Enviva Inc.

Good day and welcome to the NILA second quarter 2023 earnings conference call. All participants will be in listen-only mode. If you need assistance, please signal conference specialist, Vice President, the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Now I'd like to turn the call over to Ms. Kate Walsh, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Enviva's second quarter of 2023 earnings conference call. We appreciate your interest in and support of Enviva, and thank you for your participation today. On this morning's call, we have Thomas Meff, President and Chief Executive Officer, and Shai Evan, Executive Vice President and Chief Financial Officer. Our agenda will be for Thomas and Shai to discuss our financial and operating results and to provide an update on our current business and outlook for 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 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 forecast. Information concerning the reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and other relevant disclosures is included in our earnings release. Our SEC reports, earnings release, and most recent investor presentation, which contain reconciliations of non-GAAP financial measures we use, can be found on our website at envivabiomath.com. I would now like to turn the call over to Thomas.

Good morning, everyone, and thank you for joining us. As you saw in our press release and 10Q filed yesterday, we've made good progress over the last few months. You will remember from our last earnings call in May that coming out of a very difficult and disappointing start to the year, we embarked on a focused journey to drive costs out of the business, and increase production levels at our current plants. In May, I personally took over the leadership of our operations team, and we have since made a number of important changes to start regaining the ground needed to return to levels of profitability we have demonstrated possible. As part of the changes needed to turn our cost position around, we recently executed a corporate restructuring program that is designed to reduce annual operating and overhead costs by $16 million, and which is expected to get our SG&A back on track for a company of our size. We should see some small cost savings uplift to our results in the back half of this year, with the full benefit of these changes expected to materialize in 2024. We've also made good progress with reducing the cost to produce and transport our wood pellets to our ports. We reduced our delivered at port cost, or DAP cost as we call it, by $3 per metric ton for second quarter 2023 as compared to first quarter 2023. And more importantly, our DAP cost for June was down by $9 per metric ton as compared to the first quarter of this year. Our DAP cost position for June was the lowest we've seen in over a year. Results achieved in June are a good sign, and with what we are seeing so far in the early innings of the third quarter, they appear to be continuing to improve. We are on the path to improve our annual operating position by $100 million, and I'm encouraged with the progress we're making. But there is still a lot of hard work left to do, and we are monitoring and managing very closely. Last quarter, We reset guidance expectations for 2023 and provided quarterly expectations for the remainder of the year. For the second quarter, we set a target range of $20 to $30 million of adjusted EBITDA. And yesterday, we reported results in line with this range with second quarter adjusted EBITDA of $26 million. During the second quarter, we made strides with reducing our cost of delivered fiber, as well as improving our cost discipline around the repairs and maintenance. We also successfully worked out all of the unnecessary contract labor that was weighing on planned financial performance. Those improvements were somewhat masked by a fairly large planned outage at our Waycross Georgia facility. When we acquired Waycross in 2020, we planned to undertake this outage within two or three years of owning the plant. And this past quarter, we completed that plan, and Waycross was back up and running by June. One of the key maintenance projects at Waycross was to replace emissions control equipment, and the new equipment should last for the next 10 years or so. It's important to note that since Waycross is currently the largest plant in our fleet and is one of the best performers from both the production and cost perspective, The outage dampened our typical run rate of produced volumes during the quarter by about 30,000 metric tons and muted some of the production and cost improvements that we were making at our other plants. Two of the plants we talked about having challenges with last quarter were our South Hampton, Virginia, and Greenwood, South Carolina facilities. Prior to the operational changes that started to take hold in June, Southampton has been operating unprofitably for a number of quarters. In June, we decided to change the way we're operating Southampton for now. We're running the plant with only one of the two dryers, generating around 65% of the plant's capacity at a much lower cost. With this production profile, we're running the plant in a very similar manner to Ahoskie, one of our lowest cost profile plants in the fleet. This gives us time to fix the underlying asset issues as well as to evaluate the best path forward for this plant. Our Greenwood plant's problems are different and less systemic than Southampton's. We were able to make small changes to a few process island bottlenecks, which have since raised production rates at the facility. We also are implementing a change in fiber procurement strategy at Greenwood, which includes procuring more hardwood because of its increasingly greater availability in the area. These two changes have improved the throughput and cost position over a relatively short period of time. As a result, Greenwood is on a path to reach its target production level and cost position during fourth quarter 2023. As we look to the second half of this year and what we expect to achieve, we are maintaining our full 2023 adjusted EBITDA guidance range of $200 million to $250 million, and we're updating our quarterly expectations for third and fourth quarter adjusted EBITDA. For third quarter, we're stepping down our expectations from the previous range of $70 million to $90 million of adjusted EBITDA to a range of $60 million to $80 million, primarily as a result of two factors. First, we decided to extend the maintenance outage at our Ahaskan North Carolina plant to lay the groundwork for the previously announced expansion that we plan to do at Ahoskey. The expansion, when completed, is expected to increase production capacity by approximately 45% at Ahoskey, which is one of the lowest cost positions in our fleet. And second, as we entered the back half of the year, we updated our shipping schedule. We pushed the late-game windows of a couple of ships from late September into early October. and therefore shifted the revenue and margin associated with those shifts from third quarter to fourth quarter. With updated expectations for fourth quarter, along with commercial opportunities we expect to materialize, we are raising our adjusted EBITDA expectations for the fourth quarter to $120 to $140 million, up from $110 to $130 million. The significant step-up in earnings expected in the fourth quarter over third quarter is underpinned by a number of factors that we have good visibility into, such as higher contract prices during the fourth quarter, we deliver on a higher percentage of more lucrative contracts, and we also have successfully repriced select legacy contracts in our negotiations to reprice other legacy contracts. Another pricing dynamic is that by the fourth quarter, All of our contract escalators related to 2022 inflation will be reflected in our headline prices. And in addition, we're working to drive an incremental $14 to $19 per ton out of DAP costs. Additionally, we're seeing small but steady increases in the production from our current asset fleet that will primarily benefit the fourth quarter. With Southampton on a path to recovery, Greenwood's challenges mitigated, and incremental production, process, and cost improvements across our asset fleet and corporate offices, we are determined to drive significant value from the tailwinds, supporting a very strong back half of the year. With that, I'll turn it over to Shai to go through our financials in more detail.