Enviva Reports 4Q and Full-Year 2022 Results, Provides 2023 Guidance, and Announces New Customer Agreements
BETHESDA, Md.–(BUSINESS WIRE)–Enviva Inc. (NYSE: EVA) (“Enviva,” the “Company,” “we,” “us,” or “our”) today released financial and operating results for fourth-quarter and full-year 2022, provided financial guidance for 2023, and announced three new take-or-pay contracts with industrial customers.
Key Takeaways:
- Delivered record volumes of approximately 1.5 million metric tons during fourth-quarter 2022 at higher-than-expected average sale prices; volumes delivered were 35% higher for fourth-quarter 2022 compared to third-quarter 2022
- Announced three new industrial contracts which reflect the favorable pricing environment:
- 10 to 15-year take-or-pay off-take contract signed with new European industrial customer converting from coal to wood pellet usage; deliveries to ramp to up to 500,000 metric tons per year (“MTPY”), with initial deliveries expected to commence in 2024
- 10-year take-or-pay off-take contract signed with new European industrial customer converting from coal to wood pellet usage; deliveries of 60,000 MTPY expected to commence in 2025
- 10-year take-or-pay off-take contract signed with existing global customer related to production in the U.S. of biofuels for blending into sustainable aviation fuel (“SAF”) and other renewable fuels; deliveries of approximately 60,000 MTPY expected to commence in 2025
- Reported certain accretive sales transactions in fourth-quarter 2022 which required different accounting treatment as compared to our guidance assumptions, resulting in a deferral of gross margin (the “Deferred Gross Margin Transactions”); cash has been collected in full for these transactions
- Entered 2023 with substantial liquidity, with available funds to support capital expenditures and operations of approximately $384 million
- Reaffirmed 2023 adjusted EBITDA preliminary outlook disclosed during 2022, and provided 2023 dividend guidance of $3.62 per common share, consistent with 2022 payout
“2022 was a transitional year for Enviva, as we executed a major change in our corporate structure by evolving from a master limited partnership to a corporation. At the same time, Enviva was exposed to the tough macroeconomic backdrop impacting industries globally, requiring us to navigate severe supply chain disruptions, Covid and labor-related challenges, and inflationary pressures in our cost tower. Despite these headwinds, we achieved record setting production and delivery levels, exceeded our sales price per ton sold expectations, and generated significant cash, especially in the fourth quarter, which sets the stage for solid growth in 2023 and beyond,” said Thomas Meth, President and Chief Executive Officer.
Meth continued, “As we look forward, we see an immense growth opportunity for Enviva. In addition to the nine new long-term agreements we announced during 2022, I am very pleased to announce three new industrial, take-or-pay off-take contracts today. While our growth is underpinned by the strength of our $24 billion contracted revenue backlog, and we are making solid progress in converting our more than $50 billion customer pipeline into fully executed contracts, I am most focused on improving operational performance and cost management in our plants and ports. In 2023, we expect to drive increased output from these assets, and together with procured volumes, we aim to sell close to 7 million metric tons at higher prices than we have seen historically, and at a meaningfully lower cost position, achieved by higher plant utilization, a stable and fully staffed workforce, and improved supply chain conditions relative to the challenges of 2022.”
Fourth-Quarter 2022 Financial Results
Enviva reported certain fourth-quarter and full-year 2022 financial results under the application of a U.S. GAAP accounting principle that we have not used historically. That change resulted from the commercial structure of several sales and purchase transactions we entered into with a sizable, existing customer during fourth-quarter 2022. During fourth-quarter 2022, Enviva delivered approximately 450,000 metric tons (“MT”) to this customer under a series of new transactions, including our existing long-term off-take contracts and the newly executed off-take contracts with this customer. This customer is one of Europe’s largest consumers and traders of biomass. We have received cash payments in full for these deliveries and the product has been fully consumed, predominantly by our customer’s power generation facilities in Europe.
This customer is also one of Enviva’s many third-party wood pellet suppliers, from whom Enviva can procure incremental pellet volumes as part of its long-term fulfillment plan. Given that agreements were executed in the latter half of the fourth quarter with this customer included Enviva both selling to and buying from this customer in future periods, for GAAP purposes, Enviva is required to treat the sales transactions executed during fourth-quarter 2022 as a modification of the existing long-term off-take contracts. As a result, we expect to recognize the gross margin from such sales transactions over the duration of the purchase agreement, which runs through 2025, rather than when the sales and deliveries actually occurred, and when the cash was received.
From a financial reporting perspective, this accounting treatment results in net revenue for fourth-quarter 2022 of $239.3 million, a net loss of $77.4 million, and adjusted EBITDA of $18.6 million. For full-year 2022, net revenue was approximately $1.1 billion, with a net loss of $168.4 million and adjusted EBITDA of $155.2 million.
The Deferred Gross Margin Transactions resulted in fourth-quarter 2022 decreases in net revenue of approximately $175.1 million, net income of approximately $94.4 million, gross margin of $79.7 million, and adjusted EBITDA of $88.9 million. Enviva expects the Deferred Gross Margin Transactions to have the opposite effect on gross margin in 2024 and 2025, increasing gross margin over the remaining duration of the purchase agreement with our customer. As such, our current expectation is that approximately half of such increase will be reported in 2024 and half reported in 2025.
The table below outlines reported fourth-quarter 2022 results as compared to management’s expectations, based on Enviva’s 2022 guidance which was reaffirmed on November 2, 2022, as part of Enviva’s third-quarter 2022 earnings materials. The difference between reported results and expectations is primarily driven by the Deferred Gross Margin Transactions.
|
$ millions, unless noted |
4Q22 Expected Range Midpoint (A) |
4Q22 As Reported (B) |
Difference (A-B) |
Deferred Gross Margin Transactions |
|||
|
Net Income (Loss) |
44.0 |
(77.4) |
121.4 |
107.9 |
|||
|
Adjusted EBITDA* |
112.5 |
18.6 |
93.9 |
88.9 |
|||
|
Distributable Cash Flow* |
97.0 |
(1.7) |
98.7 |
88.9 |
|||
|
Adjusted Gross Margin $/metric ton* |
75.00 |
35.32 |
39.68 |
49.69 |
The table below outlines reported fourth-quarter 2022 results as compared to fourth-quarter 2021, on a recast and non-recast basis, and includes the Deferred Gross Margin Transactions which bridge fourth-quarter 2022 results to management’s expectations.
|
$ millions, unless noted |
4Q22 As Reported |
Deferred Gross Margin Transactions |
4Q21 Recast Presentation** |
4Q21 Non-Recast Presentation** |
|||
|
Net Revenue |
239.3 |
175.1 |
276.3 |
276.3 |
|||
|
Gross Margin |
5.6 |
79.7 |
21.2 |
23.6 |
|||
|
Adjusted Gross Margin* |
36.3 |
88.9 |
73.3 |
75.7 |
|||
|
Net (Loss) Income |
(77.4) |
107.9 |
(61.4) |
(34.0) |
|||
|
Adjusted EBITDA* |
18.6 |
88.9 |
55.1 |
68.0 |
|||
|
Distributable Cash Flow* |
(1.7) |
88.9 |
42.8 |
54.9 |
|||
|
Adjusted Gross Margin $/metric ton* |
35.32 |
49.69 |
54.57 |
56.32 |
|
*Adjusted gross margin, adjusted EBITDA, distributable cash flow, and adjusted gross margin per MT are non-GAAP financial measures. For a reconciliation of non-GAAP measures to their most directly comparable GAAP measure please see the Non-GAAP Financial Measures section below |
|
**Please refer to the Non-GAAP Financial Measures section below for a description of recast and non-recast presentations; the recast presentation was required for GAAP purposes due to the simplification transaction announced on October 15, 2021 |
Net revenue for fourth-quarter 2022 was $239.3 million as compared to $276.3 million for fourth-quarter 2021 on a recast and non-recast basis. The decrease of approximately 13% year-over-year was primarily driven by the impact of the Deferred Gross Margin Transactions of approximately $175.0 million, partially offset by an increase in average sales price per ton as a result of annual price escalators in our contracts as well as the elevated pricing environment for biomass. Enviva was able to facilitate solutions for dislocations in our customers’ and other producers’ supply chains during fourth-quarter 2022, which enabled incremental deliveries at elevated spot pricing and elevated margins. Additionally, Enviva delivered approximately 10% more volume to customers during fourth-quarter 2022 compared to fourth-quarter 2021, and 35% more as compared to third-quarter 2022.
Gross margin was $5.6 million for fourth-quarter 2022 as compared to $21.2 million and $23.6 million for fourth-quarter 2021 on a recast and non-recast basis, respectively. The decrease was driven by the impact of the Deferred Gross Margin Transactions of approximately $79.7 million.
Adjusted gross margin was $36.3 million for fourth-quarter 2022 as compared to $73.3 million and $75.7 million for fourth-quarter 2021 on a recast and non-recast basis, respectively. The decrease was driven by the impact of the Deferred Gross Margin Transactions of approximately $88.9 million. As discussed previously, Enviva expects to report approximately half of the deferred gross margin in 2024, and half in 2025.
Adjusted gross margin per MT (“AGM/MT”) for fourth-quarter 2022 was $35.32, as compared to $54.57 and $56.32 for fourth-quarter 2021 on a recast and non-recast basis, respectively. The decrease was driven by the impact of the Deferred Gross Margin Transactions of approximately $49.69 per MT. The AGM/MT allocated to the volumes sold related to the Deferred Gross Margin Transactions is higher than the average AGM/MT for fourth-quarter 2022 primarily due to the following two reasons:
- The inventory cost positions of the shipments were lower than our average cost per ton for fourth-quarter 2022, and
- A portion of the shipments were sold at prices aligned with elevated market prices. During fourth-quarter 2022, Enviva had three separate customers request not to take shipments due to various operational challenges they were experiencing, and Enviva, in turn, had shipments available to sell at a premium compared to deliveries into the originally scheduled contracts, which also had pricing fairly aligned with market prices in December 2022. These are normal opportunities that arise periodically and, in 2022, we were able to take advantage of strong pellet spot pricing conditions.
- The incremental cash collected above the take-or-pay obligation for the shipments sold at elevated market prices was approximately $32 million. Enviva had multiple commercial opportunities available during the fourth quarter which would have enabled similar outcomes, and sales to the existing customer is the path Enviva chose.
Net loss for fourth-quarter 2022 was $77.4 million as compared to $61.4 million and $34.0 million for 2021, on a recast and non-recast basis, respectively.
Adjusted EBITDA for fourth-quarter 2022 was $18.6 million as compared to $55.1 million and $68.0 million for fourth-quarter 2021 on a recast and non-recast basis, respectively. The decrease was driven by the impact of the Deferred Gross Margin Transactions of approximately $88.9 million.
Adjusted EBITDA for fourth-quarter 2022 was slightly muted as a result of extremely cold temperatures experienced by the U.S. Southeast during late December 2022. Enviva’s team prepared in advance to keep employees safe and limit operational disruption. During the multi-day period of once-in-a-decade freezing temperatures, production at several facilities was curtailed for up to a week. The aggregate financial impact to Enviva’s net income (loss) and adjusted EBITDA related to this weather event is estimated to have been approximately $4 million, which was predominantly driven by lost production.
Distributable cash flow (“DCF”) for fourth-quarter 2022 was an outflow of $1.7 million as compared to DCF of $42.8 million and $54.9 million for fourth-quarter 2021 on a recast and non-recast basis, respectively. The decrease year-over-year was driven by the impact of the Deferred Gross Margin Transactions of approximately $88.9 million. Notwithstanding the impact on DCF, all of the cash has been collected with respect to the Deferred Gross Margin Transactions.
Cash flows used in operating activities for fourth-quarter 2022 were $37.2 million. The Deferred Gross Margin Transactions resulted in a $102.3 million decrease in cash flows from operating activities due to the proceeds related to the sale of finished goods being recorded in cash flows from financing activities. Additionally, cash from Support Payments of $9.8 million is included in cash flows from financing activities and not in cash flows from operating activities.
Enviva’s liquidity as of December 31, 2022, which included cash on hand, including cash generally restricted to funding a portion of the costs of the acquisition, construction, equipping, and financing of our Epes, Alabama plant (“Epes”) and Bond, Mississippi plant (“Bond”) and availability under our $570.0 million senior secured credit facility, was $384.1 million.
As of December 31, 2022, Enviva’s total debt was approximately $1.60 billion, and debt net of cash on hand and cash earmarked for the Epes and Bond plants was approximately $1.35 billion. Leverage, as calculated by Enviva’s senior secured credit facility agreement, a calculation that includes material project adjustments and reverses the impact of the Deferred Gross Margin Transactions, was around 4.0 times at December 31, 2022, consistent with our target leverage ratio of 3.5 times to 4.0 times.
“Achieving fourth-quarter and full-year 2022 adjusted EBITDA within our target ranges, prior to the Deferred Gross Margin Transactions, represents an important milestone for us as we exit our first year as a regular-way corporation, and we are now benefiting from the true cash generation power of our operations,” said Shai Even, Chief Financial Officer. “Enviva is a company with a robust backlog of fully contracted long-term revenues and a strong growth profile with a large and growing high-quality customer base around the globe. As we execute our growth strategy, we plan to prioritize leverage and coverage improvements while we complete our transformation into a fully self-funding growth company.”
Full-Year 2022 Financial Results
|
$ millions, unless noted |
2022 As Reported |
Deferred Gross Margin Transactions |
2021 Recast Presentation |
2021 Non-Recast |
|||
|
Net Revenue |
1,094.3 |
175.1 |
1,041.7 |
1,041.7 |
|||
|
Adjusted Gross Margin* |
217.1 |
88.9 |
205.1 |
237.6 |
|||
|
Net Income (Loss) |
(168.4) |
107.9 |
(145.3) |
(33.2) |
|||
|
Adjusted EBITDA* |
155.2 |
88.9 |
116.7 |
226.1 |
|||
|
DCF* |
81.3 |
88.9 |
50.1 |
167.8 |
|||
|
Adjusted Gross Margin $/metric ton* |
46.65 |
13.36 |
40.75 |
47.21 |
|
*Adjusted gross margin, adjusted EBITDA, DCF, and adjusted gross margin per MT are non-GAAP financial measures. For a reconciliation of non-GAAP measures to their most directly comparable GAAP measure please see the Non-GAAP Financial Measures section below |
|
**Please refer to the Non-GAAP Financial Measures section below for a description of recast and non-recast presentations; the recast presentation was required for GAAP purposes due to the simplification transaction announced on October 15, 2021 |
Net revenue for 2022 was $1.094 billion as compared to $1.042 billion for 2021 on both a recast and non-recast basis. Net revenue for 2022 was bolstered by the strong pricing environment during 2022.
Adjusted EBITDA for 2022 was $155.2 million as compared to $116.7 million and $226.1 million for 2021 on a recast and non-recast basis, respectively. Adjusted EBITDA for 2022 was below the midpoint of our guidance range by $94.8 million, with the shortfall primarily driven by the decrease of $88.9 million, resulting from the Deferred Gross Margin Transactions.
DCF for 2022 was $81.3 million as compared to $50.2 million and $167.8 million for 2021 on a recast and non-recast basis, respectively. DCF was below the midpoint of our prior guidance range by $98.7 million. This shortfall was driven by the decrease of $88.9 million, resulting from the Deferred Gross Margin Transactions.
Enviva’s total capital expenditures for 2022 were approximately $217.8 million, which were below the Company’s 2022 total capital expenditures guidance range of $255 million to $265 million (amounts include capitalized interest). The decrease in total capital expenditures was primarily driven by a deferral of investments related to Enviva’s Epes plant construction, as we engaged with a selection of leading engineering, procurement, and construction (“EPC”) firms on the detailed engineering of our standardized, 1.1 million MTPY large plant design. We expect to complete the construction of future plants after Epes on a fixed cost, guaranteed schedule basis with one or more of these EPC construction partners.
2023 Guidance
|
$ millions, unless noted |
2023 Guidance |
|
Net Loss |
(48.0) – (18.0) |
|
Adjusted EBITDA |
305 – 335 |
|
Dividend per Common Share ($/Share) |
3.62 |
|
Total Capital Expenditures |
365 – 415 |
|
1For a reconciliation of forward-looking non-GAAP measures to their most directly comparable GAAP measure, please see the Non-GAAP Financial Measures section below |
Net loss guidance for 2023 is projected to be a range of $48 million to $18 million.
Adjusted EBITDA for 2023 is projected to be within a range of $305 million to $335 million, which reaffirms previously provided preliminary outlook estimates. Similar to prior years, adjusted EBITDA is expected to be weighted towards the second half of the year, with approximately one third earned during the first half of 2023, and two thirds earned in the second half of 2023. Enviva’s quarterly income and cash flow are subject to seasonality and the mix of customer shipments made, which varies from period to period. Our business usually experiences higher seasonality during the first quarter of the year as compared to subsequent quarters, as colder and wetter winter weather modestly increases costs of procurement and production at our plants. We expect this to be the case in 2023. Our 2023 guidance assumes a small number of transactions during first-quarter 2023 could be subject to accounting treatment similar to the Deferred Gross Margin Transactions, which could defer gross margin from first-quarter 2023 to future periods.
Dividend per common share for 2023 is forecasted to be the same as 2022, with $0.905 per share expected to be declared quarterly, for an aggregate annual dividend payout of $3.62 per share.
Enviva forecasts that total capital expenditures (inclusive of capitalized interest) will range from $365 million to $415 million for 2023, with investments in the following projects:
- Greenfield site development and construction projects, ranging from $295 million to $325 million
- Accretive capital-light projects, ranging from $50 million to $70 million
- Maintenance capital for existing asset footprint expected to be approximately $20 million
Total capital expenditures are scheduled to be back-end weighted for 2023.
“Several capacity improvements across our manufacturing facilities, including debottlenecking and process throughput upgrades, were completed during 2022, and we have upcoming capital-light projects, both of which are expected to result in production rates that translate into around 6 million produced tons in 2023. When increased production is combined with our improving supply chain conditions and the constructive contract pricing environment we are in, particularly in Europe, we are projecting substantial cash flow growth for 2023 and beyond,” said Thomas Meth, President and Chief Executive Officer. “Going forward, our capital allocation policy is focused on reinvesting retained cash flows into our business, while maintaining ample liquidity, conservative leverage for companies like ours with long-term contracted cash flows, and preserving a stable dividend that has the opportunity to grow over time. We look forward to further discussing in more detail our growth outlook, our efficiency improvements initiatives, and our financing plans and financial targets at our upcoming Investor Day, on April 3, 2023.”
Revenue Outlook & Commercial Opportunities
We are the largest producer of wood pellets in the world, with an unparalleled logistics footprint and the most diverse customer base in the industry which gives us a platform to generate incremental gross margin beyond the stable and durable cash flow from our long-term, take-or-pay off-take contracts by buying and selling additional volumes profitably around the world. Historically, we have generated additional gross margin by being compensated to help mitigate customer-driven dislocations which cause customers to request a deferral or acceleration of deliveries for various reasons. This is considered normal course business activity and does not change the underlying take-or-pay nature of our contracts.
Given that the market for our product remains in structurally short supply while customer demand continues to accelerate, we monitor dislocations in the marketplace, and are increasingly transacting when pricing dynamics and contract flexibility provide opportunities to generate incremental gross margin. For example, at times when prices for incremental deliveries are elevated, Enviva has the opportunity to reduce a certain percentage of contracted shipments and deliver our produced or purchased product into sales contracts at these higher prices. Conversely, when spot market prices are depressed, Enviva has the opportunity to purchase attractively priced third-party volumes and increase a certain percentage of deliveries into our existing, higher-priced long-term contracts. Additionally, given Enviva’s wide-spanning customer and shipping portfolios, we take advantage of opportunities to deliver cargoes procured regionally more proximate to our customers, generating incremental gross margin by reducing the cost of delivery relative to shipping costs implied in our long-term off-take contracts.
We expect these logistics and commercial services to continue to grow commensurate with our growing backlog of fully contracted sales.
As of January 1, 2023, Enviva’s total weighted-average remaining term of take-or-pay off-take contracts is approximately 14 years, with a total contracted revenue backlog of close to $24 billion. This contracted revenue backlog is complemented by a customer sales pipeline exceeding $50 billion, which includes contracts in various stages of negotiation. Given the quality and size of this backlog and of our current customer sales pipeline, we believe we will be able to support the addition of at least four new fully contracted wood pellet production plants and several highly accretive capital-light projects over the next four years, which would roughly double 2022’s revenue. We expect to construct our new fully contracted wood pellet production plants at an approximately 5 times, or better, adjusted EBITDA project investment multiple.
Contracting and Market Update
Enviva’s customers are renewing existing contracts and signing new contracts in large part due to the urgent need to reduce lifecycle greenhouse gas emissions from their supply chains and products while securing reliable, affordable, renewable feedstocks over the long term.
Contacts
Kate Walsh
Vice President, Investor Relations
