Enviva Announces First Quarter Setback
Enviva, the world’s largest producer of industrial wood pellets, released its quarterly report in early May, and it rippled through the wood-to-energy ranks.
“The plans and initiatives underway to improve productivity and costs across Enviva’s current asset platform continue to fall behind expectations,” commented John Keppler, Executive Chairman of the board. “While the board of directors remains convinced of management’s ability to deliver the originally forecasted operational and financial performance over time, it is clearly taking longer than expected.”
Keppler said to more conservatively underwrite that plan and ensure the ability of the company to capture the value of the fully contracted growth ahead, and after careful consideration with management, the board of directors has decided to revise Enviva’s capital allocation framework, eliminating the company’s quarterly dividend in order to preserve liquidity and a conservative leverage profile, while maintaining its current growth trajectory, and potentially accelerating future investments in new fully contracted plant and port assets, and implementing a limited share repurchase program.
With the elimination of the dividend, management expects to retain approximately $1 billion in incremental cash flow during the period 2023 to 2026, providing incremental liquidity and investment into the productivity and operational improvements in its current assets and further reduce the need to access the capital markets to fund its current growth plans, which include the construction of the company’s fully contracted wood pellet production facilities in Epes, Ala. and near Bond, Miss.
Under the share repurchase program, the company can repurchase up to $100 million in shares of the company’s common stock opportunistically from time to time in the open market, or in privately negotiated transactions at prevailing market prices.
President and CEO Thomas Meth added, “We recognize this is an important departure from the plan we laid out at our Investor Day a month ago, but a lot has changed since then. Compared to our expectations, while our cost position has trended in the right direction, it has done so at a much slower pace than we had anticipated, in part due to slower volume growth, and in part due to a higher spend profile for the volume growth we did achieve.”
Meth continued, “We know what the specific issues are: Contract labor is too high, discipline around repairs and maintenance spend is insufficient, wood input costs need to come down further and stay there, and utilization rates at specific plants need to improve and stabilize at those improved levels. Because of where we are in our journey to bend our cost curve down while bending our production curve up, we feel it is prudent to take a much more conservative view of what our business can realistically achieve over the next eight months.”
Meth said against this backdrop of operational challenges, Enviva is undergoing an extensive review of where it will allocate its capital. “We believe we have more accretive capital allocation alternatives, which start with improving returns from our existing fleet of assets, growing our fully contracted asset base, managing liquidity and leverage, and also include the potential to opportunistically repurchase our shares in the open market, which we believe have traded below their intrinsic value for some time,” Meth said.
Enviva reported delivered volumes of approximately 1.3 million metric tons during the first quarter, which was 20% higher compared to first-quarter 2022, but short of management’s expectations of approximately 1.5 million MT. Enviva said delivered at port cost per MT declined by $9 throughout first quarter 2023, but remain higher than management’s expectations.
The company reported a net loss of $116.9 million for first quarter, as compared to a net loss of $45.3 million for first quarter 2022, and reported adjusted EBITDA for first quarter 2023 of $3.4 million as compared to $36.6 million for first quarter 2022. Enviva updated certain full-year 2023 guidance metrics, including revising net loss to a range of $186 million to $136 million, and adjusted EBITDA to a range of $200 million to $250 million.
“Although the future continues to be incredibly bright for Enviva’s business, we have had a difficult and disappointing start to 2023,” Meth said. “Operating cost overages and production challenges were key drivers behind the first quarter’s poor performance. While plant production is increasing and we are reducing our operating cost position, neither improvement is materializing at the rate we forecasted a few months ago. Based on results from the first four months of the year, we believe it is prudent to take a more conservative view on the timing of our ability to deliver these improvements.”
Enviva’s liquidity was $634.4 million as of March 31, 2023, which included cash on hand, including cash generally restricted to funding a portion of the costs of the acquisition, construction, equipping and financing of its Epes and Bond facilities, as well as availability under its $570 million senior secured revolving credit facility.
Management is reducing its estimates for full-year produced volumes in 2023 to be approximately 5 million to 5.5 million MT, as compared to a prior forecast of 5.5 million to 6 million MT. Management continues to expect net revenue per ton to be approximately $234 per MT for full-year 2023.
Enviva continues to forecast that total capital expenditures (inclusive of capitalized interest) will range from $365 million to $415 million for 2023.
Meth added, “I am pleased to note that given the strong future contracted growth we have in hand, the pace of our investment continues to be on track, and with the changes we have announced today, we have the opportunity to continue to deliver this growth with lower risk and limited needs to access the capital markets.”
Enviva owns and operates 10 plants with a combined production capacity of approximately 6.2 million metric tons per year in Virginia, North Carolina, South Carolina, Georgia, Florida and Mississippi, and is constructing its 11th plant in Epes, Ala. and is planning to commence construction of its 12th plant, near Bond, Miss.
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