Enviva Inc (EVA) 2015 Q1 法說會逐字稿

Good morning and welcome to the Enviva Partners first-quarter 2015 earnings conference call. All participants will be in listen-only mode. (Operator Instructions)

I would now like to turn the conference over to William Schmidt, EVP and General Counsel. Please go ahead.

Thank you, Chad. Good morning and welcome to the Enviva Partners LP first-quarter 2015 financial results 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 Steve Reeves, Chief Financial Officer. Our agenda will be for John and Steve to make some brief remarks on the first-quarter results released this morning, as well as our current business outlook and then to open the phone line for questions.

A few housekeeping items before we get started. First, please keep in mind that, during the course of our remarks and the subsequent Q&A session, we will be making some forward-looking statements and we will refer to certain non-GAAP measures. Our forward-looking statements or comments about future expectations are subject to a variety of business risks. Information concerning the risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements can be found in our press release that was issued this morning and is posted on the Investor Relations section of our website, www.EnvivaPartners.com, as well as our final IPO prospectus filed with the SEC on April 29, 2015. Reconciliations of non-GAAP measures to GAAP measures also may be found in this morning's press release.

Second, the operating assets that comprise the current Enviva Partners entity were contributed to and subsequent to the end of the first quarter. Accordingly, the financial statements that are attached to our earnings release and will be filed with our Form 10-Q reflect the first-quarter results of operations and financial position of Enviva LP, which is Enviva Partners' predecessor entity.

Also these financial statements exclude our Cottondale plant, which was contributed to Enviva Partners in April 2015, and they include the Southhampton plant, which our predecessor contributed to a joint venture controlled by our sponsor, also in April 2015 and thus is not part of Enviva Partners' current business. These financial statements also do not reflect the credit agreement entered into by Enviva Partners in April 2015, nor the effects of Enviva Partners' IPO.

We have, however, provided supplemental information in our earnings release as to the pro forma results of operations of Enviva Partners or the operating assets that currently comprise the public entity as well as the effects of the IPO and the partnership's entry into the current credit agreement as if such public entity existed for the quarter ended March 31, 2015 and the corresponding period of last year. Our discussion this morning will primarily be focused on those pro forma results.

Now I would like to turn the call back over to John to discuss the business performance.

Thanks, Bill. Again, to reiterate, my comments will refer to the pro forma results of Enviva Partners, LP. We generally sell under long-term take or pay offtake agreements, although incremental production and market dislocations allow for some spot market transactions.

Pro forma revenue for the first quarter of 2015 was $114.3 million, an increase of 9% over the corresponding quarter of 2014. This represented the sale of 583,000 metric tons of pellets or 11% more than the same quarter last year. The decrease in the net price per ton period over period is a reflection of higher bunker fuel and shipping costs, including demurrage, incurred in 2014 than that which we experienced in 2015.

We passed these costs through at the topline of the contract price to our customer. This quarter, we saw a reduction in net price due to the lower bunker fuel pricing environment, which is generally offset by a decrease in shipping costs due to that same lower price bunker fuel component and we benefited from the non-recurrence of specific discharge demurrage attributed to one customer in 2014.

Pro forma adjusted EBITDA improved to $16.1 million for the first quarter of 2015, up from $12.3 million for the corresponding quarter of that prior year, a 31% increase. The improvement in pro forma adjusted EBITDA was the result of higher revenues as well as greater production in the quarter, which resulted in favorable fixed cost absorption. Production at our Cottondale facility especially exceeded expectations.

Pro forma adjusted EBITDA also benefited from the favorable mix of shipping contracts utilized in the quarter. These benefits were partially offset by higher SG&A expenses, primarily as a result of transaction costs associated with the Cottondale acquisition.

Pro forma distributable cash flow improved to $12.5 million for the quarter ended March 31, 2015, compared to $7.4 million in the corresponding quarter of 2014. This improvement was driven by the increase in adjusted EBITDA as well as lower expansion and maintenance capital spending.

Our predecessor was still paying the final costs associated with the construction of the Northampton wood pellet facility in the first quarter of 2014 and completing a series of dust mitigation investments in its Ahoskie facility to standardize the equipment, consistent with our newer plants. Although the Partnership will not pay a distribution on pre-inception pro forma first-quarter performance, the pro forma distributable cash flow of $12.5 million would have exceeded the 1.15 times coverage we are targeting.

Now I would like to turn it back to Steve to discuss liquidity, cash flow and provide guidance for the year.

Thanks, John. As referenced earlier, we closed in April on a $199.5 million credit facility comprised of two charges of term loans totaling $175.4 million that have been fully funded and a $25 million revolving credit facility that is presently undrawn. A portion of the proceeds of the term loan borrowings was used to pay off outstanding indebtedness under our previous credit facility.

In May, we also closed on the initial public offering of 10 million common units as well as the underwriters overallotment option on 1.5 million common units. Net proceeds from these transactions was approximately $215 million, from which we repaid debt associated with the acquisition of Cottondale and made a distribution to our sponsor.

The net effect of these and the other formation transactions, including the contribution to the partnership of the Cottondale asset along with the cash it had generated since its acquisition by our sponsor, was to add $62 million of cash to the ending balance on March 31, 2015 of our predecessor. The cash on hand is available for general partnership purposes, including potential acquisitions.

As you saw in our press release we are providing guidance for the calendar year 2015. Our sales book and production capacity are largely matched for 2015, and production trends and fiber costs continue to be in line with our expectations.

On the pro forma basis described earlier, we project to earn net income in the range of $17 million to $21 million for the fiscal year with associated adjusted EBITDA of between $61 million and $65 million, including the pro forma net income of $5.6 million and adjusted EBITDA of $16.1 million realized in the first quarter.

It should be noted that from quarter to quarter, given the size of our shipments, the timing of shipments can influence the otherwise ratable delivery of our product under our offtake agreements. On the same pro forma basis, we expect maintenance capital expenditures to be between $3 million and $3.5 million and cash interest to be between $9.5 million and $10 million.

Now I would like to turn it back to John to close and wrap up.

Thank you, Steve. In addition to the strong financial and operating performance we saw in the first quarter and the guidance we have provided for the balance of the year, it's important to note that two of our facilities, the Amory and Northampton plants, continue their track record of being OSHA recordable incident free since inception. This is 1,841 and 818 days incident-free, respectively.

Several of our other facilities are approaching significant safety milestones over the coming months. And we are especially encouraged by their commitment to the Enviva standard that every accident is preventable.

But before we open up the line to questions, I would also like to provide a brief update on our Sponsor's assets and activities. As we mentioned earlier, the joint venture controlled by our Sponsor owns and operates a wood pellet production plant in Southampton, Virginia from which we purchase pellets under a fixed-price agreement. Our Sponsor's process of continuous improvement, continues to work on improvements to the plants uptime and supply logistics, and while we have not received formal notice, our Sponsor has indicated an interest in selling the plant and a 500,000 metric ton per year, 10-year offtake agreement in the fourth quarter of 2015.

Additionally, our Sponsor is constructing another 500,000 ton per year wood pellet production plant using its templated design as well as it is constructing a deepwater export terminal in the Wilmington, North Carolina region. Our Sponsor advises that construction remains on target and that it expects the facilities to be operational in the first quarter of 2016.

In closing, I would like to thank all the hard-working Enviva associates that contribute to our success. Together, we are building a great company with durable and growing cash flows.

And with that, Steve and I would be glad to take your questions. Operator, Chad, can you please open up the line for questions?

(Operator Instructions) David Derman, Chesapeake Partners.

Just a handful of questions. You were good about giving us the adjustments to the balance sheet. Could you just confirm pro forma for the IPO where the cash and debit of the Company are at roughly now?

Sure. Well, I think the $62 million -- we don't close -- well, I guess there is a step back. We don't close the books on a daily basis per se. But if you were to add the $62 million to the cash on hand at the end of March, that is a fair representation of the cash available at this point in time.

Okay. Next, there was -- you probably saw it, the Washington Post story that hit not too long ago that had some critique of wood pellets as a biomass source. It would be great if you guys had some thoughts that you would be comfortable sharing on that subject.

Yes, David, absolutely. Again, this is John Keppler. The growth of the industry as a whole has placed us well above the radar screen as the industry has grown and matured over the last couple of years. And as the market leader, I think we should expect healthy scrutiny into our activities.

For those that have gotten to know Enviva, we pride ourselves on being transparent and having hosted our facilities and in the forest, many environmental NGOs, to educate and inform about exactly the types of low-grade wood fiber we procure and the sustainable forestry practices and harvesting best management practices we employ to ensure that our natural resource remains a negative depletion story. What's unfortunate about the article that appeared is that the Post did not check their facts with us, nor did they take the opportunity to visit our sites.

Instead, they relied on a particularly slanted MGO narrative and a flawed model that does not comport to most of the credible peer-reviewed research on a topic that reinforces that our industry, the pellet industry, has a very positive impact on forests and the environment, particularly with the decline of the paper and pulp industry. These are studies and reports from folks like the USDA, North Carolina State University, Duke, and guidance from the US EPA.

The Post also failed to acknowledge the letter sent recently from 100 scientists to the UK Secretary of State for Energy and Climate Change that sets out the key principles, each of which Enviva Partners already complies with, to ensure the long-term benefit of biomass.

I will say that the Post did get one thing right. Carbon calculation is complicated and depends on assumptions and models. And not surprisingly, when you factor in the actual and documented procurement activities undertaken by Enviva, each of which are audited not less than annually by independent third parties, and you use the relevant models of Ofgem, which is the actual regulator in the UK on the topic, we can confirm that Enviva's delivery of wood pellet fuel reduces carbon emissions by approximately 80%.

We've been hampered in our ability to communicate externally on the topic, given the quiet period restrictions. With those behind us, what you can see is that we will begin the process of more strategically engaging, principally with policymakers to build a far more prominent public case, extolling the benefits of what we do.

Great. Look, I think it's terrific that you as a leader will be out there vocally on this, because it's important that the issue be heard fully from both sides. My last question -- it's terrific that you have this visible pipeline of drop downs potentially coming our way. Are there any kind of reference points you might be comfortable sharing anyway, you would tell us we might want to all think about what they could mean financially to the business?

I think we've been fairly consistent in our representations that a typical 500,000 ton plant operated under a contract structure like the ones Enviva does should generate approximately $20 million in EBITDA.

Understood. Great. Well, we look forward to lots of good things to come. Thanks for the time.

Thank you.

Thanks.

James Jampel with HITE.

I was going to ask the same question about the Washington Post and NPR so I think you've answered the question, so thank you.

Lin Shen, HITE.

Hi this is actually Matt Niblack. You have the full cast of characters from our side on today. But you know (multiple speakers) you know, we were paying attention at least. Congratulations again on the IPO process and again first [professional] quarter here. Just wanted to clarify the guidance that you put out in the press release.

So this does not include potential drop-down later this year, right?

That's correct. Yes this is just the steady-state business as it's currently comprised.

Got it. Yes, and I think your share price this morning is partially reacting to a misunderstanding of the guidance versus analyst estimates. What is your thought on the timing of that drop-down? I know you guys are out in the market. Is that like a late third quarter, early fourth quarter? Is that what we should think about?

Yes, I think as John mentioned, I think our Sponsors indicated an interest in selling that or offering that particular facility in the fourth quarter of 2015.

In the fourth quarter, right. And as it pertains to the -- just a little bit more on Washington Post article, is there any real pressure there that you are facing from the US government or -- I guess is there anything material as opposed to some rabble-rousers trying to disparage your name?

No, I think what you hear here is no new news, right? The folks who have been critical of biomass and us, I would put forth that that is a fairly small group within the environmental community that is looking to distinguish itself perhaps against some of their peers. That is not new news.

I think what we see here is folks trying to make a name and, frankly, irrespective of the actual documented facts and the regulatory framework under which we all operate.

Very well, thank you very much and best of luck for a good year here.

Thank you.

Thank you.

(Operator Instructions) There appears to be no further questions at this time, so I'd like to turn the conference back over to Steve Reeves for any closing remarks.

Thanks, Chad. Again, we appreciate your interest in Enviva and management is available to answer questions throughout the day as you may wish. Thanks, again, for your interest.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.