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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 001-37363
Enviva_E-mail_Logo.jpg
Enviva Inc.
(Exact name of registrant as specified in its charter)
Delaware46-4097730
(State or other jurisdiction(I.R.S. Employer
of incorporation or organization)Identification No.)
7272 Wisconsin Ave.Suite 1800
Bethesda,MD20814
(Address of principal executive offices)(Zip code)
(301)657-5560
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common StockEVANew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒Accelerated filer☐
Non-accelerated filer ☐Smaller reporting company☐
 Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of November 3, 2023, 74,496,537 shares of common stock were outstanding.

ENVIVA INC.
QUARTERLY REPORT ON FORM 10‑Q
TABLE OF CONTENTS
i
CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form 10‑Q (this “Quarterly Report”) may constitute “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” or other similar expressions are intended to identify forward‑looking statements, which are generally not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. Although management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts of our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from those in our historical experience and our present expectations or projections. Factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:
•our ability to continue as a going concern;
•our ability to remain in compliance with the covenants under our senior secured credit facility and other debt instruments or to otherwise mitigate the impact of such terms;
•our ability to renegotiate, restructure or mitigate the terms of the Q4 2022 Transactions (as defined below) or to renegotiate other customer contracts;
•our ability to successfully execute cost-reduction and productivity initiatives on the anticipated timeline or at all;
•the outcome and timing of our comprehensive review;
•the volume and quality of products that we are able to produce or source and sell, which could be adversely affected by, among other things, operating or technical difficulties at our wood pellet production plants or deep-water marine terminals;
•the prices at which we are able to sell our products, including changes in spot prices;
•our ability to capitalize on higher spot prices and contract flexibility in the future, which is subject to fluctuations in pricing and demand;
•the possibility that current market prices may not continue and therefore, in the future, we may not be able to make spot sales and may need to make spot purchases at higher prices;
•impairment of goodwill, intangible assets, and other long-lived assets;
•failure of our customers, vendors, and shipping partners to pay or perform their contractual obligations to us;
•our inability to successfully execute our project development, capacity expansion, and new facility construction activities on time and within budget;
•the creditworthiness of our contract counterparties;
•the amount of low-cost wood fiber that we are able to procure and process, which could be adversely affected by, among other things, disruptions in supply or operating or financial difficulties suffered by our suppliers;
•our ability to successfully negotiate, complete, and integrate third-party acquisitions, or to realize the anticipated benefits of such acquisitions;
•changes in the price and availability of natural gas, coal, diesel, oil, gasoline, or other sources of energy;
•changes in prevailing domestic and global economic, political, and market conditions, including the imposition of tariffs or trade or other economic sanctions, political instability or armed conflict, rising inflation levels and government efforts to reduce inflation, or a prolonged recession;
•inclement or hazardous environmental conditions, including extreme precipitation, temperatures, and flooding;
•fires, explosions, or other accidents;
1
•changes in domestic and foreign laws and regulations (or the interpretation thereof) related to renewable or low-carbon energy, the forestry products industry, the international shipping industry, or power, heat, or combined heat and power generators;
•changes in domestic and foreign tax laws and regulations affecting the taxation of our business, and investors;
•changes in the regulatory treatment of biomass in core and emerging markets;
•our inability to acquire or maintain necessary permits or rights for our production, transportation, or terminaling operations;
•changes in the price and availability of transportation;
•changes in foreign currency exchange or interest rates and the failure of our hedging arrangements to effectively reduce our exposure to related risks;
•risks related to our indebtedness, including the levels, and maturity date of such indebtedness;
•our failure to maintain effective quality control systems at our wood pellet production plants and deep-water marine terminals, which could lead to the rejection of our products by our customers;
•changes in the quality specifications for our products required by our customers;
•labor disputes, unionization, or similar collective actions;
•our inability to hire, train, or retain qualified personnel to manage and operate our business;
•risks related to our restructuring plan, the primary components of which are reductions in our workforce and corporate and other costs;
•the possibility of cyber and malware attacks;
•our inability to borrow funds and access capital markets;
•viral contagions or pandemic diseases, such as COVID-19;
•changes to our leadership and management team;
•potential liability resulting from pending or future litigation, investigations, or claims; and
•governmental actions and actions by other third parties that are beyond control.
Please read the risks described in our Annual Report on Form 10-K for the year ended December 31, 2022 and the risk factors included herein in Item 1A. Risk Factors. All forward-looking statements in this Quarterly Report are expressly qualified in their entirety by the foregoing cautionary statements.
Readers are cautioned not to place undue reliance on forward-looking statements and we undertake no obligation to update or revise any such statements after the date they are made, whether as a result of new information, future events or otherwise.
2
GLOSSARY OF TERMS
biomass: any organic biological material derived from living organisms that stores energy from the sun.
co-fire: the combustion of two different types of materials at the same time. For example, biomass is sometimes fired in combination with coal in existing coal plants.
cost pass-through mechanism: a provision in commercial contracts that passes costs through to the purchaser.
metric ton: one metric ton, which is equivalent to 1,000 kilograms and 1.1023 short tons.
nameplate: the intended full-load sustained maximum rated output of production.
off-take contract: an agreement concerning the purchase and sale of a certain volume of future production of a given resource such as wood pellets.
ramp: the process by which a plant increases production following startup for a period of time until full nameplate production capacity is demonstrated.
utility-grade wood pellets: wood pellets meeting minimum requirements generally specified by industrial consumers and produced and sold in sufficient quantities to satisfy industrial‑scale consumption.
wood fiber: cellulosic elements that are extracted from trees and used to make various materials, including paper. In North America, wood fiber is primarily extracted from hardwood (deciduous) trees and softwood (coniferous) trees.
wood pellets: energy-dense, low-moisture, and uniformly sized units of wood fuel produced from processing various wood resources or byproducts.
3
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
ENVIVA INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except par value and number of shares)
September 30, 2023December 31, 2022
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$315,202 $3,417 
Accounts receivable200,199 169,847 
Other accounts receivable12,574 8,950 
Inventories192,361 158,884 
Short-term customer assets25,742 21,546 
Prepaid expenses and other current assets12,369 7,695 
Total current assets758,447 370,339 
Property, plant, and equipment, net 1,663,386 1,584,875 
Operating lease right-of-use assets96,079 102,623 
Goodwill103,928 103,928 
Long-term restricted cash125,475 247,660 
Long-term customer assets106,030 118,496 
Other long-term assets40,236 23,519 
Total assets$2,893,581 $2,551,440 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$47,747 $37,456 
Accrued and other current liabilities155,606 146,497 
Customer liabilities32,478 75,230 
Current portion of interest payable17,347 32,754 
Current portion of long-term debt and finance lease obligations16,336 20,993 
Deferred revenue54,120 32,840 
Financial liability pursuant to repurchase accounting212,119 111,913 
Total current liabilities535,753 457,683 
Long-term debt and finance lease obligations1,806,091 1,571,766 
Long-term operating lease liabilities108,301 115,294 
Deferred tax liabilities, net2,106 2,107 
Long-term deferred revenue114,962 41,728 
Other long-term liabilities64,050 76,106 
Total liabilities2,631,263 2,264,684 
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, $0.001 par value, 100,000,000 shares authorized, none issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
— — 
Common stock, $0.001 par value, 600,000,000 shares authorized, 74,496,537 and 66,966,092 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
74 67 
Additional paid-in capital735,882 502,554 
Accumulated deficit(426,245)(168,307)
Accumulated other comprehensive income219 197 
Total Enviva Inc.’s shareholders’ equity309,930 334,511 
Noncontrolling interests(47,612)(47,755)
Total shareholders’ equity262,318 286,756 
Total liabilities and shareholders’ equity$2,893,581 $2,551,440 
See accompanying notes to condensed consolidated financial statements.
4
ENVIVA INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Product sales$306,949 $322,978 $855,347 $847,505 
Other revenue13,688 2,682 36,277 7,458 
Net revenue320,637 325,660 891,624 854,963 
Operating costs and expenses:
Cost of goods sold, excluding items below268,221 257,542 781,579 718,854 
Impairment of assets21,220 — 21,220 — 
Loss on disposal of assets4,384 4,035 11,190 7,218 
Selling, general, administrative, and development expenses27,582 30,407 80,523 91,802 
Restructuring inclusive of related severance expenses6,257 — 19,842 — 
Depreciation and amortization36,405 34,930 101,044 86,322 
Total operating costs and expenses364,069 326,914 1,015,398 904,196 
Loss from operations(43,432)(1,254)(123,774)(49,233)
Other (expense) income:
Interest expense(21,620)(18,704)(62,285)(42,633)
Interest expense on repurchase accounting(22,143)— (74,074)— 
Total interest expense(43,763)(18,704)(136,359)(42,633)
Other income, net2,190 1,671 2,516 944 
Total other expense, net(41,573)(17,033)(133,843)(41,689)
Net loss before income taxes(85,005)(18,287)(257,617)(90,922)
Income tax expense155 12 178 26 
Net loss(85,160)(18,299)(257,795)(90,948)
Less net (income) loss attributable to noncontrolling interests(35)43 (143)48 
Net loss attributable to Enviva Inc.$(85,195)$(18,256)$(257,938)$(90,900)
Loss per common share:
Basic and diluted$(1.14)$(0.29)$(3.69)$(1.41)
Weighted-average number of shares outstanding:
Basic and diluted74,447 66,724 70,126 66,125 
See accompanying notes to condensed consolidated financial statements.
5
ENVIVA INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net loss$(85,160)$(18,299)$(257,795)$(90,948)
Other comprehensive loss, net of tax of $0
Currency translation adjustment28 (96)22 (201)
Total comprehensive loss(85,132)(18,395)(257,773)(91,149)
Less comprehensive (income) loss attributable to noncontrolling interests(35)43 (143)48 
Comprehensive loss attributable to Enviva Inc.$(85,167)$(18,352)$(257,916)$(91,101)
See accompanying notes to condensed consolidated financial statements.
6
ENVIVA INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(In thousands)
(Unaudited)
Common SharesAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeEquity Attributable to Enviva Inc.
Noncontrolling
Interests 
Total Shareholders’ Equity
SharesAmount
Shareholders’ equity, December 31, 202266,966 $67 $502,554 $(168,307)$197 $334,511 $(47,755)$286,756 
Dividends declared— — (60,940)— — (60,940)— (60,940)
Common shares issued in lieu of dividends188 — 8,698 — — 8,698 — 8,698 
Payments for withholding tax and number of shares issued associated with Long-Term Incentive Plan vesting574 1 (15,265)— — (15,264)— (15,264)
Non-cash equity-based compensation and other costs— — 16,708 — — 16,708 — 16,708 
Support Payments— — 9,821 — — 9,821 — 9,821 
Other comprehensive income— — — — 1 1 — 1 
Net loss— — — (116,899)— (116,899)40 (116,859)
Shareholders’ equity, March 31, 202367,728 $68 $461,576 $(285,206)$198 $176,636 $(47,715)$128,921 
Dividend equivalent rights on performance-based restricted stock units forfeited— — 342 — — 342 — 342 
Conversion of Series A Preferred Stock to common shares6,605 6 247,924 — — 247,930 — 247,930 
Payments for withholding tax and number of shares issued associated with Long-Term Incentive Plan vesting82 — (370)— — (370)— (370)
Non-cash equity-based compensation and other costs— — 17,314 — — 17,314 — 17,314 
Other comprehensive loss— — — — (7)(7)— (7)
Net loss— — — (55,844)— (55,844)68 (55,776)
Shareholders’ equity, June 30, 202374,415 $74 $726,786 $(341,050)$191 $386,001 $(47,647)$338,354 
Dividend equivalent rights on performance-based restricted stock units forfeited— — 2,258 — — 2,258 — 2,258 
Conversion of Series A Preferred Stock to common shares— — (24)— — (24)— (24)
Payments for withholding tax and number of shares issued associated with Long-Term Incentive Plan vesting81 — (417)— — (417)— (417)
Non-cash equity-based compensation and other costs— — 7,279 — — 7,279 — 7,279 
Other comprehensive income— — — — 28 28 — 28 
Net loss— — — (85,195)— (85,195)35 (85,160)
Shareholders’ equity, September 30, 202374,496 $74 $735,882 $(426,245)$219 $309,930 $(47,612)$262,318 
See accompanying notes to condensed consolidated financial statements.
7
ENVIVA INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Continued)
(In thousands)
(Unaudited)
Common SharesAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeEquity Attributable to Enviva Inc.
Noncontrolling
Interests 
Total Shareholders’ Equity
SharesAmount
Shareholders’ equity, December 31, 202161,138 $61 $317,998 $— $299 $318,358 $(47,694)$270,664 
Dividends declared— — (58,957)— — (58,957)— (58,957)
Issuance of common shares, net4,945 5 333,186 — — 333,191 — 333,191 
Common shares issued in lieu of dividends110 — 7,839 — — 7,839 — 7,839 
Payments for withholding tax and number of shares issued associated with Long-Term Incentive Plan vesting366 1 (16,365)— — (16,364)— (16,364)
Non-cash equity-based compensation and other costs— — 10,235 — — 10,235 — 10,235 
Other comprehensive loss— — — — (32)(32)— (32)
Net loss— — — (45,307)— (45,307)— (45,307)
Shareholders’ equity, March 31, 202266,559 $67 $593,936 $(45,307)$267 $548,963 $(47,694)$501,269 
Dividends declared— — (61,837)— — (61,837)— (61,837)
Issuance of common shares, net— — (428)— — (428)— (428)
Common shares issued in lieu of dividends105 — 8,349 — — 8,349 — 8,349 
Payments for withholding tax and number of shares issued associated with Long-Term Incentive Plan vesting8 — (213)— — (213)— (213)
Non-cash equity-based compensation and other expense— — 9,848 — — 9,848 — 9,848 
Support Payments— — 4,197 — — 4,197 — 4,197 
Other comprehensive loss— — — — (73)(73)— (73)
Net loss— — — (27,337)— (27,337)(5)(27,342)
Shareholders’ equity, June 30, 202266,672 $67 $553,852 $(72,644)$194 $481,469 $(47,699)$433,770 
Dividends declared— — (62,044)— — (62,044)— (62,044)
Issuance of common shares, net— — (38)— — (38)— (38)
Common shares issued in lieu of dividends124 — 8,443 — — 8,443 — 8,443 
Payments for withholding tax and number of shares issued associated with Long-Term Incentive Plan vesting8 — (235)— — (235)— (235)
Non-cash equity-based compensation and other expense— — 10,169 — — 10,169 — 10,169 
Support Payments— — 9,821 — — 9,821 — 9,821 
Other comprehensive loss— — — — (96)(96)— (96)
Net loss— — — (18,256)— (18,256)(43)(18,299)
Shareholders’ equity, September 30, 202266,804 $67 $519,968 $(90,900)$98 $429,233 $(47,742)$381,491 
See accompanying notes to condensed consolidated financial statements.
8
ENVIVA INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20232022
Cash flows from operating activities:  
Net loss$(257,795)$(90,948)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization102,292 86,322 
Interest expense pursuant to repurchase accounting74,074 — 
Amortization of debt issuance costs, debt premium, and original issue discounts1,944 2,055 
Impairment of assets and loss on disposal of assets32,626 7,218 
Deferred taxes178 — 
Non-cash equity-based compensation and other expense39,759 30,222 
Other— 958 
Fair value changes in derivatives1,312 4,673 
Unrealized loss (gain) on foreign currency transactions, net43 (208)
Change in operating assets and liabilities:
Accounts and other receivables(31,228)(9,654)
Prepaid expenses and other current and long-term assets5,000 (32,564)
Inventories(781)(24,609)
Finished goods subject to repurchase accounting(30,267)— 
Derivatives1,391 (3,983)
Accounts payable, accrued liabilities, and other current liabilities(21,854)4,144 
Deferred revenue94,514 (180)
Accrued interest(15,407)(9,045)
Other long-term liabilities(21,398)(15,953)
Net cash used in operating activities(25,597)(51,552)
Cash flows from investing activities:
Purchases of property, plant, and equipment(212,529)(162,449)
Payment for acquisition of a business— (5,000)
Net cash used in investing activities(212,529)(167,449)
Cash flows from financing activities:
Principal proceeds on senior secured revolving credit facility, net132,546 1,000 
Proceeds from debt issuance102,900 278,571 
Proceeds from capital contribution of New Market Tax Credit financing— 12,307 
Principal payments on other long-term debt and finance lease obligations(20,309)(28,134)
Cash paid related to debt issuance costs and deferred offering costs(1,769)(5,376)
Support Payments received9,821 14,018 
Proceeds from sale of finished goods subject to repurchase accounting, net30,505 — 
Proceeds from issuance of Series A Preferred Stock, net, which was converted into common stock247,900 — 
Proceeds from issuance of Enviva Inc. common shares, net— 332,970 
Cash dividends(57,104)(158,356)
Payment for withholding tax associated with Long-Term Incentive Plan vesting(16,764)(16,812)
Net cash provided by financing activities 427,726 430,188 
Net increase in cash, cash equivalents, and restricted cash189,600 211,187 
Cash, cash equivalents, and restricted cash, beginning of period251,077 18,518 
Cash, cash equivalents, and restricted cash, end of period$440,677 $229,705 
See accompanying notes to condensed consolidated financial statements.
9
ENVIVA INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20232022
Non-cash investing and financing activities:
Property, plant, and equipment acquired included in accounts payable and accrued liabilities$20,169 $852 
Supplemental information:
Interest paid, net of capitalized interest$76,075 $48,689 
See accompanying notes to condensed consolidated financial statements.
10
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except number of shares or units, per share, and unless otherwise noted)
(1) Description of Business and Basis of Presentation
Enviva Inc. supplies utility-grade wood pellets primarily to major power generators under long-term, take-or-pay off-take contracts. We procure wood fiber and process it into utility-grade wood pellets and load the finished wood pellets into railcars, trucks, and barges for transportation to deep-water marine terminals, where they are received, stored, and ultimately loaded onto oceangoing vessels for delivery to our customers principally in the United Kingdom (the “U.K.”), the European Union (the “EU”), and Japan.
We own and operate ten industrial-scale wood pellet production plants located in the Southeastern United States. In addition to the volumes from our plants, we also procure wood pellets from third parties. Wood pellets are exported from our wholly owned deep-water marine terminal at the Port of Chesapeake, Virginia, terminal assets at the Port of Wilmington, North Carolina, and at the Port of Pascagoula, Mississippi, and from third-party deep-water marine terminals in Mobile, Alabama, Panama City, Florida, and Savannah, Georgia under a short-term contract, a long-term contract, and a lease and associated terminal services agreement, respectively.
Basis of Presentation
Principles of Consolidation
Our consolidated financial statements include the accounts of Enviva and its wholly owned subsidiaries and controlled subsidiaries, including variable interest entities in which we are the primary beneficiary as we have the sole power to direct the activities that most impact the economics of the variable interest entities. All intercompany balances and transactions have been eliminated in consolidation.
Unaudited Financial Statements
The unaudited financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.
In the opinion of management, all adjustments and accruals necessary for a fair presentation have been included. All such adjustments and accruals are of a normal and recurring nature unless disclosed otherwise. The results reported in the financial statements are not necessarily indicative of the results that may be reported for the entire year.
The unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, which include the names of legal entities that are our subsidiaries and which also include defined terms used in the unaudited financial statements.
Reclassification
Certain prior year amounts have been reclassified from operating lease liabilities to other long-term liabilities to conform to current period presentation on the consolidated statements of cash flows.
(2) Liquidity and Going Concern Evaluation
Under Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company is required each reporting period, including interim periods, to evaluate whether there is substantial doubt regarding its ability to continue as a going concern. The accompanying unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP applicable to a going concern. This presentation contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described below.
In its going concern evaluation, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within twelve months of the filing of this Quarterly Report on Form 10-Q and considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, and the Company’s conditional and unconditional obligations before such date.
11
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
The Company has incurred net losses of $257.8 million and $168.4 million for the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively, and negative cash flow from operating activities of $25.6 million and $88.8 million, respectively for the same periods. As of September 30, 2023, the Company had $315.2 million in cash and cash equivalents, $125.5 million of restricted cash, and no availability under our revolving credit facility, resulting in total liquidity of $440.7 million. Our future profitability and liquidity are expected to be negatively impacted by the following matters which have resulted in substantial doubt about the Company’s ability to continue as a going concern.
Sale and Purchase Transactions
As previously disclosed, during the three months ended December 31, 2022, we entered into agreements with a customer to purchase approximately 1.8 million MT of wood pellets between 2023 and 2025 (the “new purchase agreements”). The new purchase agreements were priced at market prices in effect at the time of the agreements. At that time, we entered into additional wood pellet sales contracts (“new sales contracts,” together with the new purchase agreements, the “Q4 2022 Transactions”) that together with the existing sales contracts totaled approximately 2.8 million MT with deliveries between 2022 and 2026. Under the Q4 2022 Transactions, the volumes we agreed to purchase during this period exceeded the volumes we agreed to sell. In addition, due to pricing dynamics at the time of the Q4 2022 Transactions, the fixed price per MT that we agreed to pay for the purchased volumes was significantly higher than the sales prices per MT under the pre-existing sales contracts for the corresponding periods. As a result, our ability to profit from these agreements was dependent on our ability to resell the purchased wood pellets under short-term contracts or spot agreements at sales prices higher than the purchase price, thus increasing our exposure to fluctuations in the wood pellet market. At the time that we entered into these purchase contracts, we believed that the global wood pellet market was substantially short for the foreseeable future and these incremental contracted purchases provided us with an opportunity to flexibly capture margin in future periods as well as to reduce our exposure to further increases in wood pellet market prices by securing physical volumes to supplement any shortfalls in our produced volumes to satisfy long-term contracts. Market prices for wood pellets during 2023 have been well below the elevated spot market and forward prices experienced during the fourth quarter of 2022 and lower than the prices at which we agreed to purchase these volumes. As a result, the spread between the sale and purchase prices of the Q4 2022 Transactions and the anticipated loss on resale of those volumes has had, and absent a significant and near-term increase in wood pellet market pricing, will continue to have through 2025, a negative impact on our profitability, cash flows, and liquidity.
As of September 30, 2023, the Company is obligated under the Q4 2022 Transactions to purchase approximately 1.7 million MT of wood pellets from this customer between 2023 and 2025, and the Company is obligated under the pre-existing sales agreements under long-term take-or-pay contracts to sell approximately 2.1 million MT of wood pellets to this customer between 2023 and 2026. With respect to the Q4 2022 Transactions, as of September 30, 2023, the Company has satisfied all sales obligations and is obligated to purchase approximately 1.7 million MT of wood pellets through 2025 for a total of approximately $641.4 million, of which 0.8 million MT for $296.3 million is related to 2023, 0.6 million MT for $233.3 million is related to 2024 and 0.3 million MT for $111.8 million is related to 2025.
As described above, we intended to sell the wood pellets that we are obligated to purchase to other customers under short-term contracts or spot agreements. Assuming sales based on forward Argus prices published on November 1, 2023 for the delivery dates of these volumes under the respective purchase contracts, the aggregate sales value of the volumes we have agreed to purchase would have been approximately $156.9 million in 2023, $134.1 million in 2024, and $67.0 million in 2025 which would indicate that resales of the volumes purchased under the Q4 2022 Transactions into the spot market would have a negative impact on our profitability, cash flows, and liquidity of $139.4 million in 2023, $99.2 million in 2024, and $44.8 million in 2025. As of the date of these interim financial statements there has been no significant changes to the Argus forward pricing since November 1, 2023. Similarly, given the current average sales prices per MT under our existing long-term take-or-pay contracts with other customers, using such volumes to satisfy delivery obligations under such contracts would not cover our loss on the purchases under the Q4 2022 Transactions and would have a negative impact on our profitability, cash flows, and liquidity.
If wood pellet prices do not increase significantly in the near term, the purchase obligations under the Q4 2022 Transactions would negatively impact the Company’s future profitability, cash flows, and liquidity and could negatively impact its ability to remain in compliance with its covenants under the Company’s senior secured credit facility. If the Company does not perform under the purchase obligations under the Q4 2022 Transactions, after a requisite cure period, the customer could terminate the contracts underlying the Q4 2022 Transactions and the pre-existing sales agreements, which would accelerate the Company’s payment obligations thereunder. Failure to make payments due upon termination of these contracts after all applicable cure periods have passed could result in defaults under the Company’s senior secured credit facility, which may result in cross-defaults or other consequences under the Company’s other debt facilities.
12
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
The Company is in negotiations with the existing customer to restructure or renegotiate the terms of the Q4 2022 Transactions, and is considering other alternatives to mitigate the potential impact of the Q4 2022 Transactions on our profitability, cash flows, and liquidity. On November 2, 2023, the customer issued a notice of material breach under the contract that, if not cured or waived, would allow the customer to terminate its purchase and sale contracts with us and accelerate the payment thereunder. There can be no assurance that a new agreement or alternative will be reached or achieved or that any new agreement or alternative that is reached or that is achieved will allow the Company to continue to meet its debt covenants or to cure the notice of material breach.
The accounting treatment of the Q4 2022 Transactions is described further in Note 4, Revenue – Repurchase Accounting below.
Debt Covenants
The Company has a senior secured credit facility that matures on June 30, 2027 which provides for (1) revolving credit borrowings, (2) term loans, and (3) the issuance of commercial letters of credit. As of September 30, 2023, we had fully drawn $675.0 million under our senior secured credit facility. Under the senior secured credit facility, the Company is required to maintain (1) a maximum Total Leverage Ratio at or below 5.50 to 1.00 (or 5.75 to 1.00 during a Material Transaction Period, which is currently in effect) and (2) a minimum Interest Coverage Ratio of not less than 2.25 to 1.00. These covenants are tested as of the end of each fiscal quarter. As of September 30, 2023, we were in compliance with these covenants. However, based on operational challenges experienced at our plants during the first and second quarters of 2023 and a wood pellet market dynamic that has largely held market prices at levels unsupportive of creating margin through spot purchases or spot sales, the Company anticipates that, absent a cure, it may be in breach of each of these covenants under its senior secured credit facility as early as the reporting date for the measurement period ending December 31, 2023. In addition, a “going concern” or similar qualification in the audit opinion with respect to our financial statements for the year ended December 31, 2023 would be an independent event of default under our senior secured credit facility. Separately, a default or termination under the Q4 2022 Transactions described above or in connection with certain other customer contracts and the failure to make payments thereunder could result in a default under the senior secured credit facility, which may result in cross-defaults or other consequences under the Company’s other debt facilities. The senior secured credit facility and the Company’s other debt facilities are described in more detail below in Note 10, Long-Term Debt and Finance Lease Obligations and in Note 12, Long-Term Debt and Finance Lease Obligations to the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022.
If the Company is no longer in compliance with such covenants and restrictions as of the date of the delivery of a Compliance Certificate (as defined in the Company’s credit agreement), the lenders under the senior secured credit facility may deliver notice of an event of default to the Company. Subject to the conditions of the senior secured credit facility, the lenders may at such time declare all outstanding principal and interest to be due and payable immediately and foreclose against the assets securing the borrowings. Further, acceleration of the senior secured credit facility would result in a cross-default of its obligations under certain other of the Company’s debt instruments. If the Company would be unable to obtain a waiver or forbearance of such covenants or defaults, to successfully renegotiate the terms of the senior secured credit facility, or to cure the potential covenant breach or default, and the lenders enforced one or more of their rights upon default and/or the default resulted in a cross-default under certain other of the Company’s debt instruments, the Company would be unable to meet its current obligations.
As of September 30, 2023 and December 31, 2022, we were in compliance with the covenants and restrictions associated with, and no events of default existed under, the senior secured credit facility. The Company has engaged legal and financial advisors to assist with a comprehensive review of alternatives to enhance its capital structure, augment liquidity and address contractual liabilities, which may include taking steps to cure any potential defaults or seeking forbearance, waivers or other alternatives to avoid an event of default. However, at the time of this filing, the Company has not secured a resolution to the potential breach of its covenants and restrictions under the senior secured credit facility.
Review of Liquidity and Operations
During the third quarter of 2023, we engaged in a review of certain strategic, operational and financial improvements and opportunities to improve the Company’s liquidity and profitability. To assist in such review, we engaged certain legal and financial advisors. During the three and nine months ended September 30, 2023, total direct and incremental expenses included in selling, general, administrative, and development expenses, attributable to such strategic review were $7.1 million.
13
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
Management Evaluation
With the effects of the Q4 2022 Transactions and the potential for a covenant default under the Company’s senior secured credit facility and cross defaults or other consequences under the Company’s other debt facilities, the Company’s forecast of future cash flows indicates that such cash flows may not be sufficient for the Company to continue as a going concern.
The Company’s ability to continue as a going concern is contingent upon successful execution of management’s plans which include, without limitation, seeking to cure any potential breach of covenants, modifying our debt covenants to maintain compliance with the covenants and restrictions under the senior secured credit facility, restructuring the repurchase obligations under the Q4 2022 Transactions to alleviate the adverse liquidity impact of the Q4 2022 Transactions given current wood pellet market prices, and potentially raising additional capital, if any such capital is available on acceptable terms. However, such alternatives may not be achievable on favorable conditions, or at all, and these conditions and events in the aggregate raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s Condensed Consolidated Financial Statements do not include any adjustments that may result from the outcome of this uncertainty and have been prepared assuming the Company will continue as a going concern.
(3) Significant Accounting Policies
During interim periods, we follow the accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022. We elaborate on the following policy given the significant decline in our market capitalization during 2023.
Goodwill
Goodwill represents the purchase price paid for acquired businesses in excess of the identifiable acquired assets and assumed liabilities. Goodwill is not amortized but we test goodwill for impairment annually. Beyond the annual impairment test, we monitor for any events that occur, or for any circumstances that change, such that it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
Impairment testing for goodwill is required to be done at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. Enviva Inc. represents a single operating segment that has been deemed to be a single reporting unit.
For the years ended December 31, 2022 and 2021, we performed a quantitative assessment using the market approach and determined the fair value of the reporting unit exceeded its carrying amount. There have been no impairments to the carrying value of our goodwill during the periods presented.
As of September 30, 2023, the market capitalization of Enviva, Inc. exceeded the carrying amount of the Enviva Inc. reporting unit by 109%. If the market capitalization of Enviva Inc. ceases to exceed the carrying amount of the Enviva Inc. reporting unit, we would need to test goodwill for impairment, which would include estimating the control premium to add to the market capitalization in order to estimate the fair value of the reporting unit, Enviva Inc. The amount of any excess of the carrying amount of the shareholders’ equity of Enviva Inc. over the fair value of Enviva Inc. would be recognized as an impairment expense.
Use of 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 consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Recently Issued Accounting Standards not yet Adopted
Currently, there are no recently issued accounting standards not yet adopted by us that we expect to be reasonably likely to materially impact our financial position, results of operations, or cash flows.
14
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
(4) Revenue
See Note 3, Revenue to the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022.
Performance Obligations
As of September 30, 2023, the aggregate amount of consideration from contracts with customers allocated to the performance obligations that were unsatisfied or partially satisfied was approximately $18.8 billion. This amount excludes forward prices related to variable consideration including inflation, foreign currency, and commodity prices. Also, this amount excludes the effects of the related foreign currency derivative contracts as they do not represent contracts with customers. We expect to recognize approximately 2.0% of our remaining performance obligations during the remainder of 2023, an additional 9.0% in 2024, and the balance thereafter. Our off-take contracts expire at various times through 2045 and our terminal services contract with a customer expires in 2023.
Variable Consideration
For the three months ended September 30, 2023 and 2022, product sales revenue was reduced by $0.1 million and $0.7 million, respectively, related to performance obligations satisfied in previous periods. For the nine months ended September 30, 2023 and 2022, we recognized $0.1 million and $0.3 million, respectively, of product sales revenue related to performance obligations satisfied in previous periods. There was no variable consideration from our terminal services contract for the three and nine months ended September 30, 2023 and 2022.
Contract Balances
Accounts receivable related to product sales as of September 30, 2023 and December 31, 2022 were $154.5 million and $160.4 million, respectively. Of these amounts, $117.7 million and $136.1 million, as of September 30, 2023 and December 31, 2022, respectively, related to amounts that were not yet billable under our contracts with customers pending finalization of prerequisite billing documentation. The amounts that had not been billed are billed upon receipt of prerequisite billing documentation, where substantially all is typically billed one to two weeks after full loading of the vessel, and where the remaining balance is typically billed one to two weeks after discharge of the vessel. Accounts receivable also included $45.7 million and $9.4 million, as of September 30, 2023 and December 31, 2022, respectively, related to distribution costs recoverable from the customer through the cost pass-through mechanism where the costs and their recovery are included in cost of goods sold and amounts due from customers for adjusting deliveries under our take-or-pay contracts.
Customer Assets
As of September 30, 2023, the balance of the customer assets was $131.8 million, which relate to payments we paid, or are obligated to pay, to customers in exchange for rescheduling and/or re-pricing our take-or-pay agreements.
During the three months ended March 31, 2023, we agreed to pay an additional $5.2 million to certain customers with whom we have long-term, take-or-pay off-take contracts. No such agreements were entered into during the three months ended June 30, 2023 or the three months ended September 30, 2023. Additionally, during the three and nine months ended September 30, 2023, $7.6 million and $14.3 million, respectively, was amortized as a reduction to product sales revenue. We had no amortization during the three and nine months ended September 30, 2022. The asset has been tested for recoverability, which involves a comparison of the contract price we expect to receive under the related take-or-pay agreement, reduced by the amortization of the contract asset, compared to our expected costs to produce, procure and deliver the volumes specified in the contract. The expected costs of producing volumes in the future require estimates, including estimates of manufacturing throughput volumes and future energy, fiber, shipping, distribution, and overhead costs. Actual results could be different than these estimates, and our estimates could change in the future based upon new facts and circumstances and could result in these assets no longer being recoverable.
Our obligation to make future payments under the terms of our modified agreements as of September 30, 2023, included $32.4 million in customer liabilities and $21.7 million in other long-term liabilities, and as of December 31, 2022, included $75.2 million in customer liabilities and $26.4 million in other long-term liabilities.
15
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
Repurchase Accounting
Under the Q4 2022 Transactions, the quantities we agreed to purchase exceeded the quantities we agreed to sell. Under the revenue accounting standard, these sale and purchase agreements were combined with existing sale agreements because the 2022 agreements were entered into at or near the same time with the same customer and were negotiated as a package with a single commercial objective. We accounted for the combined contract as a modification of the existing enforceable rights and obligations of our long-term, take-or-pay off-take contracts with the same customer. The contract modification was considered to be the termination of the existing contract and the creation of a new contract. We allocated the total remaining transaction price (which includes any additional transaction price from the modification) to the remaining quantities to be transferred under the modified contract. As of September 30, 2023 and December 31, 2022, we had $72.5 million and $72.7 million, respectively, of deferred revenue for consideration received from the customer in excess of the amounts allocated to the wood pellets transferred to that customer under the modified contract.
Under the repurchase agreement requirements in the revenue standard, the wood pellets subject to repurchase were accounted for as a financing arrangement because the purchase prices exceed the original selling prices of the wood pellets under the modified contract. As a result, we recognized a financial liability for an amount equal to the selling prices of the wood pellets under the modified contract. Over the period between when volumes are delivered to this customer and when corresponding volumes are purchased from this customer, the difference between the selling price of the wood pellets under the modified contract and the contractual purchase price will be recognized as interest expense with a corresponding increase to the financial liability. The amount of interest expense recognized and the corresponding increase to the financial liability in a given period is determined based on the estimated timing of when the future purchases will occur. Changes in the estimated timing of the volumes to be purchased are recognized to interest expense prospectively. During the three and nine months ended September 30, 2023, the product delivered under the modified contract recognized as an increase to the financial liability was $6.7 million and $37.2 million, respectively, and interest expense of $22.1 million and $74.1 million, respectively, was recognized as an increase to the financial liability. The financial liability including interest expense classified as a current liability as of September 30, 2023 and December 31, 2022 was $212.1 million and $111.9 million, respectively. The financial liability was classified as a current liability as the repurchases corresponding to the volumes delivered are currently required by one year from the balance sheet date.
Under repurchase accounting as a financing arrangement, we continued to recognize the volumes delivered as finished goods inventory at a carrying value of $123.4 million and $95.3 million as of September 30, 2023 and December 31, 2022, respectively, which include all costs directly incurred in bringing those delivered volumes to their existing location. When the future volumes are purchased and sold to different customers, the product sales recognized will be based on the finished goods inventory cost of the previously delivered volumes, not the repurchase price. As discussed in Note 2, Liquidity and Going Concern Evaluation, we are currently in negotiations with this customer to restructure or renegotiate the terms of these repurchase agreements.
During the three and nine months ended September 30, 2023, we repurchased $11.1 million of volumes under the Q4 2022 Transactions and we reduced the financial liability by that amount. For the nine months ended September 30, 2023, $6.7 million of what we paid to purchase volumes under the Q4 2022 Transactions is presented in proceeds from sale of finished goods subject to repurchase accounting, net as cash outflows from financing activities equal to the volume purchased multiplied by the average selling price under the modified contract of the corresponding volume of wood pellets that we had sold, which was the price initially recognized to the financial liability.
Contract Modification
During the nine months ended September 30, 2023, we received $100.0 million from a customer to modify a long-term off-take contract. Also, in connection with the contract modification we agreed to narrow the specifications of the wood pellets delivered under the long-term off-take contract in return for an increase in the contract price per MT. The prepayment of the $100.0 million will be amortized against the increase of the contract sale price per MT and recognized as deliveries are made through 2039.
As of September 30, 2023, $7.4 million was included in short-term deferred revenue and $89.4 million was included in long-term deferred revenue. During the three and nine months ended September 30, 2023, we recognized $1.1 million and $3.2 million, respectively, of our deferred revenue as of December 31, 2022 to product sales.
16
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
(5) Significant Risks and Uncertainties, Including Business and Credit Concentrations
Our business is significantly impacted by greenhouse gas emission and renewable energy legislation and regulations in the U.K., the EU as well as its member states, and Japan. If the U.K., the EU or its member states, or Japan significantly modify such legislation or regulations, then our ability to enter into new contracts as our existing contracts expire may be materially affected.
One rail service provider transports wood pellet production for four of our ten production plants to the applicable terminal. Labor strikes or other disruptions to rail service could materially impact our ability to transport our finished products to port for delivery to customers.
In addition to wood pellets sold from our own production, we procure wood pellets from third parties to resell under our long-term off-take arrangements and other sales agreements. Total procured wood pellets from third parties were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Procured wood pellets$20,042 $16,171 $52,857 $35,802 
Our largest suppliers of procured wood pellets that accounted for 10% or a greater share were as follows:
Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
Supplier A44 %35 %
Supplier B19 %18 %
Supplier C27 %14 %
Supplier D10 %11 %
Supplier E— %11 %
Our product sales are primarily to industrial customers located in the U.K., Japan, Denmark, the Netherlands, Belgium, and Poland. Product sales to third-party customers that accounted for 10% or a greater share of consolidated product sales were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
202320222023 (Recast)2022
Customer A29 %14 %32 %18 %
Customer B— %11 %3 %9 %
Customer D11 %16 %10 %15 %
Customer E— %17 %— %17 %
Customer F10 %10 %8 %10 %
Customer G14 %6 %15 %4 %
Customer H8 %2 %10 %2 %
Customer I10 %2 %5 %1 %
As of September 30, 2023, one customer accounted for 37% of total accounts receivable. We do not have any significant current expectations of credit losses from our accounts receivable as of September 30, 2023.
17
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
(6) Inventories
Inventories consisted of the following as of:
September 30, 2023December 31, 2022
Raw materials and work-in-process$18,899 $23,272 
Consumable tooling34,994 28,548 
Finished goods on hand15,117 11,794 
Finished goods subject to repurchase accounting123,351 95,270 
Total inventories$192,361 $158,884 
(7) Property, Plant, and Equipment, net
Property, plant, and equipment, net consisted of the following as of:
September 30, 2023December 31, 2022
Land$26,491 $26,491 
Land improvements81,516 77,126 
Buildings450,332 440,894 
Machinery and equipment1,309,896 1,299,385 
Vehicles10,407 9,667 
Furniture and office equipment36,676 27,064 
Leasehold improvements23,371 23,409 
Property, plant, and equipment1,938,689 1,904,036 
Less accumulated depreciation(598,065)(513,876)
Property, plant, and equipment, net1,340,624 1,390,160 
Construction in progress322,762 194,715 
Total property, plant, and equipment, net$1,663,386 $1,584,875 
During the three and nine months ended September 30, 2023, a dryer line at one of our wood pellet producing plants was permanently shut down due to operational inefficiencies and we incurred pre-tax impairment of assets expense of $21.2 million.
During the nine months ended September 30, 2023, we invested $122.2 million of restricted cash to construct our Epes and Bond plants from the proceeds of the Epes Tax-Exempt Green Bond and Bond Tax-Exempt Green Bond, the assets are included in construction in progress. See Note 12, Long-Term Debt and Finance Lease Obligations to the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022.
Total capitalized interest related to construction in progress and depreciation expense were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Capitalized interest related to construction in progress$5,728 $5,161 $17,564 $14,098 
Depreciation expense 37,626 35,215 103,148 87,047 
(8) Derivative Instruments
We use derivative instruments to partially offset our business exposure to foreign currency exchange risk from expected future cash flows. Although the preponderance of our off-take contracts and shipping contracts are U.S. Dollar-denominated, we are exposed to fluctuations in foreign currency exchange rates related to a minority of our off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”) and Euro (“EUR”) and a minority of our shipping contracts that require freight rates to be settled in GBP.
18
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
During the nine months ended September 30, 2023, we entered into pay-fixed, receive-variable natural gas and diesel swaps. We entered into the swaps to offset our business exposure to the related fuel prices. These swaps expire in December 2023. During the nine months ended September 30, 2023, we entered into wood pellet swaps that will expire in 2023 to offset our exposure to market prices for procured wood pellets.
We seek to mitigate the credit risk associated with derivative instruments by limiting our counterparties primarily to major financial institutions. Although we monitor the potential risk of loss due to credit risk, we do not expect material losses as a result of defaults by counterparties. We use derivative instruments to manage cash flow and do not enter into derivative instruments for speculative or trading purposes.
We have entered and may continue to enter into foreign currency forward contracts, purchased option contracts, or other instruments to partially manage our business exposure to foreign currency exchange risk from expected future cash flows. We record the changes in the fair value of foreign currency derivatives as product sales or cost of goods sold depending on the nature of the item being hedged.
We have entered and may continue to enter into fuel swaps to manage our business exposure to fluctuations related to fuel prices. We record the changes in the fair value of fuel swaps as cost of goods sold.
Our derivative instruments are classified as Level 2 assets or liabilities based on inputs such as forward foreign exchange rates. The fair value of derivative instruments was as follows as of:
Asset (Liability)
Balance Sheet ClassificationSeptember 30, 2023December 31, 2022
Derivatives not designated as hedging instruments:
Foreign currency exchange contracts:
Accrued and other current liabilities$(772)$(959)
Other long-term liabilities(195)(810)
(967)(1,769)
Fuel swaps:
Prepaid expenses and other current assets816 — 
Accrued and other current liabilities(411)— 
405 — 
Wood pellet swaps:
Accrued and other current liabilities(3,909)— 
Total derivatives not designated as hedging instruments$(4,471)$(1,769)
Net unrealized and net realized gains and (losses) recorded to earnings were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
ClassificationDerivative Instrument2023202220232022
Product salesForeign currency derivativesUnrealized$(294)$(1,850)$801 $(2,092)
Product salesForeign currency derivativesRealized(190)(524)(663)3,543 
Product salesWood pellet swapsUnrealized(3,909)— (3,909)— 
Cost of goods soldFuel swapsUnrealized772 1,139 405 846 
Cost of goods soldFuel swapsRealized(221)(31)(936)(115)
We enter into master netting arrangements designed to permit net settlement of derivative transactions among the respective counterparties. If we had settled all transactions with our respective counterparties as of September 30, 2023, we would have paid a net settlement termination payment of $1.0 million, which differs insignificantly from the recorded fair value of the derivatives. We present our derivative assets and liabilities at their gross fair values.
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ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
The notional amounts of outstanding derivative instruments associated with outstanding or unsettled derivative instruments were as follows as of:
September 30, 2023December 31, 2022
Foreign exchange forward contracts in GBP£9,551 £15,281 
Foreign exchange forward contracts in EUR€— €2,300 
Natural gas swaps in MMBTUs273,000 — 
Diesel swaps in gallons949,000 — 
Wood pellet swaps in MT150,000 — 
(9) Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following as of:
September 30, 2023December 31, 2022
Accrued expenses - compensation and benefits$11,982 $11,942 
Accrued expenses - wood pellet purchases and distribution costs45,894 49,615 
Accrued expenses - operating costs and expenses64,177 51,122 
Accrued capital expenditures8,102 10,960 
Other accrued expenses and other current liabilities25,451 22,858 
Accrued and other current liabilities$155,606 $146,497 
20
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
(10) Long-Term Debt and Finance Lease Obligations
Long-term debt and finance lease obligations at carrying value consisted of the following as of:
September 30, 2023December 31, 2022
2026 Notes, net of unamortized discount, premium, and debt issuance costs of $1.6 million and $2.0 million as of September 30, 2023 and December 31, 2022, respectively
$748,448 $747,991 
Senior secured credit facility - revolving credit borrowings568,546 436,000 
Senior secured credit facility - term loan, net of unamortized discount and debt issuance costs of $3.4 million and zero as of September 30, 2023 and December 31, 2022, respectively
100,852 — 
Epes Tax-Exempt Green Bond, net of unamortized discount and debt issuance costs of $4.3 million and $4.3 million as of September 30, 2023 and December 31, 2022, respectively
245,724 245,727 
Bond Tax-Exempt Green Bonds, net of unamortized discount and debt issuance costs of $2.0 million and $2.0 million as of September 30, 2023 and December 31, 2022, respectively
97,978 98,004 
New Markets Tax Credit loans, net of unamortized discount and debt issuance costs of $2.4 million and $2.6 million as of September 30, 2023 and December 31, 2022, respectively
29,104 28,791 
Seller Note, net of an insignificant amount of unamortized discount as of December 31, 2022(1)
— 8,705 
Other loans5,623 5,418 
Finance leases26,152 22,123 
Total long-term debt and finance lease obligations1,822,427 1,592,759 
Less current portion of long-term debt and finance lease obligations(16,336)(20,993)
Long-term debt and finance lease obligations, excluding current installments$1,806,091 $1,571,766 
(1)The outstanding principal of the Seller Note of $8.8 million and an insignificant amount of accrued interest were repaid in full at maturity in February 2023.
The carrying amount and estimated fair value of long-term debt as of September 30, 2023 was $1.8 billion and $1.5 billion, respectively, and as of December 31, 2022 was $1.6 billion and $1.5 billion, respectively.
As of September 30, 2023 and December 31, 2022, we were in compliance with the covenants and restrictions associated with, and no events of default existed under, the loan and indenture agreements governing the 2026 Notes, senior secured credit facility, New Markets Tax Credit loans, Epes Tax-Exempt Green Bonds, and Bond Tax-Exempt Green Bonds, each of which is described in more detail in Note 12, Long-Term Debt and Finance Lease Obligations to the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022. However, as described in Note 2, Liquidity and Going Concern Evaluation, based on current market conditions, lower wood pellet prices and other factors, the Company expects that absent a cure, it may be in breach of certain of its covenants under its senior secured credit facility and other debt facilities as early as the reporting date for the measurement period ending December 31, 2023.
2026 Notes
The 2026 Notes are guaranteed jointly and severally on a senior unsecured basis by most of our existing subsidiaries and may be guaranteed by certain future restricted subsidiaries.
Senior Secured Credit Facility
In January 2023, under our senior secured credit facility, we entered into a senior secured term loan facility providing for $105.0 million principal amount, maturing in June 2027. Borrowing rates are variable and calculated as the Secured Overnight Financing Rate plus 4.00% per annum. We used the proceeds to repay revolver borrowings under our senior secured revolving credit facility and pay fees and costs.
21
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
Our obligations under the senior secured credit facility are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our assets; however, the senior secured credit facility is not guaranteed by Enviva Wilmington Holdings, LLC or Enviva Pellets Epes, LLC, or secured by liens on their assets.
As of September 30, 2023, we had fully drawn the $675.0 million available under our senior secured credit facility, which included $1.5 million of letters of credit outstanding. As of December 31, 2022, we had $133.0 million available under our senior secured revolving credit facility, net of $1.0 million of letters of credit outstanding.
(11) Income Taxes
Our provision for income taxes is based on the estimated annual effective tax rate, plus discrete items. The effective tax rate for the three and nine months ended September 30, 2023 was (0.2)% and (0.1)%, respectively. The effective tax rate for the three and nine months ended September 30, 2022 was (0.1)% and 0.0%, respectively. The effective tax rates were primarily due to the full valuation allowance against the net deferred tax asset.
(12) Restructuring Inclusive of Related Severance Expenses
During the second quarter of 2023, we implemented a restructuring plan to optimize future growth and profitability. The primary components of the restructuring were reductions in our workforce and corporate and other expenses.
During the second quarter of 2023, we had an initial reduction in force of certain leadership employees, accelerated depreciation of leasehold improvements at our principal executive offices, and a reduction of our office lease expenses. We completed a broader reduction in force during the third quarter of 2023. As of September 30, 2023, $2.2 million of employee severance expenses were included in accrued and other current liabilities.
The following table summarizes our pre-tax restructuring expenses:
Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
Cash-based employee severance expenses$3,828 $6,553 
Non-cash equity-based compensation1,493 11,825 
Accelerated leasehold improvement depreciation936 1,248 
Impairment of right-of-use asset— 216 
Total$6,257 $19,842 
(13) Shareholders’ Equity
Conversion of Series A Convertible Preferred Stock to Common Stock
On February 28, 2023, the Company and certain accredited investors entered into subscription agreements to sell shares of Series A Preferred Stock of the Company, par value $0.001 per share (“Preferred Shares”) in a private placement (the “Private Placement”). The Private Placement priced at the official closing price of the New York Stock Exchange on March 1, 2023, which was $37.71. On March 20, 2023, we closed the Private Placement and issued 6,605,671 Preferred Shares, which was classified as mezzanine equity, and received gross proceeds of $249.1 million. As of September 30, 2023, we have incurred $1.2 million of issuance costs and intend to use the net proceeds of $247.9 million to fund our growth capital program and for general corporate purposes. We initially used the net proceeds to repay borrowings under our senior secured revolving credit facility.
On June 15, 2023, each Preferred Share was converted into one share of common stock of the Company, par value $0.001 per share, upon shareholder approval of the conversion by a majority of votes cast at our Annual Meeting of Stockholders.
Dividend Reinvestment
Pursuant to a dividend reinvestment plan with respect to a portion of the shares of common stock held by our former sponsor, we issued 188,321 shares of common stock in lieu of cash dividends of $8.7 million during the three months ended March 31, 2023. No shares of common stock in lieu of cash dividends were issued during the three months ended June 30, 2023 and the three months ended September 30, 2023. We issued 124,418 shares of common stock in lieu of cash dividends of $8.4 million during the three months ended September 30, 2022 and issued 339,570 shares of common stock in lieu of cash
22
ENVIVA INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(In thousands, except number of shares or units, per share, and unless otherwise noted)
dividends of $24.6 million during the nine months ended September 30, 2022. See Note 15, Equity - Simplification Transaction to the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022.
Cash Dividends
During the three months ended March 31, 2023, we declared dividends of $0.905 per common share totaling $60.9 million. No dividends were declared during the three months ended June 30, 2023 and the three months ended September 30, 2023. During the three months ended September 30, 2022, we declared dividends of $0.905 per common share totaling $62.0 million. During the three months ended June 30, 2022, we declared dividends of $0.905 per common share totaling $61.8 million. During the three months ended March 31, 2022, we declared dividends of $0.86 per common share totaling $59.0 million.
(14) Equity-Based Awards
Enviva Inc. Long-Term Incentive Plan (“LTIP”)
Employee Awards
The following table summarizes information regarding restricted stock unit awards (the “Employee Awards”) under the LTIP:
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units(1)
Total Employee Awards Restricted Stock Units
Units
Weighted-Average Grant Date Fair Value (per unit)(2)
Units
Weighted-Average Grant Date Fair Value (per unit)(2)
Units
Weighted-Average Grant Date Fair Value (per unit)(2)
Nonvested December 31, 2022751,603 $61.19 546,169 $52.17 1,297,772 $57.39 
Granted1,928,844 $22.20 173,560 $47.02 2,102,404 $24.24 
Forfeitures(276,731)$41.23 (315,302)$60.21 (592,033)$51.34 
Vested(523,344)$39.14 (167,699)$62.25 (691,043)$44.75 
Nonvested September 30, 20231,880,372 $25.04