UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September~~June 30, ~~2019~~2020



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

For the transition period from _____ to _____

Commission file number: 001-37363

Enviva Partners, LP

(Exact name of registrant as specified in its charter)



Delaware		46-4097730
(State or other jurisdiction of incorporation or organization)	~~46-4097730~~	(I.R.S. Employer Identification No.)

7200 Wisconsin ~~Ave,~~ Ave.

Suite 1000

Bethesda,

20814

(Address of principal executive offices)

~~20814~~

(Zip code)

~~(301)~~


(301)			657-5560

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



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.



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 ~~October 25, 2019, 33,456,811~~July 31, 2020, 39,765,192 common units were outstanding.

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ENVIVA PARTNERS, LP

QUARTERLY REPORT ON FORM ~~10‑Q~~10-Q

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CAUTIONARY STATEMENT REGARDING ~~FORWARD‑LOOKING~~FORWARD-LOOKING STATEMENTS

Certain statements and information in this Quarterly Report on Form ~~10‑Q~~10-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‑looking~~forward-looking statements, which are generally not historical in nature. These ~~forward‑looking~~forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. Although management believes that these ~~forward‑looking~~forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our ~~forward‑looking~~forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the ~~forward‑looking~~forward-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, ~~with our sponsor or its joint ventures,~~ including the associated ~~contracts;~~contracts, or to realize the anticipated benefits of such acquisitions;

•failure of ~~the Partnership’s~~our 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;

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•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.

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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.

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-sized~~uniformly sized units of wood fuel produced from processing various wood resources or byproducts.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except number of units)


	September 30, 2019			December 31, 2018				June 30, 2020		December 31, 2019
	(unaudited)							(unaudited)
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	2,357		$	2,460		Cash and cash equivalents	$	98,101	$	9,053
Accounts receivable	49,643			54,794			Accounts receivable	82,543		72,421
Insurance receivables	—			5,140
Related-party receivables	—			1,392
Related-party receivables, net							Related-party receivables, net	8,625		—
Inventories	42,349			31,490			Inventories	39,723		32,998
Prepaid expenses and other current assets	3,998			2,235			Prepaid expenses and other current assets	8,932		5,617
Total current assets	98,347			97,511			Total current assets	237,924		120,089
Property, plant and equipment - in service, net	683,524			542,635
Construction in progress	60,924			14,393
Total property, plant and equipment, net	744,448			557,028
Operating lease right-of-use assets, net	33,379			—
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	7,326			8,616			Other long-term assets	10,247		4,504
Total assets	$	969,115		$	748,770		Total assets	$	1,150,046	$	994,818
Liabilities and Partners’ Capital							Liabilities and Partners’ Capital
Current liabilities:							Current liabilities:
Accounts payable	$	21,512		$	15,551		Accounts payable	$	20,358	$	18,985
Related-party payables and accrued liabilities	9,119			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	48,318			41,400			Accrued and other current liabilities	75,346		59,066
Current portion of interest payable	13,209			5,434			Current portion of interest payable	22,996		3,427
Current portion of long-term debt and finance lease obligations	4,490			2,722			Current portion of long-term debt and finance lease obligations	7,558		6,590
Total current liabilities	136,648			167,332			Total current liabilities	126,258		128,372
Long-term debt and finance lease obligations	543,589			429,933			Long-term debt and finance lease obligations	597,510		596,430
Long-term operating lease liabilities	33,725			—			Long-term operating lease liabilities	32,980		33,469
Long-term interest payable	1,100			1,010
Other long-term liabilities	2,170			3,779			Other long-term liabilities	2,818		3,971
Total liabilities	717,232			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 September 30, 2019 and December 31, 2018, respectively)	314,258			207,612
Common unitholder—sponsor (13,586,375 and 11,905,138 units issued and outstanding at September 30, 2019 and December 31, 2018, respectively)	92,286			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)	(106,530		)	(133,687		)	General partner (no outstanding units)	(99,899)		(101,739)
Accumulated other comprehensive income	61			439			Accumulated other comprehensive income	1		23
Total Enviva Partners, LP partners' capital	300,075			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	251,883			146,716
Total partners' capital							Total partners' capital	390,480		232,576
Total liabilities and partners’ capital	$	969,115		$	748,770		Total liabilities and partners’ capital	$	1,150,046	$	994,818

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per unit amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018				2020		2019		2020		2019
Product sales	$	155,188		$	142,541		$	478,989		$	398,031		Product sales	$	155,651	$	167,202	$	353,504	$	323,801
Other revenue ⁽¹⁾	2,217			1,607			4,864			7,037			Other revenue ⁽¹⁾	12,061		877		18,685		2,647
Net revenue	157,405			144,148			483,853			405,068			Net revenue	167,712		168,079		372,189		326,448
Cost of goods sold ⁽¹⁾	117,993			104,351			395,861			331,356			Cost of goods sold ⁽¹⁾	125,047		140,476		288,577		277,868
Depreciation and amortization	12,946			9,678			35,112			28,800			Depreciation and amortization	14,986		11,096		28,626		22,166
Total cost of goods sold	130,939			114,029			430,973			360,156			Total cost of goods sold	140,033		151,572		317,203		300,034
Gross margin	26,466			30,119			52,880			44,912			Gross margin	27,679		16,507		54,986		26,414
General and administrative expenses	1,314			3,201			9,179			9,778			General and administrative expenses	2,096		1,767		3,859		5,308
Related-party management services agreement fee	6,486			4,114			19,488			11,628
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	7,800			7,315			28,667			21,406			Total general and administrative expenses	9,043		11,030		18,495		20,867
Income from operations	18,666			22,804			24,213			23,506			Income from operations	18,636		5,477		36,491		5,547
Other income (expense):
Other (expense) income:													Other (expense) income:
Interest expense	(9,872		)	(9,445		)	(28,701		)	(27,137		)	Interest expense	(10,124)		(9,196)		(20,518)		(18,829)
Other income (expense), net	58			(3		)	616			1,196
Other (expense) income, net													Other (expense) income, net	(41)		(82)		131		558
Total other expense, net	(9,814		)	(9,448		)	(28,085		)	(25,941		)	Total other expense, net	(10,165)		(9,278)		(20,387)		(18,271)
Net income (loss)	$	8,852		$	13,356		$	(3,872	)	$	(2,435	)	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	$	0.15		$	0.45		$	(0.44	)	$	(0.25	)
Diluted	$	0.15		$	0.43		$	(0.44	)	$	(0.25	)
Net loss per limited partner subordinated unit:
Basic and diluted	$	—		$	—		$	—		$	(0.25	)	Basic and diluted	$	—	$	(0.20)	$	0.10	$	(0.59)
Weighted-average number of limited partner units outstanding:
Common—basic	33,457			26,477			31,230			19,866
Common—diluted	33,457			27,478			31,230			19,866
Subordinated—basic and diluted	—			—			—			6,541

⁽¹⁾ See Note 13, Related-Party Transactions
Weighted-average number of limited partner common units outstanding:													Weighted-average number of limited partner common units outstanding:
Basic and diluted													Basic and diluted	34,082		33,400		33,816		30,098

⁽¹⁾ See Note 12, Related-Party Transactions													⁽¹⁾ See Note 12, Related-Party Transactions

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net income (loss) $ 8,852
$ 13,356
$ (3,872 ) $ (2,435 )
Other comprehensive (loss) income:
Net unrealized gains (losses) on cash flow hedges 13
2,713
(148 ) 5,750
Reclassification of net gains realized into net income (loss) (59 ) (2,013 ) (252 ) (2,076 )
Currency translation adjustment 4
1
4
1
Total other comprehensive (loss) income (42 ) 701
(396 ) 3,675
Total comprehensive income (loss) $ 8,810
$ 14,057
$ (4,268 ) $ 1,240


	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.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated ~~Statement~~Statements of Changes in Partners’ Capital

(In thousands)

(Unaudited)


																						General Partner Interest		Limited Partners’ Capital																Accumulated Other Comprehensive Income	Non-Controlling Interest	Total Partners' Capital
	General Partner Interest			Limited Partners’ Capital								Accumulated Other Comprehensive Income			Non-Controlling Interest			Total Partners' Capital									Common Units— Public								Common Units— Sponsor
				Common Units— Public				Common Units— Sponsor																			Units		Amount			Units			Amount
				Units	Amount			Units	Amount
Partners' capital, December 31, 2018	$	(133,687	)	14,573	$	207,612		11,905	$	72,352		$	439		$	—		$	146,716
Partners capital, December 31, 2019																					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																					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																					Issuance of units through Long-Term Incentive Plan	(3,356)		149	(371)			—		—			—			—		(3,727)
Non-cash Management Services Agreement expenses																					Non-cash Management Services Agreement expenses	3,484		—	2,158			—		—			—			—		5,642
Other comprehensive loss																					Other comprehensive loss	—		—	—			—		—			(17)			—		(17)
Net income																					Net income	3,289		—	2,585			—		1,759			—			—		7,633
Partners' capital, March 31, 2020																					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	(1,671		)	—	(10,269		)	—	(7,619		)	—			—			(19,559		)	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	(2,129		)	94	659			—	—			—			—			(1,470		)	Issuance of units through Long-Term Incentive Plan	(160)		6	17			—		—			—			—		(143)
Issuance of common units, net	—			3,509	96,661			—	—			—			—			96,661			Issuance of common units, net	—		6,154	190,813			—		—			—			—		190,813
Non-cash Management Services Agreement expenses	136			—	2,072			—	—			—			—			2,208			Non-cash Management Services Agreement expenses	1,872		—	2,098			—		—			—			—		3,970
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 JV 1.0 Drop-Down	—			—	—			1,681	50,000			—			—			50,000
Non-cash Management Services Agreement expenses	11,226			—	1,013			—	—			—			—			12,239
Reimbursable amounts 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
Distributions to unitholders, distribution equivalent and incentive distribution rights	(2,772		)	—	(13,776		)	—	(8,969		)	—			—			(25,517		)
Issuance of units through Long-Term Incentive Plan	(215		)	—	215			—	—			—			—			—
Costs of common unit issuances	—			—	(24		)	—	—			—			—			(24		)
Non-cash Management Services Agreement expenses	8,119			—	350			—	—			—			—			8,469
Reimbursable amounts under Make-Whole Agreement	6,988			—	—			—	—			—			—			6,988

Other comprehensive loss	—			—	—			—	—			(42		)	—			(42		)	Other comprehensive loss	—		—	—			—		—			(5)			—		(5)
Net income	2,772			—	3,610			—	2,470			—			—			8,852			Net income	3,458		—	3,015			—		1,998			—			—		8,471
Partners' capital, September 30, 2019	$	(106,530	)	19,870	$	314,258		13,586	$	92,286		$	61		$	(48,192	)	$	251,883
Partners' capital, June 30, 2020																					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.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated ~~Statement~~Statements 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
Net income	1,264			—	1,252			—		354			—		674			—			3,544
Partners' capital, June 30, 2018	(133,821		)	14,567	214,009			11,905		78,504			—		—			(66		)	158,626
Distributions to unitholders, distribution equivalent and incentive distribution rights	(1,400		)	—	(9,784		)	—		(7,500		)	—		—			—			(18,684		)
Issuance of units through Long-Term Incentive Plan	(111		)	6	(48		)	—		—			—		—			—			(159		)
Non-cash Management Services Agreement expenses	122			—	1,782			—		—			—		—			—			1,904
Other comprehensive income	—			—	—			—		—			—		—			701			701
Net income	1,400			—	6,580			—		5,376			—		—			—			13,356
Partners' capital, September 30, 2018	$	(133,810	)	14,573	$	212,539		11,905		$	76,380		—		$	—		$	635		$	155,744
Reimbursable amounts under Make-Whole Agreement																								Reimbursable amounts under Make-Whole Agreement	1,502		—	—			—		—			—			—		1,502
Other comprehensive loss																								Other comprehensive loss	—		—	—			—		—			(192)			—		(192)
Net income (loss)																								Net income (loss)	2,271		—	(3,609)			—		(2,463)			—			—		(3,801)
Partners’ capital, June 30, 2019																								Partners’ capital, June 30, 2019	$	(121,422)	19,870	$	323,883		13,586		$	98,785		$	103		$	(48,192)	$	253,157

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended September 30,							Six Months Ended June 30,
	2019			2018				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net loss	$	(3,872	)	$	(2,435	)
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	35,747			29,240			Depreciation and amortization	29,204		22,456
MSA Fee Waivers	18,749			—			MSA Fee Waivers	4,757		11,046
Amortization of debt issuance costs, debt premium and original issue discounts	899			828			Amortization of debt issuance costs, debt premium and original issue discounts	813		595
Loss on disposal of assets	562			900			Loss on disposal of assets	760		350
Unit-based compensation	3,835			5,604			Unit-based compensation	4,256		3,485
De-designation of foreign currency forwards and options	—			(1,947		)
Fair value changes in derivatives	(2,275		)	(4,465		)	Fair value changes in derivatives	(5,347)		(346)
Unrealized loss on foreign currency transactions, net	58			32
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	9,492			30,004			Accounts and insurance receivables	(11,406)		(4,167)
Related-party receivables	1,392			(123		)	Related-party receivables	(2,843)		(2,536)
Prepaid expenses and other current and long-term assets	(212		)	(160		)	Prepaid expenses and other current and long-term assets	(14)		(340)
Inventories	(10,679		)	(9,735		)	Inventories	(6,270)		(18)
Derivatives	1,514			5,080			Derivatives	(792)		563
Accounts payable, accrued liabilities and other current liabilities	(2,247		)	5,709			Accounts payable, accrued liabilities and other current liabilities	11,771		(7,079)
Related-party payables and accrued liabilities	(12,025		)	3,317
Related-party payables							Related-party payables	—		(356)
Accrued interest	6,420			7,634			Accrued interest	17,718		(578)
Deferred revenue							Deferred revenue	(3,152)		—
Operating lease liabilities	(3,715		)	—			Operating lease liabilities	(2,169)		(2,472)
Other long-term liabilities	(164		)	648			Other long-term liabilities	406		(346)
Net cash provided by operating activities	43,479			70,131			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	(81,484		)	(16,034		)	Purchases of property, plant and equipment	(58,839)		(49,892)
Payment in relation to the JV 1.0 Drop-Down	(74,700		)	—
Payment in relation to the Hamlet Drop-Down							Payment in relation to the Hamlet Drop-Down	—		(74,700)
Other	1,502			1,130			Other	(3,769)		—
Net cash used in investing activities	(154,682		)	(14,904		)	Net cash used in investing activities	(62,608)		(124,592)
Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from senior secured revolving credit facility	345,000			134,750
Payments on senior secured revolving credit facility	(233,000		)	(123,250		)
Payments on other long-term debt and finance lease obligations	(2,026		)	(4,745		)
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	96,822			241			Proceeds from common unit issuances, net	199,990		96,970
Payment of deferred consideration for Wilmington 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	(69,526		)	(55,163		)	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		)	(4,380		)	Payment for withholding tax associated with Long-Term Incentive Plan vesting	(3,727)		(1,870)
Net cash provided by (used in) financing activities	111,100			(54,888		)
Net (decrease) increase in cash, cash equivalents and restricted cash	(103		)	339
Net cash provided by financing activities							Net cash provided by financing activities	97,998		119,575
Net increase in cash, cash equivalents and restricted cash							Net increase in cash, cash equivalents and restricted cash	89,048		2,545
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	$	2,357		$	863		Cash, cash equivalents and restricted cash, end of period	$	98,101	$	5,005

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Continued)

(In thousands)

(Unaudited)


	Nine Months Ended September 30,					Six Months Ended June 30,
	2019		2018			2020		2019
Non-cash investing and financing activities:					Non-cash investing and financing activities:
Property, plant and equipment acquired included in liabilities					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 deferred consideration for Wilmington Drop-Down	—		49,700
Common unit issuance for the JV 1.0 Drop-Down	50,000		—
Common unit issuance for the Hamlet Drop-Down					Common unit issuance for the Hamlet Drop-Down	—		50,000
Equity issuance and debt issuance costs included in liabilities					Equity issuance and debt issuance costs included in liabilities	9,740		—
Supplemental cash flow information:					Supplemental cash flow information:
Interest paid, net of capitalized interest	$	19,977	$	18,802	Interest paid, net of capitalized interest	$	(77)	$	18,151

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

~~(Unaudited~~)

(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 September 30, 2019, we owned~~We own and ~~operated seven~~operate 7 industrial-scale wood pellet production plants located in the Mid-Atlantic and Gulf Coast regions of the United States. In addition to the volumes from our plants, we also procure wood pellets from third parties and ~~Enviva Pellets~~from a wood pellet production plant located in Greenwood, ~~LLC (“Greenwood”), a wholly owned subsidiary of Enviva JV Development Company, LLC~~South 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 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 ~~dated and~~ effective as of September 30, 2019 pursuant to which the parties agreed to ~~the right of~~ set off of related-party ~~accounts receivable~~receivables and ~~accounts payable;~~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. ~~As of December 31, 2018, related-party accounts receivable and accounts payable were not intended to be set off and were reflected separately in current assets and current liabilities.~~

For the nine months ended September 30, 2018, certain amounts on the statements of cash flows have been reclassified from proceeds and payments on revolving credit commitments, net, to proceeds from senior secured revolving credit facility and payments on senior secured revolving credit facility to conform to current period presentation.

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 ~~the~~our 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 ~~the~~our 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 ~~First~~Hamlet JV as 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 ~~First JV and substantially all of the activities are conducted on our behalf.~~Hamlet JV. Additionally, as the Class B Units ~~represented~~represent a controlling interest in the ~~First~~Hamlet JV, we ~~accounted~~account for the ~~First~~Hamlet JV as a consolidated

~~Table of Contents~~

~~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~~)

subsidiary, not as a joint venture. The ~~First~~Hamlet JV owns a wood pellet production plant in Hamlet, North 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~~ The Hamlet Drop-Down was an asset acquisition of entities under common control and accounted for on the ~~sponsor’s Class B Units in~~carryover basis of accounting. Accordingly, the ~~First JV (collectively, the “JV 1.0 Drop-Down”):~~

~~We commenced an associated terminal services agreement to handle contracted volumes from 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 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 Company, LLC, a Delaware limited liability company and wholly owned subsidiary of the sponsor (“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 with respect to the period from the date of acquisition of the Hamlet plant until July 1, 2019 (the “First JV MSA Fee Waiver”).

We entered into an agreement with Enviva Management to waive our 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 “First EVA MSA Fee Waiver”).

The sponsor assigned to us all of its rights and obligations under a credit agreement between the First JV, as borrower, and the sponsor, as lender (the “First JV Revolver”). On the date of assignment, $4.1 million was outstanding from the First JV to the sponsor.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

(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, 2019.

Use of Estimates

Recently Adopted Accounting Standards

On January 1, ~~2019 through June 30,~~ 2020, ~~in exchange~~we adopted 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 ~~fixed fee per metric ton~~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 ~~wood pellets produced by the Hamlet plant during such period and delivered at place. Under and during the term~~operations or cash flows of the ~~ISA, Hamlet Operator will (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~~ Partnership.

(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. The sponsor guarantees all obligations of Hamlet Operator under the ISA.

Fees to Enviva Management through the MSAs are expensed as incurred and, to the extent any amount is associated with the First JV MSA Fee Waiver and the First EVA MSA Fee Waiver, the related amount is recorded as an increase to partners’ capital.Transactions Between Entities Under Common Control

The $165.0 million purchase price for the ~~JV 1.0~~Hamlet Drop-Down in April 2019 consisted of (1) aan initial 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 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 to be~~ paid on January 2, ~~2020 and (5)~~2020.

We are responsible for managing the ~~elimination of $3.7 million of net related-party receivables and payables included in the net assets~~activities of the ~~First~~Hamlet JV, onincluding the ~~date of acquisition. As the holder~~development, construction and operation of the ~~Class B Units, we became a member of the First JV (the “Enviva Member”) on the acquisition date. During the three~~Hamlet plant and nine months ended September 30, 2019, we incurred and expensed $0.1 million and $1.3 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 and~~ primary beneficiary of the ~~First~~Hamlet JV. We included all accounts of the ~~First~~Hamlet JV in our consolidated results as of ~~April 2, 2019~~the date of the Hamlet Drop-Down as the Class B Units represent a controlling interest in the ~~First~~Hamlet JV and we are generally unrestricted ~~as it relates to the management of~~in managing the assets and cash flows of the ~~First~~Hamlet JV; however, ~~we cannot cause the First JV to incur indebtedness in excess of $60.0 million.~~

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~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited~~)

~~The JV 1.0 Drop-Down was an asset acquisition of entities under common control and accounted for on the carryover basis of accounting. Pursuant~~certain decisions, such as those relating to the ~~First~~issuance and redemption of equity interests in the Hamlet JV, ~~MSA, Enviva Management provides services to the First JV,~~guarantees of indebtedness and fundamental changes, including ~~those necessary or incidental to the operation~~mergers and ~~management of the First JV’s business. We are responsible for managing the activities of the First JV, including the development, construction~~acquisitions, asset sales and ~~operation~~liquidation and dissolution of the Hamlet ~~plant.~~

~~(2) Significant Accounting Policies~~

~~During interim periods, we follow~~JV, require 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)~~ ~~andASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.~~

~~Use of Estimates~~

~~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. Amortizationapproval 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~~members 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.Hamlet JV.

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 and as 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, we recorded a nominal cumulative

~~Table of Contents~~

~~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~~)

~~effect adjustment to accumulated other comprehensive income and common units in partners’ capital. See Note 10,~~ ~~Derivatives.~~

~~Recently Issued Accounting Standards not yet Adopted~~

~~(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 purchase price for the JV 1.0 Drop-Down consisted of $165.0 million, which included an initial cash payment of $24.7 million, net of purchase price adjustment of $0.3 million, and the issuance of 1,681,237 unregistered common units at a value of $29.74 per unit, or $50.0 million of common units, $50.0 million in cash, paid on June 28, 2019, and $40.0 million in cash, which will be paid on January 2, 2020 as the third and final payment.

The changes in net assets at carryover basis on April 2, 2019 included $121.6 million net assets of the First JV, net of the elimination of $3.7 million 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.

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
Finance 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 ~~September~~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 ~~$9.3~~$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 ~~October 1, 2019,~~June 30, 2020, we expect to recognize approximately ~~2.0%~~5.0% of our remaining performance obligations as revenue during the remainder of ~~2019,~~2020, approximately ~~10.0%~~12.0% in ~~2020~~2021 and the balance thereafter. Our off-take contracts expire at various times through 2040 and our terminal services contracts extend into 2026.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

~~(Unaudited~~)(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 ~~nine~~six months ended ~~September~~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 ~~and nine~~ months ended ~~September~~June 30, ~~2019,~~2020, we reversed an insignificant amount of revenue related to performance obligations satisfied in previous periods. For the six months ended June 30, 2020 we recognized $0.1 million ~~and $0.5 million. respectively,~~ of revenue related to performance obligations satisfied in previous periods. For the three and ~~nine~~six months ended ~~September~~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.

Contract Balances

Accounts receivable related to product sales as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$47.8~~$80.9 million and ~~$51.3~~$67.7 million, respectively. WeAs of June 30, 2020 and December 31, 2019, we had no$1.0 million and $4.1 million, respectively, of deferred revenue ~~as of September 30, 2019~~ for future performance obligations associated with off-take contracts. ~~We had $0.3~~

Other

Accrued and other current liabilities included approximately $19.1 million ~~of deferred revenue as of~~and $7.6 million at June 30, 2020 and December 31, ~~2018~~2019, respectively, for ~~future performance obligations~~amounts associated with ~~off-take contracts.~~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
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Customer A 49 % 52 % 50 % 53 %
Customer B 12 % 10 % 11 % 10 %
Customer C 22 % 24 % 21 % 15 %
Customer D 8 % 9 % 11 % 14 %

~~(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 nine months ended September 30, 2018, we incurred $9.7 million and $58.4 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 September 30, 2018, we had recovered $48.1 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.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

~~(Unaudited~~)

(Unaudited)

~~(7)~~(6) Inventories

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

September 30,
2019 December 31,
2018
Raw materials and work-in-process $ 9,883
$ 4,936
Consumable tooling 19,995
17,561
Finished goods 12,471
8,993
Total inventories $ 42,349
$ 31,490

~~(8)~~(7) Property, Plant and Equipment

Property, plant and equipment consisted of the following as of:


	September 30, 2019			December 31, 2018				June 30, 2020		December 31, 2019
Land	$	15,226		$	13,492		Land	$	15,226	$	15,226
Land improvements	56,637			44,990			Land improvements	56,778		56,637
Buildings	216,995			196,574			Buildings	217,163		217,167
Machinery and equipment	576,401			434,776			Machinery and equipment	605,290		588,447
Vehicles	635			635			Vehicles	724		635
Furniture and office equipment	6,759			6,148			Furniture and office equipment	6,822		6,822
Leasehold improvements	987			987			Leasehold improvements	1,029		1,029
Property, plant and equipment - in service	873,640			697,602
Property, plant and equipment							Property, plant and equipment	903,032		885,963
Less accumulated depreciation	(190,116		)	(154,967		)	Less accumulated depreciation	(232,725)		(203,695)
Property, plant and equipment - in service, net	683,524			542,635
Property, plant and equipment, net							Property, plant and equipment, net	670,307		682,268
Construction in progress	60,924			14,393			Construction in progress	114,216		69,512
Total property, plant and equipment, net	$	744,448		$	557,028		Total property, plant and equipment, net	$	784,523	$	751,780

Total depreciation expense was ~~$13.3~~$15.2 million and ~~$35.8~~$29.2 million ~~respectively,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020, respectively. Total depreciation expense was ~~$9.8~~$11.3 million and ~~$29.1~~$22.5 million ~~respectively,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018. Total~~2019, respectively. For the three and six months ended June 30, 2020, total interest capitalized related to construction in progress was ~~$0.7~~$1.3 million and ~~$1.4~~$2.4 million, ~~respectively, for~~respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2019, total interest capitalized related to construction in progress was $0.6 million and $0.7 million, respectively. Accrued amounts for property, plant and equipment and construction in progress included in accrued and other current liabilities were ~~$15.4~~$10.5 million and ~~$6.3~~$9.4 million at ~~September~~June 30, ~~2019~~2020 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. ~~Amortization~~Leases with an initial term of ~~the ROU asset is calculated as the difference between straight-line lease expense and the accretion of interest~~longer 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.

A discount rate is applied to our leases for balance sheet measurement. As rates are not explicitly defined in the operating and finance lease agreements, we use our incremental borrowing rate for purposes of measuring the ROU assets and lease liabilities for recognized leases. This is a secured interest rate which takes into account our credit rating, the term of our leases, as well as

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

~~(Unaudited~~)

(Unaudited)

We apply an incremental borrowing rate to our leases for balance sheet measurement. As most of our leases do not provide an implicit rate, we generally use the ~~economic environment in which we operate. Each~~estimated rate of interest for a collateralized borrowing over a similar term of the lease ~~uses a secured interest rate with a term commensurate to~~payments at the ~~identified~~ lease ~~term.~~commencement date as our incremental borrowing rate.

Operating leases are included in operating lease ROU assets, accrued and other current liabilities and long-term operating lease liabilities on our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, current portion of long-term debt and finance lease obligations and long-term debt and finance lease obligations on our condensed consolidated balance sheets. Changes in ROU assets and operating lease liabilities are included net in change in operating lease liabilities on the condensed consolidated statement of cash flows.

Operating lease ROU assets and liabilities and finance leases were as ~~follows as of September 30, 2019:~~

follows:


					June 30, 2020		December 31, 2019
Operating leases:				Operating leases:
Operating lease right-of-use assets, gross	$	36,964
Accumulated amortization	(3,585		)
Operating lease right-of-use assets, net	$	33,379
Operating lease right-of-use assets				Operating lease right-of-use assets	$	31,737	$	32,830

Current portion of operating lease liabilities	$	1,577		Current portion of operating lease liabilities	$	1,141	$	1,439
Long-term operating lease liabilities	33,725			Long-term operating lease liabilities	32,980		33,469
Total operating lease liabilities	$	35,302		Total operating lease liabilities	$	34,121	$	34,908

Finance leases:				Finance leases:
Property, plant and equipment, gross	$	13,484
Accumulated depreciation	(5,870		)
Property plant and equipment, net	$	7,614
Property, plant and equipment, net				Property, plant and equipment, net	$	8,117	$	7,398

Current portion of long-term finance lease obligations	$	4,482		Current portion of long-term finance lease obligations	$	5,556	$	4,584
Long-term finance lease obligations	3,237			Long-term finance lease obligations	3,472		2,954
Total finance lease liabilities	$	7,719		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	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019		Lease Cost	Classification	2020		2019		2020		2019
Operating lease cost:						Operating lease cost:
Fixed lease cost	Cost of goods sold	$	1,269	$	3,546	Fixed lease cost	Cost of goods sold	$	1,239	$	1,243	$	2,506	$	2,277
Variable lease cost	Cost of goods sold	3		29		Variable lease cost	Cost of goods sold	—		20		—		26
Short-term lease costs	Cost of goods sold	15		15		Short-term lease costs	Cost of goods sold	1,980		—		3,915		—
	Total operating lease costs	$	1,287	$	3,590		Total operating lease costs	$	3,219	$	1,263	$	6,421	$	2,303
Finance lease cost:						Finance lease cost:
Amortization of leased assets	Depreciation and amortization	1,094		2,578		Amortization of leased assets	Depreciation and amortization	$	1,560	$	765	$	2,992	$	1,484
Variable lease cost	Cost of goods sold	4		4		Variable lease cost	Cost of goods sold	114		(4)		116		—
Interest on lease liabilities	Interest expense	70		179		Interest on lease liabilities	Interest expense	115		57		218		109
	Total finance lease costs	$	1,168	$	2,761		Total finance lease costs	$	1,789	$	818	$	3,326	$	1,593
	Total lease costs	$	2,455	$	6,351		Total lease costs	$	5,008	$	2,081	$	9,747	$	3,896

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

~~(Unaudited~~)(Unaudited)

Operating and finance lease cash flow information was as follows:


				Six Months Ended June 30,
	Nine Months Ended September 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	$	3,715	Operating cash flows from operating leases	$	2,169	$	2,472
Operating cash flows from financing leases	179		Operating cash flows from financing leases	218		109
Financing cash flows from financing leases	2,020		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	$	7,465	Operating leases	$	—	$	7,467
Financing leases	5,380		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 ~~September~~June 30, ~~2019:~~2020:

Years Ending December 31, Operating
Leases Finance
Leases Total
Remainder of 2019 $ 1,112
$ 1,415
$ 2,527
2020 4,140
4,358
8,498
2021 3,890
1,814
5,704
2022 3,719
279
3,998
2023 3,710
246
3,956
Thereafter 65,110
92
65,202
Total lease payments 81,681
8,204
89,885
Less: imputed interest (46,379 ) (485 ) (46,864 )
Total present value of lease liabilities $ 35,302
$ 7,719
$ 43,021

~~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 ~~September~~June 30, ~~2019:~~

2020:



Weighted average remaining lease term (years):
Operating leases	22
Finance leases	2
Weighted average discount rate:
Operating leases	8	%
Finance leases	6	%

~~(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 ~~from~~on certain borrowings. ~~Our derivative instruments expose us to credit risk to the extent that~~The 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~~

~~Table of Contents~~

~~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 entered~~seek 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

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and ~~may continue~~unless 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 contracts or other instruments to partially manage this risk and, prior to August 2018, had designated certain of these instruments as cash flow hedges.

In August 2018, due to market changes, increases in demand for wood pellets and requests from customers to accommodate the acceleration or deferral of contracted deliveries, we determined that it was no longer probable that the timing of the forecasted revenues associated with the hedged transactions would occur as originally scheduled. As a result, we discontinued hedge accounting for all designated foreign currency cash flow hedges and recognized the full amount of unrealized net gains included in accumulated other comprehensive income of $1.9 million to earnings. As of September 30, 2018, none of our foreign currency derivative instruments were designated as cash flow hedging instruments. In connection with the discontinuation of cash flow hedge accounting, we have recorded the on-going changes in the fair value of foreign currency derivatives as product salesfor speculative or ~~cost of sales depending on the nature of the item being hedged.~~

~~Interest Rate Risk~~trading 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 ~~swap~~swaps that ~~expires~~expire in ~~April 2020~~September 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 is~~facility that are not designated and ~~qualifies~~accounted for as a cash flow ~~hedge.~~

~~Table of Contents~~

~~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~~)

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 ~~of September~~hedging instruments at June 30, ~~2019~~2020 and December 31, ~~2018~~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

Asset (Liability)
Balance Sheet Classification September 30, 2019 December 31, 2018
Designated as hedging instruments:
Interest rate swap
Other current assets $ 122
$ 508
Other long-term assets —
118
Total derivatives designated as hedging instruments $ 122
$ 626

Not designated as hedging instruments:
Foreign currency exchange forward contracts:
Other current assets $ 1,647
$ 794
Other long-term assets 1,290
1,810
Accrued and other current liabilities —
(68 )
Other long-term liabilities —
(179 )
Foreign currency purchased option contracts:
Other current assets 286
22
Other long-term assets 3,369
3,348
Total derivatives not designated as hedging instruments $ 6,592
$ 5,727
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 was designated as 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 instruments~~foreign currency derivatives were ~~$1.1~~$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 ~~$1.4~~$0.3 million ~~respectively,~~ during the three and ~~nine~~six months ended ~~September~~June 30, 2019, respectively, and were included in product sales.

Realized gains related to derivatives settled were insignificant and $0.2 million during the three and six months ended June 30, 2020, respectively, and were included in product sales. Realized losses related to derivatives settled were insignificant during the three months ended June 30, 2019 and ~~are~~were included in product sales. Realized gains related to derivatives settled were ~~$1.6~~$0.1 million ~~and $1.7 million, respectively,~~ during the ~~three and nine~~six months ended ~~September~~June 30, 2019 and ~~are~~were included in product sales.

During the three and nine months ended September 30, 2018, we recorded $2.3 million and $5.4 million, respectively, of unrealized net gains on derivative instruments in product sales. Included in the unrealized net gains for both the three and nine months ended September 30, 2018 was $1.9 million related to the reclassification of unrealized net gains previously included in accumulated other comprehensive income as described above. Net gains related to the change in fair market value of derivative instruments not designated as hedging instruments were $0.4 million and $3.5 million, respectively during the three and nine months ended September 30, 2018 and are included in product sales. During the three months ended September 30, 2018, we received $4.3 million on realized gains related to derivatives settled during the period.

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 September 30, 2019 were as follows:

Amount of Gain 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 $ 13
Interest expense $ 59

~~Table of Contents~~

~~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~~)

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 nine months ended September 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 $ (148 ) Interest expense $ 252

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 $ 1,907
Product sales $ —
Product sales $ 2,418
Foreign currency exchange purchased option contracts 765
Product sales —
Product sales (470 )
Interest rate swap 41
Interest expense —
Interest expense 67

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 nine months ended September 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 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 $ 4,532
Product sales $ —
Product sales $ 2,413
Foreign currency exchange purchased option contracts 749
Product sales —
Product sales (470 )
Interest rate swap 469
Interest expense —
Interest expense 131

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 ~~September~~June 30, ~~2019,~~2020, we would have received a net settlement termination payment of ~~$6.7~~$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.

~~Table of Contents~~

~~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~~)

The notional amounts of outstanding derivative instruments associated with outstanding or unsettled derivative instruments as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows:


	June 30, 2020		December 31, 2019
Foreign exchange forward contracts in GBP	£	40,425	£	50,575
Foreign exchange purchased option contracts in GBP	£	42,165	£	43,415
Foreign exchange forward contracts in EUR	€	2,500	€	—
Foreign exchange purchased option contracts in EUR	€	—	€	1,200
Interest rate swap	$	70,000	$	34,354

September 30,
2019 December 31,
2018
Foreign exchange forward contracts in GBP £ 38,140
£ 42,170
Foreign exchange purchased option contracts in GBP £ 43,415
£ 39,365
Foreign exchange forward contracts in EUR € 7,300
€ 14,300
Foreign exchange purchased option contracts in EUR € 1,675
€ 1,675
Interest rate swap $ 35,723
$ 39,829

Table of Contents

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.

~~Long-term~~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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 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

September 30, 2019 December 31, 2018

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value
Senior notes $ 353,352
$ 362,227
$ 352,843
$ 359,943
Other long-term debt and finance lease obligations 194,727
194,727
79,812
79,812
Total long-term debt and finance lease obligations $ 548,079
$ 556,954
$ 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

September 30,
2019 December 31,
2018
Senior notes, net of unamortized discount, premium and debt issuance of $1.6 million as of September 30, 2019 and $2.2 million as of December 31, 2018 $ 353,352
$ 352,843
Senior secured revolving credit facility 185,000
73,000
Other loans 2,008
2,015
Finance leases 7,719
4,797
Total long-term debt and finance lease obligations 548,079
432,655
Less current portion of long-term debt and finance lease obligations (4,490 ) (2,722 )
Long-term debt and finance lease obligations, excluding current installments $ 543,589
$ 429,933

~~Table of Contents~~

~~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 ~~September~~June 30, ~~2019~~2020 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 are~~basis by our existing subsidiaries (excluding Enviva Partners Finance Corp.) that guarantee certain of our indebtedness and may be guaranteed by certain ~~of our~~future restricted subsidiaries.

Senior Secured Revolving Credit Facility

As of ~~September~~June 30, ~~2019~~2020 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; however, the senior secured revolving credit facility is not guaranteed by the ~~First~~Hamlet JV or secured by liens on its assets. We had 0 borrowings under our senior secured revolving credit facility at June 30, 2020 and December 31, 2019.

~~(13)~~

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

(12) Related-Party Transactions

Related-party ~~transaction~~ amounts included on the unaudited condensed consolidated statements of operations were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018			2020		2019		2020		2019
Other revenue	$	496	$	1,042	$	1,323	$	3,346	Other revenue	$	658	$	235	$	1,264	$	827
Cost of goods sold	26,300		20,133		80,921		56,184		Cost of goods sold	39,739		34,623		75,996		54,621
General and administrative expenses	6,486		4,113		19,488		11,628		General and administrative expenses	6,947		9,263		14,636		15,559

Management Services Agreements

~~Pursuant~~Enviva 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 Management~~it incurs in connection with the provision of such services. The MSAs include rent-related amounts for ~~non-cancelable~~noncancelable operating leases for office space in Maryland and North Carolina held by ~~the~~our sponsor.

Under the ~~First~~Hamlet 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 ~~nine~~six months ended ~~September~~June 30, ~~2019, $17.8~~2020, $0.6 million and $51.5 million, respectively, related to the MSAs was included in cost of goods sold and $6.5 million and $19.5 million, respectively, was included in general and administrative expenses. As of September 30, 2019, $1.7 million incurred under the MSAs was included in finished goods inventory.

During the three and nine months ended September 30, 2018, $13.4 million and $35.9 million, respectively, related to the MSAs was included in cost of goods sold and $4.1 million and $11.6 million, respectively, was included in general and administrative expenses.

~~During the three and nine months ended September 30, 2019, $0.8 million and $1.7~~$1.3 million, respectively, of fees expensed under the ~~First~~Hamlet JV MSA were waived pursuant to the Hamlet JV MSA Fee Waiver and recorded as an increase to ~~partner’s~~partners’ capital.

~~JV 1.0 Drop-Down Agreements~~

~~The agreements we entered into on the date of acquisition of the First JV resulted in the following amounts being recorded in our financial statements since the date of acquisition.~~ During the three and ~~nine~~six months ended ~~September~~June 30, 2019, ~~$11.6~~$0.9 million of fees expensed under the Hamlet JV MSA were waived pursuant to the Hamlet JV MSA Fee Waiver and ~~$20.5 million, respectively, were~~ recorded as an increase to partners’ ~~capital and $0.1 million and $0.7 million, respectively, were recorded as a net reduction in cost~~capital.

Hamlet Drop-Down Agreements

On the date of ~~goods sold. These increases~~the Hamlet Drop-Down:

•We entered into an agreement with our sponsor, pursuant to ~~partners’ capital are comprised of expenses waived under~~which (1) our sponsor agreed to guarantee certain cash flows from the ~~EVA MSA Fee Waiver and the First JV MSA Fee Waiver and reimbursement of~~Hamlet plant until June 30, 2020, (2) our sponsor agreed to reimburse us for construction cost overruns in excess of budgeted capital expenditures for the Hamlet ~~plant. The net reduction in cost of goods sold is comprised of the cost of cover deficiency fee from~~plant, subject to certain exceptions, (3) we agreed to pay to our sponsor quarterly incentive payments for any wood pellets produced by the Hamlet ~~Operator under the ISA not producing enough pellets at Hamlet, offset~~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 ~~agreed-upon price due~~Hamlet JV (the “Make-Whole Agreement”).

•We entered into an agreement with Enviva Management to ~~the Hamlet Operator for the pellets from Hamlet that we have sold.~~

waive our obligation to pay an aggregate of approximately $13.0 million in fees payable under our management services agreement with Enviva Management

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

~~(Unaudited~~)

(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 (the “Second EVA MSA Fee Waiver”) ~~with Enviva Management~~ 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 ~~nine~~six months ended ~~September~~June 30, 2019, ~~$2.3~~$2.7 million ~~and $5.0 million, respectively,~~ of EVA MSA fees expensed were waived and recorded as an increase to partners’ capital pursuant to the Second EVA MSA Fee Waiver. ~~During the three and nine months ended September 30, 2018, no EVA MSA fees were waived pursuant to the Second EVA MSA Fee Waiver.~~

~~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.

Greenwood Contract

~~In February 2018, we entered into~~We 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 have~~had a take-or-pay obligation with respect to 550,000 MTPY of wood pellets from July 2019 through March ~~2022. In July 2019, we entered into an amendment whereby~~2022, subject to Greenwood’s option to increase or decrease the ~~commencement of~~volume by 10% each contract year. Pursuant to amendments to the Greenwood Contract, our take-or-pay obligation ~~date~~with respect to 550,000 MTPY of wood pellets was deferred ~~from July 2019~~ to ~~January 2020.~~2021.

During the three ~~and nine~~ months ended ~~September~~June 30, ~~2019,~~2020, we purchased ~~$11.3~~$10.1 million ~~and $35.5 million, respectively,~~ 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 ~~from Greenwood~~ of approximately ~~$1.0~~$0.3 million ~~and $4.3 million, respectively,~~ from Greenwood as Greenwood was unable to satisfy certain commitments. Of the net $8.6 million and $29.5 million, respectively, $9.7 million and $33.8 million, respectively, is included in cost of goods sold and $1.5 million is included in finished goods inventory as of September 30, 2019.Greenwood. During the three and ~~nine~~six months ended ~~September~~and June 30, ~~2018,~~2019, we purchased ~~$8.5~~$13.7 million and ~~$16.8~~$24.2 million, respectively, of wood pellets from Greenwood ~~which is~~and recorded a cost of cover deficiency fee of approximately $0.3 million and $3.3 million, respectively, from Greenwood as it was unable to satisfy certain commitments.

As of June 30, 2020 and 2019, the net purchased amounts related to the Greenwood contract of $18.5 million and $20.9 million, respectively, included $18.1 million and $20.8 million, respectively, in cost of goods ~~sold.~~sold and $0.4 million and $0.1 million, respectively, in finished goods inventory.

Holdings TSA

~~The Wilmington Drop-Down included~~We 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 sponsor during the three months ended September 30, 2018. During the nine months ended September 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~~The Holdings TSA was amended and assigned ~~the Holdings TSA~~ to ~~Greenwood. Deficiency~~Greenwood and deficiency payments are due to Wilmington if quarterly minimum throughput requirements are not met. During the three and nine months ended September 30, 2019 and 2018, we recorded $0.5 million and $1.3 million, respectively, and $0.5 million and $2.0 million, respectively, of deficiency fees from Greenwood, which is included in other revenue.

In September 2018, Hurricane Florence impacted the rail line on which wood pellets are typically transported from the Greenwood plant to the Wilmington terminal. As a result, Greenwood was unable to satisfy certain commitments under the Holdings TSA and the Greenwood contract and agreed to pay $1.8 million to us as deficiency fees in consideration of these commitments. Consideration of $0.5 million related to the Holdings TSA was included in other revenue and $1.3 million related to the Greenwood contract was included as a reduction of cost of goods sold.

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

~~(Unaudited~~)

(Unaudited)

~~Biomass Option Agreement – Enviva Holdings, LP~~

~~Enviva, LP purchased none and $1.7 million of wood pellets from the sponsor during~~minimum throughput requirements are not met. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2020 and 2019, we recorded $0.7 million and $1.3 million and $0.2 million and $0.8 million, respectively, ~~pursuant to a biomass option agreement. The wood pellet purchase amounts~~of deficiency fees from Greenwood, which are included in ~~cost of goods sold. The biomass option agreement terminated in accordance with its terms in March 2018.~~other revenue.

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 ~~nine~~six months ended ~~September~~June 30, 2019, we purchased raw materials ~~net~~of $1.7 million and $3.6 million, respectively, from FiberCo. NaN cost of cover deficiency fees were recognized during the three months ended June 30, 2019. Offsetting our raw material purchases during the six months ended June 30, 2019, we recognized $2.9 million of cost of cover deficiency fees, ~~from FiberCo, were immaterial and $0.6 million, respectively. During the three and nine months ended September~~which is included in related-party receivables as of June 30, 2018, we purchased raw materials of $1.8 million and $3.5 million, respectively, from FiberCo. No cost of cover deficiency fees from FiberCo were recognized during the three and nine months ended September 30, 2018.

~~Long-Term Incentive Plan Vesting~~

2019. As of ~~September~~June 30, ~~2019, we had~~2020, 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 ~~- Issuance~~and Shelf Registration Statement

~~During March 2019,~~On June 18, 2020, we ~~issued 3,508,778~~entered into a Common Unit Purchase Agreement (the “Unit Purchase Agreement”) with certain investors to sell 6,153,846 common units in a ~~registered direct offering~~private 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 for~~of June 30, 2020, in the ~~Wilmington Drop-Down,~~Private Placement, which closed on June 23, 2020. Pursuant to the Unit Purchase Agreement, we ~~issued 1,691,627~~entered 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 in~~on 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, to~~Private 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.

Prior to the Hamlet Drop-Down, John Hancock had received all of its capital contributions and substantially all of its preference amount and the historical net losses of the Hamlet JV had been allocated to the members of the 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 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 rights~~them 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 nine months ended September 30, 2019, we did not sell common units under the ATM Program. During the three months ended September 30, 2018, we did not sell common units under the ATM Program. During the nine months ended September 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.~~

2521

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

~~(Unaudited~~)

(Unaudited)

Cash Distributions to Unitholders

~~First JV~~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):

~~The capital~~


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 ~~the First JV is divided into two classifications: (1) Class A Units and (2) Class B Units, issued at a price of $1.00~~calculating our earnings per unit ~~for each class.~~

~~Class A Units - Noncontrolling Interests~~

~~Class A Units were issued to~~under 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,~~two-class method, common units are treated as ~~of September 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,~~participating preferred units. IDRs are treated as ~~of September 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.~~

~~Distribution Rights~~participating securities.

Distributions ~~to the Hancock Member, and to the Enviva Member, are~~ made in future periods based on the ~~reasonable discretion~~current period calculation of cash available for distribution are allocated to each class of equity that will receive the ~~Enviva Member and~~distribution. 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 Member~~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 unitholders and IDR holders is based on the ~~Hancock Member~~distribution 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 to the Hancock Member 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 September 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 subsequent~~distributions to ~~the date of the JV 1.0 Drop-Down. Thus, no change has been recognized to the acquired negative noncontrolling interest balance attributable to the Hancock Member.~~be made.

~~Table of Contents~~

~~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~~)

~~(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	390,909		$	30.39	216,224		$	30.25	607,133		$	30.34	Granted	534,882	$	37.91	379,431	$	37.98	914,313	$	37.94
Forfeitures	(81,332	)	$	28.27	(16,560	)	$	29.80	(97,892	)	$	28.53	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 September 30, 2019	888,011		$	28.91	439,176		$	28.85	1,327,187		$	28.89
Nonvested June 30, 2020													Nonvested June 30, 2020	1,122,163	$	33.45	678,424	$	34.08	1,800,587	$	33.69


~~(1)~~	(1)Determined by dividing the aggregate grant date fair value ~~of awards by the number of awards issued.~~

As of ~~September 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 under~~by the LTIP during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, we paid $2.3 million to the General Partner, which acquired common units from a wholly owned subsidiarynumber of our sponsor for delivery to the recipients under the LTIP. We also paid $1.7 million during the nine months ended September 30, 2018 to Enviva Management to satisfy the tax-withholding requirements associated with such common units under the MSAs. awards issued.

The unrecognized estimated compensation ~~cost~~expense relating to outstanding Affiliate Grants at ~~September~~June 30, ~~2019~~2020 was ~~$14.2~~$19.6 million, which will be recognized over the remaining vesting period.

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

The 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 September 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, ~~2018~~2019 vested, and common units were issued in respect of such vested Director Grants. During the three and six months ended June 30, 2020 we recognized $0.1 million and $0.2 million, respectively, of unit based compensation expense with respect to the Director Grants. The unrecognized estimated compensation ~~cost~~expense relating to outstanding Director Grants at ~~September~~June 30, ~~2019~~2020 was ~~$0.1~~$0.3 million, which will be recognized over the remaining vesting period.

~~Distribution Equivalent Rights~~

Paid DER distributions related to time-based Affiliate Grants were $1.2 million and $2.1 million, respectively, for the three and nine months ended September 30, 2019. Paid DER distributions related to the time-based Affiliate Grants were $0.6 million and $1.8 million, respectively, for the three and nine months ended September 30, 2018. At September 30, 2019 and December 31, 2018, $0.6 million and $0.9 million, respectively, of DER distributions were included in related-party accrued liabilities.

~~Table of Contents~~

~~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~~)

Unpaid DER amounts related to the performance-based Affiliate Grants at September 30, 2019 were $1.6 million, of which $0.6 million are included in accrued liabilities and $1.0 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 and $0.3 million are included in other long-term liabilities.

~~(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 ~~September~~June 30, ~~2019,~~2020, the only periods subject to examination for federal and state income tax returns are ~~2015~~2016 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 ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~and 2018, no~~0 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. 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 ~~use~~apply 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 per unit previously applicable to subordinated limited partner units were the same because there are no potentially dilutive subordinated units outstanding.~~

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

~~(Unaudited~~)(Unaudited)

The following computation of net income (loss) available per limited partner unit is as follows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 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~~ ~~September 30, 2019~~
	~~Common~~ ~~Units~~	~~General~~ ~~Partner~~
~~Weighted-average common units outstanding—basic~~	~~33,457~~	—
~~Effect of nonvested phantom units~~	—	—
~~Weighted-average common units outstanding—diluted~~	~~33,457~~	—

Three Months Ended September 30, 2019

Common
Units

General
Partner
Total
Distributions declared $ 22,416
$ 3,107
$ 25,523
Earnings less than distributions (17,275 ) —
(17,275 )
Net income available to partners $ 5,141
$ 3,107
$ 8,248
Weighted-average units outstanding—basic and diluted 33,457

Net income per limited partner unit—basic and diluted $ 0.15



	~~Nine Months Ended~~ ~~September 30, 2019~~
	~~Common~~ ~~Units~~	~~General~~ ~~Partner~~
~~Weighted-average common units outstanding—basic~~	~~31,230~~	—
~~Effect of nonvested phantom units~~	—	—
~~Weighted-average common units outstanding—diluted~~	~~31,230~~	—

Nine Months Ended September 30, 2019
Common
Units General
Partner Total
Distributions declared $ 66,077
$ 8,150
$ 74,227
Earnings less than distributions (79,925 ) —
(79,925 )
Net (loss) income available to partners $ (13,848 ) $ 8,150
$ (5,698 )
Weighted-average units outstanding—basic and diluted 31,230

Net loss per limited partner unit—basic and diluted $ (0.44 )



	~~Three Months Ended September 30, 2018~~
	~~Common~~ ~~Units~~	~~Subordinated~~ ~~Units~~	~~General~~ ~~Partner~~
~~Weighted-average common units outstanding—basic~~	~~26,477~~	—	—
~~Effect of nonvested phantom units~~	~~1,001~~	—	—
~~Weighted-average common units outstanding—diluted~~	~~27,478~~	—	—

Table of Contents

~~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~~)

Three Months Ended September 30, 2018

Common
Units

General
Partner
Total
Distributions declared $ 16,814
$ 1,532
$ 18,346
Earnings less than distributions (4,990 ) —
(4,990 )
Net income available to partners $ 11,824
$ 1,532
$ 13,356
Weighted-average units outstanding—basic 26,477

Weighted-average units outstanding—diluted 27,478

Net income per limited partner unit—basic $ 0.45

Net income per limited partner unit—diluted $ 0.43

Nine Months Ended September 30, 2018
Common
Units Subordinated
Units General
Partner
Weighted-average common units outstanding—basic 19,866
6,541
—
Effect of nonvested phantom units —
—
—
Weighted-average common units outstanding—diluted 19,866
6,541
—

Nine Months Ended September 30, 2018
Common
Units Subordinated
Units General
Partner Total
Distributions declared $ 37,618
$ 12,386
$ 4,197
$ 54,201
Earnings less than distributions (42,607 ) (14,029 ) —
(56,636 )
Net (loss) income available to partners $ (4,989 ) $ (1,643 ) $ 4,197
$ (2,435 )
Weighted-average units outstanding—basic and diluted 19,866
6,541

Net loss per limited partner unit—basic and diluted $ (0.25 ) $ (0.25 )

~~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
March 31, 2018 May 3, 2018 May 15, 2018 May 29, 2018 $ 0.6250
$ 16.5
$ 1.3
June 30, 2018 August 1, 2018 August 15, 2018 August 29, 2018 $ 0.6300
$ 16.7
$ 1.4
September 30, 2018 October 31, 2018 November 15, 2018 November 29, 2018 $ 0.6350
$ 16.8
$ 1.5
December 31, 2018 January 29, 2019 February 15, 2019 February 28, 2019 $ 0.6400
$ 17.0
$ 1.7
March 31, 2019 May 2, 2019 May 20, 2019 May 29, 2019 $ 0.6450
$ 21.6
$ 2.3
June 30, 2019 July 31, 2019 August 15, 2019 August 29, 2019 $ 0.6600
$ 22.1
$ 2.8
September 30, 2019 October 30, 2019 November 15, 2019 November 29, 2019 $ 0.6700
$ 22.4
$ 3.1

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

~~Table of Contents~~

~~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~~)

~~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 (1) pay dividends or make any other distributions to the Partnership or any of its restricted subsidiaries or (2) make loans or advances to the Partnership or any of its restricted subsidiaries. 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.

~~Table of Contents~~

~~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
September 30, 2019

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Assets
Current assets:
Cash and cash equivalents $ 2,046
$ 311
$ —
$ 2,357
Accounts receivable 49,634
9
—
49,643
Inventories 38,286
4,367
(304 ) 42,349
Prepaid expenses and other current assets 3,925
73
—
3,998
Total current assets 93,891
4,760
(304 ) 98,347
Property, plant and equipment - in service, net 517,577
166,195
(248 ) 683,524
Construction in progress 60,181
743
—
60,924
Total property, plant and equipment, net 577,758
166,938
(248 ) 744,448
Operating lease right-of-use assets, net 26,567
6,812
—
33,379
Related-party note receivable 42,989
—
(42,989 ) —
Goodwill 85,615
—
—
85,615
Investment in subsidiaries 118,543
—
(118,543 ) —
Other long-term assets 7,876
—
(550 ) 7,326
Total assets $ 953,239
$ 178,510
$ (162,634 ) $ 969,115
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable $ 18,575
$ 2,937
$ —
$ 21,512
Related-party payables and accrued liabilities 12,048
(2,929 ) —
9,119
Deferred consideration for drop-downs due to related party 40,000
—
—
40,000
Accrued and other current liabilities 37,618
10,700
—
48,318
Current portion of interest payable 13,209
—
—
13,209
Current portion of long-term debt and finance lease obligations 3,891
599
—
4,490
Total current liabilities 125,341
11,307
—
136,648
Long-term debt and finance lease obligations 542,575
1,014
—
543,589
Related-party long-term debt —
42,989
(42,989 ) —
Long-term operating lease liabilities 27,683
6,042
—
33,725
Long-term interest payable 1,100
—
—
1,100
Long-term interest related-party payable —
550
(550 ) —
Other long-term liabilities 2,170
—
—
2,170
Total liabilities 698,869
61,902
(43,539 ) 717,232
Total Enviva Partners, LP partners' capital 302,562
116,608
(119,095 ) 300,075
Noncontrolling interest (48,192 ) —
—
(48,192 )
Total partners’ capital 254,370
116,608
(119,095 ) 251,883
Total liabilities and partners’ capital $ 953,239
$ 178,510
$ (162,634 ) $ 969,115

~~Table of Contents~~

~~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

~~Table of Contents~~

~~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 September 30, 2019

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Product sales $ 155,188
$ 3,935
$ (3,935 ) $ 155,188
Other revenue 2,454
—
(237 ) 2,217
Net revenue 157,642
3,935
(4,172 ) 157,405
Cost of goods sold 118,950
2,674
(3,631 ) 117,993
Depreciation and amortization 11,173
1,773
—
12,946
Total cost of goods sold 130,123
4,447
(3,631 ) 130,939
Gross margin 27,519
(512 ) (541 ) 26,466
General and administrative expenses 1,842
(289 ) (239 ) 1,314
Related-party management services agreement fee 4,510
1,976
—
6,486
Total general and administrative expenses 6,352
1,687
(239 ) 7,800
Income (loss) from operations 21,167
(2,199 ) (302 ) 18,666
Other (expense) income:
Interest expense (9,864 ) (8 ) —
(9,872 )
Related-party interest expense —
(300 ) 300
—
Other income (expense), net 440
(11 ) (371 ) 58
Total other (expense) income, net (9,424 ) (319 ) (71 ) (9,814 )
Net income (loss) $ 11,743
$ (2,518 ) $ (373 ) $ 8,852

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~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited~~)

Condensed Consolidated Statement of Operations
For the Three Months Ended September 30, 2018

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Product sales $ 142,541
$ —
$ —
$ 142,541
Other revenue 1,607
—
—
1,607
Net revenue 144,148
—
—
144,148
Cost of goods sold 104,351
—
—
104,351
Depreciation and amortization 9,678
—
—
9,678
Total cost of goods sold 114,029
—
—
114,029
Gross margin 30,119
—
—
30,119
General and administrative expenses 3,173
28
—
3,201
Related-party management services agreement fee 4,114
—
—
4,114
Total general and administrative expenses 7,287
28
—
7,315
Income (loss) from operations 22,832
(28 ) —
22,804
Other (expense) income:
Interest expense (9,445 ) —
—
(9,445 )
Other (expense) income, net (12 ) 9
—
(3 )
Total other (expense) income, net (9,457 ) 9
—
(9,448 )
Net income (loss) $ 13,375
$ (19 ) $ —
$ 13,356

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~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited~~)

Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 2019

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Product sales $ 478,989
$ 3,935
$ (3,935 ) $ 478,989
Other revenue 5,775
—
(911 ) 4,864
Net revenue 484,764
3,935
(4,846 ) 483,853
Cost of goods sold 396,818
2,674
(3,631 ) 395,861
Depreciation and amortization 33,339
1,773
—
35,112
Total cost of goods sold 430,157
4,447
(3,631 ) 430,973
Gross margin 54,607
(512 ) (1,215 ) 52,880
General and administrative expenses 8,713
1,380
(914 ) 9,179
Related-party management services agreement fee 13,837
5,651
—
19,488
Total general and administrative expenses 22,550
7,031
(914 ) 28,667
Income (loss) from operations 32,057
(7,543 ) (301 ) 24,213
Other (expense) income:
Interest expense (28,666 ) (35 ) —
(28,701 )
Related-party interest expense —
(300 ) 300
—
Other income (expense), net 1,125
41
(550 ) 616
Total other expense, net (27,541 ) (294 ) (250 ) (28,085 )
Net income (loss) $ 4,516
$ (7,837 ) $ (551 ) $ (3,872 )

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~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited~~)

Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 2018

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Product sales $ 398,031
$ —
$ —
$ 398,031
Other revenue 7,037
—
—
7,037
Net revenue 405,068
—
—
405,068
Cost of goods sold 331,356
—
—
331,356
Depreciation and amortization 28,800
—
—
28,800
Total cost of goods sold 360,156
—
—
360,156
Gross margin 44,912
—
—
44,912
General and administrative expenses 9,730
48
—
9,778
Related-party management services agreement fee 11,628
—
—
11,628
Total general and administrative expenses 21,358
48
—
21,406
Income (loss) from operations 23,554
(48 ) —
23,506
Other (expense) income:
Interest expense (27,137 ) —
—
(27,137 )
Other income (expense), net 1,281
(85 ) —
1,196
Total other expense, net (25,856 ) (85 ) —
(25,941 )
Net loss $ (2,302 ) $ (133 ) $ —
$ (2,435 )

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~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited~~)

Condensed Consolidated Statement of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2019

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Net income (loss) $ 11,743
$ (2,518 ) $ (373 ) $ 8,852
Other comprehensive (loss) income:
Net unrealized losses on cash flow hedges 13
—
—
13
Reclassification of net gains realized into net income (loss) (59 ) —
—
(59 )
Currency translation adjustment —
4
—
4
Total other comprehensive (loss) income (46 )
4

—
(42 )
Total comprehensive income (loss) $ 11,697
$ (2,514 ) $ (373 ) $ 8,810

Condensed Consolidated Statement of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2018

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Net income (loss) $ 13,375
$ (19 ) $ —
$ 13,356
Other comprehensive income:
Net unrealized gains on cash flow hedges 2,713
—
—
2,713
Reclassification of net gains realized into net income (loss) (2,013 ) —
—
(2,013 )
Currency translation adjustment —
1
—
1
Total other comprehensive income 700
1
—
701
Total comprehensive income (loss) $ 14,075
$ (18 ) $ —
$ 14,057

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~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited~~)

Condensed Consolidated Statement of Comprehensive Loss
For the Nine Months Ended September 30, 2019

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Net income (loss) $ 4,516
$ (7,837 ) $ (551 ) $ (3,872 )
Other comprehensive (loss) income:
Net unrealized losses on cash flow hedges (148 ) —
—
(148 )
Reclassification of net gains realized into net income (loss) (252 ) —
—
(252 )
Currency translation adjustment —
4
—
4
Total other comprehensive (loss) income (400 ) 4
—
(396 )
Total comprehensive income (loss) $ 4,116
$ (7,833 ) $ (551 ) $ (4,268 )

Condensed Consolidated Statement of Comprehensive Loss
For the Nine Months Ended September 30, 2018

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Net loss $ (2,302 ) $ (133 ) $ —
$ (2,435 )
Other comprehensive income:
Net unrealized gains on cash flow hedges 5,750
—
—
5,750
Reclassification of net gains realized into net loss (2,076 ) —
—
(2,076 )
Currency translation adjustment —
1
—
1
Total other comprehensive income 3,674
1
—
3,675
Total comprehensive income (loss) $ 1,372
$ (132 ) $ —
$ 1,240

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~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited~~)

Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 2019

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Cash flows from operating activities:
Net income (loss) $ 4,516
$ (7,837 ) $ (551 ) $ (3,872 )
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization 33,875
1,872
—
35,747
MSA Fee Waivers 13,200
5,549
—
18,749
Amortization of debt issuance costs, debt premium and original issue discounts 899
—
—
899
Loss on disposal of assets 562
—
—
562
Unit-based compensation 3,142
693
—
3,835
Fair value changes in derivatives (2,275 ) —
—
(2,275 )
Unrealized loss on foreign currency transactions, net 58
—
—
58
Change in operating assets and liabilities:
Accounts and insurance receivables 9,502
(10 ) —
9,492
Related-party receivables (20,281 ) (1,415 ) 23,088
1,392
Prepaid expenses and other current and long-term assets (711 ) (52 ) 551
(212 )
Inventories (6,313 ) (4,366 ) —
(10,679 )
Derivatives 1,514
—
—
1,514
Accounts payable, accrued liabilities and other current liabilities 824
(3,071 ) —
(2,247 )
Related-party payables and accrued liabilities 13,847
(2,784 ) (23,088 ) (12,025 )
Accrued interest 3,326
3,094
—
6,420
Operating lease liabilities (2,800 ) (915 ) —
(3,715 )
Other long-term liabilities 313
(477 ) —
(164 )
Net cash provided by (used in) operating activities 53,198

(9,719 )
—
43,479
Cash flows from investing activities:
Purchases of property, plant and equipment (47,561 ) (33,923 ) —
(81,484 )
Payment in relation to the JV 1.0 Drop-Down (74,700 ) —
—
(74,700 )
Other 1,502
—
—
1,502
Net cash used in investing activities (120,759 )
(33,923 )
—
(154,682 )
Cash flows from financing activities:
Proceeds from senior secured revolving credit facility 306,150
38,850
—
345,000
Payments on senior secured revolving credit facility (233,000 ) —
—
(233,000 )
Payments on other long-term debt and finance lease obligations (3,639 ) 1,613
—
(2,026 )
Proceeds from common unit issuances, net 96,822
—
—
96,822
Payment of deferred consideration for Wilmington Drop-Down (24,300 ) —
—
(24,300 )
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder (69,526 ) —
—
(69,526 )
Payment for withholding tax associated with Long-Term Incentive Plan vesting (1,870 ) —
—
(1,870 )
Net cash provided by financing activities 70,637
40,463
—
111,100
Net increase (decrease) in cash, cash equivalents and restricted cash 3,076
(3,179 ) —
(103 )
Cash, cash equivalents and restricted cash, beginning of period (1,030 ) 3,490
—
2,460
Cash, cash equivalents and restricted cash, end of period $ 2,046
$ 311
$ —
$ 2,357

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~~ENVIVA PARTNERS, LP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited~~)

Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 2018

Guarantor Subsidiaries Non-
Guarantor Subsidiaries Eliminations Consolidated
Cash flows from operating activities:
Net loss $ (2,302 ) $ (133 ) $ —
$ (2,435 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 29,240
—
—
29,240
Amortization of debt issuance costs, debt premium and original issue discounts 828
—
—
828
Loss on disposal of assets 900
—
—
900
Unit-based compensation 5,604
—
—
5,604
De-designation of foreign currency forwards and options (1,947 ) —
—
(1,947 )
Fair value changes in derivatives (4,465 ) —
—
(4,465 )
Unrealized loss on foreign currency transactions, net 31
1
—
32
Change in operating assets and liabilities:
Accounts and insurance receivables 30,004
—
—
30,004
Related-party receivables (4,943 ) (4,611 ) 9,431
(123 )
Prepaid expenses and other current and long-term assets (160 ) —
—
(160 )
Inventories (9,735 ) —
—
(9,735 )
Derivatives 5,080
—
—
5,080
Accounts payable, accrued liabilities and other current liabilities 5,709
—
—
5,709
Related-party payables and accrued liabilities 7,928
4,820
(9,431 ) 3,317
Accrued interest 7,634
—
—
7,634
Other long-term liabilities 648
—
—
648
Net cash provided by operating activities 70,054
77
—
70,131
Cash flows from investing activities:
Purchases of property, plant and equipment (16,034 ) —
—
(16,034 )
Other 1,130
—
—
1,130
Net cash used in investing activities (14,904 ) —
—
(14,904 )
Cash flows from financing activities:
Proceeds from senior secured revolving credit facility 134,750
—
—
134,750
Payments on senior secured revolving credit facility (123,250 ) —
—
(123,250 )
Payments on other long-term debt and capital lease obligations (4,745 ) —
—
(4,745 )
Proceeds from common unit issuances, net 241
—
—
241
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder (55,163 ) —
—
(55,163 )
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 (4,380 ) —
—
(4,380 )
Net cash used in financing activities (54,888 ) —
—
(54,888 )
Net increase in cash, cash equivalents and restricted cash 262
77
—
339
Cash, cash equivalents and restricted cash, beginning of period 524
—
—
524
Cash, cash equivalents and restricted cash, end of period $ 786
$ 77
$ —
$ 863

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, including its consolidated subsidiaries. ~~Our sponsor is~~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 references~~LLC. References to ~~our~~“our General ~~Partner~~Partner” refer to Enviva Partners GP, LLC, a wholly owned subsidiary of Enviva Holdings, LP. References to “Enviva Management” refer to Enviva Management Company, LLC, a wholly owned subsidiary of Enviva Holdings, LP, and references to “our employees” refer to the employees of Enviva Management 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 wholly owned subsidiary, Enviva. LP, 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, ~~2018~~2019 as filed with the U.S. Securities and Exchange Commission (the “SEC”). Our ~~2018~~2019 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 ~~2018~~2019 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 ~~2018~~2019 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 own~~increasingly Japan. As of July 1, 2020, we owned and ~~operate seven~~operated eight wood pellet production plants (collectively, “our plants”) with a combined production capacity of ~~over 3.5~~approximately 4.1 million metric tons (“MT”) of wood pellets per year in Virginia, North Carolina, South Carolina, Florida, and Mississippi, ~~and Florida.~~the production of which is fully contracted through 2025. Our combined production capacity as of July 1, 2020 increased as a result of our acquisition of a wood pellet production plant with a production capacity of 800,000 metric tons per year located in Waycross, Georgia on July 31, 2020. We export ~~our~~ wood pellets through our wholly owned dry-bulk, deep-water marine ~~terminals~~terminal 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 in the First JV. The First JV owns a plant in Hamlet, North Carolina~~Florida (the ~~“Hamlet plant”~~“Panama City terminal”) and a firm, 15-year take-or-pay off-take contract to supply nearly 1.0 million metric tons per year (“MTPY”) 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 ~~flows~~flows. 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 JV~~our affiliates and ~~from~~ third parties ~~are~~were 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 $15.3 billion and have a total weighted-average remaining term of 12.7 years from July 1, 2020. Under our current product sales backlog, our plants are 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 ~~intend~~have built our operations and assets to ~~continue expanding~~deliver and certify the highest levels of product quality and our ~~business by taking advantage~~proven track record of reliable deliveries enables us to charge premium prices for this certainty. In addition to our

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customers’ focus on the reliability of supply, they are concerned about the combustion efficiency of the ~~growing demand~~wood pellets and their safe handling. Because combustion efficiency is a function of energy density, particle size distribution, ash/inert content and moisture, our customers require that we supply wood pellets meeting minimum criteria for a variety of specifications and, in some cases, provide incentives for exceeding our 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

~~JV 1.0 Drop-Down~~Georgia Biomass Purchase Agreement

~~The acquisition of~~On June 18, 2020, the Partnership entered into a Membership Interest Purchase and Sale Agreement (the “Georgia Biomass Purchase Agreement”) to acquire all of the ~~issued~~limited liability company interests in Georgia Biomass Holding LLC, a Georgia limited liability company (“Georgia Biomass”), and ~~outstanding Class B Units~~the indirect owner of ~~the First JV from our sponsor consisted~~a wood pellet production plant located in Waycross, Georgia (the “Waycross plant”), for total consideration of ~~$165.0~~$175.0 million ~~total consideration,~~in cash, subject to certain adjustments. The ~~First JV has a firm 15-year take-or-pay off-take contract to~~

~~supply nearly 1.0 million MTPY of wood pellets, which commences in 2019, ramps to full supply volumes in 2021 and continues through 2034.~~

~~Prior to the acquisition, we already had off-take contracts with the First JV to supply 470,000 MTPY~~production capacity of the ~~volumes~~Waycross plant is 800,000 MTPY. The closing occurred on July 31, 2020. We refer to ~~be supplied to~~this transaction as the ~~First JV and, in connection with the acquisition, we acquired 500,000 MTPY in incremental sales volumes.~~“Georgia Biomass Acquisition.”

Greenwood Contribution Agreement

On ~~the date of~~June 18, 2020, Partnership and our ~~acquisition of the sponsor’s Class B Units in the First JV (collectively, the “JV 1.0 Drop-Down:):~~

~~We commenced an associated terminal services agreement to handle contracted volumes from the Hamlet plant.~~

Wesponsor entered into ana contribution agreement ~~with the sponsor,~~(the “Contribution Agreement”) pursuant to which ~~(1)~~our sponsor agreed to contribute to the ~~sponsor will guarantee certain cash flows from~~Partnership all of the ~~Hamlet plant until June 30, 2020, (2) the sponsor will reimburse us~~limited liability company interests in Enviva Pellets Greenwood Holdings II, LLC (“Greenwood Holdings II”), which wholly indirectly owns Enviva Pellets Greenwood, LLC (“Greenwood”), for ~~construction cost overruns in excess~~a purchase price of ~~budgeted capital expenditures for the Hamlet plant,~~$132.0 million, subject to certain ~~exceptions, (3)~~adjustments (such transaction, the “Greenwood Drop-Down”). Greenwood owns a wood pellet production plant located in Greenwood, South Carolina (the “Greenwood plant”).

On July 1, 2020, the closing of the Greenwood Drop-Down occurred, pursuant to which the Partnership paid cash consideration of $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 pay~~assumed at closing.

Pursuant to the Contribution Agreement and the Greenwood Drop-Down, our sponsor ~~quarterly incentive payments~~assigned five biomass off-take agreements to the Partnership (collectively, the “Associated Off-Take Contracts”). The Associated Off-Take Contracts call for ~~any~~aggregate 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 ~~Hamlet~~Greenwood 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 JV~~Enviva Management entered into an agreement ~~with Enviva Management Company, LLC, a Delaware limited liability company and wholly owned subsidiary of the sponsor (“Enviva Management”),~~pursuant to ~~waive the obligation to pay~~which (1) an aggregate of approximately ~~$2.7~~$37.0 million ofin management services and other fees ~~payable to Enviva Management~~that otherwise would be otherwise be owed by the Partnership under the ~~management services agreement (the “First JV MSA”) between the First JV and Enviva Management~~EVA MSA will be waived with respect to the period from the ~~date of acquisition~~closing of the ~~Hamlet plant~~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 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 the Partnership during the planned expansion of the Greenwood plant.

Tack-On Notes Issuance

On July ~~1, 2019 (the “First JV MSA Fee Waiver”)~~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.

WePrivate Placement of Common Units

On June 18, 2020, the Partnership entered into ~~an agreement~~a Common Unit Purchase Agreement (the “Unit Purchase Agreement”) with ~~Enviva Management~~

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certain investors to ~~waive our obligation~~sell 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 net proceeds of $190.8 million from the Private Placement to ~~pay an aggregate~~fund a portion of ~~approximately $13.0 million in fees payable under our management services~~the 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 ~~period~~resale 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 through the second quarter of 2020 (the “First EVA MSA Fee Waiver”).~~

The First 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, will manage, operate, maintain and repair the Hamlet plant and provide other services to the First JV for the period from July 1, 2019 through June 30, 2020 in exchange for a fixed fee per metric ton of wood pellets produced by the Hamlet plant during such period and delivered at place. Under and during the termtack-on offering of the ~~ISA, Hamlet Operator will (1)~~2026 Notes of $153.6 million were used to repay $90.0 million of the revolving borrowings under our senior secured revolving credit facility and to 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. The sponsor guarantees all obligations of Hamlet Operator under the ISA.

~~The $165.0~~$132.0 million purchase price for the ~~JV 1.0~~Greenwood Drop-Down, ~~consisted of (1) a cash payment of $24.7 million, net of a purchase price adjustment of $0.3 million, (2)~~with 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, (4) $40.0 million in cash~~remaining amount being used 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 of the First JV on the date of acquisition. As the holder of the Class B Units, we became a member of the First JV (the “Enviva Member”) on the acquisition date.

As the Enviva Member, we are the managing member and primary beneficiary 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 and are generally unrestricted as it relates to ~~the management of the assets and cash flows of the First JV; however, we cannot cause the First JV to incur indebtedness in excess of $60.0 million.~~

~~Wilmington Terminal Second Payment~~

~~We made an initial payment of $56.0 million to the First JV as partial payment of the $130.0 million purchase price~~partially pay for the ~~Wilmington terminal in October 2017 (the “Wilmington Drop-Down”). On April 1, 2019, we made the second and final payment of $74.0~~$175.0 million ~~in deferred consideration for the Wilmington Drop-Down consisting of 1,691,627 common units at a~~

~~price of $29.38 per common unit, or approximately $50.0 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 started 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 ~~expansions~~Mid-Atlantic Expansions, of which we have spent $99.9 million through June 30, 2020. We have begun commissioning equipment and ~~to complete expansion activities in~~commencing the ~~first half of 2020 with startup shortly thereafter.~~

~~Financing Activities~~

~~In addition to the approximately $100.0 million in common units issued as partial consideration~~production ramp for the ~~JV 1.0 Drop-Down~~Northampton plant expansion and expect to begin commissioning and commencing the ~~Second Payment, we issued an aggregate of 3,508,778 common units~~production ramp for the Southampton plant expansion over the next several months. We expect 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~~benefit from the RDO, along with borrowings under our existing $350.0 million senior secured revolving credit facility and the common units issued as consideration for the JV 1.0 Drop-Down and the Second Payment, to finance (1) $124.7 million of the total $165.0 million purchase price for the JV 1.0 Drop-Down, (2) the $74.0 million Second Payment (3) the $24.0 million in capital expenditures, net of payments received pursuant to the Make-Whole Agreement, required to complete construction of the Hamlet plant and (4) the initial $130.0 million in expenditures required forfull 400,000 MTPY increased production from the Mid-Atlantic ~~Expansions.~~Expansions during 2021.

Contracted Backlog

As of ~~October~~July 1, ~~2019~~2020, we had approximately ~~$9.5~~$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 ~~10.4~~12.7 years, compared to approximately ~~$7.3~~$9.6 billion and a total weighted-average remaining term of ~~9.4~~10.4 years as of ~~October 1, 2018. Backlog~~August 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 ~~October~~July 1, ~~2019~~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 ~~October~~July 1, ~~2019~~2020 is as follows (in millions):

Period from October 1, 2019 to December 31, 2019 $ 177
Year ending December 31, 2020 906
Year ending December 31, 2021 and thereafter 8,399
Total product sales contracted backlog $ 9,482


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 JV~~its joint ventures were included with our product sales contracted backlog for firm contracted product sales, the total weighted-average remaining term as of ~~October~~July 1, ~~2019~~2020 would increase to ~~13.3~~13.6 years and the product sales backlog would increase to ~~$17.8~~$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

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Period from October 1, 2019 to December 31, 2019 $ 177
Year ending December 31, 2020 906
Year ending December 31, 2021 and thereafter 16,744
Total product sales contracted backlog $ 17,827
Outbreak of the Novel Coronavirus

The 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 Disposal~~Private 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 damage~~wood 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 MT~~supply 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. During~~Hamlet plant became operational during the ~~three and nine months ended September 30, 2018, we incurred $9.7 million and $58.4 million, respectively, in costs~~second quarter of 2019.

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We accounted for the Hamlet JV as a ~~result~~consolidated 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 September 30, 2018, we had recovered $48.1 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 for~~Hamlet JV. We are generally unrestricted in managing the ~~then-remaining costs not yet recovered were included in insurance receivables and subsequently received in February 2019, with an additional $0.5 million which was recognized as other income.~~

We incurred other losses and costs associated with the Chesapeake Incident during and since the three and nine months ended September 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 accepted~~those 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 ~~those~~redeem 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 three~~general partnership purposes. Interest payments are due semi-annually in arrears on January 15 and ~~nine months ended September 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 ~~Incident~~terminal (the “Chesapeake Incident”) and Hurricanes Florence and Michael (the “Hurricane Events”), ~~which occurred during the second half of 2018,~~ 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 ~~use~~define adjusted gross margin per metric ton ~~to measure our financial performance. We define adjusted~~as gross margin ~~as gross margin~~per metric ton excluding asset disposals, depreciation and amortization, changes in unrealized derivative instruments related to hedged items included in gross margin, ~~MSA Fee Waivers,~~non-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, 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 ~~costs.~~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 and~~non-cash unit compensation expense, asset impairments and disposals, changes in unrealized derivative instruments related to hedged items included in gross margin and other income and expense, certain items of income or loss that we characterize as unrepresentative of our ongoing operations, including certain expenses incurred related to

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the Chesapeake Incident and Hurricane Events, consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repair costs, offset by insurance recoveries received, as well as employee compensation and other related costs allocated to us in respect of the Chesapeake Incident and Hurricane Events pursuant to our management services agreement with an affiliate of our sponsor for services that could otherwise have been dedicated to our ongoing operations, acquisition ~~costs.~~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‑generating~~cash-generating performance of the Partnership from period to period and to compare the ~~cash‑generating~~cash-generating performance for specific periods to the cash distributions (if any) that are expected to be paid to our unitholders. We do not rely on distributable cash flow as a liquidity measure.

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 Ended ~~September~~June 30, ~~2019~~2020 Compared to Three Months Ended ~~September~~June 30, ~~2018~~2019


	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 September 30, Change Chesapeake Incident and Hurricane Events Net Change
2019 2018
(in thousands)
Product sales $ 155,188
$ 142,541
$ 12,647
$ —
$ 12,647
Other revenue ⁽¹⁾
2,217
1,607
610
—
610
Net revenue 157,405
144,148
13,257
—
13,257
Cost of goods sold, excluding depreciation and
amortization ⁽¹⁾
117,993
104,351
13,642
6,834
6,808
Depreciation and amortization 12,946
9,678
3,268
—
3,268
Total cost of goods sold 130,939
114,029
16,910
6,834
10,076
Gross margin 26,466
30,119
(3,653 ) (6,834 ) 3,181
General and administrative expenses 1,314
3,201
(1,887 ) —
(1,887 )
Related-party management services agreement fee 6,486
4,114
2,372
—
2,372
Total general and administrative expenses 7,800
7,315
485
—
485
Income from operations 18,666
22,804
(4,138 ) (6,834 ) 2,696
Interest expense (9,872 ) (9,445 ) (427 ) (770 ) 343
Other income (expense) 58
(3 ) 61
—
61
Net income $ 8,852
$ 13,356
$ (4,504 ) $ (7,604 ) $ 3,100

⁽¹⁾ See Note 13, Related-Party Transactions

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Net revenue

Net revenue ~~increased~~decreased to ~~$157.4~~$167.7 million for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$144.1~~$168.1 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~$13.3 million, or 9%, increase~~de minimis change was primarily attributable to ~~a 6%~~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 ~~September~~June 30, ~~2019 as compared to~~2020. The $8.9 million and $1.9 million in other revenue was recognized under a breakage model based on when the ~~three months ended September 30, 2018.~~

pellets would have been loaded.

Cost of goods sold

Cost of goods sold ~~increased~~decreased to ~~$130.9~~$140.0 million for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$114.0~~$151.6 million for the three months ended ~~September~~June 30, 2018. Costs of goods sold during the three months ended September 30, 2018 was reduced by $12.1 million of insurance recoveries, net of expenses incurred, related to the Chesapeake Incident. We incurred $9.7 million in expenses related to the Chesapeake Incident during the three months ended September 30, 2018, offset by $21.8 million of insurance recoveries.2019. The ~~remaining $4.8~~$11.5 million, or 4%8%, ~~increase~~decrease was primarily attributable to a ~~6% increase~~2% decrease in sales volumes during the three months ended ~~September~~June 30, ~~2019~~2020 as compared to the three months ended ~~September~~June 30, ~~2018.~~2019.

Gross margin

Gross margin ~~decreased~~increased to ~~$26.5~~$27.7 million for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$30.1~~$16.5 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The gross margin ~~decrease~~increase of ~~$3.7~~$11.2 million ~~was attributable to $12.1 million of insurance recoveries, net of expenses incurred, related to the Chesapeake Incident~~ during the three months ended ~~September~~June 30, 2018. Excluding the $12.1 million of insurance recoveries, net of expenses incurred, related to the Chesapeake Incident, gross margin would have increased by $8.4 million primarily due to a 6% increase in sales volumes during the three months ended September 30, 20192020 as compared to the three months ended ~~September~~June 30, ~~2018.~~2019 was primarily attributable to the 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

Three Months Ended
September 30,
2019 2018 Change
(in thousands except per metric ton)
Reconciliation of gross margin to adjusted gross margin per metric ton:
Gross margin $ 26,466
$ 30,119
$ (3,653 )
Loss on disposal of assets 212
656
(444 )
Depreciation and amortization 12,946
9,678
3,268
Chesapeake Incident and Hurricane Events 47
(6,787 ) 6,834
Changes in unrealized derivative instruments (1,028 ) 1,944
(2,972 )
MSA Fee Waivers 2,300
—
2,300
Acquisition costs 59
—
59
Adjusted gross margin $ 41,002

$ 35,610
$ 5,392
Metric tons sold 811
762
49
Adjusted gross margin per metric ton $ 50.56
$ 46.73
$ 3.83
(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 ~~$41.0~~$42.0 million, or ~~$50.56~~$49.55 per MT, for the three months ended ~~September~~June 30, ~~2019.~~2020. Adjusted gross margin was ~~$35.6~~$28.0 million, or ~~$46.73~~$32.26 per MT, for the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~factors impacting the change~~increase in adjusted gross margin ~~include those described~~is 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.

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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 ~~September~~June 30, 2019 compared to the three months ended September 30, 2018 due to the waiver of $2.3 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 ~~$7.8~~$9.0 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~$7.3~~$11.0 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~$0.5~~$2.0 million ~~increase~~decrease in general and administrative expenses is primarily attributable to the consolidation of the ~~First~~Hamlet JV following the ~~JV 1.0~~Hamlet 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 ~~$9.9~~$10.1 million of interest expense during the three months ended ~~September~~June 30, ~~2019~~2020 and ~~$9.4~~$9.2 million of interest expense during the three months ended ~~September~~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 September 30,									2020		2019		Change
	2019		2018			Change				(in thousands)
	(in thousands)
Reconciliation of net income to adjusted net income:
Net income	$	8,852	$	13,356		$	(4,504	)
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	47		(6,787		)	6,834			Chesapeake Incident and Hurricane Events	—		(281)		281
MSA Fee Waivers	7,703		—			7,703			MSA Fee Waivers	1,572		11,046		(9,474)
Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events	769		1,326			(557		)	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	$	17,371	$	7,895		$	9,476		Adjusted net income	$	8,709	$	6,964	$	1,745

We generated adjusted net income of ~~$17.4~~$8.7 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~$7.9~~$7.0 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~$9.5~~$1.7 million increase in adjusted net income was primarily attributable to the factors described below under the heading “Adjusted EBITDA.”

Table of Contents

Adjusted EBITDA


											Three Months Ended June 30,
	Three Months Ended September 30,										2020		2019		Change
	2019			2018			Change				(in thousands)
	(in thousands)
Reconciliation of net income to adjusted EBITDA:
Net income	$	8,852		$	13,356		$	(4,504	)
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	13,291			9,801			3,490			Depreciation and amortization	15,297		11,248		4,049
Interest expense	9,872			9,445			427			Interest expense	10,124		9,196		928
Non-cash unit compensation expense	350			1,781			(1,431		)	Non-cash unit compensation expense	2,098		1,013		1,085
Asset impairments and disposals	212			656			(444		)	Asset impairments and disposals	640		350		290
Chesapeake Incident and Hurricane Events	47			(6,787		)	6,834			Chesapeake Incident and Hurricane Events	—		(281)		281
Changes in the fair value of derivative instruments	(1,028		)	1,944			(2,972		)	Changes in the fair value of derivative instruments	121		(2,334)		2,455
MSA Fee Waivers	7,703			—			7,703			MSA Fee Waivers	1,572		11,046		(9,474)
Acquisition costs	114			30			84			Acquisition costs	957		525		432
Commercial Services										Commercial Services	(1,882)		—		(1,882)
Adjusted EBITDA	$	39,413		$	30,226		$	9,187		Adjusted EBITDA	$	37,398	$	26,962	$	10,436

We generated adjusted EBITDA of ~~$39.4~~$37.4 million for the three months ended ~~September~~June 30, ~~2019~~2020 compared to adjusted EBITDA of ~~$30.2~~$27.0 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~$9.2~~$10.4 million increase was primarily attributable to the factors described above under the heading “Adjusted Gross margin per metric ton,” ~~as well as $5.4~~offset 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

Table of ~~adjusted EBITDA to distributable cash flow:~~Contents

Three Months Ended
September 30,
2019 2018 Change
(in thousands)
Adjusted EBITDA $ 39,413
$ 30,226
$ 9,187
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 8,797
7,839
958
Maintenance capital expenditures 579
1,638
(1,059 )
Distributable cash flow attributable to Enviva Partners, LP 30,037
20,749
9,288
Less: Distributable cash flow attributable to incentive distribution rights 3,107
1,532
1,575
Distributable cash flow attributable to Enviva Partners, LP limited partners $ 26,930
$ 19,217
$ 7,713

Results of Operations

~~Nine~~Six Months ~~ended September~~Ended June 30, ~~2019~~2020 Compared to ~~Nine~~Six Months ~~ended September~~Ended June 30, ~~2018~~2019


	Nine Months Ended September 30,						Change				Chesapeake Incident and Hurricane Events				Net Change				Six Months Ended June 30,												Change
	2019			2018										2020						2019
	(in thousands)																					(in thousands)
Product sales	$	478,989		$	398,031				$	80,958			$	—			$	80,958	Product sales		$	353,504			$	323,801			$	29,703
Other revenue ⁽¹⁾	4,864			7,037			(2,173		)		—				(2,173		)	Other revenue ⁽¹⁾	18,685				2,647				16,038
Net revenue	483,853			405,068			78,785				—				78,785			Net revenue	372,189				326,448				45,741
Cost of goods sold, excluding depreciation and amortization ⁽¹⁾	395,861			331,356			64,505				(8,874		)		73,379
Cost of goods sold ⁽¹⁾																		Cost of goods sold ⁽¹⁾	288,577				277,868				10,709
Depreciation and amortization	35,112			28,800			6,312				—				6,312			Depreciation and amortization	28,626				22,166				6,460
Total cost of goods sold	430,973			360,156			70,817				(8,874		)		79,691			Total cost of goods sold	317,203				300,034				17,169
Gross margin	52,880			44,912			7,968				8,874				(906		)	Gross margin	54,986				26,414				28,572
General and administrative expenses	9,179			9,778			(599		)		391				(990		)	General and administrative expenses	3,859				5,308				(1,449)
Related-party management services agreement fee	19,488			11,628			7,860				—				7,860
Related-party management services agreement fees																		Related-party management services agreement fees	14,636				15,559				(923)
Total general and administrative expenses	28,667			21,406			7,261				391				6,870			Total general and administrative expenses	18,495				20,867				(2,372)
Income from operations	24,213			23,506			707				8,483				(7,776		)	Income from operations	36,491				5,547				30,944
Interest expense	(28,701		)	(27,137		)	(1,564		)		(1,259		)		(305		)	Interest expense	(20,518)				(18,829)				(1,689)
Other income	616			1,196			(580		)		—				(580		)	Other income	131				558				(427)
Net loss	$	(3,872	)	$	(2,435	)	$	(1,437	)		$	7,224			$	(8,661	)
⁽¹⁾ See Note 13, Related-Party Transactions
Net income (loss)																		Net income (loss)	$	16,104			$	(12,724)			$	28,828

⁽¹⁾ See Note 12, Related-Party Transactions																		⁽¹⁾ See Note 12, Related-Party Transactions

Net revenue

Net revenue increased to ~~$483.9~~$372.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from ~~$405.1~~$326.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase of $78.8~~$45.7 million, or ~~19%~~14%, increase was primarily attributable to a ~~20%~~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 ~~nine~~six months ended ~~September~~June 30, ~~2019 as compared to~~2020. The $8.9 million and $4.1 million in other revenue was recognized under a breakage model based on when the ~~nine months ended September 30, 2018.~~

pellets would have been loaded.

Cost of goods sold

Cost of goods sold increased to ~~$431.0~~$317.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from ~~$360.2~~$300.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018, an increase of $70.8~~2019. The $17.2 million, or 20%. Excluding $10.3 million of expenses incurred, net of insurance recoveries received, related to the Chesapeake Incident during the nine months ended September 30, 2018, cost of goods sold would have increased by 23%6%, ~~which is~~increase was primarily attributable to a ~~20%~~8% increase in sales volumes during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

Gross margin

Gross margin increased to ~~$52.9~~$55.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from ~~$44.9~~$26.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The gross margin increase of ~~$8.0~~$28.6 million was primarily attributable to a ~~20%~~8% increase in sales volumes and increases in the fair value of foreign currency-related derivatives and in other revenue during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018. A gross margin increase~~2019.

Table of $10.3 million for expenses incurred, net of insurance recoveries received, related to the Chesapeake Incident during the nine months ended September 30, 2018 was offset by a gross margin decrease of $6.3 million due to an increase in depreciation and amortization expense and $4.3 million of costs in connection with a potential acquisition, discussed below under the heading “Adjusted gross margin per metric ton.”Contents

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

Nine Months Ended
September 30,
2019 2018 Change
(in thousands except per metric ton)
Reconciliation of gross margin to adjusted gross margin per metric ton:
Gross margin $ 52,880
$ 44,912
$ 7,968
Loss on disposal of assets 562
900
(338 )
Depreciation and amortization 35,112
28,800
6,312
Chesapeake Incident and Hurricane Events 125
8,999
(8,874 )
Changes in unrealized derivative instruments (1,352 ) (750 ) (602 )
MSA Fee Waivers 5,000
—
5,000
Acquisition costs 4,302
—
4,302
Adjusted gross margin $ 96,629
$ 82,861
$ 13,768
Metric tons sold 2,523
2,109
414
Adjusted gross margin per metric ton $ 38.30
$ 39.29
$ (0.99 )
(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 ~~$96.6~~$75.3 million, or ~~$38.30~~$40.66 per MT, for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Adjusted gross margin was ~~$82.9~~$55.6 million, or ~~$39.29~~$32.49 per MT, for the ~~nine~~six months ended ~~September~~June 30, ~~2018. The factors impacting~~2019. As described below, the ~~change~~increase in adjusted gross margin include those described above under the heading “Gross margin,” an increase of $6.3 million related to depreciation and amortization expense, offset by a decrease of $8.9 million related to the Chesapeake Incident and Hurricane Events and a decrease of $0.6 million related to changes in unrealized derivative instruments. Additionally, adjusted gross margin increased during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018is primarily due to the ~~waiver of $5.0 million of management services fees from our sponsor as consideration~~increase in sales volumes.

Adjusted gross margin 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 ~~nine~~six months ended ~~September~~June 30, 2019 ~~includes $4.3~~excludes $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.

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.

Table of Contents

General and administrative expenses

General and administrative expenses were ~~$28.7~~$18.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~$21.4~~$20.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~$7.3~~$2.4 million ~~increase~~decrease in general and administrative expenses is primarily attributable to ~~$7.0 million resulting from~~ the consolidation of the ~~First~~Hamlet JV following the ~~JV 1.0~~Hamlet Drop-Down on April 2, 2019, as expenses were incurred while the plant was being constructed until mid-2019 to prepare for its operations that could not be included in cost of goods sold and ~~$1.2 million~~could not be capitalized as construction costs of ~~transaction expenses related to~~ the ~~JV 1.0 Drop-Down.~~plant.

Interest expense

We incurred ~~$28.7~~$20.5 million of interest expense during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~$27.1~~$18.8 million of interest expense during the ~~nine~~six months ended ~~September~~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 ~~loss~~income (loss)


											Six Months Ended June 30,
	Nine Months Ended September 30,										2020		2019		Change
	2019			2018			Change				(in thousands)
	(in thousands)
Reconciliation of net loss to adjusted net income:
Net loss	$	(3,872	)	$	(2,435	)	$	(1,437	)
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	55			8,999			(8,944		)	Chesapeake Incident and Hurricane Events	—		8		(8)
MSA Fee Waivers	18,749			—			18,749			MSA Fee Waivers	4,757		11,046		(6,289)
Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events	1,259			1,326			(67		)	Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events	1,118		490		628
Adjusted net income	$	16,191		$	7,890		$	8,301
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 ~~$16.2~~$17.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~$7.9~~adjusted net loss of $1.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~$8.3~~$19.0 million increase in adjusted net income was attributable to an increase in MSA Fee Waivers of $18.7 million, partially offset by a $8.9 million decrease in adjustments related to the Chesapeake Incident and Hurricane Events,and a $1.4 million increase in net loss primarily attributable to the factors described ~~above.~~below under the heading “Adjusted EBITDA.”

Adjusted EBITDA


											Six Months Ended June 30,
	Nine Months Ended September 30,										2020		2019		Change
	2019			2018			Change				(in thousands)
	(in thousands)
Reconciliation of net loss to adjusted EBITDA:
Net loss	$	(3,872	)	$	(2,435	)	$	(1,437	)
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	35,747			29,240			6,507			Depreciation and amortization	29,247		22,456		6,791
Interest expense	28,701			27,137			1,564			Interest expense	20,518		18,829		1,689
Non-cash unit compensation expense	3,835			5,604			(1,769		)	Non-cash unit compensation expense	4,256		3,485		771
Asset impairments and disposals	562			900			(338		)	Asset impairments and disposals	1,552		350		1,202
Chesapeake Incident and Hurricane Events	55			8,999			(8,944		)	Chesapeake Incident and Hurricane Events	—		8		(8)
Changes in the fair value of derivative instruments	(1,352		)	(750		)	(602		)	Changes in the fair value of derivative instruments	(6,674)		(324)		(6,350)
MSA Fee Waivers	18,749			—			18,749			MSA Fee Waivers	4,757		11,046		(6,289)
Acquisition costs	5,566			176			5,390			Acquisition costs	957		5,452		(4,495)
Commercial Services										Commercial Services	(4,139)		—		(4,139)
Adjusted EBITDA	$	87,991		$	68,871		$	19,120		Adjusted EBITDA	$	66,578	$	48,578	$	18,000

We generated adjusted EBITDA of ~~$88.0~~$66.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to adjusted EBITDA of ~~$68.9~~$48.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~$19.1~~$18.0 million increase was primarily attributable to the factors described above under the heading “Adjusted gross margin per metric ton,” ~~as well as $13.7~~offset by $6.3 million of MSA Fee Waivers for general and administrative ~~expenses offset by $7.0 million resulting from the consolidation~~expenses.

Table of ~~the First JV following the JV 1.0 Drop-Down on April 2, 2019 and $1.2 million in costs, primarily in transaction expenses related to the JV 1.0 Drop-Down.~~Contents

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

Nine Months Ended
September 30,
2019 2018 Change
(in thousands)
Adjusted EBITDA $ 87,991
$ 68,871
$ 19,120
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 26,542
24,984
1,558
Maintenance capital expenditures 2,343
3,252
(909 )
Distributable cash flow attributable to Enviva Partners, LP 59,106
40,635
18,471
Less: Distributable cash flow attributable to incentive distribution rights 8,150
4,196
3,954
Distributable cash flow attributable to Enviva Partners, LP limited partners $ 50,956
$ 36,439
$ 14,517

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 ~~September 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 in~~begin to commissioning equipment and commencing the ~~first half~~production 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.

Table of ~~2020, subject to receiving the necessary permits, with startup shortly thereafter.~~Contents

Cash Flows

The following table sets forth a summary of our net cash flows from operating, investing and financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively:


	Nine Months Ended September 30,							Six Months Ended June 30,
	2019			2018				2020		2019
	(in thousands)							(in thousands)
Net cash provided by operating activities	$	43,479		$	70,131		Net cash provided by operating activities	$	53,658	$	7,562
Net cash used in investing activities	(154,682		)	(14,904		)	Net cash used in investing activities	(62,608)		(124,592)
Net cash provided by (used in) financing activities	111,100			(54,888		)
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(103	)	$	339
Net cash provided by financing activities							Net cash provided by financing activities	97,998		119,575
Net increase in cash, cash equivalents and restricted cash							Net increase in cash, cash equivalents and restricted cash	$	89,048	$	2,545

Cash Provided by Operating Activities

Net cash provided by operating activities was ~~$43.5~~$53.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$70.1~~$7.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~decrease~~increase in cash provided by operating activities of ~~$26.7~~$46.1 million was ~~largely~~primarily due to ~~changes~~the increase in ~~working capital, primarily attributable to the Chesapeake Incident during the nine months ended September 30, 2018.~~net income.

Cash Used in Investing Activities

Net cash used in investing activities was ~~$154.7~~$62.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$14.9~~$124.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~$139.8~~decrease in cash used in investing activities of $62.0 million ~~increase~~ is primarily due to ~~the payment of~~a $74.7 million cash payment in ~~cash consideration for~~relation to the ~~JV 1.0 Drop-Down. The $81.5 million of~~Hamlet Drop-Down during the six months ended June 30, 2019 offset by cash used for ~~property, plant and equipment during the nine months ended September 30, 2019 is primarily attributable to the completion of construction of the Hamlet plant and~~ capital expenditures associated with the Mid-Atlantic ~~Expansions.~~Expansions during the six months ended June 30, 2020.

Cash ~~Used in~~Provided by Financing Activities

Net cash provided by financing activities was ~~$111.1~~$98.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~net~~$119.6 million for the six months ended June 30, 2019. The decrease in cash ~~used in~~provided by financing activities of ~~$54.9 million for the nine months ended September 30, 2018. The increase of $166.0~~$21.6 million is primarily attributable to a $93.5 million decrease of net borrowings under our senior secured revolving credit facility, $40.0 million payment related to the Hamlet Drop-Down, offset by an increase inof net proceeds from common unit issuances ~~net,~~ of ~~$96.6 million and an increase of $103.2 million in proceeds from debt issuance, net of principal payments on debt and finance lease obligations, partially offset by the $24.3 million Second Payment.~~$103.0 million.

Off-Balance Sheet Arrangements

As of ~~September~~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 ~~2018~~2019 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, ~~2018~~2019 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 ~~September~~June 30, ~~2019,~~2020, we had notional amounts of ~~38.1~~40.4 million GBP ~~and 7.3 million EUR~~ under foreign currency forward contracts and ~~43.4~~42.2 million GBP and ~~1.7~~2.5 million EUR under foreign currency ~~purchased options~~swap 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.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)‑15(e) and 15(d)‑15(e) under the Securities Exchange Act of 1934, as amended) was carried out under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of our General Partner. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of our General Partner concluded that the design and operation of these disclosure controls and procedures were effective as of ~~September~~June 30, ~~2019.~~2020.

Changes in Internal Control Over Financial Reporting

During the quarter ended ~~September~~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.

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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 respect~~In addition to the risk factors ~~disclosed~~and 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.~~2019, and the risk factors included in our Current Report on Form 8-K filed on June 19, 2020, any of which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Our business and operations, and the operations of our customers, may be adversely affected by the outbreak of the novel coronavirus (“COVID-19”) pandemic.

~~Item 5. Other Information~~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.

~~Revised Code~~We source our wood fiber from, and operate wood pellet plants and terminals in the Mid-Atlantic and Gulf Coast regions of ~~Business Conduct~~the United States. On March 13, 2020, the United States declared the COVID-19 pandemic a national emergency, and ~~Ethics~~

~~On October 30, 2019,~~several states and municipalities, including states in ~~accordance with its annual review of existing charters and policies, the Board adopted a revised Code of Business Conduct and Ethics (“Revised Code”).~~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 ~~non-substantive changes,~~handling, transportation, and other services, whether necessitated for the ~~Revised Code includes~~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 ~~following changes:~~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.

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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 ~~coverage~~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 ~~Revised Code was expanded~~spread of COVID-19, the actions undertaken by government authorities and health officials to ~~include directors, officers~~contain the virus or mitigate its impact and the actions undertaken by our management and employees as well as those of ~~entities~~our customers and other ~~than Enviva Management Company, LLC that conduct~~ business ~~on behalf~~partners. Although it is not possible at this time to estimate the scope and severity of the ~~Partnership;~~

impact that COVID-19 could have on our business, the provisions relating to compliance with anti-corruption laws and to questionable or improper payments and gifts were revised to conform the concepts with those contained in the Partnership Group’s (as defined in the Revised Code) existing Anti-Corruption Policy and

the provisions relating to work conduct, non-discrimination and anti-harassment policies were revised to further clarify the discriminatory conduct and harassment that is prohibited under the Revised Codecontinued spread of COVID-19, and the ~~confidential treatment~~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 ~~anti-retaliatory measures associated with, a complaint or investigation under the Revised Code.~~

cash flows and our ability to make distributions to unitholders.

~~The Revised Code is available on the “Investor Relations” page of the Partnership’s website at https://www.envivapartners.com/corporate-governance/documents.~~

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.

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Exhibit Index



Exhibit Number	Description

2.1	Contribution Agreement by and among Enviva Development Holdings, LLC, Enviva Holdings, LP and Enviva Partners, LP dated March 21, 2019 (Exhibit 2.1, Form ~~10-K~~8-K filed March 25, 2019, File No. 001-037363).
~~3.1~~2.2	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	Membership Interest Membership Interest Purchase and Sale Agreement, dated as of June 18, 2020, by and among Enviva Pellets Waycross Holdings, LLC (as assignee of Enviva Partners, LP), RWE Generation SE (as assignee of innogy SE) and innogy Renewables Beteiligungs GMBH (to be renamed RWE Renewables Beteiligungs GmbH) (Exhibit 2.2, Form 8-K filed June 19, 2020, File No. 001-37363)
3.1	Certificate of Limited Partnership of Enviva Partners, LP (Exhibit 3.1, Form S‑1 Registration Statement filed October 28, 2014, File No. ~~333‑~~333 -199625)
3.2	First Amended and Restated Agreement of Limited Partnership of Enviva Partners, LP, dated May 4, 2015, by Enviva Partners GP, LLC (Exhibit 3.1, Form 8‑8 -K filed May 4, 2015, File No. ~~001‑~~001 -37363)
3.3	Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership of Enviva Partners, LP, effective as of December 18, 2017, by Enviva Partners GP, LLC (Exhibit 3.1, Form 8-K filed December 21, 2017, File No. 001-37363)
31.1*3.4	Amendment No. 2 to the First Amended and Restated Agreement of Limited Partnership of Enviva Partners, LP, effective as of January 1, 2019 (Exhibit 3.4, Form 10-K filed February 27, 2020, File No. 001-37363)
4.1	Registration Rights Agreement, dated as of June 23, 2020, by and among the Partnership and the Investors named therein (Exhibit 4.1, Form 8-K filed June 24, 2020, File No. 001-37363)
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	Form of 6.500% 2026 Notes (included in Exhibit 4.2)
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	Registration Rights Agreement by and between Enviva Partners, LP and John Hancock Life Insurance Company (U.S.A.), dated April 1, 2019 (Exhibit 4.1, Form 10-Q filed August 8, 2019, File No. 001-37363)
10.1	Common Unit Purchase Agreement, dated as of June 18, 2020, by and among Enviva Partners, LP and the Purchasers named on Schedule A therein (Exhibit 10.1, Form 8-K filed June 19, 2020, File No. 001-37363)
10.2	Purchase Agreement, dated as of June 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 June 29, 2020, File No. 001-37363)
10.3	First Amendment and Issuing Bank Designation Agreement by and among the New Issuing Banks party thereto, Enviva Partners, LP and Barclays Bank plc, dated as of July 22, 2020 (Exhibit 10.1, Form 8-K filed July 24, 2020, File No. 001-37363)
10.4*†	Management Services Agreement Fee Waiver, dated July 1, 2020, by and among Enviva Partners, LP, Enviva Partners GP, LLC and the other parties named therein
10.5*†	Make-Whole Agreement, dated July 1, 2020, by and between Enviva Holdings, LP and Enviva, LP
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the ~~Sarbanes‑Oxley~~Sarbanes-Oxley Act of 2002
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the ~~Sarbanes‑Oxley~~Sarbanes-Oxley Act of 2002
32.1**		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the ~~Sarbanes‑Oxley~~Sarbanes-Oxley Act of 2002
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 Document~~and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

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† Management Contract or Compensatory Plan or Arrangement.

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SIGNATURE

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

Date: ~~October 30, 2019~~

August 5, 2020

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)

5744



	Page
CAUTIONARY STATEMENT REGARDING ~~FORWARD‑~~FORWARD ‑LOOKING STATEMENTS				1
GLOSSARY OF TERMS				3
PART I—FINANCIAL INFORMATION				4
Item 1.		Financial Statements (unaudited)	4
		Condensed Consolidated Balance Sheets	4
		Condensed Consolidated Statements of Operations	5
		Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss)	6
		Condensed Consolidated Statements of Changes in Partners’ Capital	7
		Condensed Consolidated Statements of Cash Flows	9
		Notes to Condensed Consolidated Financial Statements	11
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	4225
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	5338
Item 4.		Controls and Procedures	5439
PART II—OTHER INFORMATION				5540
Item 1.		Legal Proceedings	5540
Item 1A.		Risk Factors	5540
~~Item 5.~~		~~Other Information~~	55
Item 6.		Exhibits	5641



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
Finance lease obligations	3
Total liabilities	23,286
Net assets contributed to Partnership	$	121,561



	September 30, 2019		December 31, 2018
Raw materials and work-in-process	$	9,883	$	4,936
Consumable tooling	19,995		17,561
Finished goods	12,471		8,993
Total inventories	$	42,349	$	31,490



	Amount of Gain 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	$	13	Interest expense	$	59



	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	$	1,907	Product sales	$	—	Product sales	$	2,418
Foreign currency exchange purchased option contracts	765		Product sales	—		Product sales	(470		)
Interest rate swap	41		Interest expense	—		Interest expense	67



	September 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Senior notes	$	353,352	$	362,227	$	352,843	$	359,943
Other long-term debt and finance lease obligations	194,727		194,727		79,812		79,812
Total long-term debt and finance lease obligations	$	548,079	$	556,954	$	432,655	$	439,755



	September 30, 2019			December 31, 2018
Senior notes, net of unamortized discount, premium and debt issuance of $1.6 million as of September 30, 2019 and $2.2 million as of December 31, 2018	$	353,352		$	352,843
Senior secured revolving credit facility	185,000			73,000
Other loans	2,008			2,015
Finance leases	7,719			4,797
Total long-term debt and finance lease obligations	548,079			432,655
Less current portion of long-term debt and finance lease obligations	(4,490		)	(2,722		)
Long-term debt and finance lease obligations, excluding current installments	$	543,589		$	429,933



	Three Months Ended September 30, 2019
	Common Units			General Partner		Total
Distributions declared	$	22,416		$	3,107	$	25,523
Earnings less than distributions	(17,275		)	—		(17,275		)
Net income available to partners	$	5,141		$	3,107	$	8,248
Weighted-average units outstanding—basic and diluted	33,457
Net income per limited partner unit—basic and diluted	$	0.15



	Nine Months Ended September 30, 2019
	Common Units			General Partner		Total
Distributions declared	$	66,077		$	8,150	$	74,227
Earnings less than distributions	(79,925		)	—		(79,925		)
Net (loss) income available to partners	$	(13,848	)	$	8,150	$	(5,698	)
Weighted-average units outstanding—basic and diluted	31,230
Net loss per limited partner unit—basic and diluted	$	(0.44	)



	Three Months Ended September 30, 2018
	Common Units			General Partner		Total
Distributions declared	$	16,814		$	1,532	$	18,346
Earnings less than distributions	(4,990		)	—		(4,990		)
Net income available to partners	$	11,824		$	1,532	$	13,356
Weighted-average units outstanding—basic	26,477
Weighted-average units outstanding—diluted	27,478
Net income per limited partner unit—basic	$	0.45
Net income per limited partner unit—diluted	$	0.43



	Nine Months Ended September 30, 2018
	Common Units	Subordinated Units	General Partner
Weighted-average common units outstanding—basic	19,866	6,541	—
Effect of nonvested phantom units	—	—	—
Weighted-average common units outstanding—diluted	19,866	6,541	—



Quarter Ended	Declaration Date	Record Date	Payment Date	Distribution Per Unit		Total Cash Distribution		Total Payment to General Partner for Incentive Distribution Rights
March 31, 2018	May 3, 2018	May 15, 2018	May 29, 2018	$	0.6250	$	16.5	$	1.3
June 30, 2018	August 1, 2018	August 15, 2018	August 29, 2018	$	0.6300	$	16.7	$	1.4
September 30, 2018	October 31, 2018	November 15, 2018	November 29, 2018	$	0.6350	$	16.8	$	1.5
December 31, 2018	January 29, 2019	February 15, 2019	February 28, 2019	$	0.6400	$	17.0	$	1.7
March 31, 2019	May 2, 2019	May 20, 2019	May 29, 2019	$	0.6450	$	21.6	$	2.3
June 30, 2019	July 31, 2019	August 15, 2019	August 29, 2019	$	0.6600	$	22.1	$	2.8
September 30, 2019	October 30, 2019	November 15, 2019	November 29, 2019	$	0.6700	$	22.4	$	3.1



Condensed Consolidated Balance Sheet
September 30, 2019

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	2,046		$	311		$	—		$	2,357
Accounts receivable	49,634			9			—			49,643
Inventories	38,286			4,367			(304		)	42,349
Prepaid expenses and other current assets	3,925			73			—			3,998
Total current assets	93,891			4,760			(304		)	98,347
Property, plant and equipment - in service, net	517,577			166,195			(248		)	683,524
Construction in progress	60,181			743			—			60,924
Total property, plant and equipment, net	577,758			166,938			(248		)	744,448
Operating lease right-of-use assets, net	26,567			6,812			—			33,379
Related-party note receivable	42,989			—			(42,989		)	—
Goodwill	85,615			—			—			85,615
Investment in subsidiaries	118,543			—			(118,543		)	—
Other long-term assets	7,876			—			(550		)	7,326
Total assets	$	953,239		$	178,510		$	(162,634	)	$	969,115
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable	$	18,575		$	2,937		$	—		$	21,512
Related-party payables and accrued liabilities	12,048			(2,929		)	—			9,119
Deferred consideration for drop-downs due to related party	40,000			—			—			40,000
Accrued and other current liabilities	37,618			10,700			—			48,318
Current portion of interest payable	13,209			—			—			13,209
Current portion of long-term debt and finance lease obligations	3,891			599			—			4,490
Total current liabilities	125,341			11,307			—			136,648
Long-term debt and finance lease obligations	542,575			1,014			—			543,589
Related-party long-term debt	—			42,989			(42,989		)	—
Long-term operating lease liabilities	27,683			6,042			—			33,725
Long-term interest payable	1,100			—			—			1,100
Long-term interest related-party payable	—			550			(550		)	—
Other long-term liabilities	2,170			—			—			2,170
Total liabilities	698,869			61,902			(43,539		)	717,232
Total Enviva Partners, LP partners' capital	302,562			116,608			(119,095		)	300,075
Noncontrolling interest	(48,192		)	—			—			(48,192		)
Total partners’ capital	254,370			116,608			(119,095		)	251,883
Total liabilities and partners’ capital	$	953,239		$	178,510		$	(162,634	)	$	969,115



Condensed Consolidated Statement of Operations
For the Three Months Ended September 30, 2019

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Product sales	$	155,188		$	3,935		$	(3,935	)	$	155,188
Other revenue	2,454			—			(237		)	2,217
Net revenue	157,642			3,935			(4,172		)	157,405
Cost of goods sold	118,950			2,674			(3,631		)	117,993
Depreciation and amortization	11,173			1,773			—			12,946
Total cost of goods sold	130,123			4,447			(3,631		)	130,939
Gross margin	27,519			(512		)	(541		)	26,466
General and administrative expenses	1,842			(289		)	(239		)	1,314
Related-party management services agreement fee	4,510			1,976			—			6,486
Total general and administrative expenses	6,352			1,687			(239		)	7,800
Income (loss) from operations	21,167			(2,199		)	(302		)	18,666
Other (expense) income:
Interest expense	(9,864		)	(8		)	—			(9,872		)
Related-party interest expense	—			(300		)	300			—
Other income (expense), net	440			(11		)	(371		)	58
Total other (expense) income, net	(9,424		)	(319		)	(71		)	(9,814		)
Net income (loss)	$	11,743		$	(2,518	)	$	(373	)	$	8,852



Period from October 1, 2019 to December 31, 2019	$	177
Year ending December 31, 2020	906
Year ending December 31, 2021 and thereafter	8,399
Total product sales contracted backlog	$	9,482