The following discussion of our historical performance, financial condition and future prospects should be read in conjunction with Part I, Item 1. "Business" and the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data." OnDecember 31, 2021 ,Enviva Partners, LP (the "Partnership") converted from aDelaware limited partnership to aDelaware 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)Enviva Partners, LP 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 ofEnviva Partners, LP , and references to common stock for periods following the Conversion refer to shares of common stock ofEnviva 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" refer toEnviva Holdings, LP , and, where applicable, its wholly owned subsidiariesEnviva MLP Holdco, LLC andEnviva Development Holdings, LLC . References to "our formerGeneral Partner " refer toEnviva Partners GP, LLC , a wholly owned subsidiary ofEnviva Holdings, LP . Please read Cautionary Statement Regarding ForwardLooking Statements on page 1 and Part 1, Item 1A. "Risk Factors" for information regarding certain risks inherent in our business.
Company overview
We are a growth-oriented company originally formed as aDelaware limited partnership in 2013 that converted to aDelaware corporation named "Enviva Inc. " 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 theUnited Kingdom , theEuropean Union , andJapan , 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 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") inVirginia ,North Carolina ,South Carolina ,Georgia ,Florida andMississippi , 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 thePort of Chesapeake, Virginia , terminal assets at thePort of Wilmington, North Carolina , thePort of Pascagoula, Mississippi , and from third-party deep-water marine terminals inSavannah, Georgia ,Mobile, Alabama , andPanama City, Florida . 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. During 2021, production capacity from our wood pellet production plants, together with wood pellets sourced from third parties, was approximately equal to the contracted volumes under our existing long-term, take-or-pay off-take contracts. Our long-term, take-or-pay off-take contracts provide for a product sales backlog of$21.2 billion and have a total weighted-average remaining term of 14.5 years fromFebruary 1, 2022 . 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 25
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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.
presentation basis
OnOctober 14, 2021 , the Partnership entered into and closed on an Agreement and Plan of Merger (the "Merger Agreement"), by and among the Partnership,Enviva Holdings, LP ("Holdings"),Enviva Partners Merger Sub, LLC ("Merger Sub"), and the limited partners of Holdings (the "Holdings Limited Partners") set forth in the Merger Agreement. Pursuant to the terms of the Merger Agreement, (a) the Company acquired our former sponsor and our formerGeneral Partner and (b) the incentive distribution rights held by our former sponsor were cancelled and eliminated (collectively, the "Simplification Transaction"). In connection with the Simplification Transaction, the Company acquired certain assets under development, as well as off-take contracts in varying stages of negotiation. The consolidated financial statements have been retroactively recast to reflect the Simplification Transaction as if the Simplification Transaction occurred onMarch 18, 2010 , the date on which Holdings was originally organized, instead ofOctober 14, 2021 , the closing date of the Simplification Transaction. We own all of the Class B units ofEnviva Wilmington Holdings, LLC (the "Hamlet JV"). The Hamlet JV owns a wood pellet production plant inHamlet, North Carolina (the "Hamlet plant"). We are the managing member of the Hamlet JV, which is a consolidated subsidiary partially owned by a third party. For more information regarding our rights and obligations with respect to the Hamlet JV, see Note 17, Equity-Hamlet JV.
RECENT DEVELOPMENTS
Simplified operation
InOctober 2021 , we closed the Simplification Transaction and acquired all of the ownership interests in our former sponsor and eliminated all outstanding incentive distribution rights in exchange for 16.0 million common units, which were distributed to the owners of our former sponsor. The owners of our former sponsor agreed to reinvest in our common stock all dividends from 9.0 million of the 16.0 million common units issued in connection with the Simplification Transaction during the period beginning with the distribution for the third quarter of 2021 through the fourth quarter of 2024. On the date of the Simplification Transaction, the non-management owners of our former sponsor held 27.7 million common units. As a result of the Simplification Transaction, we now perform the business activities previously performed by our former sponsor, including corporate, commercial, sales and marketing, communications, public affairs, sustainability, development, and construction activities. We plan to construct fully contracted wood pellet production plants and deep-water marine terminals using our "build and copy" model as a part of our organic growth initiatives. We expect the cost to construct such assets to be lower than our historical cost of acquiring them from our former sponsor in drop-down acquisitions. In addition, we acquired four existing take-or-pay off-take contracts with investment grade-rated counterparties, a fully contracted plant inEpes, Alabama currently under development (the "Epes plant"), and a prospective production plant inBond, Mississippi in the Simplification Transaction. The off-take contracts we acquired have an aggregate revenue backlog of$4.4 billion and a weighted-average term of 19 years, with an associated base volume of 21 million metric tons of wood pellets. TheEpes plant is designed and permitted to produce 1.1 million MTPY of wood pellets. TheBond plant is being developed to produce 1.1 million MTPY of wood pellets. In connection with the Simplification Transaction, 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 up to$55.5 million with respect to periods from the fourth quarter of 2021 through the first quarter of 2024. C-Corporation Conversion The Partnership converted from aDelaware limited partnership to aDelaware corporation effectiveDecember 31, 2021 ; consequently, results for periods prior toDecember 31, 2021 reflectEnviva 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 26
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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.
Issuance of common units and common shares
InJune 2021 , we issued 4,925,000 common units at a price of$45.50 per common unit for total net proceeds of$214.5 million , after deducting$9.5 million of issuance costs. The net proceeds partially financed the drop-down of the production plant under construction inLucedale, Mississippi and the terminal at thePort of Pascagoula , Mississippi,from our former sponsor and partially financed our development activities to expand our wood pellet production plants inSampson, North Carolina ,Hamlet, North Carolina , andCottondale, Florida (collectively the "Multi-Plant Expansions"). InJanuary 2022 , we issued 4,945,000 common shares at a price of$70.00 per common share for total net proceeds of$334.0 million , after deducting$12.2 million of issuance costs. We intend to use the net proceeds of$334.0 million to fund a portion of our capital expenditures related to ongoing development projects. We initially used the net proceeds to repay borrowings under our senior secured revolving credit facility.
Fundraising activities
InApril 2021 , we amended our senior secured revolving credit facility to increase the revolving credit commitments from$350.0 million to$525.0 million , extend the maturity fromOctober 2023 toApril 2026 , increase the letter of credit commitment from$50.0 million to$80.0 million , and reduce the cost of borrowing by 25 basis points. InDecember 2021 , we amended our senior secured revolving credit facility to increase the revolving credit commitments from$525.0 million to$570.0 million and to permit the issuance of commercial letters of credit.
Expansion and capacity development activities
We have completed our expansion project at our
We are commissioning the increased capacity of our Greenwood plant and expect production capacity to increase to 600,000 MTPY in 2022.
Commitment to achieve carbon neutral operations
Consistent with our mission to displace coal, grow more trees, and fight climate
change, we recently announced our commitment to become "net-zero" in greenhouse
gas ("GHG") emissions from our operations by 2030. The product we manufacture
helps reduce the lifecycle GHG emissions of our customers, but we believe we
must also do our part within our operations to mitigate the impacts of climate
change. We expect to accomplish neutrality with respect to our Scope 1 emissions
(i.e., direct emissions from our manufacturing) by improving energy efficiency
and adopting lower-carbon processes, as well as through investment in carbon
offsets. We also plan to neutralize our Scope 2 emissions (i.e., indirect
emissions from energy we purchase) by using 100% renewable energy by 2030
through the purchase of renewable electricity and/or onsite generation where
practicable. Moreover, we will seek to proactively engage with our suppliers,
transportation partners, and other stakeholders to drive innovative improvements
in our supply chain to reduce our Scope 3 emissions (i.e., indirect emissions in
our value chain). We intend to report our Scopes 1, 2, and 3 emissions annually
and fully meet the requirements of CDP (formerly known as the Carbon Disclosure
Project ) by 2022. Although it is difficult to project the incremental cost to
our operations in 2030, we do not expect any material impact to our financial
performance as a result of our efforts to achieve "net-zero" in GHG emissions
from our operations. For more information, refer to the risk factor titled
"Increasing attention to ESG matters, including our net-zero goals and our
failure to successfully achieve them, could adversely affect our business."
Novel coronavirus outbreak
The outbreak of a novel strain of coronavirus ("COVID-19") has significantly
adversely impacted global markets and continues to present global public health
and economic challenges. In the third quarter of 2021, our contractors and
supply chain partners experienced labor-related, and other challenges associated
with COVID-19 that had a temporal, but more pronounced than anticipated, impact
on our operations and project execution schedule. In the fourth quarter of 2021,
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 our workers who contracted COVID-19
quarantined at home. These absences contributed to reduced facility availability
and in some cases, reduced aggregate production levels. We believe that these
challenges were short-term in nature, and based on the actions we have taken and
the plans we have in place, we believe these issues are beginning to be behind
us.
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We have taken prescriptive safety measures including social distancing, hygienic policies and procedures, and other steps recommended by theCenters for Disease Control and Prevention (the "CDC"). We adopted theCDC 's risk management approach at the beginning of the outbreak and have established risk levels based on the degree to which the virus has spread in a given community and the nature of the work performed at that location. Within our field operations, we have continued operations largely as normal with additional precautionary measures; however, we continue to monitor local data on a daily basis and have prioritized putting the right plans, procedures, and measures in place to mitigate the risk of exposure and infection and the related impacts to our business. We have also facilitated access for our employees to receive vaccines at our locations and we provide ongoing financial incentives for our employees to remain up to date with their vaccinations, in accordance withCDC guidelines. We specifically designed our operations and logistics systems with flexibility and redundancies so they are capable of effectively responding to unforeseen events. We operate a portfolio of ten wood pellet production plants geographically dispersed across theSoutheast United States . Our wood pellet production capacity is committed under long-term, take-or-pay off-take contracts with fixed pricing and fixed volumes that are not impacted by the market prices of crude oil, natural gas, power or heat. We export our product from a portfolio of six bulk terminals and transport it to our customers under long-term, fixed-price shipping contracts with multiple shipping partners. Our shipping operations have not been affected by COVID-19.
Factors affecting the comparability of our financial results
OnJuly 31, 2020 , we acquired all of the limited liability interests inGeorgia Biomass Holding LLC , aGeorgia limited liability company and the indirect owner of a wood pellet production plant located inWaycross, Georgia (the "Waycross plant,") for total consideration of$164.0 million in cash, after accounting for certain adjustments (the "Georgia Biomass Acquisition"). The Georgia Biomass Acquisition was recorded as a business combination and accounted for using the acquisition method. Assets acquired and liabilities assumed were recognized at fair value on the acquisition date ofJuly 31, 2020 , and the difference between the fair value of consideration transferred, which excludes acquisition-related costs, and the fair values of the identified net assets acquired, was recognized as goodwill. For more information regarding the Georgia Biomass Acquisition, see Item 8. Financial Statements and Supplemental Data, Note 1, Description of Business and Basis ofPresentation-Georgia Biomass Holding LLC and Note 4, Acquisition.
Tickets 2026
During
InJuly 2020 , we issued an additional$150.0 million in aggregate principal amount of our 6.5% the 2026 Notes at an offering price of 103.75% of the principal amount, which implied an effective yield to maturity of approximately 5.7%. We received net proceeds of approximately$153.6 million from the offering after deducting discounts and commissions and offering costs.
Senior Secured Green Term Loan Facility
InFebruary 2021 , our former sponsor entered into a senior secured green term loan facility (the "Green Term Loan") providing for$325.0 million principal amount, maturing inFebruary 2026 . Interest was priced at LIBOR plus 5.50% with a LIBOR floor of 1.00%. Our former sponsor received gross proceeds of$325.0 million and net proceeds of approximately$317.2 million after deducting original issue discount, commissions, and expenses. Our former sponsor used the net proceeds (1) to purchase the noncontrolling interest inEnviva JV Development Company, LLC (the " Development JV"), (2) to repay the Riverstone Loan (see Item 8. Financial Statements and Supplemental Data, Note 15, Related-Party Transactions), (3) to fund capital expenditures and liquidity reserve cash accounts, and (4) for general purposes.
In
How we generate revenue
Overview
We primarily earn revenue by supplying wood pellets to our customers under
offtake contracts, the majority of which are long-term in nature. Our off-take
contracts are considered "take-or-pay" because they include a firm obligation of
the customer to take a fixed quantity of product at a stated price and
provisions that require that we be compensated in the case of a
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customer's failure to accept all or a part of the contracted volumes or
termination of a contract by a customer. Each of our long-term off-take
contracts defines the annual volume of wood pellets that a customer is required
to purchase and we are required to sell, the fixed price per MT for product
satisfying a base net calorific value and other technical specifications. These
prices are fixed for the entire term, and are subject to adjustments which may
include annual inflation-based adjustments or price escalators, price
adjustments for product specifications, as well as, in some instances, price
adjustments due to changes in underlying indices. In addition to sales of our
product under these long-term off-take contracts, we routinely sell wood pellets
under shorter-term contracts, which range in volume and tenor and, in some
cases, may include only one specific shipment. Because each of our off-take
contracts is a bilaterally negotiated agreement, our revenue over the duration
of such contracts does not generally follow observable current market pricing
trends. Our performance obligations under these contracts include the delivery
of wood pellets, which are aggregated into MT. We account for each MT as a
single performance obligation. Our revenue from the sale of wood pellets we
produce is recognized upon satisfaction of the performance obligation when
control transfers to the customer at the time of loading wood pellets onto a
ship.
Depending on the specific off-take contract, shipping terms under our long-term
contracts are either Cost, Insurance and Freight ("CIF"), Cost and Freight
("CFR"), or Free On Board ("FOB"). Under a CIF contract, we procure and pay for
shipping costs, which include insurance and all other charges, up to the port of
destination for the customer. Under a CFR contract, we procure and pay for
shipping costs, which include insurance (excluding marine cargo insurance) and
all other charges, up to the port of destination for the customer. Shipping
under CIF and CFR contracts after control has passed to the customer is
considered a fulfillment activity rather than a performance obligation and
associated expenses are accrued and included in the price to the customer. Under
FOB contracts, the customer is directly responsible for shipping costs.
In some cases, we may purchase shipments of product from third-party suppliers
and resell them in back-to-back transactions ("purchase and sale transactions").
We typically are the principal in such transactions because we control the wood
pellets prior to transferring them to the customer and therefore recognize
related revenue on a gross basis.
Other income
Other revenue includes customer fees related to cancellations, postponements or expedited shipments and certain sales and marketing, planning, sustainability, consulting, shipping and risk management services (collectively, “commercial services”).
We recognize third-party terminal services revenue ratably over the contract term. Terminal services are performance obligations that are satisfied over time, as customers simultaneously receive and consume the benefits of the terminal services we perform. The consideration is generally fixed for minimum quantities and services beyond minimum quantities are generally billed on a per-MT rate.
Contracted backlog
As ofFebruary 1, 2022 , we had approximately$21.2 billion of product sales backlog for firm and contingent contracted product sales to our long-term off-take customers and have a total weighted-average remaining term of 14.5 years compared to approximately$19.9 billion and a total weighted-average remaining term of 14.0 years as ofFebruary 1, 2021 . Contracted backlog represents the revenue to be recognized under existing contracts assuming deliveries occur as specified in the contracts. Contracted future product sales denominated in foreign currencies, excluding revenue hedged with foreign currency forward contracts, are included inU.S. Dollars atFebruary 1, 2022 forward rates. The contracted backlog includes forward prices, including inflation, as well as foreign currency and commodity prices. The contracted backlog also includes the effects of related foreign currency derivative contracts. Please read Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" and Item 8. "Financial Statements and Supplementary Data-Note 10, Derivative Instruments, for more information regarding our foreign currency forward contracts.
Our expected future product sales revenue within our order backlog as of
Period of
End of the year
1,437 Year endingDecember 31, 2024 and thereafter 18,478 Total product sales contracted backlog$ 21,172 29
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Costs of running our business
Cost of Goods Sold
Cost of goods sold includes the costs to produce and deliver our wood pellets to customers, reimbursable shipping-related costs associated with specific off-take contracts with CIF or CFR shipping terms, and costs associated with purchase and sale transactions. The primary expenses incurred to produce and deliver our wood pellets consist of raw material, production, and distribution costs. We have strategically located our plants in the Mid-Atlantic andGulf Coast regions ofthe United States , geographic areas in which wood fiber sources are plentiful and readily available. We have short-term and long-term contracts to manage the supply of raw materials into our plants. Delivered wood fiber costs include stumpage as well as harvesting, transportation, and in some cases, size-reduction services provided by our suppliers. The majority of our product volumes are sold under off-take contracts that include cost pass-through mechanisms to mitigate increases in raw material and distribution costs. Production costs at our production plants consist of labor, energy, tooling, repairs and maintenance, and plant overhead costs. Production costs also include depreciation expense associated with the use of our plants and equipment and any gain or loss on disposal of associated assets. Some of our off-take contracts include price escalators that mitigate inflationary pressure on certain components of our production costs. In addition to the wood pellets that we produce at our owned and operated production plants, we selectively purchase additional quantities of wood pellets from other wood pellet producers. Distribution costs include all transportation costs from our plants to our port locations, any storage or handling costs while the product remains at port, and shipping costs related to the delivery of our product from our port locations to our customers. Both the strategic location of our plants and our ownership or control of our deep-water terminals have allowed for the efficient and cost-effective transportation of our wood pellets. We seek to mitigate shipping risk by entering into long-term, fixed-price shipping contracts with reputable shippers matching the terms and volumes of our off-take contracts pursuant to which we are responsible for arranging shipping. Certain of our off-take contracts include pricing adjustments for volatility in fuel prices, which allow us to pass the majority of the fuel price-risk associated with shipping through to our customers.
Costs associated with buying and selling transactions are included in cost of goods sold.
Raw material, production, and distribution costs associated with delivering our
wood pellets to our owned and leased marine terminals and third-party wood
pellet purchase costs are capitalized as a component of inventory. Fixed
production overhead, including the related depreciation expense, is allocated to
inventory based on the normal capacity of the production plants. When the
inventory is sold, the depreciation allocated to it is reflected as depreciation
and amortization expense in our consolidated statements of operations, while the
other fixed production overhead allocated to inventory is reflected in cost of
goods sold, excluding depreciation and amortization. Distribution costs
associated with shipping our wood pellets to our customers are expensed as
incurred. Our inventory is recorded using the first-in, first-out method
("FIFO"). Given the nature of our inventory, the calculation of cost of goods
sold is based on estimates used in the valuation of the FIFO inventory and in
determining the specific composition of inventory that is sold to each customer.
Recoveries from customers for certain costs incurred at the discharge port under
our off-take contracts are not considered a part of the transaction price, and
therefore are excluded from product sales and included as an offset to cost of
goods sold.
How we evaluate our operations
Adjusted net profit (loss)
We define adjusted net income (loss) as net income (loss) excluding acquisition and integration costs and other, early retirement of debt obligation, and Support Payments, adjusting for the effect of Commercial Services, and excluding interest expense associated with incremental borrowings related to a fire that occurred inFebruary 2018 at theChesapeake terminal (the "Chesapeake Incident") and Hurricanes Florence and Michael (the "Hurricane Events"). 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, non-cash equity-based compensation and other expense, depreciation and
amortization, changes in unrealized derivative instruments related to hedged
items, acquisition and integration costs and other, and Support Payments, and
adjusting for the effect of Commercial Services. 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
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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, non-cash 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, and MSA Fee Waivers and Support Payments, and adjusting for the effect of Commercial Services. 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, original issue discounts, interest expense associated with the redemption of the$355.0 million of aggregate principal amount of 6.5% senior unsecured notes due 2021 (the "2021 Notes"), the impact from incremental borrowings related to the Chesapeake Incident and Hurricane Events, 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 distributions (if any) that are expected to be paid to our shareholders. We do not rely on distributable cash flow as a liquidity measure.
Unrevised presentation 2021
Our 2021 results were calculated on a recast basis in accordance with accounting principles generally accepted inthe United States ("GAAP") to reflect the consolidated performance ofEnviva and our former sponsor as ifEnviva had bought the former sponsor at inception instead ofOctober 14, 2021 , the closing date of the Simplification Transaction. In addition, we are also presenting results for 2021, calculated on a non-GAAP basis that combines (i) the actual performance ofEnviva throughOctober 14, 2021 , the closing date of the Simplification Transaction, 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, from the closing date throughDecember 31, 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 reflectsEnviva's actual and historically reported performance on a stand-alone basis through the closing date of the Simplification Transaction and performance on a consolidated basis from the closing date until year-end.
The unrestated presentation does not reflect the restatement of our historical results required under GAAP as a result of the simplification transaction and therefore contains non-GAAP measures.
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Unless expressly stated otherwise, all results are presented on a restated basis.
The following table presents a reconciliation of net loss to adjusted EBITDA and distributable cash flow for the year endedDecember 31, 2021 , on a recast basis and non-recast basis (in millions): Year Ended December 31, 2021 Non-Recast Recast Presentation Adjustments Presentation (in millions) Net loss$ (145.3) $ 112.1 $ (33.2) Add: Depreciation and amortization 92.0 (2.8) 89.2 Interest expense 56.5 (11.2) 45.3 Income tax (benefit) expense (17.0) 17.1 0.1 Early retirement of debt obligation 9.4 (9.4) - Non-cash equity-based compensation and other expense 55.9 (32.4) 23.5 Loss on disposal of assets 10.2 (0.1) 10.1 Changes in unrealized derivative instruments (2.7) - (2.7) Acquisition and integration costs and other 32.6 - 32.6 MSA Fee Waivers and Support Payments 25.1 36.1 61.2 Adjusted EBITDA$ 116.7 $ 109.4 $ 226.1 Less: Interest expense net of amortization of debt issuance costs, debt premium, and original issue discount 52.6 (8.3) 44.3 Maintenance capital expenditures 14.0 - 14.0 Distributable cash flow $ 50.1$ 117.7 $ 167.8
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. 32
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Operating results
Year ended
Year Ended December 31,
2021 2020
(Recast) (Recast) Change
(in thousands)
Product sales $ 999,190 $ 830,528 $ 168,662
Other revenue 42,488 44,434 (1,946)
Net revenue 1,041,678 874,962 166,716
Cost of goods sold, excluding items below 861,703 711,248 150,455
Loss on disposal of assets 10,153 8,715 1,438
Selling, general, administrative, and development
expenses(1) 175,108 129,537 45,571
Depreciation and amortization 91,966 85,892 6,074
Total operating costs and expenses 1,138,930 935,392 203,538
Loss from operations (97,252) (60,430) (36,822)
Interest expense (56,497) (45,996) (10,501)
Early retirement of debt obligation (9,377) - (9,377)
Other income, net 880 271 609
Net loss before income tax (benefit) expense (162,246) (106,155) (56,091)
Income tax (benefit) expense (16,975) 169 (17,144)
Net loss $ (145,271) $ (106,324) $ (38,947)
(1)See Part II, Item 8., “Financial statements and additional data – Note 15, Transactions with related parties
Net revenue Revenue related to product sales for wood pellets produced or procured by us increased to$999.2 million in 2021 from$830.5 million in 2020. The$168.7 million , or 20%, increase was primarily attributable to a 16% increase in product sales volumes for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . Other revenue for the years endedDecember 31, 2021 and 2020 included$37.3 million and$32.5 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. Other revenue also included$4.1 million from Commercial Services during the year endedDecember 31, 2020 . The$37.3 million and$36.6 million in other revenue 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$861.7 million for the year endedDecember 31, 2021 from$711.2 million for the year endedDecember 31, 2020 , an increase of$150.5 million , or 21%. The increase was primarily attributable to a 16% increase in sales volumes. 33
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Adjusted gross margin and adjusted gross margin per metric ton
Year Ended December 31,
2021 2020
(Recast) (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) $ 83,362 $ 72,538 $ 10,824
Loss on disposal of assets 10,143 8,653 1,490
Non-cash equity-based compensation and other expense 2,271 2,714 (443)
Depreciation and amortization 86,471 82,523 3,948
Changes in unrealized derivative instruments (2,673) 4,328 (7,001)
Acquisition and integration costs and other 397 1,517 (1,120)
Support Payments 25,100 - 25,100
Commercial Services - (4,139) 4,139
Adjusted gross margin $ 205,071 $ 168,134 $ 36,937
Metric tons sold 5,033 4,332 701
Adjusted gross margin per metric ton $ 40.75 $ 38.81 $ 1.94
(1)Gross margin is defined as net sales less cost of goods sold (including related amortization and depreciation and loss on disposal of assets).
We earned adjusted gross margin of$205.1 million , or$40.75 per MT, for the year endedDecember 31, 2021 compared to$168.1 million , or$38.81 per MT, for the year endedDecember 31, 2020 . The increase in adjusted gross margin was primarily due to a 16% increase in product sales volumes for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 and the Support Payments.
Selling, general, administrative and development expenses
Selling, general, administrative, and development expenses were$175.1 million for the year endedDecember 31, 2021 and$129.5 million for the year endedDecember 31, 2020 . The$45.6 million increase in total selling, general, administrative, and development expenses is primarily associated with the increases in acquisition and integration costs of$24.9 million primarily associated with the Simplification Transaction and Conversion and the drop-down of the production plant under construction inLucedale, Mississippi and terminal at thePort of Pascagoula, Mississippi from our former sponsor as well as non-cash equity-based compensation and other expense of$16.8 million associated with the Simplification Transaction.
Depreciation and amortization
Depreciation and amortization expense increased to$92.0 million for the year endedDecember 31, 2021 from$85.9 million for the year endedDecember 31, 2020 , an increase of$6.1 million or 7%, mainly due to the acquisition of the production plant located inWaycross, Georgia inJuly 2020 .
Interest expense
We incurred$56.5 million of interest expense during the year endedDecember 31, 2021 and$46.0 million during the year endedDecember 31, 2020 . The increase in interest expense from the prior year was primarily attributable to interest expense associated with the Green Term Loan.
Prepayment of debt
InOctober 2021 , our former sponsor repaid in full the Green Term Loan, which had a principal balance of$318.4 million at the time, and recognized a$9.4 million loss in early retirement of debt resulting from the write-off of unamortized debt issuance costs and original issue discount.
Income tax
We have registered
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Adjusted net loss
Year Ended December 31,
2021 2020
(Recast) (Recast) Change
(in thousands)
Reconciliation of net loss to adjusted net loss:
Net loss $ (145,271) $ (106,324) $ (38,947)
Acquisition and integration costs and other 32,608 7,678 24,930
Early retirement of debt obligation 9,377 - 9,377
Support Payments 25,100 - 25,100
Commercial Services - (4,139) 4,139
Interest expense from additional borrowing related to the Chesapeake incident and hurricanes
- 2,211 (2,211) Adjusted net loss$ (78,186)
Adjusted EBITDA
Year
Ended
2021 2020
(Recast) (Recast) Change
(in thousands)
Reconciliation of net loss to adjusted EBITDA:
Net loss $ (145,271) $ (106,324) $ (38,947)
Add:
Depreciation and amortization 91,966 85,892 6,074
Interest expense 56,497 45,996 10,501
Income tax (benefit) expense (16,975) 169 (17,144)
Early retirement of debt obligation 9,377 - 9,377
Non-cash equity-based compensation and other expense 55,924 39,528 16,396
Loss on disposal of assets 10,153 8,715 1,438
Changes in unrealized derivative instruments (2,673) 4,328 (7,001)
Acquisition and integration costs and other 32,608 7,678 24,930
Support Payments 25,100 - 25,100
Commercial Services - (4,139) 4,139
Adjusted EBITDA $ 116,706 $ 81,843 $ 34,863
We generated adjusted EBITDA of $116.7 million for the year ended December 31,
2021 compared to $81.8 million for the year ended December 31, 2020 . The $34.9
million increase was primarily attributable to the factors described above under
the heading "Adjusted gross margin and adjusted gross margin per metric ton."
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Distributable cash
The following is a reconciliation of adjusted EBITDA to distributable cash flow:
Year Ended December 31,
2021 2020
(Recast) (Recast) Change
(in thousands)
Adjusted EBITDA $ 116,706 $ 81,843 $ 34,863
Less:
Interest expense, net of amortization of debt issuance costs, debt premium, initial issuance discount, and the impact of additional borrowing related to the Chesapeake incident and hurricanes
52,574 41,206 11,368 Maintenance capital expenditures 13,981 7,952 6,029 Distributable cash flow attributable to Enviva 50,151 32,685 17,466
Less: distributable cash flow attributable to incentive distribution rights
19,030 26,917 (7,887) Distributable cash flow attributable to Enviva$ 31,121 $ 5,768 $ 25,353 The following is a reconciliation of non-recast net (loss) income to non-recast adjusted EBITDA and non-recast adjusted EBITDA to non-recast distributable cash flow: Year Ended December 31, 2021 2020 Non-Recast As Non-Recast Previously Presentation Reported Change (in millions) Net (loss) income$ (33.2) $ 17.1$ (50.3) Add: Depreciation and amortization 89.2 77.5 11.7 Interest expense 45.3 44.9 0.4 Income tax expense 0.1 0.1 - Non-cash equity-based compensation and other expense 23.5 12.8 10.7 Loss on disposal of assets 10.1 7.0 3.1 Changes in unrealized derivative instruments (2.7) 4.3 (7.0) Acquisition and integration costs and other 32.6 7.4 25.2 MSA Fee Waivers and Support Payments 61.2 23.4 37.8 Commercial Services - (4.1) 4.1 Adjusted EBITDA 226.1 190.3 35.8 Less:
Interest expense net of amortization of debt issue costs, debt premium and initial issue discount
44.3 40.8 3.5 Maintenance capital expenditures 14.0 8.0 6.0 Distributable cash flow$ 167.8 $ 141.6 $ 26.2 Non-recast Adjusted EBITDA increased to$226.1 million for the year endedDecember 31, 2021 from$190.3 million for the year endedDecember 31, 2020 , an increase of$35.8 million , or 19%. Non-recast distributable cash flow increased to$167.8 million for the year endedDecember 31, 2021 from$141.6 million for the year endedDecember 31, 2020 , an increase of$26.2 million , or 19%. 36
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Year ended
Year Ended December 31,
2020 2019
(Recast) (Recast) Change
(in thousands)
Product sales $ 830,528 $ 674,251 $ 156,277
Other revenue 44,434 9,317 35,117
Net revenue 874,962 683,568 191,394
Cost of goods sold, excluding items below 711,248 601,869 109,379
Loss on disposal of assets 8,715 3,558 5,157
Selling, general, administrative, and development
expenses(1) 129,537 98,818 30,719
Depreciation and amortization 85,892 65,565 20,327
Total operating costs and expenses 935,392 769,810 165,582
Loss from operations (60,430) (86,242) 25,812
Interest expense (45,996) (42,042) (3,954)
Early retirement of debt obligation - (9,042) 9,042
Other income, net 271 410 (139)
Loss from operations before income tax expense
(benefit) (106,155) (136,916) 30,761
Income tax expense (benefit) 169 (1,932) 2,101
Net loss $ (106,324) $ (134,984) $ 28,660
(1)See Part II, Heading 8. “Financial statements and additional data – Note 15, Transactions with related parties
Net revenue Revenue related to product sales for wood pellets produced or procured by us increased to$830.5 million in 2020 from$674.3 million in 2019. The$156.3 million , or 23%, increase was primarily attributable to a 22% increase in product sales volumes for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 . Other revenue for the year endedDecember 31, 2020 included$32.5 million in payments to us, which otherwise would have been included in product sales, for adjusting deliveries under our take-or-pay off-take contracts. Other revenue also included$4.1 million from the Commercial Services during the year endedDecember 31, 2020 . The$32.5 million and$4.1 million in other revenue was recognized under a breakage model based on when the pellets otherwise would have been loaded. Cost of goods sold Cost of goods sold increased to$711.2 million for the year endedDecember 31, 2020 from$601.9 million for the year endedDecember 31, 2019 , an increase of$109.4 million , or 18%. The increase was primarily attributable to a 22% increase in sales volumes during the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . 37
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Adjusted gross margin and adjusted gross margin per metric ton
Year Ended December 31,
2020 2019
(Recast) (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) $ 72,538 $ 16,134 56,404
Loss on disposal of assets 8,653 3,577 5,076
Non-cash equity-based compensation and other expense 2,714 - 2,714
Depreciation and amortization 82,523 61,988 20,535
Changes in unrealized derivative instruments 4,328 4,588 (260)
Acquisition and integration costs and other 1,517 4,299 (2,782)
Commercial Services (4,139) 4,139 (8,278)
Adjusted gross margin $ 168,134 $ 94,725 $ 73,409
Metric tons sold 4,332 3,564 768
Adjusted gross margin per metric ton $ 38.81
(1)Gross margin is defined as net sales less cost of goods sold (including related amortization and depreciation and loss on disposal of assets).
We earned adjusted gross margin of$168.1 million , or$38.81 per MT, for the year endedDecember 31, 2020 compared to$94.7 million , or$26.58 per MT, for the year endedDecember 31, 2019 . The increase in adjusted gross margin was primarily due to a 22% increase in product sales volumes for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 . Adjusted gross margin for the year endedDecember 31, 2019 excludes$4.3 million of incremental costs, which are unrepresentative of our ongoing operations, in connection with our evaluation of a third-party wood pellet production plant we considered purchasing (the "Potential Target"). When we commenced our review, the Potential Target had recently returned to operations following an extended shutdown during a bankruptcy proceeding with the intent of demonstrating favorable operations prior to proceeding to an auction sale process; however, the Potential Target had not yet established a logistics chain through a viable export terminal, given that the terminal through which the plant historically had exported was not operational at the time and was not reasonably certain to become operational in the future. Accordingly, as part of our diligence of the Potential Target, we developed an alternative logistics chain to bring the Potential Target's wood pellets to market and began purchasing the production of the Potential Target for a trial period. The incremental costs associated with the establishment and evaluation of this new logistics chain primarily consist of barge, freight, trucking, storage, and shiploading services. We have completed our evaluation of the alternative logistics chain and, therefore, do not expect to incur additional costs of this nature in the future. During the quarter endedDecember 31, 2019 , we received a non-refundable payment of$5.6 million from a customer in consideration for our performance during the quarter of Commercial Services outside of the scope of our existing take-or-pay off-take contract. The customer had requested the Commercial Services, among other things, in order to avoid its exposure to market price volatility associated with its anticipated failure to take required deliveries of certain wood pellet volumes during the fourth quarter of 2019 and first half of 2020 pursuant to the off-take contract. The Commercial Services had a value to the customer of$5.6 million . We included the entire non-refundable payment of$5.6 million in our publicly stated guidance for 2019 in our press release issuedOctober 30, 2019 . Under GAAP, we recognized$1.5 million of the$5.6 million payment as revenue during the fourth quarter of 2019, under the breakage model of Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers, and recorded the remaining$4.1 million as deferred revenue as ofDecember 31, 2019 , which was recognized as revenue during the first six months of 2020 in accordance with the original product sales schedule under the off-take contract. For presentation of our non-GAAP measures, including the Non-Recast Presentation, we included the$4.1 million in adjusted net income, adjusted gross margin, adjusted gross margin per MT, and adjusted EBITDA for the year endedDecember 31, 2019 as such amount relates to our performance of certain Commercial Services, which we completed and for which we were compensated in 2019. The$4.1 million increased adjusted net income, adjusted gross margin per MT, and adjusted EBITDA for the year endedDecember 31, 2019 and decreased such measures by an equal amount during the first six months of 2020. 38
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Selling, general, administrative and development expenses
Selling, general, administrative and development expenses have been
for the year ended
Depreciation and amortization
Depreciation and amortization expense increased to$85.9 million for the year endedDecember 31, 2020 from$65.6 million for the year endedDecember 31, 2019 , an increase of$20.3 million or 31%, mainly due to the drop-down ofthe Hamlet plant from our former sponsor and the acquisition of the production plant located inWaycross, Georgia .
Interest expense
We incurred$46.0 million of interest expense during the year endedDecember 31, 2020 and$42.0 million during the year endedDecember 31, 2019 . The increase in interest expense from the prior year was primarily attributable to an increase in borrowings as a result of our acquisition of the production plant located inWaycross, Georgia inJuly 2020 .
Prepayment of debt
In 2019, we redeemed all$355.0 million of aggregate principal amount of 2021 Notes and recognized a$9.0 million loss in early retirement of debt obligation consisting of a$7.5 million debt redemption premium and$1.5 million for the write-off of unamortized debt issuance costs, original issue discount and premium. The amounts were amortized over the term of the 2021 Notes and were expensed inDecember 2019 when we repaid$355.0 million of aggregate principal amount of the 2021 Notes. Income tax We incurred$0.2 million of income tax expense during the year endedDecember 31, 2020 and incurred and income tax benefit of$1.9 million during the year endedDecember 31, 2019 . The decrease in the income tax benefit of$2.1 million was primarily related to income taxes of a corporate subsidiary. Adjusted net loss Year Ended December 31, 2020 2019 (Recast) (Recast) Change (in thousands) Reconciliation of net loss to adjusted net loss: Net loss$ (106,324) $ (134,984) $ 28,660 Acquisition and integration costs and other 7,678 6,866 812 Early retirement of debt obligation - 9,042 (9,042) Commercial Services (4,139) 4,139 (8,278)
Interest expense from additional borrowing related to the Chesapeake incident and hurricanes
2,211 1,705 506 Adjusted net loss$ (100,574) $ (113,232) $ 12,658 39
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Adjusted EBITDA
Year Ended December 31,
2020 2019
(Recast) (Recast) Change
(in thousands)
Reconciliation of net loss to adjusted EBITDA:
Net loss $ (106,324) $ (134,984) $ 28,660
Add:
Depreciation and amortization 85,892 65,565 20,327
Interest expense 45,996 42,042 3,954
Income tax expense (benefit) 169 (1,954) 2,123
Early retirement of debt obligation - 9,042 (9,042)
Non-cash stock-based compensation and other charges 39,528
10,631 28,897 Loss on disposal of assets 8,715 3,558 5,157 Changes in unrealized derivative instruments 4,328 4,588 (260) Acquisition and integration costs and other 7,678 6,866 812 Commercial Services (4,139) 4,139 (8,278) Adjusted EBITDA$ 81,843 $ 9,493 $ 72,350 We generated adjusted EBITDA of$81.8 million for the year endedDecember 31, 2020 compared to$9.5 million for the year endedDecember 31, 2019 . The$72.4 million increase was primarily attributable to the factors described above under the heading "Adjusted gross margin and adjusted gross margin per metric ton."
Distributable cash
The following is a reconciliation of adjusted EBITDA to distributable cash flow:
Year Ended December 31,
2020 2019
(Recast) (Recast) Change
(in thousands)
Reconciliation of adjusted EBITDA to distributable cash
flow attributable to Enviva
Adjusted EBITDA $ 81,843 $ 9,493 $ 72,350
Less:
Interest expense, net of amortization of debt issuance
costs, debt premium, original issue discount, and
impact from incremental borrowings related to
Chesapeake Incident and Hurricane Events 41,206 37,193 4,013
Maintenance capital expenditures 7,952 6,922 1,030
Distributable cash flow attributable to
Cash 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. 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. 40
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Our liquidity at
Cash Dividends
We intend to pay cash dividends to holders of our common stock of
The former owners of our former sponsor have agreed to reinvest in our common stock all dividends from 9.0 million of the 16.0 million common units issued in connection with the Simplification Transaction for the dividends paid for the period beginning with the third quarter of 2021 through the fourth quarter of 2024. 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 maintenance or growth is done at the individual asset level during our budgeting process and when we approve, execute and monitor our capital expenditures.
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 completion of the production plant under construction inLucedale Mississippi and the terminal at thePort of Pascagoula, Mississippi , and the construction of theEpes 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.
long-term debt
Tickets 2026
In 2019, we issued
InJuly 2020 , we issued an additional$150.0 million aggregate principal amount of the 2026 Notes at an offering price of 103.75% of the principal amount (the "Additional Notes"). We received net proceeds of approximately$153.6 million from the Additional Notes offering after deducting discounts and commissions. We may redeem all or a portion of the 2026 Notes at any time at the applicable redemption price, plus accrued and unpaid interest, if any (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), and, in some cases, plus a make-whole premium.
For more information on the 2026 Notes, see Section 8. Financial Statements and Supplementary Data, Note 14, Long-Term Debt and Finance Lease Obligations.
Senior Secured Revolving Credit Facility
InApril 2021 , we amended our senior secured revolving credit facility to increase the revolving credit commitments from$350.0 million to$525.0 million , to extend the maturity fromOctober 2023 toApril 2026 , to increase the letter of credit commitment from$50.0 million to$80.0 million , and to reduce the cost of borrowing by 25 basis points. InDecember 2021 , we amended our senior secured revolving credit facility to increase the revolving credit commitments from$525.0 million to$570.0 million and to permit the issuance of commercial letters of credit. Borrowings under the revolving credit facility bear interest, at our option, at either a Eurodollar rate or at a base rate, in each case, plus an applicable margin. The applicable margin will fluctuate between 1.50% per annum and 2.75% per annum, in 41
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the case of Eurodollar rate borrowings, or between 0.50% per annum and 1.75% per annum, in the case of base rate loans, in each case, based on our Total Leverage Ratio (as defined in our credit agreement) at such time, with 25 basis point increases or decreases for each 0.50 increase or decrease in our Total Leverage Ratio from 2.75:1:00 to 4.75:1:00.
We are required to pay a commitment fee on the unused daily amount under revolving credit commitments at a rate of between 0.25% and 0.50% per annum.
The credit agreement contains certain covenants, restrictions, and events of default. We are required to maintain (1) a maximum Total Leverage Ratio at or below 5.00 to 1.00 (or 5.25 to 1.00 during a Material Transaction Period) and (2) a minimum Interest Coverage Ratio (as defined in our credit agreement) of not less than 2.25 to 1.00. As ofDecember 31, 2021 , we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the credit agreement governing our senior secured revolving credit facility. Our obligations under the senior secured revolving credit facility are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our assets; however, the senior secured revolving credit facility is not guaranteed by the Hamlet JV or secured by liens on its assets. For additional information on our senior secured revolving credit facility, see Item 8. Financial Statements and Supplemental Data, Note 14, Long-Term Debt and Finance Lease Obligations.
Note from seller
We are a party to, and a guarantor of, a promissory note (the "Seller Note") with a remaining principal balance of$37.5 million . The Seller Note matures inFebruary 2023 and has an interest rate of 2.5% per annum. Principal and related interest payments are due annually throughFebruary 2022 and quarterly thereafter.
Cash flow
The following table sets forth a summary of our net cash flows from operating, investing and financing activities for the years endedDecember 31, 2021 and 2020: Year Ended December 31, 2021 2020 (in thousands) Net cash provided by operating activities$ 33,390 $ 14,399 Net cash used in investing activities (332,322) (383,969) Net cash provided by financing activities 249,775 406,521
Net increase (decrease) in cash, cash equivalents and restricted cash
$ (49,157) $ 36,951
Cash flow from operating activities
Net cash provided by operating activities was$33.4 million and$14.4 million for the years endedDecember 31, 2021 and 2020, respectively. The$19.0 million increase in cash provided by operating activities during the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 was primarily due to an increase in cash from changes in working capital of$47.4 million partially offset by a decrease in cash from net income (loss) adjusted for non-cash items of$28.4 million .
Cash used in investing activities
Net cash used in investing activities was$332.3 million and$384.0 million for the years endedDecember 31, 2021 and 2020, respectively. The$51.6 million decrease in cash used in investing activities during the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 was primarily due to the investment of$163.3 million in the acquisition of the production plant located inWaycross, Georgia , last year offset by the increase in capital expenditures of$111.3 million .
Cash provided by financing activities
Net cash provided by financing activities was$249.8 million and$406.5 million for the years endedDecember 31, 2021 and 2020, respectively. The$156.7 million decrease in net cash provided by financing activities in 2021, as compared to 2020, was primarily attributable to an increase in cash used to acquire a non-controlling interest of$59.7 million , a reduction in cash from contributed capital to common control entities acquired of$105.0 million , and an increase in cash distribution of$44.8 million , partially offset by an increase in proceeds from the issuance of common shares of$24.0 million and proceeds from debt issuance net of repayment of debt of$19.3 million . 42
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Off-balance sheet arrangements
As ofDecember 31, 2021 , we did not have any offbalance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation SK, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or a variable interest in unconsolidated entities.
Recently issued accounting pronouncements
See part II, point 8. “Financial statements and additional data – Note 2, “Significant accounting policies – Recently adopted accounting standards and recently issued accounting standards not yet adopted”, in the notes to our consolidated financial statements included in this annual report on Form 10-K for a description of recently issued and adopted accounting pronouncements.
Significant Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates. For accounting policies and estimates that we believe are critical to our consolidated financial statements due to the degree of uncertainty regarding the estimates or assumptions involved, please see the following disclosures within the Notes to our Consolidated Financial Statements included in Part II, Item 8. of this Annual Report on Form 10-K: Note 2, Significant Accounting Policies, specifically about "Business Combinations", "Inventories", "Revenue Recognition", "Cost of Goods Sold", and "Property, Plant and Equipment", and Note 4, "Acquisition". 43
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