Enviva Inc. announced financial and operating results for fourth-quarter and full-year 2021, reaffirmed 2022 guidance, and announced new customer agreements related to power, heat, and industrial applications.
• Full-year 2021 results were in line with guidance ranges, and both full-year and fourth-quarter 2021 results were in line with management’s expectations. For fourth-quarter 2021, Enviva declared a dividend of $0.860 per share, a 10.3% increase over the fourth quarter of 2020
• Enviva reaffirmed full-year 2022 financial guidance, which includes net income in the range of $42 million to $67 million, adjusted EBITDA in the range of $275 million to $300 million, and distributable cash flow (“DCF”) in the range of $210 million to $235 million, representing expected year-over-year growth in excess of 25% for both adjusted EBITDA and DCF (at the midpoint of ranges). Enviva expects to distribute $3.62 per share for full-year 2022, which represents an increase of approximately 10% over 2021
• Enviva announced the signing of a new 15-year take-or-pay off-take memorandum of understanding (“MOU”) to supply a new European industrial customer seeking to displace lignite coal usage with wood pellets across production facilities in continental Europe and the United Kingdom. Delivered annual volumes are expected to ramp to approximately 600,000 metric tons per year (“MTPY”) by 2030, with initial deliveries starting in 2023
• Enviva also announced the signing of a new 5-year take-or-pay off-take contract with an existing customer, for the delivery of 90,000 metric tons (“MT”) in 2022 and 180,000 MTPY from 2023 through 2026
“We are very proud to report fourth-quarter and full-year 2021 results that place us in line with our expectations and guidance ranges, respectively,” said John Keppler, Chairman and Chief Executive Officer. “This performance caps off a transformative year for us, during which we acquired a new plant and deep-water marine terminal, executed several highly accretive expansion projects, signed our first series of industrial contracts and the largest MOU in Enviva’s history, simplified our corporate structure, and converted to a regular-way corporation. During this past year, we expanded our production capacity by 17% to 6.2 million MTPY and our total contracted backlog by 44% to over $21 billion. We also significantly expanded our investor base, and improved both our financial liquidity and share trading liquidity, all while delivering an impressive total shareholder return of 65%.”
Keppler continued, “But as I am fond of saying, we are just getting started. Our recently announced new customer agreements continue to reinforce just how significant the growth opportunities are ahead for us as we help not only major power generators around the world accelerate the energy transition by displacing coal and other fossil fuels with our renewable substitutes, but also industrial leaders in hard-to-abate sectors with renewable raw material inputs that can lower the lifecycle greenhouse gas emissions of their end products like steel, lime, cement, and sustainable aviation fuel. New agreements with customers like the ones we announced today underpin our ability to invest in new plants like our Lucedale plant, which is now in commissioning, and our Epes plant, which is planned to produce more than 1.1 million metric tons per year and which we expect to be in construction in the first half of 2022. Our fully contracted business model, combined with our conservative financial policies, places us in an excellent position to continue to stably and reliably grow the company in size, scale, and revenue.”
Fourth-Quarter 2021 Financial Results
As a result of the simplification transaction we announced on October 15, 2021, we were required to recast our historical financial results in accordance with GAAP. The below table shows fourth-quarter 2021 and 2020 financial results on a recast basis (the “Recast Presentation”) and non-recast basis (the “Non-Recast Presentation”).
We are providing Non-Recast Presentation results for fourth-quarter and full-year 2021 that combine (i) the actual performance of Enviva through October 14, 2021, the closing date of the GP Buy-In, and (ii) our performance on a consolidated basis, inclusive of the assets and operations acquired as part of the GP Buy-In, from the closing date through December 31, 2021. Under the Recast Presentation, as filed in our Form 10-K, we have recast our results to reflect the acquisition of our former sponsor for the three-year period beginning January 1, 2019, even though the acquisition closed on October 14, 2021. For fourth-quarter 2020, the Non-Recast Presentation reflects the results reported on February 24, 2021, as part of Enviva’s fourth quarter and full-year reporting cycle for 2020 results.
We believe the Non-Recast Presentation provides investors with relevant information to evaluate Enviva’s financial and operating performance because it reflects Enviva’s actual and historically reported performance on a stand-alone basis through the closing date of the GP Buy-In and performance on a consolidated basis from the closing date until year-end. The Non-Recast Presentation does not reflect the recast of our historical results required under GAAP due to the GP Buy-In and accordingly is considered non-GAAP.
• On a recast and non-recast basis, net revenue was relatively unchanged for the fourth quarter of 2021 as compared to the fourth quarter of 2020. During the fourth quarter of 2021, plant level labor-related absenteeism associated with the Omicron variant of COVID-19 lowered plant availability, which reduced produced volumes and dampened sales. Additionally, several of our logistics supply chain partners continued to experience labor-related challenges, which led to curtailed production and higher logistics costs in certain situations. We are expanding the number of logistics suppliers we partner with to ensure the necessary level of service going forward. These Omicron-related impacts did continue to persist into January and the early part of February 2022. We saw operations begin to recover to expected levels during the latter half of February 2022
• Adjusted gross margin on a non-recast basis was $75.7 million for the fourth quarter of 2021, as compared to $72.8 million reported for the fourth quarter of 2020. Adjusted gross margin per metric ton on a non-recast basis was $56.32 for the fourth quarter of 2021, as compared to $54.02 for the fourth quarter of 2020. The increase in both adjusted gross margin and adjusted gross margin per metric ton, on a non-recast basis, was primarily driven by higher pricing due to customer contract mix
• Adjusted EBITDA on a non-recast basis for the fourth quarter of 2021 was $68.0 million, as compared to $69.3 million reported for the fourth quarter of 2020. As a result of the simplification transaction, fourth quarter of 2021 results include selling, general and administrative expenses assumed as part of the GP Buy-In
• DCF on a non-recast basis for the fourth quarter of 2021 was $54.9 million, flat as compared to $54.8 million reported for the fourth quarter of 2020
• Based on the paid dividend of $0.860 per share, Enviva’s dividend coverage ratio on a non-recast, cash basis for the fourth quarter of 2021 was 1.1 times
• Enviva’s liquidity as of December 31, 2021, which included cash on hand and availability under its $570 million revolving credit facility, was $117 million
Full-Year 2021 Financial Results
As discussed above, 2021 and 2020 financial results are presented on a Recast and Non-Recast basis. The Non-Recast Presentation does not reflect the recast of our historical results required under GAAP, due to the GP Buy-In, and accordingly is considered non-GAAP.
• On both a recast and non-recast basis, we generated full-year 2021 net revenue of $1.04 billion as compared to net revenue of $875 million for 2020. The $166.7 million increase in net revenue was primarily attributable to a $168.7 million increase in product sales revenue on sales volumes that were 16% higher year-over-year
• On a non-recast basis, adjusted EBITDA for full-year 2021 was $226.1 million, as compared to $190.3 million for full-year 2020. The increase of $35.2 million, or 19%, was primarily due to the same factors that increased net revenue
• On a non-recast basis, DCF for full-year 2021 was $167.8 million, an increase of $26.2 million, or 19%, as compared to $141.6 million for full-year 2020
Notable Recent Capital Markets Activity
On January 24, 2022, Enviva successfully closed an equity offering to prefund capital expenditures related to development projects as the company accelerates the pace and scale of its organic growth expansions. Enviva raised gross proceeds of $346 million in a primary equity issuance (exclusive of underwriters’ fees and transaction expenses) at $70.00 per share. We used the net proceeds from the offering to repay borrowings under our revolving credit facility.
“We are very pleased with our recent equity offering, which enabled us to both broaden our investor base and increase Enviva’s trading liquidity,” said Shai Even, Executive Vice President and Chief Financial Officer. “We are seeing meaningful interest from global ESG-focused investors, and are looking forward to being included in numerous indices in the coming quarters. Additionally, the equity offering was an important initial step as we look to transition to a self-funding model for growth. Our capital allocation policy is focused on reinvesting retained cash flows into our business, while maintaining conservative leverage, and preserving a stable dividend that has the opportunity to grow over time.”
Enviva remains committed to conservatively managing its balance sheet, and continues to target a leverage ratio between 3.5 and 4.0 times, as calculated under the terms of its revolving credit facility.
On February 3, 2022, we announced that Enviva’s board of directors declared a dividend of $0.860 per share for the fourth quarter of 2021, an increase of 10.3% over the corresponding period in 2020. The quarterly dividend was paid on Friday, February 25, 2022, to shareholders of record as of the close of business on Monday, February 14, 2022.
2022 Guidance Outlook 1
Enviva is forecasting significant growth for 2022 as compared to 2021, including approximately 27% year-over-year growth in adjusted EBITDA and 32% year-over-year growth in DCF. Based on the visibility and durability of our long-term contracted cash flows, Enviva is planning to increase full-year 2022 dividends by 10% as compared to 2021. Enviva forecasts that quarterly dividends for 2022 will be $0.905 per share per quarter, or $3.62 per share for the full year.
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 2022 and, similar to previous years, we expect net income, adjusted EBITDA, and DCF for the second half of 2022 to be significantly higher than for the first half of the year.
Given the quality and size of our current customer sales pipeline, we believe we will be able to support the addition of six new fully contracted wood pellet production plants and several highly accretive expansion projects, which, over approximately the next five years, would roughly double our current production capacity. With the benefit of the capabilities, resources, and activities now housed within Enviva, we expect to construct our new fully contracted wood pellet production plants at an approximately 5x adjusted EBITDA project investment multiple as compared to a historic drop-down acquisition multiple of roughly 7.5x.
Enviva projects that total capital expenditures (inclusive of capitalized interest) will range from $255 million to $275 million for full-year 2022, with investments in the following projects:
• Greenfield site development and construction projects, ranging from $210 million to $220 million
• Highly accretive expansion projects, ranging from $30 million to $35 million
• Maintenance capital for existing asset footprint, ranging from $15 million to $20 million
Total capital expenditures are scheduled to be back-end weighted for 2022, with 60% to 70% of the spend expected to be incurred during the second half of 2022. Based on this level of planned capital investment for 2022, Enviva expects to maintain an annual leverage ratio of below 4.0x, as calculated pursuant to its credit facility.
Contracting and Market Update
Advances continue to be made by regulators, policymakers, utilities, power generators, and difficult-to-decarbonize industries towards achieving net-zero emissions. We believe this progress, combined with favorable legislative and policy recommendations supporting substantial incremental utilization of sustainably sourced biomass, reinforces the growing long-term market opportunity for Enviva’s product around the world.
Today, Enviva announced the signing of an MOU with a new European customer under which Enviva will supply wood pellets to be used in facilities across continental Europe and the United Kingdom as a replacement feedstock for lignite coal in the manufacturing of an industrial product. The take-or-pay terms of the MOU are similar in nature to recent firm off-take contracts signed by Enviva, and include a 15-year tenor. Initial shipments are anticipated to start during 2023, with planned volumes ramping to 600,000 MTPY by 2030. Enviva expects to convert this MOU into a binding contract over the next several months.
Enviva also announced the signing of a new take-or-pay off-take contract with existing customer RWE, a German multinational that is one of Europe’s largest renewable energy companies. The contract with RWE has a tenor of 5 years and is for the delivery of 90,000 MT during 2022, increasing to 180,000 MTPY for 2023 through 2026.
As of February 1, 2022, Enviva’s total weighted-average remaining term of take-or-pay off-take contracts is approximately 14.5 years, with a total contracted revenue backlog of over $21 billion. This contracted revenue backlog is complemented by a customer sales pipeline exceeding $40 billion, which includes contracts in various stages of negotiation. Enviva’s customer sales pipeline includes the new European industrial MOU announced today, along with our first U.S.-based MOU which we announced in January 2022, as well as the previously announced J-Power MOU.
Our customer sales pipeline comprises long-term take-or-pay off-take opportunities in our traditional markets for biomass-fired power and heat generation in geographies ranging from the United Kingdom to the European Union (including emerging opportunities in Germany and Poland), to Asia (including incremental demand in Japan, emerging potential in Taiwan, and maturing opportunities in South Korea), as well as in developing industrial segments across the globe (including steel, cement, lime, chemicals, sustainable aviation fuel, and biodiesel). We are negotiating long-term wood pellet supply contracts with several leading industrial companies in each of these hard-to-abate sectors that are actively and urgently pursing large-scale decarbonization. Over the next 12 months, we expect to progress negotiations and convert several sales pipeline opportunities, including MOUs, into binding contracts.
Asian Market Update
Favorable policy tailwinds in Japan continue to support further growth in this important market for Enviva. The Japanese Ministry of Economy, Trade and Industry (“METI”) is progressing plans to increase the share of renewable power in its energy mix, and in January 2022, METI’s Power and Gas System Design working group (the “Working Group”) met to discuss financial support for decarbonized thermal power investments. Specifically related to further subsidies to incentivize increased biomass consumption, the Working Group is recommending that full coal-to-biomass conversion projects be eligible for the proposed financial support. Biomass co-firing projects are being recommended for eligibility if certain conditions are met, such as having a high biomass co-firing ratio or a firm plan to fully convert to biomass-fired generation by 2050. These potential new subsidies for coal-to-biomass conversions create new incentives for utility and power generators to increase their use of biomass, and complement the profitable opportunities for utilities to consume biomass provided by the existing Feed-in-Tariff for biomass-fired power. These potential new subsidies will assist generators in meeting fleet-wide efficiency standards, and will assist in fulfilling the current METI direction for the share of non-fossil fuels in the country’s total energy generation mix.
European Market Update
The European Union’s Emissions Trading System (“EU-ETS”) continues to demonstrate a durable, constructive market for carbon. The EU’s commitment to ambitious emissions-reduction goals, together with EU-ETS reforms included in the Fit for 55 package, suggest that trend will continue. EU-ETS prices have more than doubled over the last 12 months, with the forward curve steadily above €85/MT, allowing biomass to continue to be significantly more cost effective for energy generation than carbon-intensive feedstocks such as coal and natural gas, even in markets where there are no direct incentives or subsidies for renewable energy generation. Given this attractive economic backdrop for biomass, we have seen increased momentum in re-contracting and fuel-switching decisions.
Germany has made recent strides to advance their decarbonization plans, now that the new coalition government is in place, by outlining a package of reforms intended to bring Germany back on course to meet its climate change targets. The Minister for Energy, Clean Growth and Climate Change has stated that sustainable biomass is part of Germany’s low-carbon future, and highlighted the cross-sectional need for bioenergy, with an emphasis on increasing bioenergy usage in industrial applications. Enviva is engaged in numerous contract discussions with potential German customers, and expects to announce meaningful progress in the coming quarters.
International Energy Agency (“IEA”) Update
The IEA published a special edition of the World Energy Outlook in mid-October 2021, which outlines a Net-Zero Emissions by 2050 Scenario, and charts a proposed roadmap to a 1.5 ºC stabilization in rising temperatures. In laying out a more rapid energy transition plan, the report states that “Modern bioenergy plays a key role in meeting net zero pledges.” To achieve net-zero carbon emissions by 2050, the report calls for coal to be phased out of the global power sector at a more rapid pace and replaced with low-emissions energy sources that complement each other, such as wind, solar, nuclear, hydropower, and bioenergy. The IEA report calls for an aggressive increase in the use of biojet fuel, and assumes biojet fuel consumption will reach 15% and 40% of the total aviation fuel mix in 2030 and 2050, respectively.
On January 13, 2022, Enviva released its second annual Corporate Sustainability Report, which discusses the important progress we have made toward our core commitments of supporting people and forests, and combating climate change. The report can be found in the Sustainability section of our website at envivabiomass.com.
Also in January 2022, Enviva finalized its Green Finance Framework, which outlines our commitment to fund projects that expand renewable energy generation, increase biofuel and sustainable aviation fuel production, and provide a renewable feedstock for hard-to-abate products. On January 19, 2022, we received an independent second party opinion from S&P Global confirming alignment with the Green Bond Principles (GBP) and Green Loan Principles (GLP).
Given increasing commercial momentum, Enviva recently announced its plans to accelerate the pace and scale of its organic growth expansions. Enviva plans to double its production capacity over the next 5 years, from 6.2 million MTPY to approximately 13 million MTPY by building and commissioning two plants at a time (up from the historical rate of one plant per year) and increasing the nameplate production capacity of new plants to approximately 1.1 million MTPY (up roughly 45% from the previous standard of 750,000 MTPY).
At Enviva’s Lucedale, Mississippi plant, which is the first plant in its Pascagoula cluster, wood deliveries have commenced and commissioning is underway. We expect that Lucedale’s production will ramp throughout 2022 and, as volumes build at the Port of Pascagoula terminal, we expect shipments from the completed terminal to commence in the second quarter of 2022. Volumes shipped out of Pascagoula are expected to increase throughout the year as Lucedale’s production ramps to its designed run-rate of 750,000 MTPY of wood pellets by the end of the year. Additionally, in the first half of 2022, we plan to commence construction of the fully contracted 1.1 million MTPY plant in Epes, Alabama, the second plant in the Pascagoula cluster.
Our business model of fully contracting plants before commencing construction remains unchanged. Given the current pace of contracting with new and existing customers, Enviva plans to accelerate the timing of a third wood pellet production plant in its Pascagoula cluster, with construction estimated to commence during 2023. We continue to make progress in our evaluation of a new plant potentially at a site in Bond, Mississippi as our next state-of-the-art manufacturing facility, with a capacity to produce between 750,000 and more than 1 million MTPY of wood pellets, feeding into our newly completed terminal at the Port of Pascagoula. We anticipate making a decision on the site by the middle of this year.
Consistent with prior updates, we expect Enviva’s previously announced “Multi-Plant Expansions” to be completed by year-end 2022.