Enviva Inc. Q1 2023 Earnings Call
Good morning, and welcome to the Inc. First quarter 2023 earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing with Ducky followed by zero.
After today's presentation there'll be an opportunity to ask questions.
Please note this event is being recorded.
I would now like to turn the conference over to Kate Walsh, Vice President of Investor Relations. Please go ahead.
Good morning, everyone and welcome to <unk> first quarter of 2023 earnings Conference call.
We appreciate your interest in and support of <unk> and Viva and thank you for your participation today.
On this morning's call, we have John Keppler Executive Chairman of the Board Thomas.
Thomas Smith, President and Chief Executive Officer, Shai, even executive Vice President and Chief Financial Officer.
Our agenda will be for John 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 up the call 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 results to differ materially from those.
Forward looking statements can be found in our earnings release as well as in our other SEC filings.
We assume no obligation to update any forward looking statements to reflect new or changed events or circumstances.
In addition to presenting our financial results in accordance with GAAP.
We will also be discussing adjusted EBITDA and certain other non-GAAP financial measures pertaining to completed reporting period as well as our forecast.
Information concerning the reconciliations of these non-GAAP measures to their most directly comparable GAAP measure and other relevant disclosures is included in our earnings release.
Our SEC report earnings release, and most recent investor presentation, which contain reconciliations of non-GAAP financial measures. We use can be found on our website at MPV biomass dot com.
I would now like to turn the call over to John .
Good morning.
Thank you for joining us.
It's clear from our earnings release, and 10-Q filed yesterday.
But the cost and productivity challenges of the first quarter that the team outlined a month ago are deeper and more significant than understood at the time.
And that the positive effects of the improvement initiatives are taking longer than expected with the benefits expected to be realized still ed.
The poor operating performance at the end of last year combined with limited progress in a very disappointing first quarter is a reality that the team is internalized and as a result, the company is resetting guidance. This morning.
Thomas will walk through that guide given our revised expectations about what the company can accomplish in the near term.
As well as highlight some important changes he has made to the operations leadership in the company to get the team better aligned on how to reliably deliver the productivity and cost position, we have demonstrated possible.
With that reset in the quarterly guidance provided.
You can expect the team to report on our progress clearly and consistently throughout the year, describing where we have engineered improvement and where we have more work to do.
Also as part of this reset.
Our board of directors in consultation with management undertook a process to reconsider and view this capital allocation policy.
After a careful review of potential alternative uses of cash flow.
The board has decided to revise N V. This capital allocation framework by.
By eliminating the company's quarterly dividend in order to prioritize maintaining strong liquidity and a conservative leverage profile.
Maintaining our investment plans to increase the efficiency and cost position of our existing plants.
Generating internal funding and timing flexibility for our current investment plans and new fully contracted plant and port assets.
And authorizing an opportunistic share repurchase program.
This shift in capital allocation also gives us flexibility to potentially accelerate organic and inorganic growth in the future.
With less reliance on accessing the capital markets.
We firmly believe this revision to our capital allocation framework is the best way to create durable value for all of them be the shareholders.
These changes reposition and veeva from a yield and growth company.
To a pure play a growth company.
I think the market has been telling us for some time.
And given the robust opportunity set in front of US we are improving our ability to take full advantage of the highly visible long term growth that.
Okay.
As many of you know I stepped down from in vivo last year too.
To deal with some difficult medical issues.
I'm very fortunate to have those largely behind me now.
But I'm also privileged to have the opportunity to be back at it would be the.
In a different role than before.
But no less committed to the company's success.
Unlike the other members of the board no less convinced in our ability to return to the high levels of financial performance you've seen from us historically.
Now I'd like to turn the call over to Thomas.
Thank you John and good morning, everyone.
I'm going to take some time to walk through our first quarter results and our 2023 guidance update.
As it is a significant change to our expectations.
Let's start with first quarter results.
When we held our Investor day discussions a little over a month ago. We knew we would have a soft first quarter.
But he was only when we completed closing the March books and had a view on preliminary results for April that we fully understood the depth and extent of the softness.
We reported $3 4 million of adjusted EBITDA for the first quarter of 2023.
This is a significant departure from our original expectations of approximately 40 million to $50 million.
There are four main drivers of the difference between actual results and expectations.
First as.
As we discussed at Investor Day, we have.
Customer mix impacting our results.
This is a straightforward shift of higher priced deliveries with lower costs from the first quarter to the second half of this year.
But it accounts for about $16 million of that difference.
Second we had approximately $10 million of unplanned repairs and maintenance expenses during the quarter. This is very high.
Unpacking this a bit in select plants operations leadership, a prototype production of our cost management.
And we saw cost Overages as a result.
I call these tons at any cost and that isn't the way to run a plant.
To address this we are actively changing our culture.
Discipline and controls around cost management.
And to that end, we've made some operational leadership changes exiting two of our senior operations executives that were elevating leaders in general managers in the company that have demonstrated strong commitments to both cost and operational discipline, especially safety.
Yeah.
The third area of pressure on our results this quarter relates to approximately $5 million of costs incurred related to professional fees some types of plant optimization initiatives.
We have one plant that is significantly underperforming our expectations and we are a highly specialist firm engaged to help us turn it around.
And those isolated costs are reported in the first quarter.
Yes.
We also incurred extra accounting and financing fees during the quarter in part due to the complicated fourth quarter and year end, we went through.
Fourth and final we.
We did have some shipments that were subject to the deferred gross margin transactions accounting.
With similar treatment to what we saw at year end. This accounted for approximately $4 6 million and we expect that the barrels will reverse in 2024 and 2025.
All of that adds up to.
$36 million degrade from what were expecting at the beginning of the year.
The very difficult start to the year end.
And while production costs in the first quarter are generally our seasonally most difficult.
The improvements in cost and productivity are not materializing at the rate we expected when we enter 2023.
Based on results from the first four months of the year, we've taken a more conservative view on what this business will deliver in the short term.
And we are reducing our adjusted EBITDA expectations for 2023 from 305 million to $335 million.
$200 million to $250 million.
Let me unpack the two main drivers of the step down in guidance.
Approximately $30 million of the decrease between the previous guidance midpoint of $320 million.
The revised midpoint of 2000 $25 million is related to the weakness in the first quarter of 2023.
The remaining $65 million is related to shifting timing expectations as to when productivity and cost improvements are fully realized.
To breakdown the revised guidance further.
Providing quarterly expectations for the next three quarters to improve transparency.
Around our realistic expectations for the remainder of the year.
For the second quarter, we are forecasting adjusted EBITDA to be in the range of $20 million to $30 million.
For the third quarter, we're forecasting adjusted EBITDA of between $70 million from $90 million.
For the fourth quarter of 2023, we are forecasting adjusted EBITDA of between $110 million and $130 million.
The ranges are primarily driven by our assumptions around production levels and our ability to drive costs out of the business.
I am personally overseeing our operations team now.
I know there is a lot of ground, we can make up in the near term to get back on track and it's my responsibility to do just that.
As I've said, we are making progress.
For instance from.
From December to March we reduced the delivered cost of raw material to the company by approximately $3 per ton.
And drove fixed cost per ton across our total plants down approximately $6 per ton.
While it is clearly not been as fast as we expected. It's also not as hard as it sounds.
It does however require diligent day to day management.
And alignment of the team and how we execute this strategy.
We have a portfolio of 10 plants three of which those in Lucedale Continental Waycross are consistently capable of outperforming expectations on both volume and cost.
They are also our largest plants.
Four of our plants performed reliably but at production rates with costs that are off from the demonstrated performance.
Two of our plants Greenville in South Hampton.
What we call dry a limited meaning that we're either bottleneck that the drive because of its inherent you evaporative limitations to reduce the moisture content in the raw material, which is the case at Greenwood or on a reliability or operability basis, which is the case at Southampton.
Where the original dry align needs refurbishment.
With plans in place for each of these challenges and opportunities.
Around the general management philosophy of staffing office synergies.
Well trained operators, who skillfully and safely deliver reliable output continuously improved over time.
Led by effective managers within a deeply understood and controlled cost position.
Factoring 101, the blocking and tackling of standard work.
Known and managed equipment set points and eliminating unplanned downtime.
This is what we call operational discipline.
We have that in spades at way cross Continental Lucedale and.
And have much of that in place at each of our other facilities.
The exception is Southampton, where in addition to the technical challenges, we have staffing and turnover issues that are also sustaining and a way of progress.
That's also a big reason why we have brought in a third party operational improvement consultant to assist.
When we successfully execute this year and make up the lost ground like I know, we can we will exit this year roughly at the run rate we expected when we started 2023.
I'll now turn it over to Shai to take us through a deeper dive of our finance.
Thank you Thomas and good morning, everyone.
Let's start with first quarter results.
We generated net revenue of 269 on $1 million for the first quarter of 2023.
As compared to $233 million for the.
The first quarter of 2022.
Net loss for the first quarter of 2023.
$116 9 million.
As compared to a net loss of $45 million for the first quarter of 2022.
Net loss for the first quarter of 2023 included noncash interest expense associated with the deferred gross margin transaction.
41 4 million.
Adjusted gross margin for first quarter of 2023 was $21 3 million.
As compared to $57 million for the first quarter 2022.
The decrease year over year.
Is attributable to the cost and volume challenges Thomas discussed earlier.
Adjusted gross margin per metric ton was $17 93 for the first quarter of 2023 compared to $46 in 2007 for first quarter 2022.
Adjusted EBITDA for first quarter, 2023 was $3 4 million.
As compared to $36 6 million.
For first quarter 2022.
And we've as liquidity as of March 31st 2023.
$634 4 million.
Which includes cash on hand, including cash generally restricted to funding a portion of the cost of all air Sellaband plan and bond, Mississippi plant and availability under our senior secured revolving credit facility.
Our growth plan for 2023 is not changed and we expect to invest in total capital expenditures in the range of 265 million to $415 million.
With the majority of the spend on our Greenfield developments.
We expect to invest approximately $310 million.
At the midpoint of our expectation in the build out of our apps and bond plans.
With approximately $60 million being invested in projects across our fleet to improve volume and cost profile.
Primarily directed to our underperforming plants.
Similar to prior year.
Capex spend is scheduled to be backend weighted.
We continue to expect.
And both mentally 20 million during 2023 on maintenance Capex.
I also made meant to conservatively managing and Veeva <unk> balance sheet remains unchanged and we continue to target a leverage ratio of three five times to four times as defined in our credit agreement.
We expect to exit 2023, a little above that.
But it will be temporary and we expect to get back to our target range early in 2024.
As a reminder, our covenant threshold under the credit agreement is five bond seven five times.
With that I would now like to turn it back to Tomas.
Yeah.
Thank you Scott.
Look disappointing start to the year no question.
March and April certainly starting to look better but improved.
Improvements are not as fast.
As we need it and as we expected.
Our short term focus has to be on improving productivity.
And reducing costs as quickly and durably as we can.
Although our near term outlook has changed the long term growth profile of our business and industry.
Has never been stronger.
Worldwide demand for our products continues unabated.
Yesterday, we announced a new sizable take or pay contract with an existing Japanese customer for 300000 metric tons per year with delivery starting in tandem with the new capacity, we have coming online.
In Europe , the European Union will finalize the text related to its renewable energy directive three over the next month.
Which we expect will continue to provide demand tailwind, but what are your biomass.
Given how important this renewable resource Institute, a net zero targets of the EU member Nations.
Our industry continues to be persistently structurally short supply to.
So signing new contracts like the one we just announced.
New production capacity must get built.
And therefore, these new contracts are underwriting or large scale fully contracted capacity expansions.
Yeah.
As a reminder, our new capacity is modeled.
After Lucedale Cottoned Balan waycross.
Which are as I've said, our best performing plants.
Currently.
Our ebbs, Alabama plant is under construction and progressing well.
<unk> is expected to be operational.
Mid 2024.
For our bond, Mississippi plant, we're moving forward with partnering with an EPC firm, which will help provide cost and construction of certainty and we plan to construct at least two new greenfield plants up the bonds.
This approach as well.
Before we open the call for questions I'll give a quick recap of what we've discussed this morning.
To start off our results this quarter were much softer than we expected mainly driven by cost position that is not acceptable, but we believe it can be remedied in the short term.
We do know what the problems are and we're taking the necessary steps to fix them, but we are recalibrating up forecast as to when we will realize the full benefits of our actions.
And that has led us to reduce our 2023 guidance expectations.
We also have taken a very hard look at our capital allocation priorities and in lieu of maintaining a dividend.
We have revised our policies to focus first and foremost on liquidity and leverage.
With improving our operating cost position and asset productivity, a very close second priority.
Our third priority is to Opportunistically return capital to shareholders through share repurchases and fourth.
To the extend it is appropriate we will accelerate our greenfield developments.
We have a lot of work to do to rebuild the strengths of this company and regain the ground we have lost.
We know what needs to be done.
And those fixes are exactly what you will see us execute over.
Over the coming months and quarters.
Now, let's open the call for questions.
Thank you.
We will now begin the question and answer question.
To ask a question you May press Star then one on your telephone keypad.
Thank you are using a speakerphone please pick up your handset before pressing the keys.
John Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our Boston.
Our first question comes from Elvira Scotto with RBC capital markets. Please go ahead.
Hey.
Good morning, everyone and thanks.
Thanks for the detail that you provided them, but I guess I'm.
I have a few questions first.
What.
Maybe a little more detail here on on what changed materially from the analyst day on April 3rd when you first quarter was already done.
And you you kind of a.
Affirm the guidance.
And now to cause such a big downward revision to EBITDA and then you mentioned that you believe you can remedy these issues, but why do you believe you can remedy these issues in the short term.
Avaya Great question, Thank you and good morning.
Let me let me, let me walk you back a little bit to how we got to where we are.
As we prepare the plan for 'twenty to 'twenty three.
We were benefiting from the productivity and cost profile of September and November .
October September October November .
And we've made great progress the plants were running well cost position was good that gave us a lot of confidence for where we're going into into 2023.
We.
And as we then moved into December as we pre released previously thought talked about Cuba polar vortex set us back.
And created certainly a little bit of noise into Q1.
When we went to Investor day, we thought they were behind us volume had recovered.
We do not have March results, our April was alts, yet and what we realized was.
That the January and February .
The polar vortex blurred our operational challenges.
The cost position that we then.
Realized in March and April was substantially higher than we had thought we thought where we're going to be $20 lower than we ended up we drove some cost out, but certainly nowhere near what we actually expected.
And so all in all when we were at the Investor Day, We knew we had pressure of about $15 million.
In our cost position, but it ended up being more closer to $30 million and call in.
In.
In the in that cost position and so when you when you think about.
What it left us in April still challenged challenging better again than March.
But but but again not where we need to be.
And so.
With that in mind.
We have to reset expectations here and just provide a much more realistic cost profile.
Your second question is how do we drive cost out right.
We've actually made really good progress on the volume still not quite where we wanted volume to be in February March.
But.
We never made more tonnes as an as an enterprise than in February and March.
And so it's really primarily.
Cost position issue.
Our R&M repairs and maintenance costs.
We exceeded our expectations, but we know how to manage that on an ongoing basis, our contract labor was way higher which has lacked disciplined there.
And then as we as we talked in the prepared as we've talked about in the prepared remarks.
Throughout the last couple of weeks, we took a deep dive into the south Hampton plant that was really disappointing and we realize that it's going to take us more time and more effort.
To get that plant to the potential that it is going to have.
So when you think about what does that mean for the guidance going forward right.
We are going to drive another $10 out of our cost position in the second quarter, but compared to where we thought we were going to be it's not again, it's not it's not a revenue question. Its a cost question.
We do think that'd be about $30 million below what we.
Thought coming into this year, but from March to June $10, $12 will come out of the cost tower.
One of the things that we see.
As a real tailwind at the moment is the cost of delivered wood has come down substantially but.
When we bought the last couple of weeks is lower than any wood with Bob over the course of 2020 twos are making really good progress there.
And the cost discipline that we have now very aggressively instilled with the changes in operational leadership.
We'll show.
Substantial improvement in that disciplined and contract labor repairs of maintenance because the plants don't need to spend some of those cost buckets. It's a matter of discipline as I've said I am much closer to the plants now than I've ever been.
I'm personally managing.
The operational from an operational leadership perspective, what we need to do.
Some of our plants ran exceptionally well day in and day out.
Lucedale Waycross cottontail are prime examples of what we can do.
We are certainly elevated the leadership of those plants.
Our operations, you'll make sure that all plans.
Adhere to that discipline to get to the reliability the volumes the cost position that we know we do everyday and some of our best performing plants. Let me just add one last piece.
Before I will let you ask some more questions if you want.
All of our plants have proven that they can hit the volumes at the cost position. This is not something that you have to believe that we're going to steps.
<unk> into something that we have not seen before we've seen this before at every single one of our plan both from a volume perspective.
And from a cost plus fee perspective, and the discipline that we're instilling personally led by me will get us back on track, it's going to take us a little bit longer than we had thought and so with that we felt it's just prudent to provide a more conservative view that we know we can achieve.
Okay.
So I guess just as a follow up to that if I look at your 2022 guidance, it's a pretty wide range between the low end and the high end of your EBITDA guidance.
I guess, maybe talk a little bit about what drives the low end versus the high end and then.
I guess the bigger question is.
No.
What's the potential that you don't make the low end like what what would have you actually even missed the low end of your guidance.
So I'll.
I'll go back to we wanted to provide a guidance that is conservative thing though.
<unk>.
We don't have to.
I believe a whole lot.
But it comes down to cost position at the guidance range comes down to how fast can we drive costs down right now if we actually increased the reliability faster than than the midpoint of the range.
And create more reliability faster, we're certainly going to come out at the higher end of the range right. None of that is dependent on spot markets or revenue lifts. This is all around <unk>.
How fast can we reduce our cost per tonne.
Well, we maintained the cost improvement that we've seen in the.
With fiber.
The fundamentals of the macroeconomic fundamentals should which certainly suggests that we're on a very good path there.
And when we see the weekly.
Cost.
Of.
The wood costs that are running over our scale that gives us good confidence that we're on a very good track.
The cost discipline that we have re implemented.
We will certainly drive to the range and so I feel very confident that this is a conservative estimate if we increased volume like we had anticipated initially a little faster than.
Our conservative view, we're certainly have a shot at getting to the higher end of the range.
Okay got it and then I guess just my like my final question here.
I appreciate how difficult it was for you too to eliminate the dividend I do think from a financial.
Perspective, it does appear to be the prudent thing to do.
Hum.
But given that and whats going on whats the rationale for.
Announcing.
Buyback authorization at this time.
No. Thank you all of our I appreciate your comment that it's the prudent thing.
Look I mean the.
We've thought for a long time that our share price is.
Yes.
Our company is undervalued and certainly at where we are today.
It is it is certainly when you rethink capital allocation.
At share prices, we see today, it's certainly.
An obvious way to create total shareholder value. Thank you bye bye.
Creating a share back buyback program and so it's it's certainly.
Two.
As part of that.
Even before today, we saw our our valuation was way too low and so that is a that is just a logical consequence of that that the board considered and has given us the authorization.
Okay.
Thanks, a lot I'll I'll stop there.
Our next question comes from Mark Strouse with Jpmorgan. Please go ahead.
Good morning, Thanks for taking our questions.
Kind of following up on <unk> comments, there are questions. There did the headwinds that you mentioned can you.
Can you go into a bit more detail as far as how much of that is within your control.
I think you you mentioned just now the contract labor being too high you lack discipline. There is just a bit more color on that too.
Or how to think about that just a more structurally higher labor costs across the world.
And then the the wood input costs coming down over the past few weeks that you mentioned.
How is that being reflected in guidance are you assuming that that stays there or what level are you baking in.
Yes.
So.
I'll start with your second question. So our guidance certainly assumes that wood costs are staying.
And to your first staying where they are where we've seen them.
Now land, so I think thats that.
Certainly one part.
But more importantly contract labor is a classic example of being entirely within our.
Control right.
We are fully staffed now with told.
We're fully staffed we had a history of using contract labor when we were not fully staffed and we lost the discipline to get contract labor out at a time when we are fully staffed.
Entirely in our control is completely unacceptable.
We haven't done this at the speed that we need to.
And so.
It's a very good example that when you're fully staffed you don't need to have the same levels of overtime you don't need to have the same levels of contract labor and that will certainly be a big part of driving our cost position down.
Okay. Okay, and then just a quick follow up.
The you know the stock's down obviously pretty significantly since the peak last year.
I know that's not exactly your cost of capital.
Can you talk just generally about your cost of capital and crude including you know project level debt.
Now what that looks like and any impacts that that might have on your willingness or ability to add more production and sign more long term contracts.
Thank you Mark. Thank you for the question so as we mentioned.
During the Investor day apps is fully funded.
And during Investor Day, we mentioned that.
Is it to get like bond to position that is fully funded we mentioned about $275 million of vessel that is needed and definitely with the change in capital allocation that amount will be now loyal so.
So we don't see any.
The reason not to believe that we now with the change in the.
Capital allocation in the book.
In the prioritization of our capital allocation.
To see any reason not to continue with our growth program with the potential to even further accelerate that.
As part of the prioritization.
Okay I'll take the rest offline. Thank you.
Thank you Mark.
Your next question comes from Ryan on that Matt.
Please go ahead.
Good morning.
Okay, I'll ask was relatively simply but if the customer contracts are take or pay can you give us color as to why contracted volumes are delayed.
Into the back half of the year in your prepared comments.
Yeah, no absolutely so the contracts are take or pay and.
When a customer has a an operational challenge for example.
They they will ask us.
On the basis of Hey, if you can help us we will absolutely take.
Volume right, that's always the premise right.
This requires us to actually agreed to a change when do we agreed to a change when it's accretive to us and when we get the premium.
For.
That change, which in this case, we did get and so and it's going to come back.
With a premium.
Again, we only do these kind of things.
When we get rewarded for refinance financially.
We have almost 200 ships on the water a year.
And many of those ships provide an opportunity.
Extra margin through the commercial services business. We've said previously that's about 15% to 20% of our overall EBITDA that is that continues to flow through our guidance that we that we have outlined today.
And as part of that 15% to 20% you can we call that premium that we received from the customer to move.
The $16 million into a different period.
Given the implications to the capital structure of those decisions.
Do you do you have the ability to force them to take the volumes and received the cash flow.
Yes.
The capital structure.
Yes.
It's a little bit we can.
Okay.
And then in terms of the guidance. So you think in your comments you mentioned that you knew about a bit about.
$15 million cost decline at the time of the analyst day.
When the guidance was reaffirmed could you give us a little color as to what new information you are and since then.
And on.
On that vein.
We understand some of the numbers in the transcript or the press release, you highlighted a $15 million shortfall to management expectations unadjusted EBITDA versus a $30 million shortfall at the company guidance can you help us kind of understand what the difference between somebody.
So at Investor Day, we were certainly.
We thought we might be would be trending towards the low end of the original guidance range.
But we absolutely thought we were within the guidance range.
And we thought it was still possible.
And the improvements that we.
We're on the way did not materialize and as we close the books in April .
Was lower.
Lower lower than certainly we saw at the beginning of the year, but we have not seen the cost reductions.
That we anticipated and with that.
The outlook for the rest of the year changed as we drive cost out of the business, we certainly starting at a higher cost base.
And so that's why we have to acknowledge that.
With a reasonably conservative view.
Q2 will be about $30 million in EBITDA lower than we had thought and the remaining $35 million will.
We will be divided over Q3 and Q4 again, we believe we can drive costs out of the.
Organization exactly like we had anticipated from a.
Goal perspective, but it's going to.
And with that where it's just shifting a little bit to the right. The other piece of information is that over the last couple of weeks, our deep deep dive in Southampton clearly indicated that it's going to take us longer to rebuild that dry up that we've outlined.
That's another reason that setting us back.
Okay, and then just to follow up on the bad debt.
$50 million shortfall versus management expectations or is it $30 million shortfall versus company guidance, what's the difference.
Yeah.
We didn't really.
Ryan for the first quarter, we didn't really provide guidance for the first quarter.
I think that the lake.
We can take this.
No.
So we moved $16 million into the different period.
And $30 million is as is the miss on the on a cost basis compared to our original budget right.
And so that's why we printed if you take this together.
16 of 30, we printed $4 million.
And we had $4 $6 million of incremental <unk>.
Okay. Thank you.
Next question comes from Tim <unk> with Raymond James. Please go ahead.
Thanks for taking the question.
A month ago, you, obviously, we're sticking with the 95 cent dividend and today you zeroed it out.
What was the thinking in doing a full dividend suspension instead of a cart.
50% or even even 75% preserving some some kind of income for the investor.
Great question, So the board evaluated and found more accretive value for our shareholders.
And shoring.
Shoring up our balance sheet.
And an investment in our current fleet clearly necessary.
And future asset.
Okay.
Future asset growth.
Yeah.
And of course, the return of capital through the share buyback was certainly another consideration that from an accretion perspective and for total shareholder return and when you think about the priorities that we've outlined first.
Liquidity and leverage.
Secondly.
Investing in our existing asset fleet.
Third.
The share buyback program and full.
Although the right circumstances.
Moving up some of our investments in new plants.
All of this together led us to believe that a complete elimination of the dividend.
It was a.
A better new.
Capital allocation strategy than any of the alternatives.
Okay.
Will you ever consider restoring the dividend and if so under what circumstances.
So absolutely avail.
We have not moved away from our growth program here right. We believe in 2026, we're going to hit $500 million in EBITDA.
Right that has that is certainly not changed right and we believe where we're going to build that requires two more plants to get to 500 million in EBITDA and <unk>.
Restoring our cost structure.
Those are the two key elements that we need.
And then beyond that we can certainly generate more growth.
But we are getting to a point, where we're certainly going to be able to.
Consider.
Going back to.
We're paying a dividend.
Without in any sort of form.
Limiting our growth potential.
But the one thing that's clear is that when we look at our opportunities and our potential.
The focus on growth is certainly.
A key part of our strategy.
And the tailwind from Red three.
That we.
Just talked about a couple of weeks ago are certainly material Japan.
We just evidenced both potentially in Japan by signing another contract with a Japanese customer right. So growth is certainly the focus of this company in the medium term and as part of that growth profile, we're going to generate cash that will allow us eventually to revisit.
Our capital allocation program.
And lastly, can we get an update on all of our fields.
The sustainable aviation fuel space in general is still growing very very strongly.
We continue to work with.
Many counterparties in that space.
All of them are asking the same question, whereas the whereas the wood fuel coming from.
And whether it's in the boardrooms or whether it's in their financing questions and we are providing a key.
For that and we were one of the only ones who can provide that solution.
That is that is something we're working on with Alder.
But it's not limited to alder all those progressing.
And we believe that.
As like.
Like many other companies are going to successfully deploy capital too.
To build plants to generate sustainable aviation fuels and so one of our great partners and we have many more that were working with.
Thanks very much.
Thank you Pavel.
The next question comes from Jordan.
<unk> Securities. Please go ahead.
Good morning, all and thanks for taking my question.
Thomas maybe start out with you I wanted to see if I could get a sense of how you all have historically look to evaluate.
Productivity and cost profiles on a plant level basis.
How you're thinking about that.
The potential changes there as we go forward.
Yes.
So when you go back to.
2000 22021.
We had.
A strong sense of cost control.
Our cost position was predictable.
And then as we went into 2022 cost position certainly went up right. We initially thought it was more temporal through.
The war in Ukraine, and inflationary pressures, we really struggled through the first quarter with pandemic related issues.
And it certainly turned out debt and we had expansions.
We did at many other plants.
And so what we've seen in September October November is that these expansions, we're starting to really flow through on a daily basis.
And where we have struggled a little bit is certainly on the reliability of those new plants.
We have.
Certainly struggled a little bit with you.
Third party cost management.
And we have struggled with turnover right.
And particularly those elements.
The good news is many of these if not all of them are actually within our control.
Right.
And so.
We believe we can get the cost down like we've said.
We certainly working very hard to train people.
Issue with turnover is not that you cant replace people, but it takes six months for these people to be the necessary operators that they can actually.
Problems solved independently and in Nigeria for example, in our plan right.
We've made good progress there, but not as fast as we as we saw right and so.
We know what needs to be done.
Alright.
We have the skilled labor in place and the retention plans.
And productivity is driven by uptime, all the plants right. In addition to cost management.
And the optimal the plants.
Is not in some plants is not quite where it needs to be.
It's a core focus of ours.
I think we're making we're making progress as I've said and the trajectory will show we will report out on this on the progress.
We will provide.
On a go forward basis, given that this in the short term is our number one key initiative will provide more detail as we go forward that.
Is that the analyst community as well as our investors can measure progress.
I appreciate that and maybe shifting over to the contract side as we go through 'twenty three and into 'twenty for you Bob.
Large portion of the mix starts to shift over to Japan.
Japan contracts I'm, just curious if that acts as a another headwind in terms of cost and higher shipping costs.
You all addressed that in your thinking.
Absolutely. It's a great question. So no this will not.
Have any negative implications in fact.
We of course.
<unk> received a headline price that accounted for higher shipping costs right.
So a lot of these contracts that we have in Japan should provide the same or better margins like we're like we've seen historically I will also say that the contract and the contracting environment right now is certainly providing us with an opportunity to.
Enter into contracts at a substantially higher.
Contract price than we've seen historically.
Certainly pricing is up 20% for compared to what we've seen historically and so that will start to roll through that actually we will start to roll through already in the second half of this year.
That's why.
For Q1 was $219 on average it's going to be joining $34 for this year.
And certainly as the contracts roll rolled through Youll see revenue per ton increase.
Thanks for that Thomas.
I appreciate I appreciate that thank you.
This concludes our question and answer session I would like to turn the conference Okay.
Thomas for any closing remarks.
Thank you everyone for taking the time to join us today.
We've outlined today that in the short term number one priority is cost reductions.
Our revenues are as expected our costs.
Position is not.
We will fix that we have that in our control and we'll report out on our progress.
And we look forward to providing progress updates on that and our business throughout the coming months as we execute that improvement plan.
And deliver much better quarterly results going forward.
Thank you for joining us today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.