Executives: Ray Kaszuba - SVP, Finance and Treasurer John Keppler - Chairman and CEO Shai Even - CFO

Analysts: Shereen Undavia - Raymond James

Operator: Good morning and welcome to the Enviva Partner’s Second Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ray Kaszuba. Please go ahead.

Ray Kaszuba: Thank you. Good morning and welcome to the Enviva Partners’ LP second quarter financial results conference call. We appreciate your interest in Enviva Partners and thank you for participating today. On this morning’s call, we have John Keppler, Chairman and CEO and Shai Even, Chief Financial Officer. Our agenda will be for John and Shai to discuss our financial results released yesterday and provide an update on our current business outlook. We will then open up the phone lines for questions. Before we get started, a few housekeeping items. First, please keep in mind that during the course of our remarks and the subsequent Q&A session, we will be making some forward-looking statements and we will refer to certain non-GAAP measures. Our forward-looking statements or comments about future expectations are subject to a variety of business risks. Information concerning the risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements can be found in our release issued yesterday, which is posted on the Investor Relations section of our website, www.envivabiomass.com, as well as in our 10-K and our other recent filings with the SEC. We assume no obligation to update any forward-looking statements to reflect new or changed events or circumstances. During this call, we will be discussing GAAP and non-GAAP figures and we want to be clear on the basis of each. As of January 1, 2018, the partnership adopted ASC 606 revenue from contracts with customers. Unless otherwise indicated the financial results for the three months ended June 30, 2018 are prepared on this basis. In addition to presenting our financial results in accordance with GAAP in certain cases we have also provided financial results excluding the full financial impact of the Chesapeake incident. References to the full financial impact of the Chesapeake incident include the approximate cost incurred through June 30, 2018 in connection with emergency responses, disposal of Wood Pellet inventory, asset disposal and repair as well as associated business continuity expenses which include incremental logistics cost and loss of margin on incremental Wood Pellet production, offset by insurance recoveries received to-date. Reconciliation of non-GAAP measures to GAAP measures may also be found in yesterday’s press release. I would now like to turn it over to John.

John Keppler : Thank you, Ray. Good morning, everyone and thanks for joining us today. As I hoped you noticed in our earnings release the partnership and its sponsor achieved some very important milestones since our last earnings call. So we have a fair bit to discuss today. But before we dive in I would like to take the opportunity to introduce Shai Even, our new executive Vice President and Chief Financial Officer. Shai joined us two months ago and after building a highly successful carrier in the MLP and broader energy space, most recently as CFO of Lawn Energy. From discussions with many of our investors and financial partners it's clear, many of you already know him and are familiar with his proven track record. He will be a key member of the Enviva team as we continue to take advantage of the tremendous growth opportunities before us. I will turn the call over to Shai shortly. But first I want to share some of the key highlights for the quarter. On the contracting front, we extended our relationship with Drax, the largest purchaser of biomass in the world by executing a 650,000 metric ton per year take-or-pay offtake contract starting in 2022. Drax has been an Enviva customer since 2010 and we are very proud to be a part of the continued growth in biomass power generation. As you know, the partnership strategy is to fully contract our production capacity with the extended Drax contract the partnership is now fully contracted through 2025, with a weighted average remaining term of firm offtake contracts of 8.5 years and revenue backlog from firm contracts of $6.3 billion. We are also very excited to announce that we just executed a 180,000 metric ton per year 15 year offtake contract with a major investment grade Japanese trading house starting in 2022 subject to conditions precedent that we expect to be met by the end of the year. In addition, our sponsor recently executed two 15 year offtake contracts with Sumitomo Corporation starting in 2021 and 2022 supplying two different projects in Japan for volumes that total 520,000 metric tons per year. This brings the partnership and our sponsor's long-term take-or-pay offtake contract with major investment grade Japanese trading houses to almost 1.5 million tons per year and make the Enviva enterprise, one of the largest contracted suppliers to Japan. If volumes under the firm and contingent contracts held by the partnership, our sponsor and the Hancock JVs are included, the weighted-average remaining contract term would extend from 8.5 to 11.7 years and the product sales backlog would increase from 6.3 to $12.2 billion. These new contracts also represent significant potential diversification. If the contract currently held by the sponsor and its joint ventures become firm and the associated volumes are supplied by the partnership. We would expect that our largest customer in the next several years would only represent about a quarter of our product sales, down from two thirds in 2017. These long-term take-or-pay contracts extend out almost two decades and are expected to underpin the development and construction of additional production plans, some of which we have identified as Hamlet, Greenwood and Lucedale, and additional port infrastructure, particularly in Pascagoula, Mississippi that we would expect to be made available for drop down into the partnership. From an operational standpoint, we also had a good quarter, notwithstanding the incremental costs associated with our extended logistic chain due to the Chesapeake incident, which is now firmly behind us. As we described in the press release in late June, the Chesapeake terminal returned to operation on June 28 in line with our expectations. From the time our dones were cleared out from the initial fire event, our organizational depth enabled us to complete the repairs and recommission the facility in about 65 days. More importantly throughout the entire process, we had no injuries. There was no impact on the local community and we did not miss any shipments to our customers validating the portfolio approach of our business model and the resulting reliability that we believe no other wood pellets supplier in the world can match. Meanwhile our underlying operations continue to see productivity improvements with 11% more tons sold in the second quarter 2018 over the second quarter of 2017 while cost per metric ton decreased by 6% over the same period. Given our confidence that the positive production volume and cost trends will continue and the temporary nature of the impact of the Chesapeake event, our board elected to declare a quarterly distribution of $0.63 per unit for the second quarter of 2018, and we reaffirm the full year 2018 per-unit distribution guidance of at least $2.53. Distribution for the second quarter represents a 10.5% increase over the corresponding quarter of last year and is our 12th consecutive quarterly increase since IPO. The long-term fundamentals of our underlying business remain strong and we expect no change to its growth trajectory from the temporal issues associated with the Chesapeake incident. I would like to now hand it over to Shai to discuss financial results before returning to provide an update on the market and where we see continued growth opportunities.

Shai Even: Thank you, John. For the second quarter of 2018 on a GAAP basis net revenue was $132.1 million, representing an increase of 3.6% over the corresponding period of 2017. Order sales revenue was $129.7 million as compared to product sales of $121.7 million for the second quarter of last year. For the quarter, we sold 699,000 metric tons of wood pellets, as compared to 628,000 metric tons during the second quarter of 2017 an increase of 11%. For the second quarter of 2018, gross margin was $16.3 million, consistent with the same period in 2017. Higher sales volumes and lower production costs achieved during the second quarter of 2018 were offset by lower other revenue, lower pricing driven by customer contract mix as well as expenses entailed related to the Chesapeake incident, net of insurance recovery. On a reported basis, adjusted gross margin per metric ton was $37.74 for the second quarter of 2018, excluding the full financial impact of the Chesapeake incident, adjusted gross margin per metric ton would have been $40.40 for the quarter as compared to $42.35 for the second quarter of 2017 is adjusted for the impact of ASC 606 for comparison purposes. On a GAAP basis net income for the second quarter of 2018 was $3.5 million versus net income of $1.5 million for the corresponding quarter of 2017. Adjusted EBITDA for the second quarter of 2018 was $21.1 million as compared to $23.3 million for the corresponding quarter of 2017. Excluding the full financial impact of the Chesapeake incident, adjusted EBITDA would have been $23.7 million for the second quarter of 2018, representing an increase quarter over quarter. Distributable cash flow, prior to any distributions attributable to incentive distribution rights paid to the general partner, was $11.1 million for the second quarter of 2018 on a reported basis, which covers the second quarter 2018 distribution at 0.58 times, and is consistent with how we characterize our expectations for the quarter during our last call. The Chesapeake terminal returned to operations in line with our expectations and we continue to believe that substantially all of the cost resulting from the Chesapeake incident will be recoverable. On our February 22 earnings call we provided guidance for full year 2018 adjusted EBITDA of $118 million to $122 million as well as distributable cash flow of $79.5 million to $83.5 million. We believe that this guidance ranges remains achievable, subject to the amount and timing of recoveries from insurers and other responsible parties. As you may recall, prior to the Chesapeake incident, we stated that we expected adjusted EBITDA for the first half of 2018 to be in the range of $50 million to $55 million. We are a little bit short of that result even after excluding the net cost of the Chesapeake incident primarily due to a large inventory balance at the end of the quarter. We expect the deliver this excess inventory during the course of the year. We also stated at that time that we expect the total for adjusted EBITDA for 2018 to look similar to 2017 where the back half will represent a significant step up from the first half of the year and that is still the case. This led the partnership to reaffirm full-year 2018 per-unit distribution guidance of at least $2.53, with continued quarter over quarter increases expected throughout the year. From a liquidity perspective at the end of the second quarter of 2018 we had approximately 13.8 million of cash on hand, with 70 of the $100 million capacity under our revolving credit facility available. In my prior life I was often asked about our leverage ratio, and even with the $30 million drawn on our revolver, which we expect to be paid off primarily with 24 million of anticipated recoveries not booked at June 30 from the Chesapeake incident, we are well within the range allowed for our credit agreement. Now I would like to turn it back to John.

John Keppler: Thanks Shai. I think you will agree that it's great to have Shai on board, sharing a fresh perspective on the underlying drivers of growth in our business, which are safe, stable and profitable operations that ensure reliable deliveries to our customers under long-term take-or-pay contract. It's exactly that reliability and just as important scalability that has enabled us to grow alongside the largest biomass power generator in the world and to become one of Japan's largest contracted suppliers in just a few short months and it's clear that the European and Asian markets are going to continue to grow. As we profiled in our release in Europe the big news is that in June the EU Commission Council and the Parliament announced that they had reached agreement on key policy terms of the RED II framework, including a binding EU wide target share for renewables of 32% in the energy mix by 2030 up from the target of 20% by 2020. If approved this could be important for biomass as this agreement also reconfirmed that energy generated from biomass will count towards the renewable energy target and the generators will be eligible for support under national action plans. So the spotlight turns to large markets like Germany, the Netherlands and Ireland that have very aggressive targets for renewables and a reduction in coal usage. In Japan, the government recently approved the country's fifth strategic energy plan. In addition to confirming renewable energy's target share of 22% to 24% in Japan's target 2030 energy mix, the plan for the first time designated renewables, including biomass, as a main source of power generation. This is indicative of a major shift in government policy that recognizes renewable energy's role as a baseload power source. I will remind you that the Japanese government is targeting 6 to 7.5 gigawatts of biomass power capacity by 2030, representing 15 to 20 million metric tons per year biomass demand, which was double the worldwide industrial market today. Obviously, this will require more biomass and as our customers continue to scale, their focus is on the stability in the sustainability of wood fiber in the Southeast United States. And here we are increasingly perceived and as an essential part of derisking our customers renewable power generation investments by providing a fuel supply chain, that benefit from Enviva's portfolio of production plants and export terminals and our industry-leading, sustainable forestry practices. To meet the growing customer demand, we will need to continue our successful track record of investing in incremental plant and port capacity. So I also wanted to provide a brief update on our sponsors' development activities. Our sponsor's first joint venture with John Hancock continues to construct a production plant with a nameplate capacity of 600,000 metric tons per year in Hamlet, North Carolina which our sponsor expects to begin production in the first half of 2019. Our sponsor second joint venture with Hancock continues to invest incremental capital in its wood pellet production plant in Greenwood, South Carolina and expects to increase the Greenwood plant's production capacity from 500,000 to 600,000 metric tons per year subject to receiving necessary permits. Production from the facility is currently sold in the partnership. In addition, the second Hancock JV is progressing the development of a new cluster that includes a deepwater marine terminal in Pascagoula, Mississippi and a wood pellet production plant in Lucedale, Mississippi, and has also recently executed option agreements to potentially acquire development sites for wood pellet production plants in Epes, Alabama and Taylorsville, Mississippi. Our sponsor's practice has been to fully contract, develop, derisk and then make production plants, their associated contracts and export terminal available for acquisition by the partnership once they have achieved full scale operations. Our current visible dropdown pipeline includes the additional EBITDA from our Wilmington terminal with volumes from the Hamlet plant, the Hamlet plant itself which is expected to supply the Macquarie backed MGTT site project in the UK and the Greenwood plant. We expect to have additional visibility by the end of the year on the timing of the Pascagoula cluster including Lucedale plant which lines up quite nicely to our market development activities in Japan. We expect the second portion of the Wilmington terminal dropdown and one plant dropdown acquisition in 2019 and another plant dropdown in 2020. Finally I want to highlight the progress of one of our key sustainability programs. Since the Enviva Forest Conservation Fund was launched in 2015, our sponsor has contributed to the conservation of more than 15,000 acres of bottom line forest. Our initial ten year target was 35,000 acres conserved. So we are well on track. Programs like the conversation fund and our industry leading track and trace system demonstrate our commitment to sustainability in ways that extend far beyond third party audits compliance and certification, which is why we are recognized as not only leaders but also innovators on this critical issue. So in sum a busy quarter which again demonstrated solid operating performance and further productivity gains through substantial increases on our long-term contracted position and good progress of development of new capacity to serve long-term contracted demand in our core markets. We believe these pillars create a strong platform for sustainable long-term growth that will enable us to continue to increase our per unit distributions overtime. As we close I would like to thank all of the great people at Enviva for their dedication and hard work keeping our plants, ports and most importantly each other safe every day. Operator, can you please prepare the line for questions.

Operator: [Operator Instructions] Our first question comes from Brian Maguire of Goldman Sachs. Please go-ahead.

Unidentified Analyst: Hey good morning everyone, it's Derek on for Brian. Pretty solid volumes here in 2Q considering some of the challenges from Chesapeake and it sounds like operational efficiencies drove a 6% improved cost structure there. Just curious if you could talk about some of the efforts that you made in the quarter to keep costs lower and other parts of your business to kind of offset some of these continuity costs from Chesapeake. And if you had any learnings there that you might be able to apply going forward as you know to kind of further reduce your cost structure?

John Keppler: That's a great question as we've worked very hard to communicate quarter-over-quarter, our operational management system we call it the Enviva operational excellence management system is designed very specifically on a couple of key points. One is reliability of time which then of course drives the increased availability of our assets to drive more production of those assets as well as continuous improvement initiatives. So these are our focus not only at cost reduction but at additional debottlenecking within any of our facilities so for instance if you can increase the productive rate of the pellet press even 0.1 ton per hour, while given the span of those pellet presses across our portfolio that translates into material thousands of tons increase quarter-over-quarter. What I'd also say is that on the cost front our ability to continue leverage scale particularly on raw material purchases has enabled us to increase volume at lower cost quarter-over-quarter and that's a trend that we would seek to obviously continue and underpins the portion of the 7% to 10% EBITDA growth we target on an annual basis.

Unidentified Analyst: Got it, that's helpful, thank you. And then one on just your growth in Asia I understand you can't speak on a customer specific basis, but just curious if you can give some color around what's really helping you win new business in this area. Are these customers more looking towards reliability of deliveries you have a little bit of larger footprint than a lot of your competitors or they're a little bit more cost focused and with some of the new capacity that will be coming online in North America, just curious if you anticipate any pricing pressures from that, are you still feel confident be able to win more business there?

John Keppler: Again a great question, here's the way I'd size that out is that our customers and the growth profile in not only in Europe but also increasingly Asia is not about the next 100,000 tons it’s about the next 5, 10, 15, 20 million tons. And the ability to scale and grow at a flat marginal cost curve is essential to our major counter party and so they look to us and into the South East United States, given our portfolio plans, the sustainable forestry practices and the flat marginal cost curve that we face across the South East U.S as a key differentiator in the marketplace and think that's one of the major reasons why we become one of the largest if not the largest supplier into Japan on a contracted basis over the term. And that translates into what frankly is our proven ability to grow and so not only do we talk about our existing assets in the volumes that we continue to contract within partnership we’re really laying the groundwork for the development activities upstairs at the sponsor, the Lucedale facilities, the potential Taylorsville, the Epes that will underpin the long-term growth and capacity, because this is just as a reminder, this is a market that is very short capacity. Most of the new capacity will need to be built and originated and that's where customers in Japan and Europe are increasing looking to proven delivery partners like Enviva.

Operator: Our next question comes from Shereen Undavia of Raymond James. Please go ahead.

Shereen Undavia: Hi I wanted to ask about the coal phase out process in Germany, it sounds like the Commission will announce the phase out timing by the end of the year, as a prior different matter though how long do you think it would take before a German facility begin to sign the same type of house contracts that you've being seen in Japan.

John Keppler: That’s a great question. Let me start with it, we’re now in a bit of a transition between RED I and RED II and so that will be part of the timing considerations, but your point on the German coal commission. I think these folks are underestimating the impact that this commission actually has, if folks look back to the German election the issue of coal was critical in the formation of the new coalition government, and so that the government it's frankly delegation of the balance between the phase out of coal and lignite and frankly impact on jobs in the broader German economy against its very stringent objectives for climate change will lead to transformation of the German power industry I think. And I think all eyes are very focused on the combined heat and power aspects. And here's where I think the customer set is actually out ahead of much of the regulatory and coal commission work. The customer set is looking at its asset base and trying to ascertain which are the system critical commodities and power assets that today fired by coal or lignite, that can be effectively converted to biomass preserving jobs, preserving the integration between power generation and thermal generation that support so much of German industry and so I think that there is a very solid case we made that Germany will be a very large market for us. What that translates in the timing. I think that we would be looking at contract execution in the next 18 to 24 months. Based on the rationalization of the Coal Commission and the implementation of the appropriate regulatory infrastructure that will enable these conversions, from there I think it could be very quick given the plans in place and the work that our utility customers are already undertaking.

Shereen Undavia: Okay and then I have a follow question about Japan. You have about three four plant forest of Japanese contract as a matter of logistics, would it make sense to build these plants on the West Coast which you continue to stick with your traditional South Eastern foot print.

John Keppler: That's a great question and just let me go ahead and just do a quick reset on our contracted position because obviously there was is a lot to report this quarter. So if we look from the partnership's perspective with the additional Jacks contract and the incremental Japanese contract that we announced for 180,000 tons the partnership is fully contracted through 2025 with contracts to extend out through 2034. This sets us up for some time and as again and underpinning the basis for the 7% to 10% EBITDA growth to target. At the sponsor level we maintain the MGT contract which is approximately 600,000 tons 450,000 tons in incremental Japanese volumes that we've previously announced plus the Sumitomo contracts of about 520,000 metric tons. And so we all of these does need new capacity. So you've heard us mention Hamlet, you've heard we mention Greenwood, you heard we mention Lucedale and negotiations from new volumes in Europe and Asia will continue to increase that, that requirement and you've heard me also mention that the potential price in Epes and Taylorsville. The reason why we continue to maintain our focus on the Southeast U.S. is because it is the lowest cost for fiber base in the world. And when you look at our cost hour on a diluted basis in the markets around the world we continue to believe that the lowest cost position will continue to win. And we have yet to find an opportunity to scale on a sustainable forestry basis volumes at site from fiber basis in the Southeast U.S. and that combination of fiber plus advantage logistics to anywhere in the world has led us to continue to conclude that the Southeast United States given its flat marginal cost curve is the right place for us to be.

Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to John Keppler for any closing remarks.

John Keppler: I'd just like to thanks everybody again for joining us today. As many of you know I'm fond of saying that we're just getting started and that's really just the case. I look forward to our next conversation and outlining what we've been able to accomplish in the very next quarter. Talk to you all soon.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.