Q4 2020 Enviva Partners LP Earnings Call
Good day and welcome to the in Vivo Partners LP fourth quarter and full year 2020 earnings conference call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Please note. This event is being recorded I would now like to turn the conference over to wish Bob Vice President and Treasurer. Please go ahead.
Thank you good morning, and welcome to the you'd be about partners LP fourth quarter and full year 2020 financial results Conference call. We appreciate your interest in can be about partners and thank you for participating today.
On this morning's call, we have John Keppler, Chairman and CEO on the average Chief Financial Officer.
Our agenda will be for John and Shai to discuss our financial results and provide an update from our current business outlook.
Then we will open up the phone lines for questions.
During the course of our remarks and the subsequent Q&A session.
We will be making some forward looking statements, which are subject to a variety of risks.
Information concerning the risks and uncertainties that could cause our actual results to differ materially from those in our forward looking statements can be found in our earnings release as well as our other filings with the ICC.
We assume no obligation to update any forward looking statements to reflect new auction for the events or circumstances.
In addition to presenting our financial results in accordance with Scott. We will also be discussing adjusted EBITDA and certain other non-GAAP measures pertaining to compete a fiscal periods as well as our forecast.
Information concerning the reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and other relevant disclosures are included in our earnings release.
I will now turn it over to John.
Thank you wish.
Good morning, everyone and thanks for joining us today.
A hallmark of <unk> culture is keeping promises.
At this time last year, we committed to achieving a certain set of operational and financial targets for the partnership.
When we completed two transformative acquisitions in the middle of the year.
We made additional promises and increased our guidance.
As I hope you saw in our earnings release, we kept the promises we've made.
Against the very challenging COVID-19 backdrop that continues to persist we are very proud to report that we had our safest year ever.
We did not miss a single customer delivery.
We increased the fully contracted production capacity of the partnership by more than 30%.
We increased our year over year, adjusted EBITDA by more than 30% and we kept our promise to our unit holders distributing $3 per unit for full year 2020.
Extending our track record of 22 consecutive quarterly distribution increases at a compound annual growth rate of 13% since our IPO and.
<unk> delivered a total unitholder return of 30% in 2020.
We were able to achieve this in the face of broad economic and market volatility in.
In large part because of the fully contracted nature of our business and it's durable sustainable operating profile.
Together generate stable growing cash flows.
Turning to 2021, we're making new promises about what we expect to achieve.
Not just in terms of operating and financial performance, but also to align ourselves with the global communities escalating commitments to limit global warming in order to avoid the most devastating impact from climate change.
As a result, we are proud to join with other leaders and committing ourselves to net zero emissions in our operations by 2030.
By following a measured achievable inefficient plant.
At the same time, we are undertaking to deliver meaningful growth in our adjusted EBITDA in 2021 as.
As we realize the anticipated benefits of the growth initiatives, we undertook over the last few years.
Specifically.
Our guidance for 2021 is an increase of 25% over 2020 at the midpoint of our range of $230 million to $250 million and adjusted EBITDA.
Before accounting for additional Dropdowns or other acquisitions, you have come to consistently expect from us.
We believe the resulting cash flow profile will enable us to distribute at least $3 17.
Per unit for full year 2021.
Again before considering the benefit of additional dropdowns or other acquisitions.
Moreover, I'm very excited about the new expansion projects, we have commenced within the partnership.
Now that we've completed construction at the North Hampton in South Hampton expansion projects.
Turning our attention to targeted opportunities at our Sampson hamlet and cottontail facilities.
We're through innovative projects that are intended to optimize our manufacturing processes eliminate certain costs and expand our production capacity we expect.
To deliver substantial incremental margin.
On the basis of approximately $50 million of investment.
We believe we will generate an additional $20 million in annual run rate adjusted EBITDA. As these projects are completed and fully ramped by the end of 2022.
Looking ahead.
Despite the global pandemic the.
The tailwind for our industry are remarkable.
In the macro context, each member nation of the EU.
For the United Kingdom, Japan, South Korea, and other potential markets across the globe have pledged to become net zero.
The U S itself has recommitted to the Paris agreement.
And one of the most cost effective and immediate ways to Decarbonize continues to be the conversion of existing coal and other fossil fuel fired plants to biomass.
The progress to date has been remarkable and not just in traditional applications.
While customers around the world are recycling existing energy infrastructure and building new bespoke biomass fired assets.
We are also increasingly seeing innovations like biomass energy generation, coupled with carbon capture and sequestration.
One of the few ways in the near term to achieve carbon negative energy at scale.
As well as projects that use biomass energy and combined heat and power applications, which are key to decarbonising the industrial energy sector.
We are also seeing major manufacturers around the world looking to substitute renewable bio based carbon for fossil fuel based carbon as direct material inputs for the production of core commodity products like chemicals cement and steel.
This is exciting and has the potential to open up new markets and new customer segments.
I will take some time later in the call to provide an update on how these long term market drivers are influencing our contracting activities as well as to bring you up to speed on the development and expansion projects, taking place at the partnership and our sponsor.
I will also elaborate on our net zero commitment and its related action plans.
Hopefully as we wrap up today, we could die all the pieces, we have underway together in a way that can make you as excited as we are about 2021 and beyond.
But first I would like to turn it over to Shai to discuss our financial results for the fourth quarter and for full year 2020 and to provide more details on our guidance.
Thank you John.
For the fourth quarter of 2020, we generated net revenue of $277 3 million.
An increase of $76 eight medium for them the cones Berthing global of 2019.
The increase in net revenue was primarily driven by sales volume that with $29, 4% higher as well as an $11 2 million increase in other revenue.
Included in other revenue for the fourth quarter of 2020 with $15 for median.
In payments for the default this year for adjusting deliveries under our take or pay Allstate contract, which otherwise would have been included in product sales.
For the fourth quarter of 2020 gross margin was $26 6 million.
This compares to growth margin of $28 2 million.
For the cones bonding periods of 2019.
Adjusted gross margin was $72 8 million for.
For the fourth growth 2020, as compared to $55 million for the fourth quarter of 2019, an increase of $17 8 million.
All 32, 3%.
Adjusted gross margin per metric ton was $54 <unk> for the fourth quarter of 2020 as compared to $52 and 83 for.
For the fourth quarter of 2019.
The increase in adjusted growth margin was familiar attributable to higher sales volume and higher pricing due to customer contract mix, partially offset by corresponding increase in cost of goods sold.
Net loss for the fourth quarter of 2020 was <unk> 4 million.
As compared to net income of <unk> 9 million for.
For the fourth quarter of 2019.
Adjusted net income was $11 1 million for the fourth quarter of 2020 as compared to adjusted net income of $17 2 million.
For the <unk> quarter of 2019.
For the fourth quarter of 2020, the partnership generated a record quarter.
Quarterly adjusted EBITDA of $69 3 million.
Salespeople and 1% for the same period of 2019.
The increase in adjusted EBITDA was driven primarily by disinfecting debt increased adjusted growth margin.
Distributable cash flow pile to any distribution.
Adult incentive distribution rights Batesville agenda partner was $54 8 million.
Which results in a fourth quarter 2020 distribution coverage ratio of one five times.
For the full year 2020, net revenue was $875 1 million.
An increase of one.
$190 7 million from 2019.
The increase in net revenue was primarily driven by sales volume that were 21, 5% higher as well as a <unk> 4 million.
The increase in other revenue.
Included in other revenue for full year 2020, with $32 5 million.
In payments to the partnership for adjusting deliveries under our take or pay offtake contracts, which otherwise would have been included in product sales.
Gross margin was $107 1 million.
For full year 2020, as compared to $81 1 million for 2019.
Adjusted gross margin was too uninformed for $9 million for full year 2020, as compared to $151 6 million for.
For 2019, an increase of $53 2 million.
Oh 35, 1%.
Adjusted gross margin per metric ton was $47 in 2009 for full year 2020, as compared to $42 and <unk> 54 for 2019.
Margin and adjusted gross margin increased primarily due to higher sales volume and higher pricing due to customer contract mix, partially offset by a corresponding increase in cost of goods sales.
For full year 2020, net income and adjusted net income with $17, one main zone and 46 million respectively.
For full year 2019, net loss and adjusted net income well $2 9 million and $39 million respectively.
Adjusted EBITDA for full year 2020 was also a record $193 million up.
<unk> 34, 7% from 2019 the increase in adjusted EBITDA was primarily due to the same factors that increased adjusted gross margin.
Distributable cash flow bio to any distributions attributable to incentive distribution rights paid total general partner.
London is $41 6 million.
For full year 2020.
43, 8% as compared to 2019.
At the end of 2020, the partnership's liquidity, which includes cash on hand, and availability under our $250 million revolving credit facility was $239 7 million zone.
Moving on to guidance for full year 2021, the partnership expects net income to be in the range of $42 three to $62 3 million.
Adjusted EBITDA to be in the range of $230 million to $250 million.
And distributable cash flow to be in the range of $160 million to $180 million.
<unk> to any distributions attributable to incentive distribution rights paid total general partner.
The partnership also expect to distribute at least $3 17.
Common unit for full year 2021.
The guidance amounts do not include the impact of any additional acquisitions or dropdowns.
Consistent with finally as.
We expect the second half of 2021 to be a significant step up from the first half.
Our ability to access the capital markets, even admin turbulent market conditions is in part a result of our conservative financial policies, which remain unchanged.
We continue to expect to fund Dropdowns acquisitions, and major expansion using 50% equity 50% debt.
We also continue to target a conservative leverage ratio of three five to four times and a distribution coverage ratio of one two times.
On a forward looking annual basis.
As you have seen in our financial results the partnership's distributable cash flow net of amounts attributable to incentive distribution rights.
Wanted and $14 6 million.
For full year, 2020, which covered the distribution for full year 2019, and it's 129 times.
Now I would like to turn it back to John.
Thanks Shai.
Five years into the Paris agreement.
The world has come to the realization.
But it is no longer enough to just set long term ambitions and this is no longer enough to just replace coal with renewables.
To get to net zero by 2050.
We will take more aggressive actions now and fully utilize everything in our toolbox.
The United Kingdom, which has been at the forefront of the renewable energy transition and just raised its commitment to cut greenhouse gas emissions to at least 68% by 2030 relative to 1990 levels is again, leading the charge.
And a series of important energy policy announcements over the last few months the UK government outlined its intention should not only support bioenergy with carbon capture and storage or backs, which is a key negative emission solution, but also to explore <unk> role in hydrogen production.
At the same time.
The English channel.
The European Union took another major step towards legislating, the 2015 net zero target into the European climate law.
When EU leaders from all 27 member states, including heavily coal dependent countries like Poland and the Czech Republic agreed.
I agreed to the target of 55% greenhouse gas emissions reductions by 2030.
Again as compared to 990 levels.
Germany also continues to progress towards its legally binding 2038 coal phase out targets.
And we expect that the final legislative process regarding the related enabling policies will conclude over the next several months.
For the partnership and its sponsor remain an ongoing dialogue with multiple large utilities and power and heat generators about their plans to convert existing coal fired assets to biomass.
And we expect to enter into take or pay offtake contracts with these customers in the six to 12 month period following completion of that legislative process.
In Japan.
Following Prime Minister Tsuga as net zero pledge in October of 2020 net.
<unk> quickly unveiled a green growth strategy.
Our strategy such as target for renewable energy sources to make up 50% to 60% of the nation's power supply by 2050.
And proposes various related tax incentives and other support.
However, Japan's energy grid.
Which is still quite fossil fuel dependent has very little excess capacity.
Last month power prices more than quadrupled during a period of particularly cold and bad weather when intermittent renewable energy generation became limited and when the grid was barely able to avoid blackouts, even after Japanese utilities ran thermal power generation at maximum capacity.
The ability to generate base load dispatch able renewable power and ensure grid stability is a key reason our customers, including those in Japan turned to in vivo for long term contracted supply.
Our existing contracts with these customers.
Generally for power projects under the 20 year feed in tariffs.
However, as the Japanese government said significantly more ambitious climate targets.
Our customers have engaged us in discussions about a broader range of projects.
The Mou our sponsor just executed with a major Japanese trading house is intended to provide up to 1 million metric tons per year of wood pellets to support decarbonization of the manufacturing sector.
Brand new market segment for us in Japan.
We are currently underway with test deliveries for new customers and new jurisdictions and for new applications.
While these efforts will take time to mature.
The macroeconomic trend towards decarbonization continues to accelerate.
And we believe that will lead to substantial new contract executions and current and emerging geographies.
Partnerships current contract portfolio.
As a total weighted average remaining term of 12 eight years.
And our total contracted sales backlog of $14 6 billion.
With the contracts just announced by our sponsor, including the new 20 year contract with a major Japanese trading house for 240000 metric tons per year.
And the expansion of volumes under an existing offtake agreement.
The combined contract portfolio, including all volumes under the firm and contingent offtake contracts held by the partnership and our sponsor now has a total sales backlog of $19 9 billion.
With a weighted average contract maturity of 14 years.
So supply is growing all take portfolio. The partnership continues to increase its production capacity.
The production ramp of the expansions at our North Hampton and South Hampton plants is ongoing and.
And we expect each to reach its expanded nameplate production capacity of approximately 750000 metric tons per year by the end of 2021.
The Greenwood expansion is also on track for completion by the end of this year.
In addition, the partnership has begun expansion projects at our Sampson hamlet and <unk> plants.
Specs to complete these projects by the end of 2022.
Moreover.
The construction of the fully contracted Lucedale plant in Pascagoula terminal is progressing as expected and our sponsor expects these assets to be completed midyear 2021.
Our sponsor has also completed the purchase of the project site and commenced pre construction activities and it's fully contracted ebbs plant.
With the newly executed contracts complemented by material contract volumes in negotiation with utilities and power generators and current and evolving markets around the globe. We expect our sponsor to continue to develop incremental production and terminal capacity in and around our and our sponsors existing footprint.
To maintain its fully finance growth profile, our sponsor recently closed a $325 million green term loan and used a portion of the proceeds to buy out its development joint venture partner.
Further reducing its cost of capital.
With the balance of the Green term loan and the $300 million in Undrawn equity capital raised during our sponsors recapitalization transaction announced last year.
Our sponsor remains extremely well positioned to deliver a large and growing pipeline of development projects, which by design. The partnership expects to have the opportunity to acquire along with the associated offtake contracts.
Our sponsor has consistently recycled proceeds from dropdown transactions into the development and construction of new plants and terminal assets.
Our scale is large and growing and unmatched anywhere in the industry.
The existing assets in operation and under expansion at the partnership.
Together with the sponsors Lucedale plant.
Pascagoula terminal and <unk> plant.
We will have a combined production capacity of more than 7 million metric tons per year.
With total terminal throughput capacity of about 11 million metric tons per year.
For reference that is more than double the size of the partnership's production capacity, just one year ago.
But with this scale also comes obligation.
And consistent with our global communities commitments and our own mission to displace coal and limit the impact of climate change.
We and our sponsor have committed ourselves to become carbon neutral for net zero in our operations by 2030.
This is an ambitious but attainable goal backed by a detailed plan to tackle our scope one two and three emissions.
It will take time.
But like any journey it begins with the first step.
For us. This means we will immediately start to mitigate 100% of direct emissions from assets owned and controlled by us or our scope one emissions.
We are already underway with continuous improvement efforts to minimize the use of fossil fuels.
<unk> lower carbon processes and.
And improve the efficiency of our operations.
And while permanent reductions in process emissions may take time and.
In the interim.
We will also look to create emissions reductions with high quality offsets.
To address the emissions arising from electricity purchases in our operations for.
For our scope two emissions.
We have pledged to source, 100% of the energy needed for our operations from renewable sources by 2030.
With an interim goal of 50% by 2025.
To address emissions generated by our upstream and downstream supply chain for our scope three emissions where.
We are actively engaging with our commercial partners and other key stakeholders to accelerate the development and adoption of new clean energy solutions for our supply chain.
Finally <unk>.
Consistent with our current sustainability practices.
We pledged to be transparent and track and publish our progress.
<unk> annual reported.
As I often mentioned to my team.
Although in visa is an organization that does a great job setting high standards and delivering good results.
We're not very good with taking the time to celebrate success.
Looking back at 2020, I do want to pause and thank the tremendous team we have an in vivo.
I have a lot to be proud of.
2020 was a remarkable year for.
Are we not only operated our business uninterrupted and produced financial results as expected.
But we laid a solid foundation for tremendous growth in 2021 and beyond.
<unk> made in central commitment of of how we will do so in the next phase of our sustainability journey.
By becoming net zero in our operations by 2030.
Making good on our promises takes diligent execution in any environment.
But in the global pandemic and requires unwavering dedication.
We have a strong and durable business model made stronger by other people and Veeva.
Thank you.
Operator can you. Please open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchstone zone. If you are using a speaker phone. Please pick up your handset before pressing.
John Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question is from Moses Sutton with Barclays. Please go ahead.
Hi, John and Shai, it's great catching up here.
On the next expansions.
So its $20 million adjusted EBITDA from $50 million investment obviously these expansions all right.
Much higher IRR from the mid Atlantic expansions.
Or maybe I'm misreading got on the pace of cash on cash calculations, what would that be testament to you.
Is this something that could have sort of maybe figure it out before but maybe you could give any color there maybe protective scale any low hanging fruit opportunities on some of those yes.
Moses Thank you really great to catch up with you as well.
The multi plant expansions that we just announced are a little bit different than what we did at Northampton and Southampton, the Northampton and Southampton expansions were principally about capacity expansions and so you had a higher component of equipment purchases and large scale and solution for installation of new assets, whereas.
As in what we've just announced.
There is a modest capacity expansion, we should be thinking about kind of 100 150000 metric tons per year. With these are really about is process improvements cost efficiencies and reductions in things like the intensity.
Energy required for pellet production that means we're driving margin to the bottom line on cost improvements and what's really great. About this of course is that because it's a build and copy approach. We do think that there are opportunities to continue to replicate investments like this.
As we continue to roll it out through the fleet a couple of those of those particular.
The investments that we're making as part of this we learned and are driving directly from the Waycross acquisition that we just completed.
Part of the attractiveness of that was that they were doing a particular process step even a bit better than we are and we are now incorporating that into our broader fleet.
That's very helpful actually.
So that 100100 metric tons per day, and you guys Michcon's per day is from hamlet 50 comes from.
The other plants because theres no. It's actually it's actually about 150000 metric tons per year.
Spread across all three of those products sales Samson in hamlet with Brown David growth.
Growth, perhaps the biggest portion of that coming from our continental facility.
Okay, Great and you mentioned in the release that subject to permitting.
Our U I Couldnt tell if it's specifically candaele that needs more permitting.
Also in North Carolina for Hamlin Samson.
So we have.
We have expanded permits on file and have received across a number of those facilities I think that the continental one is still under review.
Got it got it great shifting gears a bit.
Two inflation can you can you sort of remind us the effect of inflation on the enterprise, let's say, we head into a massive inflation increase hypothetically.
Indexing on contracts expect effect on cost profile, just anything there would be helpful. Yes, absolutely.
As you may recall.
All of our agreements have in place escalators. Most of them are in fact tied to inflationary indices. So you would see an uplift in the offtake pricing associated with that as.
As a practical matter on our cost position, we tend to fix our costs things like shipping and elsewhere on our U S. Dollar denominated basis that gives us significant amount of cost protection against that and obviously with the continued scale and cost efficiency improvements that we target year on year.
What we've demonstrated historically and what we would expect to continue as a stable cost position if not declining over time, providing for durable margin expansion.
Great great and if commodity prices rise I mean, they are rising so.
I can usually contract out you hedge out the diesel is that the case as well I know, it's a small part of the Cogs stack, but just wondering if there's any effect there to look at where you'd see sort of the quantity increase is on our shipping components. Obviously, the bunker fuel component of that but that is under our shipping and commercial agreements we pass any volatility.
Alrighty or variability in bunker fuel directly through to our customers.
Great Great and last one and I'll take the rest offline.
It's a great update on Japan, continuing to contract at the sponsor level at.
At the EBITDA level 2025 off take is already set to be around 50% from Japan, if we thought even longer term and.
And we extrapolated for future Dropdowns and so on how much Japan comprise the percentage of total mix I know that there are other initiatives in other countries that can be <unk>, two but could we see Japan go well above 50% at any any.
Call It 2025 to 2030 timeframe.
What I would say is that I think that we will be relatively well balanced between Europe and Asia roughly 50 50.
Our long term go forward basis, because some of the jurisdictions emerge at different times, you may see one year, where we see some imbalance, but thats more temporary just about how regulations, how conversions happen that given we're still at a modest sized industry an increase in demand for instance, in Germany will skew it for perhaps a year, but.
On a longitudinal basis youre about 50% to Asia, 50% due to.
For Europe with of course, Japan, being our largest customer in Asia.
Great Great very helpful. Thank you.
Most of the always good to conduct thank you so much.
The next question is from Ryan Levine with Citi. Please go ahead.
Good morning.
What's your <unk> exposure through 2026.
And while it would be the impact can be.
Cancel their contracts and supply volume from other sources.
The other.
We've articulated the.
Partnership is fully contracted through 2026.
The drax as a series of agreements with us as to a whole host of other.
The other obviously European and Asian utilities.
As a practical matter are re contracting experience has been that at every point in time that a contract has come up for renewal our customer has renewed typically at larger volumes and longer tenor.
But to the extent that drax elected to pursue a different approach. We of course have a very significant contracted backlog and we would not see a day.
Great in terms of the overall contracted position of the enterprise given the pipeline that exists behind the existing contracts a day.
Is there a way to quantify what the.
<unk> is today and how the contracts work.
Hard to.
They havent change in procurement strategy.
So I think I think the way to look at that is to address the overall partnership contract backlog a year ago. The partnership's contract backlog was $9 5 billion with a weighted average remaining term of 10 for years and over the last 12 months, we've grown that backlog by 50% so that the partnership.
Backlog today is $14 6 billion and extended the weighted average remaining term to just shy of 13 years. So the backlog is growing and it's a question of whether or not we would seek to build incremental new capacity or whether we would use the existing backlog juice to stand in place of a <unk>.
Contract to the extent that a customer which would be unique and has not ever happened to the extent of customer chose not to renew with us.
For the NOLA Orion based on a firm contract backlog by 2025, a lot of discussed about.
<unk> drove under 15%.
Okay. Okay.
Yes.
Is that information disclosed in terms of the contractual breakup.
Breakup fee or any type of terms are.
For the extent that to the extent that any customer Joseph terminated agreement with US there is.
A make whole fee associated with price times quantity times remaining term of delivery.
Okay.
Yes, it's the nature of the take or pay agreement with us.
Of course someone could terminate the agreement with <unk>, a very significant take or pay my coffee.
Okay I appreciate that.
What its been switching gears, what it's been the recent trends around fiber timber costs within your supplier territory and have you seen any uptick there and can you remind us how you're exposed to that given some of the baskets that fit your contracts are structured.
Yes, absolutely.
As you May recall, our procurement strategy is a residuals base procurement strategy, where we are we're aggregating the byproducts of a traditional sawtimber harvest and so the.
The underlying commodity price of lumber or timber.
It really doesn't have a direct impact on the price of fiber that we're buying.
We're obviously picking up as the leftovers behind that and what we've noticed is a very significant uptick in harvesting activity and so over time.
Of course that should generate an incremental residual stream and we would hope to benefit from a greater greater availability of the supply with very few buyers, which should put downward pressure on pricing over a longer period of time naturally Q1 is.
What is our seasonally soft quarter as colder wetter weather.
So I don't think we necessarily see a read through that in Q1, but overtime, we would expect to see fiber prices continued to decline.
I appreciate that and then last question in terms of the new Japanese Mou is there a contract duration, that's being discussed are anticipated that you're able to share or.
Is it only the volume.
That's spelled out in EMEA.
So we would obviously look at.
At substantial duration consistent with the broader.
Other contracting profile that we have so you'd be looking at 10 plus years of duration, what I think is particularly interesting around on this particular.
Market segment for US is it is very very consistent with what the world's commitment to net zero really means is that so much of the early early.
<unk> greenhouse gas emissions reduction climate change out for has been on the energy sector and what I think the world is really concluded is given the urgency of action sectors like Z manufacturing sector large scale industrial substitution for fossil fuels in other commodity products is going to be essential.
For a meeting that net zero commitment, it's going to be much beyond just traditional energy and so with a company like in vivo, who has built a global scalable supply chain for delivery of biomass into all sorts of different applications around the world.
This is one of the first really interesting large scale market opportunities for us that we're pretty excited to talk about hopefully is.
Technologists and other innovations occur around the world.
We'll continue to be a large scale enabler of the move to net zero for us a lot of different industries.
Okay, great. Thank you. Thanks.
Thanks, Ron.
The next question is from Pavel <unk> with Raymond James. Please go ahead.
Thanks for taking the question first follow up on.
One of the earlier points about inflation.
It's had the price of coal is spot price at least.
Is about as high as it's been in I think two or three interest now.
Does that make any difference these IV your your margins under any of your supply contracts.
Not at all the pricing.
Our supply under our long term take or pay agreements is not influenced by commodity prices like color or otherwise.
Okay.
Commensurately, if it were to come back down there would be no impact either.
Hi.
And.
Going back to.
What you said a minute ago about decarbonising outside of the electric power sector.
If you were to get an opportunity to sign a contract with.
Our non utility customer I know you've been very careful about evaluating utility customers from a.
Kind of credit worthy net bank ability perspective, how would you do that given the very different regulatory and economic dynamics, if youre dealing with.
Commercial or industrial enterprise.
So it's a great question development.
Answer it the same way, we do the credit work ups on any of our utility Counterparties, which we're really not taken the regulatory risk associated with the jurisdictions in which they operate and where we're taking it to the balance sheet risk.
Change in law is not a risk that we accept under the terms of our offtake agreements and so the analysis that we would undertake for for entry into a long term take or pay off take agreement with a major industrial is the same credit work up we would say what is the balance sheet. What is the strength what is the overall security package in their underlying.
<unk> cost position.
As you and I have shared in some of our conversations for the past.
We get to unit level economics for the power plant that we're evaluating on to whom we ultimately sell because we want to be highly convicted that across a broad range of economic circumstances.
They remain.
Just as capable of paying.
And so these are the folks that we'd be talking with our the blue chip companies that would be the ones that we the market leaders.
They want to ensure that their margin profile remains as durable and strong on a go forward basis across a broad range of commodity cycles.
And have the credit worthiness to stand behind that long term obligation.
Understood and lastly, about about net zero in the announcement from last week about debt.
For 2030, you mentioned the debt.
Forestry would naturally play a role in the roadmap.
Would you consider from.
<unk> direct funding for reforestation and if so would that be on.
Nonprofit basis or would you actually want to own.
Some 43 assets as a company.
Well I don't think debt.
Our business strategy.
Certainly from a procurement basis would be to own timber.
Timber fiber resources, but what I would say is that the idea of providing direct additionality in terms of reforestation.
The conversions of perhaps marginal agricultural land into for street can be a really important part of how we mitigate our scope one and scope two emissions.
Fortunately.
Or is as you have studied our profile in the past Fortunately our scope one emissions are relatively modest we are a fraction of a similarly sized industrial and so we do believe that in our most recently announced expansions are a good part of that part of it part of that expansion profile is going to be reducing the greenhouse gas emissions intensity.
Electricity purchases and electricity load.
Pellet production of these assets and so on the one hand, there is some low hanging fruit, it's easy easy to access.
By the same token given our energy low generally for our scope to there are some really interesting opportunities for us to think about John.
Solar on our sites.
Combined heat and power on our sites again, where we're utilizing biomass as a resource for thermal generation today.
A bunch of this begins to pencil out and so I wouldn't look at necessarily.
Our investment in a net zero commitment as a non-profit investment I would look at this as something entirely consistent with our business strategy, where we're delivering to our customers a low carbon alternative to the extent that we can make that even lower carbon.
Our margin should ultimately expand because thats ultimately what our customers are buying from us around the world.
Good to hear thank you. Thanks.
Thanks for that.
The next question is from Darren <unk> with RBC capital markets. Please go ahead.
Hey, good morning, everyone a.
A couple of follow up questions.
So can you provide for more detail on net new $50 million expansion in the EBITDA contribution specifically around the cadence of Capex spend and then the timing that EBITDA contribution.
I know you said that you will be concluded by the end of 2022.
EBITDA contributions come on.
One are the same.
In.
Net.
And.
I'll leave it at that for them.
Alright, Thanks, I'll always good to connect with you as well.
I think we can think about the spend curve is roughly linear over the next few years. If you look at this banker roughly linear and you can think about the margin profile to sort of be back half weighted.
You'd see an uptick in 2022 and then the balance in 2023.
Great that's helpful.
And then.
As you mentioned there are a number of accidents year sponsor has lowered its cost of cash.
Capital associated with renewable energy infrastructure development.
So how do you think that lower cost of capital can benefit EBITDA trickle down to the partnership I mean is it for increased investment opportunities or any other ways.
No I think I think again, it's a really important part of maintaining the what has been a very beneficial relationship and enabled us to grow as a partnership quite rapidly given the opportunities that we see ahead and certainly as the as the world moves.
And continues its efforts not only on coal displacement and renewable energy generation on basis of biomet, but new markets new segments, new opportunities. We tend to think of the growth curve has the opportunity to accelerate and sponsor level lower cost of capital for that.
The firm.
So faster upstairs.
That's great.
And then.
Recently, we saw the acquisition of a publicly traded wood pellet producer and EBITDA has recently completed an acquisition can you give us your latest thoughts on the opportunity set for third party M&A and how you see them be participating.
Yes.
We're obviously very proud of the acquisitions, we've done the waycross.
From a third party perspective, the way cross asset being particularly interesting and robust one for us debt that has continued to meet or exceed all of our expectations and again the replication in some of their process.
Aspects into our broader fleets are good good reflection of that.
What I'd say is third party acquisitions have been a part of.
Our growth story, they have not been the preponderance and thats because the build and copy approach that we have means that we have a high degree of conviction around the cost of development as well as the margin profile on every asset we build and so we kind of know we're getting and.
That is not as wide.
Yes.
Perhaps available third party acquisitions, and so we're much more opportunistic there.
And as a practical matter.
We are obviously open minded, but we have tended to focus on kind of what were best at which is building owning and operating things that we built ourselves.
Great that makes a lot of sense.
And then just the last one for me.
Can you see any opportunity for and B, but in the U S. Now under the New administration.
And the push for more Green energy.
Well I think.
I mean look the Dubai, the administration's first actions really to rejoin the Paris agreement.
Really important from our global positioning it brings it brings the us closer to the rest of the world and thinking about net zero and the importance of climate change obviously.
Obviously.
The incident last week.
Taxes raised questions around dispatch of renewable energy in Baseload, which is gosh what are customers. So good out on the basis for biomass.
I don't know that thats necessarily going to be a robust segment for what I will say is.
Rail segment around the world.
Whether whether its debt.
Cement or some of the other commodity as we talked about de carbonization that sector is really really hard to do.
And so to the extent that biomass can play a role for a while you've got a scalable world leader in biomass supply.
What I will say obviously.
That needs to get bid away from long term robust margin opportunities.
It was up to see how that unfolds here.
Got it great.
Connecting with losses.
Of our always good thanks, so much.
As a reminder, if you do have a question please press star.
From the line.
Next question is from Marshall Carver with Ken Energy Advisors. Please go ahead.
Yes. Thank you.
I had a question about the the.
EBITDA.
Our earnings as we go through the year, you talked about it being back half weighted and I know you have some <unk>.
Capacity expansion as we go through the year, but any color on how back half weighted it would be.
I mean is it like.
A third.
Two thirds or 40 60.
I know, there's always from seasonality, but any color you could have on that.
The expected.
Change between first half and second half would be helpful.
I think Marshall. Thank you for the question I think that you should expect to see similarly to previous year, you should expect to see the second half stronger compared to the growth double deal and our expectation is that the same kind of ratio between the first up for the second half that you've.
Since the LASA and <unk> sales, including 2020, who will stay the same in 2021.
Alright Thats it from me thank you.
Marshall Thanks, good to talk to you.
This concludes our question and answer session I would now like to turn the conference back over to John Kessler for any closing remarks.
Well, thanks, everybody again for taking the time to join us today.
We are very privileged to be in the position we're in.
As we've discussed in our prepared remarks and on everything from net zero to two the activities we have underway for growth.
We do believe we have an opportunity in it.
Our responsibility to keep that up.
Given all that we've covered today and the opportunities ahead.
I think that the statement that you guys know I'm fond of saying is that really just getting started.
Nothing could be more true and we're pretty excited about that.
Im looking forward to connecting again with everyone next quarter and in the meantime free.
Please stay safe please stay healthy.
We're all in this together.
That's how we're going to get through it.
Thanks, everyone.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.