Enviva Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-37363

Enviva Partners, LP

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)	46-4097730 (I.R.S. Employer Identification No.)
7200 Wisconsin Ave, Suite 1000 Bethesda, MD (Address of principal executive offices)	20814 (Zip code)

(301) 657-5560

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units	EVA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ☐		Accelerated filer ☒

Non-accelerated filer ☐		Smaller reporting company ☐
		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 25, 2019, 33,456,811 common units were outstanding.

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ENVIVA PARTNERS, LP

QUARTERLY REPORT ON FORM 10‑Q

TABLE OF CONTENTS



		Page
CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS		1
GLOSSARY OF TERMS		3
PART I—FINANCIAL INFORMATION		4
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of Changes in Partners’ Capital	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	54
PART II—OTHER INFORMATION		55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 5.	Other Information	55
Item 6.	Exhibits	56

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CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS

Certain statements and information in this Quarterly Report on Form 10‑Q (this “Quarterly Report”) may constitute “forward‑looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward‑looking statements, which are generally not historical in nature. These forward‑looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. Although management believes that these forward‑looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward‑looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward‑looking statements include, but are not limited to, those summarized below:


•	the volume and quality of products that we are able to produce or source and sell, which could be adversely affected by, among other things, operating or technical difficulties at our plants or deep-water marine terminals;


•	the prices at which we are able to sell our products;


•	our ability to successfully negotiate and complete drop-down acquisitions with our sponsor or its joint ventures, including the associated contracts;


•	failure of the Partnership’s customers, vendors and shipping partners to pay or perform their contractual obligations to the Partnership;


•	our inability to successfully execute our project development and construction activities on time and within budget;


•	the creditworthiness of our contract counterparties;


•	the amount of low-cost wood fiber that we are able to procure and process, which could be adversely affected by, among other things, disruptions in supply or operating or financial difficulties suffered by our suppliers;


•	changes in the price and availability of natural gas, coal or other sources of energy;


•	changes in prevailing economic conditions;


•	our inability to complete acquisitions, including acquisitions from our sponsor and joint ventures, or to realize the anticipated benefits of such acquisitions;


•	inclement or hazardous environmental conditions, including extreme precipitation, temperatures and flooding;


•	fires, explosions or other accidents;


•	changes in domestic and foreign laws and regulations (or the interpretation thereof) related to renewable or low-carbon energy, the forestry products industry, the international shipping industry or power generators;


•	changes in the regulatory treatment of biomass in core and emerging markets;


•	our inability to timely acquire or maintain necessary permits or rights for our production, transportation or terminaling operations as well as expenditures associated therewith;


•	changes in the price and availability of transportation;


•	changes in foreign currency exchange rates or interest rates, and the failure of our hedging arrangements to effectively reduce our exposure to the risks related thereto;


•	risks related to our indebtedness;


•	our failure to maintain effective quality control systems at our production plants and deep-water marine terminals, which could lead to the rejection of our products by our customers;


•	changes in the quality specifications for our products that are required by our customers;

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•	labor disputes;


•	our inability to hire, train or retain qualified personnel to manage and operate our business and newly acquired assets;


•	the effects of the anticipated exit of the United Kingdom from the European Union on our and our customers’ businesses; and


•	our inability to borrow funds and access capital markets.

Please read the risks described in our Annual Report on Form 10-K for the year ended December 31, 2018. All forward-looking statements in this Quarterly Report are expressly qualified in their entirety by the foregoing cautionary statements.

Readers are cautioned not to place undue reliance on forward-looking statements and we undertake no obligation to update or revise any such statements after the date they are made, whether as a result of new information, future events or otherwise.

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GLOSSARY OF TERMS

biomass: any organic biological material derived from living organisms that stores energy from the sun.

co-fire: the combustion of two different types of materials at the same time. For example, biomass is sometimes fired in combination with coal in existing coal plants.

dry-bulk: describes dry-bulk commodities that are shipped in large, unpackaged amounts.

metric ton: one metric ton, which is equivalent to 1,000 kilograms and 1.1023 short tons.

off-take contract: an agreement concerning the purchase and sale of a certain volume of a given resource such as wood pellets.

ramp: increasing production for a period of time following the startup of a plant or completion of a project.

utility-grade wood pellets: wood pellets meeting minimum requirements generally specified by industrial consumers and produced and sold in sufficient quantities to satisfy industrial-scale consumption.

wood fiber: cellulosic elements that are extracted from trees and used to make various materials, including paper. In North America, wood fiber is primarily extracted from hardwood (deciduous) trees and softwood (coniferous) trees.

wood pellets: energy-dense, low-moisture and uniformly-sized units of wood fuel produced from processing various wood resources or byproducts.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except number of units)



	September 30, 2019			December 31, 2018
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,357		$	2,460
Accounts receivable	49,643			54,794
Insurance receivables	—			5,140
Related-party receivables	—			1,392
Inventories	42,349			31,490
Prepaid expenses and other current assets	3,998			2,235
Total current assets	98,347			97,511
Property, plant and equipment - in service, net	683,524			542,635
Construction in progress	60,924			14,393
Total property, plant and equipment, net	744,448			557,028
Operating lease right-of-use assets, net	33,379			—
Goodwill	85,615			85,615
Other long-term assets	7,326			8,616
Total assets	$	969,115		$	748,770
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable	$	21,512		$	15,551
Related-party payables and accrued liabilities	9,119			28,225
Deferred consideration for drop-downs due to related party	40,000			74,000
Accrued and other current liabilities	48,318			41,400
Current portion of interest payable	13,209			5,434
Current portion of long-term debt and finance lease obligations	4,490			2,722
Total current liabilities	136,648			167,332
Long-term debt and finance lease obligations	543,589			429,933
Long-term operating lease liabilities	33,725			—
Long-term interest payable	1,100			1,010
Other long-term liabilities	2,170			3,779
Total liabilities	717,232			602,054
Commitments and contingencies
Partners’ capital:
Limited partners:
Common unitholders—public (19,870,436 and 14,573,452 units issued and outstanding at September 30, 2019 and December 31, 2018, respectively)	314,258			207,612
Common unitholder—sponsor (13,586,375 and 11,905,138 units issued and outstanding at September 30, 2019 and December 31, 2018, respectively)	92,286			72,352
General partner (no outstanding units)	(106,530		)	(133,687		)
Accumulated other comprehensive income	61			439
Total Enviva Partners, LP partners' capital	300,075			146,716
Noncontrolling interest	(48,192		)	—
Total partners’ capital	251,883			146,716
Total liabilities and partners’ capital	$	969,115		$	748,770

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per unit amounts)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Product sales	$	155,188		$	142,541		$	478,989		$	398,031
Other revenue ⁽¹⁾	2,217			1,607			4,864			7,037
Net revenue	157,405			144,148			483,853			405,068
Cost of goods sold ⁽¹⁾	117,993			104,351			395,861			331,356
Depreciation and amortization	12,946			9,678			35,112			28,800
Total cost of goods sold	130,939			114,029			430,973			360,156
Gross margin	26,466			30,119			52,880			44,912
General and administrative expenses	1,314			3,201			9,179			9,778
Related-party management services agreement fee	6,486			4,114			19,488			11,628
Total general and administrative expenses	7,800			7,315			28,667			21,406
Income from operations	18,666			22,804			24,213			23,506
Other income (expense):
Interest expense	(9,872		)	(9,445		)	(28,701		)	(27,137		)
Other income (expense), net	58			(3		)	616			1,196
Total other expense, net	(9,814		)	(9,448		)	(28,085		)	(25,941		)
Net income (loss)	$	8,852		$	13,356		$	(3,872	)	$	(2,435	)
Net income (loss) per limited partner common unit:
Basic	$	0.15		$	0.45		$	(0.44	)	$	(0.25	)
Diluted	$	0.15		$	0.43		$	(0.44	)	$	(0.25	)
Net loss per limited partner subordinated unit:
Basic and diluted	$	—		$	—		$	—		$	(0.25	)
Weighted-average number of limited partner units outstanding:
Common—basic	33,457			26,477			31,230			19,866
Common—diluted	33,457			27,478			31,230			19,866
Subordinated—basic and diluted	—			—			—			6,541

⁽¹⁾ See Note 13, Related-Party Transactions

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income (loss)	$	8,852		$	13,356		$	(3,872	)	$	(2,435	)
Other comprehensive (loss) income:
Net unrealized gains (losses) on cash flow hedges	13			2,713			(148		)	5,750
Reclassification of net gains realized into net income (loss)	(59		)	(2,013		)	(252		)	(2,076		)
Currency translation adjustment	4			1			4			1
Total other comprehensive (loss) income	(42		)	701			(396		)	3,675
Total comprehensive income (loss)	$	8,810		$	14,057		$	(4,268	)	$	1,240

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Partners’ Capital

(In thousands)

(Unaudited)



	General Partner Interest			Limited Partners’ Capital								Accumulated Other Comprehensive Income			Non-Controlling Interest			Total Partners' Capital
				Common Units— Public				Common Units— Sponsor
				Units	Amount			Units	Amount
Partners' capital, December 31, 2018	$	(133,687	)	14,573	$	207,612		11,905	$	72,352		$	439		$	—		$	146,716
Distributions to unitholders, distribution equivalent and incentive distribution rights	(1,671		)	—	(10,269		)	—	(7,619		)	—			—			(19,559		)
Issuance of units through Long-Term Incentive Plan	(2,129		)	94	659			—	—			—			—			(1,470		)
Issuance of common units, net	—			3,509	96,661			—	—			—			—			96,661
Non-cash Management Services Agreement expenses	136			—	2,072			—	—			—			—			2,208
Cumulative effect of accounting change - derivative instruments	—			—	(10		)	—	(8		)	18			—			—
Other comprehensive loss	—			—	—			—	—			(162		)	—			(162		)
Net income (loss)	1,671			—	(5,880		)	—	(4,714		)	—			—			(8,923		)
Partners' capital, March 31, 2019	(135,680		)	18,176	290,845			11,905	60,011			295			—			215,471
Excess consideration over Enviva Wilmington Holdings, LLC net assets and initial recognition of its noncontrolling interest	1,283			—	—			—	—			—			(48,192		)	(46,909		)
Distributions to unitholders, distribution equivalent and incentive distribution rights	(2,271		)	—	(13,720		)	—	(8,763		)	—			—			(24,754		)
Issuance of units through Long-Term Incentive Plan	247			2	(287		)	—	—			—			—			(40		)
Issuance of common units, net	—			1,692	49,641			—	—			—			—			49,641
Issuance of units associated with the JV 1.0 Drop-Down	—			—	—			1,681	50,000			—			—			50,000
Non-cash Management Services Agreement expenses	11,226			—	1,013			—	—			—			—			12,239
Reimbursable amounts under Make-Whole Agreement	1,502			—	—			—	—			—			—			1,502
Other comprehensive loss	—			—	—			—	—			(192		)	—			(192		)
Net income (loss)	2,271			—	(3,609		)	—	(2,463		)	—			—			(3,801		)
Partners' capital, June 30, 2019	(121,422		)	19,870	323,883			13,586	98,785			103			(48,192		)	253,157
Distributions to unitholders, distribution equivalent and incentive distribution rights	(2,772		)	—	(13,776		)	—	(8,969		)	—			—			(25,517		)
Issuance of units through Long-Term Incentive Plan	(215		)	—	215			—	—			—			—			—
Costs of common unit issuances	—			—	(24		)	—	—			—			—			(24		)
Non-cash Management Services Agreement expenses	8,119			—	350			—	—			—			—			8,469
Reimbursable amounts under Make-Whole Agreement	6,988			—	—			—	—			—			—			6,988
Other comprehensive loss	—			—	—			—	—			(42		)	—			(42		)
Net income	2,772			—	3,610			—	2,470			—			—			8,852
Partners' capital, September 30, 2019	$	(106,530	)	19,870	$	314,258		13,586	$	92,286		$	61		$	(48,192	)	$	251,883

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Partners’ Capital (Continued)

(In thousands)

(Unaudited)



	General Partner Interest			Limited Partners’ Capital														Accumulated Other Comprehensive Loss			Total Partners' Capital
				Common Units— Public				Common Units— Sponsor					Subordinated Units— Sponsor
				Units	Amount			Units		Amount			Units		Amount
Partners' capital, December 31, 2017	$	(128,569	)	13,073	$	224,027		1,347		$	16,050		11,905		$	101,901		$	(3,040	)	$	210,369
Distributions to unitholders, distribution equivalent and incentive distribution rights	(1,130		)	—	(8,833		)	—		(785		)	—		(7,381		)	—			(18,129		)
Issuance of units through Long-Term Incentive Plan	(2,129		)	99	(164		)	(82	)	(1,301		)	—		—			—			(3,594		)
Issuance of common units, net	—			8	241			—		—			—		—			—			241
Non-cash Management Services Agreement expenses	102			—	931			—		—			—		—			—			1,033
Other comprehensive loss	—			—	—			—		—			—		—			(1,327		)	(1,327		)
Net income (loss)	1,130			—	(10,233		)	—		(983		)	—		(9,249		)	—			(19,335		)
Partners' capital, March 31, 2018	(130,596		)	13,180	205,969			1,265		12,981			11,905		85,271			(4,367		)	169,258
Distributions to unitholders, distribution equivalent and incentive distribution rights	(1,264		)	—	(9,750		)	—		—			—		(7,441		)	—			(18,455		)
Issuance of units through Long-Term Incentive Plan	(3,435		)	122	723			—		—			—		—			—			(2,712		)
Sale of common units	—			1,265	13,335			(1,265	)	(13,335		)	—		—			—			—
Conversion of subordinated units to common units	—			—	—			11,905		78,504			(11,905	)	(78,504		)	—			—
Non-cash Management Services Agreement expenses	210			—	2,480			—		—			—		—			—			2,690
Other comprehensive income	—			—	—			—		—			—		—			4,301			4,301
Net income	1,264			—	1,252			—		354			—		674			—			3,544
Partners' capital, June 30, 2018	(133,821		)	14,567	214,009			11,905		78,504			—		—			(66		)	158,626
Distributions to unitholders, distribution equivalent and incentive distribution rights	(1,400		)	—	(9,784		)	—		(7,500		)	—		—			—			(18,684		)
Issuance of units through Long-Term Incentive Plan	(111		)	6	(48		)	—		—			—		—			—			(159		)
Non-cash Management Services Agreement expenses	122			—	1,782			—		—			—		—			—			1,904
Other comprehensive income	—			—	—			—		—			—		—			701			701
Net income	1,400			—	6,580			—		5,376			—		—			—			13,356
Partners' capital, September 30, 2018	$	(133,810	)	14,573	$	212,539		11,905		$	76,380		—		$	—		$	635		$	155,744

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(3,872	)	$	(2,435	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	35,747			29,240
MSA Fee Waivers	18,749			—
Amortization of debt issuance costs, debt premium and original issue discounts	899			828
Loss on disposal of assets	562			900
Unit-based compensation	3,835			5,604
De-designation of foreign currency forwards and options	—			(1,947		)
Fair value changes in derivatives	(2,275		)	(4,465		)
Unrealized loss on foreign currency transactions, net	58			32
Change in operating assets and liabilities:
Accounts and insurance receivables	9,492			30,004
Related-party receivables	1,392			(123		)
Prepaid expenses and other current and long-term assets	(212		)	(160		)
Inventories	(10,679		)	(9,735		)
Derivatives	1,514			5,080
Accounts payable, accrued liabilities and other current liabilities	(2,247		)	5,709
Related-party payables and accrued liabilities	(12,025		)	3,317
Accrued interest	6,420			7,634
Operating lease liabilities	(3,715		)	—
Other long-term liabilities	(164		)	648
Net cash provided by operating activities	43,479			70,131
Cash flows from investing activities:
Purchases of property, plant and equipment	(81,484		)	(16,034		)
Payment in relation to the JV 1.0 Drop-Down	(74,700		)	—
Other	1,502			1,130
Net cash used in investing activities	(154,682		)	(14,904		)
Cash flows from financing activities:
Proceeds from senior secured revolving credit facility	345,000			134,750
Payments on senior secured revolving credit facility	(233,000		)	(123,250		)
Payments on other long-term debt and finance lease obligations	(2,026		)	(4,745		)
Proceeds from common unit issuances, net	96,822			241
Payment of deferred consideration for Wilmington Drop-Down	(24,300		)	—
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder	(69,526		)	(55,163		)
Payment to General Partner to purchase affiliate common units for Long-Term Incentive Plan vesting	—			(2,341		)
Payment for withholding tax associated with Long-Term Incentive Plan vesting	(1,870		)	(4,380		)
Net cash provided by (used in) financing activities	111,100			(54,888		)
Net (decrease) increase in cash, cash equivalents and restricted cash	(103		)	339
Cash, cash equivalents and restricted cash, beginning of period	2,460			524
Cash, cash equivalents and restricted cash, end of period	$	2,357		$	863

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Continued)

(In thousands)

(Unaudited)



	Nine Months Ended September 30,
	2019		2018
Non-cash investing and financing activities:
Common unit issuance for deferred consideration for Wilmington Drop-Down	$	49,700	$	—
Common unit issuance for the JV 1.0 Drop-Down	50,000		—
Supplemental cash flow information:
Interest paid, net of capitalized interest	$	19,977	$	18,802

See accompanying notes to condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

(1) Description of Business and Basis of Presentation

Description of Business

Enviva Partners, LP, together with its subsidiaries (“we,” “us,” “our” or the “Partnership”), supplies utility-grade wood pellets primarily to major power generators under long-term, take-or-pay off-take contracts. We procure wood fiber and process it into utility-grade wood pellets and load the finished wood pellets into railcars, trucks and barges for transportation to deep-water marine terminals, where they are received, stored and ultimately loaded onto oceangoing vessels for delivery to our principally European, and increasingly Japanese, customers under long-term, take-or-pay contracts.

As of September 30, 2019, we owned and operated seven industrial-scale wood pellet production plants located in the Mid-Atlantic and Gulf Coast regions of the United States. In addition to the volumes from our plants, we also procure wood pellets from third parties and Enviva Pellets Greenwood, LLC (“Greenwood”), a wholly owned subsidiary of Enviva JV Development Company, LLC (the “Second JV”), a limited liability company owned by Enviva Holdings, LP (together with its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC, where applicable, the “sponsor”) and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates. Greenwood owns a wood pellet production plant in Greenwood, South Carolina (the “Greenwood plant”). Wood pellets are exported from our wholly owned dry-bulk, deep-water marine terminal in Chesapeake, Virginia (the “Chesapeake terminal”) and terminal assets in Wilmington, North Carolina (the “Wilmington terminal”), and from third-party deep-water marine terminals in Mobile, Alabama and Panama City, Florida, under a short-term and a long-term contract, respectively.

Basis of Presentation

The unaudited financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.

In the opinion of management, all adjustments and accruals necessary for a fair presentation have been included. All such adjustments and accruals are of a normal and recurring nature unless disclosed otherwise. All intercompany balances and transactions have been eliminated in consolidation. The results reported in the financial statements are not necessarily indicative of the results that may be reported for the entire year.

We entered into an agreement with our sponsor dated and effective as of September 30, 2019 pursuant to which the parties agreed to the right of set off of related-party accounts receivable and accounts payable; consequently, we intend to set off related-party receivables and payables, which are reflected net in related-party payables, in accordance with the agreement. As of December 31, 2018, related-party accounts receivable and accounts payable were not intended to be set off and were reflected separately in current assets and current liabilities.

For the nine months ended September 30, 2018, certain amounts on the statements of cash flows have been reclassified from proceeds and payments on revolving credit commitments, net, to proceeds from senior secured revolving credit facility and payments on senior secured revolving credit facility to conform to current period presentation.

The unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.

Enviva Wilmington Holdings, LLC

In April 2019, we acquired from the sponsor all of the issued and outstanding Class B Units in Enviva Wilmington Holdings, LLC (the “First JV”), a limited liability company owned by the sponsor and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates (collectively, the “Hancock Member”). As of April 2, 2019, we began to consolidate the First JV as a variable interest entity of which we are the primary beneficiary. As managing member, we have the sole power to direct the activities that most impact the economics of the First JV and substantially all of the activities are conducted on our behalf. Additionally, as the Class B Units represented a controlling interest in the First JV, we accounted for the First JV as a consolidated

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

subsidiary, not as a joint venture. The First JV owns a plant in Hamlet, North Carolina (the “Hamlet plant”) and a firm, 15-year take-or-pay off-take contract with nearly 1.0 million metric tons per year (“MTPY”) of wood pellets, following a ramp period.

On the date of our acquisition of the sponsor’s Class B Units in the First JV (collectively, the “JV 1.0 Drop-Down”):


•	We commenced an associated terminal services agreement to handle contracted volumes from the Hamlet plant.

•

We entered into an agreement with the sponsor, pursuant to which (1) the sponsor will guarantee certain cash flows from the Hamlet plant until June 30, 2020, (2) the sponsor will reimburse us for construction cost overruns in excess of budgeted capital expenditures for the Hamlet plant, subject to certain exceptions, (3) we will pay to the sponsor quarterly incentive payments for any wood pellets produced by the Hamlet plant in excess of forecast production levels through June 30, 2020, and (4) the sponsor will retain liability for certain claims payable, if any, by the First JV (the “Make-Whole Agreement”).

•

The First JV entered into an agreement with Enviva Management Company, LLC, a Delaware limited liability company and wholly owned subsidiary of the sponsor (“Enviva Management”), to waive the obligation to pay an aggregate of approximately $2.7 million of management fees payable to Enviva Management under the management services agreement (the “First JV MSA”) between the First JV and Enviva Management with respect to the period from the date of acquisition of the Hamlet plant until July 1, 2019 (the “First JV MSA Fee Waiver”).

•

We entered into an agreement with Enviva Management to waive our obligation to pay an aggregate of approximately $13.0 million in fees payable under our management services agreement (the “EVA MSA,” and together with the First JV MSA, the “MSAs”) with Enviva Management with respect to the period from the date of the JV 1.0 Drop-Down through the second quarter of 2020 (the “First EVA MSA Fee Waiver”).


•	The sponsor assigned to us all of its rights and obligations under a credit agreement between the First JV, as borrower, and the sponsor, as lender (the “First JV Revolver”). On the date of assignment, $4.1 million was outstanding from the First JV to the sponsor.

•

The First JV entered into an interim services agreement (the “ISA”) with Enviva Hamlet Operator, LLC, a wholly-owned subsidiary of our sponsor (“Hamlet Operator”) pursuant to which Hamlet Operator, as an independent contractor, will manage, operate, maintain and repair the Hamlet plant and provide other services to the First JV for the period from July 1, 2019 through June 30, 2020 in exchange for a fixed fee per metric ton of wood pellets produced by the Hamlet plant during such period and delivered at place. Under and during the term of the ISA, Hamlet Operator will (1) pay all operating and maintenance expenses at the Hamlet plant, (2) cover all reimbursable general and administrative expenses associated with the Hamlet plant and (3) pay other costs and expenses incurred by the Hamlet plant to produce and sell the wood pellets delivered to the Wilmington terminal from the Hamlet plant. The sponsor guarantees all obligations of Hamlet Operator under the ISA.

Fees to Enviva Management through the MSAs are expensed as incurred and, to the extent any amount is associated with the First JV MSA Fee Waiver and the First EVA MSA Fee Waiver, the related amount is recorded as an increase to partners’ capital.

The $165.0 million purchase price for the JV 1.0 Drop-Down consisted of (1) a cash payment of $24.7 million, net of a purchase price adjustment of $0.3 million, (2) the issuance of 1,681,237 unregistered common units at a value of $29.74 per unit, or $50.0 million of common units, (3) $50.0 million in cash paid on June 28, 2019, (4) $40.0 million in cash to be paid on January 2, 2020 and (5) the elimination of $3.7 million of net related-party receivables and payables included in the net assets of the First JV on the date of acquisition. As the holder of the Class B Units, we became a member of the First JV (the “Enviva Member”) on the acquisition date. During the three and nine months ended September 30, 2019, we incurred and expensed $0.1 million and $1.3 million, respectively, in acquisition costs to acquire the First JV which were recognized as general and administrative expenses.

As the Enviva Member, we are the managing member and primary beneficiary of the First JV. We included all accounts of the First JV in our consolidated results as of April 2, 2019 as the Class B Units represent a controlling interest in the First JV and are generally unrestricted as it relates to the management of the assets and cash flows of the First JV; however, we cannot cause the First JV to incur indebtedness in excess of $60.0 million.

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The JV 1.0 Drop-Down was an asset acquisition of entities under common control and accounted for on the carryover basis of accounting. Pursuant to the First JV MSA, Enviva Management provides services to the First JV, including those necessary or incidental to the operation and management of the First JV’s business. We are responsible for managing the activities of the First JV, including the development, construction and operation of the Hamlet plant.

(2) Significant Accounting Policies

During interim periods, we follow the accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 except for our adoption on and as of January 1, 2019 of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.

Use of Estimates

Accounting Standards Adopted

Leases

ASU 2016-02 established a right-of-use (“ROU”) model that requires lessees to recognize a ROU asset and corresponding lease liability on the balance sheet for all leases with a term of longer than 12 months and classify leases as operating or finance. Operating lease expense is recorded in a single financial statement line item on a straight-line basis over the lease term. Amortization of the ROU asset is the calculated difference between straight-line lease expense and the accretion of interest on the lease liability each period.

We adopted ASU 2016-02 on and as of January 1, 2019 using the modified retrospective transition method, which we applied to all leases existing at the date of initial application of the ASU. We elected to use the effective date as the date of initial application, as opposed to the beginning of the earliest comparative period presented in the financial statements; consequently, financial information and disclosures are not presented under the new standard for periods prior to January 1, 2019. We elected the package of three practical expedients under the transition guidance within the new standard, which permitted us to reassess our prior conclusions under the previous guidance concerning lease identification, lease classification and initial direct leasing costs. We elected the practical expedient to not evaluate existing or expired land easements that were not accounted for as leases under previous guidance. We did not, however, elect the separate practical expedient pertaining to the use of hindsight in determining the lease term for existing leases. We have a significant contract containing both lease and nonlease components, which are accounted for separately. As this contract has fixed payments, the allocation of lease and nonlease components is based on relative standalone price.

The adoption of the new standard as of January 1, 2019 resulted in the recognition of operating lease ROU assets of $27.4 million, net of $2.1 million of deferred rent liabilities existing as of December 31, 2018, and operating lease liabilities of $29.5 million for operating leases related to real estate, machinery and equipment and other operating leases with terms of longer than 12 months. The amounts recognized as of January 1, 2019 were based on the present value of the remaining minimum rental payments under previous leasing standards for existing operating leases. The classification of a lease affects the pattern and classification of expense recognition in the income statement, which is unchanged from under the previous accounting method. The adoption of the new standard did not change our accounting for finance leases (which were described as “capital leases” under the previous standard) or impact our results of operations and cash flows. See Note 9, Leases.

Derivative Instruments

We adopted ASU 2017-12 on and as of January 1, 2019 using the modified retrospective method, which requires the recognition of the cumulative effect of the change on the opening balance of each affected component of equity in the statement of changes in partner’s capital as of the date of adoption of the new standard. Upon adoption of ASU 2017-12, we no longer measure and recognize ineffectiveness related to designated and qualifying cash flow hedges in earnings; as a result, any ineffectiveness is included in accumulated other comprehensive income. On January 1, 2019, we recorded a nominal cumulative

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

effect adjustment to accumulated other comprehensive income and common units in partners’ capital. See Note 10, Derivatives.

Recently Issued Accounting Standards not yet Adopted

Currently, there are no recently issued accounting standards not yet adopted by us that we expect to be reasonably likely to materially impact the financial position, results of operations or cash flows of the Partnership.

(3) Transactions Between Entities Under Common Control

The JV 1.0 Drop-Down was an asset acquisition of entities under common control and accounted for on the carryover basis of accounting. Accordingly, the consolidated financial statements for the period beginning April 2, 2019 reflect the acquisition.

The purchase price for the JV 1.0 Drop-Down consisted of $165.0 million, which included an initial cash payment of $24.7 million, net of purchase price adjustment of $0.3 million, and the issuance of 1,681,237 unregistered common units at a value of $29.74 per unit, or $50.0 million of common units, $50.0 million in cash, paid on June 28, 2019, and $40.0 million in cash, which will be paid on January 2, 2020 as the third and final payment.

The changes in net assets at carryover basis on April 2, 2019 included $121.6 million net assets of the First JV, net of the elimination of $3.7 million of net related-party receivables and payables. The following table outlines the changes in consolidated net assets resulting from the JV 1.0 Drop-Down on April 2, 2019.



Assets:
Cash and cash equivalents	$	3,426
Related-party receivables	945
Prepaid expenses and other current assets	22
Property, plant and equipment, net	140,446
Other long-term assets	8
Total assets	144,847

Liabilities:
Accounts payable	6,395
Related-party payables	1,923
Accrued and other current liabilities	14,965
Finance lease obligations	3
Total liabilities	23,286
Net assets contributed to Partnership	$	121,561

(4) Revenue

We disaggregate our revenue into two categories: product sales and other revenue. Other revenue includes fees associated with customer requests to cancel, defer or accelerate shipments in satisfaction of the related performance obligation and third- and related-party terminal services fees. These categories best reflect the nature, amount, timing and uncertainty of our revenue and cash flows.

Performance Obligations

As of September 30, 2019, the aggregate amount of revenues from contracts with customers allocated to performance obligations that were unsatisfied or partially satisfied was approximately $9.3 billion. This amount excludes forward prices related to variable consideration including inflation and foreign currency and commodity prices. Also, this amount excludes the effects of related foreign currency derivative contracts as they do not represent contracts with customers. As of October 1, 2019, we expect to recognize approximately 2.0% of our remaining performance obligations as revenue during the remainder of 2019, approximately 10.0% in 2020 and the balance thereafter. Our off-take contracts expire at various times through 2040 and our terminal services contracts extend into 2026.

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Variable Consideration

Variable consideration from off-take contracts arises from several pricing features outlined in our off-take contracts, pursuant to which such contract pricing may be adjusted in respect of particular shipments to reflect differences between certain contractual quality specifications of the wood pellets as measured both when the wood pellets are loaded onto ships and unloaded at the discharge port as well as certain other contractual adjustments.

Variable consideration from terminal services contracts, which was not material for the three and nine months ended September 30, 2019 and 2018, arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services.

We allocate variable consideration under our off-take and terminal services contracts entirely to each performance obligation to which variable consideration relates. The estimate of variable consideration represents the amount that is not more likely than not to be reversed. For the three and nine months ended September 30, 2019, we recognized $0.1 million and $0.5 million. respectively, of revenue related to performance obligations satisfied in previous periods. For the three and nine months ended September 30, 2018, we recognized an insignificant amount of revenue related to performance obligations in previous periods.

Contract Balances

Accounts receivable related to product sales as of September 30, 2019 and December 31, 2018 were $47.8 million and $51.3 million, respectively. We had no deferred revenue as of September 30, 2019 for future performance obligations associated with off-take contracts. We had $0.3 million of deferred revenue as of December 31, 2018 for future performance obligations associated with off-take contracts.

(5) Significant Risks and Uncertainties Including Business and Credit Concentrations

Our business is significantly impacted by greenhouse gas emission and renewable energy legislation and regulations in the European Union as well as its member states and Japan. If the European Union, its member states or Japan significantly modify such legislation or regulations, then our ability to enter into new contracts as our existing contracts expire may be materially affected.

Our current sales are primarily to industrial customers located in the United Kingdom, Denmark and Belgium. Product sales to third-party customers that accounted for 10% or a greater share of consolidated product sales are as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Customer A	49	%	52	%	50	%	53	%
Customer B	12	%	10	%	11	%	10	%
Customer C	22	%	24	%	21	%	15	%
Customer D	8	%	9	%	11	%	14	%

(6) Inventory Impairment and Asset Disposal

On February 27, 2018, a fire occurred at the Chesapeake terminal, causing damage to equipment and approximately 43,000 MT of wood pellets (the “Chesapeake Incident”). The Chesapeake terminal returned to operations on June 28, 2018. During the three and nine months ended September 30, 2018, we incurred $9.7 million and $58.4 million, respectively, in costs as a result of the Chesapeake Incident related to asset impairment, inventory write-off and disposal costs, emergency response costs, asset repair costs and business continuity costs, the latter of which represented incremental costs to commission temporary wood pellet storage and handling and ship loading operations at nearby locations to meet our contractual obligations to our customers. As of September 30, 2018, we had recovered $48.1 million related to the Chesapeake Incident, which included $1.1 million of lost profits. As of December 31, 2018, $3.8 million of probable insurance recoveries for the then-remaining costs not yet recovered were included in insurance receivables; we received the $3.8 million in probable insurance recoveries (plus $0.5 million recognized as other income in 2019) in February 2019.

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

(7) Inventories

Inventories consisted of the following as of:



	September 30, 2019		December 31, 2018
Raw materials and work-in-process	$	9,883	$	4,936
Consumable tooling	19,995		17,561
Finished goods	12,471		8,993
Total inventories	$	42,349	$	31,490

(8) Property, Plant and Equipment

Property, plant and equipment consisted of the following as of:



	September 30, 2019			December 31, 2018
Land	$	15,226		$	13,492
Land improvements	56,637			44,990
Buildings	216,995			196,574
Machinery and equipment	576,401			434,776
Vehicles	635			635
Furniture and office equipment	6,759			6,148
Leasehold improvements	987			987
Property, plant and equipment - in service	873,640			697,602
Less accumulated depreciation	(190,116		)	(154,967		)
Property, plant and equipment - in service, net	683,524			542,635
Construction in progress	60,924			14,393
Total property, plant and equipment, net	$	744,448		$	557,028

Total depreciation expense was $13.3 million and $35.8 million, respectively, for the three and nine months ended September 30, 2019. Total depreciation expense was $9.8 million and $29.1 million, respectively, for the three and nine months ended September 30, 2018. Total interest capitalized related to construction in progress was $0.7 million and $1.4 million, respectively, for the three and nine months ended September 30, 2019. Accrued amounts for property, plant and equipment and construction in progress included in accrued and other current liabilities were $15.4 million and $6.3 million at September 30, 2019 and December 31, 2018, respectively.

(9) Leases

We have operating and finance leases related to real estate, machinery, equipment and other assets where we are the lessee. Leases with an initial term of 12 months or less are not recorded on the balance sheet but are recognized as lease expense on a straight-line basis over the applicable lease terms. Amortization of the ROU asset is calculated as the difference between straight-line lease expense and the accretion of interest on the lease liability each period. In addition to fixed lease payments, we have contracts that incur variable lease expense related to usage (e.g. throughput fees, maintenance and repair and machine hours), which are expensed as incurred. Our leases have remaining terms of one to 28 years, some of which include options to extend the leases for up to 5 years. Our leases are generally noncancellable. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

A discount rate is applied to our leases for balance sheet measurement. As rates are not explicitly defined in the operating and finance lease agreements, we use our incremental borrowing rate for purposes of measuring the ROU assets and lease liabilities for recognized leases. This is a secured interest rate which takes into account our credit rating, the term of our leases, as well as

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

the economic environment in which we operate. Each lease uses a secured interest rate with a term commensurate to the identified lease term.

Operating leases are included in operating lease ROU assets, accrued and other current liabilities and long-term operating lease liabilities on our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, current portion of long-term debt and finance lease obligations and long-term debt and finance lease obligations on our condensed consolidated balance sheets. Changes in ROU assets and operating lease liabilities are included net in change in operating lease liabilities on the condensed consolidated statement of cash flows.

Operating lease ROU assets and liabilities and finance leases were as follows as of September 30, 2019:



Operating leases:
Operating lease right-of-use assets, gross	$	36,964
Accumulated amortization	(3,585		)
Operating lease right-of-use assets, net	$	33,379

Current portion of operating lease liabilities	$	1,577
Long-term operating lease liabilities	33,725
Total operating lease liabilities	$	35,302

Finance leases:
Property, plant and equipment, gross	$	13,484
Accumulated depreciation	(5,870		)
Property plant and equipment, net	$	7,614

Current portion of long-term finance lease obligations	$	4,482
Long-term finance lease obligations	3,237
Total finance lease liabilities	$	7,719

Operating and finance lease costs were as follows:



Lease Cost	Classification	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost:
Fixed lease cost	Cost of goods sold	$	1,269	$	3,546
Variable lease cost	Cost of goods sold	3		29
Short-term lease costs	Cost of goods sold	15		15
	Total operating lease costs	$	1,287	$	3,590
Finance lease cost:
Amortization of leased assets	Depreciation and amortization	1,094		2,578
Variable lease cost	Cost of goods sold	4		4
Interest on lease liabilities	Interest expense	70		179
	Total finance lease costs	$	1,168	$	2,761
	Total lease costs	$	2,455	$	6,351

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Operating and finance lease cash flow information was as follows:



	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,715
Operating cash flows from financing leases	179
Financing cash flows from financing leases	2,020

Assets obtained in exchange for lease obligations:
Operating leases	$	7,465
Financing leases	5,380

The future minimum lease payments and the aggregate maturities of operating and finance lease liabilities are as follows as of September 30, 2019:



Years Ending December 31,	Operating Leases			Finance Leases			Total
Remainder of 2019	$	1,112		$	1,415		$	2,527
2020	4,140			4,358			8,498
2021	3,890			1,814			5,704
2022	3,719			279			3,998
2023	3,710			246			3,956
Thereafter	65,110			92			65,202
Total lease payments	81,681			8,204			89,885
Less: imputed interest	(46,379		)	(485		)	(46,864		)
Total present value of lease liabilities	$	35,302		$	7,719		$	43,021

The future minimum lease payments as of December 31, 2018 for operating and finance lease liabilities were $73.8 million and $4.8 million, respectively.

The weighted-average remaining lease terms and discount rates for our operating and finance leases were weighted using the undiscounted future minimum lease payments and are as follows as of September 30, 2019:



Weighted average remaining lease term (years):
Operating leases	22
Finance leases	2
Weighted average discount rate:
Operating leases	8	%
Finance leases	6	%

(10) Derivative Instruments

We use derivative instruments to partially offset our business exposure to foreign currency exchange and interest rate risk. We may enter into foreign currency forward and option contracts to offset some of the foreign currency exchange risk on our expected future cash flows and interest rate swaps to offset some of the interest rate risk on our expected future cash flows from certain borrowings. Our derivative instruments expose us to credit risk to the extent that our hedge counterparties may be unable to meet the terms of the applicable derivative instrument. We seek to mitigate such risks by limiting our counterparties to major financial

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

institutions. In addition, we monitor the potential risk of loss with any one counterparty resulting from credit risk. Management does not expect material losses as a result of defaults by counterparties. We use derivative instruments to manage cash flow and not for speculative or trading purposes.

Cash Flow Hedges

For qualifying cash flow hedges, the effective and ineffective portion of the gain or loss on the change in fair value is initially reported as a component of accumulated other comprehensive income in partners’ capital and subsequently reclassified into earnings when the hedged exposure affects earnings. Prior to January 1, 2019 and the adoption of ASU 2017-12 (see Note 2, Significant Accounting Policies), the ineffective portion of the gain or loss, if any, was reported in earnings in the current period. We considered our cash flow hedges to be highly effective at inception. Changes in fair value for derivative instruments not designated as hedging instruments are recognized in earnings.

Foreign Currency Exchange Risk

We are primarily exposed to fluctuations in foreign currency exchange rates related to off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”) and Euro (“EUR”). We have entered and may continue to enter into foreign currency forward contracts, purchased option contracts or other instruments to partially manage this risk and, prior to August 2018, had designated certain of these instruments as cash flow hedges.

In August 2018, due to market changes, increases in demand for wood pellets and requests from customers to accommodate the acceleration or deferral of contracted deliveries, we determined that it was no longer probable that the timing of the forecasted revenues associated with the hedged transactions would occur as originally scheduled. As a result, we discontinued hedge accounting for all designated foreign currency cash flow hedges and recognized the full amount of unrealized net gains included in accumulated other comprehensive income of $1.9 million to earnings. As of September 30, 2018, none of our foreign currency derivative instruments were designated as cash flow hedging instruments. In connection with the discontinuation of cash flow hedge accounting, we have recorded the on-going changes in the fair value of foreign currency derivatives as product sales or cost of sales depending on the nature of the item being hedged.

Interest Rate Risk

We are exposed to fluctuations in interest rates on borrowings under our senior secured revolving credit facility. We have entered into a pay-fixed, receive-variable interest rate swap that expires in April 2020 to hedge the interest rate risk associated with our variable rate borrowings under our senior secured revolving credit facility. The interest rate swap is designated and qualifies as a cash flow hedge.

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Derivative instruments are classified as Level 2 assets or liabilities based on inputs such as spot and forward benchmark interest rates (such as LIBOR) and foreign exchange rates. The fair value of derivative instruments as of September 30, 2019 and December 31, 2018 was as follows:



		Asset (Liability)
	Balance Sheet Classification	September 30, 2019		December 31, 2018
Designated as hedging instruments:
Interest rate swap
	Other current assets	$	122	$	508
	Other long-term assets	—		118
Total derivatives designated as hedging instruments		$	122	$	626

Not designated as hedging instruments:
Foreign currency exchange forward contracts:
	Other current assets	$	1,647	$	794
	Other long-term assets	1,290		1,810
	Accrued and other current liabilities	—		(68		)
	Other long-term liabilities	—		(179		)
Foreign currency purchased option contracts:
	Other current assets	286		22
	Other long-term assets	3,369		3,348
Total derivatives not designated as hedging instruments		$	6,592	$	5,727

Net unrealized gains related to the change in fair market value of derivative instruments not designated as hedging instruments were $1.1 million and $1.4 million, respectively, during the three and nine months ended September 30, 2019 and are included in product sales. Realized gains related to derivatives settled were $1.6 million and $1.7 million, respectively, during the three and nine months ended September 30, 2019, and are included in product sales.

During the three and nine months ended September 30, 2018, we recorded $2.3 million and $5.4 million, respectively, of unrealized net gains on derivative instruments in product sales. Included in the unrealized net gains for both the three and nine months ended September 30, 2018 was $1.9 million related to the reclassification of unrealized net gains previously included in accumulated other comprehensive income as described above. Net gains related to the change in fair market value of derivative instruments not designated as hedging instruments were $0.4 million and $3.5 million, respectively during the three and nine months ended September 30, 2018 and are included in product sales. During the three months ended September 30, 2018, we received $4.3 million on realized gains related to derivatives settled during the period.

The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive loss and the gains and losses recognized in earnings for the three months ended September 30, 2019 were as follows:



	Amount of Gain in Other Comprehensive Loss on Derivative		Location of Gain Reclassified from Accumulated Other Comprehensive Loss	Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings
Interest rate swap	$	13	Interest expense	$	59

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive loss and the gains and losses recognized in earnings for the nine months ended September 30, 2019 were as follows:



	Amount of Loss in Other Comprehensive Loss on Derivative			Location of Gain Reclassified from Accumulated Other Comprehensive Loss	Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings
Interest rate swap	$	(148	)	Interest expense	$	252



	Amount of Gain in Other Comprehensive Income on Derivative (Effective Portion)		Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Effective Portion)	Amount of Gain Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)		Location of (Loss) Gain Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Foreign currency exchange forward contracts	$	1,907	Product sales	$	—	Product sales	$	2,418
Foreign currency exchange purchased option contracts	765		Product sales	—		Product sales	(470		)
Interest rate swap	41		Interest expense	—		Interest expense	67

The effects of instruments that were designated as cash flow hedges and the related changes in accumulated other comprehensive loss and the gains and losses recognized in earnings for the nine months ended September 30, 2018 were as follows:



	Amount of Gain in Other Comprehensive Income on Derivative (Effective Portion)		Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Effective Portion)	Amount of Gain Reclassified from Accumulated Other Comprehensive Income into Earnings (Effective Portion)		Location of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Foreign currency exchange forward contracts	$	4,532	Product sales	$	—	Product sales	$	2,413
Foreign currency exchange purchased option contracts	749		Product sales	—		Product sales	(470		)
Interest rate swap	469		Interest expense	—		Interest expense	131

We enter into master netting arrangements, which are designed to permit net settlement of derivative transactions among the respective counterparties. If we had settled all transactions with our respective counterparties at September 30, 2019, we would have received a net settlement termination payment of $6.7 million, which differs insignificantly from the recorded fair value of the derivatives. We present our derivative assets and liabilities at their gross fair values.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The notional amounts of outstanding derivative instruments associated with outstanding or unsettled derivative instruments as of September 30, 2019 and December 31, 2018 were as follows:



	September 30, 2019		December 31, 2018
Foreign exchange forward contracts in GBP	£	38,140	£	42,170
Foreign exchange purchased option contracts in GBP	£	43,415	£	39,365
Foreign exchange forward contracts in EUR	€	7,300	€	14,300
Foreign exchange purchased option contracts in EUR	€	1,675	€	1,675
Interest rate swap	$	35,723	$	39,829

(11) Fair Value Measurements

The amounts reported in the unaudited condensed consolidated balance sheets as cash and cash equivalents, accounts receivable, insurance receivables, related-party receivables, prepaid expenses and other current assets, accounts payable, related-party payables and accrued liabilities, and accrued and other current liabilities approximate fair value because of the short-term nature of these instruments.

Long-term debt and finance lease obligations, including the current portion, are classified as Level 2 instruments. The fair value of our senior notes (see Note 12, Long-Term Debt and Finance Lease Obligations – Senior Notes Due 2021) was determined based on observable market prices in a less active market and was categorized as Level 2 in the fair value hierarchy. The fair value of other long-term debt and finance lease obligations classified as Level 2 was determined based on the usage of market prices not quoted on active markets and other observable market data. The fair value of long-term debt and finance lease obligations are based upon rates currently available for debt and finance lease obligations with similar terms and remaining maturities.

The carrying amount and estimated fair value of long-term debt and finance lease obligations as of September 30, 2019 and December 31, 2018 were as follows:



	September 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Senior notes	$	353,352	$	362,227	$	352,843	$	359,943
Other long-term debt and finance lease obligations	194,727		194,727		79,812		79,812
Total long-term debt and finance lease obligations	$	548,079	$	556,954	$	432,655	$	439,755

(12) Long-Term Debt and Finance Lease Obligations

Long-term debt and finance lease obligations at carrying value are composed of the following:



	September 30, 2019			December 31, 2018
Senior notes, net of unamortized discount, premium and debt issuance of $1.6 million as of September 30, 2019 and $2.2 million as of December 31, 2018	$	353,352		$	352,843
Senior secured revolving credit facility	185,000			73,000
Other loans	2,008			2,015
Finance leases	7,719			4,797
Total long-term debt and finance lease obligations	548,079			432,655
Less current portion of long-term debt and finance lease obligations	(4,490		)	(2,722		)
Long-term debt and finance lease obligations, excluding current installments	$	543,589		$	429,933

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Senior Notes Due 2021

As of September 30, 2019 and December 31, 2018, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, our 8.5% senior unsecured notes due 2021. Our obligations under the senior notes are guaranteed by certain of our subsidiaries.

Senior Secured Revolving Credit Facility

As of September 30, 2019 and December 31, 2018, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, our senior secured revolving credit facility due October 2023. 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 First JV or secured by liens on its assets.

(13) Related-Party Transactions

Related-party transaction amounts included on the unaudited condensed consolidated statements of operations were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Other revenue	$	496	$	1,042	$	1,323	$	3,346
Cost of goods sold	26,300		20,133		80,921		56,184
General and administrative expenses	6,486		4,113		19,488		11,628

Management Services Agreements

Pursuant to the MSAs, Enviva Management provides us with operations, general administrative, management and other services. We are required to reimburse Enviva Management for the amount of all direct or indirect internal or third-party expenses incurred by Enviva Management in connection with the provision of such services. The MSAs include rent-related amounts for non-cancelable operating leases for office space in Maryland and North Carolina held by the sponsor. Under the First JV MSA, to the extent allocated costs exceed the annual management fee, the additional costs are recorded with an increase to partners’ capital.

During the three and nine months ended September 30, 2019, $17.8 million and $51.5 million, respectively, related to the MSAs was included in cost of goods sold and $6.5 million and $19.5 million, respectively, was included in general and administrative expenses. As of September 30, 2019, $1.7 million incurred under the MSAs was included in finished goods inventory.

During the three and nine months ended September 30, 2018, $13.4 million and $35.9 million, respectively, related to the MSAs was included in cost of goods sold and $4.1 million and $11.6 million, respectively, was included in general and administrative expenses.

During the three and nine months ended September 30, 2019, $0.8 million and $1.7 million, respectively, of fees expensed under the First JV MSA were waived and recorded as an increase to partner’s capital.

JV 1.0 Drop-Down Agreements

The agreements we entered into on the date of acquisition of the First JV resulted in the following amounts being recorded in our financial statements since the date of acquisition. During the three and nine months ended September 30, 2019, $11.6 million and $20.5 million, respectively, were recorded as an increase to partners’ capital and $0.1 million and $0.7 million, respectively, were recorded as a net reduction in cost of goods sold. These increases to partners’ capital are comprised of expenses waived under the EVA MSA Fee Waiver and the First JV MSA Fee Waiver and reimbursement of construction cost overruns in excess of budgeted capital expenditures for the Hamlet plant. The net reduction in cost of goods sold is comprised of the cost of cover deficiency fee from the Hamlet Operator under the ISA not producing enough pellets at Hamlet, offset by the agreed-upon price due to the Hamlet Operator for the pellets from Hamlet that we have sold.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Second EVA MSA Fee Waiver

In June 2019, we entered into an additional agreement (the “Second EVA MSA Fee Waiver”) with Enviva Management pursuant to which we received a $5.0 million waiver of EVA MSA fees through September 30, 2019, as consideration for an assignment of two shipping contracts to our sponsor to rebalance our and our sponsor’s respective shipping obligations under existing off-take contracts. During the three and nine months ended September 30, 2019, $2.3 million and $5.0 million, respectively, of EVA MSA fees expensed were waived and recorded as an increase to partners’ capital pursuant to the Second EVA MSA Fee Waiver. During the three and nine months ended September 30, 2018, no EVA MSA fees were waived pursuant to the Second EVA MSA Fee Waiver.

Wilmington Drop-Down - Deferred Consideration

In October 2017, we acquired from the First JV all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”), which owns the Wilmington terminal assets (the “Wilmington Drop-Down”), for total consideration of $130.0 million, subject to certain conditions. The Wilmington Drop-Down included the Wilmington terminal assets and a long-term terminal services agreement with our sponsor (the “Holdings TSA”) to handle throughput volumes sourced from Greenwood. The purchase price included $74.0 million of deferred consideration, which was paid in full in April 2019 and consisted of $24.3 million in cash, of which $22.8 million was distributed to the Hancock Member and the issuance of 1,691,627 common units, or approximately $49.7 million in common units, which were distributed to the Hancock Member. The $74.0 million of deferred consideration was reflected on the condensed consolidated balance sheets as of December 31, 2018.

Greenwood Contract

In February 2018, we entered into a contract with Greenwood to purchase wood pellets produced by the Greenwood plant through March 2022 (the “Greenwood contract”) and we have a take-or-pay obligation with respect to 550,000 MTPY of wood pellets from July 2019 through March 2022. In July 2019, we entered into an amendment whereby the commencement of the take-or-pay obligation date was deferred from July 2019 to January 2020.

During the three and nine months ended September 30, 2019, we purchased $11.3 million and $35.5 million, respectively, of wood pellets and recorded a cost of cover deficiency fee from Greenwood of approximately $1.0 million and $4.3 million, respectively, from Greenwood as Greenwood was unable to satisfy certain commitments. Of the net $8.6 million and $29.5 million, respectively, $9.7 million and $33.8 million, respectively, is included in cost of goods sold and $1.5 million is included in finished goods inventory as of September 30, 2019. During the three and nine months ended September 30, 2018, we purchased $8.5 million and $16.8 million, respectively, of wood pellets from Greenwood, which is included in cost of goods sold.

Holdings TSA

The Wilmington Drop-Down included a long-term terminal services agreement with our sponsor (the “Holdings TSA”). Pursuant to the Holdings TSA, our sponsor agreed to deliver a minimum of 125,000 MT of wood pellets per quarter for receipt, storage, handling and loading services by the Wilmington terminal and pay a fixed fee on a per-ton basis for such terminal services. The Holdings TSA remains in effect until September 1, 2026. We did not record any terminal services revenue from our sponsor during the three months ended September 30, 2018. During the nine months ended September 30, 2018, we recorded $0.8 million as terminal services revenue from our sponsor, which is included in other revenue.

In February 2018, our sponsor amended and assigned the Holdings TSA to Greenwood. Deficiency payments are due to Wilmington if quarterly minimum throughput requirements are not met. During the three and nine months ended September 30, 2019 and 2018, we recorded $0.5 million and $1.3 million, respectively, and $0.5 million and $2.0 million, respectively, of deficiency fees from Greenwood, which is included in other revenue.

In September 2018, Hurricane Florence impacted the rail line on which wood pellets are typically transported from the Greenwood plant to the Wilmington terminal. As a result, Greenwood was unable to satisfy certain commitments under the Holdings TSA and the Greenwood contract and agreed to pay $1.8 million to us as deficiency fees in consideration of these commitments. Consideration of $0.5 million related to the Holdings TSA was included in other revenue and $1.3 million related to the Greenwood contract was included as a reduction of cost of goods sold.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Biomass Option Agreement – Enviva Holdings, LP

Enviva, LP purchased none and $1.7 million of wood pellets from the sponsor during the three and nine months ended September 30, 2018, respectively, pursuant to a biomass option agreement. The wood pellet purchase amounts are included in cost of goods sold. The biomass option agreement terminated in accordance with its terms in March 2018.

Enviva FiberCo, LLC

We purchase raw materials from Enviva FiberCo, LLC (“FiberCo”), a wholly owned subsidiary of our sponsor. During the three and nine months ended September 30, 2019, purchased raw materials, net of cost of cover deficiency fees from FiberCo, were immaterial and $0.6 million, respectively. During the three and nine months ended September 30, 2018, we purchased raw materials of $1.8 million and $3.5 million, respectively, from FiberCo. No cost of cover deficiency fees from FiberCo were recognized during the three and nine months ended September 30, 2018.

Long-Term Incentive Plan Vesting

As of September 30, 2019, we had an insignificant amount included in related-party payables related to withholding tax amounts due to Enviva Management associated with the vesting of time-based phantom units under the Enviva Partners, LP Long-Term Incentive Plan (“LTIP”).

(14) Partners’ Capital

Common Units - Issuance

During March 2019, we issued 3,508,778 common units in a registered direct offering for net proceeds of approximately $97.0 million, net of $3.0 million of issuance costs.

On April 1, 2019, as deferred consideration for the Wilmington Drop-Down, we issued 1,691,627 common units, or $49.7 million in common units, to the First JV, which common units were distributed to the Hancock Member. On April 2, 2019, in connection with the JV 1.0 Drop-Down, we issued 1,681,237 common units, or $50.0 million in common units, to the sponsor.

Allocations of Net Income

The Partnership’s partnership agreement contains provisions for the allocation of net income and loss to the unitholders of the Partnership and the General Partner. For purposes of maintaining partner capital accounts, the partnership agreement specifies that items of income and loss shall be allocated among the partners of the Partnership in accordance with their respective percentage ownership interest. Such allocations are made after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions, which are allocated 100% to the General Partner.

Incentive Distribution Rights

Incentive distribution rights (“IDRs”) represent the right to receive increasing percentages (from 15.0% to 50.0%) of quarterly distributions from operating surplus after distributions in amounts exceeding specified target distribution levels have been achieved by the Partnership. Our general partner (“General Partner”) currently holds the IDRs, but may transfer these rights at any time.

At-the-Market Offering Program

Pursuant to an equity distribution agreement dated August 8, 2016, we may offer and sell common units from time to time through a group of managers, subject to the terms and conditions set forth in such agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).

During the three and nine months ended September 30, 2019, we did not sell common units under the ATM Program. During the three months ended September 30, 2018, we did not sell common units under the ATM Program. During the nine months ended September 30, 2018, we sold 8,408 common units under the ATM Program for net proceeds of $0.2 million, net of an insignificant amount of commissions. Net proceeds from sales under the ATM Program were used for general partnership purposes.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

First JV

The capital of the First JV is divided into two classifications: (1) Class A Units and (2) Class B Units, issued at a price of $1.00 per unit for each class.

Class A Units - Noncontrolling Interests

Class A Units were issued to the Hancock Member in exchange for capital contributions at a price of $1.00 for each Class A Unit.

The Hancock Member had a total capital commitment of $235.2 million and, as of September 30, 2019, the Hancock Member held 227.0 million Class A Units with a remaining capital commitment amount of $8.2 million.

Class B Units - Controlling Interests

Class B Units were issued to the Enviva Member in exchange for capital contributions at a price of $1.00 for each Class B Unit.

The Enviva Member had a total capital commitment of $232.2 million and, as of September 30, 2019, the Enviva Member held 224.0 million Class B Units with a remaining commitment amount of $8.2 million.

Pursuant to the limited liability company agreement of the First JV (the “First JV LLCA”), we are the managing member of the First JV and have the authority to manage the business and affairs of the First JV and take actions on its behalf, including adopting annual budgets, entering into agreements, effecting asset sales or biomass purchase agreements, making capital calls, incurring debt and taking other actions, subject to consent of the Hancock Member in certain circumstances. The First JV LLCA also sets forth the capital commitments and limitations thereon from each of the members, and provides for the allocation of sale proceeds and distributions among the holders of outstanding Class A Units and Class B Units.

We included all accounts of the First JV in our consolidated results as of April 2, 2019 as the Class B Units represent a controlling interest in the First JV.

Distribution Rights

Distributions to the Hancock Member, and to the Enviva Member, are made in the reasonable discretion of the Enviva Member and are governed by the waterfall provisions of the First JV LLCA, which provides that distributions, after repayment of the First JV Revolver borrowings, are to be made as follows:


•	First: To the members in proportion to their relative unreturned capital contributions, then to the members in proportion to their relative unpaid preference amount.


•	Thereafter: 25% to the Hancock Member and 75% to the Enviva Member.

Prior to the JV 1.0 Drop-Down, at the discretion of the Enviva Member, the Hancock Member had received all of its capital contributions and substantially all of its preference amount. Given that and the historical net losses of the First JV having been previously allocated to the Enviva Member and the Hancock Member in proportion to their unreturned capital contributions, the balance of the First JV members’ capital attributable to the Hancock Member had become negative as of the JV 1.0 Drop-Down. Additionally, given that and the extent to which the Enviva Member has yet to receive repayment of its revolver borrowings, capital contributions and preference amount as of September 30, 2019, none of the net loss of the First JV has been allocated to the Hancock Member subsequent to the date of the JV 1.0 Drop-Down. Thus, no change has been recognized to the acquired negative noncontrolling interest balance attributable to the Hancock Member.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

(15) Equity-Based Awards

The following table summarizes information regarding phantom unit awards (the “Affiliate Grants”) under the LTIP to employees of Enviva Management and its affiliates who provide services to the Partnership:



	Time-Based Phantom Units				Performance-Based Phantom Units				Total Affiliate Grant Phantom Units
	Units		Weighted- Average Grant Date Fair Value (per unit)(1)		Units		Weighted- Average Grant Date Fair Value (per unit)(1)		Units		Weighted- Average Grant Date Fair Value (per unit)(1)
Nonvested December 31, 2018	723,940		$	25.91	239,512		$	27.65	963,452		$	26.34
Granted	390,909		$	30.39	216,224		$	30.25	607,133		$	30.34
Forfeitures	(81,332	)	$	28.27	(16,560	)	$	29.80	(97,892	)	$	28.53
Vested	(145,506	)	$	18.30	—		$	—	(145,506	)	$	18.30
Nonvested September 30, 2019	888,011		$	28.91	439,176		$	28.85	1,327,187		$	28.89

______________________________________________________________


(1)	Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.

As of September 30, 2019, an insignificant amount is included in related-party payables to Enviva Management to satisfy tax-withholding requirements associated with time-based phantom awards that vested under the LTIP during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, we paid $2.3 million to the General Partner, which acquired common units from a wholly owned subsidiary of our sponsor for delivery to the recipients under the LTIP. We also paid $1.7 million during the nine months ended September 30, 2018 to Enviva Management to satisfy the tax-withholding requirements associated with such common units under the MSAs. The unrecognized estimated compensation cost relating to outstanding Affiliate Grants at September 30, 2019 was $14.2 million, which will be recognized over the remaining vesting period.

The following table summarizes information regarding phantom unit awards to certain non-employee directors of the General Partner (the “Director Grants”) under the LTIP:



	Time-Based Phantom Units
	Units		Weighted- Average Grant Date Fair Value (per unit)(1)
Nonvested December 31, 2018	13,964		$	28.65
Granted	13,444		$	30.16
Vested	(13,964	)	$	28.65
Nonvested September 30, 2019	13,444		$	30.16

In February 2019, Director Grants valued at $0.4 million were granted and vest on the first anniversary of the grant date. In February 2019, the Director Grants that were nonvested at December 31, 2018 vested, and common units were issued in respect of such vested Director Grants. The unrecognized estimated compensation cost relating to outstanding Director Grants at September 30, 2019 was $0.1 million, which will be recognized over the remaining vesting period.

Distribution Equivalent Rights

Paid DER distributions related to time-based Affiliate Grants were $1.2 million and $2.1 million, respectively, for the three and nine months ended September 30, 2019. Paid DER distributions related to the time-based Affiliate Grants were $0.6 million and $1.8 million, respectively, for the three and nine months ended September 30, 2018. At September 30, 2019 and December 31, 2018, $0.6 million and $0.9 million, respectively, of DER distributions were included in related-party accrued liabilities.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

Unpaid DER amounts related to the performance-based Affiliate Grants at September 30, 2019 were $1.6 million, of which $0.6 million are included in accrued liabilities and $1.0 million are included in other long-term liabilities on the condensed consolidated balance sheets. Unpaid DER amounts related to the performance-based Affiliate Grants at December 31, 2018 were $0.7 million, of which $0.4 million are included in accrued liabilities and $0.3 million are included in other long-term liabilities.

(16) Income Taxes

Our operations are organized as limited partnerships and entities that are disregarded entities for federal and state income tax purposes. As a result, we are not subject to U.S. federal and most state income taxes. The unitholders of the Partnership are liable for these income taxes on their share of our taxable income. Some states impose franchise and capital taxes on the Partnership. Such taxes are not material to the condensed consolidated financial statements and have been included in other income (expense) as incurred.

As of September 30, 2019, the only periods subject to examination for federal and state income tax returns are 2015 through 2018. We believe our income tax filing positions, including our status as a pass-through entity, would be sustained on audit and do not anticipate any adjustments that would result in a material change to our unaudited condensed consolidated balance sheet. Therefore, no reserves for uncertain tax positions or interest and penalties have been recorded. For the three and nine months ended September 30, 2019 and 2018, no provision for federal or state income taxes has been recorded in the condensed consolidated financial statements.

(17) Net Income (Loss) per Limited Partner Unit

Net income (loss) per unit applicable to limited partners is computed by dividing limited partners’ interest in net income (loss), after deducting any incentive distributions, by the weighted-average number of outstanding common units. Our net income (loss) is allocated to the limited partners in accordance with their respective ownership percentages, after giving effect to priority income allocations for incentive distributions, if any, to the holder of the IDRs, which are declared and paid following the close of each quarter. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income (loss) allocations used in the calculation of earnings per unit.

On May 30, 2018, the requirements under our partnership agreement for the conversion of all of our subordinated units into common units were satisfied and the subordination period for such subordinated units ended. As a result, all of our 11,905,138 outstanding subordinated units converted into common units on a one-for-one basis. The conversion did not impact the amount of the cash distribution paid or the total number of our outstanding units representing limited partner interests. Our net income (loss) was allocated to the General Partner and the limited partners, including the holders of the subordinated units and IDR holders, in accordance with our partnership agreement.

In addition to the common units, we have also identified the IDRs and phantom units as participating securities and use the two-class method when calculating the net income (loss) per unit applicable to limited partners, which is based on the weighted-average number of common units and subordinated units outstanding during the period. Diluted net income per unit includes the effects of potentially dilutive time-based and performance-based phantom units on our common units. Basic and diluted earnings per unit previously applicable to subordinated limited partner units were the same because there are no potentially dilutive subordinated units outstanding.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The following computation of net income (loss) per limited partner unit is as follows for the three and nine months ended September 30, 2019 and 2018:



	Three Months Ended September 30, 2019
	Common Units	General Partner
Weighted-average common units outstanding—basic	33,457	—
Effect of nonvested phantom units	—	—
Weighted-average common units outstanding—diluted	33,457	—



	Three Months Ended September 30, 2019
	Common Units			General Partner		Total
Distributions declared	$	22,416		$	3,107	$	25,523
Earnings less than distributions	(17,275		)	—		(17,275		)
Net income available to partners	$	5,141		$	3,107	$	8,248
Weighted-average units outstanding—basic and diluted	33,457
Net income per limited partner unit—basic and diluted	$	0.15



	Nine Months Ended September 30, 2019
	Common Units	General Partner
Weighted-average common units outstanding—basic	31,230	—
Effect of nonvested phantom units	—	—
Weighted-average common units outstanding—diluted	31,230	—



	Nine Months Ended September 30, 2019
	Common Units			General Partner		Total
Distributions declared	$	66,077		$	8,150	$	74,227
Earnings less than distributions	(79,925		)	—		(79,925		)
Net (loss) income available to partners	$	(13,848	)	$	8,150	$	(5,698	)
Weighted-average units outstanding—basic and diluted	31,230
Net loss per limited partner unit—basic and diluted	$	(0.44	)



	Three Months Ended September 30, 2018
	Common Units	Subordinated Units	General Partner
Weighted-average common units outstanding—basic	26,477	—	—
Effect of nonvested phantom units	1,001	—	—
Weighted-average common units outstanding—diluted	27,478	—	—

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



	Three Months Ended September 30, 2018
	Common Units			General Partner		Total
Distributions declared	$	16,814		$	1,532	$	18,346
Earnings less than distributions	(4,990		)	—		(4,990		)
Net income available to partners	$	11,824		$	1,532	$	13,356
Weighted-average units outstanding—basic	26,477
Weighted-average units outstanding—diluted	27,478
Net income per limited partner unit—basic	$	0.45
Net income per limited partner unit—diluted	$	0.43



	Nine Months Ended September 30, 2018
	Common Units	Subordinated Units	General Partner
Weighted-average common units outstanding—basic	19,866	6,541	—
Effect of nonvested phantom units	—	—	—
Weighted-average common units outstanding—diluted	19,866	6,541	—



	Nine Months Ended September 30, 2018
	Common Units			Subordinated Units			General Partner		Total
Distributions declared	$	37,618		$	12,386		$	4,197	$	54,201
Earnings less than distributions	(42,607		)	(14,029		)	—		(56,636		)
Net (loss) income available to partners	$	(4,989	)	$	(1,643	)	$	4,197	$	(2,435	)
Weighted-average units outstanding—basic and diluted	19,866			6,541
Net loss per limited partner unit—basic and diluted	$	(0.25	)	$	(0.25	)

Cash Distributions to Unitholders

Distributions that have been paid or declared related to the reporting period are considered in the determination of earnings per unit. The following table details the cash distribution paid or declared (in millions, except per-unit amounts):



Quarter Ended	Declaration Date	Record Date	Payment Date	Distribution Per Unit		Total Cash Distribution		Total Payment to General Partner for Incentive Distribution Rights
March 31, 2018	May 3, 2018	May 15, 2018	May 29, 2018	$	0.6250	$	16.5	$	1.3
June 30, 2018	August 1, 2018	August 15, 2018	August 29, 2018	$	0.6300	$	16.7	$	1.4
September 30, 2018	October 31, 2018	November 15, 2018	November 29, 2018	$	0.6350	$	16.8	$	1.5
December 31, 2018	January 29, 2019	February 15, 2019	February 28, 2019	$	0.6400	$	17.0	$	1.7
March 31, 2019	May 2, 2019	May 20, 2019	May 29, 2019	$	0.6450	$	21.6	$	2.3
June 30, 2019	July 31, 2019	August 15, 2019	August 29, 2019	$	0.6600	$	22.1	$	2.8
September 30, 2019	October 30, 2019	November 15, 2019	November 29, 2019	$	0.6700	$	22.4	$	3.1

Distributions to be made in future periods based on the current period calculation of cash available for distribution are allocated to each class of equity that will receive the distribution. Any unpaid cumulative distributions are allocated to the appropriate class of equity.

We determine the amount of cash available for distribution for each quarter in accordance with our partnership agreement. The amount to be distributed to common unitholders and IDR holders is based on the distribution waterfall set forth in our partnership agreement. Net earnings for the quarter are allocated to each class of partnership interest based on the distributions to

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

be made. On May 30, 2018, the subordination period ended in accordance with our partnership agreement and the subordinated units were converted into common units on a one-for-one basis.

(18) Supplemental Guarantor Information

The Partnership and its wholly owned finance subsidiary, Enviva Partners Finance Corp., are the co-issuers of our senior notes on a joint and several basis. The senior notes are guaranteed on a senior unsecured basis by certain of the Partnership’s direct and indirect wholly owned subsidiaries (excluding Enviva Partners Finance Corp. and certain immaterial subsidiaries) and will be guaranteed by the Partnership’s future restricted subsidiaries that guarantee certain of its other indebtedness (collectively, the “Subsidiary Guarantors”). The guarantees are full and unconditional and joint and several. Each of the Subsidiary Guarantors is directly or indirectly 100% owned by the Partnership. Enviva Partners Finance Corp. is a finance subsidiary formed for the purpose of being the co-issuer of the senior notes. Other than certain restrictions arising under the senior secured revolving credit facility and the indenture governing the senior notes (see Note 12, Long-Term Debt and Finance Lease Obligations), there are no significant restrictions on the ability of any restricted subsidiary to (1) pay dividends or make any other distributions to the Partnership or any of its restricted subsidiaries or (2) make loans or advances to the Partnership or any of its restricted subsidiaries. In accordance with Rule 3-10 of Regulation S-X, supplemental consolidating financial statements have been prepared from our financial information on the same basis of accounting as our consolidated financial statements.

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(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



Condensed Consolidated Balance Sheet
September 30, 2019

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	2,046		$	311		$	—		$	2,357
Accounts receivable	49,634			9			—			49,643
Inventories	38,286			4,367			(304		)	42,349
Prepaid expenses and other current assets	3,925			73			—			3,998
Total current assets	93,891			4,760			(304		)	98,347
Property, plant and equipment - in service, net	517,577			166,195			(248		)	683,524
Construction in progress	60,181			743			—			60,924
Total property, plant and equipment, net	577,758			166,938			(248		)	744,448
Operating lease right-of-use assets, net	26,567			6,812			—			33,379
Related-party note receivable	42,989			—			(42,989		)	—
Goodwill	85,615			—			—			85,615
Investment in subsidiaries	118,543			—			(118,543		)	—
Other long-term assets	7,876			—			(550		)	7,326
Total assets	$	953,239		$	178,510		$	(162,634	)	$	969,115
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable	$	18,575		$	2,937		$	—		$	21,512
Related-party payables and accrued liabilities	12,048			(2,929		)	—			9,119
Deferred consideration for drop-downs due to related party	40,000			—			—			40,000
Accrued and other current liabilities	37,618			10,700			—			48,318
Current portion of interest payable	13,209			—			—			13,209
Current portion of long-term debt and finance lease obligations	3,891			599			—			4,490
Total current liabilities	125,341			11,307			—			136,648
Long-term debt and finance lease obligations	542,575			1,014			—			543,589
Related-party long-term debt	—			42,989			(42,989		)	—
Long-term operating lease liabilities	27,683			6,042			—			33,725
Long-term interest payable	1,100			—			—			1,100
Long-term interest related-party payable	—			550			(550		)	—
Other long-term liabilities	2,170			—			—			2,170
Total liabilities	698,869			61,902			(43,539		)	717,232
Total Enviva Partners, LP partners' capital	302,562			116,608			(119,095		)	300,075
Noncontrolling interest	(48,192		)	—			—			(48,192		)
Total partners’ capital	254,370			116,608			(119,095		)	251,883
Total liabilities and partners’ capital	$	953,239		$	178,510		$	(162,634	)	$	969,115

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



Condensed Consolidated Balance Sheet
December 31, 2018

	Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	2,396	$	64		$	—		$	2,460
Accounts receivable	54,792		2			—			54,794
Insurance receivables	5,140		—			—			5,140
Related-party receivables	6,453		4,944			(10,005		)	1,392
Inventories	31,490		—			—			31,490
Prepaid expenses and other current assets	2,235		—			—			2,235
Total current assets	102,506		5,010			(10,005		)	97,511
Property, plant and equipment - in service, net	542,635		—			—			542,635
Construction in progress	14,393		—			—			14,393
Total property, plant and equipment, net	557,028		—			—			557,028
Goodwill	85,615		—			—			85,615
Investment in subsidiaries	652		—			(652		)	—
Other long-term assets	8,616		—			—			8,616
Total assets	$	754,417	$	5,010		$	(10,657	)	$	748,770
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable	$	15,551	$	—		$	—		$	15,551
Related-party payables and accrued liabilities	33,169		5,061			(10,005		)	28,225
Deferred consideration for drop-downs due to related party	74,000		—			—			74,000
Accrued and other current liabilities	41,395		5			—			41,400
Current portion of interest payable	5,434		—			—			5,434
Current portion of long-term debt and finance lease obligations	2,722		—			—			2,722
Total current liabilities	172,271		5,066			(10,005		)	167,332
Long-term debt and finance lease obligations	429,933		—			—			429,933
Long-term interest payable	1,010		—			—			1,010
Other long-term liabilities	3,779		—			—			3,779
Total liabilities	606,993		5,066			(10,005		)	602,054
Total partners’ capital	147,424		(56		)	(652		)	146,716
Total liabilities and partners’ capital	$	754,417	$	5,010		$	(10,657	)	$	748,770

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



Condensed Consolidated Statement of Operations
For the Three Months Ended September 30, 2019

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Product sales	$	155,188		$	3,935		$	(3,935	)	$	155,188
Other revenue	2,454			—			(237		)	2,217
Net revenue	157,642			3,935			(4,172		)	157,405
Cost of goods sold	118,950			2,674			(3,631		)	117,993
Depreciation and amortization	11,173			1,773			—			12,946
Total cost of goods sold	130,123			4,447			(3,631		)	130,939
Gross margin	27,519			(512		)	(541		)	26,466
General and administrative expenses	1,842			(289		)	(239		)	1,314
Related-party management services agreement fee	4,510			1,976			—			6,486
Total general and administrative expenses	6,352			1,687			(239		)	7,800
Income (loss) from operations	21,167			(2,199		)	(302		)	18,666
Other (expense) income:
Interest expense	(9,864		)	(8		)	—			(9,872		)
Related-party interest expense	—			(300		)	300			—
Other income (expense), net	440			(11		)	(371		)	58
Total other (expense) income, net	(9,424		)	(319		)	(71		)	(9,814		)
Net income (loss)	$	11,743		$	(2,518	)	$	(373	)	$	8,852

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(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



Condensed Consolidated Statement of Operations
For the Three Months Ended September 30, 2018

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Product sales	$	142,541		$	—		$	—	$	142,541
Other revenue	1,607			—			—		1,607
Net revenue	144,148			—			—		144,148
Cost of goods sold	104,351			—			—		104,351
Depreciation and amortization	9,678			—			—		9,678
Total cost of goods sold	114,029			—			—		114,029
Gross margin	30,119			—			—		30,119
General and administrative expenses	3,173			28			—		3,201
Related-party management services agreement fee	4,114			—			—		4,114
Total general and administrative expenses	7,287			28			—		7,315
Income (loss) from operations	22,832			(28		)	—		22,804
Other (expense) income:
Interest expense	(9,445		)	—			—		(9,445		)
Other (expense) income, net	(12		)	9			—		(3		)
Total other (expense) income, net	(9,457		)	9			—		(9,448		)
Net income (loss)	$	13,375		$	(19	)	$	—	$	13,356

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(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 2019

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Product sales	$	478,989		$	3,935		$	(3,935	)	$	478,989
Other revenue	5,775			—			(911		)	4,864
Net revenue	484,764			3,935			(4,846		)	483,853
Cost of goods sold	396,818			2,674			(3,631		)	395,861
Depreciation and amortization	33,339			1,773			—			35,112
Total cost of goods sold	430,157			4,447			(3,631		)	430,973
Gross margin	54,607			(512		)	(1,215		)	52,880
General and administrative expenses	8,713			1,380			(914		)	9,179
Related-party management services agreement fee	13,837			5,651			—			19,488
Total general and administrative expenses	22,550			7,031			(914		)	28,667
Income (loss) from operations	32,057			(7,543		)	(301		)	24,213
Other (expense) income:
Interest expense	(28,666		)	(35		)	—			(28,701		)
Related-party interest expense	—			(300		)	300			—
Other income (expense), net	1,125			41			(550		)	616
Total other expense, net	(27,541		)	(294		)	(250		)	(28,085		)
Net income (loss)	$	4,516		$	(7,837	)	$	(551	)	$	(3,872	)

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(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 2018

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Product sales	$	398,031		$	—		$	—	$	398,031
Other revenue	7,037			—			—		7,037
Net revenue	405,068			—			—		405,068
Cost of goods sold	331,356			—			—		331,356
Depreciation and amortization	28,800			—			—		28,800
Total cost of goods sold	360,156			—			—		360,156
Gross margin	44,912			—			—		44,912
General and administrative expenses	9,730			48			—		9,778
Related-party management services agreement fee	11,628			—			—		11,628
Total general and administrative expenses	21,358			48			—		21,406
Income (loss) from operations	23,554			(48		)	—		23,506
Other (expense) income:
Interest expense	(27,137		)	—			—		(27,137		)
Other income (expense), net	1,281			(85		)	—		1,196
Total other expense, net	(25,856		)	(85		)	—		(25,941		)
Net loss	$	(2,302	)	$	(133	)	$	—	$	(2,435	)

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Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



Condensed Consolidated Statement of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2019

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	11,743		$	(2,518	)	$	(373	)	$	8,852
Other comprehensive (loss) income:
Net unrealized losses on cash flow hedges	13			—			—			13
Reclassification of net gains realized into net income (loss)	(59		)	—			—			(59		)
Currency translation adjustment	—			4			—			4
Total other comprehensive (loss) income	(46		)	4			—			(42		)
Total comprehensive income (loss)	$	11,697		$	(2,514	)	$	(373	)	$	8,810



Condensed Consolidated Statement of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2018

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Net income (loss)	$	13,375		$	(19	)	$	—	$	13,356
Other comprehensive income:
Net unrealized gains on cash flow hedges	2,713			—			—		2,713
Reclassification of net gains realized into net income (loss)	(2,013		)	—			—		(2,013		)
Currency translation adjustment	—			1			—		1
Total other comprehensive income	700			1			—		701
Total comprehensive income (loss)	$	14,075		$	(18	)	$	—	$	14,057

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(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



Condensed Consolidated Statement of Comprehensive Loss
For the Nine Months Ended September 30, 2019

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	4,516		$	(7,837	)	$	(551	)	$	(3,872	)
Other comprehensive (loss) income:
Net unrealized losses on cash flow hedges	(148		)	—			—			(148		)
Reclassification of net gains realized into net income (loss)	(252		)	—			—			(252		)
Currency translation adjustment	—			4			—			4
Total other comprehensive (loss) income	(400		)	4			—			(396		)
Total comprehensive income (loss)	$	4,116		$	(7,833	)	$	(551	)	$	(4,268	)



Condensed Consolidated Statement of Comprehensive Loss
For the Nine Months Ended September 30, 2018

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Net loss	$	(2,302	)	$	(133	)	$	—	$	(2,435	)
Other comprehensive income:
Net unrealized gains on cash flow hedges	5,750			—			—		5,750
Reclassification of net gains realized into net loss	(2,076		)	—			—		(2,076		)
Currency translation adjustment	—			1			—		1
Total other comprehensive income	3,674			1			—		3,675
Total comprehensive income (loss)	$	1,372		$	(132	)	$	—	$	1,240

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(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 2019

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	4,516		$	(7,837	)	$	(551	)	$	(3,872	)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization	33,875			1,872			—			35,747
MSA Fee Waivers	13,200			5,549			—			18,749
Amortization of debt issuance costs, debt premium and original issue discounts	899			—			—			899
Loss on disposal of assets	562			—			—			562
Unit-based compensation	3,142			693			—			3,835
Fair value changes in derivatives	(2,275		)	—			—			(2,275		)
Unrealized loss on foreign currency transactions, net	58			—			—			58
Change in operating assets and liabilities:
Accounts and insurance receivables	9,502			(10		)	—			9,492
Related-party receivables	(20,281		)	(1,415		)	23,088			1,392
Prepaid expenses and other current and long-term assets	(711		)	(52		)	551			(212		)
Inventories	(6,313		)	(4,366		)	—			(10,679		)
Derivatives	1,514			—			—			1,514
Accounts payable, accrued liabilities and other current liabilities	824			(3,071		)	—			(2,247		)
Related-party payables and accrued liabilities	13,847			(2,784		)	(23,088		)	(12,025		)
Accrued interest	3,326			3,094			—			6,420
Operating lease liabilities	(2,800		)	(915		)	—			(3,715		)
Other long-term liabilities	313			(477		)	—			(164		)
Net cash provided by (used in) operating activities	53,198			(9,719		)	—			43,479
Cash flows from investing activities:
Purchases of property, plant and equipment	(47,561		)	(33,923		)	—			(81,484		)
Payment in relation to the JV 1.0 Drop-Down	(74,700		)	—			—			(74,700		)
Other	1,502			—			—			1,502
Net cash used in investing activities	(120,759		)	(33,923		)	—			(154,682		)
Cash flows from financing activities:
Proceeds from senior secured revolving credit facility	306,150			38,850			—			345,000
Payments on senior secured revolving credit facility	(233,000		)	—			—			(233,000		)
Payments on other long-term debt and finance lease obligations	(3,639		)	1,613			—			(2,026		)
Proceeds from common unit issuances, net	96,822			—			—			96,822
Payment of deferred consideration for Wilmington Drop-Down	(24,300		)	—			—			(24,300		)
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder	(69,526		)	—			—			(69,526		)
Payment for withholding tax associated with Long-Term Incentive Plan vesting	(1,870		)	—			—			(1,870		)
Net cash provided by financing activities	70,637			40,463			—			111,100
Net increase (decrease) in cash, cash equivalents and restricted cash	3,076			(3,179		)	—			(103		)
Cash, cash equivalents and restricted cash, beginning of period	(1,030		)	3,490			—			2,460
Cash, cash equivalents and restricted cash, end of period	$	2,046		$	311		$	—		$	2,357

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(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)



Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 2018

	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net loss	$	(2,302	)	$	(133	)	$	—		$	(2,435	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	29,240			—			—			29,240
Amortization of debt issuance costs, debt premium and original issue discounts	828			—			—			828
Loss on disposal of assets	900			—			—			900
Unit-based compensation	5,604			—			—			5,604
De-designation of foreign currency forwards and options	(1,947		)	—			—			(1,947		)
Fair value changes in derivatives	(4,465		)	—			—			(4,465		)
Unrealized loss on foreign currency transactions, net	31			1			—			32
Change in operating assets and liabilities:
Accounts and insurance receivables	30,004			—			—			30,004
Related-party receivables	(4,943		)	(4,611		)	9,431			(123		)
Prepaid expenses and other current and long-term assets	(160		)	—			—			(160		)
Inventories	(9,735		)	—			—			(9,735		)
Derivatives	5,080			—			—			5,080
Accounts payable, accrued liabilities and other current liabilities	5,709			—			—			5,709
Related-party payables and accrued liabilities	7,928			4,820			(9,431		)	3,317
Accrued interest	7,634			—			—			7,634
Other long-term liabilities	648			—			—			648
Net cash provided by operating activities	70,054			77			—			70,131
Cash flows from investing activities:
Purchases of property, plant and equipment	(16,034		)	—			—			(16,034		)
Other	1,130			—			—			1,130
Net cash used in investing activities	(14,904		)	—			—			(14,904		)
Cash flows from financing activities:
Proceeds from senior secured revolving credit facility	134,750			—			—			134,750
Payments on senior secured revolving credit facility	(123,250		)	—			—			(123,250		)
Payments on other long-term debt and capital lease obligations	(4,745		)	—			—			(4,745		)
Proceeds from common unit issuances, net	241			—			—			241
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder	(55,163		)	—			—			(55,163		)
Payment to General Partner to purchase affiliate common units for Long-Term Incentive Plan vesting	(2,341		)	—			—			(2,341		)
Payment for withholding tax associated with Long-Term Incentive Plan vesting	(4,380		)	—			—			(4,380		)
Net cash used in financing activities	(54,888		)	—			—			(54,888		)
Net increase in cash, cash equivalents and restricted cash	262			77			—			339
Cash, cash equivalents and restricted cash, beginning of period	524			—			—			524
Cash, cash equivalents and restricted cash, end of period	$	786		$	77		$	—		$	863

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise stated or the context otherwise indicates, all references to “we,” “us,” “our,” the “Partnership”, or similar expressions refer to Enviva Partners, LP, including its consolidated subsidiaries. Our sponsor is Enviva Holdings, LP (and, where applicable, its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC) and references to our General Partner refer to Enviva Partners GP, LLC, a wholly owned subsidiary of Enviva Holdings, LP. References to “Enviva Management” refer to Enviva Management Company, LLC, a wholly owned subsidiary of Enviva Holdings, LP, and references to “our employees” refer to the employees of Enviva Management and its affiliates who provide services to the Partnership. References to the “First JV” refer to Enviva Wilmington Holdings, LLC, which is a joint venture between our wholly owned subsidiary, Enviva. LP, and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates. References to the “Second JV” refer to a joint venture between our sponsor and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates.

The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis (“MD&A”) in Part II-Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the U.S. Securities and Exchange Commission (the “SEC”). Our 2018 Form 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations. You should also read the following discussion and analysis together with the risk factors set forth in the 2018 Form 10-K and the factors described under “Cautionary Statement Regarding Forward-Looking Information” and Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q for information regarding certain risks inherent in our business.

Basis of Presentation

The following discussion about matters affecting the financial condition and results of operations of the Partnership should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this report and the audited consolidated financial statements and related notes that are included in the 2018 Form 10-K. Among other things, those financial statements and the related notes include more detailed information regarding the basis of presentation for the following information.

Business Overview

We aggregate a natural resource, wood fiber, and process it into a transportable form, wood pellets. We sell a significant majority of our wood pellets through long-term, take-or-pay off-take contracts with creditworthy customers in the United Kingdom and Europe. We own and operate seven plants with a combined production capacity of over 3.5 million metric tons (“MT”) of wood pellets per year in Virginia, North Carolina, Mississippi, and Florida. We export our wood pellets through our marine terminals at the Port of Chesapeake, Virginia (the “Chesapeake terminal”) and the Port of Wilmington, North Carolina (the “Wilmington terminal”) and from third-party marine terminals in Mobile, Alabama and Panama City, Florida. In April 2019, we acquired our sponsor’s interest in the First JV. The First JV owns a plant in Hamlet, North Carolina (the “Hamlet plant”) and a firm, 15-year take-or-pay off-take contract to supply nearly 1.0 million metric tons per year (“MTPY”) of wood pellets, following a ramp period. The Hamlet plant is now operating, and we expect the plant to exit 2019 with a production run-rate of approximately 500,000 MTPY and to reach its nameplate production capacity of approximately 600,000 MTPY in 2021. All of our facilities are located in geographic regions with low input costs and favorable transportation logistics. Owning these cost-advantaged assets, the output from which is fully contracted, in a rapidly expanding industry provides us with a platform to generate stable and growing cash flows that should enable us to increase our per-unit cash distributions over time, which is our primary business objective.

Our strategy is to fully contract the wood pellet production from our plants under long-term, take-or-pay off-take contracts. During 2019, production capacity from our plants and wood pellets sourced from a production plant in Greenwood, South Carolina (the “Greenwood plant”) owned by the Second JV and from third parties are approximately equal to the contracted volumes under our existing long-term, take-or-pay off-take contracts. We intend to continue expanding our business by taking advantage of the growing demand for our product that is driven by conversion of coal-fired power generation and combined heat and power plants to co-fired or dedicated biomass-fired plants and construction of newly dedicated biomass-fired plants, principally in Europe and increasingly in Japan.

Recent Developments

JV 1.0 Drop-Down

The acquisition of all of the issued and outstanding Class B Units of the First JV from our sponsor consisted of $165.0 million total consideration, subject to certain adjustments. The First JV has a firm 15-year take-or-pay off-take contract to

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supply nearly 1.0 million MTPY of wood pellets, which commences in 2019, ramps to full supply volumes in 2021 and continues through 2034.

Prior to the acquisition, we already had off-take contracts with the First JV to supply 470,000 MTPY of the volumes to be supplied to the First JV and, in connection with the acquisition, we acquired 500,000 MTPY in incremental sales volumes.

On the date of our acquisition of the sponsor’s Class B Units in the First JV (collectively, the “JV 1.0 Drop-Down:):


•	We commenced an associated terminal services agreement to handle contracted volumes from the Hamlet plant.

•


•	The sponsor assigned to us all of its rights and obligations under a credit agreement between the First JV, as borrower, and the sponsor, as lender (the “First JV Revolver”). On the date of assignment, $4.1 million was outstanding from the First JV to the sponsor.

•

Wilmington Terminal Second Payment

We made an initial payment of $56.0 million to the First JV as partial payment of the $130.0 million purchase price for the Wilmington terminal in October 2017 (the “Wilmington Drop-Down”). On April 1, 2019, we made the second and final payment of $74.0 million in deferred consideration for the Wilmington Drop-Down consisting of 1,691,627 common units at a

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price of $29.38 per common unit, or approximately $50.0 million in common units, subject to certain adjustments, and approximately $24.0 million in cash (the “Second Payment”).

Mid-Atlantic Expansions

During 2019, we started construction to increase the aggregate wood pellet production capacity of our plants in Northampton, North Carolina and Southampton, Virginia (the “Mid-Atlantic Expansions”) by approximately 400,000 MTPY in the aggregate, subject to receiving the necessary permits. We expect to invest a total of approximately $130.0 million in additional wood pellet production assets and emissions control equipment for the expansions and to complete expansion activities in the first half of 2020 with startup shortly thereafter.

Financing Activities

In addition to the approximately $100.0 million in common units issued as partial consideration for the JV 1.0 Drop-Down and the Second Payment, we issued an aggregate of 3,508,778 common units to investors in exchange for proceeds of $100.0 million in a registered direct offering (the “RDO”) pursuant to an effective registration statement on file with the SEC at a purchase price of $28.50 per unit, representing a 4.2 percent discount to the 20-day volume-weighted average price as of March 20, 2019.

We used proceeds from the RDO, along with borrowings under our existing $350.0 million senior secured revolving credit facility and the common units issued as consideration for the JV 1.0 Drop-Down and the Second Payment, to finance (1) $124.7 million of the total $165.0 million purchase price for the JV 1.0 Drop-Down, (2) the $74.0 million Second Payment (3) the $24.0 million in capital expenditures, net of payments received pursuant to the Make-Whole Agreement, required to complete construction of the Hamlet plant and (4) the initial $130.0 million in expenditures required for the Mid-Atlantic Expansions.

Contracted Backlog

As of October 1, 2019 we had approximately $9.5 billion of product sales backlog for firm contracted product sales to our long-term off-take customers and have a total weighted-average remaining term of 10.4 years, compared to approximately $7.3 billion and a total weighted-average remaining term of 9.4 years as of October 1, 2018. 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 in U.S. Dollars at October 1, 2019 forward rates. The contracted backlog includes forward prices including inflation, foreign currency and commodity prices. The amount also includes the effects of related foreign currency derivative contracts.

Our expected future product sales revenue under our contracted backlog as of October 1, 2019 is as follows (in millions):



Period from October 1, 2019 to December 31, 2019	$	177
Year ending December 31, 2020	906
Year ending December 31, 2021 and thereafter	8,399
Total product sales contracted backlog	$	9,482

Assuming all volumes under the firm and contingent off-take contracts held by our sponsor and the Second JV were included with our product sales backlog for firm contracted product sales, the total weighted-average remaining term as of October 1, 2019 would increase to 13.3 years and the product sales backlog would increase to $17.8 billion as follows (in millions):



Period from October 1, 2019 to December 31, 2019	$	177
Year ending December 31, 2020	906
Year ending December 31, 2021 and thereafter	16,744
Total product sales contracted backlog	$	17,827

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Factors Impacting Comparability of Our Financial Results

Inventory Impairment and Asset Disposal

On February 27, 2018, a fire occurred at the Chesapeake terminal, causing damage to equipment and approximately 43,000 MT of wood pellets (the “Chesapeake Incident”). The Chesapeake terminal returned to operations on June 28, 2018. During the three and nine months ended September 30, 2018, we incurred $9.7 million and $58.4 million, respectively, in costs as a result of the Chesapeake Incident related to asset impairment, inventory write-off and disposal costs, emergency response costs, asset repair costs and business continuity costs, the latter of which represented incremental costs to commission temporary wood pellet storage and handling and ship loading operations at nearby locations to meet our contractual obligations to our customers. As of September 30, 2018, we had recovered $48.1 million related to the Chesapeake Incident, which included $1.1 million of lost profits. As of December 31, 2018, $3.8 million of probable insurance recoveries for the then-remaining costs not yet recovered were included in insurance receivables and subsequently received in February 2019, with an additional $0.5 million which was recognized as other income.

We incurred other losses and costs associated with the Chesapeake Incident during and since the three and nine months ended September 30, 2018 and are pursuing outstanding claims of approximately $25.0 million related to such amounts. Consequently, our results of operations and cash flows, as well as our financial measures not presented in accordance with accounting principles generally accepted in the United States (“GAAP”), or non-GAAP financial measures, may not be comparable to those for reported periods before or after the three and nine months ended September 30, 2018.

How We Evaluate Our Operations

Adjusted Net (Loss) Income

We define adjusted net (loss) income as net (loss) income excluding certain expenses incurred related to the Chesapeake Incident and Hurricanes Florence and Michael (the “Hurricane Events”), which occurred during the second half of 2018, consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repair costs, offset by insurance recoveries received, certain non-cash waivers of fees for management services provided to us by our sponsor (collectively, the “MSA Fee Waivers”), and interest expense associated with incremental borrowings related to the Chesapeake Incident. We believe that adjusted net (loss) income 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 per Metric Ton

We use adjusted gross margin per metric ton to measure our financial performance. We define adjusted gross margin as gross margin excluding asset disposals, depreciation and amortization, changes in unrealized derivative instruments related to hedged items included in gross margin, MSA Fee Waivers, certain items of income or loss that we characterize as unrepresentative of our ongoing operations, including certain expenses incurred related to the Chesapeake Incident and Hurricane Events, consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repair costs, offset by insurance recoveries received, and acquisition costs. We believe adjusted gross margin per metric ton is a meaningful measure because it compares our revenue-generating activities to our operating costs for a view of profitability and performance on a per metric ton basis. Adjusted gross margin per metric ton will primarily 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 production plants and the production and distribution of wood pellets.

Adjusted EBITDA

We define adjusted EBITDA as net income or loss excluding depreciation and amortization, interest expense, income tax expense, early retirement of debt obligations, MSA Fee Waivers and unit compensation expense, asset impairments and disposals, changes in unrealized derivative instruments related to hedged items included in gross margin and other income and expense, certain items of income or loss that we characterize as unrepresentative of our ongoing operations, including certain expenses incurred related to the Chesapeake Incident and Hurricane Events, consisting of emergency response expenses, expenses related to the disposal of inventory, and asset disposal and repair costs, offset by insurance recoveries received, and acquisition costs. 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.

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Distributable Cash Flow

We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures and interest expense net of amortization of debt issuance costs, debt premium, original issue discounts and the impact from incremental borrowings related to the Chesapeake Incident and Hurricane Events. We use distributable cash flow as a performance metric to compare the cash‑generating performance of the Partnership 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 unitholders. We do not rely on distributable cash flow as a liquidity measure.

Limitations of Non-GAAP Financial Measures

Adjusted net (loss) income, adjusted gross margin per metric ton, adjusted EBITDA, and distributable cash flow 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 (loss) income, adjusted gross margin per metric ton, adjusted EBITDA, or distributable cash flow in isolation or as substitutes for analysis of our results as reported under GAAP.

Our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

Results of Operations

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018



	Three Months ended September 30,						Change			Chesapeake Incident and Hurricane Events			Net Change
	2019			2018			Change			Chesapeake Incident and Hurricane Events			Net Change
	(in thousands)
Product sales	$	155,188		$	142,541		$	12,647		$	—		$	12,647
Other revenue ⁽¹⁾	2,217			1,607			610			—			610
Net revenue	157,405			144,148			13,257			—			13,257
Cost of goods sold, excluding depreciation and amortization ⁽¹⁾	117,993			104,351			13,642			6,834			6,808
Depreciation and amortization	12,946			9,678			3,268			—			3,268
Total cost of goods sold	130,939			114,029			16,910			6,834			10,076
Gross margin	26,466			30,119			(3,653		)	(6,834		)	3,181
General and administrative expenses	1,314			3,201			(1,887		)	—			(1,887		)
Related-party management services agreement fee	6,486			4,114			2,372			—			2,372
Total general and administrative expenses	7,800			7,315			485			—			485
Income from operations	18,666			22,804			(4,138		)	(6,834		)	2,696
Interest expense	(9,872		)	(9,445		)	(427		)	(770		)	343
Other income (expense)	58			(3		)	61			—			61
Net income	$	8,852		$	13,356		$	(4,504	)	$	(7,604	)	$	3,100

⁽¹⁾ See Note 13, Related-Party Transactions

Net revenue

Net revenue increased to $157.4 million for the three months ended September 30, 2019 from $144.1 million for the three months ended September 30, 2018. The $13.3 million, or 9%, increase was primarily attributable to a 6% increase in sales volumes during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

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Cost of goods sold

Cost of goods sold increased to $130.9 million for the three months ended September 30, 2019 from $114.0 million for the three months ended September 30, 2018. Costs of goods sold during the three months ended September 30, 2018 was reduced by $12.1 million of insurance recoveries, net of expenses incurred, related to the Chesapeake Incident. We incurred $9.7 million in expenses related to the Chesapeake Incident during the three months ended September 30, 2018, offset by $21.8 million of insurance recoveries. The remaining $4.8 million, or 4%, increase was primarily attributable to a 6% increase in sales volumes during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

Gross margin

Gross margin decreased to $26.5 million for the three months ended September 30, 2019 from $30.1 million for the three months ended September 30, 2018. The gross margin decrease of $3.7 million was attributable to $12.1 million of insurance recoveries, net of expenses incurred, related to the Chesapeake Incident during the three months ended September 30, 2018. Excluding the $12.1 million of insurance recoveries, net of expenses incurred, related to the Chesapeake Incident, gross margin would have increased by $8.4 million primarily due to a 6% increase in sales volumes during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

Adjusted gross margin per metric ton



	Three Months Ended September 30,
	2019			2018			Change
	(in thousands except per metric ton)
Reconciliation of gross margin to adjusted gross margin per metric ton:
Gross margin	$	26,466		$	30,119		$	(3,653	)
Loss on disposal of assets	212			656			(444		)
Depreciation and amortization	12,946			9,678			3,268
Chesapeake Incident and Hurricane Events	47			(6,787		)	6,834
Changes in unrealized derivative instruments	(1,028		)	1,944			(2,972		)
MSA Fee Waivers	2,300			—			2,300
Acquisition costs	59			—			59
Adjusted gross margin	$	41,002		$	35,610		$	5,392
Metric tons sold	811			762			49
Adjusted gross margin per metric ton	$	50.56		$	46.73		$	3.83

We earned adjusted gross margin of $41.0 million, or $50.56 per MT, for the three months ended September 30, 2019. Adjusted gross margin was $35.6 million, or $46.73 per MT, for the three months ended September 30, 2018. The factors impacting the change in adjusted gross margin include those described above under the heading “Gross margin.” Additionally, adjusted gross margin increased during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 due to the waiver of $2.3 million of management services fees by the sponsor as consideration for an assignment of two shipping contracts to our sponsor to rebalance our and our sponsor’s respective shipping obligations under existing off-take contracts.

General and administrative expenses

General and administrative expenses were $7.8 million for the three months ended September 30, 2019 and $7.3 million for the three months ended September 30, 2018. The $0.5 million increase in general and administrative expenses is primarily attributable to the consolidation of the First JV following the JV 1.0 Drop-Down on April 2, 2019.

Interest expense

We incurred $9.9 million of interest expense during the three months ended September 30, 2019 and $9.4 million of interest expense during the three months ended September 30, 2018. The increase in interest expense was primarily attributable to an increase in borrowings under our senior secured revolving credit facility.

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Adjusted net income



	Three Months Ended September 30,
	2019		2018			Change
	(in thousands)
Reconciliation of net income to adjusted net income:
Net income	$	8,852	$	13,356		$	(4,504	)
Chesapeake Incident and Hurricane Events	47		(6,787		)	6,834
MSA Fee Waivers	7,703		—			7,703
Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events	769		1,326			(557		)
Adjusted net income	$	17,371	$	7,895		$	9,476

We generated adjusted net income of $17.4 million for the three months ended September 30, 2019 and $7.9 million for the three months ended September 30, 2018. The $9.5 million increase in adjusted net income was primarily attributable to the factors described below under the heading “Adjusted EBITDA.”

Adjusted EBITDA



	Three Months Ended September 30,
	2019			2018			Change
	(in thousands)
Reconciliation of net income to adjusted EBITDA:
Net income	$	8,852		$	13,356		$	(4,504	)
Add:
Depreciation and amortization	13,291			9,801			3,490
Interest expense	9,872			9,445			427
Non-cash unit compensation expense	350			1,781			(1,431		)
Asset impairments and disposals	212			656			(444		)
Chesapeake Incident and Hurricane Events	47			(6,787		)	6,834
Changes in the fair value of derivative instruments	(1,028		)	1,944			(2,972		)
MSA Fee Waivers	7,703			—			7,703
Acquisition costs	114			30			84
Adjusted EBITDA	$	39,413		$	30,226		$	9,187

We generated adjusted EBITDA of $39.4 million for the three months ended September 30, 2019 compared to adjusted EBITDA of $30.2 million for the three months ended September 30, 2018. The $9.2 million increase was primarily attributable to the factors described above under the heading “Adjusted Gross margin per metric ton,” as well as $5.4 million of MSA Fee Waivers for general and administrative expenses.

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Distributable Cash Flow

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



	Three Months Ended September 30,
	2019		2018		Change
	(in thousands)
Adjusted EBITDA	$	39,413	$	30,226	$	9,187
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	8,797		7,839		958
Maintenance capital expenditures	579		1,638		(1,059		)
Distributable cash flow attributable to Enviva Partners, LP	30,037		20,749		9,288
Less: Distributable cash flow attributable to incentive distribution rights	3,107		1,532		1,575
Distributable cash flow attributable to Enviva Partners, LP limited partners	$	26,930	$	19,217	$	7,713

Results of Operations

Nine Months ended September 30, 2019 Compared to Nine Months ended September 30, 2018



	Nine Months Ended September 30,						Change			Chesapeake Incident and Hurricane Events			Net Change
	2019			2018			Change			Chesapeake Incident and Hurricane Events			Net Change
	(in thousands)
Product sales	$	478,989		$	398,031		$	80,958		$	—		$	80,958
Other revenue ⁽¹⁾	4,864			7,037			(2,173		)	—			(2,173		)
Net revenue	483,853			405,068			78,785			—			78,785
Cost of goods sold, excluding depreciation and amortization ⁽¹⁾	395,861			331,356			64,505			(8,874		)	73,379
Depreciation and amortization	35,112			28,800			6,312			—			6,312
Total cost of goods sold	430,973			360,156			70,817			(8,874		)	79,691
Gross margin	52,880			44,912			7,968			8,874			(906		)
General and administrative expenses	9,179			9,778			(599		)	391			(990		)
Related-party management services agreement fee	19,488			11,628			7,860			—			7,860
Total general and administrative expenses	28,667			21,406			7,261			391			6,870
Income from operations	24,213			23,506			707			8,483			(7,776		)
Interest expense	(28,701		)	(27,137		)	(1,564		)	(1,259		)	(305		)
Other income	616			1,196			(580		)	—			(580		)
Net loss	$	(3,872	)	$	(2,435	)	$	(1,437	)	$	7,224		$	(8,661	)
⁽¹⁾ See Note 13, Related-Party Transactions

Net revenue

Net revenue increased to $483.9 million for the nine months ended September 30, 2019 from $405.1 million for the nine months ended September 30, 2018. The increase of $78.8 million, or 19%, was primarily attributable to a 20% increase in sales volumes during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

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Cost of goods sold

Cost of goods sold increased to $431.0 million for the nine months ended September 30, 2019 from $360.2 million for the nine months ended September 30, 2018, an increase of $70.8 million, or 20%. Excluding $10.3 million of expenses incurred, net of insurance recoveries received, related to the Chesapeake Incident during the nine months ended September 30, 2018, cost of goods sold would have increased by 23%, which is primarily attributable to a 20% increase in sales volumes during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

Gross margin

Gross margin increased to $52.9 million for the nine months ended September 30, 2019 from $44.9 million for the nine months ended September 30, 2018. The gross margin increase of $8.0 million was primarily attributable to a 20% increase in sales volumes during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. A gross margin increase of $10.3 million for expenses incurred, net of insurance recoveries received, related to the Chesapeake Incident during the nine months ended September 30, 2018 was offset by a gross margin decrease of $6.3 million due to an increase in depreciation and amortization expense and $4.3 million of costs in connection with a potential acquisition, discussed below under the heading “Adjusted gross margin per metric ton.”

Adjusted gross margin per metric ton



	Nine Months Ended September 30,
	2019			2018			Change
	(in thousands except per metric ton)
Reconciliation of gross margin to adjusted gross margin per metric ton:
Gross margin	$	52,880		$	44,912		$	7,968
Loss on disposal of assets	562			900			(338		)
Depreciation and amortization	35,112			28,800			6,312
Chesapeake Incident and Hurricane Events	125			8,999			(8,874		)
Changes in unrealized derivative instruments	(1,352		)	(750		)	(602		)
MSA Fee Waivers	5,000			—			5,000
Acquisition costs	4,302			—			4,302
Adjusted gross margin	$	96,629		$	82,861		$	13,768
Metric tons sold	2,523			2,109			414
Adjusted gross margin per metric ton	$	38.30		$	39.29		$	(0.99	)

We earned adjusted gross margin of $96.6 million, or $38.30 per MT, for the nine months ended September 30, 2019. Adjusted gross margin was $82.9 million, or $39.29 per MT, for the nine months ended September 30, 2018. The factors impacting the change in adjusted gross margin include those described above under the heading “Gross margin,” an increase of $6.3 million related to depreciation and amortization expense, offset by a decrease of $8.9 million related to the Chesapeake Incident and Hurricane Events and a decrease of $0.6 million related to changes in unrealized derivative instruments. Additionally, adjusted gross margin increased during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 due to the waiver of $5.0 million of management services fees from our sponsor as consideration for an assignment of two shipping contracts to our sponsor to rebalance our and our sponsor’s respective shipping obligations under existing off-take contracts. In addition, the nine months ended September 30, 2019 includes $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 previously had considered, and were considering, 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.

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General and administrative expenses

General and administrative expenses were $28.7 million for the nine months ended September 30, 2019 and $21.4 million for the nine months ended September 30, 2018. The $7.3 million increase in general and administrative expenses is primarily attributable to $7.0 million resulting from the consolidation of the First JV following the JV 1.0 Drop-Down on April 2, 2019, and $1.2 million of transaction expenses related to the JV 1.0 Drop-Down.

Interest expense

We incurred $28.7 million of interest expense during the nine months ended September 30, 2019 and $27.1 million of interest expense during the nine months ended September 30, 2018. The increase in interest expense was primarily attributable to an increase in borrowings under our senior secured revolving credit facility.

Adjusted net loss



	Nine Months Ended September 30,
	2019			2018			Change
	(in thousands)
Reconciliation of net loss to adjusted net income:
Net loss	$	(3,872	)	$	(2,435	)	$	(1,437	)
Chesapeake Incident and Hurricane Events	55			8,999			(8,944		)
MSA Fee Waivers	18,749			—			18,749
Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events	1,259			1,326			(67		)
Adjusted net income	$	16,191		$	7,890		$	8,301

We generated adjusted net income of $16.2 million for the nine months ended September 30, 2019 and $7.9 million for the nine months ended September 30, 2018. The $8.3 million increase in adjusted net income was attributable to an increase in MSA Fee Waivers of $18.7 million, partially offset by a $8.9 million decrease in adjustments related to the Chesapeake Incident and Hurricane Events,and a $1.4 million increase in net loss primarily attributable to the factors described above.

Adjusted EBITDA



	Nine Months Ended September 30,
	2019			2018			Change
	(in thousands)
Reconciliation of net loss to adjusted EBITDA:
Net loss	$	(3,872	)	$	(2,435	)	$	(1,437	)
Add:
Depreciation and amortization	35,747			29,240			6,507
Interest expense	28,701			27,137			1,564
Non-cash unit compensation expense	3,835			5,604			(1,769		)
Asset impairments and disposals	562			900			(338		)
Chesapeake Incident and Hurricane Events	55			8,999			(8,944		)
Changes in the fair value of derivative instruments	(1,352		)	(750		)	(602		)
MSA Fee Waivers	18,749			—			18,749
Acquisition costs	5,566			176			5,390
Adjusted EBITDA	$	87,991		$	68,871		$	19,120

We generated adjusted EBITDA of $88.0 million for the nine months ended September 30, 2019 compared to adjusted EBITDA of $68.9 million for the nine months ended September 30, 2018. The $19.1 million increase was primarily attributable to the factors described above under the heading “Adjusted gross margin per metric ton,” as well as $13.7 million of MSA Fee Waivers for general and administrative expenses offset by $7.0 million resulting from the consolidation of the First JV following the JV 1.0 Drop-Down on April 2, 2019 and $1.2 million in costs, primarily in transaction expenses related to the JV 1.0 Drop-Down.

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Distributable Cash Flow

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



	Nine Months Ended September 30,
	2019		2018		Change
	(in thousands)
Adjusted EBITDA	$	87,991	$	68,871	$	19,120
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	26,542		24,984		1,558
Maintenance capital expenditures	2,343		3,252		(909		)
Distributable cash flow attributable to Enviva Partners, LP	59,106		40,635		18,471
Less: Distributable cash flow attributable to incentive distribution rights	8,150		4,196		3,954
Distributable cash flow attributable to Enviva Partners, LP limited partners	$	50,956	$	36,439	$	14,517

Liquidity and Capital Resources

Our primary sources of liquidity include cash and cash equivalent balances, cash generated from operations, borrowings under our revolving credit commitments and, from time to time, debt and equity offerings. Our primary liquidity requirements are to fund working capital, service our debt, maintain cash reserves, finance plant acquisitions and plant expansion projects, finance maintenance capital expenditures and pay distributions. We believe cash on hand, cash generated from our operations and the availability of our revolving credit commitments will be sufficient to meet our primary liquidity requirements. However, future capital expenditures 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.

Cash Distributions

To the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, our minimum quarterly distribution is $0.4125 per common unit per quarter, which equates to approximately $13.8 million per quarter, or approximately $55.2 million per year, based on the number of common units outstanding as of September 30, 2019.

Capital Requirements

We operate in a capital-intensive industry, which requires significant investments to maintain and upgrade existing capital assets. Our capital requirements have consisted, and we anticipate will continue to consist, primarily of the following:


•	Maintenance capital expenditures, which are cash expenditures incurred to maintain our long-term operating income or operating capacity. These expenditures typically include certain system integrity, compliance and safety improvements; and


•	Growth capital expenditures, which are cash expenditures we expect will increase our operating income or operating capacity over the long term. Growth capital expenditures include acquisitions or construction of new capital assets or capital improvements such as additions to or improvements on our existing capital assets as well as projects intended to extend the useful life of assets.

The classification of capital expenditures as either maintenance or growth is made at the individual asset level during our budgeting process and as we approve, execute and monitor our capital spending.

We expect to invest approximately $130.0 million in additional wood pellet production assets and emissions control equipment for the Mid-Atlantic Expansions. We expect to complete construction in the first half of 2020, subject to receiving the necessary permits, with startup shortly thereafter.

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Cash Flows

The following table sets forth a summary of our net cash flows from operating, investing and financing activities for the nine months ended September 30, 2019 and 2018, respectively:



	Nine Months Ended September 30,
	2019			2018
	(in thousands)
Net cash provided by operating activities	$	43,479		$	70,131
Net cash used in investing activities	(154,682		)	(14,904		)
Net cash provided by (used in) financing activities	111,100			(54,888		)
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(103	)	$	339

Cash Provided by Operating Activities

Net cash provided by operating activities was $43.5 million for the nine months ended September 30, 2019 compared to $70.1 million for the nine months ended September 30, 2018. The decrease of $26.7 million was largely due to changes in working capital, primarily attributable to the Chesapeake Incident during the nine months ended September 30, 2018.

Cash Used in Investing Activities

Net cash used in investing activities was $154.7 million for the nine months ended September 30, 2019 compared to $14.9 million for the nine months ended September 30, 2018. The $139.8 million increase is primarily due to the payment of $74.7 million in cash consideration for the JV 1.0 Drop-Down. The $81.5 million of cash used for property, plant and equipment during the nine months ended September 30, 2019 is primarily attributable to the completion of construction of the Hamlet plant and capital expenditures associated with the Mid-Atlantic Expansions.

Cash Used in Financing Activities

Net cash provided by financing activities was $111.1 million for the nine months ended September 30, 2019 compared to net cash used in financing activities of $54.9 million for the nine months ended September 30, 2018. The increase of $166.0 million is primarily attributable to an increase in proceeds from common unit issuances, net, of $96.6 million and an increase of $103.2 million in proceeds from debt issuance, net of principal payments on debt and finance lease obligations, partially offset by the $24.3 million Second Payment.

Off-Balance Sheet Arrangements

As of September 30, 2019, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. We provide expanded discussion of our significant accounting policies, estimates and judgments in our 2018 Form 10‑K. We believe these accounting policies reflect our significant estimates and assumptions used in preparation of our financial statements. There have been no significant changes to our critical accounting policies and estimates since December 31, 2018.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our exposure to market risk as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 other than as described below:

Foreign Currency Exchange Risk

We primarily are exposed to fluctuations in foreign currency exchange rates related to contracts pursuant to which deliveries of wood pellets will be settled in foreign currency. We have entered into forward contracts and purchased options to hedge a portion of our forecasted revenue for these customer contracts.

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As of September 30, 2019, we had notional amounts of 38.1 million GBP and 7.3 million EUR under foreign currency forward contracts and 43.4 million GBP and 1.7 million EUR under foreign currency purchased options that expire between 2019 and 2023.

We do not utilize foreign exchange contracts for speculative or trading purposes. The counterparties to our foreign exchange contracts are major financial institutions.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)‑15(e) and 15(d)‑15(e) under the Securities Exchange Act of 1934, as amended) was carried out under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of our General Partner. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of our General Partner concluded that the design and operation of these disclosure controls and procedures were effective as of September 30, 2019.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes with respect to the legal proceedings disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Item 1A. Risk Factors

There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Item 5. Other Information

Revised Code of Business Conduct and Ethics

On October 30, 2019, in accordance with its annual review of existing charters and policies, the Board adopted a revised Code of Business Conduct and Ethics (“Revised Code”). In addition to certain non-substantive changes, the Revised Code includes the following changes:


•	the coverage of the Revised Code was expanded to include directors, officers and employees of entities other than Enviva Management Company, LLC that conduct business on behalf of the Partnership;


•	the provisions relating to compliance with anti-corruption laws and to questionable or improper payments and gifts were revised to conform the concepts with those contained in the Partnership Group’s (as defined in the Revised Code) existing Anti-Corruption Policy and


•	the provisions relating to work conduct, non-discrimination and anti-harassment policies were revised to further clarify the discriminatory conduct and harassment that is prohibited under the Revised Code and the confidential treatment of, and anti-retaliatory measures associated with, a complaint or investigation under the Revised Code.

The Revised Code is available on the “Investor Relations” page of the Partnership’s website at https://www.envivapartners.com/corporate-governance/documents.

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Item 6. Exhibits

The information required by this Item 6 is set forth in the Exhibit Index accompanying this Quarterly Report on Form 10‑Q and is incorporated herein by reference.

Exhibit Index



Exhibit Number			Description

2.1			Contribution Agreement by and among Enviva Development Holdings, LLC, Enviva Holdings, LP, and Enviva Partners, LP dated March 21, 2019 (Exhibit 2.1, Form 10-K filed March 25, 2019, File No. 001-037363).
3.1			Certificate of Limited Partnership of Enviva Partners, LP (Exhibit 3.1, Form S‑1 Registration Statement filed October 28, 2014, File No. 333‑199625)
3.2			First Amended and Restated Agreement of Limited Partnership of Enviva Partners, LP, dated May 4, 2015, by Enviva Partners GP, LLC (Exhibit 3.1, Form 8‑K filed May 4, 2015, File No. 001‑37363)
3.3			Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership of Enviva Partners, LP, effective as of December 18, 2017, by Enviva Partners GP, LLC (Exhibit 3.1, Form 8-K filed December 21, 2017, File No. 001-37363)
31.1*			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
31.2*			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
32.1**			Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
101.INS*			XBRL Instance Document
101.SCH*			XBRL Schema Document
101.CAL*			XBRL Calculation Linkbase Document
101.DEF*			XBRL Definition Linkbase Document
101.LAB*			XBRL Labels Linkbase Document
101.PRE*			XBRL Presentation Linkbase Document

______________________________________________________________

* Filed herewith.

** Furnished herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 30, 2019



ENVIVA PARTNERS, LP

By:	Enviva Partners GP, LLC, its general partner

By:	/s/ SHAI EVEN
	Name:	Shai Even
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)