Enviva Partners has reported financial and operating results for the first quarter of 2020.
“Despite the COVID-19 pandemic and in what is typically our most seasonally challenging quarter, we reported strong first quarter 2020 results representing a significant improvement over the first quarter of 2019,” said John Keppler, chairman and chief executive officer of Enviva. “Thanks to the hard work as well as good, safe decisions and work practices of our teams, our operations continue largely unaffected. While uncertainty remains in the COVID-19 environment, we believe we are well-positioned to continue to maintain stable, growing cash flows that enable us to increase distributions sustainably over time.”
- For the first quarter of 2020, the Partnership reported net income of $7.6 million and adjusted net income of $9.1 million, as compared to net loss of $8.9 million and adjusted net loss of $8.1 million for the first quarter of 2019
- For the first quarter of 2020, the Partnership reported adjusted EBITDA of $29.2 million, an increase of 35.0 per cent from adjusted EBITDA of $21.6 million for the first quarter of 2019
- The Partnership declared a quarterly distribution of $0.68 per unit, its nineteenth consecutive quarterly increase
- The Partnership increased net income guidance and reaffirmed adjusted EBITDA, distributable cash flow, and distribution per unit guidance for full-year 2020
- The Partnership continues to report that its operational and financial results have not been materially impacted by COVID-19
First quarter financial results
For the first quarter of 2020, the Partnership generated net revenue of $204.5 million, an increase of 29.1 per cent, or $46.1 million, from the corresponding quarter of 2019. Net revenue included product sales of $197.9 million on 1,004,000 metric tons of wood pellets sold during the first quarter of 2020, as compared to $156.6 million on 843,000 metric tons of wood pellets sold during the corresponding quarter of 2019. The $41.3 million increase in product sales was primarily attributable to a 19.1 per cent increase in sales volumes. Other revenue was $6.6 million for the first quarter of 2020, as compared to $1.8 million for the corresponding quarter of 2019.
For the first quarter of 2020, Enviva generated gross margin of $27.3 million, as compared to $9.9 million for the corresponding period in 2019, an increase of approximately $17.4 million. Adjusted gross margin was $33.3 million for the first quarter of 2020, as compared to $27.6 million for the first quarter of 2019. Adjusted gross margin per metric ton was $33.15 for the first quarter of 2020, as compared to adjusted gross margin per metric ton of $32.73 for the first quarter of 2019. The increase in adjusted gross margin per metric ton was principally due to greater fixed cost absorption resulting in lower average costs per metric ton due to the Partnership’s higher sales volumes.
For the first quarter of 2020, net income was $7.6 million, as compared to net loss of $8.9 million for the first quarter of 2019. Adjusted net income, which excludes the full financial impact of the Chesapeake Incident and the Hurricane Events and includes the impact of certain non-cash waivers of fees for management services provided to us by our sponsor (the MSA Fee Waivers), was $9.1 million for the first quarter of 2020, as compared to adjusted net loss of $8.1 million for the first quarter of 2019. Adjusted EBITDA for the first quarter of 2020 was $29.2 million, as compared to $21.6 million for the corresponding quarter of 2019. The increase was primarily due to higher sales volumes. Distributable cash flow, prior to any distributions attributable to incentive distribution rights paid to our general partner, was $18.6 million for the first quarter of 2020, as compared to $11.8 million for the corresponding quarter of 2019.
As of March 31, 2020, the Partnership had $5.3 million of cash on hand and $70.0 million of borrowings outstanding under its $350.0 million senior secured revolving credit facility.
Outlook and guidance
The Partnership now expects full-year 2020 net income to be in the range of $52.2 million to $62.2 million, and continues to expect adjusted EBITDA to be in the range of $165.0 million to $175.0 million, and distributable cash flow to be in the range of $119.0 million to $129.0 million, prior to any distributions attributable to incentive distribution rights paid to Enviva’s general partner.
The guidance provided above do not include the impact of any acquisitions by the Partnership from its sponsor, the sponsor’s development joint venture (the Sponsor JV), or third parties. The Partnership’s quarterly income and cash flow are subject to seasonality and the mix of customer shipments made, which vary from period to period. Similar to previous years, the Partnership expects net income, adjusted EBITDA, and distributable cash flow for the second half of 2020 to be significantly higher than for the first half of the year.
“Our confidence in our full-year guidance is driven by the resilience of our business, even in the broader COVID-19 environment, and the expectation that the remainder of 2020 will have a similar profile as previous years, where the results for the back half of the year will be a significant step up from the first half,” said Shai Even, chief financial officer of Enviva. “Given our strong liquidity position and contracted, durable, and growing cash flows, we believe we will be able to maintain our conservative financial policies and a balanced capital structure.
As Enviva described in its special letter to stakeholders on March 30, 2020, the company’s No. 1 priority is to ensure the health and well-being of its employees, their families, and the communities that surround them. As Enviva became aware of the potential impacts from the outbreak of a novel strain of coronavirus (COVID-19), the company put in place enhanced plans, procedures, and measures to mitigate the risk of exposure and to make the work environment as safe as possible for continued operations. Following the guidance provided by the Centers for Disease Control and Prevention (CDC), for Enviva’s office locations the company has implemented staggered work schedules and teleworking to the greatest degree feasible, while for others Enviva is restricting access and limiting personnel in certain places. At every site, Enviva is undertaking the cleaning and social distancing protocols that public health experts indicate will mitigate the spread of the disease. Enviva is also exercising extra caution by working to identify and help care for colleagues, vendors, contractors, and members of the community who demonstrate symptoms of any sort to ensure they are healthy and safe before coming into Enviva’s workplaces.
Together with Enviva’s sponsor, the company operates a portfolio of eight wood pellet production plants geographically dispersed in areas with low population density across the Southeast U.S. Enviva exports its product under take-or-pay off-take contracts through a portfolio of four bulk terminals and transport it to customers under long-term, fixed-price shipping contracts with multiple shipping partners. Enviva’s business supplies essential fuel to customers for baseload heat and power generation, which is critical in the fight against COVID-19. Most of Enviva’s current deliveries are to Europe, where they fuel grid-critical baseload, dispatchable generation facilities that provide power and heat required for local communities. There are few substitutes or alternatives to the fuel Enviva supplies to its customers. In the United States, government-issued guidance identifies biomass as one of the industries essential to continued critical infrastructure viability, and this guidance has been followed by states where Enviva’s plants and terminals are located, meaning that Enviva’s operations remain largely unaffected by the governmental actions taken in response to COVID-19. Although the Partnership’s operational and financial results have not been materially impacted by the COVID-19 pandemic, the full implications of the novel coronavirus are not yet known. If needed, Enviva has contingency and business continuity plans in place that the company believes would mitigate the impact of potential business disruptions.