UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20192020
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission file number: 001-37363
Enviva Partners, LP
(Exact name of registrant as specified in its charter)
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Delaware | | 46-4097730 |
(State or other jurisdiction of incorporation or organization)
| 46-4097730
| (I.R.S. Employer Identification No.)
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7200 Wisconsin Ave, Ave. | Suite 1000 | Bethesda, | MD | 20814 |
(Address of principal executive offices) | 20814
| | | (Zip code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Units | EVA | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ | | Accelerated filer | ☒ |
| | |
Non-accelerated filer ☐ | | Smaller reporting company | ☐ |
| | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2019, 33,456,8112020, 39,765,192 common units were outstanding.
ENVIVA PARTNERS, LP
QUARTERLY REPORT ON FORM 10‑Q10-Q
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKINGFORWARD-LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form 10‑Q10-Q (this “Quarterly Report”) may constitute “forward‑looking“forward-looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward‑lookingforward-looking statements, which are generally not historical in nature. These forward‑lookingforward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. Although management believes that these forward‑lookingforward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward‑lookingforward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward‑lookingforward-looking statements include, but are not limited to, those summarized below:
•the volume and quality of products that we are able to produce or source and sell, which could be adversely affected by, among other things, operating or technical difficulties at our wood pellet production plants or deep-water marine terminals;
•the prices at which we are able to sell our products;
•our ability to successfully negotiate and complete and integrate drop-down and third-party acquisitions, including the associated contracts, or to realize the anticipated benefits of such acquisitions;
•failure of the Partnership’sour customers, vendors and shipping partners to pay or perform their contractual obligations to the Partnership;us;
•our inability to successfully execute our project development, expansion and construction activities on time and within budget;
•the creditworthiness of our contract counterparties;
•the amount of low-cost wood fiber that we are able to procure and process, which could be adversely affected by, among other things, disruptions in supply or operating or financial difficulties suffered by our suppliers;
•changes in the price and availability of natural gas, coal or other sources of energy;
•changes in prevailing economic conditions;
our inability to complete acquisitions, including acquisitions from our sponsor and joint ventures,•unanticipated ground, grade or to realize the anticipated benefits of such acquisitions;water conditions;
•inclement or hazardous environmental conditions, including extreme precipitation, temperatures and flooding;
•fires, explosions or other accidents;
•changes in domestic and foreign laws and regulations (or the interpretation thereof) related to renewable or low-carbon energy, the forestry products industry, the international shipping industry or power, heat or combined heat and power generators;
•changes in the regulatory treatment of biomass in core and emerging markets;
•our inability to timely acquire or maintain necessary permits or rights for our production, transportation or terminaling operations as well as expenditures associated therewith;operations;
•changes in the price and availability of transportation;
•changes in foreign currency exchange rates or interest rates, and the failure of our hedging arrangements to effectively reduce our exposure to the risks related thereto;
•risks related to our indebtedness;
•our failure to maintain effective quality control systems at our production plants and deep-water marine terminals, which could lead to the rejection of our products by our customers;
•changes in the quality specifications for our products that are required by our customers;
•labor disputes;
•our inability to hire, train or retain qualified personnel to manage and operate our business and newly acquired assets;
•the effects of the anticipated exit of the United Kingdom from the European Union on our and our customers’ businesses; and
•our inability to borrow funds and access capital markets.markets; and
•viral contagions or pandemic diseases, such as the recent outbreak of a novel strain of coronavirus known as COVID-19.
Please read the risks described in our Annual Report on Form 10-K for the year ended December 31, 2018.2019 and the risk factors included herein in Item 1A. Risk Factors. All forward-looking statements in this Quarterly Report are expressly qualified in their entirety by the foregoing cautionary statements.
Readers are cautioned not to place undue reliance on forward-looking statements and we undertake no obligation to update or revise any such statements after the date they are made, whether as a result of new information, future events or otherwise.
GLOSSARY OF TERMS
biomass: any organic biological material derived from living organisms that stores energy from the sun.
co-fire: the combustion of two different types of materials at the same time. For example, biomass is sometimes fired in combination with coal in existing coal plants.
dry-bulk: describes dry-bulk commodities that are shipped in large, unpackaged amounts.
metric ton: one metric ton, which is equivalent to 1,000 kilograms and 1.1023 short tons.
net calorific value: commonly used in the power industry as the means of expressing fuel energy.
off-take contract: an agreement concerning the purchase and sale of a certain volume of a given resource such as wood pellets.
ramp: increasing production for a period of time following the startup of a plant or completion of a project.
utility-grade wood pellets: wood pellets meeting minimum requirements generally specified by industrial consumers and produced and sold in sufficient quantities to satisfy industrial-scale consumption.
wood fiber: cellulosic elements that are extracted from trees and used to make various materials, including paper. In North America, wood fiber is primarily extracted from hardwood (deciduous) trees and softwood (coniferous) trees.
wood pellets: energy-dense, low-moisture and uniformly-sizeduniformly sized units of wood fuel produced from processing various wood resources or byproducts.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except number of units)
| | | | June 30, 2019 | | December 31, 2018 | | June 30, 2020 | | December 31, 2019 |
| | (unaudited) | | | | (unaudited) | | |
Assets | | | | | Assets | |
Current assets: | | | | | Current assets: | |
Cash and cash equivalents | | $ | 5,005 |
| | $ | 2,460 |
| Cash and cash equivalents | $ | 98,101 | | | $ | 9,053 | |
Accounts receivable | | 61,818 |
| | 54,794 |
| Accounts receivable | 82,543 | | | 72,421 | |
Insurance receivables | | 2,258 |
| | 5,140 |
| |
Related-party receivables | | 5,687 |
| | 1,392 |
| |
Related-party receivables, net | | Related-party receivables, net | 8,625 | | | — | |
Inventories | | 31,292 |
| | 31,490 |
| Inventories | 39,723 | | | 32,998 | |
Prepaid expenses and other current assets | | 3,069 |
| | 2,235 |
| Prepaid expenses and other current assets | 8,932 | | | 5,617 | |
Total current assets | | 109,129 |
| | 97,511 |
| Total current assets | 237,924 | | | 120,089 | |
| | | | | |
Property, plant and equipment - in service, net | | 525,474 |
| | 542,635 |
| |
Construction in progress | | 198,616 |
| | 14,393 |
| |
Total property, plant and equipment, net | | 724,090 |
| | 557,028 |
| |
| | | | | |
Operating lease right-of-use assets, net | | 33,877 |
| | — |
| |
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 |
| Goodwill | 85,615 | | | 85,615 | |
Other long-term assets | | 6,858 |
| | 8,616 |
| Other long-term assets | 10,247 | | | 4,504 | |
Total assets | | $ | 959,569 |
| | $ | 748,770 |
| Total assets | $ | 1,150,046 | | | $ | 994,818 | |
| | | | | |
Liabilities and Partners’ Capital | | | | | Liabilities and Partners’ Capital | | | |
Current liabilities: | | | | | Current liabilities: | |
Accounts payable | | $ | 15,648 |
| | $ | 15,551 |
| Accounts payable | $ | 20,358 | | | $ | 18,985 | |
Related-party payables and accrued liabilities | | 29,473 |
| | 28,225 |
| |
Deferred consideration for drop-downs due to related party | | 40,000 |
| | 74,000 |
| |
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 | | 52,788 |
| | 41,400 |
| Accrued and other current liabilities | 75,346 | | | 59,066 | |
Current portion of interest payable | | 5,512 |
| | 5,434 |
| Current portion of interest payable | 22,996 | | | 3,427 | |
Current portion of long-term debt and finance lease obligations | | 2,733 |
| | 2,722 |
| Current portion of long-term debt and finance lease obligations | 7,558 | | | 6,590 | |
Total current liabilities | | 146,154 |
| | 167,332 |
| Total current liabilities | 126,258 | | | 128,372 | |
Long-term debt and finance lease obligations | | 523,348 |
| | 429,933 |
| Long-term debt and finance lease obligations | 597,510 | | | 596,430 | |
Long-term operating lease liabilities | | 33,849 |
| | — |
| Long-term operating lease liabilities | 32,980 | | | 33,469 | |
Long-term interest payable | | 1,070 |
| | 1,010 |
| |
Other long-term liabilities | | 1,991 |
| | 3,779 |
| Other long-term liabilities | 2,818 | | | 3,971 | |
Total liabilities | | 706,412 |
| | 602,054 |
| Total liabilities | 759,566 | | | 762,242 | |
Commitments and contingencies | |
| |
| Commitments and contingencies | | | |
| | | | | |
Partners’ capital: | | | | | Partners’ capital: | |
Limited partners: | | | | | Limited partners: | |
Common unitholders—public (19,870,436 and 14,573,452 units issued and outstanding at June 30, 2019 and December 31, 2018, respectively) | | 323,883 |
| | 207,612 |
| |
Common unitholder—sponsor (13,586,375 and 11,905,138 units issued and outstanding at June 30, 2019 and December 31, 2018, respectively) | | 98,785 |
| | 72,352 |
| |
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) | | (121,422 | ) | | (133,687 | ) | General partner (no outstanding units) | (99,899) | | | (101,739) | |
Accumulated other comprehensive income | | 103 |
| | 439 |
| Accumulated other comprehensive income | 1 | | | 23 | |
Total Enviva Partners, LP partners' capital | | 301,349 |
| | 146,716 |
| |
Total Enviva Partners, LP partners’ capital | | Total Enviva Partners, LP partners’ capital | 438,672 | | | 280,768 | |
Noncontrolling interest | | (48,192 | ) | | — |
| Noncontrolling interest | (48,192) | | | (48,192) | |
Total partners’ capital | | 253,157 |
| | 146,716 |
| |
Total partners' capital | | Total partners' capital | 390,480 | | | 232,576 | |
Total liabilities and partners’ capital | | $ | 959,569 |
| | $ | 748,770 |
| Total liabilities and partners’ capital | $ | 1,150,046 | | | $ | 994,818 | |
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per unit amounts)
(Unaudited)
| | | Three Months Ended June 30, | | Six Months ended June 30, | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Product sales | $ | 167,202 |
| | $ | 133,168 |
| | $ | 323,801 |
| | $ | 255,490 |
| Product sales | $ | 155,651 | | | $ | 167,202 | | | $ | 353,504 | | | $ | 323,801 | |
Other revenue (1) | 877 |
| | 2,428 |
| | 2,647 |
| | 5,430 |
| Other revenue (1) | 12,061 | | | 877 | | | 18,685 | | | 2,647 | |
Net revenue | 168,079 |
| | 135,596 |
| | 326,448 |
| | 260,920 |
| Net revenue | 167,712 | | | 168,079 | | | 372,189 | | | 326,448 | |
Cost of goods sold (1) | 140,476 |
| | 105,967 |
| | 277,868 |
| | 227,005 |
| Cost of goods sold (1) | 125,047 | | | 140,476 | | | 288,577 | | | 277,868 | |
Depreciation and amortization | 11,096 |
| | 9,818 |
| | 22,166 |
| | 19,122 |
| Depreciation and amortization | 14,986 | | | 11,096 | | | 28,626 | | | 22,166 | |
Total cost of goods sold | 151,572 |
| | 115,785 |
| | 300,034 |
| | 246,127 |
| Total cost of goods sold | 140,033 | | | 151,572 | | | 317,203 | | | 300,034 | |
Gross margin | 16,507 |
| | 19,811 |
| | 26,414 |
| | 14,793 |
| Gross margin | 27,679 | | | 16,507 | | | 54,986 | | | 26,414 | |
General and administrative expenses | 2,241 |
| | 3,829 |
| | 7,865 |
| | 6,577 |
| General and administrative expenses | 2,096 | | | 1,767 | | | 3,859 | | | 5,308 | |
Related-party management services agreement fee | 8,789 |
| | 3,458 |
| | 13,002 |
| | 7,514 |
| |
Related-party management services agreement fees | | Related-party management services agreement fees | 6,947 | | | 9,263 | | | 14,636 | | | 15,559 | |
Total general and administrative expenses | 11,030 |
| | 7,287 |
| | 20,867 |
| | 14,091 |
| Total general and administrative expenses | 9,043 | | | 11,030 | | | 18,495 | | | 20,867 | |
Income from operations | 5,477 |
| | 12,524 |
| | 5,547 |
| | 702 |
| Income from operations | 18,636 | | | 5,477 | | | 36,491 | | | 5,547 | |
Other income (expense): | | | | | | | | |
Other (expense) income: | | Other (expense) income: | | |
Interest expense | (9,196 | ) | | (9,047 | ) | | (18,829 | ) | | (17,692 | ) | Interest expense | (10,124) | | | (9,196) | | | (20,518) | | | (18,829) | |
Other (expense) income, net | (82 | ) | | 67 |
| | 558 |
| | 1,199 |
| Other (expense) income, net | (41) | | | (82) | | | 131 | | | 558 | |
Total other expense, net | (9,278 | ) | | (8,980 | ) | | (18,271 | ) | | (16,493 | ) | Total other expense, net | (10,165) | | | (9,278) | | | (20,387) | | | (18,271) | |
Net (loss) income | $ | (3,801 | ) | | $ | 3,544 |
| | $ | (12,724 | ) | | $ | (15,791 | ) | |
Net (loss) income per limited partner common unit: | | | | | | | | |
Net income (loss) | | Net income (loss) | $ | 8,471 | | | $ | (3,801) | | | $ | 16,104 | | | $ | (12,724) | |
Net income (loss) per limited partner common unit: | | Net income (loss) per limited partner common unit: | | | | | | | |
Basic and diluted | $ | (0.20 | ) | | $ | 0.08 |
| | $ | (0.59 | ) | | $ | (0.70 | ) | Basic and diluted | $ | — | | | $ | (0.20) | | | $ | 0.10 | | | $ | (0.59) | |
Net (loss) income per limited partner subordinated unit: | | | | | | | | |
| Weighted-average number of limited partner common units outstanding: | | Weighted-average number of limited partner common units outstanding: | |
Basic and diluted | $ | — |
| | $ | 0.08 |
| | $ | — |
| | $ | (0.70 | ) | Basic and diluted | 34,082 | | | 33,400 | | | 33,816 | | | 30,098 | |
Weighted-average number of limited partner units outstanding: | | | | | | | | |
Common—basic | 33,400 |
| | 18,597 |
| | 30,098 |
| | 16,518 |
| |
Common—diluted | 33,400 |
| | 19,728 |
| | 30,098 |
| | 16,518 |
| |
Subordinated—basic and diluted | — |
| | 7,804 |
| | — |
| | 9,855 |
| |
| | | | | | | | |
(1) See Note 13, Related-Party Transactions | | | | | | | | |
(1) See Note 12, Related-Party Transactions | | (1) See Note 12, Related-Party Transactions | |
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) Income
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net (loss) income | $ | (3,801 | ) | | $ | 3,544 |
| | $ | (12,724 | ) | | $ | (15,791 | ) |
Other comprehensive (loss) income: | | | | | | | |
Net unrealized (losses) gains on cash flow hedges | (106 | ) | | 4,365 |
| | (161 | ) | | 3,037 |
|
Reclassification of net gains realized into net (loss) income | (86 | ) | | (64 | ) | | (193 | ) | | (63 | ) |
Total other comprehensive (loss) income | (192 | ) | | 4,301 |
| | (354 | ) | | 2,974 |
|
Total comprehensive (loss) income | $ | (3,993 | ) | | $ | 7,845 |
| | $ | (13,078 | ) | | $ | (12,817 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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) | |
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated StatementStatements of Changes in Partners’ Capital
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| General Partner Interest | | Limited Partners’ Capital | Accumulated Other Comprehensive Income | | Non-controlling interest | | Total Partners' Capital |
Common Units— Public | | Common Units— Sponsor | |
Units | | Amount | | Units | | Amount | |
Partners' capital, December 31, 2018 | $ | (133,687 | ) | | 14,573 |
| | $ | 207,612 |
| | 11,905 |
| | $ | 72,352 |
| | $ | 439 |
| | $ | — |
| | $ | 146,716 |
|
Distributions to unitholders, distribution equivalent and incentive distribution rights | (1,671 | ) | | — |
| | (10,269 | ) | | — |
| | (7,619 | ) | | — |
| | — |
| | (19,559 | ) |
Issuance of units through Long-Term Incentive Plan | (2,129 | ) | | 94 |
| | 659 |
| | — |
| | — |
| | — |
| | — |
| | (1,470 | ) |
Issuance of common units, net | — |
| | 3,509 |
| | 96,661 |
| | — |
| | — |
| | — |
| | — |
| | 96,661 |
|
Non-cash Management Services Agreement expenses | 136 |
| | — |
| | 2,072 |
| | — |
| | — |
| | — |
| | — |
| | 2,208 |
|
Cumulative effect of accounting change - derivative instruments | — |
| | — |
| �� | (10 | ) | | — |
| | (8 | ) | | 18 |
| | — |
| | — |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (162 | ) | | — |
| | (162 | ) |
Net income (loss) | 1,671 |
| | — |
| | (5,880 | ) | | — |
| | (4,714 | ) | | — |
| | — |
| | (8,923 | ) |
Partners' capital, March 31, 2019 | (135,680 | ) | | 18,176 |
| | 290,845 |
| | 11,905 |
| | 60,011 |
| | 295 |
| | — |
| | 215,471 |
|
Excess consideration over Enviva Wilmington Holdings, LLC net assets and initial recognition of its noncontrolling interest | 1,283 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (48,192 | ) | | (46,909 | ) |
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 | 247 |
| | 2 |
| | (287 | ) | | — |
| | — |
| | — |
| | — |
| | (40 | ) |
Issuance of common units, net | — |
| | 1,692 |
| | 49,641 |
| | — |
| | — |
| | — |
| | — |
| | 49,641 |
|
Issuance of units associated with the First JV Drop-Down | — |
| | — |
| | — |
| | 1,681 |
| | 50,000 |
| | — |
| | — |
| | 50,000 |
|
Non-cash Management Services Agreement expenses | 11,226 |
| | — |
| | 1,013 |
| | — |
| | — |
| | — |
| | — |
| | 12,239 |
|
Reimbursable charges under Make-Whole Agreement | 1,502 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,502 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (192 | ) | | — |
| | (192 | ) |
Net income (loss) | 2,271 |
| | — |
| | (3,609 | ) | | — |
| | (2,463 | ) | | — |
| | — |
| | (3,801 | ) |
Partners' capital, June 30, 2019 | $ | (121,422 | ) | | 19,870 |
| | $ | 323,883 |
| | 13,586 |
| | $ | 98,785 |
| | $ | 103 |
| | $ | (48,192 | ) | | $ | 253,157 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| General Partner Interest | | Limited Partners’ Capital | | | | | | | | Accumulated Other Comprehensive Income | | Non-Controlling Interest | | Total Partners' Capital |
| | | Common Units— Public | | | | Common Units— Sponsor | | | | | | | | |
| | | Units | | 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 | |
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated StatementStatements of Changes in Partners’ Capital (Continued)
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | General Partner Interest | | Limited Partners’ Capital | | Accumulated Other Comprehensive Loss | | Non-controlling interest | | Total Partners' Capital |
| General Partner Interest | | Limited Partners’ Capital | | Accumulated Other Comprehensive Loss | | Total Partners' Capital | | Common Units— Public | | | Common Units— Sponsor | | | | | | | |
Common Units— Public | | Common Units— Sponsor | | Subordinated Units— Sponsor | | Units | | Amount | | Units | | Amount | | | | | | | Total Partners' Capital |
Units | | Amount | | Units | | Amount | | Units | | Amount | |
Partners' capital, December 31, 2017 | $ | (128,569 | ) | | 13,073 |
| | $ | 224,027 |
| | 1,347 |
| | $ | 16,050 |
| | 11,905 |
| | $ | 101,901 |
| | $ | (3,040 | ) | | $ | 210,369 |
| |
Partners’ 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 | (1,130 | ) | | — |
| | (8,833 | ) | | — |
| | (785 | ) | | — |
| | (7,381 | ) | | — |
| | (18,129 | ) | 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 | ) | | 99 |
| | (164 | ) | | (82 | ) | | (1,301 | ) | | — |
| | — |
| | — |
| | (3,594 | ) | Issuance of units through Long-Term Incentive Plan | (2,129) | | | 94 | | | 659 | | | — | | | — | | | — | | | — | | | (1,470) | |
Issuance of common units, net | — |
| | 8 |
| | 241 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 241 |
| Issuance of common units, net | — | | | 3,509 | | | 96,661 | | | — | | | — | | | — | | | — | | | 96,661 | |
Non-cash Management Services Agreement expenses | 102 |
| | — |
| | 931 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,033 |
| 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 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,327 | ) | | (1,327 | ) | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (162) | | | — | | | (162) | |
Net income (loss) | 1,130 |
| | — |
| | (10,233 | ) | | — |
| | (983 | ) | | — |
| | (9,249 | ) | | — |
| | (19,335 | ) | Net income (loss) | 1,671 | | | — | | | (5,880) | | | — | | | (4,714) | | | — | | | — | | | (8,923) | |
Partners' capital, March 31, 2018 | (130,596 | ) | | 13,180 |
| | 205,969 |
| | 1,265 |
| | 12,981 |
| | 11,905 |
| | 85,271 |
| | (4,367 | ) | | 169,258 |
| |
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 | (1,264 | ) | | — |
| | (9,750 | ) | | — |
| | — |
| | — |
| | (7,441 | ) | | — |
| | (18,455 | ) | 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 | (3,435 | ) | | 122 |
| | 723 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,712 | ) | Issuance of units through Long-Term Incentive Plan | 247 | | | 2 | | | (287) | | | — | | | — | | | — | | | — | | | (40) | |
Sale of common units | — |
| | 1,265 |
| | 13,335 |
| | (1,265 | ) | | (13,335 | ) | | — |
| | — |
| | — |
| | — |
| |
Conversion of subordinated units to common units | — |
| | — |
| | — |
| | 11,905 |
| | 78,504 |
| | (11,905 | ) | | (78,504 | ) | | — |
| | — |
| |
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 | 210 |
| | — |
| | 2,480 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,690 |
| Non-cash Management Services Agreement expenses | 11,226 | | | — | | | 1,013 | | | — | | | — | | | — | | | — | | | 12,239 | |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,301 |
| | 4,301 |
| |
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) | 1,264 |
| | — |
| | 1,252 |
| | — |
| | 354 |
| | — |
| | 674 |
| | — |
| | 3,544 |
| Net income (loss) | 2,271 | | | — | | | (3,609) | | | — | | | (2,463) | | | — | | | — | | | (3,801) | |
Partners' capital, June 30, 2018 | $ | (133,821 | ) | | 14,567 |
| | $ | 214,009 |
| | 11,905 |
| | $ | 78,504 |
| | — |
| | $ | — |
| | $ | (66 | ) | | $ | 158,626 |
| |
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 | |
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | Six Months ended June 30, | | Six Months Ended June 30, | |
| 2019 | | 2018 | | 2020 | | 2019 |
Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net loss | $ | (12,724 | ) | | $ | (15,791 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | |
Net income (loss) | | Net income (loss) | $ | 16,104 | | | $ | (12,724) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
Depreciation and amortization | 22,456 |
| | 19,439 |
| Depreciation and amortization | 29,204 | | | 22,456 | |
MSA Fee Waivers | 11,046 |
| | — |
| MSA Fee Waivers | 4,757 | | | 11,046 | |
Amortization of debt issuance costs, debt premium and original issue discounts | 595 |
| | 548 |
| Amortization of debt issuance costs, debt premium and original issue discounts | 813 | | | 595 | |
Loss on disposal of assets | 350 |
| | 244 |
| Loss on disposal of assets | 760 | | | 350 | |
Unit-based compensation | 3,485 |
| | 3,823 |
| Unit-based compensation | 4,256 | | | 3,485 | |
Fair value changes in derivatives | (346 | ) | | (2,923 | ) | Fair value changes in derivatives | (5,347) | | | (346) | |
Unrealized loss on foreign currency transactions, net | 29 |
| | 29 |
| |
Unrealized (losses) gains on foreign currency transactions, net | | Unrealized (losses) gains on foreign currency transactions, net | (138) | | | 29 | |
Change in operating assets and liabilities: | | | | Change in operating assets and liabilities: | |
Accounts and insurance receivables | (4,167 | ) | | 33,806 |
| Accounts and insurance receivables | (11,406) | | | (4,167) | |
Related-party receivables | (2,536 | ) | | 66 |
| Related-party receivables | (2,843) | | | (2,536) | |
Prepaid expenses and other current and long-term assets | (340 | ) | | (297 | ) | Prepaid expenses and other current and long-term assets | (14) | | | (340) | |
Inventories | (18 | ) | | (12,021 | ) | Inventories | (6,270) | | | (18) | |
Derivatives | 563 |
| | (947 | ) | Derivatives | (792) | | | 563 | |
Accounts payable, accrued liabilities and other current liabilities | (7,079 | ) | | 8,436 |
| Accounts payable, accrued liabilities and other current liabilities | 11,771 | | | (7,079) | |
Related-party payables and accrued liabilities | (356 | ) | | (3,445 | ) | |
Related-party payables | | Related-party payables | — | | | (356) | |
Accrued interest | (578 | ) | | 60 |
| Accrued interest | 17,718 | | | (578) | |
Deferred revenue | | Deferred revenue | (3,152) | | | — | |
Operating lease liabilities | (2,472 | ) | | — |
| Operating lease liabilities | (2,169) | | | (2,472) | |
Other long-term liabilities | (346 | ) | | 206 |
| Other long-term liabilities | 406 | | | (346) | |
Net cash provided by operating activities | 7,562 |
| | 31,233 |
| Net cash provided by operating activities | 53,658 | | | 7,562 | |
Cash flows from investing activities: | | | | Cash flows from investing activities: | |
Purchases of property, plant and equipment | (49,892 | ) | | (5,879 | ) | Purchases of property, plant and equipment | (58,839) | | | (49,892) | |
Payment in relation to the Enviva Wilmington Holdings, LLC Drop-Down | (74,700 | ) | | — |
| |
Insurance proceeds from property loss | — |
| | 1,130 |
| |
Payment in relation to the Hamlet Drop-Down | | Payment in relation to the Hamlet Drop-Down | — | | | (74,700) | |
Other | | Other | (3,769) | | | — | |
Net cash used in investing activities | (124,592 | ) | | (4,749 | ) | Net cash used in investing activities | (62,608) | | | (124,592) | |
Cash flows from financing activities: | | | | Cash flows from financing activities: | |
Proceeds from long-term debt and finance lease obligations, net | 92,248 |
| | 27,016 |
| |
Proceeds from senior secured revolving credit facility, net | | Proceeds from senior secured revolving credit facility, net | — | | | 93,500 | |
Principal payments on other long-term debt and finance lease obligations | | 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 | | Cash paid related to debt issuance and deferred offering costs | (1,310) | | | — | |
Proceeds from common unit issuances, net | 96,970 |
| | 241 |
| Proceeds from common unit issuances, net | 199,990 | | | 96,970 | |
Payment of deferred consideration for Enviva Port of Wilmington, LLC Drop-Down | (24,300 | ) | | — |
| |
Payment of deferred consideration for the Wilmington Drop-Down | | Payment of deferred consideration for the Wilmington Drop-Down | — | | | (24,300) | |
Payments in relation to the Hamlet Drop-Down | | Payments in relation to the Hamlet Drop-Down | (40,000) | | | — | |
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder | (43,473 | ) | | (36,469 | ) | Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder | (54,874) | | | (43,473) | |
Payment to General Partner to purchase affiliate common units for Long-Term Incentive Plan vesting | — |
| | (2,341 | ) | |
Payment for withholding tax associated with Long-Term Incentive Plan vesting | (1,870 | ) | | (1,665 | ) | Payment for withholding tax associated with Long-Term Incentive Plan vesting | (3,727) | | | (1,870) | |
Net cash provided by (used in) financing activities | 119,575 |
| | (13,218 | ) | |
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 | 2,545 |
| | 13,266 |
| Net increase in cash, cash equivalents and restricted cash | 89,048 | | | 2,545 | |
Cash, cash equivalents and restricted cash, beginning of period | 2,460 |
| | 524 |
| Cash, cash equivalents and restricted cash, beginning of period | 9,053 | | | 2,460 | |
Cash, cash equivalents and restricted cash, end of period | $ | 5,005 |
| | $ | 13,790 |
| Cash, cash equivalents and restricted cash, end of period | $ | 98,101 | | | $ | 5,005 | |
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)
(Unaudited)
|
| | | | | | | |
| Six Months ended June 30, |
| 2019 | | 2018 |
Non-cash investing and financing activities: | | | |
The Partnership acquired property, plant and equipment in non-cash transactions as follows: | | | |
Property, plant and equipment acquired included in accounts payable and accrued liabilities | $ | 6,200 |
| | $ | 7,682 |
|
Property, plant and equipment acquired under finance lease obligations | 1,080 |
| | 960 |
|
Property, plant and equipment capitalized interest | 716 |
| | — |
|
Distributions included in liabilities | 1,181 |
| | 1,056 |
|
Withholding tax payable associated with Long-Term Incentive Plan vesting | 40 |
| | 2,715 |
|
Conversion of subordinated units to common units | — |
| | 78,504 |
|
Common unit issuance for deferred consideration for Enviva Port of Wilmington, LLC Drop-Down | 49,700 |
| | — |
|
Common unit issuance for the Enviva Wilmington Holdings, LLC Drop-Down | 50,000 |
| | — |
|
Common unit issuance costs in accrued liabilities | 339 |
| | — |
|
Depreciation capitalized to inventories | 350 |
| | 1,075 |
|
Supplemental cash flow information: | | | |
Interest paid | $ | 18,867 |
| | $ | 17,143 |
|
| | | | | | | | | | | |
| 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 | |
See accompanying notes to condensed consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
(Unaudited)
(1) Description of Business and Basis of Presentation
Description of Business
Enviva Partners, LP, together with its subsidiaries (“we,” “us,” “our” or the “Partnership”), supplies utility-grade wood pellets primarily to major power generators under long-term, take-or-pay off-take contracts. We procure wood fiber and process it into utility-grade wood pellets and load the finished wood pellets into railcars, trucks and barges for transportation to deep-water marine terminals, where they are received, stored and ultimately loaded onto oceangoing vessels for delivery to our principally European, and increasingly Japanese, customers under long-term, take-or-pay contracts.off-take contracts to our customers principally in the United Kingdom (the “U.K.”), Europe and increasingly Japan.
As of June 30, 2019, we ownedWe own and operated sixoperate 7 industrial-scale wood pellet production plants located in the Mid-Atlantic and Gulf Coast regions of the United States and are commissioning a seventh plant in Hamlet, North Carolina (the “Hamlet plant”).States. In addition to the volumes from our plants, we also procure wood pellets from third parties and Enviva Pelletsfrom a wood pellet production plant located in Greenwood, LLC (“Greenwood”), a wholly owned subsidiary of Enviva JV Development Company, LLCSouth Carolina (the “Second JV”“Greenwood plant”), a limited liability company owned by Enviva Holdings, LP (together with its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC, where applicable, our “sponsor”). On July 1, 2020, we acquired the “sponsor”) and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates. Greenwood owns a wood pellet production plant, in Greenwood, South Carolina (the “Greenwood plant”).see Note 17, Subsequent Events. Wood pellets are exported from our wholly owned dry-bulk, deep-water marine terminal inat the Port of Chesapeake, Virginia (the “Chesapeake terminal”) and terminal assets inat the Port of Wilmington, North Carolina (the “Wilmington terminal”), and from third-party deep-water marine terminals in Mobile, Alabama, and Panama City, Florida under a short-term and a long-term contract, respectively.
Basis of Presentation
The unaudited financial statements and notes 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 of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.
In the opinion of management, all adjustments and accruals necessary for a fair presentation have been included. All such adjustments and accruals are of a normal and recurring nature unless disclosed otherwise. All significant intercompany balances and transactions have been eliminated in consolidation. The results reported in the financial statements are not necessarily indicative of the results that may be reported for the entire year.
We entered into an agreement with our sponsor effective as of September 30, 2019 pursuant to which the parties agreed to set off related-party receivables and payables; consequently, we intend to set off related-party receivables and payables, which are reflected net in related-party receivables or payables, in accordance with the agreement.
The unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Reclassification
Certain prior year amounts have been reclassified from general and administrative expenses to related-party management services agreement fees to conform to current period presentation on the condensed consolidated statements of operations.
Enviva Wilmington Holdings, LLC
InOn April 2, 2019, we acquired from theour sponsor all of the issued and outstanding Class B Units in Enviva Wilmington Holdings, LLC (the “First“Hamlet JV”), a limited liability company owned by theour sponsor and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates (collectively, the “Hancock Member”as applicable, “John Hancock”). AsOn the date of April 2, 2019,acquisition (the “Hamlet Drop-Down”), we began to consolidate the FirstHamlet JV becauseas a variable interest entity of which we are the primary beneficiary. As managing member, we have the sole power to direct the activities that most impact the economics of the Hamlet JV. Additionally, as the Class B Units representedrepresent a controlling interest in the FirstHamlet JV, so we accountedaccount for the FirstHamlet JV as a consolidated subsidiary, not as a joint venture. The FirstHamlet JV owns thea wood pellet production plant in Hamlet, plantNorth Carolina (the “Hamlet plant”) and a firm, 15-year take-or-pay off-take contract with a customer for the delivery of nearly 1.0 million metric tons per year (“MTPY”) of wood pellets, following a ramp period.
On the date of our acquisition of the sponsor’s Class B Units in the First JV, we entered into the following transactions (collectively, the “JV 1.0 Drop-Down”):
We commenced an associated terminal services agreement to handle contracted volumes from the The Hamlet plant.
We entered into an agreement with the sponsor, pursuant to which (1) the sponsor will guarantee certain cash flows from the Hamlet plant until June 30, 2020, (2) the sponsor will reimburse us for construction cost overruns in excess of budgeted capital expenditures for the Hamlet plant, subject to certain exceptions, (3) we will pay to the sponsor quarterly incentive payments for any wood pellets produced by the Hamlet plant in excess of forecast production
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
levels through June 30, 2020, and (4) the sponsor will retain liability for certain claims payable, if any, by the First JV (the “Make-Whole Agreement”).
The First JV entered into an agreement with Enviva Management to waive the obligation to pay an aggregate of approximately $2.7 million of management fees payable to Enviva Management under the management services agreement (the “First JV MSA”) between the First JV and Enviva Management Company, LLC, a Delaware limited liability company and wholly owned subsidiary of the sponsor (“Enviva Management”), through and including the later of July 1, 2019 and the commencement of commercial operations (“COD”) of the Hamlet plant (the “First JV MSA Fee Waiver”).
We entered into an agreement with Enviva Management to waive the obligation to pay an aggregate of approximately $13.0 million in fees payable under our management services agreement (the “EVA MSA,” and together with the First JV MSA, the “MSAs”) with Enviva Management with respect to the period from the date of the JV 1.0 Drop-Down through the second quarter of 2020 (the “EVA MSA Fee Waiver”).
We assumed the sponsor’s position as lender under a credit agreement between the First JV, as borrower, and the sponsor, as lender (the “First JV Revolver”).
Fees through the MSAs are expensed as incurred and, to the extent any amount is associated with the First JV MSA Fee Waiver and the EVA MSA Fee Waiver, the related amount is recorded as an increase to partners’ capital.
The $165.0 million purchase price for the JV 1.0 Drop-Down consisted of (1) a cash payment of $24.7 million, net of a purchase price adjustment of $0.3 million, (2) the issuance of 1,681,237 unregistered common units at a value of $29.74, or $50.0 million of common units, (3) $50.0 million in cash paid on June 28, 2019, (4) $40.0 million in cash to be paid on January 2, 2020 and (5) the elimination of $3.7 million of net related-party receivables and payables included in the net assets on the date of acquisition. As the holder of the Class B Units, Enviva, LP became a member of the First JV (the “Enviva Member”) on the acquisition date. During the three and six month ended June 30, 2019, we incurred and expensed $0.5 million and $1.2 million, respectively, in acquisition costs to acquire the First JV which were recognized as general and administrative expenses.
As the Enviva Member, we are the managing member of the First JV. We included all accounts of the First JV in our consolidated results as of April 2, 2019 as the Class B Units represent a controlling interest in the First JV. The JV 1.0 Drop-Down was an asset acquisition of entities under common control and accounted for on the carryover basis of accounting. PursuantAccordingly, the consolidated financial statements for the period beginning April 2019 reflect the acquisition.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to the First JV MSA, Enviva Management provides services to the First JV, including those necessary or incidental to the operationCondensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and management of the First JV’s business. The Enviva Member is responsible for managing the activities of the First JV, including the development, construction and operation of the Hamlet plant.unless otherwise noted)
(2) Significant Accounting Policies
During interim periods, we follow the accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 except for our adoption on and as of January 1, 2019 of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in our unaudited financial statements and accompanying notes. Actual results could differ materially from those estimates.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
Recently Adopted Accounting Standards Adopted
Leases
ASU 2016-02 established a right-of-use (“ROU”) model that requires lessees to recognize a ROU asset and corresponding lease liability on the balance sheet for all leases with a term of longer than 12 months and classify leases as operating or finance. Operating lease expense is recorded in a single financial statement line item on a straight-line basis over the lease term. Amortization of the ROU asset is the calculated difference between straight-line lease expense and the accretion of interest on the lease liability each period.
We adopted ASU 2016-02 on and as of January 1, 2019 using the modified retrospective transition method, which we applied to all leases existing at the date of initial application of the ASU. We elected to use the effective date as the date of initial application, as opposed to the beginning of the earliest comparative period presented in the financial statements; consequently, financial information and disclosures are not presented under the new standard for periods prior to January 1, 2019. We elected the package of three practical expedients under the transition guidance within the new standard, which permitted us to reassess our prior conclusions under the previous guidance concerning lease identification, lease classification and initial direct leasing costs. We elected the practical expedient to not evaluate existing or expired land easements that were not accounted for as leases under previous guidance. We did not, however, elect the separate practical expedient pertaining to the use of hindsight in determining the lease term for existing leases. We have a significant contract containing both lease and nonlease components, which are accounted for separately. As this contract has fixed payments, the allocation of lease and nonlease components is based on relative standalone price.
The adoption of the new standard as of January 1, 2019 resulted in the recognition of operating lease ROU assets of $27.4 million, net of $2.1 million of deferred rent liabilities existing as of December 31, 2018, and operating lease liabilities of $29.5 million for operating leases related to real estate, machinery and equipment and other operating leases with terms of longer than 12 months. The amounts recognized as of January 1, 2019 were based on the present value of the remaining minimum rental payments under previous leasing standards for existing operating leases. The classification of a lease affects the pattern and classification of expense recognition in the income statement, which is unchanged from under the previous accounting method. The adoption of the new standard did not change our accounting for finance leases (which were described as “capital leases” under the previous standard) or impact our results of operations and cash flows. See Note 9, Leases.
Derivative Instruments
We adopted ASU 2017-12 on andas of January 1, 2019 using the modified retrospective method, which requires the recognition of the cumulative effect of the change on the opening balance of each affected component of equity in the statement of changes in partner’s capital as of the date of adoption of the new standard. Upon adoption of ASU 2017-12, we no longer measure and recognize ineffectiveness related to designated and qualifying cash flow hedges in earnings; as a result, any ineffectiveness is included in accumulated other comprehensive income. On January 1, 2019,2020, we recordedadopted Accounting Standards Update 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which changes how entities measure credit losses for most financial assets. The adoption did not have a nominal cumulative effect adjustment to accumulated other comprehensive income and common units in partners’ capital. See Note 10, Derivatives.material impact on the financial statements.
Recently Issued Accounting Standards not yet Adopted
Currently, there are no recently issued accounting standards not yet adopted by us that we expect to be reasonably likely to materially impact the financial position, results of operations or cash flows of the Partnership.
(3) Transactions Between Entities Under Common Control
The JV 1.0 Drop-Down was an asset acquisition of entities under common control and accounted for on the carryover basis of accounting. Accordingly, the consolidated financial statements for the period beginning April 2, 2019 reflect the acquisition.
The$165.0 million purchase price for the JV 1.0Hamlet Drop-Down in April 2019 consisted of $165.0 million, which included(1) an initial cash payment of $24.7 million, net of a purchase price adjustment of $0.3 million, and(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 cash, paid on June 28, 2019 and (4) a third and final cash payment of $40.0 million in cash, which will be paid on January 2, 20202020.
We are responsible for managing the activities 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 thirdClass B Units represent a controlling interest in the Hamlet JV and final payment.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amountswe are generally unrestricted in managing the assets and unless otherwise noted)
(Unaudited)
The changes in net assets at carryover basis on April 2, 2019 included $121.6 million net assetscash flows of the FirstHamlet JV; however, certain decisions, such as those relating to the issuance and redemption of equity interests in the Hamlet JV, netguarantees of indebtedness and fundamental changes, including mergers and acquisitions, asset sales and liquidation and dissolution of the eliminationHamlet JV, require the approval of $3.7 millionthe members of net related-party receivables and payables. The following table outlines the changes in consolidated net assets resulting from the JV 1.0 Drop-Down on April 2, 2019.Hamlet JV.
|
| | | | |
Assets: | | |
Cash and cash equivalents | | $ | 3,426 |
|
Related-party receivables | | 945 |
|
Prepaid expenses and other current assets | | 22 |
|
Property, plant and equipment, net | | 140,446 |
|
Other long-term assets | | 8 |
|
Total assets | | 144,847 |
|
| | |
Liabilities: | | |
Accounts payable | | 6,395 |
|
Related-party payables | | 1,923 |
|
Accrued and other current liabilities | | 14,965 |
|
Capital lease obligations | | 3 |
|
Total liabilities | | 23,286 |
|
Net assets contributed to Partnership | | $ | 121,561 |
|
(4) Revenue
We disaggregate our revenue into two categories: product sales and other revenue. Other revenue includes fees associated with customer requests to cancel, defer or accelerate shipments in satisfaction of the related performance obligation and third- and related-party terminal services fees. Other revenue also includes fees received for other services, including for sales and marketing, scheduling, sustainability, consultation, shipping and risk management services, where the revenue is recognized when we both have satisfied the performance obligation and have a right to the corresponding fee. These categories best reflect the nature, amount, timing and uncertainty of our revenue and cash flows.
Performance Obligations
As of June 30, 2019,2020, the aggregate amount of revenues from contracts with customers allocated to performance obligations that were unsatisfied or partially satisfied was approximately $9.5$8.6 billion. This amount excludes forward prices related to variable consideration including inflation and foreign currency and commodity prices. Also, this amount excludes the effects of related foreign currency derivative contracts as they do not represent contracts with customers. As of July 1, 2019June 30, 2020, we expect to recognize approximately 4.0%5.0% of our remaining performance obligations as revenue during the remainder of 2019,2020, approximately 9.0%12.0% in 20202021 and the balance thereafter. Our off-take contracts expire at various times through 2040 and our terminal services contracts extend into 2026.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
Variable Consideration
Variable consideration from off-take contracts arises from several pricing features outlined in our off-take contracts, pursuant to which such contract pricing may be adjusted in respect of particular shipments to reflect differences between certain contractual quality specifications of the wood pellets as measured both when the wood pellets are loaded onto ships and unloaded at the discharge port as well as certain other contractual adjustments.
Variable consideration from terminal services contracts, which was none for the three and six months ended June 30, 2020 and not material for the three and six months ended June 30, 2019, and 2018, arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services.
We allocate variable consideration under our off-take and terminal services contracts entirely to each performance obligation to which variable consideration relates. The estimate of variable consideration represents the amount that is not more likely than not to be reversed. For the three andmonths ended June 30, 2020, we reversed an insignificant amount of revenue related to performance obligations satisfied in previous periods. For the six months ended June 30, 2019,2020 we recognized $0.3$0.1 million and $0.4 million. respectively, of revenue related to performance obligations satisfied in previous periods. For the three and six months ended June 30, 2018,2019 we recognized an insignificant amount$0.3 million and $0.4 million of revenue related to performance obligations satisfied in previous periods.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
Contract Balances
Accounts receivable related to product sales as of June 30, 20192020 and December 31, 20182019 were $59.9$80.9 million and $51.3$67.7 million, respectively. We had $0.1 million and $0.3 million of deferred revenue asAs of June 30, 20192020 and December 31, 2018,2019, we had $1.0 million and $4.1 million, respectively, of deferred revenue for future performance obligations associated with off-take contracts.
Accrued and other current liabilities included approximately $19.1 million and $7.6 million at June 30, 2020 and December 31, 2019, respectively, for amounts associated with purchased shipments from third-party suppliers that were resold in back-to-back transactions.
(5) Significant Risks and Uncertainties Including Business and Credit Concentrations
Our business is significantly impacted by greenhouse gas emission and renewable energy legislation and regulations in the U.K., European Union (“EU”) as well as its member states and Japan. If the European Union,U.K., the EU or its member states or Japan significantly modify such legislation or regulations, then our ability to enter into new contracts as our existing contracts expire may be materially affected.
Our current product sales are primarily to industrial customers located in the United Kingdom,U.K., Denmark and Belgium. Product sales to third-party customers that accounted for 10% or a greater share of consolidated product sales are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 % |
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months ended June 30, 2019 |
| 2019 | | 2018 | | 2019 | | 2018 |
Customer A | 60 | % | | 69 | % | | 50 | % | | 54 | % |
Customer B | 9 | % | | 12 | % | | 10 | % | | 10 | % |
Customer C | 23 | % | | 15 | % | | 20 | % | | 11 | % |
Customer D | — | % | | — | % | | 12 | % | | 16 | % |
(6) Inventory Impairment and Asset Disposal
On February 27, 2018, a fire occurred at the Chesapeake terminal, causing damage to equipment and approximately 43,000 MT of wood pellets (the “Chesapeake Incident”). The Chesapeake terminal returned to operations on June 28, 2018. During the three and six months ended June 30, 2018, we incurred $20.3 million and $48.7 million, respectively, in costs as a result of the Chesapeake Incident related to asset impairment, inventory write-off and disposal costs, emergency response costs, asset repair costs and business continuity costs, the latter of which represented incremental costs to commission temporary wood pellet storage and handling and ship loading operations at nearby locations to meet our contractual obligations to our customers. As of June 30, 2018, we had recovered $26.3 million related to the Chesapeake Incident, which included $1.1 million of lost profits. As of December 31, 2018, $3.8 million of probable insurance recoveries for the then-remaining costs not yet recovered were included in insurance receivables; we received the $3.8 million in probable insurance recoveries (plus $0.5 million recognized as other income in 2019) in February 2019.
(7) Inventories
Inventories consisted of the following as of:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Raw materials and work-in-process | $ | 8,226 |
| | $ | 4,936 |
|
Consumable tooling | 18,542 |
| | 17,561 |
|
Finished goods | 4,524 |
| | 8,993 |
|
Total inventories | $ | 31,292 |
| | $ | 31,490 |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
(Unaudited)
(6) Inventories
(8)Inventories consisted of the following as of:
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Raw materials | $ | 10,050 | | | $ | 9,795 | |
Consumable tooling | 21,287 | | | 20,485 | |
Finished goods | 8,386 | | | 2,718 | |
Total inventories | $ | 39,723 | | | $ | 32,998 | |
(7) Property, Plant and Equipment
Property, plant and equipment consisted of the following as of:
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Land | $ | 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 | 1,029 | | | 1,029 | |
Property, plant and equipment | 903,032 | | | 885,963 | |
Less accumulated depreciation | (232,725) | | | (203,695) | |
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 | |
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Land | $ | 15,227 |
| | $ | 13,492 |
|
Land improvements | 44,990 |
| | 44,990 |
|
Buildings | 196,574 |
| | 196,574 |
|
Machinery and equipment | 437,696 |
| | 434,776 |
|
Vehicles | 635 |
| | 635 |
|
Furniture and office equipment | 6,198 |
| | 6,148 |
|
Leasehold improvements | 987 |
| | 987 |
|
Property, plant and equipment - in service | 702,307 |
| | 697,602 |
|
Less accumulated depreciation | (176,833 | ) | | (154,967 | ) |
Property, plant and equipment - in service, net | 525,474 |
| | 542,635 |
|
Construction in progress | 198,616 |
| | 14,393 |
|
Total property, plant and equipment, net | $ | 724,090 |
| | $ | 557,028 |
|
Total depreciation expense was $15.2 million and $29.2 million for the three and six months ended June 30, 2020, respectively. Total depreciation expense was $11.3 million and $22.5 million respectively, for the three and six months ended June 30, 2019. Total depreciation expense was $10.0 million and $19.3 million, respectively, for2019, respectively. For the three and six months ended June 30, 2018. Total2020, 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, for the three and six months ended June 30, 2019 and was insignificant for the three and six months ended June 30, 2018.respectively. Accrued amounts for property, plant and equipment and construction in progress included in accrued and other current liabilities were $17.0$10.5 million and $6.3$9.4 million at June 30, 20192020 and December 31, 2018,2019, respectively.
(9)(8) Leases
We have operating and finance leases related to real estate, machinery, equipment and other assets where we are the lessee. Leases with an initial term of 12 months or less are not recorded on the balance sheet but are recognized as lease expense on a straight-line basis over the applicable lease terms. AmortizationLeases with an initial term of the ROU asset is calculated as the difference between straight-line lease expense and the accretion of interestlonger than 12 months are recorded on the balance sheet and classified as either operating or finance.
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease liability each period.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 2827 years, some of which include options to extend the leases for up to 5five years. Our leases are generally noncancellable.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.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
We apply an incremental borrowing rate is applied to our leases for balance sheet measurement. As rates aremost of our leases do not explicitly defined inprovide an implicit rate, we generally use the operating and financeestimated rate of interest for a collateralized borrowing over a similar term of the lease agreements, we usepayments at the lease commencement date as our incremental borrowing rate for purposes of measuring the ROU assets and lease liabilities for recognized leases. This is a secured interest rate which takes into account our credit rating, the term of our leases, as well as the economic environment in which we operate. Each lease uses a secured interest rate with a term commensurate to the identified lease term.rate.
Operating leases are included in operating lease right-of-useROU assets, accrued and other current liabilities and long-term operating lease liabilities on our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, current portion of long-term debt and finance lease obligations and long-term debt and finance lease obligations on our condensed consolidated balance sheets. Changes in right-of-useROU assets and operating lease liabilities are included net in change in operating lease liabilities on the condensed consolidated statement of cash flows.
Operating lease ROU assets and liabilities and finance leases were as follows:
| | | | | | | | | | | | | | |
| | 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:
| | | | | | | | | | | | | | | | | | | | |
| | Three 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 | |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)(Unaudited)
Operating lease ROU assets and liabilities and finance leases were as follows as of June 30, 2019: |
| | | | |
Operating leases: | | |
Operating lease ROU assets, gross | | $ | 36,965 |
|
Accumulated amortization | | (3,088 | ) |
Operating lease ROU assets, net | | $ | 33,877 |
|
| | |
Long-term operating lease liabilities | | $ | 33,849 |
|
Current portion of operating lease liabilities | | 1,751 |
|
Total operating lease liabilities | | $ | 35,600 |
|
| | |
Finance leases: | | |
Property, plant and equipment, gross | | $ | 8,914 |
|
Accumulated depreciation | | (4,198 | ) |
Property plant and equipment, net | | $ | 4,716 |
|
| | |
Current portion of long-term finance lease obligations | | $ | 2,724 |
|
Long-term finance lease obligations | | 1,668 |
|
Total finance lease liabilities | | $ | 4,392 |
|
Operating and finance lease costs were as follows:
|
| | | | | | | | | | |
Lease Cost | | Classification | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
Operating lease cost: | | | | | | |
Fixed lease cost | | Cost of goods sold | | $ | 1,243 |
| | $ | 2,277 |
|
Variable lease cost | | Cost of goods sold | | 20 |
| | 26 |
|
Short-term lease costs | | Cost of goods sold | | — |
| | — |
|
| | Total operating lease costs | | $ | 1,263 |
| | $ | 2,303 |
|
Finance lease cost: | | | | | | |
Amortization of leased assets | | Depreciation and amortization | | 765 |
| | 1,484 |
|
Variable lease cost | | Cost of goods sold | | (4 | ) | | — |
|
Interest on lease liabilities | | Interest expense | | 57 |
| | 109 |
|
| | Total finance lease costs | | $ | 818 |
| | $ | 1,593 |
|
| | Total lease costs | | $ | 2,081 |
| | $ | 3,896 |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
Operating and finance lease cash flow information was as follows:
| | | | | | Six Months Ended June 30, | |
| | Six Months Ended June 30, 2019 | | 2020 | | 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 2,472 |
| Operating cash flows from operating leases | | $ | 2,169 | | | $ | 2,472 | |
Operating cash flows from financing leases | | 109 |
| Operating cash flows from financing leases | | 218 | | | 109 | |
Financing cash flows from financing leases | | 1,248 |
| Financing cash flows from financing leases | | 2,076 | | | 1,248 | |
| | | |
Assets obtained in exchange for lease obligations: | | | Assets obtained in exchange for lease obligations: | |
Operating leases | | $ | 7,467 |
| Operating leases | | $ | — | | | $ | 7,467 | |
Financing leases | | 1,080 |
| Financing leases | | $ | 3,784 | | | $ | 1,080 | |
The future minimum lease payments and the aggregate maturities of operating and finance lease liabilities are as follows as of June 30, 2019:2020:
|
| | | | | | | | | | | | |
Years Ending December 31, | | Operating Leases | | Finance Leases | | Total |
Remainder of 2019 | | $ | 2,223 |
| | $ | 1,660 |
| | $ | 3,883 |
|
2020 | | 4,140 |
| | 2,153 |
| | 6,293 |
|
2021 | | 3,890 |
| | 683 |
| | 4,573 |
|
2022 | | 3,719 |
| | 46 |
| | 3,765 |
|
2023 | | 3,710 |
| | 43 |
| | 3,753 |
|
Thereafter | | 65,110 |
| | 3 |
| | 65,113 |
|
Total lease payments | | 82,792 |
| | 4,588 |
| | 87,380 |
|
Less: imputed interest | | (47,192 | ) | | (196 | ) | | (47,388 | ) |
Total present value of lease liabilities | | $ | 35,600 |
| | $ | 4,392 |
| | $ | 39,992 |
|
The future minimum lease payments as of December 31, 2018 for operating and finance lease liabilities were $73.8 million and $4.8 million, respectively. | | | | | | | | | | | | | | | | | | | | |
Years Ending December 31, | | Operating Leases | | Finance Leases | | Total |
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 | |
The weighted-average remaining lease terms and discount rates for our operating and finance leases were weighted using the undiscounted future minimum lease payments and are as follows as of June 30, 2019:
|
| | | | | | | |
Weighted average remaining lease term (years): | | |
Operating leases | | 24 | 22 |
Finance leases | | 2 |
|
Weighted average discount rate: | | |
Operating leases | | 8 | % |
Finance leases | | 56 | % |
(10)(9) Derivative Instruments
We use derivative instruments to partially offset our business exposure to foreign currency exchange and interest rate risk.
We may enter into foreign currency forward and option contracts to offset some of the foreign currency exchange risk on our expected future cash flows and interest rate swaps to offset some of the interest rate risk on our expected future cash flows fromon certain borrowings. Our derivative instruments expose us to credit risk to the extent thatThe preponderance of our hedge counterparties may be unable to meet the terms of the applicable derivative instrument. We seek to mitigate such risks by limiting our counterparties to major financial
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
institutions. In addition, we monitor 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. We use derivative instruments to manage cash flow and not for speculative or trading purposes.
Cash Flow Hedges
For qualifying cash flow hedges, the effective and ineffective 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. Prior to January 1, 2019 and the adoption of ASU 2017-12 (see Note 2, Significant Accounting Policies), the ineffective portion of the gain or loss, if any, was reported in earnings in the current period. We considered our cash flow hedges to be highly effective at inception. Changes in fair value for derivative instruments not designated as hedging instrumentsoff-take contracts are recognized in earnings.
Foreign Currency Exchange Risk
US Dollar-denominated. We are primarily exposed to fluctuations in foreign currency exchange rates related to off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”) and Euro (“EUR”). in the minority of our 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 the applicable derivative instrument. We have enteredseek to mitigate such risks by limiting our counterparties to major financial institutions. In addition, we monitor the potential risk of loss with any one counterparty resulting from credit risk. Management does not expect
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and may continueunless otherwise noted)
(Unaudited)
material losses as a result of defaults by counterparties. We use derivative instruments to manage cash flow and do not enter into foreign currency forward contracts, purchased option contractsderivative instruments for speculative or other instruments to partially manage this risk and, prior to August 2018, had designated certain of these instruments as cash flow hedges.
Interest Rate Risktrading purposes.
We are exposed to fluctuations in interest rates on borrowings under our senior secured revolving credit facility. We have entered into a pay-fixed, receive-variable interest rate swapswaps that expiresexpire in April 2020September 2021 and October 2021 to hedge the interest rate risk associated with our variable rate borrowings under our senior secured revolving credit facility. The interest rate swap isfacility that are not designated and qualifiesaccounted for as a cash flow hedge.hedges.
Derivative instruments are classified as Level 2 assets or liabilities based on inputs such as spot and forward benchmark interest rates (such as LIBOR) and foreign exchange rates. The fair value of derivative instruments not 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 | |
Unrealized losses related to the change in fair market value of interest rate swaps are recorded in interest expense and were $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively. Our interest rate swap outstanding at and during the three and six months ended June 30, 2019 and December 31, 2018 werewas designated as follows:
|
| | | | | | | | | | |
| | | | Asset (Liability) |
| | Balance Sheet Classification | | June 30, 2019 | | December 31, 2018 |
Designated as hedging instruments: | | | | | | |
Interest rate swap | | | | | | |
| | Other current assets | | $ | 202 |
| | $ | 508 |
|
| | Other long-term assets | | — |
| | 118 |
|
Total derivatives designated as hedging instruments | | | | $ | 202 |
| | $ | 626 |
|
| | | | | | |
Not designated as hedging instruments: | | | | | | |
Foreign currency exchange forward contracts: | | | | | | |
| | Prepaid and other current assets | | $ | 1,490 |
| | $ | 794 |
|
| | Other long-term assets | | 1,205 |
| | 1,810 |
|
| | Accrued and other current liabilities | | (44 | ) | | (68 | ) |
| | Other long-term liabilities | | (23 | ) | | (179 | ) |
Foreign currency purchased option contracts: | | | | | | |
| | Prepaid and other current assets | | 84 |
| | 22 |
|
| | Other long-term assets | | 2,866 |
| | 3,348 |
|
Total derivatives not designated as hedging instruments | | | | $ | 5,578 |
| | $ | 5,727 |
|
a hedging instrument.Net unrealized losses related to the change in fair market value of foreign currency derivatives were $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 derivative instruments not designated as hedging instrumentsforeign 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 respectively, during the three and six months ended June 30, 2019, respectively, and arewere included in product sales.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
NetRealized gains related to the change in fair market value of derivative instruments not designated as hedging instrumentsderivatives settled were $3.5insignificant and $0.2 million and $2.7 million, respectively, during the three and six months ended June 30, 20182020, respectively, and arewere included in product sales. Realized losses and gains related to derivatives settled were insignificant during the three months ended June 30, 2019 and 2018 were insignificant.included in product sales. Realized gains related to derivatives settled during the period were $0.1 million and $0.3 million during the six months ended June 30, 2019 and 2018, and arewere included in product sales.
The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive loss and the gains and losses recognized in earnings for the three months ended June 30, 2019 were as follows:
|
| | | | | | | | | |
| Amount of Loss in Other Comprehensive Loss on Derivative | | Location of Gain Reclassified from Accumulated Other Comprehensive Loss | | Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings |
Interest rate swap | $ | (106 | ) | | Interest expense | | $ | 86 |
|
The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive loss and the gains and losses recognized in earnings for the six months ended June 30, 2019 were as follows:
|
| | | | | | | | | |
| Amount of Loss in Other Comprehensive Loss on Derivative | | Location of Gain Reclassified from Accumulated Other Comprehensive Loss | | Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings |
Interest rate swap | $ | (161 | ) | | Other income (expense) | | $ | 193 |
|
The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive loss and the gains and losses recognized in earnings for the three months ended June 30, 2018 were as follows:
|
| | | | | | | | | | | | | | | |
| Amount of Gain in Other Comprehensive Income on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Effective Portion) | | Amount of Gain Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) | | Location of (Loss) Gain Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) | | Amount of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Foreign currency exchange forward contracts | $ | 3,950 |
| | Product sales | | $ | — |
| | Product sales | | $ | (3 | ) |
Foreign currency exchange purchased option contracts | 307 |
| | Product sales | | — |
| | Product sales | | — |
|
Interest rate swap | 108 |
| | Interest expense | | 64 |
| | Interest expense | | 1 |
|
The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive loss and the gains and losses recognized in earnings for the six months ended June 30, 2018 were as follows:
|
| | | | | | | | | | | | | | | |
| Amount of Gain (Loss) in Other Comprehensive Income on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Effective Portion) | | Amount of Gain Reclassified from Accumulated Other Comprehensive Income into Earnings (Effective Portion) | | Location of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) | | Amount of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Foreign currency exchange forward contracts | $ | 2,625 |
| | Product sales | | $ | — |
| | Product sales | | $ | (5 | ) |
Foreign currency exchange purchased option contracts | (16 | ) | | Product sales | | — |
| | Product sales | | — |
|
Interest rate swap | 428 |
| | Other income (expense) | | 63 |
| | Other income (expense) | | 1 |
|
We enter into master netting arrangements which are designed to permit net settlement of derivative transactions among the respective counterparties. If we had settled all transactions with our respective counterparties at June 30, 2019,2020, we would have
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
received a net settlement termination payment of $5.8$6.6 million, which differs insignificantly from the recorded fair value of the derivatives. We present our derivative assets and liabilities at their gross fair values.
The notional amounts of outstanding derivative instruments associated with outstanding or unsettled derivative instruments as of June 30, 20192020 and December 31, 20182019 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 | |
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Foreign exchange forward contracts in GBP | £ | 35,885 |
| | £ | 42,170 |
|
Foreign exchange purchased option contracts in GBP | £ | 39,365 |
| | £ | 39,365 |
|
Foreign exchange forward contracts in EUR | € | 7,000 |
| | € | 14,300 |
|
Foreign exchange purchased option contracts in EUR | € | 1,675 |
| | € | 1,675 |
|
Interest rate swap | $ | 37,091 |
| | $ | 39,829 |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES (11)Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
(10) Fair Value Measurements
The amounts reported in the unaudited condensed consolidated balance sheets as cash and cash equivalents, accounts receivable, insurance receivables, related-party receivables, prepaid expenses and other current assets, accounts payable, related-party receivables, net, related-party payables, and accrued liabilities,net, and accrued and other current liabilities approximate fair value because of the short-term nature of these instruments.
Derivative instruments and long-term debt and finance lease obligations, including the current portion, are classified as Level 2 instruments. The fair value of our senior notes (see Note 12, Long-Term Debt and Finance Lease Obligations – Senior Notes Due 2021) was determined based on observable market prices in a less active market and was categorized as Level 2 in the fair value hierarchy. The fair value of other long-term debt and finance 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.
The carrying amount and estimated fair value of long-term debt and finance lease obligations as of June 30, 20192020 and December 31, 20182019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | December 31, 2019 | | |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
2026 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 | |
|
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Senior notes | $ | 353,178 |
| | $ | 367,378 |
| | $ | 352,843 |
| | $ | 359,943 |
|
Other long-term debt and finance lease obligations | 172,903 |
| | 172,903 |
| | 79,812 |
| | 79,812 |
|
Total long-term debt and finance lease obligations | $ | 526,081 |
| | $ | 540,281 |
| | $ | 432,655 |
| | $ | 439,755 |
|
(12)(11) Long-Term Debt and Finance Lease Obligations
Long-term debt and finance lease obligations at carrying value are composed of the following:
| | | | | | | | | | | |
| 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 | |
|
| | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
Senior notes, net of unamortized discount, premium and debt issuance of $1.8 million as of June 30, 2019 and $2.2 million as of December 31, 2018 | | $ | 353,178 |
| | $ | 352,843 |
|
Senior secured revolving credit facility | | 166,500 |
| | 73,000 |
|
Other loans | | 2,011 |
| | 2,015 |
|
Finance leases | | 4,392 |
| | 4,797 |
|
Total long-term debt and finance lease obligations | | 526,081 |
| | 432,655 |
|
Less current portion of long-term debt and finance lease obligations | | (2,733 | ) | | (2,722 | ) |
Long-term debt and finance lease obligations, excluding current installments | | $ | 523,348 |
| | $ | 429,933 |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
2026 Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
Senior Notes Due 2021
As of June 30, 20192020 and December 31, 2018,2019, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, our 8.5%the indenture dated as of December 9, 2019 governing the 2026 Notes. The 2026 Notes are guaranteed jointly and severally on a senior unsecured notes due 2021. Our obligations under the senior notes arebasis by our existing subsidiaries (excluding Enviva Partners Finance Corp.) that guarantee certain of our indebtedness and may be guaranteed by certain of ourfuture restricted subsidiaries.
Senior Secured Revolving Credit Facility
As of June 30, 20192020 and December 31, 2018,2019, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, our senior secured revolving credit facility due October 2023.facility. Our obligations under the senior secured revolving credit facility are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our assets. Theassets; however, the senior secured revolving credit facility is not guaranteed by the FirstHamlet 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.
(13)
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
(12) Related-Party Transactions
Related-party transaction amounts included on the unaudited condensed consolidated statements of operations were as follows:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Other revenue | $ | 235 |
| | $ | 1,072 |
| | $ | 827 |
| | $ | 2,304 |
| Other revenue | $ | 658 | | | $ | 235 | | | $ | 1,264 | | | $ | 827 | |
Cost of goods sold | 34,623 |
| | 20,912 |
| | 54,621 |
| | 36,051 |
| Cost of goods sold | 39,739 | | | 34,623 | | | 75,996 | | | 54,621 | |
General and administrative expenses | 8,789 |
| | 3,458 |
| | 13,002 |
| | 7,514 |
| General and administrative expenses | 6,947 | | | 9,263 | | | 14,636 | | | 15,559 | |
Management Services Agreements
PursuantEnviva Partners, LP and the Hamlet JV are parties to management services agreements (together, the MSAs,“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 are required to reimburse Enviva Management for the amount of all direct or indirect internal or third-party expenses incurred by Enviva Managementit incurs in connection with the provision of such services. The MSAs include rent-related amounts for non-cancelablenoncancelable operating leases for office space in Maryland and North Carolina held by theour sponsor.
Under the FirstHamlet JV’s management services agreement (the “Hamlet JV MSA,MSA”), the Hamlet JV pays an annual management fee to Enviva Management and to the extent 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 of management fees payable to Enviva Management from the date thereof until July 1, 2020 (the “Hamlet JV MSA Fee Waiver”).
Related-party amounts included on the unaudited condensed consolidated balance sheets and the unaudited condensed consolidated statements of operations 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 | |
During the three and six months ended June 30, 2019, $20.12020, $0.6 million and $33.7$1.3 million, respectively, relatedof fees expensed under the Hamlet JV MSA were waived pursuant to the MSAs was included in cost of goods soldHamlet JV MSA Fee Waiver and $8.8 million and $13.0 million, respectively, was included in general and administrative expenses. As of June 30, 2019, $0.7 million incurred under the MSAs was included in finished goods inventory.
During the three and six months ended June 30, 2018, $13.8 million and $22.5 million, respectively, relatedrecorded as an increase to the MSAs was included in cost of goods sold and $3.5 million and $7.5 million, respectively, was included in general and administrative expenses.
partners’ capital. During the three and six months ended June 30, 2019, $0.9 million of fees expensed under the FirstHamlet JV MSA was in excess of the required payment and recorded to partner’s capital.
As of June 30, 2019 and December 31, 2018, we had $18.3 million and $19.0 million, respectively, included in related-party payables primarily relatedwere waived pursuant to the MSAs.
EVAHamlet JV MSA Fee Waiver
Under the EVA MSA, during the three and six months ended June 30, 2019, $4.7 million of EVA MSA fees expensed were waived and recorded as an increase to partners’ capital. During
Hamlet Drop-Down Agreements
On the three and six months endeddate of the Hamlet Drop-Down:
•We entered into an agreement with our sponsor, pursuant to which (1) our sponsor agreed to guarantee certain cash flows from the Hamlet plant until June 30, 2018, no EVA MSA2020, (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 (4) our sponsor agreed to retain liability for certain claims payable, if any, by the Hamlet JV (the “Make-Whole Agreement”).
•We entered into an agreement with Enviva Management to waive our obligation to pay an aggregate of approximately $13.0 million in fees were waived.
payable under our management services agreement with Enviva Management
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
(Unaudited)
(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”).
•The Hamlet JV entered into an interim services agreement (the “ISA”) with 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 place 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.
Pursuant to the 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 produced by the Hamlet plant that we have sold. Additionally, at June 30, 2020 and December 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 ISA and $1.2 million related to the Make-Whole Agreement.
Second EVA MSA Fee Waiver
In June 2019, we entered into an additional agreement with Enviva Management where(the “Second EVA MSA Fee Waiver”) pursuant to which we received a $5.0 million waiver of fees under the EVA MSA fees through September 30, 2019 as consideration for an assignment of two shipping contracts to our sponsor to rebalance our and our sponsor’s respective shipping obligations under our existing off-take contracts. During the three and six months ended June 30, 2019, $2.7 million of EVA MSA fees expensed were waived and recorded as an increase to partners’ capital. Duringcapital pursuant to the three and six months ended June 30, 2018, noSecond EVA MSA fees were waived.
First JV MSA Fee Waiver
Under the First JV MSA, during the three and six months ended June 30, 2019, $2.7 million of First JV MSA fees expensed were waived and recorded as an increase to partners’ capital. During the three and six months ended June 30, 2018, no First JV MSA fees were waived.
Make-Whole Agreement
During the three and six months ended June 30, 2019, we had $2.1 million of reimbursable charges from the sponsor under the Make-Whole Agreement, of which $1.5 million was related to construction costs and is included in partners’ capital on the consolidated statements of changes in partners’ capital and $0.6 million is related to wood pellet production costs and is included in cost of goods sold on the consolidated statements of operations. During the three and six months ended June 30, 2018, no reimbursements related to the Make-Whole Agreement were received. As of June 30, 2019, $2.1 million is included in related-party receivables related to the Make-Whole Agreement.
Wilmington Drop-Down - Deferred Consideration
In October 2017, we acquired from the First JV all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”), which owns the Wilmington terminal assets (the “Wilmington Drop-Down”), for total consideration of $130.0 million, subject to certain conditions. The Wilmington Drop-Down included the Wilmington terminal assets and a long-term terminal services agreement with our sponsor (the “Holdings TSA”) to handle throughput volumes sourced from Greenwood. The purchase price included $74.0 million of deferred consideration, which was paid in full in April 2019 and consisted of $24.3 million in cash, of which $22.8 million was distributed to the Hancock Member and the issuance of 1,691,627 common units, or approximately $49.7 million in common units, which were distributed to the Hancock Member. The $74.0 million of deferred consideration was reflected on the condensed consolidated balance sheets as of December 31, 2018.Waiver.
Greenwood Contract
In February 2018, we entered intoWe are a party to a contract with Greenwood to purchase wood pellets produced by the Greenwood plant through March 2022 (the “Greenwood contract”) and we havehad a take-or-pay obligation with respect to 550,000 MTPY of wood pellets from July 2019 through March 2022.2022, subject to Greenwood’s option to increase or decrease the volume by 10% each contract year. Pursuant to amendments to the Greenwood Contract, our take-or-pay obligation with respect to 550,000 MTPY of wood pellets was deferred to 2021.
During the three months ended June 30, 2020, we purchased $10.1 million of wood pellets from Greenwood and recorded 0 cost of cover deficiency fee from Greenwood. During the six months ended June 30, 2020, we purchased $18.8 million of wood pellets from Greenwood and recorded a cost of cover deficiency fee of approximately $0.3 million from Greenwood. During the three and six months ended and June 30, 2019, we purchased $13.7 million and $24.2 million, respectively, of wood pellets from Greenwood and recorded a cost of cover deficiency fee from Greenwood of approximately $0.3 million and $3.3 million, respectively, from Greenwood as Greenwoodit was unable to satisfy certain commitments. Of
As of June 30, 2020 and 2019, the net $13.4purchased amounts related to the Greenwood contract of $18.5 million and $20.9 million, respectively, $13.7included $18.1 million and $24.1$20.8 million, respectively, is included in cost of goods sold and $0.4 million and $0.1 million, is includedrespectively, in finished goods inventory as of June 30, 2019. During the three and six months ended June 30, 2018, we purchased $5.2 million and $8.3 million, respectively, of wood pellets from Greenwood, which is included in cost of goods sold.
As of June 30, 2019, $4.2 million is included in related-party payables related to our wood pellet purchases from Greenwood and $1.0 million is included in related-party receivables related to Greenwood’s cost of cover deficiency fee. As of December 31, 2018, $7.9 million is included in related-party payables related to our wood pellet purchases from Greenwood.inventory.
Holdings TSA
The Wilmington Drop-Down includedWe have a long-term terminal services agreement 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 and pay a fixed fee on a per-ton basis for such terminal services. The Holdings TSA remains in effect until September 1, 2026. We did not record any terminal services revenue from our
The Holdings TSA was amended and assigned to Greenwood and deficiency payments are due to Wilmington if quarterly
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
(Unaudited)
sponsor during the three months ended June 30, 2018. During the six months ended June 30, 2018, we recorded $0.8 million as terminal services revenue from our sponsor, which is included in other revenue.
In February 2018, our sponsor amended and assigned the Holdings TSA to Greenwood. Deficiency payments are due to Wilmington if quarterly minimum throughput requirements are not met. During the three and six months ended June 30, 20192020 and 2018,2019, we recorded $0.7 million and $1.3 million and $0.2 million and $0.8 million, respectively, and $1.1 million and $1.5 million, respectively, of deficiency fees from Greenwood, which isare included in other revenue.
Biomass Option Agreement – Enviva Holdings, LP
Enviva, LP purchased $1.7 million of wood pellets from the sponsor during the six months ended June 30, 2018 pursuant to a biomass option agreement. The wood pellet purchase amounts are included in cost of goods sold. The biomass option agreement terminated in accordance with its terms in March 2018.
Enviva FiberCo, LLC
We purchase raw materials from Enviva FiberCo, LLC (“FiberCo”), a wholly owned subsidiary of our sponsor.sponsor, including through a wood supply agreement that provided for deficiency fees in the event that FiberCo did not satisfy certain volume commitments. Raw materials purchased and included in cost of goods sold during the three and six months ended June 30, 2020, was $0.8 million and $2.2 million, respectively. NaN cost of cover deficiency fees were recognized during the three and six months ended June 30, 2020. During the three and six months ended June 30, 2019, we purchased raw materials of $1.7 million and $3.6 million, respectively, from FiberCo. NoNaN cost of cover deficiency fees were recognized during the three months ended June 30, 2019. Offsetting theour raw material purchases during the six months ended June 30, 2019, we recognized $2.9 million of cost of cover deficiency fees, from FiberCo under a wood supply master agreement as FiberCo was unable to satisfy certain commitments, which is included in related-party receivables as of June 30, 2019. During the three and six months ended June 30, 2018 we purchased raw materials of $1.8 million and $3.5 million, respectively, from FiberCo. No cost of cover deficiency fees were recognized during the three months ended June 30, 2018.
JV 1.0 Drop-Down
In connection with the JV 1.0 Drop-Down, the sponsor assigned to us all of its rights and obligations under the First JV Revolver. On the date of assignment, $4.1 million was outstanding from the First JV to the sponsor. As a result of the assignment, the balance on the First JV Revolver became due from the First JV to the Partnership. As of June 30, 2019, $4.1 million is included in related-party payable and is due to the sponsor.
Long-Term Incentive Plan Vesting
As of June 30, 2019, we had2020, an insignificant amount is included in related-party payables related to withholding tax amounts due to Enviva Management associated with the vesting of time-based phantom units under the Enviva Partners, LP Long-Term Incentive Plan (“LTIP”).raw material purchased from FiberCo.
(14)(13) Partners’ Capital
Private Placements of Common Units - Issuanceand Shelf Registration Statement
During March 2019,On June 18, 2020, we issued 3,508,778entered into a Common Unit Purchase Agreement (the “Unit Purchase Agreement”) with certain investors to sell 6,153,846 common units in a registered direct offeringprivate placement at a price of $32.50 per common unit for gross proceeds of $200.0 million (the “Private Placement”). We received net proceeds of approximately $97.0$190.8 million, net of $3.0$9.2 million of issuance costs.
On April 1, 2019,costs, which were accrued as deferred consideration forof June 30, 2020, in the Wilmington Drop-Down,Private Placement, which closed on June 23, 2020. Pursuant to the Unit Purchase Agreement, we issued 1,691,627entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which we agreed to file and maintain a registration statement with respect to the resale of the common units or $49.7 million inon the terms set forth therein. The Registration Rights Agreement also provides certain investors with customary piggyback registration rights. On July 10, 2020, we filed a shelf registration statement on Form S-3 with the SEC to register the common units to the First JV, which common units were distributed to the Hancock Member. On April 2, 2019,issued in connection with the JV 1.0 Drop-Down, we issued 1,681,237 common units, or $50.0 million in common units, toPrivate Placement, which was declared effective by the sponsor.SEC on July 20, 2020.
Allocations of Net Income
The 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 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.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notesits capital contributions and substantially all of its preference amount and the historical net losses of the Hamlet JV had been allocated to Condensed Consolidated Financial Statements
(In thousands, except numberthe members of units, per unit amountsthe Hamlet JV in proportion to their unreturned capital contributions; consequently, the balance of members’ capital attributable to John Hancock was negative at the time of the Hamlet Drop-Down. The Partnership has not received repayment of revolving borrowings from the Hamlet JV pursuant to the Hamlet JV Revolver or its capital contributions and unless otherwise noted)
(Unaudited)
preference amount as of June 30, 2020; as a result, none of the earnings of the Hamlet JV have been allocated to John Hancock following the Hamlet Drop-Down and no change has been recognized to the negative non-controlling interest balance attributable to John Hancock that was acquired by the Partnership.
Incentive Distribution Rights
Incentive distribution rights (“IDRs”) represent the right to receive increasing percentages (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. Our general partner (“General Partner”)Partner currently holds the IDRs, but may transfer these rightsthem at any time.
At-the-Market Offering Program
Pursuant to an equity distribution agreement dated August 8, 2016, we may offer and sell common units from time to time through a group of managers, subject to the terms and conditions set forth in such agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).
During the three and six months ended June 30, 2019, we did not sell common units under the ATM Program. During the three months ended June 30, 2018, we did not sell common units under the ATM Program. During the six months ended June 30, 2018, we sold 8,408 common units under the ATM Program for net proceeds of $0.2 million, net of an insignificant amount of commissions. Net proceeds from sales under the ATM Program were used for general partnership purposes.
First JV
The capital of the First JV is divided into two classifications: (1) Class A Units and (2) Class B Units, issued at a price of $1.00 per unit for each class.
Class A Units - Noncontrolling Interests
Class A Units were issued to the Hancock Member in exchange for capital contributions at a price of $1.00 for each Class A Unit.
The Hancock Member had a total capital commitment of $235.2 million and, as of June 30, 2019, the Hancock Member held 227.0 million Class A Units with a remaining capital commitment amount of $8.2 million.
Class B Units - Controlling Interests
Class B Units were issued to the Enviva Member in exchange for capital contributions at a price of $1.00 for each Class B Unit.
The Enviva Member had a total capital commitment of $232.2 million and, as of June 30, 2019, the Enviva Member held 224.0 million Class B Units with a remaining commitment amount of $8.2 million.
Pursuant to the limited liability company agreement of the First JV (the “First JV LLCA”), we are the managing member of the First JV and have the authority to manage the business and affairs of the First JV and take actions on its behalf, including adopting annual budgets, entering into agreements, effecting asset sales or biomass purchase agreements, making capital calls, incurring debt and taking other actions, subject to consent of the Hancock Member in certain circumstances. The First JV LLCA also sets forth the capital commitments and limitations thereon from each of the members, and provides for the allocation of sale proceeds and distributions among the holders of outstanding Class A Units and Class B Units.
We included all accounts of the First JV in our consolidated results as of April 2, 2019 as the Class B Units represent a controlling interest in the First JV.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
(Unaudited)
Distribution RightsCash Distributions to Unitholders
Distributions that have been paid or declared related to the Hancock Member, and toreporting period are considered in the Enviva member,determination of earnings per unit. The following table details the cash distribution paid or declared (in millions, except per-unit amounts):
| | | | | | | | | | | | | | | | | | | | |
Quarter Ended | Declaration Date | Record Date | Payment Date | Distribution Per Unit | Total Cash Distribution | Total Payment to General Partner for Incentive Distribution Rights |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
June 30, 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 | |
For purposes of calculating our earnings per unit under the two-class method, common units are treated as participating preferred units. IDRs are treated as participating securities.
Distributions made in future periods based on the reasonable discretioncurrent period calculation of cash available for distribution are allocated to each class of equity that will receive the Enviva Member anddistribution. Any unpaid cumulative distributions are governed by the waterfall provisions of the First JV LLCA, which provides that distributions, after repayment of the First JV Revolver borrowings, are to be made as follows:
First: To the members in proportion to their relative unreturned capital contributions, then to the members in proportion to their relative unpaid preference amount.
Thereafter: 25% to the Hancock Member and 75% to the Enviva Member.
Prior to the JV 1.0 Drop-Down, at the discretion of the Enviva Member, the Hancock Member had received all of its capital contributions and substantially all of its preference amount. Given that and the historical net losses of the First JV having been previously allocated to the Enviva Memberappropriate class of equity.
We determine the amount of cash available for distribution for each quarter in accordance with our partnership agreement. The amount to be distributed to unitholders and IDR holders is based on the Hancock Memberdistribution waterfall set forth in proportion to their unreturned capital contributions,our partnership agreement. Net earnings for the balance of the First JV members’ capital attributable had become negative as of the JV 1.0 Drop-Down. Additionally, given that and the extent to which the Enviva Member has yet to receive repayment of its revolver borrowings, capital contributions and preference amount as of June 30, 2019, none of the net loss of the First JV has beenquarter are allocated to each class of partnership interest based on the Hancock Member subsequentdistributions to the date of the JV 1.0 Drop-Down. Thus, no change has been recognized to the negative noncontrolling interest balance that we acquired.be made.
(15)(14) Equity-Based Awards
The following table summarizes information regarding phantom unit awards (the “Affiliate Grants”) under the LTIP to employees of Enviva Management and its affiliates who provide services to the Partnership:
| | | | | | | | | | | | | | | Time-Based Phantom Units | | | Performance-Based Phantom Units | | | Total Affiliate Grant Phantom Units | |
| Time-Based Phantom Units | | Performance-Based Phantom Units | | Total Affiliate Grant Phantom Units | | Units | | Weighted-Average Grant Date Fair Value (per unit)(1) | | Units | | Weighted-Average Grant Date Fair Value (per unit)(1) | | Units | | Weighted-Average Grant Date Fair Value (per unit)(1) |
| Units | | Weighted- Average Grant Date Fair Value (per unit)(1) | | Units | | Weighted- Average Grant Date Fair Value (per unit)(1) | | Units | | Weighted- Average Grant Date Fair Value (per unit)(1) | |
Nonvested December 31, 2018 | 723,940 |
| | $ | 25.91 |
| | 239,512 |
| | $ | 27.65 |
| | 963,452 |
| | $ | 26.34 |
| |
Nonvested December 31, 2019 | | Nonvested December 31, 2019 | 874,286 | | | $ | 28.90 | | | 435,270 | | | $ | 28.84 | | | 1,309,556 | | | $ | 28.88 | |
Granted | 372,007 |
| | $ | 30.39 |
| | 214,437 |
| | $ | 30.25 |
| | 586,444 |
| | $ | 30.34 |
| Granted | 534,882 | | | $ | 37.91 | | | 379,431 | | | $ | 37.98 | | | 914,313 | | | $ | 37.94 | |
Forfeitures | (35,459 | ) | | $ | 27.55 |
| | (7,607 | ) | | $ | 29.57 |
| | (43,066 | ) | | $ | 27.91 |
| Forfeitures | (97,693) | | | $ | 32.74 | | | (82,632) | | | $ | 30.09 | | | (180,325) | | | $ | 31.53 | |
Vested | (145,506 | ) | | $ | 18.30 |
| | — |
| | $ | — |
| | (145,506 | ) | | $ | 18.30 |
| Vested | (189,312) | | | $ | 25.40 | | | (53,645) | | | $ | 25.39 | | | (242,957) | | | $ | 25.39 | |
Nonvested June 30, 2019 | 914,982 |
| | $ | 28.88 |
| | 446,342 |
| | $ | 28.86 |
| | 1,361,324 |
| | $ | 28.87 |
| |
Nonvested June 30, 2020 | | Nonvested June 30, 2020 | 1,122,163 | | | $ | 33.45 | | | 678,424 | | | $ | 34.08 | | | 1,800,587 | | | $ | 33.69 | |
| |
(1) | Determined by dividing the aggregate grant date fair value of awards by the number of awards issued. |
As(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
The unrecognized estimated compensation expense relating to outstanding Affiliate Grants at June 30, 2019, an insignificant amount is included in related-party payables to Enviva Management to satisfy tax-withholding requirements associated with time-based phantom awards that vested under2020 was $19.6 million, which will be recognized over the LTIP during the six months ended June 30, 2019. During the six months ended June 30, 2018, we paid $2.3 million to the General Partner, which acquired common units from a wholly owned subsidiary of our sponsor for delivery to the recipients under the LTIP. We also paid $1.7 million during the six months ended June 30, 2018 to Enviva Management to satisfy the tax-withholding requirements associated with such common units under the MSAs.
remaining vesting period.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)(Unaudited)
The following table summarizes information regarding phantom unit awards to certain non-employee directors of the General Partner (the “Director Grants”) under the LTIP:
| | | | | | | Time-Based Phantom Units | |
| Time-Based Phantom Units | | Units | | Weighted-Average Grant Date Fair Value (per unit)(1) |
| Units | | Weighted- Average Grant Date Fair Value (per unit)(1) | |
Nonvested December 31, 2018 | 13,964 |
| | $ | 28.65 |
| |
Nonvested December 31, 2019 | | Nonvested December 31, 2019 | 13,264 | | | $ | 30.16 | |
Granted | 13,444 |
| | $ | 30.16 |
| Granted | 12,112 | | | $ | 37.98 | |
Vested | (13,964 | ) | | $ | 28.65 |
| Vested | (13,264) | | | $ | 30.16 | |
Nonvested June 30, 2019 | 13,444 |
| | $ | 30.16 |
| |
Nonvested June 30, 2020 | | Nonvested June 30, 2020 | 12,112 | | | $ | 37.98 | |
In February 2019,2020, Director Grants valued at $0.4$0.5 million were granted and vest on the first anniversary of the grant date. In February 2019, the Director Grants that were nonvested at December 31, 20182019 vested, and common units were issued in respect of such vested Director Grants.
Distribution Equivalent Rights
There were no paid DER distributions related to time-based Affiliate Grants for During the three months ended June 30, 2019. Paid DER distributions related to time-based Affiliate Grants were $0.9 million for theand six months ended June 30, 2019. Paid DER distributions related to the time-based Affiliate Grants were $1.2 million for the six months ended June 30, 2018. Paid DER distributions were insignificant for the three months ended June 30, 2018. At June 30, 2019 and December 31, 2018, $1.22020 we recognized $0.1 million and $0.9$0.2 million, respectively, of DER distributions were included in related-party accrued liabilities.
Unpaid distribution equivalent rights (“DERs”) amounts relatedunit based compensation expense with respect to the performance-based AffiliateDirector Grants. The unrecognized estimated compensation expense relating to outstanding Director Grants at June 30, 2019 were $1.3 million, of which $0.5 million are included in accrued liabilities and $0.8 million are included in other long-term liabilities on the condensed consolidated balance sheets. Unpaid DER amounts related to the performance-based Affiliate Grants at December 31, 2018 were $0.7 million, of which $0.4 million are included in accrued liabilities and2020 was $0.3 million, are included in other long-term liabilities.which will be recognized over the remaining vesting period.
(16)(15) Income Taxes
Our operations are organized as limited partnerships and entities that are disregarded entities for federal and state income tax purposes. As a result, we are not subject to U.S. federal and most state income taxes. The unitholders of the Partnership are liable for these income taxes on their share of our taxable income. Some states impose franchise and capital taxes on the Partnership. Such taxes are not material to the condensed consolidated financial statements and have been included in other income (expense) as incurred.
As of June 30, 2019,2020, the only periods subject to examination for federal and state income tax returns are 20152016 through 2018. We believe our income tax filing positions, including our status as a pass-through entity, would be sustained on audit and do not anticipate any adjustments that would result in a material change to our unaudited condensed consolidated balance sheet. Therefore, no0 reserves for uncertain tax positions or interest and penalties have been recorded. For the three and six months ended June 30, 2020 and 2019, and 2018, no0 provision for federal or state income taxes has been recorded in the condensed consolidated financial statements.
(17)(16) Net Income (Loss) per Limited Partner Unit
Net income (loss) per unit applicable to limited partners is computed by dividing limited partners’ interest in net income (loss), after deducting any incentive distributions, by the weighted-average number of outstanding common units.units 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, 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.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income (loss) allocations used in the calculation of earnings per unit.
On May 30, 2018, the requirements under our partnership agreement for the conversion of all of our subordinated units into common units were satisfied and the subordination period for such subordinated units ended. As a result, all of our 11,905,138 outstanding subordinated units converted into common units on a one-for-one basis. The conversion did not impact the amount of the cash distribution paid or the total number of our outstanding units representing limited partner interests. Our net income (loss) was allocated to the General Partner and the limited partners, including the holders of the subordinated units and IDR holders, in accordance with our partnership agreement.
In addition to the common units, we have also identified the IDRs and phantom units as participating securities and useapply 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 our common units. Basic and diluted earnings
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit previously applicable to subordinated limited partner units were the same because there are no potentially dilutive subordinated units outstanding.amounts and unless otherwise noted)
(Unaudited)
The following computation of net income (loss) available per limited partner unit is as follows for the three and six months ended June 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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) | | | |
(17) Subsequent Events
Greenwood Drop-Down and Georgia Biomass Acquisition
On June 18, 2020, we and our sponsor entered into a contribution agreement (the “Contribution Agreement”) pursuant to which our sponsor agreed to contribute to us all of the limited liability company interests in Enviva Pellets Greenwood Holdings II, LLC (“Greenwood Holdings II”), which wholly indirectly owns Enviva Pellets Greenwood, LLC, for a purchase price of $132.0 million, subject to certain adjustments (such transaction, the “Greenwood Drop-Down”). The Greenwood Drop-Down closed on July 1, 2020.
In connection with the consummation of the Greenwood Drop-Down, (1) we and our sponsor entered into a make-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 period from the 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.
On June 18, 2020, we entered into a Membership Interest Purchase and Sale Agreement (the “Georgia Biomass Purchase Agreement” ) to acquire all of the limited liability company interests in Georgia Biomass Holding LLC, a Georgia limited liability company (“Georgia Biomass”), and the indirect owner of a wood pellet production plant located in Waycross, Georgia (the “Waycross plant”), for total consideration of $175.0 million in cash, subject to certain adjustments. The closing occurred on July 31, 2020. We refer to this transaction as the “Georgia Biomass Acquisition.”
Tack-On Notes Issuance
On July 15, 2020, we issued an additional $150.0 million in aggregate principal amount of the 2026 Notes at an offering price of 103.75% of the principal amount, which implied an effective yield to maturity of approximately 5.7%. We received net proceeds of approximately $153.6 million from the offering after deducting discounts and commissions.
|
| | | | | |
| Three Months Ended June 30, 2019 |
| Common
Units
| | General
Partner
|
Weighted-average common units outstanding—basic | 33,400 |
| | — |
|
Effect of nonvested phantom units | — |
| | — |
|
Weighted-average common units outstanding—diluted | 33,400 |
| | — |
|
|
| | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| Common Units | | General Partner | | Total |
Distributions declared | $ | 22,081 |
| | $ | 2,773 |
| | $ | 24,854 |
|
Earnings less than distributions | (28,655 | ) | | — |
| | (28,655 | ) |
Net (loss) income attributable to partners | $ | (6,574 | ) | | $ | 2,773 |
| | $ | (3,801 | ) |
Weighted-average units outstanding—basic and diluted | 33,400 |
| | | | |
Net loss per limited partner unit—basic and diluted | $ | (0.20 | ) | | | | |
|
| | | | | |
| Six Months Ended June 30, 2019 |
| Common
Units | | General
Partner |
Weighted-average common units outstanding—basic | 30,098 |
| | — |
|
Effect of nonvested phantom units | — |
| | — |
|
Weighted-average common units outstanding—diluted | 30,098 |
| | — |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
|
| | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| Common Units | | General Partner | | Total |
Distributions declared | $ | 43,661 |
| | $ | 5,043 |
| | $ | 48,704 |
|
Earnings less than distributions | (61,428 | ) | | — |
| | (61,428 | ) |
Net (loss) income attributable to partners | $ | (17,767 | ) | | $ | 5,043 |
| | $ | (12,724 | ) |
Weighted-average units outstanding—basic and diluted | 30,098 |
| | | | |
Net loss per limited partner unit—basic and diluted | $ | (0.59 | ) | | | | |
|
| | | | | | | | |
| Three Months Ended June 30, 2018 |
| Common Units | | Subordinated Units | | General Partner |
Weighted-average common units outstanding—basic | 18,597 |
| | 7,804 |
| | — |
|
Effect of nonvested phantom units | 1,131 |
| | — |
| | — |
|
Weighted-average common units outstanding—diluted | 19,728 |
| | 7,804 |
| | — |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
| Common Units | | Subordinated Units | | General Partner | | Total |
Distributions declared | $ | 11,750 |
| | $ | 4,931 |
| | $ | 1,400 |
| | $ | 18,081 |
|
Earnings less than distributions | (10,240 | ) | | (4,297 | ) | | — |
| | (14,537 | ) |
Net income attributable to partners | $ | 1,510 |
| | $ | 634 |
| | $ | 1,400 |
| | $ | 3,544 |
|
Weighted-average units outstanding—basic | 18,597 |
| | 7,804 |
| | | | |
Weighted-average units outstanding—diluted | 19,728 |
| | 7,804 |
| | | | |
Net income per limited partner unit—basic | $ | 0.08 |
| | $ | 0.08 |
| | | | |
Net income per limited partner unit—diluted | $ | 0.08 |
| | $ | 0.08 |
| | | | |
|
| | | | | | | | |
| Six Months Ended June 30, 2018 |
| Common Units | | Subordinated Units | | General Partner |
Weighted-average common units outstanding—basic | 16,518 |
| | 9,855 |
| | — |
|
Effect of nonvested phantom units | — |
| | — |
| | — |
|
Weighted-average common units outstanding—diluted | 16,518 |
| | 9,855 |
| | — |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
| Common Units | | Subordinated Units | | General Partner | | Total |
Distributions declared | $ | 20,788 |
| | $ | 12,403 |
| | $ | 2,664 |
| | $ | 35,855 |
|
Earnings less than distributions | (32,347 | ) | | (19,299 | ) | | — |
| | (51,646 | ) |
Net (loss) income attributable to partners | $ | (11,559 | ) | | $ | (6,896 | ) | | $ | 2,664 |
| | $ | (15,791 | ) |
Weighted-average units outstanding—basic and diluted | 16,518 |
| | 9,855 |
| | | | |
Net loss per limited partner unit—basic and diluted | $ | (0.70 | ) | | $ | (0.70 | ) | | | | |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
Cash Distributions to Unitholders
Distributions that have been paid or declared related to the reporting period are considered in the determination of earnings per unit. The following table details the cash distribution paid or declared (in millions, except per-unit amounts):
|
| | | | | | | | | | | | | | | | | | |
Quarter Ended | | Declaration Date | | Record Date | | Payment Date | | Distribution Per Unit | | Total Cash Distribution | | Total Payment to General Partner for Incentive Distribution Rights |
June 30, 2018 | | August 1, 2018 | | August 15, 2018 | | August 29, 2018 | | $ | 0.6300 |
| | $ | 16.7 |
| | $ | 1.4 |
|
September 30, 2018 | | October 31, 2018 | | November 15, 2018 | | November 29, 2018 | | $ | 0.6350 |
| | $ | 16.8 |
| | $ | 1.5 |
|
December 31, 2018 | | January 29, 2019 | | February 15, 2019 | | February 28, 2019 | | $ | 0.6400 |
| | $ | 17.0 |
| | $ | 1.7 |
|
March 31, 2019 | | May 2, 2019 | | May 20, 2019 | | May 29, 2019 | | $ | 0.6450 |
| | $ | 21.6 |
| | $ | 2.3 |
|
June 30, 2019 | | July 31, 2019 | | August 15, 2019 | | August 29, 2019 | | $ | 0.6600 |
| | $ | 22.1 |
| | $ | 2.8 |
|
Distributions to be made in future periods based on the current period calculation of cash available for distribution are allocated to each class of equity that will receive the distribution. Any unpaid cumulative distributions are allocated to the appropriate class of equity.
We determine the amount of cash available for distribution for each quarter in accordance with our partnership agreement. The amount to be distributed to common unitholders and IDR holders is based on the distribution waterfall set forth in our partnership agreement. Net earnings for the quarter are allocated to each class of partnership interest based on the distributions to be made. On May 30, 2018, the subordination period ended in accordance with our partnership agreement and the subordinated units were converted into common units on a one-for-one basis.
(18) Supplemental Guarantor Information
The Partnership and its wholly owned finance subsidiary, Enviva Partners Finance Corp., are the co-issuers of our senior notes on a joint and several basis. The senior notes are guaranteed on a senior unsecured basis by certain of the Partnership’s direct and indirect wholly owned subsidiaries (excluding Enviva Partners Finance Corp. and certain immaterial subsidiaries) and will be guaranteed by the Partnership’s future restricted subsidiaries that guarantee certain of its other indebtedness (collectively, the “Subsidiary Guarantors”). The guarantees are full and unconditional and joint and several. Each of the Subsidiary Guarantors is directly or indirectly 100% owned by the Partnership. Enviva Partners Finance Corp. is a finance subsidiary formed for the purpose of being the co-issuer of the senior notes. Other than certain restrictions arising under the senior secured revolving credit facility and the indenture governing the senior notes (see Note 12, Long-Term Debt and Finance Lease Obligations), there are no significant restrictions on the ability of any restricted subsidiary to (i) pay dividends or make any other distributions to the Partnership or any of its restricted subsidiaries or (ii) make loans or advances to the Partnership or any of its restricted subsidiaries. As of June 30, 2019, in accordance with Rule 3-10 of Regulation S-X, supplemental consolidating financial statements have been prepared from our financial information on the same basis of accounting as our consolidated financial statements. In periods prior to June 30, 2019, condensed consolidating financial information required under Rule 3-10 was not provided as our non-guarantor subsidiaries were considered minor or were not required to be presented.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheet |
June 30, 2019 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 3,629 |
| | $ | 1,376 |
| | $ | — |
| | $ | 5,005 |
|
Accounts receivable | 61,812 |
| | 6 |
| | — |
| | 61,818 |
|
Insurance receivables | 2,258 |
| | — |
| | — |
| | 2,258 |
|
Related-party receivables | 14,322 |
| | 8,370 |
| | (17,005 | ) | | 5,687 |
|
Inventories | 30,985 |
| | 307 |
| | — |
| | 31,292 |
|
Prepaid expenses and other current assets | 2,847 |
| | 222 |
| | — |
| | 3,069 |
|
Total current assets | 115,853 |
| | 10,281 |
| | (17,005 | ) | | 109,129 |
|
| | | | | | | |
Property, plant and equipment - in service, net | 523,691 |
| | 1,783 |
| | — |
| | 525,474 |
|
Construction in progress | 39,300 |
| | 159,496 |
| | (180 | ) | | 198,616 |
|
Total Property, plant and equipment, net | 562,991 |
| | 161,279 |
| | (180 | ) | | 724,090 |
|
| | | | | | | |
Operating lease right-of-use assets, net | 26,935 |
| | 6,942 |
| | — |
| | 33,877 |
|
Related-party note receivable | 26,989 |
| | — |
| | (26,989 | ) | | — |
|
Goodwill | 85,615 |
| | — |
| | — |
| | 85,615 |
|
Investment in subsidiaries | 118,543 |
| | — |
| | (118,543 | ) | | — |
|
Other long-term assets | 7,038 |
| | — |
| | (180 | ) | | 6,858 |
|
Total assets | $ | 943,964 |
| | $ | 178,502 |
| | $ | (162,897 | ) | | $ | 959,569 |
|
| | | | | | | |
Liabilities and Partners’ Capital | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 12,706 |
| | $ | 2,942 |
| | $ | — |
| | $ | 15,648 |
|
Related-party payables and accrued liabilities | 35,766 |
| | 10,712 |
| | (17,005 | ) | | 29,473 |
|
Deferred consideration for drop-downs due to related party | 40,000 |
| | — |
| | — |
| | 40,000 |
|
Accrued and other current liabilities | 38,000 |
| | 14,788 |
| | — |
| | 52,788 |
|
Current portion of interest payable | 5,512 |
| | — |
| | — |
| | 5,512 |
|
Current portion of long-term debt and finance lease obligations | 2,733 |
| | — |
| | — |
| | 2,733 |
|
Total current liabilities | 134,717 |
| | 28,442 |
| | (17,005 | ) | | 146,154 |
|
Long-term debt and finance lease obligations | 523,348 |
| | — |
| | — |
| | 523,348 |
|
Related-party long-term debt | — |
| | 26,989 |
| | (26,989 | ) | | — |
|
Long-term operating lease liabilities | 27,726 |
| | 6,123 |
| | — |
| | 33,849 |
|
Long-term interest payable | 1,070 |
| | — |
| | — |
| | 1,070 |
|
Long-term interest related-party payable | — |
| | 180 |
| | (180 | ) | | — |
|
Other long-term liabilities | 1,991 |
| | — |
| | — |
| | 1,991 |
|
Total liabilities | 688,852 |
| | 61,734 |
| | (44,174 | ) | | 706,412 |
|
Total Enviva Partners, LP partners' capital | 255,112 |
| | 164,960 |
| | (118,723 | ) | | 301,349 |
|
Noncontrolling interest | — |
| | (48,192 | ) | | — |
| | (48,192 | ) |
Total partners’ capital | 255,112 |
| | 116,768 |
| | (118,723 | ) | | 253,157 |
|
Total liabilities and partners’ capital | $ | 943,964 |
| | $ | 178,502 |
| | $ | (162,897 | ) | | $ | 959,569 |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheet |
December 31, 2018 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 2,396 |
| | $ | 64 |
| | $ | — |
| | $ | 2,460 |
|
Accounts receivable | 54,792 |
| | 2 |
| | — |
| | 54,794 |
|
Insurance receivables | 5,140 |
| | — |
| | — |
| | 5,140 |
|
Related-party receivables | 6,453 |
| | 4,944 |
| | (10,005 | ) | | 1,392 |
|
Inventories | 31,490 |
| | — |
| | — |
| | 31,490 |
|
Prepaid expenses and other current assets | 2,235 |
| | — |
| | — |
| | 2,235 |
|
Total current assets | 102,506 |
|
| 5,010 |
|
| (10,005 | ) | | 97,511 |
|
| | | | | | | |
Property, plant and equipment - in service, net | 542,635 |
| | — |
| | — |
| | 542,635 |
|
Construction in progress | 14,393 |
| | — |
| | — |
| | 14,393 |
|
Total Property, plant and equipment, net | 557,028 |
| | — |
| | — |
| | 557,028 |
|
| | | | | | | |
Goodwill | 85,615 |
| | — |
| | — |
| | 85,615 |
|
Investment in subsidiaries | 652 |
| | — |
| | (652 | ) | | — |
|
Other long-term assets | 8,616 |
| | — |
| | — |
| | 8,616 |
|
Total assets | $ | 754,417 |
| | $ | 5,010 |
| | $ | (10,657 | ) | | $ | 748,770 |
|
| | | | | | | |
Liabilities and Partners’ Capital | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | $ | 15,551 |
| | $ | — |
| | $ | — |
| | $ | 15,551 |
|
Related-party payables and accrued liabilities | 33,169 |
| | 5,061 |
| | (10,005 | ) | | 28,225 |
|
Deferred consideration for drop-downs due to related party | 74,000 |
| | — |
| | — |
| | 74,000 |
|
Accrued and other current liabilities | 41,395 |
| | 5 |
| | — |
| | 41,400 |
|
Current portion of interest payable | 5,434 |
| | — |
| | — |
| | 5,434 |
|
Current portion of long-term debt and finance lease obligations | 2,722 |
| | — |
| | — |
| | 2,722 |
|
Total current liabilities | 172,271 |
| | 5,066 |
| | (10,005 | ) | | 167,332 |
|
Long-term debt and finance lease obligations | 429,933 |
| | — |
| | — |
| | 429,933 |
|
Long-term interest payable | 1,010 |
| | — |
| | — |
| | 1,010 |
|
Other long-term liabilities | 3,779 |
| | — |
| | — |
| | 3,779 |
|
Total liabilities | 606,993 |
| | 5,066 |
| | (10,005 | ) | | 602,054 |
|
Total partners’ capital | 147,424 |
| | (56 | ) | | (652 | ) | | 146,716 |
|
Total liabilities and partners’ capital | $ | 754,417 |
| | $ | 5,010 |
| | $ | (10,657 | ) | | $ | 748,770 |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Operations |
For the Three Months Ended June 30, 2019 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Product sales | $ | 167,202 |
| | $ | — |
| | $ | — |
| | $ | 167,202 |
|
Other revenue | 1,552 |
| | — |
| | (675 | ) | | 877 |
|
Net revenue | 168,754 |
| | — |
| | (675 | ) | | 168,079 |
|
Cost of goods sold | 140,476 |
| | — |
| | — |
| | 140,476 |
|
Depreciation and amortization | 11,096 |
| | — |
| | — |
| | 11,096 |
|
Total cost of goods sold | 151,572 |
| | — |
| | — |
| | 151,572 |
|
Gross margin | 17,182 |
| | — |
| | (675 | ) | | 16,507 |
|
General and administrative expenses | 1,253 |
| | 1,663 |
| | (675 | ) | | 2,241 |
|
Related-party management services agreement fee | 5,114 |
| | 3,675 |
| | — |
| | 8,789 |
|
Total general and administrative expenses | 6,367 |
| | 5,338 |
| | (675 | ) | | 11,030 |
|
Income (loss) from operations | 10,815 |
| | (5,338 | ) | | — |
| | 5,477 |
|
Other (expense) income: | | | | | | | |
Interest expense | (9,169 | ) | | (27 | ) | | — |
| | (9,196 | ) |
Other income (expense), net | 47 |
| | 51 |
| | (180 | ) | | (82 | ) |
Total other (expense) income, net | (9,122 | ) | | 24 |
| | (180 | ) | | (9,278 | ) |
Net income (loss) | $ | 1,693 |
| | $ | (5,314 | ) | | $ | (180 | ) | | $ | (3,801 | ) |
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Operations |
For the Three Months Ended June 30, 2018 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Product sales | $ | 133,168 |
| | $ | — |
| | $ | — |
| | $ | 133,168 |
|
Other revenue | 2,428 |
| | — |
| | — |
| | 2,428 |
|
Net revenue | 135,596 |
| | — |
| | — |
| | 135,596 |
|
Cost of goods sold | 105,967 |
| | — |
| | — |
| | 105,967 |
|
Depreciation and amortization | 9,818 |
| | — |
| | — |
| | 9,818 |
|
Total cost of goods sold | 115,785 |
| | — |
| | — |
| | 115,785 |
|
Gross margin | 19,811 |
| | — |
| | — |
| | 19,811 |
|
General and administrative expenses | 3,811 |
| | 18 |
| | — |
| | 3,829 |
|
Related-party management services agreement fee | 3,458 |
| | — |
| | — |
| | 3,458 |
|
Total general and administrative expenses | 7,269 |
| | 18 |
| | — |
| | 7,287 |
|
Income (loss) from operations | 12,542 |
| | (18 | ) | | — |
| | 12,524 |
|
Other (expense) income: | | | | | | | |
Interest expense | (9,047 | ) | | — |
| | — |
| | (9,047 | ) |
Other income (expense), net | 161 |
| | (94 | ) | | — |
| | 67 |
|
Total other expense, net | (8,886 | ) | | (94 | ) | | — |
| | (8,980 | ) |
Net income (loss) | $ | 3,656 |
| | $ | (112 | ) | | $ | — |
| | $ | 3,544 |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Operations |
For the Six Months Ended June 30, 2019 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Product sales | $ | 323,801 |
| | $ | — |
| | $ | — |
| | $ | 323,801 |
|
Other revenue | 3,322 |
| | — |
| | (675 | ) | | 2,647 |
|
Net revenue | 327,123 |
| | — |
| | (675 | ) | | 326,448 |
|
Cost of goods sold | 277,868 |
| | — |
| | — |
| | 277,868 |
|
Depreciation and amortization | 22,166 |
| | — |
| | — |
| | 22,166 |
|
Total cost of goods sold | 300,034 |
| | — |
| | — |
| | 300,034 |
|
Gross margin | 27,089 |
| | — |
| | (675 | ) | | 26,414 |
|
General and administrative expenses | 6,871 |
| | 1,669 |
| | (675 | ) | | 7,865 |
|
Related-party management services agreement fee | 9,327 |
| | 3,675 |
| | — |
| | 13,002 |
|
Total general and administrative expenses | 16,198 |
| | 5,344 |
| | (675 | ) | | 20,867 |
|
Income (loss) from operations | 10,891 |
| | (5,344 | ) | | — |
| | 5,547 |
|
Other (expense) income: | | | | | | | |
Interest expense | (18,802 | ) | | (27 | ) | | — |
| | (18,829 | ) |
Other income (expense), net | 687 |
| | 51 |
| | (180 | ) | | 558 |
|
Total other expense, net | (18,115 | ) | | 24 |
| | (180 | ) | | (18,271 | ) |
Net loss | $ | (7,224 | ) | | $ | (5,320 | ) | | $ | (180 | ) | | $ | (12,724 | ) |
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Operations |
For the Six Months Ended June 30, 2018 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Product sales | $ | 255,490 |
| | $ | — |
| | $ | — |
| | $ | 255,490 |
|
Other revenue | 5,430 |
| | — |
| | — |
| | 5,430 |
|
Net revenue | 260,920 |
| | — |
| | — |
| | 260,920 |
|
Cost of goods sold | 227,005 |
| | — |
| | — |
| | 227,005 |
|
Depreciation and amortization | 19,122 |
| | — |
| | — |
| | 19,122 |
|
Total cost of goods sold | 246,127 |
| | — |
| | — |
| | 246,127 |
|
Gross margin | 14,793 |
| | — |
| | — |
| | 14,793 |
|
General and administrative expenses | 6,557 |
| | 20 |
| | — |
| | 6,577 |
|
Related-party management services agreement fee | 7,514 |
| | — |
| | — |
| | 7,514 |
|
Total general and administrative expenses | 14,071 |
| | 20 |
| | — |
| | 14,091 |
|
Income (loss) from operations | 722 |
| | (20 | ) | | — |
| | 702 |
|
Other (expense) income: | | | | | | | |
Interest expense | (17,692 | ) | | — |
| | — |
| | (17,692 | ) |
Other income (expense), net | 1,293 |
| | (94 | ) | | — |
| | 1,199 |
|
Total other expense, net | (16,399 | ) | | (94 | ) | | — |
| | (16,493 | ) |
Net loss | $ | (15,677 | ) | | $ | (114 | ) | | $ | — |
| | $ | (15,791 | ) |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Comprehensive Income (Loss) |
For the Three Months Ended June 30, 2019 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Net income (loss) | $ | 1,693 |
| | $ | (5,314 | ) | | $ | (180 | ) | | $ | (3,801 | ) |
Other comprehensive loss: | | | | | | | |
Net unrealized losses on cash flow hedges | (106 | ) | | — |
| | — |
| | (106 | ) |
Reclassification of net gains realized into net income (loss) | (86 | ) | | — |
| | — |
| | (86 | ) |
Total other comprehensive loss | (192 | ) |
| — |
|
| — |
| | (192 | ) |
Total comprehensive income (loss) | $ | 1,501 |
| | $ | (5,314 | ) | | $ | (180 | ) | | $ | (3,993 | ) |
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Comprehensive Income (Loss) |
For the Three Months Ended June 30, 2018 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Net income (loss) | $ | 3,656 |
| | $ | (112 | ) | | $ | — |
| | $ | 3,544 |
|
Other comprehensive income (loss): | | | | | | | |
Net unrealized gains on cash flow hedges | 4,365 |
| | — |
| | — |
| | 4,365 |
|
Reclassification of net gains realized into net income (loss) | (64 | ) | | — |
| | — |
| | (64 | ) |
Total other comprehensive income | 4,301 |
| | — |
| | — |
| | 4,301 |
|
Total comprehensive income (loss) | $ | 7,957 |
| | $ | (112 | ) | | $ | — |
| | $ | 7,845 |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Comprehensive Loss |
For the Six Months Ended June 30, 2019 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Net loss | $ | (7,224 | ) | | $ | (5,320 | ) | | $ | (180 | ) | | $ | (12,724 | ) |
Other comprehensive loss: | | | | | | | |
Net unrealized losses on cash flow hedges | (161 | ) | | — |
| | — |
| | (161 | ) |
Reclassification of net gains realized into net loss | (193 | ) | | — |
| | — |
| | (193 | ) |
Total other comprehensive loss | (354 | ) | | — |
| | — |
| | (354 | ) |
Total comprehensive loss | $ | (7,578 | ) | | $ | (5,320 | ) | | $ | (180 | ) | | $ | (13,078 | ) |
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Comprehensive Loss |
For the Six Months Ended June 30, 2018 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Net loss | $ | (15,677 | ) | | $ | (114 | ) | | $ | — |
| | $ | (15,791 | ) |
Other comprehensive income (loss): | | | | | | | |
Net unrealized gains on cash flow hedges | 3,037 |
| | — |
| | — |
| | 3,037 |
|
Reclassification of net gains realized into net loss | (63 | ) | | — |
| | — |
| | (63 | ) |
Total other comprehensive income | 2,974 |
| | — |
| | — |
| | 2,974 |
|
Total comprehensive loss | $ | (12,703 | ) | | $ | (114 | ) | | $ | — |
| | $ | (12,817 | ) |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Cash Flows |
For the Six Months Ended June 30, 2019 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Cash flows from operating activities: | | | | | | | |
Net loss | $ | (7,224 | ) | | $ | (5,320 | ) | | $ | (180 | ) | | $ | (12,724 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | |
Depreciation and amortization | 22,426 |
| | 30 |
| | — |
| | 22,456 |
|
MSA Fee Waivers | 7,400 |
| | 3,646 |
| | — |
| | 11,046 |
|
Amortization of debt issuance costs, debt premium and original issue discounts | 595 |
| | — |
| | — |
| | 595 |
|
Loss on disposal of assets | 350 |
| | — |
| | — |
| | 350 |
|
Unit-based compensation | 2,936 |
| | 549 |
| | — |
| | 3,485 |
|
Fair value changes in derivatives | (346 | ) | | — |
| | — |
| | (346 | ) |
Unrealized loss on foreign currency transactions, net | 29 |
| | — |
| | — |
| | 29 |
|
Change in operating assets and liabilities: | | | | | | | |
Accounts and insurance receivables | (4,163 | ) | | (4 | ) | | — |
| | (4,167 | ) |
Related-party receivables | (17,529 | ) | | (2,012 | ) | | 17,005 |
| | (2,536 | ) |
Prepaid expenses and other current and long-term assets | (139 | ) | | (201 | ) | | — |
| | (340 | ) |
Inventories | 287 |
| | (305 | ) | | — |
| | (18 | ) |
Derivatives | 563 |
| | — |
| | — |
| | 563 |
|
Accounts payable, accrued liabilities and other current liabilities | (2,449 | ) | | (4,630 | ) | | — |
| | (7,079 | ) |
Related-party payables and accrued liabilities | 14,045 |
| | 2,604 |
| | (17,005 | ) | | (356 | ) |
Accrued interest | (1,650 | ) | | 1,072 |
| | — |
| | (578 | ) |
Operating lease liabilities | (1,690 | ) | | (782 | ) | | — |
| | (2,472 | ) |
Other long-term liabilities | 196 |
| | (542 | ) | | — |
| | (346 | ) |
Net cash provided by (used in) operating activities | 13,637 |
|
| (5,895 | ) |
| (180 | ) | | 7,562 |
|
Cash flows from investing activities: | | | | | | | |
Purchases of property, plant and equipment | (30,823 | ) | | (19,069 | ) | | — |
| | (49,892 | ) |
Payment in relation to the Enviva Wilmington Holdings, LLC Drop-Down | (74,700 | ) | | — |
| | — |
| | (74,700 | ) |
Net cash used in investing activities | (105,523 | ) |
| (19,069 | ) |
| — |
| | (124,592 | ) |
Cash flows from financing activities: | | | | | | | |
Proceeds from long-term debt and finance lease obligations, net | 92,248 |
| | — |
| | — |
| | 92,248 |
|
Proceeds from common unit issuances | 96,970 |
| | — |
| | — |
| | 96,970 |
|
First JV Revolver | (22,850 | ) | | 22,850 |
| | — |
| | — |
|
Payment of deferred consideration for Enviva Port of Wilmington, LLC Drop-Down | (24,300 | ) | | — |
| | — |
| | (24,300 | ) |
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder | (43,473 | ) | | — |
| | — |
| | (43,473 | ) |
Payment for withholding tax associated with Long-Term Incentive Plan vesting | (1,870 | ) | | — |
| | — |
| | (1,870 | ) |
Net cash provided by financing activities | 96,725 |
| | 22,850 |
| | — |
| | 119,575 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash | 4,839 |
| | (2,114 | ) | | (180 | ) | | 2,545 |
|
Cash, cash equivalents and restricted cash, beginning of period | (1,030 | ) | | 3,490 |
| | — |
| | 2,460 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 3,809 |
| | $ | 1,376 |
| | $ | (180 | ) | | $ | 5,005 |
|
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(Unaudited)
|
| | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Cash Flows |
For the Six Months Ended June 30, 2018 |
| | | | | | | |
| Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Cash flows from operating activities: | | | | | | | |
Net loss | $ | (15,677 | ) | | $ | (114 | ) | | $ | — |
| | $ | (15,791 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 19,439 |
| | — |
| | — |
| | 19,439 |
|
Amortization of debt issuance costs, debt premium and original issue discounts | 548 |
| | — |
| | — |
| | 548 |
|
Loss on disposal of assets | 244 |
| | — |
| | — |
| | 244 |
|
Unit-based compensation | 3,823 |
| | — |
| | — |
| | 3,823 |
|
Fair value changes in derivatives | (2,923 | ) | | — |
| | — |
| | (2,923 | ) |
Unrealized loss on foreign currency transactions, net | 29 |
| |
|
| | — |
| | 29 |
|
Change in operating assets and liabilities: | | | | | | | |
Accounts and insurance receivables | 33,806 |
| | — |
| | — |
| | 33,806 |
|
Related-party receivables | (4,052 | ) | | (2,899 | ) | | 7,017 |
| | 66 |
|
Prepaid expenses and other current and long-term assets | (297 | ) | | — |
| | — |
| | (297 | ) |
Inventories | (12,021 | ) | | — |
| | — |
| | (12,021 | ) |
Derivatives | (947 | ) | | — |
| | — |
| | (947 | ) |
Accounts payable, accrued liabilities and other current liabilities | 8,435 |
| | 1 |
| | — |
| | 8,436 |
|
Related-party payables and accrued liabilities | (546 | ) | | 4,118 |
| | (7,017 | ) | | (3,445 | ) |
Accrued interest | 60 |
| | — |
| | — |
| | 60 |
|
Other long-term liabilities | 206 |
| | — |
| | — |
| | 206 |
|
Net cash provided by operating activities | 30,127 |
| | 1,106 |
| | — |
| | 31,233 |
|
Cash flows from investing activities: | | | | | | | |
Purchases of property, plant and equipment | (5,879 | ) | | — |
| | — |
| | (5,879 | ) |
Insurance proceeds from property loss | 1,130 |
| | — |
| | — |
| | 1,130 |
|
Net cash used in investing activities | (4,749 | ) | | — |
| | — |
| | (4,749 | ) |
Cash flows from financing activities: | | | | | | | |
Proceeds from long-term debt and finance lease obligations, net | 27,016 |
| | — |
| | — |
| | 27,016 |
|
Proceeds from common unit issuances | 241 |
| | — |
| | — |
| | 241 |
|
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder | (36,469 | ) | | — |
| | — |
| | (36,469 | ) |
Payment to General Partner to purchase affiliate common units for Long-Term Incentive Plan vesting | (2,341 | ) | | — |
| | — |
| | (2,341 | ) |
Payment for withholding tax associated with Long-Term Incentive Plan vesting | (1,665 | ) | | — |
| | — |
| | (1,665 | ) |
Net cash used in financing activities | (13,218 | ) | | — |
| | — |
| | (13,218 | ) |
Net increase in cash, cash equivalents and restricted cash | 12,160 |
| | 1,106 |
| | — |
| | 13,266 |
|
Cash, cash equivalents and restricted cash, beginning of period | 524 |
| | — |
| | — |
| | 524 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 12,684 |
| | $ | 1,106 |
| | $ | — |
| | $ | 13,790 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise stated or the context otherwise indicates, all references to “we,” “us,” “our,” the “Partnership”, or similar expressions refer to Enviva Partners, LP, together withincluding its subsidiaries (“we,” “us,” “our” or the “Partnership”), is a Delaware limited partnership formed on November 12, 2013. Our sponsor isconsolidated subsidiaries. References to “our sponsor” refer to Enviva Holdings, LP (and,and, where applicable, its wholly owned subsidiaries 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 Enviva Holdings, LP. References to “Enviva Management” refer to Enviva Management Company, LLC, a wholly owned subsidiary of Enviva Holdings, LP, and references to “our employees” refer to the employees of Enviva Management.Management and its affiliates who provide services to the Partnership. References to the “First“Sponsor JV” refer to Enviva Wilmington Holdings,JV Development Company, LLC, which is a joint venture between our sponsor and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates. References to the “Second JV” refer to a joint venture between our sponsor and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates.
The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis (“MD&A”) in Part II-Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20182019 as filed with the U.S. Securities and Exchange Commission (the “SEC”). Our 20182019 Form 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations. You should also read the following discussion and analysis together with the risk factors set forth in the 20182019 Form 10-K and the factors described under “Cautionary Statement Regarding Forward-Looking Information” and Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q for information regarding certain risks inherent in our business.
Basis of Presentation
The following discussion about matters affecting the financial condition and 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 related notes that are included in the 20182019 Form 10-K. Among other things, those financial statements and the related notes include more detailed information regarding the basis of presentation for the following information.
Business Overview
We aggregate a natural resource, wood fiber, and process 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 the United Kingdom, Europe and Europe. We ownincreasingly Japan. As of July 1, 2020, we owned and operate sevenoperated eight wood pellet production plants (collectively, “our plants”) with a combined production capacity of over 3.5approximately 4.1 million metric tons (“MT”) of wood pellets per year in Virginia, North Carolina, South Carolina, Florida, and Mississippi, and Florida. In addition, wethe 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 with a production capacity of 800,000 metric tons per year located in Waycross, Georgia on July 31, 2020. We export wood pellets through our wholly owned dry-bulk, deep-water marine terminalsterminal at the Port of Chesapeake, Virginia (the “Chesapeake terminal”) and terminal assets at the Port of Wilmington, North Carolina (the “Wilmington terminal”) and from third-party deep-water marine terminals in Mobile, Alabama and Panama City, Florida. In April 2019, we acquired our sponsor’s interest the First JV. The First JV owns the Hamlet plant and a firm, 15-year take-or-pay off-take contract to supply nearly 1.0 million metric tons per year (“MTPY”Florida (the “Panama City terminal”) of wood pellets, following a ramp period. The Hamlet plant is now operating, and we expect the plant to exit 2019 with a production run-rate of approximately 500,000 MTPY and to reach its nameplate production capacity of approximately 600,000 MTPY in 2021.. All of our facilities are located in geographic regions with low input costs and favorable transportation logistics. Owning these cost-advantaged assets, the output from which is fully contracted, in a rapidly expanding industry provides us with a platform to generate stable and growing cash 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.are generated in a harvest.
Our strategy is to fully contract the wood pellet production from our plants under long-term, take-or-pay off-take contracts.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 2019,2020, production capacity from our plants and wood pellets sourced from a production plant in Greenwood, South Carolina (the “Greenwood plant”) owned by the Second JVour affiliates and from third parties arewere approximately equal to the contracted volumes under our existing long-term, take-or-pay off-take contracts. Our long-term, take-or-pay off-take contracts provide for a product sales backlog of 2.9 million MT of wood pellets in 2019$15.3 billion and have a total weighted-average remaining term of 10.412.7 years from July 1, 2019.2020. Under our current product sales backlog, our plants are fully contracted through 2025. Assuming all volumes under the firm and contingent long-term off-take contracts held by our sponsor 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.
Our customers use our wood pellets as a substitute fuel for coal in dedicated biomass or co-fired coal power plants. Wood pellets serve as a suitable “drop-in” alternative to coal because of their comparable heat content, density and form. Due to the uninterruptible nature of our customers’ fuel consumption, our customers require a reliable supply of wood pellets that meet stringent product specifications. We intendhave built our operations and assets to continue expandingdeliver and certify the highest levels of product quality and our business by taking advantageproven track record of reliable deliveries enables us to charge premium prices for this certainty. In addition to our
customers’ focus on the reliability of supply, they are concerned about the combustion efficiency of the growing demandwood pellets and their safe handling. Because combustion efficiency is a function of energy density, particle size distribution, ash/inert content and moisture, our customers require that we supply wood pellets meeting minimum criteria for a variety of specifications and, in some cases, provide incentives for exceeding our product that is driven by conversion of coal-fired power generation and combined heat and power plants to co-fired or dedicated biomass-fired plants and construction of newly dedicated biomass-fired plants, principally in Europe and increasingly in Japan.contract specifications.
Recent Developments
Hamlet TransactionGeorgia Biomass Purchase Agreement
In April 2019, we acquired fromOn June 18, 2020, the sponsorPartnership entered into a Membership Interest Purchase and Sale Agreement (the “Georgia Biomass Purchase Agreement”) to acquire all of the issuedlimited liability company interests in Georgia Biomass Holding LLC, a Georgia limited liability company (“Georgia Biomass”), and outstanding Class B Unitsthe indirect owner of the First JVa wood pellet production plant located in Waycross, Georgia (the “Waycross plant”), for total consideration of $165.0$175.0 million in cash, subject to certain adjustments. The production capacity of the Waycross plant is 800,000 MTPY. The closing occurred on July 31, 2020. We refer to this transaction as the “Georgia Biomass Acquisition.”
Greenwood Contribution Agreement
On June 18, 2020, Partnership and our sponsor entered into a contribution agreement (the “Contribution Agreement”) pursuant to which our sponsor agreed to contribute to the Partnership all of the limited liability company interests in Enviva Pellets Greenwood Holdings II, LLC (“Greenwood Holdings II”), which wholly indirectly owns Enviva Pellets Greenwood, LLC (“Greenwood”), for a purchase price of $132.0 million, subject to certain adjustments (the “Hamlet Transaction”(such transaction, the “Greenwood Drop-Down”). The First JVGreenwood owns a wood pellet production plant located in Greenwood, South Carolina (the “Greenwood plant”).
On July 1, 2020, the Hamlet plant
and a firm, 15-year take-or-pay off-take contract to supply nearly one million MTPY of wood pellets, following a ramp period. The contract commences in 2019, ramps to full supply volumes in 2021 and continues through 2034. The Partnership already had off-take contracts with the First JV to supply 470,000 MTPYclosing of the volumes to be supplied to the First JV prior to the Hamlet Transaction; as a result, the Partnership will have 500,000 MTPY in incremental sales volumes as a result thereof.
On the date of our acquisition of the sponsor’s Class B Units in the First JV:
We commenced an associated terminal services agreement to handle contracted volumes from the Hamlet plant.
We entered into an agreement with the sponsor,Greenwood Drop-Down occurred, pursuant to which (1) the sponsor will pay us certainPartnership paid cash flows from the Hamlet plant until June 30, 2020, (2) the sponsor will reimburse us for construction cost overruns in excessconsideration of budgeted capital expenditures for the Hamlet plant, subject to certain exceptions, (3)$131.6 million, net of an initial purchase price adjustment of $0.4 million. In addition, Greenwood Holdings II’s liabilities included a $40.0 million, third-party promissory note bearing interest at 2.5% per year that we will payassumed at closing.
Pursuant to the Contribution Agreement and the Greenwood Drop-Down, our sponsor quarterly incentive paymentsassigned five biomass off-take agreements to the Partnership (collectively, the “Associated Off-Take Contracts”). The Associated Off-Take Contracts call for anyaggregate annual deliveries of 1.4 million MTPY and mature between 2031 and 2041. Our sponsor also assigned two fixed-rate shipping contracts and partially assigned two additional fixed-rate shipping contracts to the Partnership. The Associated Off-Take Contracts were assigned to fully contract wood pellets produced by the HamletGreenwood plant and Waycross plant. The shipping contracts were assigned to facilitate transportation of those produced wood pellets.
The Greenwood plant is currently permitted to produce approximately 500,000 MTPY of wood pellets and transports its production via rail service to the Partnership’s terminal assets at the Port of Wilmington, North Carolina. The Partnership plans to invest $28.0 million to expand the Greenwood plant’s production capacity to 600,000 MTPY by the end of 2021, subject to receiving the necessary permits.
Greenwood Make-Whole Agreement
In connection with the Greenwood Drop-Down, the Partnership and our sponsor entered into a make-whole agreement, pursuant to which our sponsor agreed to reimburse the Partnership for any construction costs incurred for the planned expansion of the Greenwood plant in excess of forecast production levels through June 30, 2020,$28.0 million.
Greenwood Management Services Fee Waiver
In connection with the Greenwood Drop-Down, the Partnership and (4) the sponsor will retain liability for certain claims payable, if any, by the First JV (the “Make-Whole Agreement”).
The First JVEnviva Management entered into an agreement with Enviva Managementpursuant to waive the obligation to paywhich (1) an aggregate of approximately $2.7$37.0 million ofin management services and other fees payable to Enviva Managementthat otherwise would be otherwise be owed by the Partnership under the First JVEVA MSA will be waived with respect to the period from the dateclosing of acquisitionthe Greenwood Drop-Down through the fourth quarter of 2021 and (2) Enviva Management will continue to waive certain management services and other fees during 2022 unless and until the later of July 1, 2019 and CODGreenwood plant’s production volumes equal or exceed 50,000 metric tons in any calendar month, in each case, to provide cash flow support to the Partnership during the planned expansion of the Hamlet plant (the “First JV MSA Fee Waiver”).Greenwood plant.
Tack-On Notes Issuance
On July 15, 2020, we issued an additional $150.0 million in aggregate principal amount of the 2026 Notes at an offering price of 103.75% of the principal amount, which implied an effective yield to maturity of approximately 5.7%. We received net proceeds of approximately $153.6 million from the offering after deducting discounts and commissions and offering costs.
Private Placement of Common Units
On June 18, 2020, the Partnership entered into an agreementa Common Unit Purchase Agreement (the “Unit Purchase Agreement”) with Enviva Management
certain investors to waivesell 6,153,846 common units in a private placement at a price of $32.50 per common unit for gross proceeds of $200.0 million (the “Private Placement”). The Partnership used the obligationnet proceeds of $190.8 million from the Private Placement to pay an aggregatefund a portion of approximately $13.0 million in fees payable under our management servicesthe consideration for each of the Greenwood Drop-Down and the Georgia Biomass Acquisition, and intends to use the remaining portion to fund a portion of the Greenwood plant expansion and for general partnership purposes. The closing of the Private Placement was completed on June 23, 2020.
Pursuant to the Unit Purchase Agreement, the Partnership entered into a registration rights agreement (the “EVA MSA,” and together“Registration Rights Agreement”) with the First JV MSA,investors in connection with the “MSAs”closing of the Private Placement, pursuant to which the Partnership agreed to file and maintain a registration statement (the “Shelf Registration Statement”) with Enviva Management with respect to the periodresale of the common units on the terms set forth therein. The Registration Rights Agreement also provides certain investors with customary piggyback registration rights. On July 10, 2020, the Partnership filed the Shelf Registration Statement and on July 20, 2020, the Shelf Registration Statement was declared effective.
Financing Activities
Our net proceeds from the date$190.8 million Placement and the net proceeds of the JV 1.0 Drop-Down throughtack-on offering of the second quarter2026 Notes of 2020 (the “EVA MSA Fee Waiver”).
We assumed the sponsor’s position as lender under a credit agreement between the First JV, as borrower, and the sponsor, as lender (the “First JV Revolver”).
We refer$153.6 million were used to these transactions as the “JV 1.0 Drop-Down.”
The purchase price of $165.0 million for the JV 1.0 Drop-Down consisted of (1) a cash payment of $24.7 million, net of a purchase price adjustment of $0.3 million, (2) the issuance of 1,681,237 unregistered common units at a value of $29.74, or $50.0repay $90.0 million of common units, (3) $50.0 million in cash paid on June 28, 2019, (4) $40.0 million in cashthe revolving borrowings under our senior secured revolving credit facility and to be paid on January 2, 2020 and (5)pay the elimination of $3.7 million of net related-party receivables and payables included in the net assets on the date of acquisition. As the holder of the Class B Units, Enviva, LP became a member of the First JV (the “Enviva Member”) on the acquisition date.
Wilmington Terminal Second Payment
The Partnership made an initial payment of $56.0 million to the First JV as partial payment of the $130.0$132.0 million purchase price for the Wilmington terminal in October 2017 (the “Wilmington Acquisition”).
On April 1, 2019,Greenwood Drop-Down, with the Partnership made the second and final payment of $74.0 million in deferred considerationremaining amount being used to to partially pay for the Wilmington Acquisition consisting of 1,691,627 common units at a price of $29.38 per common unit (which was the 20-day volume-weighted average price as of the closing of the Wilmington Acquisition), or approximately $50.0$175.0 million in common units, subject to certain adjustments, and approximately $24.0 million in cash (the “Second Payment”).Georgia Biomass Acquisition.
Mid-Atlantic Expansions
During 2019, we expectstarted construction to increase the aggregate wood pellet production capacity of our plants in Northampton, North Carolina, and Southampton, Virginia (the “Mid-Atlantic Expansions”) by approximately 400,000 MTPY in the aggregate, subject to receiving the necessary permits.MTPY. We expect to invest a total of approximately $130.0 million in additional wood pellet production assets and emissions control equipment for the expansionsMid-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 completebegin commissioning and commencing the production ramp for the Southampton plant expansion activities inover the first half of 2020 with startup shortly thereafter. Capital expenditures onnext several months. We expect to benefit from the full 400,000 MTPY increased production from the Mid-Atlantic Expansions through June 30, 2019 were approximately $44.5 million.
Financing Activities
In addition to the approximately $100.0 million in common units issued as partial consideration for the Hamlet Transaction and the Second Payment, the Partnership issued an aggregate of 3,508,778 common units to investors in exchange for proceeds
of $100.0 million in a registered direct offering (the “RDO”) pursuant to an effective registration statement on file with the SEC at a purchase price of $28.50 per unit, representing a 4.2 percent discount to the 20-day volume-weighted average price as of March 20, 2019.
We used proceeds from the RDO, along with borrowings under the Partnership’s existing $350.0 million senior secured revolving credit facility and the common units issued as consideration for the Hamlet Transaction and the Second Payment, to partially finance (i) the $165.0 million purchase price for the Hamlet Transaction, (ii) the $74.0 million in deferred consideration for the Wilmington Acquisition, and will use proceeds to partially finance (iii) the $24.0 million in capital expenditures, net of payments under the Make-Whole Agreement, expected to be required to complete construction of the Hamlet plant and (iv) the approximately $130.0 million expected to be required for the Mid-Atlantic Expansions.during 2021.
Contracted Backlog
As of August 5, 2019July 1, 2020, we had approximately $9.6$15.3 billion of product sales backlog for firm contracted product sales to our long-term off-take customers and have a total weighted-average remaining term of 10.412.7 years, compared to approximately $5.8$9.6 billion and a total weighted-average remaining term of 9.010.4 years as of July 1, 2018. BacklogAugust 5, 2019. Contracted 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 August 5, 2019July 1, 2020 forward rates. The contracted backlog includes forward prices including inflation, foreign currency and commodity prices. The amount also includes the effects of related foreign currency derivative contracts.
Our expected future product sales revenue under our contracted backlog as of August 5, 2019July 1, 2020 is as follows (in millions):
|
| | | |
Period from August 5, 2019 to December 31, 2019 | $ | 298 |
|
Year ending December 31, 2020 | 913 |
|
Year ending December 31, 2021 and thereafter | 8,340 |
|
Total product sales contracted backlog | $ | 9,551 |
|
| | | | | |
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 | |
Assuming all volumes under the firm and contingent off-take contracts held by our sponsor and the Second JVits joint ventures were included with our product sales contracted backlog for firm contracted product sales, the total weighted-average remaining term as of August 5, 2019July 1, 2020 would increase to 13.213.6 years and the product sales backlog would increase to $17.9$19.7 billion 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 | 18,068 | |
Total product sales contracted backlog | $ | 19,715 | |
|
| | | |
Period from August 5, 2019 to December 31, 2019 | $ | 298 |
|
Year ending December 31, 2020 | 913 |
|
Year ending December 31, 2021 and thereafter | 16,685 |
|
Total product sales contracted backlog | $ | 17,896 |
|
Outbreak of the Novel CoronavirusThe outbreak of a novel strain of coronavirus (“COVID-19”) has significantly adversely impacted global markets and continues to present global public health and economic challenges. Although the full impact of COVID-19 is unknown and rapidly evolving, to date, our operations have not been significantly impacted by the outbreak.
We have taken assertive safety measures including social distancing, hygienic policies and procedures and other steps recommended by the Centers for Disease Control and Prevention (the “CDC”), and adopted the CDC’s risk management approach, since the beginning of the outbreak, and have established risk levels based on the degree to which the virus has spread in a given community and the nature of the work performed at that location. Within our field operations, thanks to low incident rates of COVID-19 and low levels of community spread where our plants and ports are located, we have continued operations largely as normal with the additional precautionary measures; however, we continue to monitor local data on a daily basis and have prioritized putting the right plans, procedures and measures in place to mitigate the risk of exposure and infection and the related impacts to our business.
We specifically designed our operations and logistics systems with flexibility and redundancies so they are capable of effectively responding to unforeseen events. As of July 31, 2020, we operate a portfolio of nine wood pellet production plants geographically dispersed in areas with low population density across the Southeast U.S. We export our product from a portfolio of four bulk terminals and transport it to our customers under long-term, fixed-price shipping contracts with multiple shipping partners. These operations currently are unaffected by COVID-19.
In March, 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 and taken extraordinary actions in response, including issuing “stay-at-home” orders and similar mandates (“Orders”) for many businesses to curtail or cease normal operations. To date, we have not been significantly impacted by the Orders, which exempt or exclude businesses that have been designated essential critical infrastructure, such as ours, from various restrictions they impose.
As of June 30, 2020, we had no borrowings under our $350.0 million senior secured revolving credit facility and have no debt maturities until 2023. Our wood pellet production capacity is committed under long-term, take-or-pay off-take contracts with fixed pricing and fixed volumes that are not impacted by the market prices of crude oil, natural gas, power or heat. As discussed above, our off-take contracts have a weighted-average remaining term of 12.7 years and a product sales contracted backlog of $15.3 billion as of July 1, 2020. Furthermore, most of our current deliveries are to Europe, where they fuel grid-critical base load, dispatchable generation facilities that provide power and heat required for local 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 whom is in compliance with their agreements with us, including payment terms.
We do, however, remain vigilant about the unfolding global crisis and continue to monitor and manage the potential health, safety, business and other risks associated with the COVID-19 pandemic. Nonetheless, we have not experienced these issues in any significant way to date, and we have plans that we believe would mitigate their potential impact if we were to face such issues in the future.
For a discussion of certain risks and uncertainties in connection with COVID-19, please see Part II-Other Information, Item 1A. “Risk Factors.”
Factors Impacting Comparability of Our Financial Results
Inventory Impairment and Asset DisposalPrivate Placement of Common Units
In June 2020, we issued 6,153,846 common units in a private placement offering for net proceeds of approximately $190.8 million, net of $9.2 million of issuance costs.
Hamlet Drop-Down
On February 27, 2018,April 2, 2019, we acquired from our sponsor all of the Class B units of Enviva Wilmington Holdings, LLC (the “Hamlet JV,” and such acquisition, the “Hamlet Drop-Down”). We are the managing member of the Hamlet JV, which is partially owned by John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates (collectively, where applicable, “John Hancock”).
The Hamlet JV owns a fire occurred at the Chesapeake terminal, causing damagewood pellet production plant in Hamlet, North Carolina (the “Hamlet plant”) and has a firm 15-year take-or-pay off-take contract to equipment and approximately 43,000 MTsupply a customer with nearly 1.0 million MTPY of wood pellets (the “Chesapeake Incident”).following a ramp period through 2034. Prior to the Hamlet Drop-Down, we already had off-take contracts with the Hamlet JV to supply 470,000 MTPY of the volumes to be delivered pursuant to the 1.0 million MTPY contract; consequently, we acquired 500,000 MTPY in incremental product sales volumes in connection with the Hamlet Drop-Down. The Chesapeake terminal returned to operations on June 28, 2018. DuringHamlet plant became operational during the three and six months ended June 30, 2018, we incurred $20.3 million and $48.7 million, respectively, in costssecond quarter of 2019.
We accounted for the Hamlet JV as a resultconsolidated subsidiary, not as a joint venture, following the Hamlet Drop-Down on April 2, 2019. We included all accounts of the Chesapeake Incident related to asset impairment, inventory write-off and disposal costs, emergency response costs, asset repair costs and business continuity costs,Hamlet JV in our consolidated results as of April 2, 2019 as the latter of which represented incremental costs to commission temporary wood pellet storage and handling and ship loading operations at nearby locations to meet our contractual obligations to our customers. As of June 30, 2018, we had recovered $26.3 million related toClass B Units represent a controlling interest in the Chesapeake Incident, which included $1.1 million of lost profits. As of December 31, 2018, $3.8 million of probable insurance recoveries forHamlet JV. We are generally unrestricted in managing the then-remaining costs not yet recovered were included in insurance receivables; we received the $3.8 million in probable insurance recoveries (plus $0.5 million recognized as other income in 2019) in February 2019.
In addition, we incurred other losses and costs associated with the Chesapeake Incident during and since the three and six months ended June 30, 2018 and are pursuing outstanding claims of approximately $25.0 million related to such amounts. Consequently, our results of operationsassets and cash flows of the Hamlet JV; however, certain decisions, such as well as our financial measures not presented in accordance with accounting principles generally acceptedthose relating to the issuance and redemption of equity interests in the United States (“GAAP”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.
2026 Notes
During December 2019, we issued $600.0 million in principal amount of 6.5% senior unsecured notes due January 15, 2026 (the “2026 Notes”), or non-GAAP financial measures, may not be comparable in private placements under Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “Securities Act”). We received gross proceeds of approximately $601.8 million from the offerings and net proceeds of approximately $595.8 million after deducting commissions and expenses. We used the net proceeds from the offerings (1) to thoseredeem our existing $355.0 million principal amount of 8.5% senior unsecured notes due 2021, including payment of the related redemption premium, (2) to repay borrowings under our senior secured revolving credit facility, including payment of the related accrued interest and (3) for reported periods before or after the threegeneral partnership purposes. Interest payments are due semi-annually in arrears on January 15 and six months ended June 30, 2018.July 15 of each year, commencing July 15, 2020.
As discussed above in “Recent Developments,” we issued an additional $150.0 million in aggregate principal amount of 2026 Notes in July 2020.
How We Evaluate Our Operations
Adjusted Net Income (Loss) Income
We define adjusted net income (loss) income as net income (loss) income excluding certain expenses incurred related to a fire that occurred in February 2018 at the Chesapeake Incidentterminal (the “Chesapeake Incident”) and the Hurricane Events,Hurricanes Florence and Michael (the “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, interest expense associated with incremental borrowings related to the Chesapeake Incident and Hurricane Events, early retirement of debt obligation, and the effect of certain sales and marketing, scheduling, sustainability, consultation, shipping, and risk management services (collectively, the “Commercial Services”), and including certain non-cash waivers of fees for management services provided to us by our sponsor (collectively, the “MSA Fee Waivers”), and interest expense associated with incremental borrowings related to the Chesapeake Incident.. We believe that adjusted net income (loss) income enhances investors’ ability to compare the past financial performance of our underlying operations with our current performance separate from certain items of gain or loss that we characterize as unrepresentative of our ongoing operations.
Adjusted Gross Margin per Metric Ton
We usedefine adjusted gross margin per metric ton to measure our financial performance. We define adjustedas gross margin as gross marginper metric ton excluding asset disposals, depreciation and amortization, changes in unrealized derivative instruments related to hedged items included in gross margin, MSA Fee Waivers, andnon-cash unit compensation expense, certain items of 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.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-generating activities to our operating costs for a view of profitability and performance on a per metric ton basis. Adjusted gross margin per metric ton will primarily be affected by our ability to meet targeted production volumes and to control direct and indirect costs associated with procurement and delivery of wood fiber to our production plants and the production and distribution of wood pellets.
Adjusted EBITDA
We define adjusted EBITDA as net income or loss excluding depreciation and amortization, interest expense, income tax expense, early retirement of debt obligations, MSA Fee Waivers andnon-cash unit compensation expense, asset impairments and disposals, changes in unrealized derivative instruments related to hedged items included in gross margin and other income and expense, and certain items of income or loss that we characterize as unrepresentative of our ongoing operations, 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.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. Adjusted EBITDA is a supplemental measure used by our management and other users of our financial statements, such as investors, commercial banks, and research analysts, to assess the financial performance of our assets without regard to financing methods or capital structure.
Distributable Cash Flow
We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures, income tax expense and interest expense net of amortization of debt issuance costs, debt premium, original issue 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.
Limitations of Non-GAAP Financial Measures
Adjusted net income (loss) income,, adjusted gross margin per metric ton, adjusted EBITDA, and distributable cash flow are not financial measures presented in accordance with GAAP.accounting principles generally accepted in the United States (“GAAP”). We believe that the presentation of these non-GAAP financial measures provides useful information to investors in assessing our financial condition and results of operations. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non-GAAP financial measures has important limitations as an analytical tool because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider adjusted net income (loss) income,, adjusted gross margin per metric ton, adjusted EBITDA, or distributable cash flow in isolation or as substitutes for analysis of our results as reported under GAAP.
Our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
Results of Operations
Three Months endedEnded June 30, 20192020 Compared to Three Months endedEnded June 30, 20182019
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
| 2020 | | 2019 | | Change |
| (in thousands) | | | | |
Product sales | $ | 155,651 | | | $ | 167,202 | | | $ | (11,551) | |
Other revenue (1) | 12,061 | | | 877 | | | 11,184 | |
Net revenue | 167,712 | | | 168,079 | | | (367) | |
Cost of goods sold (1) | 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 | 6,947 | | | 9,263 | | | (2,316) | |
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) | (41) | | | (82) | | | 41 | |
Net income (loss) | $ | 8,471 | | | $ | (3,801) | | | $ | 12,272 | |
(1) See Note 12, Related-Party Transactions | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Three Months ended June 30, | | Change | | Chesapeake Incident and Hurricane Events | | Net Change |
| 2019 | | 2018 | | | |
| (in thousands) | | | | |
Product sales | $ | 167,202 |
| | $ | 133,168 |
| | $ | 34,034 |
| | $ | — |
| | $ | 34,034 |
|
Other revenue (1) | 877 |
| | 2,428 |
| | (1,551 | ) | | — |
| | (1,551 | ) |
Net revenue | 168,079 |
| | 135,596 |
| | 32,483 |
| | — |
| | 32,483 |
|
Cost of goods sold, excluding depreciation and amortization (1) | 140,476 |
| | 105,967 |
| | 34,509 |
| | 522 |
| | 33,987 |
|
Depreciation and amortization | 11,096 |
| | 9,818 |
| | 1,278 |
| | — |
| | 1,278 |
|
Total cost of goods sold | 151,572 |
| | 115,785 |
| | 35,787 |
| | 522 |
| | 35,265 |
|
Gross margin | 16,507 |
| | 19,811 |
| | (3,304 | ) | | (522 | ) | | (2,782 | ) |
General and administrative expenses | 2,241 |
| | 3,829 |
| | (1,588 | ) | | — |
| | (1,588 | ) |
Related-party management services agreement fee | 8,789 |
| | 3,458 |
| | 5,331 |
| | — |
| | 5,331 |
|
Total general and administrative expenses | 11,030 |
| | 7,287 |
| | 3,743 |
| | — |
| | 3,743 |
|
Income from operations | 5,477 |
| | 12,524 |
| | (7,047 | ) | | (522 | ) | | (6,525 | ) |
Interest expense | (9,196 | ) | | (9,047 | ) | | (149 | ) | | — |
| | (149 | ) |
Other (expense) income | (82 | ) | | 67 |
| | (149 | ) | | — |
| | (149 | ) |
Net (loss) income | $ | (3,801 | ) | | $ | 3,544 |
| | $ | (7,345 | ) | | $ | (522 | ) | | $ | (6,823 | ) |
| | | | | | | | | |
(1) See Note 13, Related-Party Transactions | | | | | | | | | |
Net revenueProduct sales
Revenue relatedNet revenue decreased to product sales for wood pellets produced or procured by us increased to $167.2$167.7 million for the three months ended June 30, 20192020 from $133.2$168.1 million for the three months ended June 30, 2018.2019. The $34.0de minimis change was primarily attributable to the increase in sold volumes produced by the Partnership offset by the reduction in sales volumes procured 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 with 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 product sales. Other revenue also included $1.9 million from the Commercial Services during the three months ended June 30, 2020. 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.
Cost of goods sold
Cost of goods sold decreased to $140.0 million for the three months ended June 30, 2020 from $151.6 million for the three months ended June 30, 2019. The $11.5 million, or 26%8%, increasedecrease was primarily attributable to a 24% increase2% decrease in sales volumes during the three months ended June 30, 20192020 as compared to the three months ended June 30, 2018.2019.
Other revenueGross margin
Other revenue decreased by $1.6Gross margin increased to $27.7 million for the three months ended June 30, 2020 from $16.5 million for the three months ended June 30, 2019. The gross margin increase of $11.2 million during the three months ended June 30, 20192020 as compared to the three months ended June 30, 2018. The decrease is2019 was primarily attributable to $1.2the increase in sold volumes produced by the Partnership, which had a higher gross margin, and a reduction in sales volumes procured from third parties, which had a lower gross margin.
Adjusted gross margin per metric ton
| | | | | | | | | | | | | | | | | |
| 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 | |
Chesapeake Incident and Hurricane Events(1) | — | | | (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 | |
(1) In February 2018, a fire occurred at the Chesapeake terminal, causing damage to equipment and inventory of wood pellets (the “Chesapeake Incident”). Hurricane Florence caused minor damage at our wood pellet production 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”.)
We earned adjusted gross margin of $42.0 million, in fees received from a customer requesting scheduling accommodations during the three months ended June 30, 2018.
Cost of goods sold
Cost of goods sold increased to $151.6 millionor $49.55 per MT, for the three months ended June 30, 2019 from $115.8 million for the three months ended June 30, 2018. The $35.8 million, or 31%, increase was primarily attributable to a 24% increase in sales volumes and a 5% increase in costs primarily due to seasonal factors that were more significant and longer lasting than during the three months ended June 30, 2018. These seasonal factors were largely behind us at the end of the second quarter.
Gross margin
Gross margin decreased to $16.5 million for the three months ended June 30, 2019 from $19.8 million for the three months ended June 30, 2018. The gross margin decrease of $3.3 million was primarily attributable to a $6.1 million increase in costs. The increase in costs was partially offset by a gross margin increase of $2.9 million due to a 24% increase in sales volumes during the three months ended June 30, 2019 as compared to the three months ended June 30, 2018.
2020. Adjusted gross margin per metric ton
|
| | | | | | | | | | | |
| Three Months ended June 30, | | |
| 2019 | | 2018 | | Change |
| (in thousands except per metric ton) |
Reconciliation of gross margin to adjusted gross margin per metric ton: | | | | | |
Gross margin | $ | 16,507 |
| | $ | 19,811 |
| | $ | (3,304 | ) |
Loss on disposal of assets | 350 |
| | 244 |
| | 106 |
|
Depreciation and amortization | 11,096 |
| | 9,818 |
| | 1,278 |
|
Chesapeake Incident and Hurricane Events | (281 | ) | | (804 | ) | | 523 |
|
Changes in unrealized derivative instruments | (2,334 | ) | | (3,463 | ) | | 1,129 |
|
MSA Fee Waivers | 2,700 |
| | — |
| | 2,700 |
|
Adjusted gross margin | $ | 28,038 |
| | $ | 25,606 |
| | $ | 2,432 |
|
Metric tons sold | 869 |
| | 699 |
| | 170 |
|
Adjusted gross margin per metric ton | $ | 32.26 |
| | $ | 36.63 |
| | $ | (4.37 | ) |
We earned adjusted gross margin ofwas $28.0 million, or $32.26 per MT, for the three months ended June 30, 2019. Adjusted gross margin was $25.6 million, or $36.63 per MT, for the three months ended June 30, 2018. The factors impacting the changeincrease in adjusted gross margin include those describedis primarily due factors discussed above under the heading “Gross margin.” Additionally,
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.
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, 2019 compared to the three months ended June 30, 2018 due to the waiver of $2.7 million of management services fees by the sponsor as consideration for an assignment of two shipping contracts to our sponsor to rebalance our and our sponsor’s respective shipping obligations under existing off-take contracts.2020.
General and administrative expenses
General and administrative expenses were $9.0 million for the three months ended June 30, 2020 and $11.0 million for the three months ended June 30, 2019 and $7.32019. The $2.0 million for the three months ended June 30, 2018. The $3.7 million increasedecrease in general and administrative expenses is primarily attributable to the consolidation of the FirstHamlet JV following the JV 1.0Hamlet Drop-Down on April 2, 2019.2019, 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.
Interest expense
We incurred $10.1 million of interest expense during the three months ended June 30, 2020 and $9.2 million of interest expense during the three months ended June 30, 2019 and $9.0 million of interest expense during the three months ended June 30, 2018.2019. The increase in interest expense was primarily attributable to an increase in borrowings under our 2026 Notes, partially offset by the decrease in borrowings under our senior secured revolving credit facility.facility during the three months ended June 30, 2020, as compared to the same period in 2019.
Adjusted net income
| | | | | | | | | | Three Months Ended June 30, | | |
| Three Months ended June 30, | | | | 2020 | | 2019 | | Change |
| 2019 | | 2018 | | Change | | (in thousands) | |
| (in thousands) | |
Reconciliation of net (loss) income to adjusted net income: | | | | | | |
Net (loss) income | $ | (3,801 | ) | | $ | 3,544 |
| | $ | (7,345 | ) | |
Reconciliation of net income (loss) to adjusted net income: | | Reconciliation of net income (loss) to adjusted net income: | |
Net income (loss) | | Net income (loss) | $ | 8,471 | | | $ | (3,801) | | | $ | 12,272 | |
Chesapeake Incident and Hurricane Events | (281 | ) | | (804 | ) | | 523 |
| Chesapeake Incident and Hurricane Events | — | | | (281) | | | 281 | |
MSA Fee Waivers | 11,046 |
| | — |
| | 11,046 |
| MSA Fee Waivers | 1,572 | | | 11,046 | | | (9,474) | |
Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events | | Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events | 548 | | | — | | | 548 | |
Commercial Services | | Commercial Services | (1,882) | | | — | | | (1,882) | |
Adjusted net income | $ | 6,964 |
| | $ | 2,740 |
| | $ | 4,224 |
| Adjusted net income | $ | 8,709 | | | $ | 6,964 | | | $ | 1,745 | |
We generated adjusted net income of $8.7 million for the three months ended June 30, 2020 and $7.0 million for the three months ended June 30, 2019 and $2.7 million for the three months ended June 30, 2018.2019. The $4.2$1.7 million increase in adjusted net income was primarily attributable to the factors described below under the heading “Adjusted EBITDA,EBITDA.” partially offset by a $1.3 million increase in depreciation and amortization expense and a $1.1 million increase in changes in unrealized derivative instruments.
Adjusted EBITDA
| | | | | | | | | | Three Months Ended June 30, | | |
| Three Months ended June 30, | | | | 2020 | | 2019 | | Change |
| 2019 | | 2018 | | Change | | (in thousands) | |
| (in thousands) | |
Reconciliation of net (loss) income to adjusted EBITDA: | | | | | | |
Net (loss) income | $ | (3,801 | ) | | $ | 3,544 |
| | $ | (7,345 | ) | |
Reconciliation of net income (loss) to adjusted EBITDA: | | Reconciliation of net income (loss) to adjusted EBITDA: | |
Net income (loss) | | Net income (loss) | $ | 8,471 | | | $ | (3,801) | | | $ | 12,272 | |
Add: | | | | | | Add: | |
Depreciation and amortization | 11,248 |
| | 10,031 |
| | 1,217 |
| Depreciation and amortization | 15,297 | | | 11,248 | | | 4,049 | |
Interest expense | 9,196 |
| | 9,047 |
| | 149 |
| Interest expense | 10,124 | | | 9,196 | | | 928 | |
Non-cash unit compensation expense | 1,013 |
| | 2,480 |
| | (1,467 | ) | Non-cash unit compensation expense | 2,098 | | | 1,013 | | | 1,085 | |
Asset impairments and disposals | 350 |
| | 244 |
| | 106 |
| Asset impairments and disposals | 640 | | | 350 | | | 290 | |
Chesapeake Incident and Hurricane Events | (281 | ) | | (804 | ) | | 523 |
| Chesapeake Incident and Hurricane Events | — | | | (281) | | | 281 | |
Changes in the fair value of derivative instruments | (2,334 | ) | | (3,463 | ) | | 1,129 |
| Changes in the fair value of derivative instruments | 121 | | | (2,334) | | | 2,455 | |
MSA Fee Waivers | 11,046 |
| | — |
| | 11,046 |
| MSA Fee Waivers | 1,572 | | | 11,046 | | | (9,474) | |
Acquisition costs | 525 |
| | (7 | ) | | 532 |
| Acquisition costs | 957 | | | 525 | | | 432 | |
Commercial Services | | Commercial Services | (1,882) | | | — | | | (1,882) | |
Adjusted EBITDA | $ | 26,962 |
| | $ | 21,072 |
| | $ | 5,890 |
| Adjusted EBITDA | $ | 37,398 | | | $ | 26,962 | | | $ | 10,436 | |
We generated adjusted EBITDA of $37.4 million for the three months ended June 30, 2020 compared to adjusted EBITDA of $27.0 million for the three months ended June 30, 2019 compared to adjusted EBITDA of $21.1 million for the three months ended June 30, 2018.2019. The $5.9$10.4 million increase was primarily attributable to the factors described above under the heading “Adjusted Gross margin per metric ton,” as well as $8.3offset by the receipt of $9.5 million ofin other MSA Fee Waivers for general and administrative expenses.
in the second quarter of 2019 relative to the same period in 2020.
Distributable Cash Flow
The following is a reconciliation | | | | | | | | | | | | | | | | | |
| 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 | |
|
| | | | | | | | | | | |
| Three Months ended June 30, | | |
| 2019 | | 2018 | | Change |
| (in thousands) |
Adjusted EBITDA | $ | 26,962 |
| | $ | 21,072 |
| | $ | 5,890 |
|
Less: | | | | | |
Interest expense, net of amortization of debt issuance costs, debt premium, original issue discount and impact from incremental borrowings related to Chesapeake Incident and Hurricane Events | 8,897 |
| | 8,772 |
| | 125 |
|
Maintenance capital expenditures | 836 |
| | 1,226 |
| | (390 | ) |
Distributable cash flow attributable to Enviva Partners, LP | 17,229 |
| | 11,074 |
| | 6,155 |
|
Less: Distributable cash flow attributable to incentive distribution rights | 2,773 |
| | 1,400 |
| | 1,373 |
|
Distributable cash flow attributable to Enviva Partners, LP limited partners | $ | 14,456 |
| | $ | 9,674 |
| | $ | 4,782 |
|
Results of Operations
Six Months Ended June 30, 20192020 Compared to Six Months Ended June 30, 20182019
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | Change |
| 2020 | | 2019 | | |
| (in thousands) | | | | |
Product sales | $ | 353,504 | | | $ | 323,801 | | | $ | 29,703 | |
Other revenue (1) | 18,685 | | | 2,647 | | | 16,038 | |
Net revenue | 372,189 | | | 326,448 | | | 45,741 | |
Cost of goods sold (1) | 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 | |
| | | | | |
(1) See Note 12, Related-Party Transactions | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change | | Chesapeake Incident and Hurricane Events | | Net Change |
| 2019 | | 2018 | | | |
| (in thousands) | | | | |
Product sales | $ | 323,801 |
| | $ | 255,490 |
| | $ | 68,311 |
| | $ | — |
| | $ | 68,311 |
|
Other revenue (1) | 2,647 |
| | 5,430 |
| | (2,783 | ) | | — |
| | (2,783 | ) |
Net revenue | 326,448 |
| | 260,920 |
| | 65,528 |
| | — |
| | 65,528 |
|
Cost of goods sold, excluding depreciation and amortization (1) | 277,868 |
| | 227,005 |
| | 50,863 |
| | (15,708 | ) | | 66,571 |
|
Depreciation and amortization | 22,166 |
| | 19,122 |
| | 3,044 |
| | — |
| | 3,044 |
|
Total cost of goods sold | 300,034 |
| | 246,127 |
| | 53,907 |
| | (15,708 | ) | | 69,615 |
|
Gross margin | 26,414 |
| | 14,793 |
| | 11,621 |
| | 15,708 |
| | (4,087 | ) |
General and administrative expenses | 7,865 |
| | 6,577 |
| | 1,288 |
| | 391 |
| | 897 |
|
Related-party management services agreement fee | 13,002 |
| | 7,514 |
| | 5,488 |
| | — |
| | 5,488 |
|
Total general and administrative expenses | 20,867 |
| | 14,091 |
| | 6,776 |
| | 391 |
| | 6,385 |
|
Income from operations | 5,547 |
| | 702 |
| | 4,845 |
| | 15,317 |
| | (10,472 | ) |
Interest expense | (18,829 | ) | | (17,692 | ) | | (1,137 | ) | | (490 | ) | | (647 | ) |
Other income | 558 |
| | 1,199 |
| | (641 | ) | | — |
| | (641 | ) |
Net loss | $ | (12,724 | ) | | $ | (15,791 | ) | | $ | 3,067 |
| | $ | 14,827 |
| | $ | (11,760 | ) |
(1) See Note 13, Related-Party Transactions | | | | | | | | | |
Net revenueProduct sales
Revenue related to product sales for wood pellets produced or procured by usNet revenue increased to $323.8$372.2 million for the six months ended June 30, 20192020 from $255.5$326.4 million for the six months ended June 30, 2018.2019. The increase of $68.3$45.7 million, or 27%14%, increase was primarily attributable to a 27%8% increase in sales volumes. The six months ended June 30, 2020 also included a $6.9 million increase in the fair value of derivatives that are not designated for hedge accounting. Other revenue for the six months ended June 30, 2020 included $8.9 million under make-whole provisions related to the take-or-pay obligation of a customer under an existing long-term off-take contract who did not take delivery of contracted volumes. Had the customer taken delivery of such volumes, the associated revenue would have been included in product sales. Other revenue also included $4.1 million from the Commercial Services during the six months ended June 30, 2020. The $8.9 million and $4.1 million in other revenue was recognized under a breakage model based on when the pellets would have been loaded.
Cost of goods sold
Cost of goods sold increased to $317.2 million for the six months ended June 30, 2020 from $300.0 million for the six months ended June 30, 2019. The $17.2 million, or 6%, increase was primarily attributable to a 8% increase in sales volumes during the six months ended June 30, 20192020 as compared to the six months ended June 30, 2018.2019.
OtherGross margin
Gross margin increased to $55.0 million for the six months ended June 30, 2020 from $26.4 million for the six months ended June 30, 2019. The gross margin increase of $28.6 million was primarily attributable to a 8% increase in sales volumes and increases in the fair value of foreign currency-related derivatives and in other revenue
Other revenue decreased by $2.8 million during the six months ended June 30, 20192020 as compared to the six months ended June 30, 2018. The decrease is primarily attributable2019.
Adjusted gross margin per metric ton
| | | | | | | | | | | | | | | | | |
| 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 | |
Chesapeake Incident and Hurricane Events(1) | — | | | 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 | |
(1) In February 2018, a fire occurred at the Chesapeake terminal, causing damage to $2.2equipment and inventory of wood pellets (the “Chesapeake Incident”). Hurricane Florence caused minor damage at our wood pellet production 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”.)
We earned adjusted gross margin of $75.3 million, in fees received from a customer requesting scheduling accommodations during the six months ended June 30, 2018.
Cost of goods sold
Cost of goods sold increased to $300.0 millionor $40.66 per MT, for the six months ended June 30, 2019 from $246.1 million for the six months ended June 30, 2018, an increase of $53.9 million, or 22%. Excluding the $22.4 million of expenses incurred during the six months ended June 30, 2018 related to the Chesapeake Incident, cost of goods sold would have increased by 34%, which is primarily attributable to a 27% increase in sales volumes during the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.
Gross margin
Gross margin increased to $26.4 million for the six months ended June 30, 2019 from $14.8 million for the six months ended June 30, 2018. The gross margin increase of $11.6 million was primarily attributable to the following factors:
$22.4 million of expenses related to the Chesapeake Incident incurred during the six months ended June 30, 2018.
a $9.7 million increase due to a 27% increase in sales volumes during the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.
Offsetting the above were:
A $9.0 million increase in costs primarily due to seasonal factors that were more significant and longer lasting than during the six months ended June 30, 2018
Costs in connection with a potential acquisition, discussed below under the heading “Adjusted gross margin per metric ton,” decreased gross margin by $4.2 million.
An increase in depreciation and amortization expense of $3.0 million.
A decrease in other revenue of $2.8 million as described above.
2020. Adjusted gross margin per metric ton
|
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2019 | | 2018 | | Change |
| (in thousands except per metric ton) |
Reconciliation of gross margin to adjusted gross margin per metric ton: | | | | | |
Gross margin | $ | 26,414 |
| | $ | 14,793 |
| | $ | 11,621 |
|
Loss on disposal of assets | 350 |
| | 244 |
| | 106 |
|
Depreciation and amortization | 22,166 |
| | 19,122 |
| | 3,044 |
|
Chesapeake Incident and Hurricane Events | 78 |
| | 15,786 |
| | (15,708 | ) |
Changes in unrealized derivative instruments | (324 | ) | | (2,694 | ) | | 2,370 |
|
MSA Fee Waivers | 2,700 |
| | — |
| | 2,700 |
|
Acquisition costs | 4,243 |
| | — |
| | 4,243 |
|
Adjusted gross margin | $ | 55,627 |
| | $ | 47,251 |
| | $ | 8,376 |
|
Metric tons sold | 1,712 |
| | 1,347 |
| | 365 |
|
Adjusted gross margin per metric ton | $ | 32.49 |
| | $ | 35.08 |
| | $ | (2.59 | ) |
We earned adjusted gross margin ofwas $55.6 million, or $32.49 per MT, for the six months ended June 30, 2019. As described below, the increase in adjusted gross margin is primarily due to the increase in sales volumes.
Adjusted gross margin was $47.3 million, or $35.08 per MT, for the six months ended June 30, 2018. The factors impacting the change in adjusted gross margin include those described above under the heading “Gross margin,” offset by an increase of $3.0 million related to depreciation and amortization expense, a decrease of $15.7 million related to the Chesapeake Incident and Hurricane Events and an increase of $2.4 million related to changes in unrealized derivative instruments. Additionally, adjusted gross margin increased during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 due to the waiver of $2.7 million of management services fees from our sponsor as consideration for an assignment of two shipping contracts to our sponsor to rebalance our and our sponsor’s respective shipping obligations under existing off-take contracts. In addition, the six months ended June 30, 2019 includesexcludes $4.2 million of incremental costs, which are unrepresentative of our ongoing operations, in connection with our evaluation of a third-party wood pellet production plant we previously had considered and were considering, purchasing (the “Potential Target”). When we commenced our review, the Potential Target had recently returned to operations following an extended shutdown during a bankruptcy proceeding with the intent of demonstrating
favorable operations prior to proceeding to an auction sale process; however, the Potential Target had not yet established a logistics chain through a viable export terminal, given that the terminal through which the plant historically had exported was not operational at the time and was not reasonably certain to become operational in the future. Accordingly, as part of our diligence of the Potential Target, we developed an alternative logistics chain to bring the Potential Target’s wood pellets to market and began purchasing the production of the Potential Target for a trial period. The incremental costs associated with the establishment and evaluation of this new logistics chain primarily consist of barge, freight, trucking, storage and shiploading services. We have completed our evaluation of the alternative logistics chain and, therefore, do not expect to incur additional costs of this nature in the future.
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.
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 $2.3 million of the $4.1 reduction occurring during the first three months of 2020.
General and administrative expenses
General and administrative expenses were $18.5 million for the six months ended June 30, 2020 and $20.9 million for the six months ended June 30, 2019 and $14.12019. The $2.4 million for the six months ended June 30, 2018. The $6.8 million increasedecrease in general and administrative expenses is primarily attributable to $5.3 million resulting from the consolidation of the FirstHamlet JV following the JV 1.0Hamlet Drop-Down on April 2, 2019, $1.2 millionas 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 transaction expenses related togoods sold and could not be capitalized as construction costs of the Hamlet Transaction and $0.4 million of legal fees related to the Chesapeake Incident.plant.
Interest expense
We incurred $20.5 million of interest expense during the six months ended June 30, 2020 and $18.8 million of interest expense during the six months ended June 30, 2019 and $17.7 million of interest expense during the six months ended June 30, 2018.2019. The increase in interest expense was primarily attributable to an increase in borrowings under our 2026 Notes, partially offset by the decrease in borrowings under our senior secured revolving credit facility.facility during the six months ended June 30, 2020, as compared to the same period in 2019.
Adjusted net lossincome (loss)
| | | | | | | | | | Six Months Ended June 30, | | |
| Six Months Ended June 30, | | | | 2020 | | 2019 | | Change |
| 2019 | | 2018 | | Change | | (in thousands) | |
| (in thousands) | |
Reconciliation of net loss to adjusted net loss: | | | | | | |
Net loss | $ | (12,724 | ) | | $ | (15,791 | ) | | $ | 3,067 |
| |
Reconciliation of net income (loss) to adjusted net income (loss): | | Reconciliation of net income (loss) to adjusted net income (loss): | | | | | |
Net income (loss) | | Net income (loss) | $ | 16,104 | | | $ | (12,724) | | | $ | 28,828 | |
Chesapeake Incident and Hurricane Events | 8 |
| | 15,786 |
| | (15,778 | ) | Chesapeake Incident and Hurricane Events | — | | | 8 | | | (8) | |
MSA Fee Waivers | 11,046 |
| | — |
| | 11,046 |
| MSA Fee Waivers | 4,757 | | | 11,046 | | | (6,289) | |
Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events | 490 |
| | — |
| | 490 |
| Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events | 1,118 | | | 490 | | | 628 | |
Adjusted net loss | $ | (1,180 | ) | | $ | (5 | ) | | $ | (1,175 | ) | |
Commercial Services | | Commercial Services | (4,139) | | | — | | | (4,139) | |
Adjusted net income (loss) | | Adjusted net income (loss) | $ | 17,840 | | | $ | (1,180) | | | $ | 19,020 | |
We generated adjusted net income of $17.8 million for the six months ended June 30, 2020 and adjusted net loss of $1.2 million for the six months ended June 30, 2019. The $1.2$19.0 million increase in adjusted net lossincome was attributable to the $15.8 million decrease in adjustments related to the Chesapeake Incident and Hurricane Events, offset by MSA Fee Waivers of $11.0 million and a $3.1 million, decrease in net loss primarily attributable to the factors described above.below under the heading “Adjusted EBITDA.”
Adjusted EBITDA
| | | | | | | | | | Six Months Ended June 30, | | |
| Six Months Ended June 30, | | | | 2020 | | 2019 | | Change |
| 2019 | | 2018 | | Change | | (in thousands) | |
| (in thousands) | |
Reconciliation of net loss to adjusted EBITDA: | | | | | | |
Net loss | $ | (12,724 | ) | | $ | (15,791 | ) | | $ | 3,067 |
| |
Reconciliation of net income (loss) to adjusted EBITDA: | | Reconciliation of net income (loss) to adjusted EBITDA: | |
Net income (loss) | | Net income (loss) | $ | 16,104 | | | $ | (12,724) | | | $ | 28,828 | |
Add: | | | | | |
| Add: | |
Depreciation and amortization | 22,456 |
| | 19,439 |
| | 3,017 |
| Depreciation and amortization | 29,247 | | | 22,456 | | | 6,791 | |
Interest expense | 18,829 |
| | 17,692 |
| | 1,137 |
| Interest expense | 20,518 | | | 18,829 | | | 1,689 | |
Non-cash unit compensation expense | 3,485 |
| | 3,823 |
| | (338 | ) | Non-cash unit compensation expense | 4,256 | | | 3,485 | | | 771 | |
Asset impairments and disposals | 350 |
| | 244 |
| | 106 |
| Asset impairments and disposals | 1,552 | | | 350 | | | 1,202 | |
Chesapeake Incident and Hurricane Events | 8 |
| | 15,786 |
| | (15,778 | ) | Chesapeake Incident and Hurricane Events | — | | | 8 | | | (8) | |
Changes in the fair value of derivative instruments | (324 | ) | | (2,694 | ) | | 2,370 |
| Changes in the fair value of derivative instruments | (6,674) | | | (324) | | | (6,350) | |
MSA Fee Waivers | 11,046 |
| | — |
| | 11,046 |
| MSA Fee Waivers | 4,757 | | | 11,046 | | | (6,289) | |
Acquisition costs | 5,452 |
| | 146 |
| | 5,306 |
| Acquisition costs | 957 | | | 5,452 | | | (4,495) | |
Commercial Services | | Commercial Services | (4,139) | | | — | | | (4,139) | |
Adjusted EBITDA | $ | 48,578 |
| | $ | 38,645 |
| | $ | 9,933 |
| Adjusted EBITDA | $ | 66,578 | | | $ | 48,578 | | | $ | 18,000 | |
We generated adjusted EBITDA of $66.6 million for the six months ended June 30, 2020 compared to adjusted EBITDA of $48.6 million for the six months ended June 30, 2019 compared to adjusted EBITDA of $38.6 million for the six months ended June 30, 2018.2019. The $9.9$18.0 million increase was primarily attributable to the factors described above under the heading “Gross margin,” including the $5.4 million of expenses incurred, net of insurance recoveries, related to business continuity activities following the Chesapeake Incident during the three months ended June 30, 2018 as well as the $4.2 million in acquisition costs described above under the heading “Adjusted gross margin per metric ton”ton,” offset by $6.3 million of MSA Fee Waivers for general and an additional $1.2 million in costs, primarily in legal fees related to the Hamlet Transaction.administrative expenses.
Distributable Cash Flow
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 | 18,587 | | | 17,745 | | | 842 | |
Maintenance capital expenditures | 3,445 | | | 1,764 | | | 1,681 | |
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 | |
|
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2019 | | 2018 | | Change |
| (in thousands) |
Adjusted EBITDA | $ | 48,578 |
| | $ | 38,645 |
| | $ | 9,933 |
|
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 | 17,745 |
| | 17,145 |
| | 600 |
|
Maintenance capital expenditures | 1,764 |
| | 1,614 |
| | 150 |
|
Distributable cash flow attributable to Enviva Partners, LP | 29,069 |
| | 19,886 |
| | 9,183 |
|
Less: Distributable cash flow attributable to incentive distribution rights | 5,043 |
| | 2,664 |
| | 2,379 |
|
Distributable cash flow attributable to Enviva Partners, LP limited partners | $ | 24,026 |
| | $ | 17,222 |
| | $ | 6,804 |
|
Liquidity and Capital Resources
Our primary sources of liquidity 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. Our primary liquidity requirements 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 our 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.
Cash Distributions
To the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, our minimum quarterly distribution is $0.4125 per common unit per quarter, which equates to approximately $13.8$16.4 million per quarter, or approximately $55.2$65.6 million per year, based on the number of common units outstanding as of June 30, 2019.July 31, 2020.
Capital Requirements
We operate in a capital-intensive industry, which requires significant investments to maintain and upgrade existing capital assets. Our capital requirements have consisted, and we anticipate will continue to consist, primarily of the following:
•Maintenance capital expenditures, which are cash expenditures incurred to maintain our long-term operating income or operating capacity. These expenditures typically include certain system integrity, compliance and safety improvements; and
•Growth capital expenditures, which are cash expenditures we expect will 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.
The classification of capital expenditures as either maintenance or growth is made at the individual asset level during our budgeting process and as we approve, execute and monitor our capital spending.
We expect to invest approximately $130.0 million in additional wood pellet production assets and emissions control equipment for the Mid-Atlantic Expansions.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 complete construction inbegin to commissioning equipment and commencing the first halfproduction ramp for the Southampton plant expansion over the next several months.
Our financing strategy is to fund acquisitions, drop-downs and major expansion projects with 50% equity and 50% debt.
Cash Flows
The following table sets forth a summary of our net cash flows from operating, investing and financing activities for the six months ended June 30, 20192020 and 2018,2019, respectively:
| | | Six Months Ended June 30, | | Six Months Ended June 30, | |
| 2019 | | 2018 | | 2020 | | 2019 |
| (in thousands) | | (in thousands) | |
Net cash provided by operating activities | $ | 7,562 |
| | $ | 31,233 |
| Net cash provided by operating activities | $ | 53,658 | | | $ | 7,562 | |
Net cash used in investing activities | (124,592 | ) | | (4,749 | ) | Net cash used in investing activities | (62,608) | | | (124,592) | |
Net cash provided by (used in) financing activities | 119,575 |
| | (13,218 | ) | |
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 | $ | 2,545 |
| | $ | 13,266 |
| Net increase in cash, cash equivalents and restricted cash | $ | 89,048 | | | $ | 2,545 | |
Cash Provided by Operating Activities
Net cash provided by operating activities was $53.7 million for the six months ended June 30, 2020 compared to $7.6 million for the six months ended June 30, 2019 compared to $31.2 million for the six months ended June 30, 2018.2019. The decreaseincrease in cash provided by operating activities of $23.7$46.1 million was largelyprimarily due to changesthe increase in working capital, primarily attributable to the Chesapeake Incident during the six months ended June 30, 2018.net income.
Cash Used in Investing Activities
Net cash used in investing activities was $62.6 million for the six months ended June 30, 2020 compared to $124.6 million for the six months ended June 30, 2019 compared to $4.72019. The decrease in cash used in investing activities of $62.0 million for the six months ended June 30, 2018. The $119.8 million increase is primarily due to the payment ofa $74.7 million cash payment in connection withrelation to the JV 1.0 Drop-Down. The $49.9 million of cash used for property, plant and equipmentHamlet Drop-Down during the six months ended June 30, 2019 includes approximately $43.0 million ofoffset by cash used for capital expenditures related to the Hamlet plant andassociated with the Mid-Atlantic Expansions $5.1 million related to projects intended to increaseduring the operating income or operating capacity of our plants and $1.8 million of capital expenditures to maintain operations.six months ended June 30, 2020.
Cash Used inProvided by Financing Activities
Net cash provided by financing activities was $98.0 million for the six months ended June 30, 2020 compared to $119.6 million for the six months ended June 30, 2019 compared to net cash used2019. The decrease in financing activities of $13.2 million for the six months ended June 30, 2018. The net cash provided by financing activities of $21.6 million is primarily consisted of approximately $97.0 million in issued common units andattributable to a $93.5 million decrease of net borrowings under our senior secured revolving credit facility, net, during$40.0 million payment related to the six months ended June 30, 2019. Net cash provided by financing activities wasHamlet Drop-Down, offset by $43.5 millionan increase of distributions paid to our unitholders and by the paymentnet proceeds from common unit issuances of $24.3 million of deferred consideration for the Wilmington Drop-Down$103.0 million.
Net cash used in financing activities for the six months ended June 30, 2018 primarily consisted of $36.5 million of distributions paid to our unitholders, $2.3 million paid to the General Partner to purchase performance-based phantom units for the LTIP and $1.7 million paid to satisfy the withholding tax requirements associated with the LTIP vesting. Net cash used in financing activities was offset by $30.0 million of borrowings under our senior secured revolving credit facility, net, during the six months ended June 30, 2018.
Off-Balance Sheet Arrangements
As of June 30, 2019,2020, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. We provide expanded discussion of our significant accounting policies, estimates and judgments in our 20182019 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, 2018.2019.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our exposure to market risk as disclosed in our Annual Report on Form 10-K for the year ended December 31, 20182019 other than as described below:
Foreign Currency Exchange Risk
We primarily are exposed to fluctuations in foreign currency exchange rates related to contracts pursuant to which deliveries of wood pellets will be settled in foreign currency. We have entered into forward contracts and purchased options to hedge a portion of our forecasted revenue for these customer contracts.
As of June 30, 2019,2020, we had notional amounts of 35.940.4 million GBP and 7.0 million EUR under foreign currency forward contracts and 39.442.2 million GBP and 1.72.5 million EUR under foreign currency purchased optionsswap contracts that expire between 2019 and 2023.in 2020.
We do not utilize foreign exchange contracts for speculative or trading purposes. The counterparties to our foreign exchange contracts are major financial institutions.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)‑15(e) and 15(d)‑15(e) under the Securities Exchange Act of 1934, as amended) was carried out under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of our General Partner. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of our General Partner concluded that the design and operation of these disclosure controls and procedures were effective as of June 30, 2019.2020.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2019,2020, 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.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes with respect to the legal proceedings disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Item 1A. Risk Factors
There have been no material changes with respectIn addition to the risk factors 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, 2018 or2019, and the risk factors included in our QuarterlyCurrent Report on Form 10-Q8-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.
Our business and operations, and the operations of our customers, may be adversely affected by the outbreak of the novel coronavirus (“COVID-19”) pandemic.
We may face risks related to the COVID-19 pandemic, the full impact of which is unknown and rapidly evolving. Health epidemics or outbreaks of communicable diseases such as COVID-19 could result in widespread global or localized health crises that could adversely affect general commercial activity and the economies and financial markets of many countries or localities in which we and our customers operate.
We source our wood fiber from, and operate wood pellet plants and terminals in the 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 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.
Moreover, the COVID-19 outbreak could result in adverse impacts to our business, including as a result of interruptions of our operations, unavailability of transportation infrastructure, disruptions of economic markets and the economy generally or temporary or permanent closures of businesses that provide us with raw materials or transportation or other services. A significant portion of our total production is loaded for shipment utilizing automated conveyor and ship loading equipment at the Port of Chesapeake, Port of Wilmington and Port of Panama City, and substantially all of our production is dependent upon infrastructure at our owned, leased and third-party-operated ports. We also rely on various ports of destination, as well as third parties who provide stevedoring or other services at our ports of shipment and destination or from whom we charter oceangoing vessels and crews, to transport our product to our customers. The idling or closure of our plants, terminals or the ports in which our terminals are located, or the unavailability of certain handling, transportation, and other services, whether necessitated for the three months ended March 31, 2019.health and well-being of our employees or contractors or requested or mandated by government authorities, may significantly affect our ability to perform critical business functions. There can be no assurance that COVID-19 will not impact our plants, terminals or supply chain, or our ability to produce and export our product to our customers.
Furthermore, substantially all of our revenues currently are derived from customers in Europe, and our revenues historically have been heavily dependent on developments in the European markets. Disruptions to the worldwide economy in general, and the European marketplace in particular, caused by the spread of a highly infectious or contagious disease, such as COVID-19, could disrupt the business, activities and operations of our customers. Our business could face adverse impacts if our customers do not fulfill their contractual obligations to us because of COVID-19. As a general matter, our long-term off-take contracts require our customers to take or pay for our product, and our customers’ payment obligations generally do not qualify for force majeure relief; however, force majeure is a contract-specific mechanism and any potential relief available would depend on the particular jurisdiction as well as the relevant facts and circumstances.
Additionally, we continue to increase our sales into Japan and other geographies. The impact of COVID-19 on Japan and other developing sales geographies, including potential closures of businesses, limitations on movements of individuals and goods, the imposition of other restrictive measures targeted at mitigating the spread of COVID-19 and any associated delays to current or future utility or other infrastructure projects, contract negotiations or legislation favorable to our industry or that of our customers, may significantly delay or otherwise hamper our sales efforts in such geographies or otherwise adversely impact our growth. Moreover, we have historically financed our growth, such as acquisitions or drop-downs of wood pellet production plants and terminals, as well as expansion projects at our existing plants, with a combination of borrowings from our senior secured revolving credit facility and proceeds from public debt and equity financings. COVID-19 has disrupted debt and equity capital markets and could therefore restrict our access to such financing sources and increase our cost of capital, which could adversely impact our ability to consummate, or the returns associated with, our growth projects.
The extent to which COVID-19 impacts our business will depend on the severity, location and duration of the spread of COVID-19, the actions undertaken by government authorities and health officials to contain the virus or mitigate its impact and the actions undertaken by our management and employees as well as those of our customers and other business partners. Although it is not possible at this time to estimate the scope and severity of the impact that COVID-19 could have on our business, the continued spread of COVID-19, and the measures taken by us and various government authorities aimed at mitigating the impact of COVID-19, could adversely affect our financial condition, results of operations and cash flows and our ability to make distributions to unitholders.
Item 6. Exhibits
The information required by this Item 6 is set forth in the Exhibit Index accompanying this Quarterly Report on Form 10‑Q and is incorporated herein by reference.
Exhibit Index
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| | | | | | | |
Exhibit Number
| | Description |
|
| | |
2.1 |
| | |
3.12.2 |
| | Contribution Agreement, dated as of June 18, 2020, by and among Enviva Development Holdings, LLC, Enviva Partners, LP and Enviva Holdings, LP (Exhibit 2.1, Form 8-K filed June 19, 2020, File No. 001-37363) |
2.3 | | | |
3.1 | | | |
3.2 |
| | |
3.3 |
| | |
4.1*3.4 |
| | |
4.1 | | | |
4.2 | | | Indenture, dated as of December 9, 2019, by and among Enviva Partners, LP, Enviva Partners Finance Corp., the subsidiary guarantors party thereto, and Wilmington Trust, National Association, as trustee (incorporated by reference herein to Exhibit 4.1 to the Partnership’s Form 8-K filed on December 9, 2019, File No. 001-37363) |
4.3 | | | |
4.4 | | | Registration Rights Agreement, dated May 4, 2015, by and among Enviva Partners, LP, Enviva MLP Holdco, LLC and Enviva Cottondale Acquisition I, LLC (Exhibit 4.1, Form 8‑K filed May 4, 2015, File No. 001‑37363) |
4.5 | | |
|
10.1 |
| | |
10.2 |
| | FormPurchase Agreement, dated as of Subscription AgreementJune 29, 2020, by and among Enviva Partners, LP, Enviva Partners Finance Corp., the subsidiary guarantors party thereto and Barclays Capital Inc., as representative of the initial purchasers named therein (Exhibit 10.1, Form 8-K filed March 25, 2019,June 29, 2020, File No. 001-37363) |
10.3 |
| | |
10.4*† | | Management Services Agreement Fee Waiver, dated July 1, 2020, by and among Enviva Partners, LP, Enviva Partners GP, LLC Enviva Pellets Ahoskie, LLC, Enviva Pellets Amory, LLC, Enviva Pellets Northampton, LLC, Enviva Pellets Cottondale, LLC, Enviva Port of Chesapeake, LLC, Enviva Energy Services, LLC, Enviva Pellets Sampson, LLC, Enviva Pellets Southampton, LLC, Enviva Port of Panama City, LLC, Enviva Port of Wilmington, LLC and Enviva Management Company, LLC dated April 2, 2019the (Exhibit 10.3, Form 10-Q filed May 9, 2019, File No. 001-37363)other parties named therein |
10.410.5*† |
| | |
10.5 |
| | |
31.1* |
| | |
31.2* |
| | |
32.1** |
| | |
101.INS*101 |
| | 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 Document |
101.CAL* |
| | XBRL Calculation Linkbase Document |
101.DEF* |
| | XBRL Definition Linkbase Document |
101.LAB* |
| | XBRL Labels Linkbase Document |
101.PRE* |
| |
104 | | | Cover Page Interactive Data File - (formatted as Inline XBRL Presentation Linkbase Documentand contained in Exhibit 101) |
* Filed herewith.
** Furnished herewith.
† Management Contract or Compensatory Plan or Arrangement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 7, 2019
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| | | | | | | | | | |
| ENVIVA PARTNERS, LP | | |
| | | |
| By: | Enviva Partners GP, LLC, as its sole general partner | |
| | | |
| By: | /s//s/ SHAI S. EVEN | |
| | Name: | Shai S. Even |
| | Title: | Executive Vice President and Chief Financial Officer (Principal Financial Officer) |