Enviva Inc. (NYSE:EVA) Q4 2022 Earnings Call Transcript

Enviva Inc. (NYSE:EVA) Q4 2022 Earnings Call Transcript March 1, 2023

Operator: Good morning, and welcome to Enviva Inc.’s Fourth Quarter of 2022 Earnings Conference Call. All participants will be in a listen-only mode. I would now like to turn the conference call over to Kate Walsh, Vice President of Investor Relations. Please go ahead.

Kate Walsh: Thank you. Good morning, everyone, and welcome to Enviva’s fourth quarter and full year 2022 earnings conference call. We appreciate your interest in and support of Enviva, and thank you for your participation today. On this morning’s call, we have Thomas Meth, President and Chief Executive Officer; Shai Evan, Executive Vice President and Chief Financial Officer. Our agenda will be for Thomas and Shai to discuss our financial and operating results and to provide an update on our current business outlook and operations. Then we will open the call up for questions. During the course of our remarks and the subsequent Q&A session, we will be making forward-looking statements, which are subject to a variety of risks. Information concerning the risks and uncertainties that could cause our actual results to differ materially from those in our forward-looking statements can be found in our earnings release as well as in our other SEC filings.

We assume no obligation to update any forward-looking statements to reflect new or changed events or circumstances. In addition to presenting our financial results in accordance with GAAP, we will also be discussing adjusted EBITDA and certain other non-GAAP financial measures pertaining to complete reporting periods as well as our forecast. Information concerning the reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and other relevant disclosures is included in our earnings release. Our SEC reports, earnings release and most recent investor presentation which contain reconciliations of non-GAAP financial measures we use can be found on our website at envivabiomass.com. It is important to note that as a result of the simplification transaction we announced on October 15, 2021, we were required to recast our 2021 financial results in accordance with GAAP to reflect that transaction.

Today, we will discuss 2021 historical financial results on a recast basis or non-recast basis, depending on the reference point. Please refer to our earnings release and Form 10-K documents for more details on our recast and non-recast presentations. As is our practice, we will be opening up the line to questions following our prepared remarks describing the financial and operating results for fourth quarter and full year 2022 as well as what we have planned and expect for 2023 and beyond. We also hope you’ll be able to attend our inaugural Investor Day scheduled for April 30, 2023, where we will have another opportunity to go into detail about the core drivers of success in the business as well as our plans and strategy to capture the remarkable opportunity we have to continue to grow and deliver shareholder value.

I would now like to turn the call over to Thomas.

Thomas Meth: Thank you, Kate. Good morning, everyone, and thank you for joining us today. When I assumed the role of President and CEO last year, I got the chance to get to know many of you, some for the first time, but for many, it has given us a renewed opportunity to be reminded of the tremendous potential that we saw when we cofounded the Company almost two decades ago. As I’ve been able to share, we are a growth company, serving an increasing array of markets and customers around the world helping address one of the most critical challenges of our time, climate change. But it’s not just an idea or a technology. We’re an industrial company with a tremendous growth trajectory that generates cash. Our job and unparalleled opportunity that comes along with it to increase shareholder value is to continue to grow the long-term contracted sales in the business, as you know, is the core of our operating strategy and to do so at an increasing level of profitability and cash flow generation amid dynamic market conditions.

As we kick off today’s discussion, I’d like to set the stage about what you are going to hear me and Shai talk about. First, we firmly believe in the cash flow profile of this business and have strong conviction around our ability to not only deliver $305 million to $335 million in adjusted EBITDA for 2023 and but also to double adjusted EBITDA over the next four years and to self-fund our growth by 2027. Second, we continue to have incredible momentum with our customers. Having signed 800,000 metric tons per year of new long-term incremental volumes in December and another 600,000 metric tons per year with a new set of customers in just the last few weeks, all at higher pricing than we have seen historically. Third, we announced the $250 million equity investment in the Company by our major investors and Board members.

Those who know our business the best demonstrating incredible confidence in our growth trajectory, the strength of our business and the value creation we have ahead of us. Fourth, we will discuss the accounting change which led to €89 million of adjusted EBITDA being deferred to future periods. But in no way does it change the fundamentals of our business. We signed and execute against long-term take-or-pay agreement and expect to generate the vast majority of margin from our underlying operations fulfilling these contracts. Fifth, 2022 was certainly a transition year for us. And while we delivered record-breaking volumes from our large and growing production fleet, our cost position was higher than we had anticipated. Inflationary adjustments and pass-throughs in our contracts covered as well, but dramatically improved supply chain conditions, combined with lower energy costs and lower delivered fiber costs in our operations, coupled with higher fixed cost absorption rate in 2023 will deliver a significant uplift to expected cash flow, setting us up for a strong year in 2023 and beyond Finally, our commercial services capability, which provides accretive margin expansion opportunities benefiting from market dislocations, which will continue to be a key incremental opportunity to drive value into this business.

Let’s turn first to discuss our fourth quarter 2022 earnings in more detail. We executed a strong quarter with record volumes delivered to our customers as sales price is higher than we had forecasted. We were projecting a sizable step-up in activity from third quarter 2022, and we achieved that. With volumes delivered increasing by 35% quarter-over-quarter as compared to fourth quarter 2021, and we will deliver approximately 10% more volume to customers during the fourth quarter of 2022. We projected adjusted EBITDA for fourth quarter 2022 in the range of $103 million to $123 million. And based on the accounting treatment, we had expected and which informed our guidance, we would have achieved adjusted EBITDA within that range, delivering around $108 million for the quarter.

What we ended up printing for fourth quarter adjusted EBITDA was $18.6 million and I’ll unpack the difference between the two numbers now. During the fourth quarter we have three separate customer requests to defer or cancel shipments related to independent operational challenges. For example, one customer had a fire in their storage silo and were unable to accept shipments due to insufficient on-site storage. We were able to accommodate these customers’ requests freeing up shipments for us to sell to an existing large European customer at a premium. That shift enabled us to take advantage of the strong pellet spot pricing conditions we saw during the fourth quarter. We had a number of pathways to capitalize on the strong demand for wood pellets during the fourth quarter, all of which would have enabled us to meet our guidance targets and selling to our large European customer was the path we took.

Separately, during the fourth quarter of 2022, we planned our third-party pellet purchases for 2023 and beyond. As many of you know, historically, about 15% to 20% of our annual volumes sold are sourced from third parties. And we expect that to be the case going forward. ’22 was a little different because the war in Ukraine shot up about 10% of the world’s biomass supply. And the spike in pellet prices made it uneconomical for us to procure the same level of third-party pellets this past year. During the fourth quarter, we entered into a long-term purchase agreement with one of the largest biomass trading companies in the world who is also one of the largest consumers of biomass in Europe and is one of our long-standing customers. It is this customer to whom we sold available shipments during the fourth quarter.

This customer had elevated demand during the fourth quarter due to their strategy to manage through the energy scarce European winter. From an accounting perspective, because we sold volumes to the same customer that we entered into a long-term purchase agreement with the GAAP accounting rules require us to treat both the sales contract and long-term purchase contract as a contract, modification of our original sales contract thereby combining our new and historical purchase and sale transactions as if they were a single contract. This accounting treatment differed from our expectations and as well as from the assumptions that underpinned our guidance ranges. It’s important to note that we have collected cash in full for these sales the customers’ biomass power generation facilities have fully consumed our pellets and nothing has changed with the underlying fundamentals and operating model of our business.

We are referring to this unanticipated accounting treatment as the deferred gross margin transaction as roughly $89 million of gross margin and adjusted EBITDA is not being recognized in fourth quarter 2022 results, but will be recognized in future years. And our current expectation is that approximately half of the deferred benefit will be recognized in 2024 with the other half in 2025, again, no change to our business. Cash collected in full — just a change in reporting periods as to when the benefit of the sales will be recognized. For full year 2022, excluding the deferred gross margin adjustment impact, we would have achieved adjusted EBITDA of approximately $244 million, which was within our expected range of $240 million to $260 million.

We did experience a short period of downtime at several of our facilities due to the polar vortex that hit the U.S. Southeast in December and we estimate that we lost about $4 million of adjusted EBITDA due to the extreme weather event mainly due to lost volumes. We have consistently referred to 2022 as a transitional year for us as we executed the major corporate structural change of converting from a master limited partnership to a regular weight corporation at the beginning of 2022. At the same time, we were navigating the tough macroeconomic backdrop that impacted industry and households globally. Enviva struggled with COVID labor-related challenges early in the year and severe disruptions in the service delivery of our rail and trucking partners during the first half of 2022.

And along with inflationary pressures, we experienced a higher cost position in 2022 than we forecasted. As a result, while pricing escalators, inflationary protections and other pass-throughs in our contracts helped us maintain and modestly grow margins. As Sean will discuss further in a moment, we are laser focused on improving operational performance and cost management across our asset fleet, and I am happy to report we’re making noticeable strides forward. We’re certainly seeing tailwinds with the price of natural gas domestically being in the $2 to $3 per MMBtu range and lower diesel prices are having a positive impact as well. We’re also seeing progress in driving increased output from our plants with several capacity improvements now in place, including some debottlenecking and process throughput upgrades we have completed.

Another important improvement is the work we’ve done around our high grading of our workforce. And with improved supply chain conditions as we enter 2023, we expect to deliver a meaningful lower cost position in our cost per pellet ton over time. I’m really looking forward to having the opportunity to do a much deeper dive on the attributes of operational improvement and our expected plant level efficiency improvement at our upcoming Investor Day. In the meantime, I will call out that the strong end to 2022 paves the way for a solid 2023. We reaffirmed our preliminary 2023 outlook for adjusted EBITDA and are guiding to a range of $305 million to $335 million to see some embedded upside in that range as we execute our plan moving forward. Given that the market for our product remains structurally shortened supply while strong customer demand continues, we monitor dislocations in the marketplace and are increasingly transacting when pricing dynamics and contract flexibility provide opportunities to generate incremental gross margin.

For example, the times when prices for incremental deliveries are elevated and Enviva has the opportunity to reduce a certain percentage of contracted shipment and deliver our produced or purchased product into sales contracts at these higher prices. Conversely, when spot market prices are depressed, and Enviva’s opportunity to purchase attractively priced third-party volumes and increase a certain percentage of deliveries into our existing higher-priced long-term contracts. Additionally, given Enviva’s wide-spanning customer and shipping portfolios, we take advantage of opportunities to deliver cargoes procured regionally more proximate to our customers generating incremental gross margin by reducing the cost of delivery relative to shipping costs implied in our long-term off-take contracts.

We expect these logistics and commercial services to continue to grow commensurate with our growing backlog of fully contracted sales. We have a tremendous growth trajectory ahead of us, which is underpinned by a significant capital expenditure program. We’re executing to put new plants in service. Our capital allocation policy is focused on reinvesting retained cash flows into our business while maintaining ample liquidity and protecting our conservative leverage position, which is truly conservative for companies like ours, which have long-term take-or-pay contracted cash flows. Based on our capital allocation policy, we expect to maintain our 2023 dividend payout at the 2022 level, whereby we expect to pay $0.95 per quarter for an annual dividend of $3.62 per share.

We definitely see the ability to increase the dividend over time and returning incremental value to shareholders is certainly top of mind for our management team. But we’re also balancing that view with our target of fully self-funding our capital expenditures program by 2027. Our conviction in the growth trajectory of our business is reinforced by the customer discussions we have day in and day out and more importantly, the decision-making we see our customers taken at the ground level. We announced three new industrial contracts related to European industrial companies that are converting from coal to biomass in their manufacturing processes. And one from another customer, a global sustainable fuels company that is building a facility in the U.S. to produce biofuels, including biocrude, for blending into sustainable aviation fuel.

These three new contracts built on the nine agreements we announced during 2022. The momentum behind the energy transition is undeniable, and perhaps nowhere more so than in the biofuels industrial vertical. We recently delivered test deliveries to two major oil companies in Europe who are co-processing bio-based feedstock in their existing refineries and are in flight with constructing stand-alone biorefineries. Within the last 1.5 years, Enviva has signed three SAP-related contracts that represent close to 2 million metric tons per year of deliveries. The new contracts we have announced recently have been predominantly European focused, which is a good indication of the direction of travel that the European Union’s Renewable Energy Directive three is taking, which is being negotiated right now between the EU Parliament Council and commission.

We are confident that the legislation will conclude favorably for sustainable woody biomass and we should experience tailwinds from Red 3, which is likely to be finalized during the second quarter of this year. Before I turn it over to Shai, I’ll share some details about the equity deal we have in progress. Given the scale and pace at which we are building out our asset platform against the backdrop of continued inflation and rising interest rates, we have received commitments for approximately $250 million of common equity through a pipe transaction with shareholders like Riverstone and Inclusive Capital, who have a deep understanding of our business and are convicted in the tremendous potential for shareholder value creation ahead for us.

The equity will be priced after markets closed today, and we view the capital raise as bolstering our balance sheet liquidity and maintaining our leverage at a very comfortable level. I’ll now turn it over to Shai.

Photo by Kwon Junho on Unsplash

Shai Even: Thank you, Thomas, and good morning, everyone. We generated net revenue of $239.3 million for the fourth quarter of 2022 as compared to $276.3 million for the fourth quarter of 2021. Excluding the impact of deferred gross margin transaction, net revenue would have been $414.3 million for the fourth quarter 2022, an increase of 50% year-over-year. Net loss for the fourth quarter 2022 was $77.4 million as compared to a net loss of $61.4 million and $34 million for the fourth quarter 2021 on a recast, non-recast basis, respectively. Without the impact of the deferred gross margin transaction, fourth quarter would have been net income of $17 million. Adjusted EBITDA for the fourth quarter 2022 was $18.6 million as compared to $55.1 million and $68 million for 2021 on a recast and non-recast basis, respectively.

As Thomas discussed, the deferred gross margin transaction reduced reported adjusted EBITDA by close to $90 million. And excluding this impact, adjusted EBITDA for the fourth quarter would have been $107.5 million and within our range of expectations. Thomas discussed, our three customers requested change to their delivery schedule due to operational challenges and we were able to sell those shipments to an existing customer for elevated prices. These are normal opportunities that arise consistently and in 2022, we were able to take advantage of strong pellet pricing conditions given the structural scarcity of supply in the market and the profitability of biomass fire generation compared to fossil fuel-fired alternatives. The incremental cash collected above the take-or-pay obligation for the shipments was approximately $32 million.

Enviva adds multiple commercial and customer opportunities available to us in the fourth quarter, each of which would have enabled us similar outcomes and the sales to our existing customers, which Thomas described is the path Enviva chose. As we have described, the second half of the year and particularly the fourth quarter are historically our strongest financial period. This year was no different. Adjusted gross margin per metric ton for the fourth quarter 2022 was $35.32. Excluding the impact of the deferred gross margin transaction, AGM per metric ton would have been $85.20. Incrementally, year-end demand and durable scarcity in the market enable us to price a selection of delivers in excess of $400 per metric ton during the fourth quarter.

Even with this I delivered prices biomass main the cheapest form of thermal energy generation in Europe with biomass being more affordable than coal, natural gas and crude plus EU ETS carbon pricing. Carbon prices in the EU recently hit all-time high, surging over €100 per ton. The price of carbon credits in the EU system have risen fivefold in the past three years and are expected to remain elevated. Reverting now to our annual results for 2022, we achieved net revenue of close to $1.1 billion for 2022, representing a 5% increase from 2021. Excluding the impact of the deferred gross margin transaction, net revenue for 2022 would have increased by 21% as compared to 2021. Net loss for 2022 was $168.4 million as compared to $145.3 million and $33.2 million for 2021 on a recast and non-recast basis, respectively.

Net loss for 2022 would have been reduced by $98.4 million, if impact from the deferred gross margin transactions were excluded. Adjusted EBITDA for 2022 was $155.2 million as compared to $116.7 million and $226.1 million on a recast and non-recast basis, respectively. Without the impact of the deferred gross margin transaction, adjusted EBITDA for 2022 would have been $244 million, which was in line with our expectations and increased by approximately 8% when compared to 2021 adjusted EBITDA on a non-recast basis. Adjusted gross margin per metric ton was $45.65 per metric ton for 2022. And excluding the deferred gross margin transaction, AGM per metric ton would have been $60. AGM per metric ton for 2021 on a recast and non-recast basis was $40.75 and $47.21, respectively.

The year-over-year increase in adjusted gross margin per metric ton when the deferred gross margin transaction is excluded was driven by a number of factors that increased sales price per ton. First, we have contract price escalators in our contracts with many that are tied to inflation indices. Second, we successfully re-priced select legacy contracts during the year. Third, we are increasingly delivering under new higher priced contracts. And finally, as we have discussed, we are able to deliver several shipments throughout the year at elevated pricing. We are securing a material durable pricing uplift from our contract structure and our ability to layer in accretive commercial transactions around our base business is augmenting our financial performance.

Distributable cash flow for the fourth quarter 2022 was an outflow of $1.7 million as compared to this year of $42.8 million and $54.9 million for the fourth quarter 2021 on a recast and non-recast basis, respectively. The decrease year-over-year was driven by the impact of the deferred gross margin transaction of approximately $89 million. And it is important to note that all of the cash has been collected with respect to the deferred gross margin transaction. As part of the deferred gross margin transaction which treats the contract modification as a financing transaction, Enviva reported a non-cash interest expense of $9.6 million. The interest expense will not result in cash interest paid and will only be recorded for the life of the customer contracts, which triggered the deferred gross margin transaction, which is expected to be through 2025.

Cash flow used in operating activities for fourth quarter 2022 were $37.2 million. As we note reported the impact of the deferred gross margin transaction, the cash flows from operating activities would have been higher by $102.3 million from the proceeds related to the sale of finished goods that are included in cash flows from financing activities. Additionally, we would add that almost $10 million in cash from support payments from our former sponsors that are currently presented in cash flow from financing activities as compared to being included in cash flows from operating activities, where we historically presented these items. Enviva liquidity, as of December 31, 2022, which included cash on hand, including cash generally restricted to funding a portion of the cost of our Epes, Alabama plant and Bond, Mississippi plant and availability under our revolving trade facility was roughly $385 million.

As of December 31, 2022, Enviva’s total debt was approximately $1.6 billion and debt net of cash on hand and cash earmarked for the Epes and Bond plant was approximately $1.35 billion. Leverage is calculated by Enviva’s revolving credit facility, a calculation that includes material project adjustments and reverse the impact of the deferred gross margin transaction was around 4x at December 31, 2022. Recently, we amended our revolver at facility agreement to eliminate the effect of the deferred gross margin transactions on both adjusted EBITDA and the interest expense to better reflect cash flows. Our commitment to conservatively managing Enviva’s balance sheet remains unchanged, and we continue to target a leverage ratio of 3.5x to 4x based on our credit facility agreement.

If we look at our 2022 year-end leverage on a pro forma basis for the transaction and excluding the deferred gross margin transaction, we ended the year under time. It’s approximately 4.7x on a reported basis. And on a revolving credit facility agreement basis, we ended the year sub-4x at approximately 3.5x. For 2023, we are focusing as reported leverage and revolver facility leverage to be similar to 2022 at around 4.8x and 3.7x, respectively. For 2023, we are projecting a significant step-up in adjusted EBITDA and reaffirm our preliminary outlook for 2023, guiding to a range of million to $335 million this year. At the midpoint, this represents a 30% increase year-over-year. There are three key drivers of that step up. First, we expect product sales of over 7 million metric tons for 2023; second, we are seeing durable increases in our headline contract sales price with inflation-linked contract accelerators compounding year-over-year and more and more base business contracted sales shipments being priced with tailwinds from the strong pricing environment we’ve been in.

And third, as Thomas mentioned, we are driving cost out of our business and benefiting from higher fixed cost absorption across our fleet because of higher production rates and production efficiencies. Given the strength and durability of our cash flows over the long term, we are guiding to a dividend of $3.62 for 2023. Our growth plan for 2023 will require total capital expenditures in the range of $365 million to $415 million, with the majority of the spend on our greenfield development. We expect to invest in the build out of our Epes and Bond plants in the range of between $295 million to $325 million with approximately $60 million being invested in accretive capital-light projects across our lead. We have a very low maintenance capital profile for our asset platform and expect to spend approximately $20 million during 2023 on maintenance CapEx. Before I turn it back to Thomas, I’ll give an overview on how we are planning to finance our growth plan.

As Thomas mentioned, we have received commitments of approximately $250 million of equity funding from select large shareholders and board members. This capital raise allows us to shore up our balance sheet while maintaining our financial policies as we execute our significant growth plans. This capital raise provides additional financial flexibility, especially as we look at various alternatives to financing our growth, including project financing options. Our longer-term plan is to become fully self-funding by 2027. Thus, we will increasingly use cash flow generated from our business to fund larger portions of our capital plan going forward. With that, I would like to turn it back to Thomas.

Thomas Meth: Thank you, Shai. Building on Shai’s last point about our capacity growth plans because our industry is persistently structurally short supply, signing new contracts like the ones we’ve recently announced means new capacity must get built. And therefore, this remarkable pace of contracting is, in turn, underwriting our large-scale, fully contracted capacity expansions. As we’ve discussed, we’re underway with construction of our plant in Epes, Alabama. As is designed and permitted to produce 1.1 million metric tons per year and will be the largest industrial wood pellet production plant in the world. In partnership with leading engineering, procurement and construction firms, or EPCs, over the last six months, we have undertaken a robust review and have completed a value engineering exercise, which has led to an update to our standard plant design, including design we will use for Epes.

The new reflects the increase in nameplate capacity to 1.1 million metric tons per year-. And we’ve layered in redundancies and proven processes taken from across our existing plant portfolio, which are expected to improve utilization rates and decrease operating costs. Excluding Epes, where construction is already underway, we intend to enter into a construction agreement with one or more EPC firms to complete engineering, procurement and construction of our future plan on a fixed cost and guaranteed scheduled basis. Under this strategy, we are projecting that the average cost per plant for the next four greenfield project which includes EPS will be approximately $375 million. That is higher invested cost per capacity than we have seen historically, driven by the larger plant size and some escalation in the cost of construction across the economy generally.

But more importantly, but is certainty we are securing in the time line of plant delivery and the guaranteed fixed cost of a completed standardized plan that can be replicated quickly. On the basis of this investment, we continue to expect a 5x or better project level adjusted EBITDA investment multiple for our greenfield plants. Here, like a lot of the aspects of our business, we are able to manage cost escalation by increasing revenue at a greater rate and on the basis of higher priced contracts that will underpin our new plant investment. We expect that our planned level adjusted EBITDA for these new facilities will be between $75 million and $90 million on an annual basis when each production ramp is complete. This higher expected annual adjusted EBITDA, the plan is driven primarily by increases in gross margin from first price escalators in our contracts.

For example, U.K. inflation for 2022 is expected to be over 10%, which sets a higher base for revenue generated from our U.K. contracts. Two, new contracts being priced in a favorable contracting environment, which is supported by the rising EU carbon price. Number three, the repricing of legacy volumes with customers seeking to secure more volumes over a longer term. Four, lower price contracts rolling off and being replaced by higher-priced contracts. And five, better planned utilization rates and lower operating costs due to redundancies and improvements in our plant design. We’re also making progress on our plans to start construction of our plant in Bond, Mississippi. Bond is designed to be similar in size to our Epes facility, and we expect to begin construction during the second half of 2023, subject to the receipt of necessary permits and with the completion date planned for the middle of 2025.

Epes and Bond, the second and third plant in our growing Pascagoula Cluster, and plans are underway for the clusters fourth plant. One of the very attractive aspects to building out the Pascagoula Cluster is the operational leverage we have in our deepwater marine terminal and the enhanced returns we expect to generate as we add new plants and increased terminal throughput. We expect to make a decision on the site for our fourth Pascagoula Cluster plant around the end of this year. Now with the new plant design and the path forward to partner with an EPC firm, we plan to construct four new greenfield plants over the next four years including Epes. We have the flexibility to upsize that, but are focused on our plan of four plants in four years for this next phase of growth.

Before we open the call for questions, I’ll give a quick recap of what we’ve discussed this morning. First, there really has never been a better time to be in this business. The macro tailwinds behind our niche of renewable energy are driving an unprecedented level of demand. Second, but for an unanticipated accounting treatment — we achieved our adjusted EBITDA guidance for both fourth quarter and full year 2022. Third, we have significant growth forecasted for 2023 and which is underwritten by our existing contracted backlog. And fourth, our investors did know us the best, are increasing their investment positions given their strong level of conviction in what this business can and will do. Before we open up the call for Q&A, I want to take a moment to acknowledge the effort our Enviva team puts in day in and day out, driving the Company forward on this tremendous growth path we’re on.

I am very proud to see that our team continues to focus without distraction on what is core to Enviva, ensuring our continued safe, reliable, sustainable operations that deliver climate change benefits today. Now let’s open the call for questions.

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Q&A Session

Operator: Our first question comes from Elvira Scotto from RBC Capital Markets. Please go ahead.

Elvira Scotto: Can you just provide a little more detail or walk through this deferred gross margin. Why do you record the cash receipt, but then that doesn’t flow through EBITDA until 2024 and 2025? And then also, can you just confirm that there’s no EBITDA or cash flow benefit from the deferred transactions in 2023?

Thomas Meth: Elvira, good to hear you. Thank you for your question. Let me unpack this a little bit. So, as we said in our prepared remarks, we sold 450,000 tons to this customer. And the underlying margin that we would have generated from the customer was about $32 million in incremental margin. At the same time, we found an opportunity to buy volumes for future periods from that same counterparty. And we do that routinely. As we’ve said, 15% to 20% of our volumes come from third-party purchases. And in this particular case, it was very attractive to do for future periods. And the accounting treatment to meant, that we had to lump all these sales and purchases together, which deferred $89 million in future periods. To answer one of your questions, Elvira, that we do not expect a benefit for that deferred margin to flow through 2023, we do expect that margin to flow through equal parts 50-50 in ’24 and ’25. Shai, do you want to add?

Shai Even: Yes. Elvira, of course, we collected 100% of the cash from the sale of $175 million. About $102 million was collected during the fourth quarter of 2022. And the rest after the kind of like — after the beginning of the year, and the $102 million of cash collected from the customer because of the accounting of, as we mentioned, the deferred gross margin transaction is now presented as — even though it’s cash collected for the sale of finished goods is now presented in cash flow from opening activities as opposed to what you normally see for cash received for finished goods being presented as part of the cash from operating activity.

Thomas Meth: And let me just add. For 2023, when you look at our cash flow from operations, what we expect is that our normal course of business fulfilling our contracted backlog in 2023 will generate operating cash flow that will not only cover our dividend that we’ve guided to, but in fact, exceed that dividend. So that I think it’s important to note what you should expect from us and what we have conviction around for.

Elvira Scotto: Okay. That’s helpful. But then can you just walk through — so you reported $155 million of EBITDA in 2022. Your guidance you maintained your guidance for 2023. So can you just kind of walk through how you get from $155 million to $335 million 2023 guidance? And then also, what’s embedded in your 2023 guidance for the spot shipments as well as any like cost savings that you expect?

Thomas Meth: Thank you for that question. So first of all, of course, given that we sold those shipments to that customer, they were used in the power plant we’ve received the cash to get from $155 million to $305 million to $335 million. You add the $89 million, of course, which was generated from the underlying business as the ships were loaded, sold and cash was received. To get to our guidance from our operations, there are two elements. On the one side, the revenue side, on the other side, cost reductions, and let me unpack that a little bit. To start your last question around spot sales, market price was higher in the later part of 2022 than we had seen historically. And that is not something that we expect on a go-forward basis.