693) $ 32.74 (82,632) $ 30.09 (180,325) $ 31.53 Vested (189,312) $ 25.40 (53,645) $ 25.39 (242,957) $ 25.39 Nonvested June 30, 2020 1,122,163 $ 33.45 678,424 $ 34.08 1,800,587 $ 33.69 Partnershipaggregate grant date fair value of awards by the number of awards issued.allocate net earnings tobe recognized over 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.28
remaining vesting period.(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) Equity-Based Awards to employees of the Provider under the Enviva Partners, LP Long-Term Incentive Plan (“LTIP”) who provide services to the Partnership (the “Affiliate Grants”):(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.The following table summarizes information regarding phantom unit awards under the LTIP to certain non-employee directors of the General Partner (the “Director Grants”):Time-Based Phantom Units Units Weighted-Average Grant Date Fair Value (per unit)(1) Nonvested December 31, 2019 13,264 $ 30.16 Granted 12,112 $ 37.98 Vested (13,264) $ 30.16 Nonvested June 30, 2020 12,112 $ 37.98 (1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.OnIn February 3, 2017,2020, Director Grants valued at $0.4$0.5 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, 20162019 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.The distribution equivalent rights (“DERs”) associated with thesuch vested Director Grants and the Affiliate Grants entitle the recipients to receive payments equal to any distributions made by the Partnership to the holders of common units within 60 days following the record date for such distributions. The DERs associated with the performance-based Affiliate Grants will remain outstanding and unpaid from the grant date until the earlier of the settlement or forfeiture of the30ENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units, per unit amounts and unless otherwise noted)(Unaudited)related Affiliate Grants. Payments related to DERs forDuring the three and ninesix months ended SeptemberJune 30, 2020 we recognized $0.1 million and $0.2 million, respectively, of unit based compensation expense with respect to the Director Grants. The unrecognized estimated compensation expense relating to outstanding Director Grants at June 30, 2020 was $0.3 million, which will be recognized over the remaining vesting period.werethrough 2018. We believe our income tax filing positions, including our status as a pass-through entity, would be sustained on audit and do not 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’sunits outstanding. Our net income (loss) is allocated to the limited partners in accordance with their respective ownership percentages, after giving effect to priority income allocations for incentive distributions, if any, to the holder of the IDRs, pursuant to the Partnership Agreement, which are declared and paid following the close of each quarter. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to the Partnership’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 has alsowe have identified the IDRs and phantom units as participating securities and usesapply 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 applicable to subordinated limited partners are the same because there are no potentially dilutive subordinated units outstanding.The following provides a reconciliation of net income and the assumed allocation of net income under the two-class method for purposes of computing net income per unit for the three and nine months ended September 30, 2017 and 2016:31(Unaudited)32TableThe following computation of ContentsENVIVA PARTNERS, LP AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Continued)(In thousands, except number of units,net income (loss) available per limited partner unit amounts and unless otherwise noted)(Unaudited)(17) Supplemental Guarantor InformationThe Partnership and its wholly owned finance subsidiary, Enviva Partners Finance Corp., are the co-issuers of the Notes on a joint and several basis. The Partnership has no material independent assets or operations. The 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 formedas follows for the purpose of being the co-issuer of the Notes. Wiggins isthree and six months ended June 30, 2020 and 2019:Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 Common Units General Partner Total Common Units General Partner Total Distributions declared $ 30,422 $ 7,471 $ 37,893 $ 53,278 $ 10,929 $ 64,207 Earnings less than distributions (30,290) — (30,290) (49,794) — (49,794) Net income available to partners $ 132 $ 7,471 $ 7,603 $ 3,484 $ 10,929 $ 14,413 Weighted-average units outstanding—basic and diluted 34,082 33,816 Net income per limited partner unit—basic and diluted $ — $ 0.10 Three Months Ended June 30, 2019 Six Months Ended June 30, 2019 Common Units General Partner Total Common Units General Partner Total Distributions declared $ 22,081 $ 2,773 $ 24,854 $ 43,661 $ 5,043 $ 48,704 Earnings less than distributions (28,655) — (28,655) (61,428) ��� (61,428) Net (loss) income available to partners $ (6,574) $ 2,773 $ (3,801) $ (17,767) $ 5,043 $ (12,724) Weighted-average units outstanding—basic and diluted 33,400 30,098 Net loss per limited partner unit—basic and diluted $ (0.20) $ (0.59) 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 Agreement and the Indenture (see Note 10, Long-Term Debt and Capital Lease Obligationscontribution agreement (the “Contribution Agreement”), 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 soldwhich our sponsor agreed to the Partnershipcontribute to us all of the issued and outstanding limited liability company interests in WilmingtonEnviva Pellets Greenwood Holdings II, LLC (“Greenwood Holdings II”), which wholly indirectly owns Enviva Pellets Greenwood, LLC, for an initial payment of $54.6 million, net of an approximatea 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$132.0 million, to the Hancock JV, subject to certain adjustments as deferred consideration for(such transaction, the Wilmington Drop-Down.Wilmington also“Greenwood Drop-Down”). The Greenwood Drop-Down closed on July 1, 2020.throughput optionmake-whole agreement, pursuant to which our sponsor agreed to reimburse us for any construction costs incurred for the planned expansion of the Greenwood plant in excess of $28.0 million and (2) we and Enviva Management entered into an agreement pursuant to which (a) an aggregate of approximately $37.0 million in management services and other fees that otherwise would be owed by us under the EVA MSA will be waived with respect to the sponsor grantingperiod from the sponsor,closing of the Greenwood Drop-Down through the fourth quarter of 2021 and (b) Enviva Management will continue to waive certain management services and other fees during 2022 unless and until the Greenwood plant’s production volumes equal or exceed 50,000 metric tons in any calendar month, in each case, to provide cash flow support to us during the planned expansion of the Greenwood plant.conditions,adjustments. The closing occurred on July 31, 2020. We refer to this transaction as 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“Georgia Biomass Acquisition.”Due 2021 – Additional NotesOctober 10, 2017, pursuant to the Indenture, the IssuersJuly 15, 2020, we issued and sold an additional $55.0$150.0 million in aggregate principal amount of the 8.5% senior unsecured notes due November 1, 2021 (the “Additional Notes”) to a purchaser (the “Additional2026 Notes Purchaser”) at 106.25%an offering price 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 sale103.75% of the Additional Notes resulted in gross proceedsprincipal amount, which implied an effective yield to the Issuersmaturity of approximately $60.0 million. The5.7%. We received net proceeds were used to repay borrowings underof approximately $153.6 million from the Partnership’s revolving credit commitments under the Senior Secured Credit Facilities, which were used to fund the Wilmington Drop-Down,offering after deducting discounts 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.34Enviva Partners, LP, together with its subsidiaries (“we,“the Partnership”), is a Delaware limited partnership formed on November 12, 2013. Our sponsor issimilar expressions refer to Enviva Partners, LP, including its consolidated subsidiaries. References to “our sponsor” refer to Enviva Holdings, LP (and,and, where applicable, its wholly owned subsidiarysubsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC) and referencesLLC. References to our“our General PartnerPartner” 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 and its affiliates who provide services to the Partnership. References to the “Hancock“Sponsor JV” refer to Enviva Wilmington Holdings,JV Development Company, LLC, which is a joint venture 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”),2019 as filed with the U.S. Securities and Exchange Commission (the “SEC”). Our 20162019 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 20162019 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 consolidatedrelated notes that are included in the 2019 Form 10-K. Among other things, those financial statements.On December 14, 2016,statements and the Hancock JV contributed to Enviva, LP allrelated notes include more detailed information regarding the basis of presentation for the issuedfollowing information.outstanding limited liability company interestsprocess it into a transportable form, wood pellets. We sell a significant majority of our wood pellets through long-term, take-or-pay off-take contracts with creditworthy customers in Enviva Pellets Sampson, LLCthe United Kingdom, Europe and increasingly Japan. As of July 1, 2020, we owned and operated eight wood pellet production plants (collectively, “our plants”) with a combined production capacity of approximately 4.1 million metric tons (“Sampson”MT”) for total consideration of $175.0 million. Sampson ownswood pellets per year in Virginia, North Carolina, South Carolina, Florida, and Mississippi, the production of which is fully contracted through 2025. Our combined production capacity as of July 1, 2020 increased as a result of our acquisition of 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 consolidated financial statements 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.Business OverviewWe are the world’s largest supplier by production capacity of utility‑grade wood pellets to major power generators. We own and operate six industrial‑scale production plants in the Southeastern United States that have a combined wood pellet production capacity of 2.8 million800,000 metric tons per year (“MTPY”).located in Waycross, Georgia on July 31, 2020. We also own a deep‑waterexport wood pellets through our wholly owned dry-bulk, deep-water marine terminal at the Port of Chesapeake.Chesapeake, Virginia (the “Chesapeake terminal”) and terminal assets at the Port of Wilmington, North Carolina and from third-party deep-water marine terminals in Mobile, Alabama and Panama City, Florida (the “Panama City 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 flowsflows. Our plants are sited in robust fiber baskets providing stable pricing for the low-grade fiber used to produce wood pellets. Our raw materials are byproducts of traditional timber harvesting, principally low-value wood materials, such as trees generally not suited for sawmilling or other manufactured forest products, and tree tops and limbs, understory, brush and slash that should enable us to increase our per‑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 with a diversified and creditworthy customer base. Our long-term off-take contracts typically provide for fixed-price deliveries that may include provisions that escalate the price over time and provide for other margin protection. During 2020, production capacity offrom our plants and wood pellets sourced from our affiliates and third parties were approximately equal to the Partnership. During 2017, contracted volumes under our existing off‑takelong-term, take-or-pay off-take contracts. Our long-term, take-or-pay off-take contracts provide for a product sales backlog of $15.3 billion and have a total weighted-average remaining term of 12.7 years from July 1, 2020. Under our current product sales backlog, our plants are approximately equalfully contracted through 2025. Assuming all volumes under the firm and contingent long-term off-take contracts held by our sponsor and its joint venture were included with our product sales backlog for firm and contingent contracted product sales, our product sales backlog would increase to $19.7 billion and the total weighted-average remaining term from July 1, 2020 would increase to 13.6 years.fulluninterruptible nature of our customers’ fuel consumption, our customers require a reliable supply of wood pellets that meet stringent product specifications. We have built our operations and assets to deliver and certify the highest levels of product quality and our proven track record of reliable deliveries enables us to charge premium prices for this certainty. In addition to ourplants. assets and emissions control equipment for the Mid-Atlantic Expansions, of which we have spent $99.9 million through June 30, 2020. We have begun commissioning equipment and commencing the production ramp for the Northampton plant expansion and expect to begin commissioning and commencing the production ramp for the Southampton plant expansion over the next several months. We expect to benefit from the full 400,000 MTPY increased production from the Mid-Atlantic Expansions during 2021.off‑takeexpected future product sales revenue under our contracted backlog as of July 1, 2020 is as follows (in millions):Period from July 1, 2020 to December 31, 2020 $ 472 Year ending December 31, 2021 1,175 Year ending December 31, 2022 and thereafter 13,634 Total product sales contracted backlog $ 15,281 Period from July 1, 2020 to December 31, 2020 $ 472 Year ending December 31, 2021 1,175 Year ending December 31, 2022 and thereafter 18,068 Total product sales contracted backlog $ 19,715 saleslocal communities to navigate through their own COVID-19 responses. There are few substitutes or alternatives to the fuel we supply to our energy generating customers, each of 2.7whom is in compliance with their agreements with us, including payment terms.metric tons (“MT”net of $9.2 million of issuance costs.in 2017 and havefollowing a weighted‑average remaining term of 9.7 years from October 1, 2017. We intendramp period through 2034. Prior to continue expanding our business by taking advantagethe Hamlet Drop-Down, we already had off-take contracts with the Hamlet JV to supply 470,000 MTPY of the growing demand for ourvolumes to be delivered pursuant to the 1.0 million MTPY contract; consequently, we acquired 500,000 MTPY in incremental product that is driven bysales volumes in connection with the conversionHamlet Drop-Down. The Hamlet plant became operational during the second quarter of coal‑fired power generation and combined heat and power plants to co‑fired or dedicated biomass‑fired plants, principally in the United Kingdom, Europe and, increasingly, in South Korea and Japan.35
2019.usedefine adjusted gross margin per metric ton to measure our financial performance. We define adjusted gross margin as gross margin per metric ton excluding asset disposals, and depreciation and amortization, changes in unrealized derivative instruments related to hedged items included in costgross margin, non-cash unit compensation expense, 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, as well as employee compensation and other related costs allocated to us in respect of the Chesapeake Incident and Hurricane Events pursuant to our management services agreement with an affiliate of our sponsor for services that could otherwise have been dedicated to our ongoing operations, acquisition and integration costs, and the effect of Commercial Services and including MSA Fee Waivers. We believe adjusted gross margin per metric ton is a meaningful measure because it compares our revenue‑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, certain items of income or loss that we characterize as unrepresentative of our ongoing operations.operations, including certain expenses incurred related toanddebt 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‑generatingcash-generating performance of the Partnership from period to period and to compare the cash‑generatingcash-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‑GAAPnon‑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 income (loss), 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 2016.40SeptemberJune 30, 20172020 Compared to Three Months Ended SeptemberJune 30, 20162019Three Months Ended June 30, 2020 2019 Change (in thousands) Product sales $ 155,651 $ 167,202 $ (11,551) 12,061 877 11,184 Net revenue 167,712 168,079 (367) 125,047 140,476 (15,429) Depreciation and amortization 14,986 11,096 3,890 Total cost of goods sold 140,033 151,572 (11,539) Gross margin 27,679 16,507 11,172 General and administrative expenses 2,096 1,767 329 Related-party management services agreement fees Related-party management services agreement fees 6,947 9,263 (2,316) Total general and administrative expenses Total general and administrative expenses 9,043 11,030 (1,987) Income from operations 18,636 5,477 13,159 Interest expense (10,124) (9,196) (928) Other income (expense) Other income (expense) (41) (82) 41 Net income (loss) Net income (loss) $ 8,471 $ (3,801) $ 12,272 Product salesRevenue relatedproduct sales (either produced or procured) increased to $125.4$167.7 million for the three months ended SeptemberJune 30, 20172020 from $103.6$168.1 million for the three months ended SeptemberJune 30, 2016.2019. The $21.8 million increasede minimis change was primarily attributable to greaterthe increase in sold volumes produced by the Partnership offset by the reduction in sales volumes primarily relating to tons soldprocured from third parties. Other revenue for the three months ended June 30, 2020 included $8.9 million under the make-whole provisions under an existing long-term off-take contract acquiredwith a customer that did not take delivery of certain contracted volumes. Had the customer taken delivery of such volumes, the associated revenue would have been included in connection withproduct sales. Other revenue also included $1.9 million from the Sampson Drop-Down, and was partially offset by lower pricing due to contract mixCommercial Services during the three months ended SeptemberJune 30, 20172020. The $8.9 million and $1.9 million in other revenue was recognized under a breakage model based on when the pellets would have been loaded.SeptemberJune 30, 2016.Other revenueOther revenue decreased2019.$6.0$27.7 million for the three months ended SeptemberJune 30, 20172020 from $7.2$16.5 million for the three months ended SeptemberJune 30, 2016 primarily due to a decrease in the fees we earned related to customer requests to cancel, defer or accelerate shipments. During the three months ended September 30, 2017, we earned $2.2 million related to these fees compared to $5.72019. The gross margin increase of $11.2 million during the three months ended SeptemberJune 30, 2016. Offsetting the decrease was $3.2 million related to sales of wood pellets sourced from third-party pellet producers and delivered to our customers during the three months ended September 30, 2017 compared to $0.4 million during the three months ended September 30, 2016. In these back-to-back transactions, title and risk of loss immediately transfers to the ultimate purchasers; accordingly, such transactions are presented on a net basis. Other revenue also includes revenue derived from terminal services (see Note 11, Related-Party Transactions).Cost of goods soldCost of goods sold increased to $110.3million for the three months ended September 30, 2017 from $88.4 million for the three months ended September 30, 2016. The $21.9 million increase was primarily attributable to an increase 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 at the Sampson plant. There was no depreciation expense incurred during the three months ended September 30, 2016 related to the Sampson plant. The increase was offset by a $0.3 million decrease in loss on disposal of assets during the three months ended September 30, 20172020 as compared to the three months ended SeptemberJune 30, 2016,2019 was primarily attributable to growththe increase in sold volumes produced by the Partnership, which had a higher gross margin, and maintenance capital projectsa reduction in sales volumes procured from third parties, which had a lower gross margin.Three Months Ended June 30, 2020 2019 Change (in thousands except per metric ton) Reconciliation of gross margin to adjusted gross margin per metric ton: Gross margin $ 27,679 $ 16,507 $ 11,172 Asset impairments and disposals 640 350 290 Non-cash unit compensation expense 473 — 473 Depreciation and amortization 14,986 11,096 3,890 — (281) 281 Changes in unrealized derivative instruments 121 (2,334) 2,455 MSA Fee Waivers — 2,700 (2,700) Commercial Services (1,882) — (1,882) Adjusted gross margin $ 42,017 $ 28,038 $ 13,979 Metric tons sold 848 869 (21) Adjusted gross margin per metric ton $ 49.55 $ 32.26 $ 17.29 plants.Gross margin gross margin of $21.1 million and $22.4 million for the three months ended September 30, 2017 and 2016, respectively. The change in gross margin was primarily attributable to the following:·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.Offsetting the above was:·A $2.3 million decrease in gross margin due to an increase in depreciation expense during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The increase is attributable to incremental depreciation expense related to machinery and equipment at the Sampson plant.·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.”·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.Adjusted gross margin per metric tonWe earned an adjusted gross margin of $31.1$42.0 million, or $46.49$49.55 per MT, for the three months ended SeptemberJune 30, 2017 and an adjusted2020. Adjusted gross margin of $30.4was $28.0 million, or $56.88$32.26 per MT, for the three months ended SeptemberJune 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.2019. The factors impacting the changeincrease in adjusted gross margin are describedis primarily due factors discussed above under the heading “Gross margin.”42
During the quarter ended December 31, 2019, we received a non-refundable payment of $5.6 million from a customer in consideration for our performance during the quarter of certain sales and marketing, scheduling, sustainability, consultation, shipping and risk management services (collectively, “Commercial Services”) that were outside of the scope of our existing take-or-pay off-take contract. The customer had requested the Commercial Services, among other things, in order to avoid its exposure to market price volatility associated with its anticipated failure to take required deliveries of certain wood pellet volumes during the fourth quarter of 2019 and first half of 2020 pursuant to the off-take contract. The Commercial Services had a value to the customer of $5.6 million. We included the entire non-refundable payment of $5.6 million in our publicly stated guidance for 2019 in our press release issued October 30, 2019.$7.1$9.0 million for the three months ended SeptemberJune 30, 20172020 and $8.7$11.0 million for the three months ended SeptemberJune 30, 2016.During the three months ended September 30, 2017,2019. The $2.0 million decrease in general and administrative expenses included allocatedis primarily attributable to the consolidation of the Hamlet JV following the Hamlet Drop-Down on April 2, 2019, as expenses of $3.2 million that were incurred underwhile the MSA, $1.8 millionplant was being constructed until mid-2019 to prepare for its operations that could not be included in cost of direct expenses, $1.8 million of non‑cash unit compensation expense associated with unit‑based awards under the Enviva Partners, LP Long-Term Incentive Plan (the “LTIP”), $0.2 million of expenses associated with the cessation of operationsgoods sold and could not be capitalized as construction costs of the wood pellet production plant owned by Enviva Pellets Wiggins, LLC (“Wiggins”) and $0.1 million related to transaction expenses.During the three months ended September 30, 2016, general and administrative expenses included allocated expenses of $3.3 million that were incurred under the MSA, $3.2million related to plant development activities prior to the consummation of the Sampson Drop‑Down, $1.0 million of direct expenses and $1.2 million of non‑cash unit compensation expense associated with unit‑based awards under the LTIP.$7.7$10.1 million of interest expense during the three months ended SeptemberJune 30, 20172020 and $3.3$9.2 million of interest expense during the three months ended SeptemberJune 30, 2016.2019. The increase in interest expense was primarily attributable to an increase in borrowings under our 2026 Notes, partially offset by the issuance ofdecrease in borrowings under our Senior Notessenior secured revolving credit facility during the three months ended June 30, 2020, as compared to the same period in November 2016. Please read “—Senior Notes Due 2021” below.EBITDAnet incomeThree Months Ended June 30, 2020 2019 Change (in thousands) Reconciliation of net income (loss) to adjusted net income: Net income (loss) $ 8,471 $ (3,801) $ 12,272 Chesapeake Incident and Hurricane Events — (281) 281 MSA Fee Waivers 1,572 11,046 (9,474) Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events 548 — 548 Commercial Services (1,882) — (1,882) Adjusted net income $ 8,709 $ 6,964 $ 1,745 EBITDAnet income of $26.1$8.7 million for the three months ended SeptemberJune 30, 2017 compared to adjusted EBITDA of $22.92020 and $7.0 million for the three months ended SeptemberJune 30, 2016.2019. The $3.2$1.7 million increase in adjusted net income was primarily attributable to the factors described below under the heading “Adjusted EBITDA.”Three Months Ended June 30, 2020 2019 Change (in thousands) Reconciliation of net income (loss) to adjusted EBITDA: Net income (loss) $ 8,471 $ (3,801) $ 12,272 Add: Depreciation and amortization 15,297 11,248 4,049 Interest expense 10,124 9,196 928 Non-cash unit compensation expense 2,098 1,013 1,085 Asset impairments and disposals 640 350 290 Chesapeake Incident and Hurricane Events — (281) 281 Changes in the fair value of derivative instruments 121 (2,334) 2,455 MSA Fee Waivers 1,572 11,046 (9,474) Acquisition costs 957 525 432 Commercial Services (1,882) — (1,882) Adjusted EBITDA $ 37,398 $ 26,962 $ 10,436 Three Months Ended June 30, 2020 2019 Change (in thousands) Adjusted EBITDA $ 37,398 $ 26,962 $ 10,436 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 9,169 8,897 272 Maintenance capital expenditures 2,311 836 1,475 Distributable cash flow attributable to Enviva Partners, LP 25,918 17,229 8,689 Less: Distributable cash flow attributable to incentive distribution rights 7,471 2,773 4,698 Distributable cash flow attributable to Enviva Partners, LP limited partners $ 18,447 $ 14,456 $ 3,991 Six Months Ended June 30, Change 2020 2019 (in thousands) Product sales $ 353,504 $ 323,801 $ 29,703 18,685 2,647 16,038 Net revenue 372,189 326,448 45,741 288,577 277,868 10,709 Depreciation and amortization 28,626 22,166 6,460 Total cost of goods sold 317,203 300,034 17,169 Gross margin 54,986 26,414 28,572 General and administrative expenses 3,859 5,308 (1,449) Related-party management services agreement fees 14,636 15,559 (923) Total general and administrative expenses 18,495 20,867 (2,372) Income from operations 36,491 5,547 30,944 Interest expense (20,518) (18,829) (1,689) Other income 131 558 (427) Net income (loss) $ 16,104 $ (12,724) $ 28,828 Six Months Ended June 30, 2020 2019 Change (in thousands except per metric ton) Reconciliation of gross margin to adjusted gross margin per metric ton: Gross margin $ 54,986 $ 26,414 $ 28,572 Asset impairments and disposals 1,552 350 1,202 Non-cash unit compensation expense 944 — 944 Depreciation and amortization 28,626 22,166 6,460 — 78 (78) Changes in unrealized derivative instruments (6,674) (324) (6,350) MSA Fee Waivers — 2,700 (2,700) Acquisition costs — 4,243 (4,243) Commercial Services (4,139) — (4,139) Adjusted gross margin $ 75,295 $ 55,627 $ 19,668 Metric tons sold 1,852 1,712 140 Adjusted gross margin per metric ton $ 40.66 $ 32.49 $ 8.17 described abovepart 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.wellrevenue during the fourth quarter of 2019, under the breakage model of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), and recorded the remaining $4.1 million as adeferred revenue as of December 31, 2019, to be recognized as revenue during the first six months of 2020 in accordance with the original product sales schedule under the off-take contract. For presentation of our non-GAAP measures, we included the $4.1 million in adjusted net income, adjusted gross margin per metric ton and adjusted EBITDA for the year ended December 31, 2019 as such amount relates to our performance of certain Commercial Services, which we completed and for which we were compensated in 2019. The $4.1 million increased adjusted net income, adjusted gross margin per metric ton and adjusted EBITDA for the year ended December 31, 2019 and decreased such measures by an equal amount during the first six months of 2020, with $2.3 million of the $4.1 reduction occurring during the first three months of 2020.whichis primarily attributable to the consolidation of the Hamlet JV following the Hamlet Drop-Down on April 2, 2019, as expenses were incurred while the plant was being constructed until mid-2019 to prepare for its operations that could not be included in cost of goods sold and could not be capitalized as construction costs of the plant.plant development activities relatedan increase in borrowings under our 2026 Notes, partially offset by the decrease in borrowings under our senior secured revolving credit facility during the six months ended June 30, 2020, as compared to the Sampson plant incurred during the three months ended September 30, 2016.same period in 2019.43Six Months Ended June 30, 2020 2019 Change (in thousands) Reconciliation of net income (loss) to adjusted net income (loss): Net income (loss) $ 16,104 $ (12,724) $ 28,828 Chesapeake Incident and Hurricane Events — 8 (8) MSA Fee Waivers 4,757 11,046 (6,289) Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events 1,118 490 628 Commercial Services (4,139) — (4,139) Adjusted net income (loss) $ 17,840 $ (1,180) $ 19,020 Distributable Cash FlowThe following is a reconciliation of adjusted EBITDA to distributable cash flow:Nine 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$17.8 million for the ninesix months ended SeptemberJune 30, 2017 from $323.32020 and adjusted net loss of $1.2 million for the ninesix months ended SeptemberJune 30, 2016.2019. The $19.0 million 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.44Other revenueOther revenue for the nine months ended September 30, 2017 remained consistent with the nine months ended September 30, 2016. Other revenue during both periodsadjusted net income 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 riskthe factors described below under the heading “Adjusted EBITDA.”Six Months Ended June 30, 2020 2019 Change (in thousands) Reconciliation of net income (loss) to adjusted EBITDA: Net income (loss) $ 16,104 $ (12,724) $ 28,828 Add: Depreciation and amortization 29,247 22,456 6,791 Interest expense 20,518 18,829 1,689 Non-cash unit compensation expense 4,256 3,485 771 Asset impairments and disposals 1,552 350 1,202 Chesapeake Incident and Hurricane Events — 8 (8) Changes in the fair value of derivative instruments (6,674) (324) (6,350) MSA Fee Waivers 4,757 11,046 (6,289) Acquisition costs 957 5,452 (4,495) Commercial Services (4,139) — (4,139) Adjusted EBITDA $ 66,578 $ 48,578 $ 18,000 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$66.6 million for the ninesix months ended SeptemberJune 30, 2017 from $280.12020 compared to adjusted EBITDA of $48.6 million for the ninesix months ended SeptemberJune 30, 2016.2019. The $42.6$18.0 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 duringfactors described above under 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, 2016.45Adjustedheading “Adjusted gross margin per metric ton,We earned an adjusted gross margin” offset by $6.3 million of $87.1 million, or $45.39 per MT,MSA Fee Waivers 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.The following is a reconciliation of adjusted EBITDA to distributable cash flow:Six Months Ended June 30, 2020 2019 Change (in thousands) Adjusted EBITDA $ 66,578 $ 48,578 $ 18,000 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 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 18,587 17,745 842 Maintenance capital expenditures 3,445 1,764 1,681 Distributable cash flow attributable to Enviva Partners, LP Distributable cash flow attributable to Enviva Partners, LP 44,546 29,069 15,477 Less: Distributable cash flow attributable to incentive distribution rights 10,928 5,043 5,885 Distributable cash flow attributable to Enviva Partners, LP limited partners $ 33,618 $ 24,026 $ 9,592 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, such as expenditures made in relation to plant acquisitions and/or plant expansion projects, and other cash requirements could be higher than we currently expect as a result of various factors. For example, COVID-19 has disrupted debt and equity capital markets and could restrict our access to, or increase the cost of capital from, public financing activities. 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 $16.4 million per quarter, or approximately $65.6 million per year, based on allthe number of common units outstanding as of July 31, 2020.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 externalapprove, execute and monitor our capital spending.sources, including bank borrowings and the issuance of debt and equity securities,strategy is to fund future acquisitions, drop-downs and expansions.Non‑cash Working CapitalNon‑cash working capital is the amount by which current assets, excluding cash, exceed current liabilities,major expansion projects with 50% equity 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 increase in the current portion of interest payable at September 30, 2017 compared to December 31, 2016 decreased non‑cash working capital by $6.2 million. The current portion of interest payable is primarily related to accrued interest on our Senior Notes. Please read “—Senior Notes Due 2021” below.48
50% debt.ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively:Six Months Ended
June 30,2020 2019 (in thousands) Net cash provided by operating activities $ 53,658 $ 7,562 Net cash used in investing activities (62,608) (124,592) Net cash provided by financing activities Net cash provided by financing activities 97,998 119,575 Net increase in cash, cash equivalents and restricted cash Net increase in cash, cash equivalents and restricted cash $ 89,048 $ 2,545 $76.3$53.7 million for the ninesix months ended SeptemberJune 30, 20172020 compared to $55.1$7.6 million for the ninesix months ended SeptemberJune 30, 2016.2019. The increase in cash provided by operating activities of $21.2$46.1 million was attributableprimarily due to the following:
increase in net income.·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.Offsetting the above was:·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$62.6 million for the ninesix months ended SeptemberJune 30, 20172020 compared to $52.6$124.6 million for the ninesix months ended SeptemberJune 30, 2016.2019. The decrease in cash used in investing activities of $40.0$62.0 million was relatedis primarily due to a decrease$74.7 million cash payment in purchases of property, plant and equipment as a result ofrelation to the completion of construction of our Sampson plant, which commenced operationsHamlet Drop-Down during the fourth quarter of 2016. Of the $14.3 millionsix months ended June 30, 2019 offset by cash used for property, plant and equipmentcapital expenditures associated with the Mid-Atlantic Expansions during the ninesix months ended SeptemberJune 30, 2017, approximately $4.8 million related to projects intended to increase the production capacity of our plants, $2.9 million was used to maintain our equipment and machinery and $6.6 million related to construction costs at the Sampson plant previously incurred2020.the49sponsor, which were accrued by the Partnership as a purchase price adjustment in connection with the Sampson Drop-Down.Cash Used in Financing Activitiesused inprovided by financing activities was $53.1$98.0 million for the ninesix months ended SeptemberJune 30, 20172020 compared to net$119.6 million for the six months ended June 30, 2019. The decrease in cash provided by financing activities of $16.7$21.6 million for the nine months ended September 30, 2016. Net cash used in financing activities for the nine months ended September 30, 2017is primarily consistedattributable to a $93.5 million decrease of $46.3net borrowings under our senior secured revolving credit facility, $40.0 million of distributions paid to our unitholders and $9.9 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 priorpayment related to the Sampson Drop‑DownHamlet Drop-Down, offset by an increase of $57.3 million and $5.6 million ofnet proceeds from 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,$103.0 million. 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. Borrowings under the Senior Secured Credit Facilities bear interest, at our option, at either a base rate plus an applicable margin or at a Eurodollar rate (with a 1.00% floor for term loan borrowings) plus an applicable margin. Principal and interest are payable quarterly.The 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.As of 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, 2017,2020, 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 guidance52requires 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.20162019 Form 10‑K.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, 2016.2019.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, 2019 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.SeptemberJune 30, 2017,2020, we had notional amounts of 42.640.4 million GBP under foreign currency forward contracts and 29.042.2 million GBP and 2.5 million EUR under foreign currency purchased optionsswap contracts that expire between 2017 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.SeptemberJune 30, 2017, the end of the period covered by this report.SeptemberJune 30, 2017,2020, 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, 2019.disclosedand other information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part II, Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, and the risk factors included in our Current Report on Form 8-K filed on June 19, 2020, any of which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.section entitled “Risk Factors”Mid-Atlantic and Gulf Coast regions of the United States. On March 13, 2020, the United States declared the COVID-19 pandemic a national emergency, and several states and municipalities, including states in which we own assets or conduct business, have declared public health emergencies. In addition, international, federal, state and local public health and government authorities have taken extraordinary and wide-ranging actions to contain and combat the outbreak and spread of COVID-19, including “stay-at-home” orders and similar mandates in the 2016 Form 10‑K.United States (“Orders”) for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. The Orders generally refer to the United States Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) guidance designating businesses in the forest products and energy (biomass) sectors, such as ours, as essential critical infrastructure. We have not been significantly impacted by the Orders, which exempt or exclude essential critical infrastructure businesses from various restrictions they impose (other than encouraging remote work where possible); nevertheless, the spread of COVID-19 has caused us to modify our business practices (including regarding employee travel and physical participation in meetings, events and conferences, screening all persons coming onsite, and increased frequency of cleaning schedules), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers or other stakeholders or the communities in which we operate. Such measures may disrupt our normal operations, and there is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19 or will not adversely impact our business or results of operations.
Number3.12.1 2.2 2.3 3.1 3.2 4.1*4.2*4.3*4.44.2 4.3 4.4 4.5 31.1*10.2 10.3 10.4*† 10.5*† 31.1* 101.INS*The following financial information from Enviva Partners, LP.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 formatted in Inline XBRL Instance Document(Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Changes in Partners’ Capital, (v) the Condensed Consolidated Statements of Cash Flows and (vi) Notes to the Condensed Consolidated Financial Statements. 101.SCH*XBRL Schema Document101.CAL*XBRL Calculation Linkbase Document101.DEF*XBRL Definition Linkbase Document101.LAB*XBRL Labels Linkbase Document.101.PRE*104 Cover Page Interactive Data File - (formatted as Inline XBRL Presentation Linkbase Document.and contained in Exhibit 101) 56November 2, 2017August 5, 2020By: /s/ SHAI S. EVEN By:/s/ STEPHEN F. REEVESShai S. Even Name:Stephen F. ReevesTitle:57