Enviva Reaffirms 2022 Guidance and Provides Update

Source: www.gulfoilandgas.com 6/21/2022, Location: North America

Enviva Inc. provided a business update in advance of planned investor meetings that included the reaffirmation of full-year 2022 financial guidance, preliminary expectations for second-quarter 2022 adjusted EBITDA, and the announcement of a new European contract.

• Reaffirming full-year 2022 financial guidance, including net income (loss) of $30 million net loss to $10 million net income, and adjusted EBITDA of $230 million to $270 million. Full-year 2022 adjusted EBITDA is forecasted to increase by approximately 10% as compared to 2021, using the midpoint of the guidance range. Full-year 2022 dividend expectations of $3.62 per share remain unchanged, representing a 10% increase as compared to 2021
• Expecting second-quarter 2022 sales volumes to increase approximately 20% over first-quarter 2022 actuals, as short-term supply chain issues continue to resolve
• Announcing the signing of a 60,000 metric ton per year (“MTPY”), 12-year, take-or-pay off-take contract with an existing customer, a large European utility, for industrial heat generation, with deliveries expected to commence during 2026
• Announcing the start of construction of Enviva’s fully contracted wood pellet production plant in Epes, Alabama; when fully ramped, the plant is expected to generate approximately $65 million in annual adjusted EBITDA, resulting in an expected investment multiple of approximately 5 times; exploring debt financing options for the Epes plant, including tax-exempt bond programs

“Given the operational and supply chain improvements we have achieved thus far in the second quarter of 2022, we expect to deliver full-year 2022 annual adjusted EBITDA in line with our previously announced guidance of $230 million to $270 million, and are forecasting approximately $35 million to $40 million in adjusted EBITDA for the second quarter of 2022, consistent with the preview we provided during our last earnings call,” said John Keppler, Chairman and Chief Executive Officer. “We continue to expect the second half of 2022 to drive two-thirds of full-year 2022 adjusted EBITDA, as the third and fourth quarters of this year are expected to significantly benefit from both the continued production ramp at our Lucedale, Mississippi plant, and the higher production throughput we traditionally experience in our seasonally stronger back half.”

“Continued global commitments to the energy transition combined with the current geopolitical backdrop are creating a highly constructive pricing environment for near-term deliveries and long-term contracts at favorable headline pricing levels not previously seen. Our sales and marketing teams in Europe, Japan, and the United States are making great progress toward executing new long-term agreements and converting previously announced memorandums of understanding to binding take-or-pay off-take contracts. Given the continuing structural shortage in wood pellet supply that remains in our industry, where long-term demand continues to outstrip supply capacity, there has never been a better time to be in this business and we are excited to be positioned for highly accretive, durable growth.”

Financial Update
As described in Enviva’s most recent earnings release, Enviva continues to expect reported financial results with respect to the second quarter of 2022 to be similar to reported results for the first quarter of 2022, as the company exited its seasonally soft period and is capitalizing on the substantially increased plant availability driven by the reduction of COVID-related absenteeism and improving performance by our logistics providers. Additionally, the production ramp for Enviva’s newest wood pellet production plant in Lucedale, Mississippi continues to increase in line with expectations, and we have begun shipping from Enviva’s new deep-water marine terminal in Pascagoula, Mississippi. Although diesel costs remain elevated across the southeastern United States, we have mitigated the impact by reducing our procurement radius and thus the freight costs associated with transporting the fiber we source from the forests to our plant locations.

Finally, we have been able to help address dislocations in our customers’ and other producers’ supply chains, rescheduling certain contracted deliveries into future periods, enabling prompt deliveries to other customers requiring incremental deliveries at elevated spot pricing. Recent biomass spot market prices, as well as the forward curve pricing of certain European indices, have exceeded $300 per metric ton (“MT”), representing a substantial premium to the current long-term contracted pricing of roughly $200 to $220 per MT across Enviva’s weighted average portfolio, and we have been able to capture some of that differential during the second quarter of 2022.

As a result, adjusted gross margin per metric ton (“AGM/MT”) for the second quarter of 2022 is projected to be in line with reported results for the first quarter of 2022, as the full benefit of (i) cost improvements, (ii) improved pricing, and (iii) increased sales volumes (currently estimated to be approximately 20% better than the first quarter) will be offset somewhat by the higher-cost inventory carried from first-quarter 2022.

2022 Guidance Outlook
Given financial projections for the second quarter of 2022 and the favorable trends and expectations for the balance of the year, Enviva reaffirmed full-year 2022 financial guidance.

For full-year 2022, adjusted EBITDA is projected to increase by approximately 10% as compared to 2021 (using the midpoint of the 2022 guidance range), and dividend expectations of $3.62 per share also represent an increase of approximately 10% over 2021.

Looking forward into 2023, we expect pricing strength and increased sales volumes to drive significant growth over 2022. Based on information available today regarding contracted volumes, pricing, and our cost tower, adjusted EBITDA for 2023 is projected to range from $305 million to $335 million, representing approximately a 28% increase over expectations for 2022, based on the midpoints of the guidance ranges. Additionally, AGM/MT is projected to be approximately $50 per MT for 2023, a notable increase from the $47.21 AGM/MT achieved in 2021. Please refer to the exhibit at the end of this press release for further information.

Total capital expenditures for 2022 continue to be estimated in the range of $255 million to $275 million, but given the current strong contracting momentum driven by global decarbonization and energy security needs, the timing of construction of our next greenfield plant in Bond, Mississippi could be accelerated, which would lead to incremental growth capital expenditures during fiscal 2022.

Enviva expects to commence construction of its fully contracted wood pellet production plant in Epes, Alabama in early July 2022. As part of the debt financing options we are pursuing, the Industrial Development Authority of Sumter County, the county in which our Epes plant will be constructed, recently posted a notice proposing the issuance of tax-exempt bonds to fund construction of the Epes plant. If successful, the Industrial Development Authority of Sumter County would issue tax-exempt bonds on behalf of Enviva and lend the proceeds to Enviva to construct the plant. Enviva also expects to finalize an approximately $42 million new markets tax credit loan this week.

“Enviva remains focused on optimizing its capital structure under conservative financial policies and the alternatives under consideration, like the tax-exempt bond financing through the Industrial Development Authority of Sumter County, reflect a positive step forward in our efforts to reduce our cost of capital and better match credit tenor with the nature of our long-term contracted assets,” said Shai Even, Chief Financial Officer. “We believe the attractive financing terms and tenor that may be available in the tax-exempt market represent a creative, low-cost, and replicable alternative for Enviva.”

From an equity capital markets perspective, at the end of June 2022, Enviva will have traded as a corporation for six months. A key part of the strategic and financial rationale of converting to a corporation was to expand Enviva’s investor base, including passive ownership. During the first quarter of 2022, Enviva was included in several indices, and on June 24, 2022, Enviva will be included in the Russell 3000 Index, and is expected to be added to the Russell 1000 Index as well. Once included, Enviva’s passive ownership is expected to approach 10% of the company’s publicly traded share float, notable progress from less than 1% at the beginning of 2022.

Contracting and Market Update
Today, Enviva announced the signing of a new 12-year, take-or-pay off-take contract with an existing European customer to provide wood pellets to be used for industrial heat generation. Deliveries are expected to commence in 2026, with Enviva supplying 60,000 MTPY, subject to certain conditions precedent.

In addition, we are progressing site selection alternatives and binding supply contracts with our U.S.-based sustainable aviation fuel (“SAF”) partner, and we expect to be in a position to announce the contract’s first phase of development by the fourth quarter of this year.

Negotiations on our recently announced memorandums of understanding (“MOU”) in Europe are also continuing to progress smoothly. Over the next three to six months, we expect to convert several of these MOUs into more than 2 million MTPY of new, binding, long-term take-or-pay off-take contracts principally supplying industrial sectors (e.g., sugar, lime, and SAF) and heat markets around the globe. Many of these contracts are being prepared for final execution and are expected to start deliveries as early as 2023, ramping to peak delivered volumes by late 2025 or early 2026. On average, these contracts are expected to have durations between 10 and more than 15 years and contemplate deliveries to jurisdictions including the Netherlands and Germany.

Regulatory Update
The current geopolitical crisis, high and volatile fossil fuel prices, and the continued urgency to deliver on climate mitigation all underscore the importance of addressing each attribute of the energy trilemma – decarbonization, affordability, and security of supply. European Union policymakers have long recognized that sustainable biomass is a renewable, competitively priced, baseload dispatchable heat and power source, and offers such an effective solution to each of these challenges, that bioenergy now accounts for more than 60% of renewable energy in Europe. As European Commission President Ursula von der Leyen recently stated, “…every single kilowatt-hour we get from solar, wind, biomass – you name it – hydrogen, is a kilowatt-hour with which we will be reducing our dependency on Russian fossil fuels.”

Under the Green Deal, the EU has committed to further increase and accelerate climate targets and is updating over 15 climate and energy laws, including reviewing its criteria for sustainable biomass. The broader lawmaking process continues as the EU is still in its promulgation and implementation phases of the increased biomass utilization targets and criteria passed in Renewable Energy Directive II (“RED II”) and has now begun to take up the process for Renewable Energy Directive III.

Like all EU policymaking, this is a lengthy and contentious process involving the three main institutions (the EU Parliament, the EU Commission, and the EU Council). Leading academic, scientific, and policymaking support continues to reinforce the EU’s long-standing conclusions about the positive climate benefits of greater biomass utilization, including in the UN IPCC’s recent Sixth Assessment Report where Dr. Gert-Jan Nabuurs, Coordinating Lead Author of the report, notes, “The fact that the use of woody biomass under the right conditions leads to less net CO2 emissions than combustion of coal or gas is virtually undisputed within science…” As a result, the EU Council is expected to agree on its position soon (where almost a dozen EU member states have made a public declaration that no change to RED II would be acceptable) and the EU Parliament is expected to vote in the fall, after which, negotiations will begin to reach a common position that then becomes law, in a process that is anticipated to conclude in the first half of 2023. Given the ranges of currently proposed legislation, a compromise update to biomass sustainability criteria is expected to remain consistent with current policy in order to reach the EU’s stated objectives of net zero by 2050. As Frans Timmermans, the EU Commission’s Executive Vice President for the Green Deal, succinctly stated recently, “without biomass, we’re not going to make it.”

Executive Leadership Update
The company recently announced the promotion of Enviva co-founder and Chief Commercial Officer, Thomas Meth, to President, recognizing the increased role and responsibility for the day-to-day management of the company Mr. Meth has assumed over the last several years, in addition to the tremendous commercial success, market development, and long-term contracted growth he has engineered for the company.

“As a visionary and seasoned executive, Thomas has earned the deep respect of our employees, partners, and other stakeholders around the globe,” said Keppler. “When Thomas and I co-founded Enviva almost two decades ago, we each had the same combination of strategic vision for profitably solving climate change and a laser focus on execution. It continues to be a privilege to lead Enviva with Thomas and I am very excited to formalize his increased responsibilities in leading the high-performing company we are today, as we work to create and unlock enormous shareholder value by executing the business plan outlined in connection with our recent Simplification and Corporate Conversion Transactions.”

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