ENVIVA INC. OnDecember 31, 2021 ,Enviva Partners, LP (the "Partnership") converted from aDelaware limited partnership to aDelaware corporation (the "Conversion") named "Enviva Inc. " References to "Enviva ," the "Company," "we," "us," or "our" refer to (i)Enviva Inc. and its subsidiaries for the periods following the Conversion and (ii)Enviva Partners, LP and its subsidiaries for periods prior to the Conversion, except where the context otherwise requires. References to "our former sponsor" refer toEnviva Holdings, LP , and, where applicable, its wholly owned subsidiariesEnviva MLP Holdco, LLC andEnviva Development Holdings, LLC . References to "our formerGeneral Partner " refer toEnviva Partners GP, LLC , a wholly owned subsidiary ofEnviva Holdings, LP . Please read Item 7, "Basis of Presentation," "Corporate Conversion" for information regarding the Conversion. Please read Cautionary Statement Regarding ForwardLooking Statements beginning on page 1 and Item 1A. "Risk Factors" for information regarding certain risks inherent in our business. Business Overview We are a growth-oriented company originally formed as aDelaware limited partnership in 2013 that converted to aDelaware corporation named "Enviva Inc. " We develop, construct, acquire, and own and operate, fully contracted wood pellet production plants where we aggregate a natural resource, wood fiber, and process it into dry, densified, uniform pellets that can be effectively stored and transported around the world. We primarily sell our wood pellets through long-term, take-or-pay off-take contracts with creditworthy customers in theUnited Kingdom , theEuropean Union (the "EU"), andJapan , who use our pellets to displace coal and other fossil fuels to generate power and heat as part of their efforts to accelerate the energy transition away from conventional energy sources. Our wood pellets meet the criteria put forth by theEuropean Union's Renewable Energy Directive ("RED II") which includes biomass in its definition of renewable energy. The wood pellets we produce are viewed by our customers as a critical component of their efforts to reduce life-cycle greenhouse gas emissions in their core energy generation or industrial manufacturing processes and mitigate the impact of climate change. We believe that our wood pellets also have potential applicability to hard-to-abate sectors like steel, cement, lime, chemicals, and aviation fuels, where their use could reduce greenhouse gas emissions on a lifecycle basis. We own and operate ten plants (collectively, "our plants") with a combined production capacity of approximately 6.2 million MT of wood pellets per year ("MTPY") inVirginia ,North Carolina ,South Carolina ,Georgia ,Florida , andMississippi , the production of which is fully contracted, with a few of our contracts extending well into the 2040s. We export our wood pellets to global markets through our deep-water marine terminal at thePort of Chesapeake, Virginia , terminal assets at thePort of Wilmington, North Carolina , thePort of Pascagoula, Mississippi , and from third-party deep-water marine terminals inSavannah, Georgia ,Mobile, Alabama , andPanama City, Florida . In 2022, we commenced construction of our fully contracted wood pellet production plant inEpes, Alabama (the "Epes plant") which is designed and permitted to produce more than one million MTPY of wood pellets. In addition, in 2022, we commenced the development, subject to receiving the necessary permits, of a wood pellet production plant inBond, Mississippi (the "Bond plant") which is designed to produce more than one million MTPY of wood pellets. All of our facilities are located in geographic regions with low input costs and favorable transportation logistics. Owning these cost-advantaged assets in a rapidly expanding industry provides us with a platform to generate stable cash flows. Our plants are sited in robust fiber baskets providing stable pricing for the low-grade fiber used to produce wood pellets. Our raw materials are byproducts of the sawmilling process or traditional timber harvesting, principally low-value wood materials, such as trees generally not suited for sawmilling or other manufactured forest products, and tree tops and limbs, understory, brush, and slash that are generated in a harvest. Our primary sales strategy is to fully contract the wood pellet production from our plants under long-term, take-or-pay off-take contracts with a diversified and creditworthy customer base. Our long-term off-take contracts typically provide for fixed-price deliveries that often include provisions that escalate the price over time and provide for other margin protection. For 2022, our production capacity from our wood pellet production plants was contracted under our existing long-term, take-or-pay off-take contracts. In addition to generating durable cash flow from long-term, take-or-pay off-take contracts, we monitor sustained dislocations in the marketplace, and opportunistically transact when pricing dynamics and contract flexibility provide avenues to generate incremental gross margin. These commercial activities are aligned with the terms of many of our off-take contracts, which generally provide us with the opportunity to flex a certain percentage of contracted shipments up or down. That flexibility, enabled by our multi-plant profile and scale, can create opportunities to optimize our gross margin when we sell under short-term contracts in times when spot market prices are elevated or, conversely, to purchase third-party volumes during times when spot market prices are depressed. However, these commercial activities are subject to market dynamics that can vary drastically; as a result, the financial impact of these activities may vary significantly from period to period.
Our largest customers use our wood pellets as a substitute fuel for coal in dedicated biomass or co-fired coal power plants. Wood pellets serve as a suitable "drop-in" alternative to coal because of their comparable heat content, density, and form. Due
30--------------------------------------------------------------------------------
Table of Contents
to the uninterruptible nature of our customers' fuel consumption, our customers require a reliable supply of wood pellets that meet stringent product specifications. We have built our operations and assets to deliver and certify the highest levels of product quality and our track record of reliable deliveries enables us to charge premium prices for this certainty. In addition to our customers' focus on the reliability of supply, they are concerned about the combustion efficiency of the wood pellets and their safe handling. Because combustion efficiency is a function of energy density, particle size distribution, ash/inert content, and moisture, our customers require that we supply wood pellets meeting minimum criteria for a variety of specifications and, in some cases, provide incentives for exceeding our contract specifications. Basis of Presentation Corporate Conversion We converted from aDelaware limited partnership to aDelaware corporation effectiveDecember 31, 2021 ; consequently, results for periods throughDecember 31, 2021 reflectEnviva as a limited partnership, not a corporation. The primary financial impacts of the Conversion to the consolidated financial statements were (i) reclassification of partnership capital accounts to equity accounts reflective of a corporation and (ii) income tax effects. On the date of the Conversion, each common unit representing a limited partner interest in the Partnership issued and outstanding immediately prior to the Conversion was exchanged for one share of common stock of the Company, par value$0.001 per share. Simplification Transaction OnOctober 14, 2021 , the Partnership acquired our former sponsor and our formerGeneral Partner , and the incentive distribution rights held by our former sponsor were cancelled and eliminated (collectively, the "Simplification Transaction") in exchange for 16.0 million common units, which were distributed to the owners of our former sponsor. In connection with the Simplification Transaction, we acquired certain assets under development, as well as off-take contracts in varying stages of negotiation. Additionally, our existing management services fee waivers and other support agreements with our former sponsor were consolidated, fixed, and novated to certain owners of our former sponsor. Under the consolidated support agreement, we are entitled to receive quarterly payments (the "Support Payments") in an aggregate amount of$55.5 million with respect to periods from the fourth quarter of 2021 through the first quarter of 2024. The owners of our former sponsor agreed to reinvest in our common stock all dividends from 9.0 million of the 16.0 million common units issued in connection with the Simplification Transaction during the period beginning with the distribution for the third quarter of 2021 through the fourth quarter of 2024.
We own all of the Class B units ofEnviva Wilmington Holdings, LLC (the "Hamlet JV"). The Hamlet JV owns a wood pellet production plant inHamlet, North Carolina (the "Hamlet plant"). We are the managing member of the Hamlet JV, which is a consolidated subsidiary partially owned by a third party. For more information regarding our rights and obligations with respect to the Hamlet JV, see Note 15, Equity-Hamlet JV.
Recent Developments
Leadership Transition
InNovember 2022 ,John Keppler , Chairman and Chief Executive Officer, stepped down from his responsibilities to pursue medical and surgical treatment to address a cardiac valve issue, effectiveNovember 14, 2022 . In connection with the termination of his employment with the Company,Mr. Keppler also resigned from his role as Chairman of the board of directors of the Company (the "Board"). The Company expectsMr. Keppler to return as an active Executive Chairman during the first half of 2023 and to remain available to the Company until his return. The Company entered into a consulting agreement with respect to his ongoing service as a strategic advisor to the Company. In connection withMr. Keppler's separation from the Company, the board of directors appointedThomas Meth as Chief Executive Officer, effectiveNovember 14, 2022 . In addition, inJanuary 2023 , the Company announced the promotion ofJason E. Paral to Senior Vice President, General Counsel, and Secretary.Mr. Paral's promotion completes the succession plan forWilliam H. Schmidt , Jr., wherebyMr. Schmidt's responsibilities leading the Company's legal and development functions would be assumed by two executives, including byMr. Paral and byMark A. Coscio . Simultaneous withMr. Paral's appointment,Mr. Schmidt stepped down from his position as Executive Vice President, Corporate Development and General Counsel, but continues to be employed by the Company as Senior Advisor for a transition period. 31 -------------------------------------------------------------------------------- Table of Contents Financing Activities InJune 2022 , we amended our senior secured credit facility to extend the maturity date fromApril 2026 toJune 2027 , and to increase the maximum Total Leverage Ratio (as defined in the credit agreement) from 5.00:1.00 to 5.50:1.00 (and from 5.25:1.00 to 5.75:1.00 during a Material Transaction Period (as defined in the credit agreement)).
New Markets Tax Credit ("NMTC") Loans
InJune 2022 , we borrowed$42.0 million pursuant to which the net proceeds of such loans are generally restricted to funding a portion of the costs of the acquisition, construction, equipping, and financing of theEpes plant. The NMTC financing accrues interest at a weighted average rate of 2.9% per annum. Of the$42.0 million ,$34.1 million matures in its entirety inJune 2029 , while$7.9 million could be prepaid quarterly starting in 2029 and through 2052.
Epes Tax-Exempt Green Bonds
InJuly 2022 ,The Industrial Development Authority of Sumter County, Alabama issued its Exempt Facilities Revenue Bonds (Enviva Inc. Project), Series 2022 (Green Bonds) (the "Epes Tax-Exempt Green Bonds") in the aggregate principal amount of$250.0 million . The proceeds of the offering were loaned to us pursuant to a loan and guaranty agreement constituting a senior unsecured obligation to fund a portion of the costs of the acquisition, construction, equipping, and financing of theEpes plant and to pay costs of the offering. The Epes Tax-Exempt Green Bonds, which were issued at par, bear interest at an annual rate of 6.00%, and mature in 2052, subject to mandatory tender inJuly 2032 byThe Industrial Development Authority of Sumter County, Alabama with the corresponding acceleration of payment under the loan to the Company.
Bond Tax-Exempt Green Bonds
InNovember 2022 , theMississippi Business Finance Corporation issued its Exempt Facilities Revenue Bonds (Enviva Inc. ), Series 2022 (Green Bonds) (the "Bond Tax-Exempt Green Bonds") in the aggregate principal amount of$100.0 million . The proceeds of the offering were loaned to us pursuant to a loan and guaranty agreement constituting a senior unsecured obligation to fund a portion of the costs of acquiring, constructing, equipping, and financing of theBond plant and to pay costs of the offering. The Bond Tax-Exempt Green Bonds which were issued at par, bear interest at an annual rate of 7.75%, and mature in 2047, subject to mandatory tender inJuly 2032 by theMississippi Business Finance Corporation with a corresponding acceleration of payment under the loan to the Company.
Term Loan
InJanuary 2023 , under our senior secured credit facility, we entered into a senior secured term loan facility in the amount of$105.0 million , maturing inJune 2027 . Borrowing rates are variable and calculated as SOFR plus 4.00% per annum. We used the net proceeds to reduce borrowings under our revolver.
Commitment to Achieve Carbon-Neutral Operations
Consistent with our mission to displace coal, grow more trees, and fight climate
change, we recently announced our intention to reduce, eliminate, or offset our
Scope 1 GHG emissions and to source 100% renewable energy (Scope 2 GHG
emissions) by 2030. The product we manufacture helps reduce the lifecycle GHG
emissions of our customers, but we believe we must also do our part within our
operations to mitigate the impacts of climate change. We seek to accomplish
neutrality with respect to our Scope 1 emissions (i.e., direct emissions from
our manufacturing) by improving energy efficiency and adopting lower-carbon
processes, as well as through investment in carbon offsets. We also aim to
neutralize our Scope 2 emissions (i.e., indirect emissions from energy we
purchase) by using 100% renewable energy by 2030 through the purchase of
renewable electricity and/or onsite generation where practicable. Moreover, we
will seek to proactively engage with our suppliers, transportation partners, and
other stakeholders to drive innovative improvements in our supply chain to
reduce our Scope 3 emissions (i.e., indirect emissions in our value chain). We
intend to report our Scopes 1, 2, and 3 emissions annually. Although it is
difficult to project the incremental cost to our operations in 2030, we do not
expect any material impact to our financial performance as a result of our
efforts to achieve "net-zero" in GHG emissions from our operations. For more
information, refer to the risk factor titled "Increasing attention to ESG
matters, including our net-zero goals and our failure to successfully achieve
them, could adversely affect our business."
32--------------------------------------------------------------------------------
Table of Contents
Factors Impacting Comparability of Our Financial Results
Executive Separation
In connection with the previously mentioned leadership transition inNovember 2022 , we entered into a separation agreement withMr. Keppler . The separation agreement included: (1) the bonus he would have been entitled to for the year endedDecember 31, 2022 , pro-rated based on 2022 service throughNovember 14, 2022 , and paid with respect to targeted individual performance ofMr. Keppler and actual performance of the Company at the same time bonuses are paid to executives generally during the first quarter of 2023, (2) a severance payment of$3.8 million , paid in 36 equal installments, (3) accelerated vesting of unvested time-basedEnviva Inc. Long-Term Incentive Plans (the "LTIPs"), occurring during the first quarter of 2023, and (4) vesting of unvested performance-based LTIPs, occurring during the first quarter of 2023. In addition, we executed a consulting agreement pursuant to which withMr. Keppler is paid$25,000 per month throughMarch 31, 2023 , which includes automatic monthly extensions thereafter until termination byMr. Keppler or us.
Omicron Variant of Novel Coronavirus
During the three months endedMarch 31, 2022 , the Omicron variant of COVID-19 significantly impacted our operations and resulted in$15.2 million of incremental costs. Our contractors and supply chain partners experienced labor-related and other challenges associated with COVID-19 that had a more pronounced than anticipated impact on our operations and project execution schedule. In addition, the prevalence of the Omicron variant of COVID-19 and increased rates of infection across areas in which we operate affected the availability of healthy workers from time to time at our facilities and we experienced increased rates of absence in our hourly workforce as workers who contracted COVID-19 quarantined at home. These absences contributed to reduced facility availability and, in some cases, reduced aggregate production levels. For more information about the effects of COVID-19 on the year endedDecember 31, 2022 , please see below under "Results of Operations."
War in
The war inUkraine impacted our operations and resulted in$5.1 million of incremental costs during the year endedDecember 31, 2022 , all of which were incurred during the first quarter of 2022. Our third-party shipping partners' operations experienced severe dislocations which incrementally impacted our distribution costs related to demurrage and to loading, transporting, and unloading our wood pellets. In addition, the immediate spike in energy prices negatively impacted the cost of our operations including incremental costs to support continued services from our third-party fiber suppliers and trucking service providers.
Accounting for Wood Pellets Sale Contracts as a Financing Arrangement ("Deferred Gross Margin Transactions")
We have wood pellets sale contracts with a customer for the sale of approximately 2.8 million MT between the fourth quarter of 2022 through 2026 (the "existing sale contracts"). In the fourth quarter of 2022, the Company entered into agreements with the customer to purchase approximately 1.8 million MT of wood pellets between 2023 and 2025 (the "new purchase agreements"). Under accounting principles generally accepted inthe United States ("GAAP"), the fourth quarter 2022 new purchase agreements constituted a contract modification. Because the scope of the modification resulted in a net decrease in future sales volumes to the customer, the Company was required to account for the modification as if it had terminated the existing sale contracts and created a new, single contract. Accordingly, the amount of consideration to be received for the sale of approximately 2.8 million MT under the existing sale contracts will be allocated to the remaining sales during the life of the new purchase agreements base on an average sale price per MT.
Additionally, the fourth quarter 2022 new purchase agreements to purchase approximately 1.8 million MT of wood pellets during 2023 through 2025 constitute, for GAAP purposes, a repurchase agreement. Under GAAP, we are required to account for the new purchase agreements as a financing arrangement.
Accordingly, approximately 450,000 MT of wood pellets sold and delivered to the customer in the fourth quarter of 2022 are reflected as a financing transaction in our consolidated financial statements instead of as product sales. Gross proceeds of$175.1 million from the sales are reflected as financing liabilities and deferred revenue on our consolidated balance sheets, and the cost of goods sold of$95.3 million inclusive of depreciation and amortization expense of$9.3 million are reflected as inventory. In addition, interest expense of$9.6 million has been recorded based on the difference between the future purchase price per MT of the approximately 1.8 million MT under the new purchase agreements and the new blended sale price per MT of the volumes sold in the fourth quarter under the existing sales contracts only for the time that passed during the fourth quarter of 2022 between the sale and expected purchase dates. The cash received from the customer of$102.3 million during the fourth 33
--------------------------------------------------------------------------------
Table of Contents
quarter of 2022 under the existing sale contracts is included in net cash provided by financing activities instead of in cash provided by operating activities.
Our 2022 gross margin excluding depreciation and amortization was negatively impacted by$89.0 million , and interest expense was increased by$9.6 million , in each case by the impact of the Deferred Gross Margin Transactions. In addition, net cash provided by operating activities was reduced by$102.3 million due to the impact of the Deferred Gross Margin Transactions.
We expect to recognize the product sales associated with these transactions primarily in 2024 and 2025.
Polar Vortex
During lateDecember 2022 , theU.S. southeast experienced extremely cold temperatures for a short period. Our operations are built to withstand severe weather events, and our team prepared in advance to keep employees safe and limit operational disruption. During the period of freezing temperatures, production at several plants was curtailed for approximately a week and resulted in approximately$4.0 million of incremental costs.
Increased Borrowing under Senior Secured Credit Facility and Higher Interest Rate
During 2022, we had higher amounts borrowed and higher interest rates on our senior secured credit facility.
Inflationary Pressures
Heightened levels of inflation and the potential worsening of macro-economic conditions present risks for the Company, our suppliers and our customers. During 2022, we have experienced impacts to our labor rates and suppliers have signaled inflation related cost pressures, which flowed through to our costs and pricing. Although inflation impacted our financial results in 2022, if inflation remains at current levels for an extended period, or increases, and we are unable to successfully mitigate the impact, our costs are likely to increase, resulting in pressure on our profits, margins and cash flows, particularly for existing fixed-price contracts. We are not able to quantify the effects of inflation during 2022. In addition, inflation and the increases in the cost of borrowing from rising interest rates could constrain the overall purchasing power of our customers for our products, in particular in the near term to the extent inflation assumptions are less than current inflationary pressures. Rising interest rates will also increase our borrowing costs on new debt and could affect the fair value of our investments. We remain committed to our ongoing efforts to increase the efficiency of our operations and improve the cost competitiveness and affordability of our products and services, which may, in part, offset cost increases from inflation.
Senior Secured Green Term Loan Facility
InFebruary 2021 , our former sponsor entered into a senior secured green term loan facility (the "Green Term Loan") providing for$325.0 million principal amount, maturing inFebruary 2026 . Interest was priced at LIBOR plus 5.50% with a LIBOR floor of 1.00%. Our former sponsor received gross proceeds of$325.0 million and net proceeds of approximately$317.2 million after deducting original issue discount, commissions, and expenses. Our former sponsor used the net proceeds (1) to purchase the noncontrolling interest inEnviva JV Development Company, LLC (the "Development JV"), (2) to repay the Riverstone Loan (see Item 8. "Financial Statements and Supplemental Data," Note 13, "Related-Party Transactions"), (3) to fund capital expenditures and liquidity reserve cash accounts, and (4) for general purposes.
In
How We Generate Revenue
Overview
We primarily earn revenue by supplying wood pellets to our customers under
offtake contracts, the majority of which are long-term in nature. Our off-take
contracts are considered "take-or-pay" because they include a firm obligation of
the customer to take a fixed quantity of product at a stated price and
provisions that require that we be compensated in the case of a customer's
failure to accept all or a part of the contracted volumes or termination of a
contract by a customer. Each of our long-term off-take contracts defines the
annual volume of wood pellets that a customer is required to purchase, and we
are required to sell, the fixed price per MT for product satisfying a base net
calorific value and other technical specifications. These prices are fixed for
the entire term and are subject to adjustments which may include annual
inflation-based adjustments or price escalators, price adjustments for product
specifications, as well as, in some instances, price adjustments due to changes
in underlying indices. Additionally, the majority of our long-term, off-take
contracts include cost pass-through mechanisms for bunker fuel adjustments in
our long-term shipping contracts. Some of our product volumes are sold under
off-take contracts that
34--------------------------------------------------------------------------------
Table of Contents
include cost pass-through mechanisms to mitigate increases in raw material and
distribution costs. In addition to generating durable cash flow from long-term
take-or-pay off-take contracts, we monitor sustained dislocations in the
marketplace, and opportunistically transact when pricing dynamics and contract
flexibility provide avenues to generate incremental gross margin. These
commercial activities are aligned with the terms of many of our off-take
contracts, which generally provide us with the opportunity to flex a certain
percentage of contracted shipments up or down. That flexibility, enabled by our
multi-plant profile, multi-deep water marine terminals and our long-term
shipping contracts, can create opportunities to optimize our gross margin when
we sell under short-term contracts in times when spot market prices are elevated
or, conversely, to purchase third-party volumes during times when spot market
prices are depressed. However, these commercial activities are subject to market
dynamics that can vary drastically; as a result, the financial impact of these
activities may vary significantly from period to period. Because each of our
off-take contracts is a bilaterally negotiated agreement, our revenue from such
contracts does not generally follow observable current market pricing trends.
Our performance obligations under these contracts include the delivery of wood
pellets, which are aggregated into MT. We account for each MT as a single
performance obligation. Our revenue from the sale of wood pellets we produce is
recognized upon satisfaction of the performance obligation when control
transfers to the customer at the time of loading wood pellets onto a ship.
Depending on the specific off-take contract, shipping terms under our long-term
contracts are either Cost, Insurance and Freight ("CIF"), Cost and Freight
("CFR"), or Free On Board ("FOB"). Under a CIF contract, we procure and pay for
shipping costs, which include insurance and all other charges, up to the port of
destination for the customer. Under a CFR contract, we procure and pay for
shipping costs, which include insurance (excluding marine cargo insurance) and
all other charges, up to the port of destination for the customer. Shipping
under CIF and CFR contracts after control has passed to the customer is
considered a fulfillment activity rather than a performance obligation and
associated expenses are accrued and included in the price to the customer. Under
FOB contracts, the customer is directly responsible for shipping costs.
In some cases, we may purchase shipments of product from third-party suppliers
and resell them in back-to-back transactions ("purchase and sale transactions").
We typically are the principal in such transactions because we control the wood
pellets prior to transferring them to the customer and therefore recognize
related revenue on a gross basis.
Other Revenue
Other revenue includes fees from customers related to cancellations, deferrals, or accelerations of shipments and certain sales and marketing, scheduling, sustainability, consultation, shipping, and risk management services.
We recognize third-party terminal services revenue ratably over the contract term. Terminal services are performance obligations that are satisfied over time, as customers simultaneously receive and consume the benefits of the terminal services we perform. The consideration is generally fixed for minimum quantities and services beyond minimum quantities are generally billed on a per-MT rate.
Contracted Backlog
As ofJanuary 1, 2023 , we had approximately$23.5 billion of product sales backlog for firm and contingent contracted product sales to our long-term off-take customers and our long-term contracts have a total weighted-average remaining term of 13.7 years compared to approximately$21.1 billion and a total weighted-average remaining term of 14.6 years as ofJanuary 1, 2021 . The contingent contracted product sales include contracts or memoranda of understanding subject to certain conditions precedent. Firm contracted backlog represents the revenue to be recognized under existing contracts assuming deliveries occur as specified in the contracts. Contingent contracted backlog includes memoranda of understanding that include agreed pricing and volume terms, as well as firm contracts that are subject to conditions precedent with respect to financing, potential government regulation enactment, or technological feasibility. Contracted future product sales denominated in foreign currencies, excluding revenue hedged with foreign currency forward contracts, are included inU.S. Dollars atJanuary 1, 2023 forward rates. The contracted backlog includes forward prices, including inflation, as well as foreign currency and commodity prices. The contracted backlog also includes the effects of related foreign currency derivative contracts. Please read Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" and Item 8. "Financial Statements and Supplementary Data"-Note 8, "Derivative Instruments", for more information regarding our foreign currency forward contracts.
Our expected future product sales revenue under our contracted backlog as of
Year endingDecember 31, 2023 $ 1,568 Year endingDecember 31, 2024 1,618
Year ending
35--------------------------------------------------------------------------------
Table of Contents
Costs of Conducting Our Business
Cost of Goods Sold
Cost of goods sold includes the costs to produce and deliver our wood pellets to customers, reimbursable shipping-related costs associated with specific off-take contracts with CIF or CFR shipping terms, and costs associated with purchase and sale transactions. The primary expenses incurred to produce and deliver our wood pellets consist of raw material, production, and distribution costs. We have strategically located our plants in the Mid-Atlantic andGulf Coast regions ofthe United States , geographic areas in which wood fiber sources are plentiful and readily available. We have short-term and long-term contracts to manage the supply of raw materials into our plants. Delivered wood fiber costs include stumpage as well as harvesting, transportation, and in some cases, size-reduction services provided by our suppliers. Production costs at our production plants consist of labor, energy, tooling, repairs and maintenance, and plant overhead costs. Production costs also include depreciation expense associated with the use of our plants and equipment and any gain or loss on disposal of associated assets. Some of our off-take contracts include price escalators that mitigate inflationary pressure on certain components of our production costs. In addition to the wood pellets that we produce at our owned and operated production plants, we selectively purchase additional quantities of wood pellets from other wood pellet producers. Costs associated with purchase and sale transactions are included in cost of goods sold. Distribution costs include all transportation costs from our plants to our port locations, any storage or handling costs while the product remains at port, and shipping costs related to the delivery of our product from our port locations to our customers. Both the strategic location of our plants and our ownership or control of our deep-water terminals have allowed for the efficient and cost-effective transportation of our wood pellets. We seek to mitigate shipping risk by entering into long-term, fixed-price shipping contracts with reputable shippers matching the terms and volumes of our off-take contracts pursuant to which we are responsible for arranging shipping. Certain of our off-take contracts include pricing adjustments for volatility in fuel prices, which allow us to pass the majority of the fuel price-risk associated with shipping through to our customers. Raw material, production, and distribution costs associated with delivering our wood pellets to our owned and leased marine terminals and third-party wood pellet purchase costs are capitalized as a component of inventory. Fixed production overhead, including the related depreciation expense, is allocated to inventory based on the normal capacity of the production plants. When the inventory is sold, the depreciation allocated to it is reflected as depreciation and amortization expense in our consolidated statements of operations, while the other fixed production overhead allocated to inventory is reflected in cost of goods sold, excluding depreciation and amortization. Distribution costs associated with shipping our wood pellets to our customers are expensed as incurred. Our inventory is recorded using the first-in, first-out method ("FIFO"). Given the nature of our inventory, the calculation of cost of goods sold is based on estimates used in the valuation of the FIFO inventory and in determining the specific composition of inventory that is sold to each customer. Recoveries from customers for certain costs incurred at the discharge port under our off-take contracts are not considered a part of the transaction price, and therefore are excluded from product sales and included as an offset to cost of goods sold.
Recently Issued Accounting Pronouncements
See Part II, Item 8. "Financial Statements and Supplementary Data"-Note 2, "Significant Accounting Policies-Recently Adopted Accounting Standards and Recently Issued Accounting Standards not yet Adopted," in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for a description of recently issued and adopted accounting pronouncements.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions, and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates. 36
--------------------------------------------------------------------------------
Table of Contents
For accounting policies and estimates that we believe are critical to our consolidated financial statements due to the degree of uncertainty regarding the estimates or assumptions involved, please see the following disclosures within the Notes to our Consolidated Financial Statements included in Part II, Item 8. of this Annual Report on Form 10-K: Note 2, "Significant Accounting Policies", specifically about "Inventories", "Revenue Recognition", "Cost of Goods Sold", and "Property, Plant and Equipment".
How We Evaluate Our Operations
Adjusted Net Income (Loss)
We define adjusted net income (loss) as net income (loss) excluding acquisition and integration costs and other, effects of COVID-19 and the war inUkraine , Support Payments, Executive separation, and early retirement of debt obligation. We believe that adjusted net income (loss) enhances investors' ability to compare the past financial performance of our underlying operations with our current performance separate from certain items of gain or loss that we characterize as unrepresentative of our ongoing operations.
Adjusted Gross Margin and Adjusted Gross Margin per Metric Ton
We define adjusted gross margin as gross margin excluding loss on disposal of assets and impairment of assets, non-cash equity-based compensation and other expense, depreciation and amortization, changes in unrealized derivative instruments related to hedged items, acquisition and integration costs and other, effects of COVID-19 and the war inUkraine , and Support Payments. We define adjusted gross margin per metric ton as adjusted gross margin per metric ton of wood pellets sold. We believe adjusted gross margin and adjusted gross margin per metric ton are meaningful measures because they compare our revenue-generating activities to our cost of goods sold for a view of profitability and performance on a total-dollar and a per-metric ton basis. Adjusted gross margin and adjusted gross margin per metric ton primarily will be affected by our ability to meet targeted production volumes and to control direct and indirect costs associated with procurement and delivery of wood fiber to our wood pellet production plants and our production and distribution of wood pellets. Adjusted EBITDA We define adjusted EBITDA as net income (loss) excluding depreciation and amortization, interest expense, income tax expense (benefit), early retirement of debt obligation, non-cash equity-based compensation and other expense, loss on disposal of assets and impairment of assets, changes in unrealized derivative instruments related to hedged items, acquisition and integration costs and other, effects of COVID-19 and the war inUkraine , Support Payments, and Executive separation. Adjusted EBITDA is a supplemental measure used by our management and other users of our financial statements, such as investors, commercial banks, and research analysts, to assess the financial performance of our assets without regard to financing methods or capital structure.
Distributable Cash Flow
We define distributable cash flow as adjusted EBITDA less cash income tax
expenses, interest expense net of amortization of debt issuance costs, debt
premium and original issue discounts. non-cash interest expense from the
Deferred Gross Margin Transactions (see above, "Contracts as a Financing
Arrangement ("Deferred Gross Margin Transactions")"), and maintenance capital
expenditures. We use distributable cash flow as a performance metric to compare
our cash-generating performance from period to period and to compare the
cash-generating performance for specific periods to the cash dividends (if any)
that are expected to be paid to our shareholders. We do not rely on
distributable cash flow as a liquidity measure.
Limitations of Non-GAAP Financial Measures
Adjusted net income (loss), adjusted gross margin, adjusted gross margin per metric ton, adjusted EBITDA, and distributable cash flow are not financial measures presented in accordance with accounting principles generally accepted inthe United States ("GAAP"). We believe that the presentation of these non-GAAP financial measures provides useful information to investors in assessing our financial condition and results of operations. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non-GAAP financial measures has important limitations as an analytical tool because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider adjusted net income (loss), adjusted gross margin, adjusted gross margin per metric ton, adjusted EBITDA, or distributable cash flow in isolation or as substitutes for analysis of our results as reported in accordance with GAAP. Our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. Please see below for a reconciliation of each of adjusted net income (loss), 37
--------------------------------------------------------------------------------
Table of Contents
adjusted gross margin and adjusted gross margin per metric ton, adjusted EBITDA, and distributable cash flow to the most directly comparable GAAP financial measure.
Results of Operations
Year Ended
Year Ended December 31,
2022 2021 Change
(in thousands)
Product sales $ 1,079,814 $ 999,190 $ 80,624
Other revenue 14,462 42,488 (28,026)
Net revenue 1,094,276 1,041,678 52,598
Cost of goods sold, excluding items below 927,453 861,703 65,750
Loss on disposal of assets 8,607 10,153 (1,546)
Selling, general, administrative, and development
expenses 119,713 175,108 (55,395)
Executive separation 20,813 - 20,813
Depreciation and amortization 113,177 91,966 21,211
Total operating costs and expenses 1,189,763 1,138,930 50,833
Loss from operations (95,487) (97,252) 1,765
Interest expense (71,585) (56,497) (15,088)
Early retirement of debt obligation - (9,377) 9,377
Other income, net 1,198 880 318
Net loss before income taxes (165,874) (162,246) (3,628)
Income tax expense (benefit) 2,494 (16,975) 19,469
Net loss $ (168,368) $ (145,271) $ (23,097)
Net revenue
Revenue related to product sales for wood pellets produced or procured by us
increased to $1,079.8 million in 2022 from $999.2 million in 2021. The $80.6
million , or 8%, increase was primarily attributable to a 17% increase in average
sale price per MT and a 8% decrease in product sales volumes for the year ended
December 31, 2022 as compared to the year ended December 31, 2021 . Product sales
exclude the gross proceeds of $175.1 million related to the sale of
approximately 450,000 MT of wood pellets in the fourth quarter of 2022 pursuant
to the Deferred Gross Margin Transactions (see above, "Contracts as a Financing
Arrangement ("Deferred Gross Margin Transactions")").
The increase in average sales price per MT was primarily driven by our
commercial activities, which allowed us to address dislocations in our
customers' and other producers' supply chains. These activities included
completing incremental deliveries at elevated spot pricing, applying pricing
escalators and cost pass-through mechanisms inclusive of bunker fuel adjustments
in our existing contracts, and repricing existing contracts and entering into
new contracts at higher prices compared to historical prices. Recent biomass
spot market prices, as well as the forward curve pricing of certain European
indices, have exceeded $345 per MT, representing a substantial premium to the
current long-term contracted pricing of roughly $200 to $235 per MT weighted
average across our portfolio, and we were able to capture some of that
differential during the year ended December 31, 2022 .
Product sales volumes decreased 379,000 MT for the year ended December 31, 2022
as compared to the year ended December 31, 2021 . The decrease of 379,000 MT in
product sales volumes is primarily due to the approximately 825,000 MT decrease
in procured volumes due to a lower availability of third-party wood pellets
resulting from the war in Ukraine and related sanctions and approximately
450,000 MT sold and delivered in the fourth quarter of 2022 that were treated as
a financing arrangement pursuant to the Deferred Gross Margin Transactions (see
above, "Contracts as a Financing Arrangement ("Deferred Gross Margin
Transactions")"), partially offset by an increase in produced wood pellets of
approximately 900,000 MT.
38--------------------------------------------------------------------------------
Table of Contents
Other revenue for the years endedDecember 31, 2022 and 2021 included$6.4 million and$37.3 million , respectively, in payments to us for adjusting deliveries under our take-or-pay off-take contracts, which otherwise would have been included in product sales and was recognized under a breakage model based on when the pellets would have been loaded.
Cost of goods sold
Cost of goods sold increased to$927.5 million for the year endedDecember 31, 2022 from$861.7 million for the year endedDecember 31, 2021 , an increase of$65.8 million , or 8%. The increase in cost of goods sold was primarily a result of incremental fiber logistics, energy, and wood pellet distribution costs inclusive of bunker fuel adjustments. In particular, during the first quarter of 2022, we experienced labor-related and other challenges associated with COVID-19 with our employees, contractors and supply chain partners that had a more pronounced than anticipated impact on our operations and project execution. Furthermore, we incurred incremental cost of goods sold from the on-going ramp of theLucedale plant and the commencement of operations of thePascagoula terminal. The cost of goods sold exclude$95.3 million inclusive of depreciation and amortization of approximately$9.3 million , which are reflected as inventory in connection with the Deferred Gross Margin Transactions (see above, "Contracts as a Financing Arrangement ("Deferred Gross Margin Transactions")").
Adjusted gross margin and adjusted gross margin per metric ton
Year Ended December 31,
2022 2021 Change
(in thousands, except per metric ton)
Reconciliation of gross margin to adjusted gross margin
and adjusted gross margin per metric ton:
Gross margin(1) $ 53,906 $ 83,362 $ (29,456)
Loss on disposal of assets and impairment of assets 10,478 10,143 335
Non-cash equity-based compensation and other expense 2,944 2,271 673
Depreciation and amortization 105,179 86,471 18,708
Changes in unrealized derivative instruments (59) (2,673) 2,614
Acquisition and integration costs and other 1,664 397 1,267
Effects of COVID-19 13,942 - 13,942
Effects of the war in Ukraine 5,051 - 5,051
Support Payments 23,985 25,100 (1,115)
Adjusted gross margin $ 217,090 $ 205,071 $ 12,019
Metric tons sold 4,654 5,033 (379)
Adjusted gross margin per metric ton $ 46.65 $ 40.75 $ 5.90 (1)Gross margin is defined as net revenue less cost of goods sold (including related depreciation and amortization and loss on disposal of assets).
We earned adjusted gross margin of$217.1 million , or$46.65 per MT, for the year endedDecember 31, 2022 compared to$205.1 million , or$40.75 per MT, for the year endedDecember 31, 2021 . The increase in adjusted gross margin was primarily due increases in net revenue driven by our ability to capitalize on higher spot prices through our commercial activities in 2022, partially offset by incremental fiber logistics, energy, and wood pellet distribution costs. The increase in adjusted gross margin of$12.0 million excludes$89.0 million of adjusted gross margin deferred in connection with the Deferred Gross Margin Transactions (see above, "Contracts as a Financing Arrangement ("Deferred Gross Margin Transactions")").
The Omicron variant of COVID-19 significantly impacted our operations and
resulted in
•The impact on our supply chain logistics within our fiber supply base as well as our truck and rail service providers was more pronounced than anticipated. Our third-party service providers' failure to perform resulted in unprecedented incremental costs to procure raw materials and produce and deliver our wood pellets to customers.
•We incurred incremental costs related to increased employee overtime and significant contract labor to partially offset plant employee absenteeism.
•We incurred incremental costs related to obtaining short-term rentals of equipment due to delayed delivery of acquired equipment to ensure continued operations.
39--------------------------------------------------------------------------------
Table of Contents
The war in
•Severe dislocations within our third-party shipping partners' operations resulted in incremental distribution costs related to demurrage and to loading, transporting, and unloading our wood pellets.
•The immediate spike in energy prices negatively impacted the cost of our operations including incremental costs to support continued services from our third-party fiber suppliers and trucking service providers.
During the fourth quarter of 2022, the polar vortex impacted our operations and resulted in$4.0 million of incremental costs during the year endedDecember 31, 2022 . Due to the increased average sales price per MT and the increase in sales volumes as described above and after excluding the aforementioned incremental fiber logistics, energy, and wood pellet distribution costs, adjusted gross margin increased during the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 .
Selling, general, administrative, and development expenses
Selling, general, administrative, and development expenses were$119.7 million for the year endedDecember 31, 2022 and$175.1 million for the year endedDecember 31, 2021 . Selling, general, administrative, and development expenses include costs to develop new markets, corporate and other overhead expenses, and costs of developing new plants or ports (for those that have not yet met the capitalization threshold or costs that are not eligible for capitalization). Once a significant component of the plant or port is placed in-service, the associated expense component is classified as cost of goods sold. The$55.4 million decrease in total selling, general, administrative, and development expenses is primarily associated with a decrease in consulting and management fee expenses, non-cash equity-based compensation and other expense, and due to the elimination of activities resulting from the Simplification Transaction.
Executive separation
InNovember 2022 ,John Keppler , our former Chairman and Chief Executive Officer and Chairman of the Board, stepped down from his responsibilities to pursue medical and surgical treatment to address a cardiac valve issue.Mr. Keppler's separation agreement included: (1) the bonus he would have been entitled to for the year endedDecember 31, 2022 , pro-rated based on 2022 service throughNovember 14, 2022 , and paid with respect to targeted individual performance ofMr. Keppler and actual performance of the Company at the same time bonuses are paid to executives generally during the first quarter of 2023, (2) a severance payment of$3.8 million , paid in 36 equal installments, (3) accelerated vesting of unvested time-based LTIPs, occurring during the first quarter of 2023, and (4) vesting of unvested performance-based LTIPs, occurring during the first quarter of 2023.
Depreciation and amortization
Depreciation and amortization expense increased to$113.2 million for the year endedDecember 31, 2022 from$92.0 million for the year endedDecember 31, 2021 , an increase of$21.2 million or 23%, primarily due to theLucedale plant,Pascagoula terminal, and expansion assets placed in service.
Interest expense
We incurred$71.6 million of interest expense during the year endedDecember 31, 2022 and$56.5 million during the year endedDecember 31, 2021 . The increase in interest expense of$15.1 million from the prior year was primarily attributable to the$9.6 million of non-cash interest recognized in connection with the the Deferred Gross Margin Transactions (see above, "Contracts as a Financing Arrangement ("Deferred Gross Margin Transactions")"), and a higher outstanding borrowing amount and higher floating interest rate on our senior secured credit facility, partially offset by the extinguishment of the senior secured green term loan facility for the year endedDecember 31, 2021 as part of the Simplification Transaction.
Early retirement of debt obligation
InOctober 2021 , our former sponsor repaid in full the Green Term Loan, which had a principal balance of$318.4 million at the time, and recognized a$9.4 million loss on early retirement of debt resulting from the write-off of unamortized debt issuance costs and original issue discount.
Income tax
We recorded$2.5 million of income tax expense during the year endedDecember 31, 2022 and$17.0 million of income tax benefit during the year endedDecember 31, 2021 . The$2.5 million of income tax expense during the year ended December 40
--------------------------------------------------------------------------------
Table of Contents
31, 2022 was primarily due to a change in valuation allowance for deferred tax assets. The income tax benefit of$17.0 million for the year endedDecember 31, 2021 was due to the Conversion. Adjusted net loss Year Ended December 31, 2022 2021 Change (in thousands) Reconciliation of net loss to adjusted net loss: Net loss$ (168,368) $ (145,271) $ (23,097) Acquisition and integration costs and other 21,745 32,608 (10,863) Effects of COVID-19 15,189 - 15,189 Effects of the war in Ukraine 5,051 - 5,051 Support Payments 23,985 25,100 (1,115) Executive separation 20,813 - 20,813 Early retirement of debt obligation - 9,377 (9,377) Adjusted net loss$ (81,585) $ (78,186) $ (3,399) Adjusted EBITDA Year Ended December 31, 2022 2021 Change (in thousands) Reconciliation of net loss to adjusted EBITDA: Net loss$ (168,368) $ (145,271) $ (23,097) Add: Depreciation and amortization 113,177 91,966 21,211 Interest expense 71,585 56,497 15,088 Income tax expense (benefit) 2,494 (16,975) 19,469 Early retirement of debt obligation - 9,377 (9,377) Non-cash equity-based compensation and other expense 38,260 55,924 (17,664) Loss on disposal of assets and impairment of assets 11,347 10,153 1,194 Changes in unrealized derivative instruments (59) (2,673) 2,614 Acquisition and integration costs and other 21,745 32,608 (10,863) Effects of COVID-19 15,189 - 15,189 Effects of the war in Ukraine 5,051 - 5,051 Support Payments 23,985 25,100 (1,115) Executive separation 20,813 - 20,813 Adjusted EBITDA$ 155,219 $ 116,706 $ 38,513 We generated adjusted EBITDA of$155.2 million for the year endedDecember 31, 2022 compared to$116.7 million for the year endedDecember 31, 2021 . The$38.5 million increase was primarily attributable to the factors described above under the heading "Adjusted gross margin and adjusted gross margin per metric ton." The increase in adjusted EBITDA of$38.5 million excludes$89.0 million recognized as inventory in connection with the Deferred Gross Margin Transactions. 41
--------------------------------------------------------------------------------
Table of Contents
Distributable cash flow
The following is a reconciliation of adjusted EBITDA to distributable cash flow:
Year Ended December 31,
2022 2021 Change
(in thousands)
Reconciliation of adjusted EBITDA to distributable cash
flow attributable to Enviva :
Adjusted EBITDA $ 155,219 $ 116,706 $ 38,513
Less:
Interest expense, net of amortization of debt issuance
costs, debt premium, original issue discount, and non-cash
interest expense from the Deferred Gross Margin
Transactions(1) 59,508 52,574 6,934
Maintenance capital expenditures 14,375 13,981 394
Distributable cash flow attributable to Enviva Inc. 81,336 50,151 31,185
Less: Distributable cash flow attributable to incentive distribution rights
- 19,030 (19,030)
Distributable cash flow attributable to
(1) See above, "Contracts as a Financing Arrangement ("Deferred Gross Margin Transactions")"
Liquidity and Capital Resources
Overview
Our primary sources of liquidity include cash and cash equivalent balances, cash generated from operations, availability under our senior secured credit facility, and, from time to time, debt and equity offerings. Our primary liquidity needs are to fund working capital, service our debt, finance greenfield construction projects, growth initiatives, and maintenance capital expenditures, and pay dividends. We believe cash on hand, cash generated from our operations, and the availability of our senior secured credit facility will be sufficient to meet our primary liquidity requirements. However, future capital expenditures, such as expenditures made in relation to acquisitions of plants or terminals, plant development and/or plant expansion projects, and other cash requirements could be higher than we currently expect as a result of various factors. We regularly monitor market conditions and our liquidity needs and from time to time may raise additional funds through debt or equity financing, through private investments in the company, or through other financing opportunities. Additionally, our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive, and other factors beyond our control.
Our liquidity as of
Cash Dividends
We expect to continue to pay regular cash dividends to holders of our common
stock. However, the decision to pay future cash dividends is solely within the
discretion of, and subject to approval by, our board of directors. Our board of
directors' determination with respect to any such dividends, including the
record date, the payment date and the actual amount of the dividend, will depend
upon our results of operations, financial condition, liquidity, capital
requirements, contractual restrictions, restrictions imposed by applicable law
and other factors that the board deems relevant at the time of such
determination.
The former owners of our former sponsor have agreed to reinvest in our common
stock all dividends from 9.0 million of the 16.0 million common units issued in
connection with the Simplification Transaction for the dividends paid for the
period beginning with the third quarter of 2021 through the fourth quarter of
2024.
Capital Requirements
We operate in a capital-intensive industry, which requires significant
investments to develop and construct new production and terminal facilities, and
maintain and upgrade our existing facilities. Our capital requirements primarily
have consisted, and we anticipate will continue to consist, of the following:
•Maintenance capital expenditures, which are cash expenditures incurred to
maintain our long-term operating income or operating capacity. These
expenditures typically include certain system integrity, compliance, and safety
improvements; and
42--------------------------------------------------------------------------------
Table of Contents
•Growth capital expenditures, which are cash expenditures we expect will increase our operating income or operating capacity over the long term. Growth capital expenditures include acquisitions or construction of new capital assets or capital improvements such as additions to or improvements on our existing capital assets as well as projects intended to extend the useful life of assets.
The classification of capital expenditures as either maintenance or growth is made at the individual asset level during our budgeting process and as we approve, execute, and monitor our capital spending.
We plan to invest$365.0 million to$415.0 million in capital expenditures in 2023. Of that amount, we expect to invest (1)$295.0 million to$325.0 million primarily on the development and construction of theEpes andBond plants, (2)$50.0 million to$70.0 million primarily on growth projects, and (3)$20.0 million on maintenance capital expenditures. During the year endedDecember 31, 2022 , we invested$217.8 million in capital expenditures.
Our current financing strategy is to fund acquisitions and construction activities with a combination of cash from operations and debt.
Long-Term Debt
As of
•$750.0 million aggregate principal amount of 6.5% senior unsecured notes due in
•$436.0 million of revolver credit facility borrowings under a senior secured
credit facility maturing in
•$31.4 million qualified New Markets Tax Credit Loans at a weighted average
interest rate of 2.9%, maturing in
•$250.0 million aggregate principal amount of 6.0% Exempt Facilities Revenue Bonds issued byThe Industrial Development Authority of Sumter County, Alabama , the proceeds of which were loaned to the Company pursuant to a loan and guaranty agreement constituting a senior unsecured obligation, maturing inJuly 2052 with the option for holders to redeem at par 2032; •$100.0 million aggregate principal amount of 7.75% Exempt Facilities Revenue Bonds issued by the Mississippi Business Finance Corporations, the proceeds of which were loaned to the Company pursuant to a loan and guaranty agreement constituting a senior unsecured obligation, maturingJuly 2047 with the option for holders to redeem at part in 2032; and
•$8.8 million 2.5 % promissory note, maturing in
For additional information on our long-term debt, see Item 8. "Financial Statements and Supplemental Data," Note 12, "Long-Term Debt and Finance Lease Obligations."
Cash Flows The following table sets forth a summary of our net cash flows from operating, investing, and financing activities for the years endedDecember 31, 2022 and 2021: Year Ended December 31, 2022 2021 (in thousands) Net cash (used in) provided by operating activities$ (88,767) $ 33,390 Net cash used in investing activities (222,847) (332,322) Net cash provided by financing activities 544,173 249,775
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 232,559 $ (49,157)
Cash (Used in) Provided by Operating Activities
Net cash used in operating activities was$88.8 million and net cash provided by operating activities was$33.4 million for the years endedDecember 31, 2022 and 2021, respectively. The$122.2 million decrease in cash provided by operating activities during the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 was primarily due to a 43
--------------------------------------------------------------------------------
Table of Contents
decrease in cash from changes in operating assets and liabilities of$133.9 million . The decrease in cash from operating assets and liabilities is composed primarily of$95.3 million related to finished goods inventory resulting from the Deferred Gross Margin Transactions (see above, "Contracts as a Financing Arrangement ("Deferred Gross Margin Transactions")"), a$87.4 million decrease related to accounts receivable due to the timing of product delivery, and$39.2 million paid to certain customers during 2022 to reschedule and/or re-price their take-or-pay off-take contracts. The projected product sales to these certain customers and the weighted-average remaining term under these customers' contracts are$14.6 billion and 13.8 years, respectively. These outflows of cash were offset by cash generated from changes in other operating assets and liabilities, primarily composed of a$38.5 million change in accounts payable, accrued liabilities, and other current liabilities, a$19.3 million change in inventories not related to the Deferred Gross Margin Transactions (see above, "Contracts as a Financing Arrangement ("Deferred Gross Margin Transactions")"), and a$18.9 million increase in interest payable. The overall decrease in cash from changes in operating assets and liabilities was partially offset by an increase in cash from net loss adjusted for non-cash items of$21.3 million . Additionally,$102.3 million of cash received as payment for approximately 450,000 MT of wood pellets sold and delivered in the fourth quarter of 2022 in connection with the Deferred Gross Margin Transactions (see above, "Contracts as a Financing Arrangement ("Deferred Gross Margin Transactions")") is included in cash provided by financing activities.
Cash Used in Investing Activities
Net cash used in investing activities was$222.8 million and$332.3 million for the years endedDecember 31, 2022 and 2021, respectively. The$109.5 million decrease in cash used in investing activities during the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 was primarily due to the timing of capital expenditures at theLucedale plant,Pascagoula terminal, construction at theEpes plant, and on various expansion projects.
Cash Provided by Financing Activities
Net cash provided by financing activities was$544.2 million and$249.8 million for the years endedDecember 31, 2022 and 2021, respectively. The$294.4 million increase in net cash provided by financing activities in 2022, as compared to 2021, was primarily attributable to a decrease in cash used to acquire a noncontrolling interest of$153.3 million , an increase in proceeds from the issuance of common shares or units of$118.2 million , an increase in proceeds from the sale of approximately 450,000 MT of wood pellets sold and delivered in the fourth quarter of 2022 in connection with the Deferred Gross Margin Transactions (see above, "Contracts as a Financing Arrangement ("Deferred Gross Margin Transactions")") of$102.3 million , a$12.8 million capital contribution in the NMTC financing transaction, partially offset by a decrease of$13.1 million in proceeds from debt issuance net of repayment of debt, an increase in cash dividends or distributions and equivalent rights of$95.1 million , a$5.9 million increase of tax withholding payments associated with the settlement of restricted stock unit awards that vested pursuant to our LTIP, and a$2.5 million increase in debt issuance costs.
OffBalance Sheet Arrangements
As ofDecember 31, 2022 , we did not have any offbalance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation SK, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or a variable interest in unconsolidated entities. 44
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
