Please ensure Javascript is enabled for purposes of website accessibility

Enviva Partners (EVA) Q4 2020 Earnings Call Transcript

By Motley Fool Transcribing - Feb 26, 2021 at 1:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

EVA earnings call for the period ending December 31, 2020.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Enviva Partners (EVA)
Q4 2020 Earnings Call
Feb 25, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the Enviva Partners, LP fourth-quarter and full-year 2020 earnings conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Wushuang Ma, vice president and treasurer. Please go ahead.

Wush Ma -- Vice President and Treasurer

Thank you. Good morning, and welcome to the Enviva Partners, LP fourth-quarter and full-year 2020 financial results conference call. We appreciate your interest in Enviva Partners, and thank you for participating today. On this morning's call, we have John Keppler, chairman and CEO; and Shai Even, chief financial officer.

Our agenda will be for John and Shai to discuss our financial results and provide an update on our current business outlook. Then we will open up the phone lines for questions. During the course of our remarks and the subsequent Q&A session, we will be making some forward-looking statements, which are subject to a variety of risks. Information concerning the risks and uncertainties that could cause our actual results to differ materially from those in our forward-looking statements can be found in our earnings release, as well as in our other filings with the SEC.

We assume no obligation to update any forward-looking statements to reflect new or changed events or circumstances. In addition to presenting our financial results in accordance with GAAP, we will also be discussing adjusted EBITDA and certain other non-GAAP measures pertaining to completed fiscal periods, as well as our forecasts. Information concerning the reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and other relevant disclosures are included in our earnings release. I would like to now turn it over to John.

John Keppler -- Chairman and Chief Executive Officer

Thank you, Wush. Good morning, everyone, and thanks for joining us today. A hallmark of Enviva's culture is keeping promises. At this time last year, we committed to achieving a certain set of operational and financial targets for the partnership.

When we completed two transformative acquisitions in the middle of the year, we made additional promises and increased our guidance. As I hope you saw in our earnings release, we kept the promises we made. Against the very challenging COVID-19 backdrop that continues to persist, we are very proud to report that we had our safest year ever. We did not miss a single customer delivery.

We increased the fully contracted production capacity of the partnership by more than 30%. We increased our year-over-year adjusted EBITDA by more than 30%, and we kept our promise to our unitholders, distributing $3 per unit for full-year 2020, extending our track record of 22 consecutive quarterly distribution increases at a compound annual growth rate of 13% since our IPO, and delivered a total unitholder return of 30% in 2020. We were able to achieve this in the face of broad economic and market volatility, in large part because of the fully contracted nature of our business and its durable, sustainable operating profile that together generate stable, growing cash flows. Turning to 2021, we're making new promises about what we expect to achieve, not just in terms of operating and financial performance, but also to align ourselves with the global communities escalating commitments to limit global warming in order to avoid the most devastating impacts of climate change.

As a result, we are proud to join with other leaders in committing ourselves to net-zero emissions in our operations by 2030 by following a measured, achievable and efficient plan. At the same time, we are undertaking to deliver meaningful growth in our adjusted EBITDA in 2021 as we realize the anticipated benefits of the growth initiatives we undertook over the last few years. Specifically, our guidance for 2021 is an increase of 25% over 2020, at the midpoint of our range of $230 million to $250 million in adjusted EBITDA before accounting for additional drop-downs or other acquisitions, you have come to consistently expect from us. We believe the resulting cash flow profile will enable us to distribute at least $3.17 per unit for full-year 2021, again, before considering the benefit of additional drop-downs or other acquisitions.

Moreover, I'm very excited about the new expansion projects we have commenced within the partnership. Now that we have completed construction at the Northampton and Southampton expansion projects, we are turning our attention to targeted opportunities at our Sampson, Hamlet and Cottondale facilities, where through innovative projects that are intended to optimize our manufacturing processes, eliminate certain costs and expand our production capacity, we expect to deliver substantial incremental margin. On the basis of approximately $50 million of investment, we believe we will generate an additional $20 million in annual run rate adjusted EBITDA as these projects are completed and fully ramped by the end of 2022. Looking ahead, despite the global pandemic, the tailwinds for our industry are remarkable.

In the macro context, each member nation of the EU, the United Kingdom, Japan, South Korea and other potential markets across the globe, have pledged to become net-zero. The US itself has recommitted to the Paris agreement. And one of the most cost-effective and immediate ways to decarbonize continues to be the conversion of existing coal and other fossil fuel fired plants to biomass. The progress to date has been remarkable and not just in traditional applications.

While customers around the world are recycling existing energy infrastructure and building new, bespoke biomass fired assets, we are also increasingly seeing innovations like biomass energy generation, coupled with carbon capture and sequestration, one of the few ways in the near-term to achieve carbon-negative energy at scale. As well as projects that use biomass energy and combined heat and power applications, which are key to decarbonizing the industrial energy sector. We are also seeing major manufacturers around the world looking to substitute renewable bio-based carbon for fossil fuel-based carbon as direct material inputs for the production of core commodity products like chemicals, cement and steel. This is exciting and has the potential to open up new markets and new customer segments.

I will take some time later in the call to provide an update on how these long-term market drivers are influencing our contracting activities, as well as to bring you up to speed on the development and expansion projects taking place at the partnership and our sponsor. I will also elaborate on our net-zero commitment and its related action plans. Hopefully, as we wrap up today, we provide all the pieces we have under way together in a way that can make you as excited as we are about 2021 and beyond. But first, I would like to turn it over to Shai to discuss our financial results for the fourth-quarter and for full-year 2020 and to provide more details on our guidance.

Shai Even -- Chief Financial Officer

Thank you, John. For the fourth quarter of 2020, we generated net revenue of $277.3 million, an increase of $76.8 million from the corresponding quarter of 2019. The increase in net revenue was primarily driven by sales volume that were 29.4% higher, as well as an $11.2 million increase in other revenue. Included in other revenue for the fourth quarter of 2020 were $15.4 million in payments to the partnership for adjusting deliveries under our take-or-pay offtake contracts, which otherwise would have been included in product sales.

For the fourth quarter of 2020, gross margin was $26.6 million as compared to gross margin of $28.2 million for the corresponding period of 2019. Adjusted gross margin was $72.8 million for the fourth quarter of 2020 as compared to $55 million for the fourth quarter of 2019, an increase of $17.8 million or 32.3%. Adjusted gross margin per metric ton was $54.02 for the fourth quarter of 2020 as compared to $52.83 for the fourth quarter of 2019. The increase in adjusted gross margin was primarily attributable to higher sales volumes and higher pricing due to customer contract mix, partially offset by a corresponding increase in cost of goods sold.

Net loss for the fourth quarter of 2020 was $0.4 million as compared to net income of $0.9 million for the fourth quarter of 2019. Adjusted net income was $11.1 million for the fourth quarter of 2020 as compared to adjusted net income of $17.2 million for the corresponding quarter of 2019. For the fourth quarter of 2020, the partnership generated a record quarterly adjusted EBITDA of $69.3 million, up 30.1% for the same period of 2019. The increase in adjusted EBITDA was driven primarily by the same factors that increased adjusted gross margin.

Distributable cash flow, prior to any distribution attributable to incentive distribution rights paid to our general partner was $54.8 million, which results in a fourth-quarter 2020 distribution coverage ratio of 1.5 times. For the full-year 2020, net revenue was $875.1 million, an increase of $190.7 million from 2019. The increase in net revenue was primarily driven by sales volumes that were 21.5% higher, as well as a $34.4 million increase in other revenue. Included in other revenue for full-year 2020 were $32.5 million in payments to the partnership for adjusting deliveries under our take-or-pay offtake contracts which otherwise would have been included in product sales.

Gross margin was $107.1 million for full-year 2020 as compared to $81.1 million for 2019. Adjusted gross margin was $204.9 million for full-year 2020 as compared to $151.6 million for 2019, an increase of $53.2 million or 35.1%. Adjusted gross margin per metric ton was $47.29 for full-year 2020 as compared to $42.54 for 2019. Gross margin and adjusted gross margin increased primarily due to higher sales volume and higher pricing due to customer contract mix, partially offset by a corresponding interest in cost of goods sold.

For full-year 2020, net income and adjusted net income were $17.1 million and $46 million, respectively. For full-year 2019, net loss and adjusted net income were $2.9 million and $39 million, respectively. Adjusted EBITDA for full-year 2020 was also a record high $190.3 million, up 34.7% from 2019. The increase in adjusted EBITDA was primarily due to the same factors that increased adjusted gross margin.

Distributable cash flow prior to any distributions attributable to incentive distribution rights paid to our general partner, was $141.6 million for full-year 2020, up 43.8% as compared to 2019. At the end of 2020, the partnership liquidity, which includes cash on hand and availability under our $350 million revolving credit facility, was $239.7 million. Moving on to guidance, for full-year 2021, the partnership expects net income to be in the range of $42.3 to $62.3 million, adjusted EBITDA to be in the range of $230 million to $250 million, and distributable cashflow to be in the range of $160 million to $180 million prior to any distributions attributable to incentive distribution rights paid to our general partner. The partnership also expects to distribute at least $3.17 per common unit for full-year 2021.

The guidance amounts do not include the impact of any additional acquisitions or drop-downs. Consistent with prior years, we expect the second half of 2021 to be a significant step-up from the first half. Our ability to access the capital markets even amid turbulent market conditions is in part a result of our conservative financial policies which remain unchanged. We continue to expect to fund drop-downs, acquisitions and major expansion using 50% equity and 50% debt.

We also continue to target a conservative leverage ratio of 3.5 to four times and a distribution coverage ratio of 1.2 times on a forward-looking annual basis. As you have seen in our financial results, the partnership's conservative cashflow, net of amounts attributable to incentive distribution rights, was $114.6 million for full-year 2020, which covered the distribution for full-year 2019 at 1.29 times. Now I would like to turn it back to John.

John Keppler -- Chairman and Chief Executive Officer

Thanks, Shai. Five years into the Paris Agreement, the world has come to the realization that it is no longer enough to just set long term ambitions, and it is no longer enough to just replace coal with renewables. To get to net-zero by 2050, we want to take more aggressive actions now and fully utilize everything in our toolbox. The United Kingdom, which has been at the forefront of the renewable energy transition and just raised its commitment to cut greenhouse gas emissions to at least 68% by 2030 relative to 1990 levels, is again leading the charge.

In a series of important energy policy announcements over the last few months, the UK government outlined its intention to not only support bioenergy with carbon capture and storage, or BACS, which is a key negative emission solution, but also to explore bioenergy's role in hydrogen production. At the same time, across the English Channel, the European Union took another major step toward legislating the 2050 net-zero target into the European climate law, when EU leaders from all 27 member states, including heavily coal-dependent countries like Poland and the Czech Republic, agreed to the target of 55% greenhouse gas emissions reductions by 2030, again, as compared to 1990 levels. Germany also continues to progress toward its legally binding 2038 coal phaseout target, and we expect that the final legislative process regarding the related enabling policies will conclude over the next several months. The partnership and its sponsor remain in ongoing dialogue with multiple large utilities and power and heat generators about their plans to convert existing coal-fired assets to biomass.

And we expect to enter into take-or-pay offtake contracts with these customers in the six- to 12-month period following completion of that legislative process. In Japan, following Prime Minister Suga's net-zero pledge in October of 2020, METI quickly unveiled a green growth strategy. The strategy sets a target for renewable energy sources to make up 50% to 60% of the nation's power supply by 2050 and proposes various related tax incentives and other support. However, Japan's energy grid, which is still quite fossil fuel dependent, has very little excess capacity.

Last month, power prices more than quadrupled during a period of particularly cold and bad weather. When intermittent renewable energy generation became limited and when the grid was barely able to avoid blackouts, even after Japanese utilities ran Thermo power generation at maximum capacity. The ability to generate baseload, dispatchable, renewable power and ensure grid stability is a key reason our customers, including those in Japan, turned to Enviva for long-term contracted supply. Our existing contracts with these customers are generally for power projects under the 20-year feed-in tariffs.

However, as the Japanese government set significantly more ambitious climate targets, our customers have engaged us in discussions about a broader range of projects. The MOU our sponsor just executed with a major Japanese trading house is intended to provide up to 1 million metric tons per year of wood pellets to support decarbonization of the manufacturing sector, a brand-new market segment for us in Japan. We are currently under way with test deliveries for new customers in new jurisdictions and for new applications. While these efforts will take time to mature, the macroeconomic trend toward decarbonization continues to accelerate, and we believe that will lead to substantial new contract executions in current and emerging geographies.

Partnership's current contract portfolio has a total weighted average remaining term of 12.8 years and a total contracted sales backlog of $14.6 billion. With the contracts just announced by our sponsor, including the new 20-year contract with a major Japanese trading house for 240,000 metric tons per year and the expansion of volumes under an existing offtake agreement, the combined contract portfolio, including all volumes under the firm and contingent offtake contracts held by the partnership and our sponsor, now has a total sales backlog of $19.9 billion with a weighted average contract maturity of 14 years. To supply this growing offtake portfolio, the partnership continues to increase its production capacity. The production ramp of the expansions at our Northampton and Southampton plants is ongoing, and we expect each to reach its expanded nameplate production capacity of approximately 750,000 metric tons per year by the end of 2021.

The Greenwood expansion is also on track for completion by the end of this year. In addition, the partnership has begun expansion projects at our Sampson, Hamlet and Cottondale plants and expect to complete these projects by the end of 2022. Moreover, the construction of the fully contracted Lucedale plant and Pascagoula Terminal is progressing as expected, and our sponsor expects these assets to be completed midyear 2021. Our sponsor has also completed the purchase of the project site and commenced preconstruction activities at its fully contracted Epes plant.

With the newly executed contracts, complemented by material contract volumes in negotiation with utilities and power generators in current and evolving markets around the globe, we expect our sponsor to continue to develop incremental production and terminal capacity in and around our and our sponsor's existing footprints. To maintain its fully financed growth profile, our sponsor recently closed a $325 million green term loan and used a portion of the proceeds to buy out its development joint venture partner, further reducing its cost of capital. With the balance of the green term loan and the $300 million in undrawn equity capital raised during our sponsor's recapitalization transaction announced last year, our sponsor remains extremely well-positioned to deliver a large and growing pipeline of development projects. Which by design, the partnership expects to have the opportunity to acquire, along with the associated offtake contracts.

Our sponsor has consistently recycled proceeds from dropdown transactions into the development and construction of new plants and terminal assets. Our scale is large and growing and unmatched anywhere in the industry. The existing assets in operation and under expansion at the partnership, together with the sponsor's Lucedale plant, Pascagoula Terminal and Epes Plant, we'll have a combined production capacity of more than 7 million metric tons per year, with total terminal throughput capacity of about 11 million metric tons per year. For reference, that is more than double the size of the partnership's production capacity just one year ago.

But with this scale also comes obligation. And consistent with the global communities' commitments and our own mission to displace coal and limit the impact of climate change, we and our sponsor have committed ourselves to become carbon neutral or net-zero in our operations by 2030. This is an ambitious but attainable goal, backed by a detailed plan to tackle our Scope 1, 2 and 3 emissions. It will take time.

But like any journey, it begins with the first step. For us, this means we will immediately start to mitigate 100% of direct emissions from assets owned and controlled by us for our Scope 1 emissions. We are already under way with continuous improvement efforts to minimize the use of fossil fuels, adopt lower carbon processes and improve the efficiency of our operations. And while permanent reductions in process emissions may take time, in the interim, we will also look to create emissions reductions with high-quality offsets.

To address the emissions arising from electricity purchases in our operations, or our Scope 2 emissions, we have pledged to source 100% of the energy needed for our operations from renewable sources by 2030, with an interim goal of 50% by 2025. To address emissions generated by our upstream and downstream supply chain, or our Scope 3 emissions, we are actively engaging with our commercial partners and other key stakeholders to accelerate the development and adoption of new clean energy solutions to our supply chain. Finally, consistent with our current sustainability practices, we pledge to be transparent and track and publish our progress through annual reporting. As I often mention to my team, although Enviva is an organization that does a great job setting high standards and delivering good results, we're not very good with taking the time to celebrate success.

Looking back at 2020, I do want to pause and thank the tremendous team we have at Enviva. They have a lot to be proud of. 2020 was a remarkable year where we not only operated our business uninterrupted and produced financial results as expected, but we laid a solid foundation for tremendous growth in 2021 and beyond and made an essential commitment about how we will do so in the next phase of our sustainability journey by becoming net-zero in our operations by 2030. Making good on our promises takes diligent execution in any environment.

But in the global pandemic, it requires unwavering dedication. We have a strong and durable business model made stronger by the people at Enviva. Thank you. Operator, can you please open the line for questions?

Questions & Answers:


Operator

[Operator instructions] The first question is from Moses Sutton with Barclays. Please go ahead.

Moses Sutton -- Barclays -- Analyst

Hi, John and Shai, it's great catching up here. On the next expansions, so it's $20 million adjusted EBITDA from $50 million investment. Obviously, these expansions are at much higher IRRs than the mid-Atlantic expansions, or maybe I'm misreading that on the basic cash-on-cash calculations. What would that be testament to? Is this something we could have sort of maybe figured out before, but maybe you could give any color there, maybe effective scale, any low-hanging fruit opportunities on some of those?

John Keppler -- Chairman and Chief Executive Officer

Yes, Moses, thank you. It's really great to catch up with you as well. The multi-plant expansions that we just announced are a little bit different than what we did at Northampton and Southampton. The Northampton and South expansions were principally about capacity expansions.

And so you had a higher component of equipment purchases and large-scale installation of new assets. Whereas in what was just announced, while there is a modest capacity expansion, you should be thinking about kind of 100,000, 150,000 metric tons per year, what these are really about is process improvements, cost efficiencies and reductions in things like the intensity of energy required for pellet production. That means we're driving margin to the bottom line on cost improvements. And what's really great about this, of course, is that because it's a build and copy approach, we do think that there are opportunities to continue to replicate investments like this as we continue to roll it out through the fleet.

A couple of those particular investments that we are making as part of this, we learned and are driving directly from the Waycross acquisition that we just completed. Part of the attractiveness of that was that they were doing a particular process step even a bit better than we are, and we're now incorporating that into our broader fleet.

Moses Sutton -- Barclays -- Analyst

That's very helpful, actually. So that 100 metric tons per day, 100,000 metric tons per day is from Hamlet. So 50 comes from which of the other plants? Is it Cottondale?

John Keppler -- Chairman and Chief Executive Officer

No, it's actually about 150,000 metric tons per year spread across all three of those plants, Cottondale, Sampson and Hamlet with perhaps the biggest portion of that coming from our Cottondale facility.

Moses Sutton -- Barclays -- Analyst

OK, great. And you mentioned in the release that subject to permitting, are you -- I couldn't tell if it's specifically Cottondale that needs more permitting or it's also in North Carolina for Hamlet and Sampson?

John Keppler -- Chairman and Chief Executive Officer

So we have expanded permits on file and have received across a number of those facilities. I think that the Cottondale one is still under review.

Moses Sutton -- Barclays -- Analyst

Got it. Great. Shifting gears a bit to inflation, can you sort of remind us the effect of inflation on the enterprise, particularly as we head into a massive inflation increase hypothetically, indexing on contracts, expected effect on cost profile? Just anything there would be helpful.

John Keppler -- Chairman and Chief Executive Officer

Yeah, absolutely. As you may recall, all of our agreements have in place escalators. Most of them are in fact tied to inflationary indices, so you'd see an uplift in the offtake pricing associated with that. As a practical matter on a cost position, we tend to fix our costs from things like shipping and elsewhere on a US dollar-denominated basis.

That gives a significant amount of cost protection against that. And obviously, with the continued scale and cost efficiency improvements that we target year on year, what we've demonstrated historically and what we would expect to continue is a stable cost position if not declining over time, providing for durable margin expansion.

Moses Sutton -- Barclays -- Analyst

Great. Great. And if commodities prices rise, I mean, they are rising, you usually contract out, you hedge out the diesel. Is that the case as well? I know it's a small part of the COGS stack, but just wondering if there's any effect there to look out for?

John Keppler -- Chairman and Chief Executive Officer

Yes. Where you'd see sort of the quantity increase is on our shipping components. Obviously, the bunker fuel component of that, but that is under our shipping and commercial agreements. We pass any volatility or variability in bunker fuel directly through to our customers.

Moses Sutton -- Barclays -- Analyst

Great. Great. And last one, and I'll take the rest off-line. It's a great update on Japan, continuing to contract at the sponsor level.

At the EPA level, 2025 offtake is already set to be around 50% from Japan. If we thought even longer term, and we extrapolated for future dropdowns and so on, how might Japan comprise the percentage of total mix? I know that there are other initiatives in other countries that can be tailwinds too, but could we see Japan go well above 50% at any call it 2025 to 2030 timeframe?

John Keppler -- Chairman and Chief Executive Officer

What I would say is that I think that we will be relatively well balanced between Europe and Asia, roughly 50-50 on a long-term go-forward basis. Because some of the jurisdictions emerge at different times, you may see one year where that's -- where we see some imbalance. But that's more temporal, just about how regulations, how conversions happen, that given we are still a modest-sized industry, an increase in demand for instance in Germany will skew it for perhaps a year. But I think that on a longitudinal basis, you're about 50% to Asia, 50% to Europe with, of course, Japan being our largest customer in Asia.

Moses Sutton -- Barclays -- Analyst

Great. Very helpful. Thank you.

John Keppler -- Chairman and Chief Executive Officer

Moses, always good to connect. Thank you so much.

Operator

Next question is from Ryan Levine with Citi. Please go ahead.

Ryan Levine -- Citi -- Analyst

Good morning. What's your Drax exposure through 2026? And what would be the impact to Enviva if they cancel their contracts and supply volumes from other sources?

John Keppler -- Chairman and Chief Executive Officer

As I think we've articulated, the partnership is fully contracted through 2026. The Drax has a series of agreements with us as do a host of other, obviously, European and Asian utilities. As a practical matter, our recontracting experience has been that at every point in time that a contract has come up for renewal, our customer has renewed, typically at larger volumes and longer tenure. But to the extent that Drax elected to pursue a different approach, we of course have a very significant contracted backlog, and we would not see a degrade in terms of the overall contracted position of the enterprise, given the pipeline that exists behind the existing contracts today.

Ryan Levine -- Citi -- Analyst

Is there a way to quantify what the exposure is today and how the contracts work with regard to say they have a change in procurement strategy?

John Keppler -- Chairman and Chief Executive Officer

Well, so I think the way to look at that is to address the overall partnership contract backlog, right? A year ago, the partnership's contract backlog was $9.5 billion with a weighted average remaining term of 10.4 years. And over the last 12 months, we've grown that backlog by 50% so that the partnership's backlog today is $14.6 billion and extended the weighted average remaining term to just shy of 13 years. So the backlog is growing, and it's a question of whether or not we would seek to build incremental new capacity or whether we would use the existing backlog to stand in place of a contract. To the extent that a customer, which would be unique and has not ever happened, to the extent a customer chose not to renew with us.

Shai Even -- Chief Financial Officer

And As you know, Ryan, based on our firm contract backlog by 2025, our largest customer will drop under 15%.

Ryan Levine -- Citi -- Analyst

OK, OK. Yeah, I mean, is that information disclosed in terms of the contractual breakup fee or any type of terms? Or is something --

John Keppler -- Chairman and Chief Executive Officer

Well, to the extent that any customer chose to terminate an agreement with us, there's a make-whole fee associated with price times quantity times remaining term of delivery. Yes. It's the nature of a take-or-pay agreement with us. Of course, someone can terminate an agreement, but they also have a very significant take-or-pay make-whole fee.

Ryan Levine -- Citi -- Analyst

OK, I appreciate that. What has been -- switching gears, what has been the recent trends around fiber, timber costs within your supply territory? And have you seen any uptick there? And can you remind us how you're exposed to that given some of the baskets that your contracts are structured at?

John Keppler -- Chairman and Chief Executive Officer

Yeah, absolutely. And so, as you may recall, our procurement strategy is a residuals-based procurement strategy where we're aggregating the byproducts of a traditional soft timber harvest. And so the underlying commodity price of lumber or timber really doesn't have a direct impact on the price of fiber that we're buying. What we're, obviously, picking up is the leftovers behind that.

And what we've noticed is a very significant uptick in harvesting activity. And so over time, of course, that should generate an incremental residual stream, and we would hope to benefit from a greater availability of supply with very few buyers, which should put downward pressure on pricing over a longer period of time. Naturally, Q1 is what is our seasonally soft quarter, it's colder, it's wetter weather. So I don't think we necessarily see a readthrough that in Q1, but over time we would expect to see fiber prices continue to decline.

Ryan Levine -- Citi -- Analyst

Appreciate that. And the last question, in terms of the new Japanese MOU, is there a contract duration that's being discussed or anticipated that you're able to share? Or is it only the volume that's spelled out in the MOU?

John Keppler -- Chairman and Chief Executive Officer

We would, obviously, look at a substantial duration consistent with the broader contracting profile that we have. So you'd be looking at 10-plus years of duration. What I think is particularly interesting around this particular market segment for us, is that it's very, very consistent with what the world's commitment to net-zero really means, is that so much of the early greenhouse gas emissions reduction climate change effort has been on the energy sector. And what I think the world has really concluded is, given the urgency of action, sectors like the manufacturing sector, large-scale industrial, substitution for fossil fuels and other commodity products, is going to be essential to meeting that net-zero commitment.

It's going to be much beyond just traditional energy. And so with a company like Enviva, who has built a global scalable supply chain for delivery of biomass into all sorts of different applications around the world, this is one of the first really interesting large-scale market opportunities for us that we are pretty excited to talk about. Hopefully, as technologies and other innovations occur around the world, we'll continue to be a large-scale enabler of a move to net-zero across a lot of different industries.

Ryan Levine -- Citi -- Analyst

OK, great. Thank you.

John Keppler -- Chairman and Chief Executive Officer

Thanks, Ryan.

Operator

Next question is from Pavel Molchanov with Raymond James. Please go ahead.

Pavel Molchanov -- Raymond James -- Analyst

Thanks for taking the question. First, to follow up on one of the earlier points about inflation rearing its head, the price of coal is, spot price at least, is about as high as it's been in, I think, two or three years now. Does that make any difference vis-à-vis your margins under any of your supply contracts?

John Keppler -- Chairman and Chief Executive Officer

No, not at all. The pricing of our supply under our long-term take-or-pay agreements is not influenced by commodity prices like coal or otherwise.

Pavel Molchanov -- Raymond James -- Analyst

OK. So commensurately, if it were to come back down, there would be no impact either?

John Keppler -- Chairman and Chief Executive Officer

That's right.

Pavel Molchanov -- Raymond James -- Analyst

And going back to what you said a minute ago about decarbonizing outside of the electric power sector, if you were to get an opportunity to sign a contract with a non-utility customer, I know you've been very careful about evaluating utility customers from a kind of creditworthiness, bankability perspective, how would you do that given the very different regulatory and economic dynamics if you're dealing with a commercial or industrial enterprise?

John Keppler -- Chairman and Chief Executive Officer

It's a great question, Pavel. And I'd answer it the same way we do the credit work ups on any of our utility counterparties, which is we're really not taking the regulatory risk associated with the jurisdictions in which they operate. What we're taking is the balance sheet risk. The change in law is not a risk that we accept under the terms of our offtake agreements.

And so the analysis that we would undertake for entry into a long-term take-or-pay offtake agreement with a major industrial, is the same credit work up we would say, what is the balance sheet, what is the strength, What is the overall security package and their underlying cost position? And as you and I have shared in some of our conversations in the past, we get to unit level economics for the power plants that we are evaluating on to whom we ultimately sell. Because we want to be highly convicted that across a broad range of economic circumstances, could they remain just as capable of paying? And so these are, the folks that we'd be talking with are the blue chip companies, they would be the ones that were market leaders that want to ensure that their margin profile remains as durable and strong on a go-forward basis across a broader range of commodity cycles and have the creditworthiness to stand behind that long-term obligation.

Pavel Molchanov -- Raymond James -- Analyst

Understood. And lastly, about net-zero, in the announcement from last week about that target for 2030, you mentioned that forestry would naturally play a role in the roadmap. Would you consider providing direct funding for reforestation? And if so, would that be on a nonprofit basis? Or would you actually want to own some forestry assets as a company?

John Keppler -- Chairman and Chief Executive Officer

Well, I don't think that our business strategy, certainly from a procurement basis, would be to own timber or fiber resources. But what I would say is that the idea of providing direct additionality in terms of reforestation, of conversions of perhaps marginal agricultural land into forestry, can be a really important part of how we mitigate our Scope 1 and Scope 2 emissions. Fortunately, as I think you've studied our profile in the past, fortunately our Scope 1 emissions are relatively modest. We're a fraction of a similarly sized industrial.

And so we do believe that, and our most recently announced expansions are a good part of that, part of that expansion profile is going to be reducing the greenhouse gas emissions intensity of the electricity purchases and the electricity load of pellet production of these assets. And so on the one hand, there's some low-hanging fruit that's easy to access. By the same token, given our energy load generally for our Scope 2, there's some really interesting opportunities for us to think about to solar on our sites, to combine heat and power on our sites. Again, we're utilizing biomass as a resource for thermal generation today.

A bunch of this begins to pencil out. And so I wouldn't look at necessarily our investment in a net-zero commitment as a nonprofit investment. I would look at this as something entirely consistent with our business strategy where we are delivering to our customers a low-carbon alternative. To the extent that we can make that even lower carbon, our margins should ultimately expand because that's ultimately what our customers are buying from us around the world.

Pavel Molchanov -- Raymond James -- Analyst

Good to hear. Thank you, guys.

Operator

Next question is from Elvira Scotto with RBC Capital Markets. Please go ahead.

Elvira Scotto -- RBC Capital Markets -- Analyst

Hi, good morning, everyone. A couple of follow-up questions. So can you provide some more detail on that new $50 million expansion in the EBITDA contribution, specifically around the cadence of capex spend and then the timing of EBITDA contributions? I know you said that you'll be -- you'll conclude by the end of 2022. Do those EBITDA contributions come on all at once? Are they phased in? And I'll leave it at that for now.

John Keppler -- Chairman and Chief Executive Officer

Yeah, Elvira, thanks. Always good to connect with you as well. I think we can think about the spend curve as roughly linear over the next two years. If you look at the spend curve roughly linear, and you can think about the margin profile to sort of be back-half-weighted.

So you'd see an uptick in 2022 and then the balance in 2023.

Elvira Scotto -- RBC Capital Markets -- Analyst

OK, great. That's helpful. And then, as you mentioned, through a number of actions your sponsor has lowered its cost of capital associated with renewable energy infrastructure development. So how do you think that lower cost of capital can benefit EVA or trickle down to the partnership? I mean, is it through increased investment opportunities or any other ways?

John Keppler -- Chairman and Chief Executive Officer

No, I think, again, it's a really important part of maintaining what has been a very beneficial relationship and enabled us to grow as a partnership quite rapidly. Given the opportunities that we see ahead, and certainly as the world moves and it continues its effort not only on coal displacement and renewable energy generation on the basis of biomass, but the new markets, new segments, new opportunities, we tend to think that the growth curve has the opportunity to accelerate. And at the sponsor level, lower cost of capital should pull at the firm, so faster upstairs.

Elvira Scotto -- RBC Capital Markets -- Analyst

That's great. And then, recently, we saw the acquisition of a publicly traded wood pellet producer, and EVA has recently completed an acquisition. Can you give us your latest thoughts on the opportunity set for third-party M&A and how you see Enviva participating?

John Keppler -- Chairman and Chief Executive Officer

Yeah. We're, obviously, very proud of the acquisitions we've done, the Waycross, from a third-party perspective, the Waycross asset being a particularly interesting and robust one for us that has continued to meet or exceed all of our expectations. And again, the replication of some of their process aspects into our broader fleet is a good reflection of that. What I'd say is, third-party acquisitions have been a part of our growth story.

They have not been preponderance. And that's because the build and copy approach that we have means that we have a high degree of conviction around the cost of development, as well as the market profile on every asset we build. And so we kind of know what we are getting. And that is not as available for third party acquisitions.

And so we're much more opportunistic there. As a practical matter, we're, obviously, open-minded, but we have tended to focus on kind of what we're best at which is building, owning and operating things that we build ourselves.

Elvira Scotto -- RBC Capital Markets -- Analyst

Yeah, great. That makes a lot of sense. And then just the last one from me, do you see any opportunity for Enviva in the US now under the new administration and the push for more green energy?

John Keppler -- Chairman and Chief Executive Officer

Well, I think -- I mean, look, the Biden administration's first actions really to rejoin the Paris Agreement are really important from our global position. It brings the US closer to the rest of the world in thinking about net-zero and the importance of climate change. Obviously, the incidents last week of taxes raised questions around dispatchable, renewable energy and baseload, which is, gosh, what our customers are so good at on the basis of biomass. I don't know that that's necessarily going to be a robust segment.

But what I will say is the in industrial segment around the world, whether it's cement or some of the other commodities we talked about, decarbonization in that sector is really, really hard to do. And so to the extent that biomass can play a role for it, well you've got a scalable world leader in biomass supply. But what I will say is, obviously, that needs to get bid away from long-term robust margin opportunities. We'll just have to see how that unfolds here.

Elvira Scotto -- RBC Capital Markets -- Analyst

Got it. Great connecting with you, guys.

John Keppler -- Chairman and Chief Executive Officer

Elvira, always good. Thanks so much.

Operator

[Operator instructions] The next question is from Marshall Carver with Heikkinen Energy Advisors. Please go ahead.

Marshall Carver -- Heikkinen Energy Advisors -- Analyst

Yes. Thank you. I had a question about the EBITDA or earnings as we go through the year. You talked about it being back-half-weighted, and I know you have some capacity expansion as we go through the year.

But any color on how back-half-weighted it would be? I mean, is it like a third, two-thirds, or 40-60, or how -- I know there's always some seasonality, but any color you could have on the expected change between first half and second half would be helpful.

Shai Even -- Chief Financial Officer

I think, Marshall, thank you for the question. I think that you should expect to see, similarly to previous years, you should expect to see the second half stronger compared to the first half of the year. And our expectation is that the same kind of ratio between the first half of the second half that you have seen for us in previous years, including 2020, it will be the same in 2021.

Marshall Carver -- Heikkinen Energy Advisors -- Analyst

All right. That's it for me. Thank you.

John Keppler -- Chairman and Chief Executive Officer

Marshall, thanks. Good to talk to you.

Operator

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

John Keppler -- Chairman and Chief Executive Officer

Well, thanks everybody, again, for taking the time to join us today. We're very privileged to be in the position we're in. And as we discussed in our prepared remarks, on everything from net-zero to the activities we have under way for growth, we do believe we have an opportunity and a responsibility to keep that up. Given all that we've covered today and the opportunities ahead, I think that the statement that you guys know I'm fond of saying is that we are really just getting started.

Nothing could be more true and we're pretty excited about that. I'm looking forward to connecting again with everyone next quarter. And in the meantime, please stay safe. Please stay healthy.

We're all in this together, and that's how we're going to get through it. So thanks, everyone.

Operator

[Operator signoff]

Duration: 51 minutes

Call participants:

Wush Ma -- Vice President and Treasurer

John Keppler -- Chairman and Chief Executive Officer

Shai Even -- Chief Financial Officer

Moses Sutton -- Barclays -- Analyst

Ryan Levine -- Citi -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

Elvira Scotto -- RBC Capital Markets -- Analyst

Marshall Carver -- Heikkinen Energy Advisors -- Analyst

More EVA analysis

All earnings call transcripts

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Enviva Inc. Stock Quote
Enviva Inc.
EVA

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
332%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.