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Enviva Partners (NYSE:EVA)
Q3 2018 Earnings Conference Call
Nov. 9, 2018 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Enviva Partners third-quarter 2018 earnings conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ray Kaszuba, treasurer of Enviva Partners. Please go ahead.

Ray Kaszuba -- Treasurer

Thank you. Good morning, and welcome to the Enviva Partners, LP third-quarter financial results conference call. We appreciate your interest in Enviva Partners, and thank you for participating today. On this morning's call, we have John Keppler, chairman and CEO, and Shai Even, chief financial officer.

Our agenda would be for John and Shai to discuss our financial results released yesterday and provide an update on our current business outlook. Then we will open up the lines for questions. Before we get started, a few housekeeping items. During the course of our remarks and the subsequent Q&A session, we will be making some forward-looking statements, which is subject to a variety of risks.

Information concerning the risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements can be found in our release issued yesterday in the IR section of our website as well as in our 10-K and other recent filings with the SEC. We assume no obligation to update any forward-looking statements to reflect new or changed events or circumstances. In addition, the partnership adopted ASC 606 on January 1, 2018, so the financial results for the three months ended September 30, 2018, are prepared on this basis. In addition to presenting our financial results in accordance with GAAP, we will also be discussing non-GAAP figures on this call and want to be clear on the basis of each.

In certain cases, we refer to our results excluding the financial impact of the Chesapeake incident, where we exclude the approximate costs incurred during the third quarter of 2018, offset by insurance recoveries received to date of the Chesapeake incident. Furthermore, we will be discussing adjusted EBITDA and certain other non-GAAP measures pertaining to completed fiscal periods as well as our forecast. Information concerning the reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and other relevant disclosures are included in our press issued yesterday. I would now like to turn it over to John.

John Keppler -- Chairman and Chief Executive Officer

Thank you, Ray. Good morning, everyone, and thanks for joining us today. We've got a fair bit of ground to cover this morning, including capping out our expectations for 2018, giving a preview of 2019, and discussing some pretty exciting expansion and growth that we believe will give us the opportunity to more than double the size of the company in the next few years. So I'll get right to it.

As I hope you noticed in our earnings release, the results for the third quarter once again proved the strength of our organization and the advantage of our portfolio of plants and ports. While Hurricane Florence delivered a direct hit in September, we were still able to sell 14% more tons in the third quarter of 2018 than the third quarter of 2017, generating net income of more than $13 million and adjusted EBITDA of over $30 million for the three months ended September 30, 2018. We build our production plants and terminal facilities to withstand storms like Florence and Michael, and our facility sustained only limited damage. Most importantly, we were able to help keep our people safe and accounted for.

And when power was restored to the region, we had our incredible workforce ready, willing and able to return to world-class operations at expected production rates. We should be clear, however, that although the immediate impacts from the hurricanes to the region surrounding our facilities are behind us, the aftermath has complicated our deliveries. Not only did we lose production due to downtime at our Sampson and Cottondale plants, as well as at our sponsor's joint ventures Greenwood plant, the disruption in terminal operations during mandated closures of the Port of Willington and Port of Panama City required us to reschedule several of our shipments in the future periods. But here's the good news, despite these events, due to the durability of our assets and efforts from operational teams, we believe that 2018 adjusted EBITDA guidance range of $118 million to $122 million we set out at the beginning of the year remains achievable, subject to the timing and amount of recoveries from insurers and other parties.

For full-year 2018, before we add the benefit of any further expected recoveries on claims outstanding that would benefit adjusted EBITDA, we believe the business will generate about $11 million in net income and $100 million in adjusted EBITDA. That translates to our fourth-quarter 2018 estimate of about $30 million in adjusted EBITDA, again, without considering the benefit of recoveries on our outstanding claims. And as of today, we have over $26 million in claims outstanding with insurers and other responsible parties that would benefit adjusted EBITDA. Some of these claims are proceeding through normal processes and others are actively in settlement discussions.

We feel strongly about our ability to recover a substantial portion of these amounts. They are either for directly insured risks or for substantiated contractual performance issues. But we need to recognize that the final resolution of our claims may extend beyond the end of the year. However, our confidence in these recoveries and the trajectory of the business led our board to declare a quarterly distribution of $0.635 per unit for the third quarter of 2018, which was at a level of quarterly coverage back in line with our long-term expectations.

Given how we expect the fourth quarter to shape up, we are also reaffirming our prior full-year 2018 distribution guidance of at least $2.53 per unit. I'd note that the distribution for the third quarter represents our 13th consecutive quarterly increase and with what we expect for the fourth quarter and beyond, this is a track record we expect to continue. So setting the stage for what's next. When we evaluate the contracted position and production profile of our assets, we expect that 2019 net income will be between approximately $31 million and $41 million, and adjusted EBITDA will be in the range of $125 million to $135 million before including the benefit from any acquisitions, drop downs, production plants under development or construction or major expansions within our portfolio.

On that last front, we're pretty excited about the opportunity we highlighted in our release yesterday. Subject to receiving the necessary permits, we expect to invest approximately $130 million to increase the production capacity at our Northampton and Southhampton wood pellet plants. We are planning to install production equipment and additional emissions controls equipment that we expect will enable us to do two things. First, we'll be able to increase our aggregate production capacity in the partnership by 400,000 metric tons per year.

And second, because we're going to increase the percentage of pine in our raw material mix and drive additional tons over fixed cost, we will be increasing margin per ton as well. So net-net, this would translate to more tons at higher margin. And as opposed to an acquisition or a drop, this can be accomplished directly inside the partnership at a relatively attractive and accretive anticipated investment multiple of 4 to 5 times the expected annual incremental adjusted EBITDA of approximately $30 million. We expect to start benefiting from this incremental EBITDA as the expansions ramp through 2020.

We are frequently asked about the timeline to eventually develop a new production capacity within the partnership, and we believe the Southhampton and Northampton expansion projects represent a great first step. I plan to spend some time at the end to discuss the market, additional sales, and our sponsor's development activities to build out the plants required for our firm contracted backlog and to make up our increasingly large and visible drop-down inventory. But I would like to now hand it over to Shai to discuss our financial results.

Shai Even -- Chief Financial Officer

Thank you, John. For the third quarter of 2018, on a GAAP basis, net income was $13.4 million, versus net income of $5 million for the corresponding quarter of 2017. Adjusted EBITDA for the third quarter of 2018 was $30.2 million, as compared to $25.8 million for the corresponding quarter of 2017. Excluding the financial impact of the Chesapeake incident, adjusted EBITDA would have been $24.8 million for the third quarter of 2018.

Distributable cash flow, prior to any distribution attributable to incentive distribution rights paid to the general partner, was $20.7 million for the third quarter of 2018 on a reported basis, which covers the third quarter of 2018 distribution at 1.14 times. For the third quarter of 2018, net revenue was $144.1 million, representing an increase of 9% over the corresponding period of 2017 of $132.3 million. [Inaudible] revenue was $142.5 million, as compared to product sales of $125.5 million for the third quarter of last year. For the quarter, we sold 762,000 metric tons of wood pellets, as compared to 668,000 metric tons during the third quarter of 2017, an increase of 14%.

For the third quarter of 2018, we generated gross margin of $30.1 million, as compared to $20.4 million for the third quarter of last year. The higher gross margin was primarily as a result of insurance recoveries in excess of expenses incurred during the quarter related to the Chesapeake incident as well as an increase in sales volume, partially offset by lower other revenue. On a reported basis, adjusted gross margin per metric ton was $55.64 for the third quarter of 2018. Excluding the financial impact of the Chesapeake incident, adjusted gross margin per metric ton would have been $39.70 for the third quarter of 2018, as compared to $43.33 for the third quarter of 2017 as adjusted for the impact of ASC 606 for comparison purposes.

We continue to believe that substantially all of the costs resulting from the Chesapeake incident will be recoverable. We also believe a significant portion of our cost associated with the effect of the hurricanes Florence and Michael are recoverable from insurance, subject customary deductibles. As John pointed out in his remarks, absent any further recoveries associated with the hurricanes and the Chesapeake incident that would benefit our adjusted EBITDA, we expect full-year 2018 net income of approximately $11 million and adjusted EBITDA of approximately $100 million. The partnership currently has more than $26 million in outstanding and substantiated claims related to the Chesapeake incident and we can and substantially all these documents -- documented claims have been submitted.

Although the total amount the partnership will receive and the timing of payments are not entirely within the partnership's control, our expected recoveries of -- on these claims would, if received in 2018, improve adjusted EBITDA to within the full -- expected full-year 2018 guidance range.Our confidence in the strength of the underlying business and our ability to secure payments on these outstanding claims led the partnership to reaffirm full-year 2018 distribution guidance of at least $2.53 per unit, with continued quarter-over-quarter increases expected. From a liquidity perspective, at the end of the third quarter of 2018, we had approximately $49 million of cash on hand, with $88.5 million of the $100 million capacity under our prior revolving credit facility available. As you likely noticed, the partnership amended and restated its senior secured credit facility on October 18, expanding the revolver from $100 million to $350 million and extending the term from April 2020 to October 2023. We believe the expected revolver is more consistent with the scale and growth trajectory of the partnership, and it is not only low of -- of cost of capital but also provides significant flexibility in financing future drop-down acquisitions and expansions.

Subsequent to our credit facilities expansion and to the events of the hurricane, you may have noticed that the rating agencies recently completed their annual review for the partnership. We are very encouraged to see the corporate rating update from S&P and positive outlook from Fitch. We believe this resulted from increased recognition of the improved long-term stability and durability of our cash flow profile, achieved by the progress we have made in extending the scale of the partnership and growing and diversifying our geographic footprint and customer base. At this point in the year, we also think it is important to begin to talk about 2019.

For 2019, given the production profile of our fully contracted assets, we are projecting to a net income in the range of approximately $31 million to $41 million, with associated adjusted EBITDA of between $125 million to $135 million. The 2019 improvement over 2018 is driven by roughly 5% increase in terms expected to be produced by the partnership, pricing escalators are now offtake contract and continued reduction in our cost position. The guidance does not include any impact of drop-down acquisitions or expansions or the benefit of volumes from this partnership, joint venture of Hamlet plant to our Port of Wilmington terminal and recoveries of claims discussed earlier. In the next few months, we will provide updates and additional details on our 2019 various plan and the expected timing of our drops.

While we continue to execute on these goal strategy, maintaining a balanced capital structure and conservative financial policy will be a key focus of ours. Now I would like to turn it back to John.

John Keppler -- Chairman and Chief Executive Officer

Thanks, Shai. Before I talk more specifically about our sponsor's development activities, I'll provide a brief update on the market and our contracted position. As we profiled in our release, the fundamentals of the biomass market remain extremely strong and the world of biomass is increasingly being recognized by international and government organizations. For its recently published renewable 2018 report, the International Energy Agency is expecting bioenergy, now the fastest growth among all renewable energy sources.

The IEA also forecasted that in order to keep global warming below 2 degrees Celsius this century, the share of modern bioenergy in the world's energy mix will need some more than triple to 17% by 2060. Evolving markets like Germany, the Netherlands, and Japan demonstrate how some of that potential turns into real demand. In Germany, the dual goals of ending coal generation to reach its 2050 carbon emissions reduction target and retiring all nuclear capacity by the end of 2022 create baseflow generation challenges that sustainable biomass is uniquely positioned to solve. In the Netherlands, 27% of total funds in its spring 2018 SDE+ allocation round was awarded to biomass projects.

This represents 50 projects and EUR 950 million of incentives. The government also confirmed that a further EUR 6 billion of total incentives will be available in the autumn 2018 round, which opened in October of this year. Shifting to Japan. As of the last fiscal year that ended March 31, 2018, operating biomass power generation capacity, approved under the feed-in tariff scheme, reached 2.4 gigawatts.

As we have previously discussed, Japan is targeting 6 to 7.5 gigawatts of biomass power by 2030, which represents 15 million to 20 million metric tons per year of biomass demand.During 2018, together with our sponsor, we have announced a series of new agreements, totaling approximately 2.1 million metric tons per year, serving a wide range of customers in the European and Japanese markets. Some of these incremental contracted demand will be served by the partnership directly, including the 180,000 metric tons per year we will provide for 15 years as part of the Mitsubishi I/O we project and the 200,000 metric tons per year for three years, starting in 2020, with our existing customer alignment. These contract additions mean our sales and production books at the partnership remain well balanced through 2025, including the expanded capacity I discussed earlier. The weighted average remaining term of the partnership's firm offtake contract now stands at 9.4 years, and our revenue backlog from firm contracts is now $7.4 billion.

What's just as exciting is how large the backlog at the sponsor and its joint ventures has become. These long-term contracted volumes include the majority of the 1 million ton per year 15-year MGT contract, all of the 520,000 tons contracted to Sumitomo for 15 years, and most recently, 450,000 tons to be delivered under the Mitsubishi contract for 15 years. The weighted average remaining term of these contracts is 15 years, with the product sales backlog of $4.8 billion. All of these will be need -- all of these will need to be fulfilled by new capacity, which underpins the new plant development under way at the sponsor and its joint ventures that you've heard us talk about previously.

These include the Hamlet North Carolina plant that is under construction and expected to begin operation in the first half of next year; the Greenwood South Carolina plant, which is operating and has the potential to be expanded to 600,000 metric tons per year, subject to receiving necessary permits; and the Pascagoula cluster, which includes a new deepwater marine terminal asset in Pascagoula, Mississippi, and the prospective production plant in Louisville, Mississippi, about which our sponsor expects to make a final investment decision around the end of the year. Just to put the sponsor level activities in perspective, the production capacity I just highlighted is more than the entire production capacity within the partnership when we went public in 2015 and the current revenue backlog a firm contracts upstairs is ask nearly three times the size of the partnership's backlog at that time. By design, the expectation is that all of assets developed by the sponsor and its joint ventures and the related contracted backlog will be made available to the partnership for acquisitions. So when you add up the potential EBITDA from the expansions and the organic growth we profiled within the partnership, plus that of the three plants and outstanding Wilmington and Pascagoula terminal drop downs that are all now underwritten with firm, long-term contracted take-or-pay offtakes, we believe it's a pretty clear path to seeing the partnership's EBITDA more than double in size over the next few years as we have the opportunity to acquire these assets.

We think that's pretty exciting and something we're going to be talking a lot more about in 2019. So in sum, another quarter demonstrating the reliability of our portfolio and the tremendous growth opportunities ahead. We are focused on delivering long-term unitholder value through strong and reliable operating performance, growing contracted cash flows and high-return organic and drop-down growth opportunities. We are confident that this strategy will enable us to continue to increase our per unit distributions over time.

It's a track record we have maintained for 13 quarters since our IPO and one we expect to continue. As we close, I would like to thank all the great people at Enviva for their dedication and hard work. Contracting the outcomes for Enviva plant and people, to the impacts of Hurricanes Florence and Michael that were highly visible in the international media over the last several months, it's a true testament to the excellence of this team, keeping our plants, ports, and most importantly, each other safe every day. Operator, can you please open the line for questions?

Questions and Answers:

Operator

Thank you. [Operator instructions] And our first question will come from Brian Maguire with Goldman Sachs. Please go ahead.

Derrick Laton -- Goldman Sachs -- Analyst

Thank you. Morning, guys. This is Derrick Laton on for Brian.

John Keppler -- Chairman and Chief Executive Officer

Hey, Derrick. How are you?

Derrick Laton -- Goldman Sachs -- Analyst

Good, good. How are you?

John Keppler -- Chairman and Chief Executive Officer

All right.

Derrick Laton -- Goldman Sachs -- Analyst

Hey, just a clarification around the guidance. So the $100 million in EBITDA that you guys are expecting for the --for the full year '18, assuming no more insurance recoveries for the rest of the year, but the net income number, I think you said was assuming about $7 million has already flowed through in 4Q. Is that inclusive of that $26 million you guys have left outstanding? I'm just curious if that number is inclusive of that.

Shai Even -- Chief Financial Officer

Yeah, I think that's what we talked about -- thank you for the question -- what we talk about is, we talked about $11 million of net income based on the $100 million of adjusted EBITDA. But we would like maybe with this question to take a step back and explain this year in full because this year was a little bit noisy with the Chesapeake incident and the hurricanes. So, first of all, we would like to remind everyone the Chesapeake terminal returned to operations on June 28 and is receiving, storing, and loading wood pellets at world-class rates, consistent with expectations prior to the incident. So operationally, the Chesapeake incident is well behind us.

Year to date, through September 30, we've recorded approximately $58 million of cost that is our income statement, [Inaudible] which we received approximately $49 million of insurance proceeds. We do not expect material cost related to Chesapeake incident during the fourth quarter. And to help meet up our adjusted EBITDA and maybe a little bit to over communicate where we stand with recovery for this, we said that if we don't receive any further recoveries associated with the Chesapeake incident or the hurricanes, our adjusted EBITDA for 2018 would be approximately $100 million, which, of course, the $100 million is a figure that was negatively impacted by the cost associated with the -- with these events. However, when we have -- however, if you're looking at our position right now, we have an outstanding claims that were all substantiated.

We have total recoveries of more than $26 million from insurance, insurers. And along with these claims, we have outstanding claims against other responsible parties related to the Chesapeake incident as well relatively small claims related to the hurricanes is that if received all will be included in our adjusted EBITDA. We, of course, we feel strongly about our ability to recover a substantial portion of these claims. And if those claims are received in 2018, then our guidance for 2018 of $118 million to $122 million is achievable.

We also would like to point out again that -- to point out that a final resolution of this claim maybe -- may extend beyond the end of the deal.

Derrick Laton -- Goldman Sachs -- Analyst

Got it. Thant's helpful. Thanks for the clarification. And for your 2019 outlook for EBITDA --

Shai Even -- Chief Financial Officer

Yup.

Derrick Laton -- Goldman Sachs -- Analyst

-- that doesn't assume any further recoveries, correct?

John Keppler -- Chairman and Chief Executive Officer

Yes, that's correct. The 2019 guidance doesn't include any incremental insurance recoveries, net of the -- so depending upon quite where the end of the year shakes out, whether the $26 million comes in before the end of the year or during 2019, will, of course, reconcile to that. Going back to your original question, the $7 million you referenced is not included in the $26 million of incremental. The $26 million is just those claims that would affect incremental adjusted EBITDA.

Shai Even -- Chief Financial Officer

That's helpful. Thank you. And then just to the expansion projects. just trying to think about how should we expect the cadence for capex flowing through for those, is that going to be more heavily weighted to early '19? And then what issues or maybe challenges do you foresee with some of these projects whether it's permitting or just technological challenges and how you guys plan on going to that?

John Keppler -- Chairman and Chief Executive Officer

Thank you very much. Look, that was a great question. We're obviously pretty encouraged and excited about the opportunity. What you see the mid-Atlantic and Northampton and Southampton, it's a bit of the replication of the increase in size that you've seen in our discussions around both Hamptons and in Hamlet and then our talk about Lucedale.

And so those facilities will be installing incremental production equipment. We're very consistent with everything that's on site today as well as incremental emissions control equipment that will increase the capacity of these sites. This is a team that's built seven to eight, we're now on -- with Lucedale, essentially our ninth facility, so pretty much right inside our wheelhouse about what we know how to build and how to install. The cash flow curve against that will be actually spread relatively evenly over the course of 2019, and now I would say even bleed in as we deal with a little bit of the holdbacks against installation as we pay out the vendors following completion.

So basically, a five-quarter spend relatively distributed between the fourth quarter of 2019 and then perhaps the first quarter of 2020.

Derrick Laton -- Goldman Sachs -- Analyst

Great. That's really helpful. Thanks, and maybe one more. It sounds like you guys are increasing the energy density of the pellets for this particular projects is that something that you guys might be looking at doing at some of your other facilities or maybe that opportunity exist out there?

John Keppler -- Chairman and Chief Executive Officer

That's exactly right. What's -- as you've heard us talk about previously, our facilities can be talked to dialing essentially any raw material mix. What we have an opportunity to do is to increase the relative pine utilization. And with that, comes increased emissions controls higher energy-content wood, but with that, it has a slightly higher VOC emissions profile and has the additions of incremental emissions control equipment.

We certainly see that relative balance on pine versus some of the hardwoods. We're increasing pine across the fleet generally, in the case of our most out facilities like our Cottondale asset, that's almost 100% pine. And so we have the opportunity to continue to do something.

Derrick Laton -- Goldman Sachs -- Analyst

Great. Thanks very much, guys.

Operator

[Operator instructions] You're next question comes from Pavel Molchanov of with Raymond James. Please go ahead

Pavel Molchanov -- Raymond James -- Analyst

Thanks for taking the question. As I read about your Japanese contracts becoming firm, I also realized that it's going to be three to four years, I think based on the dates you've given before those contracts show up in revenue. Is there any realistic prospect of accelerating the timetable of starting shipments to Japan ahead of, let's say, 2022?

John Keppler -- Chairman and Chief Executive Officer

Pavel, that's a fantastic question. Unequivocally, yes, I mean, we are shipping into Japan. Today, we have incremental vessels going to Japan. Today, we expect that to continue pretty aggressively in the ramp up to the larger volume starts of the I/O contract, of the Sumitomo contract, of the Marubeni contract we profile.

But that's pretty because the market is structurally short, and so as we have the opportunity to -- even in low single digit increases like Shai talked about in your guidance, be able to increase production capacity. All of those tons can matriculate to both the European and Japanese markets that are quite short supply, given what they ultimately want to ramp into. So we actually feel that every incremental town that we can create in the next several years we have a great home for.

Pavel Molchanov -- Raymond James -- Analyst

OK. And in the press release, you alluded to the upcoming decision by the German coal commission regarding the prospective phaseout, which would be, by far, the largest coal phaseout in world history. Should we expect a similar kind of timetable for contracting in Germany if that gets under way? In other words, if the Japanese buyers are signing deals three to four years before delivery start, would it be a similar lead time as the German market opens up too?

John Keppler -- Chairman and Chief Executive Officer

Pavel, I think you're right. But what I would say is that this is beginning to feel a lot like the market in the U.K. as it rationalizes its policies to the contract for difference several years ago. And the only -- just -- the only way I would distinguish perhaps the German market from the Japanese is that because we expect the German market to largely materialize around conversions of existing [Inaudible] heat and power and other condensing coal power plants, we tend to think that a little bit shorter cycle than perhaps the three to four years.

But, clearly, you're in a transition period right now between red 1 and red 2 and that the German coal commission's decisions and final report due the end of this year, I think will open up some very interesting opportunities for us over the next two to thee years to begin to develop what we believe will be a very significant -- very significant market as Germany both realizes its carbon-reduction goals and deals with a pretty intense baseflow generation challenge.

Pavel Molchanov -- Raymond James -- Analyst

And last question for me closer to home. In the elections, just a few days ago, three new governors in Illinois, Michigan, and New Mexico were elected, partly on the pledge of joining the U.S. climate alliance and starting to enforce [Inaudible]. Is there any scenario that you can envision where, in those three states that have pretty significant coal generation today, you would see demand for pellets emerging? Because, frankly, we just haven't seen that anywhere else domestically before.

John Keppler -- Chairman and Chief Executive Officer

Look, the -- we've always benefited from general bipartisan support for our business, and I don't expect that to change. I think there is some tailwinds to what you just described. Whether it was the Obama administration and its focus on climate change and the benefits of biomass, or more recently, you've got the EPA and DOE and USEA issuing a letter, just last week in fact, talking about the benefits of responsibly using fuels from our forest being both good for the environment and great for struggling rural economies. So there's a convergence around this, and I think that there are some positive discussions about renewable energy and creating rural jobs with policymakers, including directly those in the states you mentioned.

What I would say is the, where the EPA is on its proposed affordable clean energy rule, combined with policy guidance on carbon accounting for biomass, there's some opportunity there. And clearly, we do offer the power sector a proven option for displacing coal and achieving carbon emissions reductions, particularly at the plant level. And I'd say that that may open up some of those opportunities down the road, maybe even directly in those states.

Pavel Molchanov -- Raymond James -- Analyst

OK. Appreciate it, guys.

John Keppler -- Chairman and Chief Executive Officer

Pavel, thank you very much.

Operator

And our next question comes from Richard Hayden with the THC. Please go ahead.

Richard Hayden -- THC -- Analyst

Good morning. Good morning, how is everybody? John, when you indicated the next few years for the billing EBITDA is that a five-year framework?

John Keppler -- Chairman and Chief Executive Officer

I would say that's when you actually look at their facilities to make that up and how you get there, you start with sort of the 120, 125 that we're talking about, you got the outstanding $6 million to $8 million from the Port of Wilmington second drop, you've got the Southampton and Northampton expansion projects, which really commence in early 2020, that's another $30 million. Then you've got the typical EBITDA of the 3 -- 600,000-metric-ton plants like Hamlet and Greenwood and potentially Lucedale that are all in the sort of $20 million to $30 million range plus the 7% to 10% year-over-year organic growth we target, you get there shorter than five years.

Richard Hayden -- THC -- Analyst

OK, terrific. One other small -- excuse me, smaller question. When you increase the mix of pine, we indicated a gross profit margin goes up. Is it material?

John Keppler -- Chairman and Chief Executive Officer

Look, it really depends upon the aggregate moisture content that we're buying that out, not to get too far in the woods, but the pines are brighter order.

Richard Hayden -- THC -- Analyst

Right.

John Keppler -- Chairman and Chief Executive Officer

What we tend to think is you will see single-digit increases in margin per ton, driven by the NCV differential, the energy content differential between the wood pellet produced on pine and the wood pellet produced in [Inaudible] hardwood pine.

Richard Hayden -- THC -- Analyst

OK. Thank you. Good luck.

John Keppler -- Chairman and Chief Executive Officer

Thanks, Richard.

Operator

And this will conclude our question-and-answer session. I would like to turn the conference back over to John Keppler for any closing remarks.

John Keppler -- Chairman and Chief Executive Officer

Well, thank you again for joining us today. As you know, I'm pretty fond of saying we are just getting started, and that is absolutely still the case. I very much look forward to catching up with everyone and updating us all on the next round of accomplishments that we're able to undertake through our next quarter. Have a great day.

Operator

[Operator signoff]

Duration: 38 minutes

Call Participants:

Ray Kaszuba -- Treasurer

John Keppler -- Chairman and Chief Executive Officer

Shai Even -- Chief Financial Officer

Derrick Laton -- Goldman Sachs -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

Richard Hayden -- THC -- Analyst

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