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ENVIVA INC.

(EVA)
  Report
Real-time Estimate Cboe BZX  -  02:02 2022-09-27 pm EDT
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ENVIVA INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/04/2022 | 06:03am EDT
On December 31, 2021, Enviva Partners, LP (the "Partnership") converted from a
Delaware limited partnership to a Delaware 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) the Partnership and its subsidiaries for periods prior to the
Conversion, except where the context otherwise requires. References to common
units for periods prior to the Conversion refer to common units of the
Partnership, and references to common stock for periods following the Conversion
refer to shares of common stock of Enviva Inc. As a result of the Conversion,
the primary financial impact to the consolidated financial statements contained
herein consisted of (i) reclassification of partnership capital accounts to
equity accounts reflective of a corporation and (ii) income tax effects.

References to "our former sponsor" or "Holdings" refer to Enviva Holdings, LP,
and, where applicable, its wholly owned subsidiaries Enviva MLP Holdco, LLC and
Enviva Development Holdings, LLC. References to "our former GP" refer to Enviva
Partners GP, LLC, formerly a wholly owned subsidiary of Holdings.

The following discussion and analysis should be read in conjunction with
Management's Discussion and Analysis ("MD&A") in Part II, Item 7 of our Annual
Report on Form 10-K for the year ended December 31, 2021 as filed with the U.S.
Securities and Exchange Commission (the "SEC"). Our 2021 Form 10-K contains a
discussion of other matters not included herein, such as disclosures regarding
critical accounting policies and estimates. You should also read the following
discussion and analysis together with the risk factors set forth in the 2021
Form 10-K, Item 1A. "Risk Factors" and the factors described under "Cautionary
Statement Regarding Forward-Looking Information" and Item 1A. "Risk Factors" in
this Quarterly Report on Form 10-Q for information regarding certain risks
inherent in our business.

Basis of Presentation


The following discussion about matters affecting the financial condition and
results of operations of the Company should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto included
in this report and the audited consolidated financial statements and related
notes that are included in the 2021 Form 10-K. Among other things, those
financial statements and the related notes include more detailed information
regarding the basis of presentation for the following information.

C-Corporation Conversion


We converted from a Delaware limited partnership to a Delaware corporation
effective December 31, 2021; consequently, results for periods prior to December
31, 2021 reflect Enviva 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

On October 14, 2021, the Partnership acquired our former sponsor and the former
GP, 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 (the "MSA 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 consolidated financial statements have been
retroactively recast to reflect the Simplification Transaction as if the
Simplification Transaction occurred on March 18, 2010, the date on which
Holdings was originally organized, instead of October 14, 2021, the closing date
of the Simplification Transaction.

Business Overview


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 the
United Kingdom, the European Union, and Japan, who use our pellets to displace
coal and other fossil fuels to generate renewable power and heat as part of
their efforts to accelerate the energy transition from conventional energy

                                       22
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generation to renewable energy generation. Increasingly, our customers are also
using our pellets as renewable raw material inputs to decarbonize hard-to-abate
sectors like steel, cement, lime, chemicals, and aviation fuels. Collectively,
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 own and operate ten plants (collectively, "our plants") with a combined
production capacity of approximately 6.2 million metric tons ("MT") of wood
pellets per year ("MTPY") in Virginia, North Carolina, South Carolina, Georgia,
Florida, and Mississippi, the production of which is fully contracted, with many
of our contracts extending well into the 2040s. We export our wood pellets to
global markets through our deep-water marine terminal at the Port of Chesapeake,
Virginia, terminal assets at the Port of Wilmington, North Carolina and the Port
of Pascagoula, Mississippi, and from third-party deep-water marine terminals in
Savannah, Georgia, Mobile, Alabama, and Panama City, Florida. In July 2022, we
commenced construction of our fully contracted wood pellet production plant in
Epes, Alabama (the "Epes plant"). 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 and growing 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 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 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 is contracted under our existing
long-term, take-or-pay off-take contracts.

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 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 proven 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.

Recent Developments

Product Sales Contracted Backlog


Our volumes under our firm and contingent long-term, take-or-pay off-take
contracts provide for a product sales backlog of $21.7 billion and have a total
weighted-average remaining term of 14.2 years from July 1, 2022. This amount
includes forward prices related to variable consideration including inflation,
foreign currency, and commodity prices. Also, this amount includes the effects
of the related foreign currency derivative contracts.

Financing Activities


In June 2022, we amended our senior secured revolving credit facility to extend
the maturity date from April 2026 to June 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


In June 2022, we borrowed $42.0 million where the net proceeds are generally
restricted to funding a portion of the costs of the acquisition, construction,
equipping, and financing of the Epes 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 in June 2029, while $7.9 million could be
prepaid quarterly starting in 2029 and through 2052.

Issuance of Common Shares


In January 2022, we issued 4,945,000 shares of common stock at a price of $70.00
per share for total net proceeds of $332.8 million, after deducting $13.4
million of issuance costs. We intend to use the net proceeds of $332.8 million
to fund a portion of our capital expenditures related to ongoing development
projects.

                                       23
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Tax-Exempt Green Bond Offering


In July 2022, the Industrial Development Authority of Sumter County, Alabama
issued its Exempt Facilities Revenue Bonds (the "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 the Epes plant and to pay costs of the
offering. The Tax-Exempt Green Bonds, which were issued at par, bear interest at
an annual rate of 6%, and mature in 2052, with the option for holders to redeem
at par in 2032.

Factors Impacting Comparability of Our Financial Results

Omicron Variant of Novel Coronavirus


During the three months ended March 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 six months ended June
30, 2022, please see below under "Results of Operations."

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, early retirement of debt obligation, effects of
COVID-19 and the war in Ukraine, and Support Payments. 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, 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 in Ukraine, 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, equity-based compensation and other expense, loss on
disposal of assets, changes in unrealized derivative instruments related to
hedged items, acquisition and integration costs and other, effects of COVID-19
and the war in Ukraine, and MSA Fee Waivers and Support Payments. 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, 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.

                                       24
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2021 Non-Recast Presentation


The three and six months ended June 30, 2021 were calculated on a recast basis
in accordance with accounting principles generally accepted in the United States
("GAAP") to reflect the consolidated performance of Enviva and our former
sponsor as if Enviva had bought the former sponsor at inception instead of
October 14, 2021, the closing date of the Simplification Transaction. In
addition, we are also presenting results for the three and six months ended June
30, 2021, calculated on a non-GAAP basis that combines (i) the actual
performance of Enviva for the three and six months ended June 30, 2021 on a
non-recast basis, and (ii) our consolidated performance, calculated on a recast
basis in accordance with GAAP, inclusive of the assets and operations acquired
as part of the Simplification Transaction, for the three and six months ended
June 30, 2021 (the "Non-Recast Presentation"). We believe the Non-Recast
Presentation provides investors with relevant information to evaluate our
financial and operating performance because it reflects Enviva's actual and
historically reported performance on a stand-alone basis and on a consolidated
basis for the three and six months ended June 30, 2021.

The Non-Recast Presentation does not reflect the recast of our historical results required under GAAP due to the Simplification Transaction and accordingly contains non-GAAP measures. Unless expressly stated otherwise, all results are presented on a recast basis.

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, as well as our
Non-Recast Presentation, are not financial measures presented in accordance with
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, or our Non-Recast
Presentation, 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 above for a reconciliation of the Non-Recast Presentation to the
Recast Presentation and below for a reconciliation of each of adjusted net
income (loss), 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

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

                                                              Three Months Ended June 30,
                                                             2022                2021 (Recast)            Change
                                                                              (in thousands)
Product sales                                          $      293,615          $      271,242          $  22,373
Other revenue                                                   2,706                  14,721            (12,015)
Net revenue                                                   296,321                 285,963             10,358
Cost of goods sold, excluding items below                     250,276                 234,564             15,712
Loss on disposal of assets                                      2,282                   1,701                581
Selling, general, administrative, and development
expenses                                                       27,704                  34,548             (6,844)
Depreciation and amortization                                  28,833                  23,179              5,654
Total operating costs and expenses                            309,095                 293,992             15,103
Loss from operations                                          (12,774)                 (8,029)            (4,745)
Interest expense                                              (13,959)                (17,481)             3,522

Other (expense) income, net                                      (611)                    399             (1,010)
Net loss before income tax benefit                            (27,344)                (25,111)            (2,233)
Income tax benefit                                                 (2)                   (260)               258
Net loss                                               $      (27,342)         $      (24,851)         $  (2,491)


                                       25
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Net revenue


Revenue related to product sales for wood pellets produced or procured by us
increased to $293.6 million in the three months ended June 30, 2022 from $271.2
million in the three months ended June 30, 2021. The $22.4 million, or 8%,
increase was primarily attributable to a 16% increase in average sale price per
MT, partially offset by a 7% decrease in product sales volumes for the three
months ended June 30, 2022 as compared to the three months ended June 30, 2021.

The increase in average sales price per MT was primarily due to addressing
dislocations in our customers' and other producers' supply chains, rescheduling
certain contracted deliveries into future periods, enabling prompt deliveries to
other customers requiring incremental deliveries at elevated spot pricing.
Recent biomass spot market prices, as well as the forward curve pricing of
certain European indices, have exceeded $300 per MT, representing a substantial
premium to the current long-term contracted pricing of roughly $200 to $220 per
MT across Enviva's weighted average portfolio, and we have been able to capture
some of that differential during the three months ended June 30, 2022.

The decrease in product sales volumes was primarily due to the timing of
shipments that has resulted in an increase in finished goods inventory and less
volumes procured from third parties to fulfill product sales during the three
months ended June 30, 2022 than during the three months ended June 30, 2021. The
decrease in procured volumes was due to a lower availability of third-party
pellets resulting from the war in Ukraine and related sanctions.

Other revenue for the three months ended June 30, 2022 and 2021 included $1.5
million and $13.2 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 which 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 $250.3 million for the three months ended June
30, 2022 from $234.6 million for the three months ended June 30, 2021, an
increase of $15.7 million, or 7%. The increase in cost of goods sold was
primarily a result of incremental fiber procurement and energy costs. In
addition, we incurred incremental cost of goods sold from the on-going ramp of
the Lucedale plant and the commencement of operations of Enviva's new deep-water
marine terminal in Pascagoula, Mississippi (the "Pascagoula terminal").

Adjusted gross margin and adjusted gross margin per metric ton

                                                                      Three 

Months Ended June 30,

                                                                      2022                     2021 (Recast)            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)                                           $       16,816                     $       27,824          $ (11,008)
Loss on disposal of assets                                         2,282                              1,701                581
Equity-based compensation and other expense                          567                                568                 (1)
Depreciation and amortization                                     26,948                             21,872              5,076
Changes in unrealized derivative instruments                       2,145                               (362)             2,507

Acquisition and integration costs and other                         (244)                                72               (316)

Support Payments                                                   6,236                                  -              6,236

Adjusted gross margin                                     $       54,750                     $       51,675          $   3,075
Metric tons sold                                                   1,275                              1,367                (92)
Adjusted gross margin per metric ton                      $        42.94                     $        37.80          $    5.14


(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 $54.8 million, or $42.94 per MT, for the
three months ended June 30, 2022 compared to $51.7 million, or $37.80 per MT,
for the three months ended June 30, 2021. The increase in adjusted gross margin
was primarily due to the aforementioned increase in net revenue, as well as due
to the increase in Support Payments for the three months ended June 30, 2022 as
compared to the three months ended June 30, 2021, partially offset by the
aforementioned increase in cost of goods sold.

                                       26
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Selling, general, administrative, and development expenses


Selling, general, administrative, and development expenses were $27.7 million
and $34.5 million for the three months ended June 30, 2022 and 2021,
respectively. 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 the plant or port is placed in-service, the expenses of a plant or port are
classified as cost of goods sold. The $6.8 million decrease in total selling,
general, administrative, and development expenses is primarily associated with
decreased cash-based compensation and related expenses primarily due to the
elimination of activities resulting from the Simplification Transaction.

Depreciation and amortization


Depreciation and amortization expense were $28.8 million and $23.2 million for
the three months ended June 30, 2022 and 2021, respectively, primarily due to
the Lucedale plant, Pascagoula terminal, and expansion assets placed in service
during 2022.

Interest expense

We incurred $14.0 million and $17.5 million of interest expense during the three
months ended June 30, 2022 and 2021, respectively. The decrease in interest
expense from the prior year was primarily attributable to a lower cost of
borrowing due to the extinguishment of the higher rate senior secured green term
loan facility as part of the Simplification Transaction.

Income tax

We recorded an insignificant and $0.3 million income tax benefit for the three months ended June 30, 2022 and 2021, respectively.

Adjusted net loss

                                                                 Three Months Ended June 30,
                                                                2022                2021 (Recast)           Change
                                                                                (in thousands)
Reconciliation of net loss to adjusted net loss:
Net loss                                                  $      (27,342)         $      (24,851)         $ (2,491)
Acquisition and integration costs and other                        3,591                   1,338             2,253

Support Payments                                                   6,236                       -             6,236

Adjusted net loss                                         $      (17,515)         $      (23,513)         $  5,998


                                       27
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Adjusted EBITDA
                                                                 Three Months Ended June 30,
                                                                2022                2021 (Recast)           Change
                                                                                (in thousands)
Reconciliation of net loss to adjusted EBITDA:
Net loss                                                  $      (27,342)         $      (24,851)         $ (2,491)
Add:
Depreciation and amortization                                     28,833                  23,179             5,654
Interest expense                                                  13,959                  17,481            (3,522)
Income tax benefit                                                    (2)                   (260)              258

Equity-based compensation and other expense                        9,763                   7,504             2,259
Loss on disposal of assets                                         2,282                   1,701               581
Changes in unrealized derivative instruments                       2,145                    (362)            2,507
Acquisition and integration costs and other                        3,592                   1,338             2,254

Support Payments                                                   6,236                       -             6,236

Adjusted EBITDA                                           $       39,466          $       25,730          $ 13,736


We generated adjusted EBITDA of $39.5 million for the three months ended June
30, 2022 compared to $25.7 million for the three months ended June 30, 2021. The
$13.7 million increase was primarily attributable to the factors described above
under the headings "Adjusted gross margin and adjusted gross margin per metric
ton" and "Selling, general, administrative, and development expenses."

Distributable cash flow


The following is a reconciliation of adjusted EBITDA to distributable cash flow:
                                                                    Three Months Ended June 30,
                                                                   2022                2021 (Recast)           Change
                                                                                   (in thousands)
Reconciliation of adjusted EBITDA to distributable cash flow
attributable to Enviva:
Adjusted EBITDA                                              $       39,466          $       25,730          $ 13,736
Less:
Interest expense, net of amortization of debt issuance
costs, debt premium, and original issue discount                     13,348                  16,075            (2,727)
Maintenance capital expenditures                                      4,787                   3,940               847
Distributable cash flow attributable to Enviva Inc.                  21,331                   5,715            15,616

Less: Distributable cash flow attributable to incentive distribution rights

                                                       -                  10,708           (10,708)

Distributable cash flow attributable to Enviva Inc. or Enviva Partners, LP limited partners

                         $       21,331 

$ (4,993) $ 26,324

                                       28
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The following table presents a reconciliation of net loss to adjusted EBITDA and
distributable cash flow for the three months ended June 30, 2021, on a recast
basis and non-recast basis:

                                                                      Three Months Ended June 30, 2021
                                                              Recast              Adjustments           Non-Recast
                                                                                (in millions)
Net (loss) income                                        $       (24.8)         $       27.5          $       2.7
Add:
Depreciation and amortization                                     23.2                  (0.9)                22.3
Interest expense                                                  17.4                  (4.7)                12.7
Income tax benefit                                                (0.2)                  0.2                    -

Equity-based compensation and other expense                        7.5                  (4.8)                 2.7
Loss on disposal of assets                                         1.7                     -                  1.7
Changes in unrealized derivative instruments                      (0.4)                    -                 (0.4)
Acquisition and integration costs and other                        1.3                  (0.4)                 0.9
MSA Fee Waivers                                                      -                   6.3                  6.3
Adjusted EBITDA                                                   25.7                  23.2                 48.9
Less:

Interest expense, net of amortization of debt issuance costs, debt premium, and original issue discount

                   9.8                   2.2                 12.0
Maintenance capital expenditures                                   3.9                     -                  3.9
Distributable cash flow                                  $        12.0          $       21.0          $      33.0

The following is a reconciliation of net loss to adjusted EBITDA and distributable cash flow for the three months ended June 30, 2022 and the three months ended June 30, 2021 on a non-recast basis:

                                                           Three Months Ended June 30,
                                                             2022               2021             Change
                                                                           (in millions)
Net (loss) income                                        $    (27.3)         $    2.7          $  (30.0)
Add:
Depreciation and amortization                                  28.8              22.3               6.5
Interest expense                                               14.0              12.7               1.3
Equity-based compensation and other expense                     9.8               2.7               7.1
Loss on disposal of assets                                      2.3               1.7               0.6
Changes in unrealized derivative instruments                    2.1              (0.4)              2.5
Acquisition and integration costs and other                     3.6               0.9               2.7

Support Payments and MSA Fee Waivers                            6.2               6.3              (0.1)

Adjusted EBITDA                                                39.5              48.9              (9.4)
Less:

Interest expense, net of amortization of debt issuance costs, debt premium, and original issue discount

               13.3              12.0               1.3
Maintenance capital expenditures                                4.8               3.9               0.9
Distributable cash flow                                  $     21.4          $   33.0          $  (11.6)


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Results of Operations

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

                                                            Six Months Ended June 30,
                                                          2022                2021 (Recast)            Change
                                                                           (in thousands)
Product sales                                       $      524,527          $      495,772          $   28,755
Other revenue                                                4,776                  31,812             (27,036)
Net revenue                                                529,303                 527,584               1,719
Cost of goods sold, excluding items below                  461,312                 432,266              29,046
Loss on disposal of assets                                   3,183                   3,345                (162)
Selling, general, administrative, and development
expenses                                                    61,395                  65,890              (4,495)
Depreciation and amortization                               51,392                  44,700               6,692
Total operating costs and expenses                         577,282                 546,201              31,081
Loss from operations                                       (47,979)                (18,617)            (29,362)
Interest expense                                           (23,929)                (30,858)              6,929

Other (expense) income, net                                   (727)                    508              (1,235)
Net loss before income tax expense (benefit)               (72,635)                (48,967)            (23,668)
Income tax expense (benefit)                                    14                    (941)                955
Net loss                                            $      (72,649)         $      (48,026)         $  (24,623)


Net revenue

Revenue related to product sales for wood pellets produced or procured by us
increased to $524.5 million in the six months ended June 30, 2022 from $495.8
million in the six months ended June 30, 2021. The $28.8 million, or 6%,
increase was primarily attributable to a 12% increase in average sale price per
MT, partially offset by a 6% decrease in product sales volumes for the six
months ended June 30, 2022 as compared to the six months ended June 30, 2021.

The increase in average sales price per MT was primarily due to addressing
dislocations in our customers' and other producers' supply chains, rescheduling
certain contracted deliveries into future periods, enabling prompt deliveries to
other customers requiring incremental deliveries at elevated spot pricing.
Recent biomass spot market prices, as well as the forward curve pricing of
certain European indices, have exceeded $300 per MT, representing a substantial
premium to the current long-term contracted pricing of roughly $200 to $220 per
MT across Enviva's weighted average portfolio, and we have been able to capture
some of that differential during the six months ended June 30, 2022.

The decrease in product sales volumes was primarily due to the timing of
shipments that has resulted in an increase in finished goods inventory and less
volumes procured from third parties to fulfill product sales during the six
months ended June 30, 2022 than during the six months ended June 30, 2021. The
decrease in procured volumes was due to a lower availability of third-party
pellets resulting from the war in Ukraine and related sanctions. For the three
months ended March 31, 2022, product sales revenue from produced volumes were
dampened as a result of labor-related and other challenges associated with
COVID-19 experienced by our employees, contractors, and supply chain partners
that, in some cases, resulted in curtailment of our operations that had a more
pronounced than anticipated impact on our operations and project execution.

Other revenue for the six months ended June 30, 2022 and 2021 included $2.3
million and $29.3 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 which 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 $461.3 million for the six months ended June 30,
2022 from $432.3 million for the six months ended June 30, 2021, an increase of
$29.0 million, or 7%. The increase in cost of goods sold was primarily a result
of incremental fiber logistics, energy, and wood pellet distribution costs. In
particular, during the three months ended March 31, 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 the Lucedale
plant and the commencement of operations of the Pascagoula terminal.

                                       30
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Adjusted gross margin and adjusted gross margin per metric ton

Six Months Ended June 30,

                                                                       2022                     2021 (Recast)            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)                                             $       16,555                    $       49,644          $ (33,089)
Loss on disposal of assets                                           3,183                             3,345               (162)
Equity-based compensation and other expense                          1,301                             1,136                165
Depreciation and amortization                                       48,254                            42,328              5,926
Changes in unrealized derivative instruments                           535                               798               (263)

Acquisition and integration costs and other                          2,557                                72              2,485
Effects of COVID-19                                                 13,942                                 -             13,942
Effects of the war in Ukraine                                        5,051                                 -              5,051
Support Payments                                                    14,085                                 -             14,085

Adjusted gross margin                                       $      105,463                    $       97,323          $   8,140
Metric tons sold                                                     2,371                             2,516               (145)
Adjusted gross margin per metric ton                        $        44.48                    $        38.68          $    5.80


(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 $105.5 million, or $44.48 per MT, for the six
months ended June 30, 2022 compared to $97.3 million, or $38.68 per MT, for the
six months ended June 30, 2021. The increase in adjusted gross margin was
primarily due to the aforementioned increase in net revenue and due to the
increase in Support Payments partially offset by incremental fiber logistics,
energy, and wood pellet distribution costs.

The Omicron variant of COVID-19 significantly impacted our operations and
resulted in $13.9 million of incremental costs during the six months ended June
30, 2022, all of which were incurred during the three months ended March 31,
2022.

•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.

The war in Ukraine impacted our operations and resulted in $5.1 million of incremental costs during the six months ended June 30, 2022, all of which were incurred during the three months ended March 31, 2022.

•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.


Due to the increased average sales price per MT and the reduction 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 six months ended June 30, 2022 compared to the six
months ended June 30, 2021.

Selling, general, administrative, and development expenses


Selling, general, administrative, and development expenses were $61.4 million
and $65.9 million for the six months ended June 30, 2022 and 2021, respectively.
The $4.5 million decrease in total selling, general, administrative, and
development
                                       31
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expenses is primarily associated with decreased cash-based compensation and consulting expenses primarily due to the elimination of activities resulting from the Simplification Transaction.

Depreciation and amortization


Depreciation and amortization expense were $51.4 million and $44.7 million for
the six months ended June 30, 2022 and 2021, respectively, primarily due to the
Lucedale plant, Pascagoula terminal, and expansion assets placed in service.

Interest expense


We incurred $23.9 million and $30.9 million of interest expense during the six
months ended June 30, 2022 and 2021, respectively. The decrease in interest
expense from the prior year was primarily attributable to a lower cost of
borrowing due to the extinguishment of the higher rate senior secured green term
loan facility as part of the Simplification Transaction.

Income tax


We recorded an insignificant income tax expense for the six months ended June
30, 2022 and $0.9 million of income tax benefit during the six months ended June
30, 2021.

Adjusted net loss

                                                                  Six Months Ended June 30,
                                                                2022                2021 (Recast)            Change
                                                                                 (in thousands)
Reconciliation of net loss to adjusted net loss:
Net loss                                                  $      (72,649)         $      (48,026)         $ (24,623)
Acquisition and integration costs and other                       14,369                   1,495             12,874
Effects of COVID-19                                               15,189                       -             15,189
Effects of the war in Ukraine                                      5,051                       -              5,051

Support Payments                                                  14,085                       -             14,085

Adjusted net loss                                         $      (23,955)         $      (46,531)         $  22,576


Adjusted EBITDA

                                                                  Six Months Ended June 30,
                                                                2022                2021 (Recast)            Change
                                                                                 (in thousands)
Reconciliation of net loss to adjusted EBITDA:
Net loss                                                  $      (72,649)         $      (48,026)         $ (24,623)
Add:
Depreciation and amortization                                     51,392                  44,700              6,692
Interest expense                                                  23,929                  30,858             (6,929)
Income tax expense (benefit)                                          14                    (941)               955

Equity-based compensation and other expense                       20,917                  15,192              5,725
Loss on disposal of assets                                         3,183                   3,345               (162)
Changes in unrealized derivative instruments                         535                     798               (263)
Acquisition and integration costs and other                       14,370                   1,495             12,875
Effects of COVID-19                                               15,189                       -             15,189
Effects of the war in Ukraine                                      5,051                       -              5,051
Support Payments                                                  14,085                       -             14,085

Adjusted EBITDA                                           $       76,016          $       47,421          $  28,595


We generated adjusted EBITDA of $76.0 million for the six months ended June 30,
2022 compared to $47.4 million for the six months ended June 30, 2021. The $28.6
million increase was primarily attributable to the factors described above under
the headings "Adjusted gross margin and adjusted gross margin per metric ton"
and "Selling, general, administrative, and

                                       32
--------------------------------------------------------------------------------

development expenses."

Distributable cash flow


The following is a reconciliation of adjusted EBITDA to distributable cash flow:

                                                                 Six Months Ended June 30,
                                                                2022               2021 (Recast)           Change
                                                                                (in thousands)
Reconciliation of adjusted EBITDA to distributable cash
flow attributable to Enviva:
Adjusted EBITDA                                           $      76,016          $       47,421          $ 28,595
Less:
Interest expense, net of amortization of debt issuance
costs, debt premium, and original issue discount                 22,670                  28,710            (6,040)
Maintenance capital expenditures                                  6,682                   7,844            (1,162)
Distributable cash flow attributable to Enviva Inc.              46,664                  10,867            35,797

Less: Distributable cash flow attributable to incentive distribution rights

                                                   -                  19,030           (19,030)

Distributable cash flow attributable to Enviva Inc. or Enviva Partners, LP limited partners

                      $      46,664     

$ (8,163) $ 54,827



The following table presents a reconciliation of net loss to adjusted EBITDA and
distributable cash flow for the six months ended June 30, 2021, on a recast
basis and non-recast basis:

                                                                       Six Months Ended June 30, 2021
                                                             Recast              Adjustments           Non-Recast
                                                                               (in millions)
Net (loss) income                                        $      (48.0)         $       49.2          $       1.2
Add:
Depreciation and amortization                                    44.7                  (1.5)                43.2
Interest expense                                                 30.9                  (5.6)                25.3
Income tax benefit                                               (0.9)                  0.9                    -

Equity-based compensation and other expense                      15.2                  (9.8)                 5.4
Loss on disposal of assets                                        3.3                     -                  3.3
Changes in unrealized derivative instruments                      0.8                     -                  0.8
Acquisition and integration costs and other                       1.5                  (0.5)                 1.0

MSA Fee Waivers                                                     -                  15.0                 15.0
Adjusted EBITDA                                                  47.5                  47.7                 95.2
Less:

Interest expense, net of amortization of debt issuance costs, debt premium, and original issue discount

                 28.7                  (4.7)                24.0
Maintenance capital expenditures                                  7.8                     -                  7.8
Distributable cash flow                                  $       11.0          $       52.4          $      63.4


                                       33
--------------------------------------------------------------------------------

The following is a reconciliation of net loss to adjusted EBITDA and distributable cash flow for the six months ended June 30, 2022 and the six months ended June 30, 2021 on a non-recast basis:

                                                              Six Months Ended June 30,
                                                               2022                 2021             Change
                                                                             (in millions)
Net (loss) income                                        $        (72.6)         $    1.2          $  (73.8)
Add:
Depreciation and amortization                                      51.4              43.2               8.2
Interest expense                                                   23.9              25.3              (1.4)

Equity-based compensation and other expense                        20.9               5.4              15.5
Loss on disposal of assets                                          3.2               3.3              (0.1)
Changes in unrealized derivative instruments                        0.5               0.8              (0.3)
Acquisition and integration costs and other                        14.4               1.0              13.4
Effects of COVID-19                                                15.2                 -              15.2
Effects of the war in Ukraine                                       5.1                 -               5.1
Support Payments and MSA Fee Waivers                               14.1              15.0              (0.9)
Adjusted EBITDA                                                    76.1              95.2             (19.1)

Less:

Interest expense, net of amortization of debt issuance costs, debt premium, and original issue discount

                   22.7              24.0              (1.3)
Maintenance capital expenditures                                    6.7               7.8              (1.1)
Distributable cash flow                                  $         46.7          $   63.4          $  (16.7)

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 revolving
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 revolving credit
facility will be sufficient to meet our primary liquidity requirements. Similar
to previous years, we expect cash generated from operations for the second half
of 2022 to be significantly higher than the first half of the year due to the
predictable seasonality in our business as well as, in this case, the ramp of
production at our newest plant in Lucedale, Mississippi. 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. 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 June 30, 2022, which included cash on hand (including cash
generally restricted to funding a portion of the costs of the acquisition,
construction, equipping, and financing of our Epes plant) and availability under
our $570.0 million senior secured revolving credit facility, was $184.1 million.
Our liquidity as of June 30, 2022 does not include any proceeds resulting from
the Tax-Exempt Green Bonds issued in July 2022.

Cash Dividends


We intend to pay cash dividends to holders of our common stock of $3.62 per
common stock for 2022, except cash will not be paid on 9.0 million of the 16.0
million common units issued in connection with the Simplification Transaction
where the former owners of our former sponsor have agreed to reinvest in our
common stock all dividends paid for the period beginning with the third quarter
of 2021 through the fourth quarter of 2024.

                                       34
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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

•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 $255.0 million to $275.0 million in capital expenditures in
2022. Of that amount, we expect to invest (i) $210.0 million to $220.0 million
primarily on the production plant in Lucedale Mississippi which is in the
process of ramping production, as well as the Pascagoula terminal, and the
construction of the Epes plant, (ii) $30.0 million to $35.0 million primarily on
the Multi-Plant Expansions, and (iii) $15.0 million to $20.0 million on
maintenance capital expenditures.

Our current financing strategy is to fund acquisitions and construction activities with a combination of cash from operations and debt.

Cash Flows


The following table sets forth a summary of our net cash flows from operating,
investing and financing activities for the six months ended June 30, 2022 and
2021:

                                                                           Six Months Ended June 30,
                                                                         2022                2021 (Recast)
                                                                                (in thousands)
Net cash (used in) provided by operating activities                $      (68,891)         $       62,171
Net cash used in investing activities                                    (102,405)               (153,983)
Net cash provided by financing activities                                 201,234                 190,399

Net increase in cash, cash equivalents, and restricted cash $ 29,938 $ 98,587

Cash Used in Operating Activities


Net cash used in operating activities was $68.9 million and net cash provided by
operating activities was $62.2 million for the six months ended June 30, 2022
and 2021, respectively. The $131.1 million decrease in net cash used in
operating activities during the six months ended June 30, 2022 compared to the
six months ended June 30, 2021 was primarily due to a decrease in cash from net
loss adjusted for non-cash items of $11.5 million and a decrease in cash from
changes in working capital of $119.6 million. The decrease in cash from changes
in working capital was primarily attributable to a $71.1 million increase in
accounts receivable and inventories due to the timing of shipments, and an $11.9
million decrease in accounts payable, accrued liabilities, other current
liabilities, and accrued interest due to timing of payments.

Cash Used in Investing Activities


Net cash used in investing activities was $102.4 million and $154.0 million for
the six months ended June 30, 2022 and 2021, respectively. The $51.6 million
decrease in cash used in investing activities during the six months ended June
30, 2022 compared to the six months ended June 30, 2021 was primarily due to the
timing of capital expenditures at the Lucedale plant, Pascagoula terminal, and
on various expansion projects.

Cash Provided by Financing Activities


Net cash provided by financing activities was $201.2 million and $190.4 million
for the six months ended June 30, 2022 and 2021, respectively. The $10.8 million
increase in net cash provided by financing activities during the six months
ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily
attributable to cash used to acquire a

                                       35
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noncontrolling interest of $130.1 million during the six months ended June 30,
2021, an increase in proceeds from the issuance of common shares or units of
$118.1 million, a decrease in net proceeds from debt of $174.5 million, and an
increase in cash dividends or distributions and equivalent rights of $60.7
million.

Off­Balance Sheet Arrangements

As of June 30, 2022, we did not have any off­balance sheet arrangements.

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with GAAP requires
management to make judgments, estimates, and assumptions that affect the amounts
reported in our unaudited condensed consolidated financial statements and
accompanying notes. Actual results could differ materially from those estimates.
We provide expanded discussion of our significant accounting policies,
estimates, and judgments in our 2021 Form 10­K. We believe these accounting
policies reflect our significant estimates and assumptions used in preparation
of our financial statements. There have been no significant changes to our
critical accounting policies and estimates since December 31, 2021.

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