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spk01: and is the first of many we see ahead as we work with large industrial customers around the world to not only decarbonize their energy supply chain, but also to make their difficult-to-abate industrial processes less greenhouse gas intensive and more sustainable. Our initial tranche under the industrial contract I referenced is for 60,000 metric tons per year of wood pellets, with a tenor of 10 years. We expect deliveries to commence in 2023, subject to certain conditions precedents. As our new customer brings on additional production trains each year over the following five years, we, as their sole source wood pellet supplier, forecast our contracted volumes to grow in lockstep, growing to an expected 1.2 million metric tons per year once the customer's production capacity is fully ramped. I will discuss our third quarter financial results in more detail, which were right in line with the expectations we outlined several weeks ago. As I shared with you during our simplification transaction and conversion call, we expected to generate between 61 million and 65 million of adjusted EBITDA for the quarter, and we landed at the midpoint of that range, delivering about $63 million. Based on the durability of our business model and the strong cash flow visibility we have going forward, our board of directors declared a distribution of 84 cents per unit for the third quarter of 2021. an 8.4% increase over the distribution paid for the same quarter of last year. This represents our 25th consecutive distribution increase since our IPO and maintains the 12% distribution CAGR we have delivered since then. We are also reaffirming the full year 2021 and 2022 guidance we discussed recently, which we updated alongside our simplification transaction and conversion announcement. From a distribution standpoint, We are reaffirming $3.30 per share for full year 2021 and $3.62 per share for 2022. Returning capital to our shareholders has always been a critical part of the way we manage our business. And like all great things about InViva, that's not going to change with the simplification of our structure and conversion to a corporation. As InViva Inc., our dividend policy will continue to reflect the fundamental commitment we have to deliver a stable, durable, and over time, growing return of capital to our shareholders. Now I'd like to turn it over to Shai to share more detail on our third quarter results and financial highlights.
spk06: Thank you, John, and good morning, everyone. For the third quarter of 2021, we generated net revenue of $237 million, which represents a 5% increase over the corresponding quarter of 2020. The increase in net revenue is a result of incremental product sales as we ramp deliveries to new customers and deliver larger volumes to existing customers. This increase in revenue and product sales volume was temporarily dampened by COVID-related issues experienced by our contractors and supply chain partners, although we believe these issues are beginning to be behind us. Adjusted gross margin for the third quarter of 2021 was approximately $57 million, which was relatively flat as compared to the third quarter of 2020. Adjusted gross margin per metric ton was approximately $48 for the third quarter of 2021, down slightly from the $50 per metric ton achieved in the third quarter of 2020. The decrease in adjusted gross margin per metric ton was primarily attributable to the issues that affected our revenue and product sales volumes I just discussed. Net income was almost break-even for the third quarter of 2021 as compared to net income of $1.4 million for the third quarter of 2020. Adjusted net income was $28 million for the third quarter of 2021 as compared to adjusted net income of $16 million for the corresponding quarter in 2020. Adjusted net income increased by 76% when comparing the third quarter of 2021 with the third quarter of 2020. As John mentioned earlier, NVIVA generated adjusted EBITDA of approximately $63 million for the third quarter of 2021, an increase of approximately 16% from the third quarter of 2020. The increase in adjusted EBITDA was primarily due to the benefits of the Luzdal plant and Pasigula terminal acquisitions. Distributable cash flow was $49.5 million for the third quarter of 2021, which represents a 17% increase from the corresponding quarter in 2020. Our distribution coverage ratio on a cash basis for the third quarter of 2021 was 1.13 times When we refer to distribution coverage being on a cash basis, it means we are not factoring in the 9 million units issued as part of the simplification transaction that are subject to the dividend reinvestment commitment. Our liquidity as of September 30th, 2021, which included cash on end and availability under revolving credit facility was $192 million. As we convert from a partnership to a corporation, Enviva's commitment to conservatively managing its balance sheet is unchanged. We now expect to fund future growth projects increasingly with cash flow generated from the business and will be transitioning to a fully self-funding growth model for capital expenditures over the next five years, with timing dependent on the cadence of new plant construction. Our long-term dividend coverage ratio target is 1.5 times on an annual cash basis, and we expect to have the financial flexibility to increase dividends over time. As we near the close of 2021 and with solid visibility into 2022, we reaffirmed our full year 2021 and 2022 guidance. As Kate mentioned at the beginning of our call, our guidance for full year 2021 does not reflect a potential recast of our historical results, which may be required under GAAP due to the simplification transaction. The important takeaway from our guidance is that we expected adjusted EBITDA to increase by 20% when compared full year 2021 to 2020, and we expected adjusted EBITDA to increase by another 20% or more when we compare 2022 to 2021. There just isn't another company with a similar profile of visible, durable cash flows growing at this rate. And we believe we have much more shareholders' value yet to unlock. Now I would like to turn it back to John.
spk01: Thanks, Shai. The future has truly never been brighter for Enviva. We are entering 2022 with a contracted revenue backlog of over $21 billion. which is complemented by a similarly large and growing customer pipeline. This customer pipeline is high quality and diverse. We continue to have a healthy number of opportunities in our traditional markets for biomass fired power and heat generation, notably in the United Kingdom and the European Union, where Germany and Poland represent sizable addressable markets for us. Asia continues to offer a material source of growth, which includes incremental demand from Japan, emerging potential in Taiwan, and maturing opportunities in South Korea. We talked about the burgeoning industrial demand earlier on the call, specifically demand for sustainable aviation fuel and biodiesel, but that is only a fraction of the picture. The full addressable industrial market is truly exponential when you layer in the potential for decarbonizing industries like steel, cement, lime, and the chemical verticals. Over the next 12 months, we expect to continue our successful track record and convert a number of our pipeline opportunities into binding long-term contracts, in addition to firming a previously signed exclusive memoranda of understanding. Given our robust contracted position and growing demand profile, we are also aggressively growing our production capacity. Earlier this year, we acquired the Losedale plants in Pascagoula Terminal and expect each to be ramping up production during the first half of 2022. The Losedale plant increases our production capacity by roughly 14%. Additionally, we have a series of highly accretive projects underway and nearing completion, namely the Mid-Atlantic, the Multi-Plant, and the Greenwood expansions. These expansion projects, when combined, represent a capacity increase similar to a new mid-sized plant. As we look further out to meet the growing demand for our products, We acquired projects at 15 plant sites as part of our simplification transaction, all in various stages of evaluation and development. One is the fully contracted EPS plant, which is currently under development. We expect to commence construction in early 2022 with an in-service date scheduled for mid 2023. EPS is designed and permitted to produce more than one million metric tons per year of wood pellets, which would make it the largest wood pellet production plant in the world. We think our next most likely greenfield plant is in Bond, Mississippi, which we are designing to produce between 750,000 and more than 1 million metric tons per year of wood pellets. We expect construction of Bond to commence once EPS is operational, but the timing of construction could be expedited depending upon the schedule and delivery requirements of additional off-day contract opportunities under negotiation and general market conditions. Shaping a secure and sustainable energy future continues to be at the forefront of the global energy dialogue, and I'm very excited to have accepted an invitation to present next week at COP26 to respected climate and energy authorities and policymakers from around the world about the important and well-recognized role that modern bioenergy plays as a part of the global solution to climate change. Our renewable products help our customers meet their net-zero targets and we expect our own net zero commitments to further reinforce our environmental leadership and reputation for sustainability. We are in a very fortunate position to have built a business that, by design, generates only a modest level of emissions from our own operations. We recently announced a 10-year contract with Green Gas USA, an integrated renewable natural gas solutions provider, to decarbonize natural gas-related emissions in our own operations. We have built a track record of making important commitments and then delivering on them with a broad range of stakeholders. This renewable natural gas contract is a big step towards our net zero commitment. And since it is expected to display 75% of our current scope one emissions on an annual basis, it is something we are particularly proud of. Before we close, I want to recap what has made 2021 such an incredible year for Enviva for our team, and for our stakeholders. First, we completed the sizable acquisition of the Losedale plant and Pascagoula terminal, simultaneously with a successful equity offering, and concurrently with our Mid-Atlantic, Multiplant, and Greenwood expansions all underway. Second, we completed our simplification transaction and commenced the process to convert to a corporation, a milestone we expect to complete by year end. Third, we signed our inaugural industrial contract, one which we expect to be just the first of many as we expand our customer base into the rapidly growing industrial sector, a sector that could drive exponential growth for us. And finally, we accomplished all of this while delivering pure leading returns to our equity holders. We're fortunate to be able to define our company in relatively simple terms. The world continues to want less carbon, more quickly, and more cost-effectively. And that's exactly what we offer. We are incredibly privileged to have the opportunity to continue to build a company and a unique platform that was great as a partnership and will be even better as a corporation at delivering real climate change benefits today while consistently, safely, and sustainably generating superior returns for all of our stakeholders. Now let's open up the call for questions.
spk03: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from John Mackey with Goldman Sachs. Please go ahead.
spk04: Hey, everyone. Good morning. Thank you for taking my question. I wanted to congratulate you on the industrial contract and just dig into that a little bit more. Can you maybe just talk a little bit about the path to getting to that 1.2 million tons? John, I appreciate the color you kind of gave on the ramp, but just curious if any of that depends on your customer, I don't know, needing to get more comfortable with the technology or the chemistry of it, or is it really just a matter of how quickly they can build that capacity?
spk01: Sean, great to talk with you this morning, and thanks for the question. What I think you see going on in the industrial sector, and I would expect that we would see this replicated in a number of the different verticals that we're targeting, lime, cement, steel as well, is what we have is a phased-in approach, much the same way that the early adopters of power and heat generators migrated to a biomass strategy as well. And so we've got an initial trench with our customer coming online, and the full expectation is that they'll continue to stamp those out year over year for the five-year period of construction. I think it's an appropriate, from our diligence and perspective, it's an appropriate phased approach to construction, and we look forward to the contract ramping to its full life of 1.2 million metric tons per year.
spk04: Thank you for that. Maybe just a quick follow-up. Is there any chance you could kind of give us some guidance on, I don't know, like barrels per day or gallons per year of SAF, 60,000 tons could be?
spk01: I couldn't do so. Obviously, that's a quite important confidential piece of information for our customers out there.
spk04: I totally understand. Maybe just shifting gears last one more, then I'll turn it back over. Just curious on what you're hearing from some of your customers given the recent spike in coal, gas, power, carbon prices, et cetera, and whether or not that could be driving both new contracts and then also maybe some better recontracting on your – existing contracts that are already a couple years into their lives. Thanks.
spk01: Yeah, John, great comments. And I think your question highlights a good amount of what we actually see going on in the market right now. For our product, which continues to be structurally short supply in a market where demand continues to grow, as we highlighted in our prepared remarks, potentially exponentially, what we do see is longer-term upward pressure on pricing. as well as the continued emphasis on the certainty of supply. And given that we are the world's largest supplier in this market, we do think that that is an important set of tailwinds for us, complemented by a pretty constructive global energy complex right now, which is driving up prices for more traditional fossil fuels, combined with the pressure to increase renewables and the adoption of baseload and dispatchable power only on the basis of biomass. means that we have a pretty compelling market position right now.
spk03: That's great. Thanks for the time. The next question will come from Mark Strauss with JP Morgan. Please go ahead.
spk02: Yeah, good morning. Thank you very much for taking our questions. I was just hoping you could go back to the metric tons sold being down. You mentioned some kind of COVID issues and whatnot. Can you just give a A bit more color there, and then obviously you're leaving your guidance and your target for next year unchanged. So how should we be thinking about that metric going forward? And kind of the follow-on to that is the gross profit per metric ton was a bit better than what we were expecting. How does that flow through, given what you're expecting on the tonnage?
spk01: No, Mark, great. And thanks for the call. Always glad to have the opportunity to talk with you. You know, as we highlighted a couple weeks ago on our call, what we saw in the third quarter was the sort of knock-on effects of COVID-19 and some of the labor-related challenges within our supply chain and contractors. I think it's important to point out that we have, of course, been largely insulated from the impacts of COVID-19, but not ultimately immune. Our facilities have continued to operate in a very healthy and safe workforce. Our vaccination rates are up pretty considerably, and that's the result of a lot of work by folks on our team to ensure that as we operate and continue to work in the Southeast U.S., This is an area of the country that got hit pretty hard with COVID-19 and case rates going up pretty significantly, roughly from the period of the 4th of July through about Labor Day. What we saw is that that pretty significantly impacted some of our supply chain partners, and they had labor availability and health challenges within their workforce, which meant that we couldn't actually bring those folks on our sites until they could demonstrate that they were also COVID-free. That created additional sort of downtime and longer maintenance outages than we would have otherwise expected. And so as a result, you saw a lower production profile in the quarter. We generally see that abating, and certainly the decrease in case rates, which is pretty widely reported these days, is a tailwind for us there. So we're optimistic that this is beginning to be behind us. And as a result, you should expect to see a continued increase in our overall production profile as we go through the year and obviously then carry into 2022, which gave us the confidence to not only reaffirm for full year 2021, but full year 2022 as well. With respect to the margin profile, I think that we've tried to traditionally guide to a mid-40s guide for a full year basis. I'm subject to the seasonality provisions that generally make it a little bit more costly to do, to produce in the first and second quarter of the year, and then the back half of the year being stronger. I don't think we'd back off on that right now.
spk06: And also to add that next year with the expansion projects, we are bringing online about the size of a new mid-size new plant. when you're combining the expansion, the volume coming from the expansion projects of the mid-Atlantic, the multi-plant expansion, and the greenwood facility. Altogether, you can see more than 600,000 metric tons for 2022.
spk02: Okay, thanks for that. And then just a follow-up to John's question on the industrial customer. You know, obviously not asking for specifics here, but do you have other projects you know, similar size deals in your kind of near term pipeline over the next 12 months that you think have a good probability of closing and maybe you kind of comment on the size of those potential customers. Is this deal that you signed, is this kind of indicative of what we should be expecting going forward?
spk01: We certainly believe so. And I think that, you know, the industrial application Given the processes that we're serving, many industrial customers will operate multiple trains of production similar to the contract we've just announced. So I think that you can expect to hear from us similarly structured contracts as we open up new markets, new segments, and new verticals within the industrial sector. But from a notional contract value, that's obviously a size that makes a whole lot of sense for us.
spk02: Got it. Thank you very much.
spk03: The next question will come from Ryan Levine with Citi. Please go ahead. Good morning.
spk05: A couple questions on the industrial dynamic. What type or complexity of the refiner is maybe needed to handle the pellets for this feedstock, and is there any color you could share around the application here?
spk01: So there are a number of pathways for both biofuels and sustainable aviation fuel production, including gasification paralysis, a host of others that are proven in various different applications. Our customer, of course, is using one of those. And so from a material handling basis, the perspective that we offer, of course, is that we're delivering our solid fuel product, the same spec that we deliver around the world, but it's delivered into the front end of a plant that's going to be ultimately making a different product.
spk05: Are there any RINs or any other fuel credits that help enable this use case? And is it U.S.-centric, or is there certain markets that are more conducive to selling your pellets into this application?
spk01: So great question, Ryan. I mean, certainly there are worldwide markets for this, and depending upon the particular jurisdiction, there are different market drivers of adoption. In this case, it's a European plant, and so they're benefiting from European demand for sustainable aviation fuels and biodiesels, and so they're participating in that market. Clearly, the U.S. market has a number of different regulatory structures, RINs and others, certainly low-carbon fuel standards in particular locales, that an emerging customer set is also seeking to participate in. But the contract we just announced, of course, is a European-based customer.
spk05: Okay. So the European dynamics don't assume any type of fuel credit or LCFS or grant that's more centric to the U.S. Is there any comparable program that helps underwrite this type of investment?
spk01: Well, so over time, I think we can see a lot of different structures emerging. Obviously, that's an important topic at COP26 right now. But the customer contract that we announced today has its own contracted downstream position with a number of existing players in this market.
spk03: Appreciate it. Thank you. Again, if you have a question, please press star, then 1. Our next question will come from Elvira Scotto with RBC Capital Markets. Please go ahead.
spk00: Hi. Good morning, everyone. Just a couple of follow-up questions around the industrial contract. First, does the contract have a similar structure and margins to your existing contracts? Does it have price escalators, cost pass-throughs, et cetera? Is it similar, basically?
spk01: Yeah, Elvira, great to talk to you. And yes, it is. By design, when we think about new customers, new geographies, new segments, we want to make sure that the underlying cash flow profile of the contract is similar to the alternatives that we have. You should expect the same credit characteristics, the same margin profile, the same escalators, and the same contract structure.
spk00: Thank you. That's helpful. So the second question that I have on that contract is, so the initial tranche is 60,000 metric tons per annum. So I think you said a plan a year over the next five years. So to get to that 1.2 million by 2027, I mean, should we just assume ratable kind of additions or, you know, how do you get from 60,000 to 1.2 million?
spk01: So it will be a step addition each year, sort of linearly for those five years in a step-based function for additional production trains at our customer.
spk00: Got it. Perfect. Thanks. And then, you know, how aggressively and quickly do you think this industrial market can grow? And just to follow up from a previous question, I mean, If you were to kind of compare the number of discussions that you're having with various potential customers globally, what percent of that are those discussions industrial versus your more traditional type of customers?
spk01: Well, I wouldn't characterize it necessarily as a percentage. What I'd say is that the momentum behind decarbonization and deep decarbonization of difficult to abate industries is top of mind around the world. You know, as we think about COP26 and the major theme for COP26 is, you know, this is a code red for the environment and undertaking activities today that can dramatically impact and mitigate the implications of climate change is first and foremost the priority. And so the utilization of biomass is one of the proven low cost ways of doing so. And customer adoption rates and customer interest on on biomass and long-term certainty around that biomass in their own applications is driving a tremendous amount of customer interest in what we're up to. As we've talked about on the last several calls, there are some key verticals in those difficult-to-evade industries. Cement, lime, fuels like sustainable aviation fuel. And so what we have is quite honestly dozens of multinational companies with an interest in decarbonization that are driving incremental contract discussions. And so we're very proud of what we're able to get accomplished in pretty short order. From a contract cycle basis, what I'd say that is fairly different than the more traditional power and heat sector is that these are counterparties that can tend to move relatively quickly. And so that means that the sales cycle may be shortening. We look back, how long ago did we initially start talking about the industrial sector and, of course, announcing a major contract? Relatively short order. So I'm pretty excited about that. And, of course, it is occupying a lot of our sales and marketing teams' time. While we continue to work on the core segments that we serve today in emerging markets like Germany, Poland, Taiwan, and the continued growth we see in Japan. I mean, we were, of course... Really happy to announce just a couple weeks ago another large Japanese contract, and that's a market that grows very rapidly for us, too.
spk00: Great. Thanks. One final question for me, just especially since you brought it up, just kind of any update you can give us on Germany where the government is on regulation and, you know, when you think you can announce something, and then congratulations on the industrial contract. I did think that was very quickly announced.
spk01: Yeah, obviously, it reflects the momentum. And there's similar momentum on contracts like that in Germany directly. The heat and industrial sector, this has been a focus of all of the parties that are now forming the coalition government, the SPD, the FDP, the Greens, which their focus has been on, how do you do this quicker, faster? They're starting to talk about whether it's 2038, 2030, how do you accelerate a bunch of these pieces? Now, obviously, that coalition is just settling itself down. Expectation is that it's around the end of the year completed, which means legislation shortly thereafter. But we should remember that there's a subsidy in place today for the industrial market, and the activities and the focus of this coalition government accelerating that only means, frankly, more momentum and more tailwinds. So what we expect, and given the conversations that we have with our counterparties in Germany across that whole range, power, heat, and industrials, is that this is a market that is going to continue to grow very, very rapidly with additional certainty given the tailwinds of the election cycle now completing.
spk00: Great. Thank you very much.
spk01: Elvira, always great to talk to you.
spk03: This concludes our question and answer session. I would like to turn the conference back over to John Kepler for any closing remarks. Please go ahead, sir.
spk01: Well, I really appreciate everyone hopping back on the phone with us. I do realize it's only been a short time since we were last together, but as I think that today's discussion highlights, we're really excited about the momentum that continues to exist in the markets that we serve, the efforts around the world to decarbonize, the fact that COP26 is actually generating incremental opportunities in real time for us. And so we're quite privileged to be in the position that we're in. And as you've heard me say before, with that, we believe we have a really, really important responsibility to continue to deliver the consistent and strong execution that you've seen from us over the last several years. And so we're going to continue to do the job we do, working hard every day to safely, stably, and reliably displace coal across a whole range of applications. And we're going to do that by growing more trees and fighting climate change. And we're certainly looking forward to talking about our progress again as we get through the next quarter. In the meantime, have a great day and thank you for joining us.
spk03: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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