Q4 2022 Enviva Inc Earnings Call
Speaker 1: I.
Speaker 2: Good morning and welcome to Enviva Incorporated's fourth quarter of 2022 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal conference specialist by pressing the start key followed by zero. After today's presentation there will be an opportunity to ask questions. I would now like to turn the conference call over to Kate Walsh, Vice President of Investory Relations.
Speaker 3: Please go ahead. Thank you. Good morning, everyone, and welcome to Enviva's fourth quarter in full year 2022 earnings conference call. We appreciate your interest in and support of Enviva, and thank you for your participation today. On this morning's call, we have Thomas Smith, President and Chief Executive Officer, the Shy Evan, Executive Vice President, and Chief Financial Officer.
Speaker 3: Our agenda will be for Thomas and Shai to discuss our financial and operating results and to provide an update on our current business outlook and operations. Then we will open the call-up for questions. During the course of our remarks and the subsequent Q&A session, we will be making forward-looking statements which are subject to a variety of risks. Information concerning the risks and uncertainties that could cause our actual risks.
Speaker 3: discussing adjusted EBITDA and certain other non-GAAP financial measures pertaining to complete reporting periods as well as our forecast.
Speaker 3: Information concerning the reconcilations of these non-GAT measures to their most directly comparable GAT measures and other relevant disclosures is included in our earnings release.
Speaker 3: RCC reports, earnings release, and most recent investor presentations, which contain reconciliation of non- GAAP financial measures we use, can be found on our website at www.impivabio-mass.com.
Speaker 3: It is important to note that as a result of the simplification transaction we announced on October 15th, 2021, we were required to recast our 2021 financial results in accordance with GAP to reflect that transaction. Today we will discuss 2021 historical financial results on a recast basis or non-recast basis.
Speaker 3: depending on the reference point. Please refer to our earnings release and form 10K documents for more details on our recast and non-recast presentations. As is our practice, we will be opening up the line to questions following our prepared remarks, describing the financial operating results for fourth quarter in full year 2022, as well as what we have planned and expect for 2023 and beyond.
Speaker 3: We also hope you will be able to attend our inaugural investor day scheduled for April 3rd, 2023, where we will have another opportunity to go into detail about the core drivers of success in the business, as well as their plans and strategies to capture the remarkable opportunity we have to continue to grow and deliver shareholder value.
Speaker 3: able to attend our inaugural investor day scheduled for April 3rd, 2023, where we will have another opportunity to go into detail about the core drivers of success in the business, as well as their plans and strategies to capture the remarkable opportunity we have to continue to grow and deliver shareholder value. I would now like to turn the call over to Thomas.
Speaker 4: Thank you Kate. Good morning everyone and thank you for joining us today.
Speaker 4: When I assumed the role of President and CEO last year, I got the chance to get to know many of you.
Speaker 4: Some for the first time, but for many, it has given us a renewed opportunity to be reminded of the tremendous potential that we saw when we co-founded the company almost two decades ago. As I've been able to share, we are a growth company, serving an increasing array of markets and customers.
Speaker 4: around the world helping to dread one of the most critical challenges of our time climate change. But it's not just an idea or a technology. We're an industrial company with a tremendous growth trajectory that generates cash.
Speaker 4: Our job and the unparalleled opportunity that comes along with it to increase share the value is to continue to grow the long-term contracted sales in the business that you know is the core of our operating strategy and to do so at an increasing level of profitability and cash for general
Speaker 4: in the cash flow profile of this business. And I have strong conviction around our ability to not only deliver $305 million to $335 million in adjusted EBITDA for 2023, but also to double adjusted EBITDA over the next four years.
Speaker 4: and to sell fund our growth by 2027. Second, we continue to have incredible momentum with our customers, having signed 800,000 metric tons per year of new long-term incremental volumes in December , and another 600,000 metric tons per year.
Speaker 4: with a new set of customers in just the last few weeks, all at higher pricing that we have seen historically. Third, we announced the 250 million equity investment in the company by our major investors and board members.
Speaker 4: Those who know our business the best, demonstrating incredible confidence in our growth trajectory, the strengths of our business and the value creation we have ahead of us.
Speaker 5: Forward.
Speaker 4: We will discuss the accounting change which led to 89 million of adjusted EBITDA being deferred to future periods.
Speaker 4: But in no way does it change the fundamentals of our business. We sign and execute against long-term take-up and agreement.
Speaker 4: and expect to generate the vast majority of margin from our underlying operations for filling these contracts.
Speaker 4: Fifth, 2022 was certainly a transition year for us. And while we delivered record-breaking volumes from our large and growing production fleet, our cost position was higher than we anticipated. Inflationary adjustments and path-throughs in our contracts covered as well. But...
Speaker 4: dramatically improved supply chain conditions combined with lower energy costs and lower delivered fibre costs in our operations coupled with higher fixed cost absorption rate. In 2023, we will deliver a significant uplift to expected cash flow, setting us up for a strong year in 2023 and beyond. Finally, our commercial service capability.
Speaker 4: which provides a creative margin expansion opportunities benefiting from market dislocations, which will continue to be a key incremental opportunity to drive value into this business.
Speaker 4: Let's turn first to discuss our fourth quarter 2022 earnings in more detail. We executed a strong quarter with record volumes delivered to our customers at sales prices higher than we had forecasted. We were projecting a sizable step up in activity from third quarter 2022 and we achieved that, with volumes delivered increasing by 35% quarter over quarter.
Speaker 4: as compared to 4th quarter 2021, and we will deliver approximately 10% more volume to customers during the 4th quarter of 2022. We projected adjusted EBITDA for 4th quarter 2022 in the range of $103 million to $123 million, and based on that counting treatment, we had expected and reaching $4 guidance.
Speaker 4: We would have achieved the Justin EBITDA within that range delivering around $108 million for the quarter. What we ended up printing for fourth quarter Justin EBITDA was $18.6 million and I'll unpack the difference between the two numbers now.
Speaker 4: During the fourth quarter, we had three separate customer requests to defer or cancel shipment related to independent operational challenges. For example, one customer had a fire in their storage silo and were unable to accept shipment due to insufficient on-site storage. We were able to accommodate these customer's requests.
Speaker 4: freeing up shipments for us to sell to an existing large European customer at a premium. That shift enabled us to take advantage of the strong pellet spot pricing conditions we saw during the fourth quarter.
Speaker 4: We had a number of pathways to capitalize on the strong demand for woodbellot during the fourth quarter, all of which would have enabled us to meet our guidance targets, and selling to our large European customer was the path we took. Separately, during the fourth quarter of 2022,
Speaker 4: We planned our third party, Pellet Purchase, for 2023 and beyond. As many of you know, historically about 15 to 20% of our annual volumes sold are sourced from third parties. And we expect that to be the case going forward.
Speaker 4: 22 was a little different because the war in Ukraine shot up about 10% of the world's biomass supply. The spike in palli prices made it un-economical for us to procure the same level of third-party pellets disposed yet. During the fourth quarter we entered into a long-term purchase agreement.
Speaker 4: with one of the largest biomass trading companies in the world, who is also one of the largest consumers of biomass in Europe , and is one of our long-standing customers.
Speaker 4: It is this customer to whom we sold available shipments during the fourth quarter.
Speaker 4: This customer had elevated demand during the fourth quarter due to their strategy to manage through the energy scarce European winter.
Speaker 4: From an accounting perspective, because we sold volumes to the same customer that we entered into a long-term purchase agreement with, the gap accounting rules require us to treat both the sales contract and long-term purchase contract as a contract modification of our original sales contract.
Speaker 4: thereby combining all new and historical purchase and sale transactions as if they were a single contract. There's accounting treatment different from our expectations.
Speaker 4: and as well as from the assumptions that underpinned our guidance ranges. It's important to note that we've collected cash in full for these sales. The customers biomass fire power generation facilities have fully consumed our pellets and nothing has changed with the underlying fundamentals.
Speaker 4: and operating model of our business. We are referring to this unanticipated accounting treatment at the 3rd Gross Margin Transaction as roughly 89 million of Gross Margin and the Jaffity Bita is not being recognized in 4th quarter 2022 results. But we'll be recognized in future years.
Speaker 4: and our current expectation is that approximately half of the deferred benefit will be recognized in 2024 with the other half in 2025. Again, no change to our business.
Speaker 4: Cash collected in full. Just a change in reporting periods as to when the benefit of the sales will be recognized.
Speaker 4: For full year 2022, excluding the deferred gross margin adjustment impact, we would have achieved the justly debita of approximately $244 million.
Speaker 4: which was within our expected range of $240 to $260 million. We did experience a short period of downtime at several of our facilities due to the poll of vortex that hit the US Southeast in December and we estimate that we lost about 4 million of adjusted EBITDA
Speaker 4: due to the extreme weather event mainly due to lost volumes. We have consistently referred to 2022 as a transitional year for us as we executed the major corporate structural change of converting from a master limited partnership to a regular weight corporation at the beginning of 2022.
Speaker 4: At the same time, we were navigating the tough macroeconomic backdrop that impacted industry and households globally. And Viva struggled with COVID and labor related challenges early in the year, and severe disruptions in the service delivery of our rail and trucking partners during the first half of 2022.
Speaker 4: And along with inflationary pressures, we experienced a higher cost position in 2022 than we forecasted.
Speaker 4: As a result, while pricing escalators, inflationary protections, and other pass-throughs in our contracts helped us maintain and modestly grow margins, as Shia will discuss further in a moment, we are laser-focused on improving operation of performance.
Speaker 4: and cost management across our acid fleet. And I am happy to report we're making noticeable strides forward. We're certainly seeing tailwinds with the price of natural gas domestically being in the $2-2-3 for MMBGU range and lower diesel prices I have in a positive impact as well.
Speaker 4: We are also seeing progress in driving increased output from our plants with several capacity improvements now in place, including some deep bottlenecking and process through put upgrades we have completed.
Speaker 4: Another important improvement is the work we've done around our high grading of our workforce. And with improved supply chain conditions, as we enter 2023, we expect to deliver a meaningful, lower cost position in our cost per peloton over time.
Speaker 4: I'm really looking forward to having an opportunity to do a much deeper dive on the attributes of operational improvements and our expected plant level efficiency improvements at our upcoming invest today.
Speaker 4: In the meantime, I will call out that the strong end to 2022 baves the way for a solid 2023. We reaffirmed our preliminary 2023 outlook for Justin Ibydah and a guiding to a range of $305 million to $355 million to see some embedded upside in that range as we...
Speaker 4: execute our plan moving forward.
Speaker 4: Given that the market for a product remains structurally short and supply, was strong, customary man continues. We monitor dislocations in the marketplace and are increasingly transacting when pricing dynamics and contract flexibility provide opportunities to generate incremental gross margin.
Speaker 4: For example, a time to unprice this for incremental deliveries are elevated and Viva has the opportunity to reduce a certain percentage of contracted shipment and deliver our produced or purchased product into sales contracts at these higher prices.
Speaker 4: Conversely, when spot market prices are depressed and Viva has the opportunity to purchase attractively priced third party volumes and increase a certain percentage of deliveries into our existing higher priced long term contract.
Speaker 4: incremental gross margin by reducing the cost of the delivery, relatively to shipping costs implied in our long-term off-take contracts. We expect these logistics and commercial services to continue to grow commensurate with our growing backlog of fully contracted sales.
Speaker 4: We have a tremendous growth trajectory ahead of us, which is underpinned by a significant capital expenditure program. We are executing to put new plans in service. Our capital allocation policy is focused on reinvesting retained cash flows into our business while maintaining ample liquidity.
Speaker 4: and protecting our conservative liberal average position.
Speaker 4: We just truly conservative for companies like ours which have long-term take-up a contract to cash flows. Based on our capital allocation policy
Speaker 4: We expect to maintain our 2023 dividend payout at the 2022 level. We're by we expect to be 90 and a half cents per quarter for an annual dividend of $3.62 per share.
Speaker 4: We definitely see the ability to increase the dividend over time, and returning incremental value to shareholders is certainly top of mind for our management team.
Speaker 4: But we're also balancing that view with our target of fully self-funding our Capital Expandages program by 2027.
Speaker 4: Our conviction in the growth trajectory of our business is reinforced by the customer discussions we have day in and day out, and more importantly, the decision making we see our customers taking at the ground level. We announced three new industrial contracts, two related to European industrial companies that are converting from coal to biomass in their manufacturing processes.
Speaker 4: And one from another customer, a global sustainable fuels company that is building a facility in the U.S. to produce biofuels, including bio-cruise for blending into sustainable aviation fuel. These three new contracts build on the 9 agreements we announced during 2022. The momentum behind the energy transition is undeniable.
Speaker 4: and are in flight with constructing standalone biorefiners. Within the last year and a half, and Vividesign 3, separated contracts that represent close to 2 million metric tons per year of deliveries.
Speaker 4: The new contracts we have announced recently have been predominantly European focus, which is a good indication of the direction of travel that the European Union's renewable energy directive 3 is taking.
Speaker 4: which is being negotiated right now between the EU Parliament Council and Commission. We are confident that the legislation will conclude favorably for sustainable woody biomass and we should experience tailwinds from Red 3, which is likely to be finalized during the second quarter of this year.
Speaker 4: Before turning it over to Shy, I'll share some details about the equity deal we have in progress. Given the scale and pace at which we are building out our asset platform against the backdrop of continued inflation and rising interest rate, we have received commitment
Speaker 4: for approximately $250 million of common equity through a pipe transaction with shareholders like Riverstone and Inclusive Capital, who have a deep understanding of our business.
and are convicted in the tremendous potential for shareholder value creation ahead for us. The equity will be priced up the markets close today and we view the capital raise as bolstering our balance sheet liquidity and maintaining our leverage at a very comfortable level.
it in the tremendous potential for shareholder value creation ahead for us. The equity will be priced up the markets close today and we view the capital raise as bolstering our balance sheet liquidity and maintaining our leverage at a very comfortable level. I'm now turn it over to shy.
Thank you Thomas and good morning everyone. We generated net revenue of $239.3 million for the fourth quarter of 2022 as compared to $276.3 million for the fourth quarter of 2021. Excluding the impact of the third-ghost margin transaction, net revenue would have been $414.3 million for the fourth quarter of 2022, an increase of 50% year-over-year. Net law for the fourth quarter of 2022.
was $77.4 million as compared to a net loss of $61.4 million and $34 million for the fourth quarter of 2021 on a recast basis, respectively.
$71.1 million and $68 million for 2021 on a recast and non-recast basis respectively. As Thomas discussed, the deferred gross margin transaction reduced reported adjusted EBITDA by close to $90 million and, excluding this impact, adjusted EBITDA for the fourth quarter of 2022 would have been $
$1.7.5 million and within our range of expectations. Thomas discussed our three custom-made requests that changed to their delivery schedule due to operational challenges and were able to serve those shipments to an existing customer for elevated prices.
These are normal opportunities that arise consistently and in 2022 we were able to take advantage of strong pellet pricing conditions given the structural scarcity of supply in the market and the profitability of biomass fire generation compared to fossil fuel fired alternatives
The incremental cash collected above the takeoff pay obligation for the shipments was approximately 32 million dollars.
And Viva adds multiple commercial and customer opportunities available to us in the fourth quarter, each of which would have enabled us similar outcomes and the sales to our existing customer which Thomas described is the path that Viva chose. As we have described, Viva is the path that Viva chose.
The second half of the year and, particularly, the fourth quarter are historically our strongest financial period.
This seal was no different and just as Gors Mauljentra and Metricton for the fourth quarter 2022 was $35.32. Excluding the impact of the deferred Gors Mauljentra transaction, AGM and Metricton would have been $85.20.
Incrementally, EU lend a man and durable scarcity in the market enable us to price a selection of deliveries in excess of $400 per metric ton during the fourth quarter.
Even with these high delivered prices, biomass remains the cheapest form of thermal energy generation in Europe with biomass being more affordable than coal, natural gas and crude plus EU ETS carbon pricing. Carbon prices in the EU recently hit all time high.
The price of carbon credits in the EU system have risen fivefold in the past three years and are expected to remain elevated.
We are now moving to our annual results for 2022. We achieved net revenue of close to $1.1 billion for 2022, representing a 5% increase from 2021.
Excluding the impact of the Defeat Ghost Margin transactions, NetRavenview for 2022 would have increased by 21% as compared to 2021.
Next loss for 2022 was 168.4 million as compared to 145.3 million and 33.2 million dollars for 2021 on a record and non-recast basis respectively.
Net loss for 2022 would have been reduced by $98.4 million if impacts from the deferred loss margin transactions were excluded.
Adjusted EBITDA for 2022 was $155.2 million as compared to $116.7 million and $226.1 million on a recast and non-recast basis respectively. Without the impact of the deferred gross margin transaction, adjusted EBITDA for 2022 would have been $244 million.
which was in line with our expectation and increased by approximately 8% when compared to 2021 adjusted debited on a non-record basis. The adjusted gross margin per metric ton was $45.65 per metric ton for 2022 and excluding the deferred gross margin transaction, AGM per metric ton would have been $60. AGM per metric ton for 2021.
on a recast and non-recast basis was $40.75 and $47.21 respectively. The over year increase in adjusted gross margin per metric ton when the deferred gross margin transaction is excluded was driven by a number of factors that increased sales price per ton.
Fair, we have contract piecescalate cells in our contracts, with many that are tied to inflation indices. Second, we successfully repy the LEG legacy contracts during the yield. Tailed, we are increasingly delivering on the new high-rise contracts.
And finally, as we have discussed, we are able to deliver several shipments throughout the year at elevated pricing. We are securing a material durable pricing uplift from our contract structure and our ability to layer in accretive commercial transactions around our base business is augmenting our financial performance. Distributable cash flow for the fourth quarter 2022 was an outflow of $1.7 billion.
is compared to DCF of $42.8 million and $54.9 million for the fault quarter 2021 on the RECAS and non-RECAS basis respectively. The decrease
year over year was driven by the impact of the deferred gross margin transaction of approximately 89 million dollars and it is important to note that all of the cash has been collected with respect to the deferred gross margin transactions. As part of the deferred gross margin transaction which treats the contract modification as a financing transaction and we reported a non-cash interest expense of $2,000.
of $9.6 million. The interest expense will not result in cash interest paid and will only be recorded for the life of the customer contract which triggered the deferred growth margin transaction which is expected to be true 2025. Cash will use inoperative activities for fourth quarter 2022 will $37.2 million. As we not refold the impact of the deferred growth margin transaction
The cash flows from operating activities would have been higher by $1.2 million from the process related to the cell of Finnish goods that are included in cash flows from financing activities. Additionally, we would add that almost $10 million in cash from support payments from our former sponsors that are currently presented in cash flows from financing activities as compared to being included in cash flows from operating activities where we totally presented the dies and inviability as of December 31, 2022.
which included cash on end, including cash generally restricted to funding a portion of the cost of our Epps Alabama plan and Borne, Mississippi plan and availability under our revolving credit facility was roughly $385 million. As of December 31, 2022, Enviva's total debt was approximately $1.6 billion and that net of cash on end and cash earmarked for the Epps and Borne plan.
was approximately $1.35 billion. Leverage as calculated by Inviva's revolving flood facility, a calculation that includes material project adjustments and reversed the impact of the deferred gross margin was around four times on December 31, 2022.
Recently we amended our revolving threats facility agreement to eliminate the effects of the deferred dose margin transactions on both a jacadabida and a dangerous expense to better reflect cash flows. Our commitment to conservatively managing and vivas balance sheet remains unchanged and we continue target elaborate ratio of 3.5 to 4 times.
based on our current facility agreement. If we look at our 2022 Iran leverage on a performer basis for the five transactions and excluding the deferred growth margin transactions, we ended the year under five times at approximately 4.7 times on an reported basis and on a revolver-cursed facility agreement basis, we ended the year sub four times at approximately 3.5 times. For 2023, we are focusing as reported leverage.
and revolved in the electricity level to be similar to 2022 at around 4.8 times and 3.7 times respectively.
For 2020 we are projecting a significant step up in the Justice Debidah and reaffirm our preliminary outlook for 2023 guiding to a range of
$325 million to $335 million this year. At the midpoint, this represents a 30% increase in year-of-year. There are three key drivers of that step up. First, we expect all the sales of over 7 million metric tons for 2023. Second, we are seeing doable increases in our Adline contract sales bias.
With inflation linked contract actuators compounding EROV EAR and more and more base business contracted sales shipments being priced with tailwinds from the strong pricing environment we have been in
And tell us as Thomas mentioned, we are driving coasts out of our business and benefiting from IO-FIX course absorption across our fleet because of IO production rates and production efficiency. Given the strength and durability of our cash flows over the long term, we are guiding to a dividend of $3.62 for 2023. Our growth plan for 2023 will require total capital expenditures in the range of $2.3.
We have a very low maintenance capital profile for our system platform and expect to spend approximately 20 million dollars during 2023 on maintenance capping.
Before I turn it back to Thomas, I'll give an overview on how we are planning to finance our growth plan. As Thomas mentioned, we have received commitments of approximately $250 million of equity funding from select, loud shareholders and board members.
This capital raise allows us to show up our balance sheet while maintaining our financial policies as we execute our significant goal plan. This capital raise provides additional financial flexibility, especially as we look at various alternatives to financing our goals, including project financing options.
Our longer term plan is to become fully self-funding by 2027. Thus, we will increasingly use cash flow generated from our business to fund larger portions of our capital plan going forward. With that, I would like to turn it back to Thomas. Thank you, Shy.
Building on Shy's last point about our capacity growth plans because our industries persistently structurally short supply, signing new contracts like the ones we've recently announced, means new capacity must get built. And therefore this remarkable pace of contracting is in turn.
underwriting our large-scale, fully contracted capacity expenses. As we've discussed, we're on the way with construction of our plant in Epps, Alabama.
Absence design and permitted to produce 1.1 million metric tons per year and will be the largest industrial wood pellet production plant in the world.
In partnership with Leading Engineering for German and construction firms or EPCs over the last six months, we have undertaken a robust review and have completed a value engineering exercise which is led to an update to our standard plant design, including the design we will use for EPS.
The new design reflects the increase in nameplate capacity to 1.1 million metric tons per year. And we've layered in redundancies and proven processes taken from across our existing plant portfolio.
which are expected to improve utilization rates and decrease operating costs. Excluding EPS, where construction is already underway, we intend to enter into construction agreements with one or more EPC firms to complete engineering, procurement and construction of our future plans on a fixed cost and guaranteed schedule basis.
Under this strategy, we are projecting that the average cost per plant for the next four greenfield projects, which includes EPS, will be approximately $375 million.
There is higher invested cost per capacity than we've seen historically, driven by the larger plant size and some escalation in the cost of construction.
across the economy generally, but more importantly, by the certainty we are securing in the timeline of plant delivery and the guaranteed fixed cost of a completed standardized plant that can be replicated quickly.
On the basis of this investment, we continue to expect a five times or better project level adjusted EBITDA investment multiple for our Greenfield plants.
Here, like a lot of the aspects of our business, we are able to manage cost escalation by increasing revenue at a greater rate and on the basis of higher priced contracts that will underpin our new plant investments.
We expect that our plant level adjusted EBITDA for these new facilities will be between $75 million and $90 million on an annual basis, when each production ramp is complete.
This higher expected annual adjusted EBDA, the plan is driven primarily by increases in gross margin from first.
the expected annual adjusted EBDA, the plan is driven primarily by increases in gross margin from first price escalators in our contract.
For example, UK inflation for 2022 is expected to be over 10%, which sets a higher base for revenue generated from our UK contract. 2. New contracts being priced in a favorable contracting environment, which is supported by the rising EU carbon price. 3.
The reprising of legacy volumes with customers seeking to secure more volumes over a longer term for lower price contracts rolling off and being replaced by higher price contracts and five Better planned utilization rates and lower operating costs due to redundancies and improvements in our plant design
We're also making progress on our plans to start construction of our planting bond Mississippi. Bond is designed to be similar in size to our F-sucinity and we expect to begin construction during the second half of 2023 subject to the receipt of necessary permits.
and with a completion date planned for the middle of 2025. Epson Bondo, the second and third planned in our growing Pascagula cluster, and plans are on the way for the cluster's fourth plan.
One of the very attractive aspects to building out the Pascagoula cluster is the operational leverage we have at our Deepwater Marine Terminal and the enhanced returns we expect to generate as we add new plants and increase terminal throughput.
We expect to make a decision on the site for our fourth Pascagoula cluster plan around the end of this year. Now with the new plant design and the path forward to partner with an EPC firm, we plan to construct four new greenfield plants over the next four years, including Epps. We have the flexibility to upsize that, but are focused on our plan.
of four plants in four years for this next phase of growth. Before we open the call for questions, I'll give a quick recap of what we've discussed this morning. First, there really has never been a better time to be in this business. The macro tailwinds behind our niche of renewable energy are driving an unprecedented level of demand. Second, but for an unanticipated accounting treatment,
We achieved our adjusted EBITDA guidance for both fourth quarter and full year 2022. Third, we have significant growth for CAST-4 2023, which is underwritten by our existing contracted backlog. And fourth, our investors did know us the best.
are increasing their investment positions, giving their strong level of conviction in what this business can and will do. Before we open up the call for Q&A, I want to take a moment to acknowledge the effort our NVIDIA team puts in. They in and they out, driving the company forward.
on this tremendous growth path we're on. I am very proud to see that our team continues to focus without distraction on what is core to Enviva. Ensuring our continued safe, reliable, sustainable operations.
that deliver climate change benefits today. Now let's open the call for questions. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster.
Our first question comes from El Vira Scato from RBC Capital Market. Please go ahead.
Okay, thank you and good morning everyone. Can you just provide a little more detail or walk through this deferred gross margin? Why do you record the cash received? But then that doesn't flow through EBITDA until 2024 and 2025. And then also can you just confirm that there's no EBITDA? Okay.
this a little bit. So as we said in our prepared remarks
We sold 40,000, 50,000 tons to this customer. And the underlying margin that we would have generated from that customer was about $32 million in incremental margin.
At the same time, we found an opportunity to...
5 volumes for future periods from that same counterparty.
And we do that routinely, as we've said, 15 to 20% of our volumes come from third-party purchases. And in this particular case, it was very attractive to do for future periods.
And the accounting treatment...
though meant that we had to lump all these sales and purchases together Which deferred 89 million dollars in future periods to answer one of your questions Elvira that we do not expect a benefit or the
that deferred margin to flow through 2023. We do expect that margin to flow through equal parts 50-50 in 24 and 25. Shaj, do you wanna add? Yeah, in Elvira, of course, we collected 100% of the cash from the sale of $175 million.
About $102 million was collected during the fourth quarter of 2022 and the rest after the kind of like after the beginning of the year. And $102 million cash collected from the customer because of the counting of, as we mentioned, we...
The third-ghost margin transaction is now presented, even though it's cash collected for the sale of finished goods is now presented in cash from open activities as opposed to what you normally see for a cash receipt for finished goods being presented as part of the cash from open activities.
And let me just add for 2023, when you look at our cash flow from operations, what we expect is that our normal force of business fulfilling our contracted backlog in 2023 will generate operating cash flow
that will not only cover our dividend that we've guided to, but in fact exceed that dividend. So that I think is important to note, what you should expect from us and what we have conviction around for 2023. Okay, thank you. That's helpful.
Then can you just walk through? So you reported 155 million of EBITDA in 2022. Your guidance, you maintain your guidance for 2023. So can you just kind of walk through how you get from 155 to...
cost savings that you expect.
A very, very good question. So first of all, of course, given that we sold those shipments to that customer, they were used in the power plant. We've received the cash to get from 155 to 305 to 335.
You add the $89 million of course, which was generated from the underlying business as these ships were loaded, sold and cash was received.
to get to our guidance from our operations to two elements on the one side, the revenue side, on the other side cost reductions and let me unpack that a little bit. To start your last question around the spot sales.
Market price was higher in the later part of 2022 than we had seen historically and that is not something that we expect on a go-forward basis.
While the market is tremendously structurally short, our guidance does not include selling the spot chips at those elevated prices. I just want to start there. The fundamentals of our guidance is on the basis of long-term agreement.
They do get adjusted for inflationary adjustments as we have said And so you certainly will see that flowing through Some of our contracts some roll off, but some new contracts will start We will start to deliver against in 2023 and that will
drive incremental margin into our business because they are higher priced. As you've heard us talk about the contracting environment that we're in, given the alternatives of the high price alternatives of any fossil fuel plus carbon pricing.
for not only today but also from a future former curve perspective, we do see a very favorable pricing environment. We have executed some of these contracts that will flow throughout our revenue line.
Now let's turn to the cost side. I think the biggest difference you will see comes from improved fixed cost absorption. Why do we have such conviction around that fixed cost absorption is because our plans have proven that they can do it in the later part of 2022. As you've heard us saying the past.
We commissioned our loose tail plant in 2022 and it is fully rammed. In addition to that, we had very creative, up-sizing opportunities over the last year or two in some of our existing plants. They have been completed and those plants have shown that they have broken through.
previous bottlenecks to now deliver volumes at an elevated rate. That fixed cost absorption will be a major driver for our conviction and our increased guidance range for 2023.
Other elements that you should also know that we've said that in our prepared remarks are certainly very different levels of energy costs that we're seeing in our business. Many months we had $9 BTO gas prices in 2022. Currently we're between $2 and $3 BTO with an appropriate hedging strategy in place.
that also flows at some of our plants through electricity cost. DeFi costs have come down. That will certainly provide some very substantial and material benefits.
flows at some of our plants through electricity cost. DeFi costs have come down. That will certainly provide some very substantial and material benefits. All that together.
If you add that our plans are fully staffed and that wood costs are coming down, we have a high level of conviction that the core of our business, what you've always heard us talk about.
I'm depend by long-term agreements and our existing fleet will provide the majority and increased, much increased EBITDA levels for 2023. Okay, great, thanks for that. And then I have another one and then I can...
come back into the queue, but why are the Epson bond plants delayed by six plus months? And then why is the average cost per plant in, are these plants fully contracted so that you have confidence that you'll still get that five times EBITDA or better returned?
So, start with the last question, absolutely. Those ex, as an example, is fully contracted. And we're already benefiting from the inflationary adjustments that we've seen our book for existing contracts that have started. Future contracts, of course, don't start to inflationary adjustments when we start delivery.
they start their inflationary adjustments when we signed those contracts. So, and on top of that, we've certainly been able for future plans to layer on incremental contract. Just...
announced today 600,000 tons and really very favorable price pricing gives me a very high level confidence that those plans would be on a five times or better Ubital multiple and generate the $75 to 90 million that we have mentioned in our in in in in our remarks. So why the why did you delay?
today, 600,000 tons at really very favorable price pricing gives me a very high level confidence that those plans would be on at five times or better, you'd be down multiple, and generate the $75 to $90 million that we have mentioned in our remarks. So why did the delay? The delay is probably about six months.
We went through a value engineering effort that took a little bit of time to make sure we can execute with the necessary flexibility, including EPC partners, that make sure that we have fixed price, fixed timeline execution path for all of our plans. Those plans are standardized with...
with all the experience that we have generated and gathered over the last two decades, I feel very, very good about that. What it allows us to do is build the four plants that we've outlined in the next four years, but certainly allow us to, above and beyond, as opportunities materialize, to replicate building those plants as fast as we can.
with the 8-Widdy-Rays that we have mentioned. We have the financial flexibility to execute this, to execute that, and more particularly as we get to self-funding mode by 2027.
that we have mentioned. We have the financial flexibility to execute this, to execute that, and more particularly as we get to self-funding mode by 2027. Thank you very much.
mentioned. We have the financial flexibility to execute this, to execute that, and more particularly as we get to self-funding mode by 2027. Okay, great. Thank you very much.
Our next question comes from Jordan Levy from True Security. Please go ahead. Hi guys, it's Henry on for Jordan. So you spoke earlier to some of the main drivers for the higher expected plant costs, following the EPC review process. I'm wondering if you have any kind of any other colored provide there, in terms of the higher costs and then what you've seen in terms of like potential financing-related implications of often going for that contracted EPC route.
So one thing I should also mention in addition to what we've said, Jordan, is that these plants are bigger, right? They are like 1.1 million-ton plants. I mean, EBS is going to be the largest wood-filling plant in the world. It certainly compares very well, the capital costs that we're generating compares well with the different comparisons that we're seeing in the market.
I think it will set us up extremely well to generate those cash flows in the time frame that we have outlined.
And then in terms of the spot price kind of advantage you talked to with the recent fall off in energy prices, do you have any more to add to that in terms of the kind of material benefits you expect to see for that in 2023?
Well, Henry, thank you very much for that question. We certainly see, we continue to see, the structural short in the market, and elevated pricing, right? That will come through in two different forms.
One is new contracts that we have signed are at elevated prices, but certainly some of the market dislocations that we will continue to see will certainly provide incremental opportunities. One of the things I just wanted to say...
is that we do not expect that prices come back to historical levels. And as you've heard us saying in the past, 15 to 20% of our supply typically comes from third party purchases. On a go, this was certainly a little higher in 2022.
The structural short that we see in the market lead to higher prices over the course of 2023 which is not part of our current guidance you certainly will see us being pushed to the higher end of the guidance And maybe be
I would add that as we mentioned, we do expect to benefit in 2023 with product sales of over 7 million metric tons. Thank you for that. The next question comes from Pavel Molkanov from Raymond James. Please go ahead. Thanks for taking the question.
Is it fair to say that the equity offering is accelerated from perhaps what you guys were indicating three, six months ago when...
I think that the messaging was more, you know, maybe a year from now or something long those lines. But, Bob Elf, good to hear you. Thank you for that question.
the messaging was more, you know, maybe a year from now or something along those lines. But, Pavel, good to hear you. Thank you for that question. Look.
The equity offering is such a great statement and I'll vote to confidence. I can't. I want to talk more about this if I can.
But why did we do it? On the one hand, we wanted to eliminate any perception of high leverage. We certainly wanted to show up our balance sheet and provide the financial flexibility to execute our growth strategy without having to look at that again.
We now have any options available to us, whether it's project finance, you've heard us talking to us about the municipal bond offerings. I think we're incredibly well suited to execute that strategy now. Build those four plans and if we can build more, we will do so with what we now have secured.
And I am incredibly grateful to the people who know our business best that they stepped up in the way that they did. It is an incredible voter confidence that I am grateful for that.
Understood. How long do you think this equity injection will last?
So can you commit to not doing any additional equity issuance in 2023? So by the great question, so we do not see the need for any equity raise for anything that we outlined that is our path to build these four plans.
and go forward. So yes, I can certainly say that. And with the plan that we've outlined to build those four plans, it will get us, and I'm a high level of confidence to our self-funding mode in 2027.
And in parallel, as we mentioned in our per-term arc, with this equity of rates through the pipe of $250 million, we do expect not only on a performer basis at the end of 2022 to be within our financial policies with the leverage other five times, approximately 4.7 times, but also based on our focus for the end of 2022.
feel very good about our level of dress here and there is no need to approach again the equity capital market and to raise additional equity. Okay, and then question also about pricing in queue for reasons you've talked about kind of a messy quarter.
pricing for ton you know dropped about 10% sequentially. We'd peak that $257 a ton in Q3.
For 2023, should we assume pricing around 250, I mean, what's the trajectory for that? Yeah, for 2023, we are expecting a reduction overall in average price per metric tone. So we do like excluding the effects of the adjusted growth margin transaction in 2022.
We had like overall adjusted growth margin per metric ton of around $60. We do expect, as we mentioned before, for 2022 adjusted growth margin per metric ton of over $50, but not as high as $60. We don't include in our guidance of $305 to $335 million for 2023. We don't expect such a benefit from the commercial activities that we've seen in 2022. But theGood Amen
Okay, so something closer to 200 aton? No, no, we're expecting well over 200 dollars aton is a revenue per metric ton. It's a revenue per metric ton, but I just wanted to highlight the adjusted growth margin per metric ton, which is based on our projections over 50 dollars per metric ton for 2023.
reduced reliance on fossil fuels more quickly and more cost-effectively.
from secure sources and that is exactly what we offer. We are laser focused on execution this year and I look forward to providing progress updates throughout the coming months. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.