Enviva Inc.

Good morning and welcome to NVIDIA's Incorporated first quarter of 2022 earnings conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd now like to turn the conference over to Kay Walsh, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Enviva Inc.' 's first quarter of 2022 earnings conference call. We appreciate your interest in and support of Enviva, and thank you for your participation today. On this morning's call, we have John Kepler, Chairman and Chief Executive Officer, and Shai Eben, Executive Vice President and Chief Financial Officer. Our agenda will be for John and Shai to discuss our financial results and provide an update on our current business outlook and operations. Then we will open up the call for questions. During the course of our remarks and the subsequent Q&A session, we will be making forward-looking statements which are subject to a variety of risks. Information concerning the risks and uncertainties that could cause our actual results to differ materially from those in our forward-looking statements can be found in our earnings release as well as in our other SEC filings. We assume no obligation to update any forward-looking statements to reflect new or changed events or circumstances. In addition to presenting our financial results in accordance with GAAP, we will also be discussing adjusted EBITDA and certain other non-GAAP financial measures pertaining to completed reporting periods, as well as our forecasts. Information concerning the reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and other relevant disclosures is included in our earnings release. It is important to note that as a result of the simplification transaction we announced on October 15th, 2021, we were required to recast our historical financial results in accordance with GAAP to reflect that transaction. Today, we will discuss 2021 historical financial results on a recast basis or a non-recast basis, depending on the reference point. Please refer to our earnings release and Form 10-Q document for more details on our recast and non-recast presentations. I would now like to turn the call over to John.

Thank you, Kate. Good morning, everyone, and thank you for joining us today. As you have heard me describe consistently during the past 24 months, we have been fortunate to have been largely insulated from the widespread and unexpected geopolitical, economic, and pandemic-related pressures confronting the global economy, but we have not been immune. And we saw a subset of impacts affect us in the first quarter, several of which we previewed on our last call together. As you'll recall, the first quarter is our seasonally softest quarter. This year, it was also impacted by lower plant availability due to Omicron related absenteeism affecting our plant level workforce, as well as failures by some of our trucking and rail partners to consistently service our plants, which required us to curtail production in several instances. We also incurred incremental costs in certain areas of our cost tower, such as cost of fiber and logistics expenses, as we work to mitigate our workforce and supply chain disruptions. We're pleased to report that the pandemic-related issues are largely behind us now. We are also optimistic that the efforts our logistic partners are making will soon put their challenges firmly in the rearview mirror as well. This means that the operational issues we faced should be largely temporary. What we see as permanent, however, is the market and sales growth momentum as we execute agreements with major power generators and industrials in hard-to-abate sectors for the long-term supply of lower carbon renewable fuels and sustainably produced raw material inputs. The same dislocations caused by inflation, energy price volatility due to the war in Ukraine, and supply chain challenges causing scarcity and urgent requests for delivery for many commodities are translating into durable pricing increases for our current agreements and ones that we are signing for future deliveries. I will spend some time on those exciting new contracts in a moment, especially our developments in Germany. Before we get there, given where first quarter results landed and taking stock of how we see the next seven months of the year unfold, we are revising certain 2022 guidance metrics to better reflect our assessment of the implications for the short term. As noted in our release, we are reducing our adjusted EBITDA guidance to a range of $230 million to $270 million, from the original range of $275 million to $300 million. The 10% shift in the top end of the range for adjusted EBITDA is primarily driven by three key factors. First, lower production. We estimate that lower production and sold volumes for full year 2022 will have a negative impact of approximately $10 million on adjusted EBITDA. This is an isolated, identifiable, and short-term issue. Second, a loose sale plant start-up date was delayed to the end of March, which is expected to have an impact of approximately $10 million for 2022, as the 12-month ramp-up period is effectively shifted to the right by a bit more than a quarter. And third, We expect to purchase fewer third-party volumes this year, simply due to the limited physical liquidity of industrial-grade wood pellets, which was exacerbated by Russian and Belarusian supply being closed off to the market. Additionally, while we expect SG&A to be about $5 million higher for the year, given our further acceleration of fully contracted new plant and capacity development, that is expected to be offset by about a $5 million pricing uplift for the year, which we believe is durable and should continue to grow well into 2023 and beyond. We also still expect the shape of our adjusted EBITDA profile during 2022 to look a lot like prior years, with the back half of the year being a big step up over the first half. We are projecting that roughly two-thirds of our earnings will be back half-weighted, with the first half generating roughly one-third of our expectations. So net-net, we're still forecasting solid growth for this year. with adjusted EBITDA, using the midpoint of the range, still expected to increase by over 10% as compared to 2021. We've also given a preliminary look to adjusted EBITDA in 2023. Given all we know today about our contracted volumes, pricing, and cost, 2023 is penciling that to be in the range of $305 million to $335 million, in line with fact-set consensus estimates for most of our analysts covering the business. But importantly, We are also seeing full year adjusted gross margin per metric ton of roughly $50, which is higher than we have given guidance to in the past. Given how we see the balance of 2022 shaping up and the continued growth in 2023 and beyond, what's not changing is our 2022 dividend guidance of $3.62 per share, which also represents a 10% increase over 2021. For the first quarter of 2022, we declared a dividend of 90.5 cents per share. which represents a 15% increase over last year's comparable period. For the remainder of 2022, we intend to flatten out the quarterly dividend to 90 and one half cents per share. We continue to be very proud of our rare combination of being a high growth company and a strong dividend pair. We're the largest global player in an industry where the total addressable market is rapidly expanding and new use cases for our product continue to emerge. We are virtually unmatched in terms of the fully contracted nature of our business and the highly visible and durable cash flow growth that our business generates, as well as the truly remarkable growth prospects ahead of us. We are very pleased to have announced yesterday that we have signed our first series of German agreements, including a memorandum of understanding with a German utility. This new customer is focused on providing baseload, dispatchable, renewable energy, and our pellets will be used to displace coal in one of its large power plants. We expect this MOU to become a firm contract within the next 12 months. This contract, as I mentioned, is large, with delivered volumes over the 10- to 15-year term expected to be at least 1 million metric tons per year, which means this one contract alone could underwrite the construction of a new plant. We also announced yesterday that we signed a letter of intent with another new German customer to serve a completely new industrial vertical for us. This new customer intends to use Enviva's wood pellets to phase out fossil fuels and generate green process heat in their manufacturing facilities in Germany. Delivered volumes under this 10-year agreement are expected to be around 100,000 metric tons per year, with deliveries to start as early as 2023. We expect to convert this LOI to a firm contract within the next few months. To facilitate the delivery of wood pellets to our growing customer base in Germany, and to enhance the returns we generate from this burgeoning market, we are partnering with Rhenus Group, one of Germany's leading logistics service providers, to develop an inbound logistics supply chain from strategic port terminals to industrial quarters throughout Germany. As part of the agreement, we will consider highly accretive incremental capital investment opportunities related to import reception, storage, transloading, and other terminal infrastructure. with a plan to replicate what we are successfully operating at our export terminals along the coast of the Southeast U.S. So again, pretty solid growth and new exciting opportunities and momentum, augmented by increasing volumes we are supplying to our existing customer base. In today's geopolitical environment, the security of energy supply is an equally important driver for customers purchasing our wood pellets, as is the energy transition itself. Countries and companies are not only facing extremely high and volatile fossil fuel prices while they navigate towards net zero goals, but they now also need to revisit the long-term security of supply for the carbon feedstocks they are sourcing. This congruence is further complicated by the fact that there are limited large-scale alternatives available for renewable baseload and dispatchable power and heat generation, and even fewer low-carbon feedstocks to substitute in hard-to-abate sectors. With this as a backdrop, Demand for both urgent deliveries and long-term contracts for VIVA's sustainable woody biomass products and fuels has never been stronger. I'll come back in a moment to discuss some key sustainability attributes of our business and our asset and capacity growth plans. But now, I'd like to turn it over to Shai to share more detail on our financial highlights.