Enviva Inc. (EVA) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and welcome to the Enviva Partners, LP First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Kate Walsh, Vice President and Investor Relations. Please go ahead. Kate Walsh: Thank you. Good morning everyone and welcome to the Enviva Partners’ First Quarter 2021 Earnings Call Conference Call. We appreciate your interest in Enviva Partners and thank you for participating today. On this morning’s call, we have John Keppler, Chairman and CEO and Shai Even, Chief Financial Officer. Our agenda will be for John and Shai to discuss our financial results and provide an update on our current business outlook. Then we will open up the phone lines for questions. John Keppler: Thank you, Kate. Good morning everyone and thanks for joining us today. As a nation, we are just coming off a week celebrating sustainability punctuated by the 51st Anniversary of Earth Day. Tomorrow is Arbor Day a worldwide celebration of the importance of trees. And six years ago, this very morning, units of Enviva Partners LP began trading on the New York Stock Exchange that is quite a confluence of events. When we launched the company, few could have imagined the importance, the sustainable biomass business we set out to build, would ultimately have on the global and urgent efforts to fight climate change, by helping countries around the world once and now include the United States, achieve their goals of reducing greenhouse gas emissions. As recent headlines remind us, healthy growing forests remain one of the most critical tools in the fight to mitigate climate change. The markets we helped to create for low value wood are key reason why forests continue to grow. The facts are impressive. As our track and trace data detail, of the thousands of tracks from which we have purchased wood. Just over 30% of the harvested volume went to Enviva, while the remaining almost 70% went to other participants in the forest product sector like sawmills and furniture manufacturers. We make it a contractual condition for landowners to replant following any harvest, where Enviva purchases fiber. USDA forest inventory data will tell you that, in the time since we began operations, we have seen an increase in forest inventory of more than 300 million tons of trees in our own catchment area, and that is after deducting the 21 million tons of wood pellets we have produced, and all of the other forest products produced from this renewable resource during the same time. Shai Even: Thank you, John and good morning everyone. As John mentioned, we reported solid results for the first quarter of 2021. During the quarter, our business benefited from incremental production and sales related to acquisitions and operational improvements executed in 2020. Typically, we experienced higher seasonality during the first quarter of the year, as compared to subsequent quarters is colder in weather winter weather moderately increases cost of procurement and production is outlined. Nonetheless, the partnership achieved financial results substantially in-line with management’s expectations. In terms of net revenue for the first quarter of 2021, we generated $241 million, which represents an increase of close to 18% as compared to $204.5 million for the corresponding quarter of 2020. The significant increase in net revenue is a result of incremental product sales and a $9.9 million increase in other revenue. Included in other revenue for the first quarter of 2021 were $16.5 million in payments to the partnership for adjusting delivered under our take or pay off state contracts, which otherwise would have been included in product sales. Adjusted gross margin per metric ton was $42.73 for the first quarter of 2021, which represents an increase of close to 29% as compared to $33.15 per metric ton for the corresponding period of 2020. The increase in adjusted gross margin per metric ton was primarily attributable to higher pricing due to customer contract rates. Net loss for the first quarter of 2021 was $1.5 million as compared to net income of $7.6 million for the first quarter of 2020. Adjusted net income was $7.4 million for the first quarter of 2021, as compared to adjusted net income of $9.1 million for the corresponding quarter in 2020. John Keppler: Thanks, Shai. The tremendous growth in our business continues to be driven by the commitment and significant progress made by regulators, policy makers, utilities and power generators around the globe to phase out coal, limit the impact of climate change and cut greenhouse gas emissions to achieve net zero by 2050. As you may have seen last week, the EU Commission released its taxonomy, which is the centerpiece of the EU’s sustainable investment strategy, and one of the key mechanisms we used to implement and finance that European green deal. The new taxonomy recognizes bio-energy use for power here alongside other renewables, like wind and solar, as making a substantial contribution to climate change mitigation, underscoring the indispensable role of biomass in the EU energy transition The United Kingdom has long been a leader in using biomass to phase our coal usage and recently published its new industrial de-carbonization strategy, a blueprint for delivering the world’s first low carbon industrial sector. The report makes it clear that, the UK Government foresees an important role for biomass and the de-carbonization of industry, especially when combined with carbon capture and storage. The concept called BECCS is increasingly perceived as one of the most critical tools in the effort to achieve net zero. Since it is one of the only technologies capable of delivering energy with negative greenhouse gas emissions at scale, and available today. Operator: We will now begin the question-and-answer session. Our first question today will come from Pavel Molchanov with Raymond James. Please go ahead. Pavel Molchanov: Thanks for taking the questions. Let me start off by asking about demand in your core market, UK, Denmark, Belgium, all three countries were in lockdown, at least partially for all of Q1. There is some reopening taking place in kind of April, May timeframe. How much did the business closures impact, electricity demand and ultimately usage out of power? John Keppler: Pavel great to hear you and thank you very much for the question. As we have frankly been very, very privileged to report to during the broader pandemic, which unfortunately continues to persist in many parts of the world. We haven’t seen any interruptions in demand. Our customers themselves of course, core base load power and new suppliers in these markets and demand continue to adjust the pace. All of our production capacity is contracted under long-term take or pay obligations, and we continue to be in a position to report that. During the life of the company’s existence all the way back, a little bit over 11-years now. Every single customer is taking every single delivery and we continue to do see that progressing. So very a little observable dislocation in any of our markets due to corona virus pandemic and of course our own operations continue uninterrupted as well. Pavel Molchanov: Maybe I will ask the same question in relation to your brand new marketing Japan, as of just last week, about a quarter of Japan, including Tokyo and Osaka are in lockdown. Do you envision that having any impact on your kind of initial year of sales into the Japanese market? John Keppler: No, not at all. We are very proud to report some of our first vessels under long-term contracts. Getting out of our force and of course very different experience, and we are very, very pleased with what we have been able to deliver a consistent, reliable rate-able deliveries from our Southeast production into Japan, and we don’t expect any of dislocations there either. Pavel Molchanov: Okay. And then lastly, let me touch on your biz dev activities. In the press release, you have highlighted Poland as your focal point for kind of incremental supply contracts in Europe. Why Poland and how quickly perhaps can we expect to see an announcement? John Keppler: Well Pavel thank you and I would add to Poland in terms of the markets that we think are emerging and attractive. Frankly, any of the industrialized and nations of the world that are committed to broad scale reduction in greenhouse gas emissions. And so, naturally as a member of the EU, Poland and being the largest per capita user of coal, very, very important market. The pressure certainly the EU ongoing expectations about net zero by 2050 make the large installed coal fired power plead in Poland, very, very attractive. They have been a biomass user historically. They have made some very important commitments to decarbonisation to migrating not only the large scale coal assets. They do some coal - increasing those rates, but also as you may have heard us talk about in the past, the hundred or so municipal combined heat and power assets that are all coal-fired today really focused on converting those away from coal in favor of biomass. To that market, I would certainly and into the broader EU market, I would certainly add, obviously the continued growth that we see in Japan and Taiwan as well. Taiwan is a similar nation to Japan. Important imports, resources, heavy utilization of coal with few natural decarbonization opportunities and so we are excited about the opportunity to see development in our market as well. Pavel Molchanov: I appreciate that response. Thank you. John Keppler: Thanks Pavel. Operator: Our next question will come from Marshall Carver with Heikkinen Energy Advisors. Please go ahead. Marshall Carver: Yes. Regarding the distribution coverage. You talked about wanting 1.2 times coverage overtime striving for that. You had such a large distribution growth, at least on my model and giving you guidance he had a bit below that, later this year, longer term will go to target. How comfortable are you being below that for any length of time and what is the sort of the flexibility around that? I know you have likely additional drop downs coming down the road. What are your thoughts about that and how should we think about that 1.2 times target overtime? Shai Even: Marshall thank you for the question. I think that is when we are looking at the ones and two times on a forward-looking basis. We discussed like, when we talked about last quarter about earnings, we talked about that we were like over 1.2 times, when we looked at the results for a full year of distributions or empires that kind of a model. And we do expect when we are looking at coverage when and when a bold mega decision distribution, the board is looking at forecast projections for the year. So looking for data on a fully annual basis as John mentioned earlier. That is the same size for this year. And we do expect to like that fits in distributable cash flow for 2022 will cover the submission for 2021 by 1.2 times. Marshall Carver: Alright, thank you. John Keppler: Thank you. Operator: Our next question comes from Elvira Scotto with RBC Capital Markets. Please go ahead. Elvira Scotto: Hi, good morning everyone. So with respect to X, what sort of cost savings can your sponsor achieve by utilizing the existing infrastructure as you noted in the press release, and then in your prepared comments? John Keppler: Elvira thanks for question and always good to hear from you. The facility in anytime we have the opportunity to leverage the assets of a large fully integrated wood product manufacturing facility again, we have a large integrated Woodyard lots of infrastructure, I think we are still trying to figure out exactly how far that runway goes. But we are really pleased about that opportunity and appropriate team did a really fantastic job there. What this will look a lot like is frankly, the success we had early on in our development of the facility, which was built on the infrastructure of a former large sawmill and operation. And so that had a great capital investment profile and we are pretty excited about what we can achieve from the facility in that. And what that does is again, it gives us the opportunity to really consider increasing the initial development size from 750,000 metric tons a year to more than a million a year and it will make it the largest player in the world which certainly can also be brought. Elvira Scotto: That is helpful, thank you. And then as your EBITDA continues to grow maybe this some good back half growth. At what point do you think that Enviva EVA will consider, developing some of its own projects at the EVA level versus at the at the sponsor level? John Keppler: So again, another great question, I think you are starting to see us do some of that today, certainly with the benefit of the successful Northampton and Southampton expansions, we are very, very pleased with capital deployment and the investment multiples that were able to do internally, as well as the multipoint expansions that we are now underway with again, where we expect to invest a total of $50 million for the benefit of about an incremental $20 million in the adjusted EBITDA on a run rate basis. And of course the expansion underway at our Greenwood asset, which is on track and will be complete by the end of this year, too. So, we are trying to be very mindful of the certainly the installation that we have been able to achieve for the partnership from development risk. But when, there are well defined projects with high return multiples, you can count on us continuing to take advantage of those. Elvira Scotto: That is great. That is helpful. And two more questions. One, again, related to the sponsor, I mean, at what point do you think, the sponsor, or EVA address IDRs? And then what is the sponsors kind of longer term plan for EVA? John Keppler: So, great questions. And of course, I can’t speak for the sponsor itself. But it did go through a broad recapitalization last year, where the outstanding membership units of the holdings entity, which had at the time been held within the river zone Carlo, were renewable and alternative energy fund to, all of those outstanding membership interest were acquired by a by a group of investors as we noted in the press release last year, led by Goldman Sachs, and BTG Pactual. And that, of course, is now a single purpose fund continuation vehicle. And so that was done explicitly to continue to fund the long-term growth and realize and help the company ultimately invest in all of the new infrastructure plants and terminal infrastructure that are required to meet the growing base of demand that we spend a bit of time again talking about on our call today. So, the growth profile is quite remarkable. Part of the sponsor of course, also added the green term loan earlier this year, further reducing its cost of capital and enabling long-term investments into the into either of those assets. As you may recall that initial recapitalization last year with a bunting digit vehicle, also included about $300 million in standby equity that remains on call. So, the sponsor continues to be very, very focused and very tightly aligned with creating obviously, fully contracted assets that are ultimately available made available to the partnership for highly accretive acquisitions and drop down transactions. Like we have been successful in undertaking for the six-years since our IPO and we don’t expect that trend to in any way ameliorate. Elvira Scotto: Great, thanks. Very last question, just because it’s in your press release, and you have discussed it and just out of curiosity, with respect to the comments, in the US, given, President Biden’s comments, so what do you see as the, potential opportunity for the EVA in the US? John Keppler: It is a great question Elvira. And what I would say is, I think our perspective on the U.S. market continues to evolve. The U.S. has never been a focus of our core business development activities. What we have seen though is, of course, with the transition to the Biden Administration and one of their first steps, reiterating the Paris climate change accord. That of course provides some important tailwinds and Brian frankly brings the U.S. right back in line with much of the broader, worldwide commitment to reducing greenhouse gas emissions. And one of the most important pieces of that, and what I heard of interest in some of the remarks was, really their focus on carbon capture and sequestration. And so, the ability to think about, biomass energy and carbon capture sequestration that the BECCS concept that we have talked about in our release, as well as, as where people are spending a lot of time around the world, really trying to figure out the best way to do it. Drax or - being two of our customers kind of leading that. To the extent that that continues to be an area of focus in the us, I do think that creates incremental opportunities, anything that would have been in our business plan prior to that. Again, everything we manufacture today, we manufactured right here in the Southeast U.S. and we export it around the world, and we are really proud to be a part of that. Frankly, many of the administrations over the last decade have focused on in terms of leveraging U.S. industries and in U.S. capital to solve the worldwide climate change. We are an important part of that today to the extent that some of that can develop here in the U.S. just a really nice uplifted to everything I will do with a forecast. Elvira Scotto: Great. Thank you. Thanks a lot. John Keppler: Thanks Elvira. Operator: . The next question will come from with Barclays. Please go ahead. Unidentified Analyst: Good morning and congrats on another successful quarter. Just one quick question. In terms of plant expansions and particularly the multi-state expansion with the $50 million investment. I know last quarter, you highlighted how those expansion were going from the way cross acquisition. But just curious, are you seeing any incremental opportunity there to continue that expansion technique across perhaps any of your other plans or in other words, is there any other low-hanging fruit to grab there in terms of plant expansion? John Keppler: Hi. Great to talk to you and absolutely. We are pretty excited about that. We do see follow-on opportunities as we look to complete the multi-plant expansions. The underlying approach that we are taking, we do think that there is opportunities to continue to roll that out to the rest of the fleet. And so, we are kind of just taking in an inappropriate bite sizes. And as we have some of those plans more concretely illustrated so that we can give an appropriate guide, we will absolutely do so. Unidentified Analyst: Great. Thank you. Operator: And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the call back over to John Keppler for any closing remarks. John Keppler: Well, I want to thank everybody for joining us today. Before we close the line, I would be absolutely remiss without formerly extending an offering and a very warm welcome to Kate Walsh, who is what you heard at the beginning of the call, who recently joined us as our VP of Investor Relations. I suspect many of you actually already know her from her career in Midstream and we are pretty lucky to have her. You know, we love talking about this business and that is certainly true for Kate as well, and I would encourage you to add Kate to your contacts, and feel free to reach out to her as questions or comments about our business and our progress come to mind. In the meantime, of course you can count on us and frankly, the entire Enviva team, continuing to work hard every single day to stably, safely and reliably continue to displace coal, grow more trees and fight climate change. We will look forward to talking again soon and thanks for joining us. Stay healthy and have a great day. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.EVA Ratings Summary
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Related Analysis
Enviva is Not a Buy Even After 60% Stock Drop
Enviva Inc (NYSE:EVA) had a rough start to the year with a Q1/23 miss coupled with a guidance reduction and dividend elimination. The company lowered its 2023 adjusted EBITDA guidance to $200-250 million from the $305-$335 million it had affirmed at its investor day on April 3.
Although the stock is down around 61% since the earnings release on May 3, analysts at RBC Capital said they will remain on the sidelines until having more visibility into costs and contracted cash flow and see a material improvement in execution. The analyst cut their price target on the stock to $10 from $32 while reiterating their Sector Perform rating.
Enviva is Not a Buy Even After 60% Stock Drop
Enviva Inc (NYSE:EVA) had a rough start to the year with a Q1/23 miss coupled with a guidance reduction and dividend elimination. The company lowered its 2023 adjusted EBITDA guidance to $200-250 million from the $305-$335 million it had affirmed at its investor day on April 3.
Although the stock is down around 61% since the earnings release on May 3, analysts at RBC Capital said they will remain on the sidelines until having more visibility into costs and contracted cash flow and see a material improvement in execution. The analyst cut their price target on the stock to $10 from $32 while reiterating their Sector Perform rating.
Enviva’s Review Post Q3 Results
Enviva Inc. (NYSE:EVA) recently reported largely in-line Q3/22 results and re-affirmed its 2022 and 2023 adjusted EBITDA guidance. Analysts at RBC Capital provided a review of the company following the results, expecting it to benefit from market dislocations, which they believe should help it achieve its outlook by improving its adjusted gross margin.
The analysts updated their estimates and lowered their price target to $63 from $76 as they incorporate higher financing costs. The Sector Perform rating remained unchanged.
The analysts now forecast 2022/2023 adjusted EBITDA of $240 million/$307 million (vs. prior $240 million/$306 million) and DCF of $162 million/$203 million (vs. prior $167 million/$212 million). The analysts introduced their 2024 adjusted EBITDA and DCF estimates of $400 million and $282 million, respectively.
Enviva Downgraded to Sector Perform From Outperform at RBC Capital
RBC Capital downgraded Enviva Inc. (NYSE:EVA) to sector perform from outperform, lowering their price target to $76 from $80.
While the analysts still believe in the longer-term growth potential for the company, they mentioned that the near-term headwinds, specifically around costs, are likely to cap any meaningful share price upside.
According to the analysts, in a normal inflationary environment the company’s cost escalators could more than cover its cost increases. However, in the current inflationary environment with PPI running at approximately 10%, the analysts have less visibility on cost recovery.
The analysts lowered their H2/22 adjusted EBITDA estimates to the low end of the company’s guidance given the potential for elevated costs and shipment delays in Q4. The analysts expect 2022/2023 full-year adjusted EBITDA to be $230 million/$300 million.
Enviva Downgraded to Sector Perform From Outperform at RBC Capital
RBC Capital downgraded Enviva Inc. (NYSE:EVA) to sector perform from outperform, lowering their price target to $76 from $80.
While the analysts still believe in the longer-term growth potential for the company, they mentioned that the near-term headwinds, specifically around costs, are likely to cap any meaningful share price upside.
According to the analysts, in a normal inflationary environment the company’s cost escalators could more than cover its cost increases. However, in the current inflationary environment with PPI running at approximately 10%, the analysts have less visibility on cost recovery.
The analysts lowered their H2/22 adjusted EBITDA estimates to the low end of the company’s guidance given the potential for elevated costs and shipment delays in Q4. The analysts expect 2022/2023 full-year adjusted EBITDA to be $230 million/$300 million.
