Enviva Inc. (EVA) Q4 2021 Earnings Call Transcript

Enviva Inc. (EVA 20.03%)
Q4 2021 Earnings Call
Mar 01, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Enviva Inc.'s fourth quarter and full year 2021 earnings conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kate Walsh, Vice president of investor relations. Please go ahead.

Kate Walsh -- Vice President of Investor Relations

Thank you. Good morning, everyone, and welcome to Enviva Inc.'s fourth quarter and full year 2021 earnings conference call. We are excited to host our first earnings call as Enviva, Inc. today and appreciate your interest in our company, and thank you for your participation.

On this morning's call, we have John Keppler, chairman and CEO; and Shai Even, executive vice president and CFO. Our agenda will be for John and Shai to discuss our financial results and provide an update on our current business outlook and operations. Then we will open up the call for questions. During the course of our remarks and the subsequent Q&A session, we will be making forward-looking statements, which are subject to a variety of risks.

Information concerning the risks and uncertainties that could cause our actual results to differ materially from those in our forward-looking statements can be found in our earnings release as well as in our other SEC filings. We assume no obligations 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 non-GAAP financial measures pertaining to completed reporting periods, as well as our forecast. Information concerning the reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and other relevant disclosures are included in our earnings release.

It is important to note that as a result of the simplification transaction we announced on October 15, 2021, we were required to recast our historical results in accordance with GAAP. Our historical financial results are presented on a recast basis and non-recast basis in our earnings release and our Form 10-K. We believe the non-recast presentation of historical results provides investors with relevant information to evaluate Enviva's financial and operating performance. With that, I would now like to turn the call over to John.

John Keppler -- Chairman and Chief Executive Officer

Thank you, Kate. Good morning, everyone. And thanks for joining us today. As Kate mentioned, today marks an important milestone for us, our first earnings call as Enviva Inc.

2021 was an incredible year for us, a truly transformational year. And a large part of that was the successful completion of our simplification transaction, which we closed on October 14, and our subsequent conversion from a master-limited partnership to a regular way corporation, which we completed on December 31. These steps were an essential initial catalyst to how we believe we will continue to unlock shareholder value for a number of reasons. First, the conversion to a C-Corp was structured to be nontaxable to our equity holders, and we expect to pay minimal corporate income tax, if any, through at least 2026.

Second, we eliminated our incentive distribution rights. Third, we brought in a tremendous growth profile. Fourth, we significantly lowered our cost of capital. And fifth, we ultimately moved to a structure that makes us investable by the broadest global investor base possible.

We accomplished all this while preserving our dividend guidance and growth outlook for 2022 and beyond, maintaining our conservative balance sheet, and as we described when we completed what we anticipate being our last primary equity issuance several weeks ago and a substantially oversubscribed offering, we have put ourselves on a path to having a fully self-funded growth model over time. This is important because when you look at the demand side of our business, you will see that in just the last six months, we have announced 6 meaningful agreements: an MOU with J-POWER that could lead to deliveries of five million metric tons per year; a contract with the European refiner of sustainable aviation fuels, which is designed to ramp up to 1.2 million metric tons per year; an MOU to develop a biomass supply chain for a U.S.-based sustainable aviation fuels producer in the Southeast U.S. and in California; an MOU for a 15-year agreement with a European industrial customer for an entirely new use case that has the potential to grow to approximately 600,000 metric tons per year; and several hundred thousand tons of additional annual shipments with two of our existing core utility counterparts, Drax and RWE. As we outlined in January, demand is accelerating, which gives us the opportunity to similarly accelerate our plans to double the size of our company by building six new plants over the next five years, each at a very attractive project investment multiple of approximately five times adjusted EBITDA.

As you will recall, this would represent a dramatic reduction in our capacity costs, down from the roughly 7.5 times multiple at which we historically acquired assets from our former sponsor. And given the world's continued focus on the energy transition and deep decarbonization, our growth outlook doesn't plateau from there. With what continues to emerge in our sales pipeline, we see a path to doubling again after that. So now that we have taken our same great business and put it in an even better, simpler corporate structure, we are pretty excited about how 2021 closed and what the opportunity for 2022 and beyond looks like.

As you may have seen in our release, we delivered fourth quarter and full year 2021 financial results in line with the non-recast guidance ranges and expectations we outlined when we announced the transaction. Shai will spend a few minutes in a moment walking through the GAAP financial results and the non-GAAP measures that help us talk about our performance in metrics we and our investors use to understand our business. But the headlines are that, on a non-recast basis, AGM was up, adjusted EBITDA and DCF were in line with expectations, and Omicron, while challenging given how infectious that variant was, is thankfully beginning to be behind us. On this foundation, we are reaffirming full-year 2022 guidance, including net income in the range of $42 million to $67 million; adjusted EBITDA in the range of $275 million to $300 million; and a full-year dividend of $3.62 per share, a 10% increase over 2021.

We expect the shape of our adjusted EBITDA profile during 2022 to look a lot like prior years, with the back half of the year a big step up over the first half and Q2 a step up over Q1, our seasonally softest quarter. Shai will also provide a view on our full-year capex and how that investment curve shakes out for the year as well. Based on these results and where we are headed, our growth rate is comparable to the 80th percentile of the S&P 500. With our recently declared dividend of $0.86 per share, our dividend yield is approximately 5% based on our current share price, materially higher than the yield of our high-growth top quartile peers in the S&P, in fact, at the 98th percentile compared to the S&P 500.

So we are very proud of our rare combination of being a top-tier growth company and a top-tier dividend payer, but also one that is virtually unmatched in terms of the fully contracted nature of our business and the highly visible cash flow growth ahead, because of several critical attributes, especially our fully contracted revenue backlog, our large and growing customer sales pipeline, and our organic capacity expansions were given the quick build cycle for plans, we're able to construct a fully contracted plant in a matter of 18 months. And each plant, which cost between $200 million and $250 million, when fully ramped has the capacity to generate approximately $50 million in incremental annual adjusted EBITDA. Given the very low annual maintenance cost at our facilities, as we continue to execute on our self-funded growth model, we believe the growing cash flow profile of the business will enable us to continue to create and return substantial value to shareholders over time. There truly isn't another company out there like us.

Now that we are trading as a regular way, pure-play ESG corporation, with an unmatched growth and cash flow profile, we look forward to continuing to introduce investors across the globe to the unique opportunity to participate in the step change accretion we have ahead of us, whether that's through investing directly in Enviva Inc. or passively through one of the many indices for which we are becoming eligible. I'll come back in a moment to discuss market developments and our asset and capacity growth plans. But now I'd like to turn it over to Shai to share more details on our financial highlights.

Shai Even -- Chief Financial Officer

Thank you, John, and good morning, everyone. As Kate highlighted at the beginning, we are presenting our historical financial results on a recast and non-recast basis in our earnings press release and our Form 10-K. For the purposes of our discussion today, we will discuss recast figures and then focus the remainder of my time on the non-recast figures as we believe the non-recast presentation provides investors with relevant information to evaluate Enviva's financials and operating performance. First, on a recast and non-recast basis.

We generated net revenue of $276 million for the fourth quarter of 2021, which was relatively flat compared to the fourth quarter of 2020. During the fourth quarter of 2021, plant level, labor-related absenteeism associated with the Omicron variant of COVID-19, lower plant availability, which reduced produced volumes and dampened sales. Additionally, several of our logistics supply chain partners continued to experience labor-related challenges, which led to curtailed production and higher logistic costs in certain situations. We are expanding the number of logistics suppliers we partner with to ensure the necessary level of service going forward.

These Omicron-related impacts continued to persist into January and the early part of February. But we have seen our operations begin to recover to expected level during the latter half of February. For full year 2021, Enviva reached an important milestone, generating in excess of $1 billion of net revenue. Net revenue increased by 19% as compared to full year 2020, driven primarily by higher sales volume.

On a recast basis, which assumes that the simplification transaction occurred at the inception of our former sponsor led structure in 2010, net loss for the fourth quarter of 2021 was $61.4 million while net loss for full year 2021 was $145.3 million. Our liquidity as of December 31, 2021, which included cash on hand and availability under our revolving credit facility, was $117 million. We added $334 million to our liquidity with a net cash proceeds from our equity offering on January 19. Now turning to a non-recast basis.

As discussed, as part of the simplification and corporate conversion announcement on October 15, 2021, the fourth quarter of 2021 results include SG&A expenses assumed as part of the simplification transaction as we absorb all of the business development, asset development, and corporate and sustainability functions previously held at the former sponsor level. Enviva generated, after accounting for these additional SG&A expenses, adjusted EBITDA of $68 million for the fourth quarter of 2021 compared to the $69 million generated for the fourth quarter of 2020. On a non-recast basis for full year 2021, Enviva achieved strong growth in adjusted EBITDA, with 2021 being 19% higher than 2020. Enviva reported $226 million for full year 2021 as compared to $190 million for full year 2020.

The increase of $36 million was primarily driven by higher sales volume year over year. Distributable cash flow was $55 million for the fourth quarter of 2021, relatively flat to the corresponding quarter in 2020. Similar to adjusted EBITDA, Enviva achieved distributable cash flow growth of 19% for full year 2021 as compared to full year 2020. Distributable cash flow for 2021 was approximately $168 million as compared to $142 million for full year 2020.

The increase of $26 million year over year was primarily driven by higher sales volume. Adjusted gross margin per metric ton was approximately $56.32 for the fourth quarter of 2021, which represent an increase of 4% from the $54 per metric ton achieved in the fourth quarter of 2020. The increase in adjusted gross margin per metric ton was primarily driven by higher pricing due to customer mix. Adjusted gross margin per metric ton for full year 2021 was $47.21, relatively flat, as compared to full year 2020.

We target an annual adjusted gross margin per metric ton of around $45. And we are pleased to be north of that for full year 2021. Our dividend coverage ratio on a cash basis for the fourth quarter of 2021 was 1.1 times. When we refer to the dividend coverage ratio being on a cash basis, it means we are not factoring in the nine million shares issued as part of the simplification transaction that are subject to the dividend reinvestment program.

Our commitment to conservatively managing Enviva's balance sheet is unchanged. We now expect to fund future organic growth projects increasingly with cash flow generated from the business. And we are transitioning to a fully self-funding growth model for capital expenditures over the next five years, with timing dependent on the cadence of new plant construction. Our long-term dividend coverage ratio target is 1.5 times on an annual cash basis.

And we expect to have the financial flexibility to increase dividends over time. We continue to target a conservative leverage ratio of 3.5 times to four times, as calculated pursuant to our credit agreement. Our credit agreement leverage calculation allow us to increase the adjusted EBITDA component by the expected cash flows for material projects under construction relatively to the associated cash outlay. As John pointed out, we reaffirmed our full-year 2022 guidance.

It is important to note that Enviva's quarterly income and cash flows are subject to seasonality and the mix of customer shipments made, which vary from period to period. Our business usually experience higher seasonality during the first quarter of the year, as compared to subsequent quarters as colder and wetter winter weather modestly increases cost of procurement and production at our plant. We expect this to be the case again in 2022. And similar to previous years, we expect net income, adjusted EBITDA and distributable cash flow for the second half to be significantly higher than the first half of the year.

We are forecasting that the second half of the year will drive around two-thirds of our earning while the first half will be roughly one-third. Another key driver of this profile is, of course, the increased production from the Lucedale plant, which we expect to ramp and reach nameplate production capacity by the end of the year. We also expanded our guidance metrics by providing capital expenditure guidance for 2022. Our total capex guidance range for 2022 is $255 million to $275 million, with north of 80% of the spend allocated to greenfield site development and construction project, around 6% allocated to maintenance capex and the balance dedicated to highly accretive expansion projects.

Total capital expenditures are scheduled to be back-ended weighted for 2022, with 60% to 70% of the spend expected to be incurred during the second half of 2022. The important takeaway from our guidance is that we expect net income to increase significantly and for adjusted EBITDA to increase by 25% and distributable cash flow to increase by over 30% when we compare full year 2022 to 2021. There just isn't another company with a similar profile of visible, durable cash flows growing at this rate. And we believe we have much more shareholder value yet to unlock.

Now I would like to turn it back to John.

John Keppler -- Chairman and Chief Executive Officer

Thanks, Shai. We have a lot to look forward to in 2022 and a lot to execute. We are entering this year with a contracted revenue backlog of over $21 billion, which is a 44% increase from where we were at this time last year. This contracted revenue backlog is complemented by a customer sales pipeline in excess of $40 billion, which has more than doubled over the last year and is a testament to the strength and velocity of global decarbonization tailwinds.

It's very exciting to see the increased geographic use case and customer diversity we are achieving. You'll remember that when we announced our first industrial contract in November, we said it would be the first of many. Given the industrial contracts we have announced since, including this morning's 600,000 metric ton per year agreement, that's exactly what is transpiring. The total addressable industrial market represents truly exponential growth for us when you calculate the potential for decarbonizing industries like steel, cement, lime, chemicals and fuels.

That is in no way meant to discount the continued growth we see in our traditional markets of power and heat generation. With the agreements we have announced recently with Drax and RWE, and our growing contracted position in Asia, notably enhanced by the five million metric ton per year MOU with J-POWER, these potential annual delivery obligations would require us to add the equivalent of close to 90% of our existing production capacity today, which speaks to the magnitude of the tangible power and heat opportunities in front of us. Of course, we would be remiss in our discussion of markets and opportunity if we didn't address the current macroeconomic environment and geopolitical overlay. As we have described in our last several calls, the combination of high spot and forward power prices, expensive and volatile fossil fuels and durable expectations of high EU ETS carbon prices has made biomass generation in the EU more profitable than conventional generation, further incenting major power and heat producers to both use biomass and accelerate plans for large-scale conversions to biomass.

And at the end of last year, the EU somewhat controversially relented and included gas in the green taxonomy as a transitional means of decarbonization. This was due to the dependency of several member nations, especially Germany and Poland, on gas to replace coal. Given the recent events that create even further challenges and uncertainty associated with gas supply across Europe, I believe it is reasonable to conclude that biomass will play an even more substantial role in the decarbonization of the power and heat sectors as well as hard-to-abate industries. And thus, our customer pipeline, which is now over $40 billion, will continue to be bolstered.

Given our robust contracted position and growing demand profile, we are also aggressively expanding our production and terminalling capacity. During 2021, we expanded our production capacity by 14% when we acquired the Lucedale plant and increased our deepwater marine terminaling capacity by 38% with the acquisition of the Pascagoula terminal. Wood deliveries have begun at Lucedale and commissioning of the plant is underway. We expect Lucedale's production will ramp to nameplate capacity throughout 2022, with first shipments from Pascagoula to commence during the second quarter of 2022.

During the first half of 2022, we're also planning to begin construction on our next large-scale fully contracted plant in Epes, Alabama. Epes is designed and permitted to produce 1.1 million metric tons per year and will be the largest industrial wood pellet production plant in the world. Lucedale And Epes are the first two plants in our growing Pascagoula cluster, and plans are underway for the cluster's third plant. One of the very attractive aspects to building out this cluster is the operating leverage we have at our Pascagoula terminal and the enhanced returns we expect to generate as we add new plants and increase terminal throughput using our build and copy model.

We expect to make a decision on the site for our third Pascagoula cluster plant around midyear. On our path to double our capacity from 6.2 million metric tons per year to over 13 million metric tons per year by the end of 2026, our plan is to add a fourth plant to our Pascagoula cluster and then consider additions to our Savannah, Wilmington and Chesapeake clusters. A lot of work ahead of us, but a lot to look forward to. And as I'm fond of saying, we really are just getting started.

Before we open up the call to questions, I want to recap what has made the last 12 months transformative for Enviva for our team and for our stakeholders. First, we completed the sizable acquisition of the Lucedale plant and Pascagoula terminal, simultaneous for the successful equity offering. Second, we completed our Mid-Atlantic and Greenwood expansions and made significant progress with our multi-plant expansions. Third, we completed our simplification transaction and conversion to a corporation.

Fourth, we expanded our revolver capacity from $350 million to $570 million, which increases our financial flexibility in funding our growth. Fifth, we completed another successful equity offering to prefund the equity portion of our upcoming growth, which could be our last primary acquisitions. Finally, we signed our first three industrial agreements, two of which are related to sustainable aviation fuel. And we signed our largest ever by far power generation MOU.

If you asked me a year ago, I would not have believed so much progress was achievable within a short 12-month span. The Enviva team has done a remarkable job accomplishing these tremendous strides. And I'm confident in the step change growth our team will champion in the years to come. We are fortunate to be able to define our company in relatively simple terms.

The world continues to want less carbon more quickly and more cost-effectively. And that's exactly what we offer. We are incredibly privileged to have the opportunity to continue to build a company and a unique platform that delivers real climate change benefits today at scale, while consistently, safely and sustainably generating superior returns for all of our stakeholders. Now let's open up the call for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from John Mackay with Goldman Sachs. Please go ahead.

John Mackay -- Goldman Sachs -- Analyst

Hey, good morning. Thanks for the time. I wanted to start maybe in Europe, and in general, kind of utility and power market. As you mentioned, as we've seen, pellets are certainly in the money compared to coal and gas even without subsidies.

Is that enough to move kind of long-term contracts forward? Or should we still be waiting to see a kind of more formal regulatory announcement before we can start to see some of those incremental contracts? Thanks.

John Keppler -- Chairman and Chief Executive Officer

John, thank you. Really appreciate the time spent with us this morning. I think that the answer to that question is really both, right? What you actually see across the generators that have already undertaken conversion strategies, made some of those investments is that they're able to continue to leverage that, and frankly, do more, right? So when you look at some of the recent agreements that we've announced with some of our existing utility counterparts, that's really a reflection of just how profitable and in the money biomass is relative to conventional generation. And that's a runway that if you look at the forward curves, that's likely to continue.

We're seeing that constructive environment on both fossil fuels and EU ETS carbon, further incenting the utility sector in terms of how they're thinking about utilization of biomass. And then from the structured energy transition that I think you're also talking about, we do see both flavors, really both the ability for customers to make investments on a profitable basis to convert to co-firing or full utilization of biomass, combined with continued efforts from places like Germany and Poland and other places across the Continental Europe on focused structured support to really make possible very large-scale conversions of combined heat and power and power-generating assets. So a little bit of both. But obviously, we're quite pleased with the tailwinds that our industry benefits from, from the generally constructive environment on both conventional energy and carbon.

John Mackay -- Goldman Sachs -- Analyst

OK. Thanks for that. Maybe following up. You guys have talked a lot about the growing size of the market, how big demand could be.

You've also talked about how strong your returns on some of these incremental plants are. Just in that context, could you talk a little bit about the competitive environment and whether or not you're seeing pressure there? Because it looks like a pretty big opportunity set so I'm curious kind of how much you guys think you can capture versus maybe some others? Thank you.

John Keppler -- Chairman and Chief Executive Officer

Yes. John, again, another really good question. What we've continued to see for as long as we've been in this business is the market remains structurally short supply. That situation continues to be exacerbated by increases in demand associated with the constructive pricing environment that we've seen.

And the supply mobilization just frankly continues to not keep pace with the demand side of our business. And I think that further investments across the whole supply chain will continue to be needed. It's a really, really broad, and frankly, strengthening space, right, the total addressable market when you -- especially when you look beyond sort of the energy transition and power and heat generation into difficult to abate industries, you're really looking at a truly exponential growth across what that opportunity set is. And that's if you're just limiting it to things like cement, lime, chemicals, fuels.

So really, really very exciting times for us. But again, I think the additional physical liquidity, so more supply into the market would actually be beneficial to us all. And so we're hopeful that many of the folks that have announced plans that continue to grow and build this business, that ultimately should drive down cost and make our business better than the sort of semi-liquid business that it is today. But boy, really big addressable market, and certainly, we see remarkable continued growth for us.

John Mackay -- Goldman Sachs -- Analyst

OK. Thanks a ton.

Operator

Our next question comes from Pavel Molchanov with Raymond James. Please go ahead.

Pavel Molchanov -- Raymond James -- Analyst

I will focus on Europe as well. Since the war begin, have you received any requests for emergency supply or anything beyond kind of normal delivery quantities, either from your existing customers or any government authorities in Europe?

John Keppler -- Chairman and Chief Executive Officer

Well, Pavel, thanks for the question. I mean, naturally, I think that responding to that, we need to be mindful that there's a human tragedy ongoing in Ukraine right now. And we're obviously hoping for a peaceful and quick resolution. With regards to our delivery into Europe, certainly, there have been requests for incremental demand.

You've seen a number of our major counterparties in Europe described that they are no longer going to participate in the procurement of commodities from Russia. And what that does is that obviously creates a short position relative to conventional or other commodities that they might have been procuring. And so we're obviously working to help serve them given the bilateral nature of our contracts, we can -- and again, that structural short I was mentioning just a minute ago. There are limits to what we can do.

But certainly, as we've shared before, and part of the reason why we've accelerated our overall investment profile, as we talked about in our January equity raise, is really to take advantage of the opportunity just generally with demand in terms of bringing capacity online sooner and accelerating that build. That, of course, is reinforced by the current conditions that we unfortunately see today in Ukraine.

Pavel Molchanov -- Raymond James -- Analyst

And then kind of a somewhat broader question but in that same context. We've talked a lot about Germany being rather slow to adopt pellets as a coal substitute. But now we see Germany is buying close to half of its hard coal from Russia historically. And of course, even before that, the new coalition government was trying -- was aiming to accelerate the phaseout of coal to 2030.

Any movement from the German utility market specifically that you can point to?

John Keppler -- Chairman and Chief Executive Officer

Well, Pavel, yes, I think the answer to that is yes before the Ukrainian crisis and even more so now, right? The gas had been a part of Germany's plan to decarbonize. And certainly, the green taxonomy and its inclusion of gas as a transitionary means wasn't important, I think, although speculative approach to do so given some of the limitations that the EU was going to place around that. I think in the current environment, you have to draw that as perhaps even a riskier and perhaps unachievable strategy. And so what we had certainly seen as part of the utility contracting part of our business, which obviously complements the industrial set, right? The industrial set moving very aggressively.

Many of our industrial customers across the continent really focused on the cost competitiveness of biomass relative to displacement of fossils in their underlying manufacturing. But the utility set in Germany and in Poland, I would say, where gas had been -- had played a whatever percentage role that was going to play, I think that number is smaller today. And the acceleration and the opportunity that we see from both heat and power generators continues to move more aggressively. Obviously, there's a lot of noise in the system right now.

I think you got to get through certainly the current environment. But what we see is firm contracted demand materializing in the German and continental European market, driven by both the cost competitiveness and biomass as well as the government's conviction around sustainable biomass being a critical part of every one of the EU member nations approach to decarbonization.

Pavel Molchanov -- Raymond James -- Analyst

OK. And lastly, do you know what the amount of trade between Russia and the European market in wood pellets specifically? So there are some imports coming from Russia. Do you know how big that is?

John Keppler -- Chairman and Chief Executive Officer

I think it's in the neighborhood of one million to two million metric tons per year, but it is a very fragmented supply chain. And so it is obviously, I think, somewhat more opportunistic than the durable structured supply that you see from different jurisdictions in the world.

Pavel Molchanov -- Raymond James -- Analyst

OK. Thank you very much.

John Keppler -- Chairman and Chief Executive Officer

Good to talk to you, Pavel.

Operator

Our next question comes from Ryan Levine with Citi. Please go ahead.

Ryan Levine -- Citi -- Analyst

Good morning. Given the industry growth demand in Enviva's business, would you be willing to build incremental pellet plants prior to securing associated contracts?

John Keppler -- Chairman and Chief Executive Officer

Ryan, great question. And we've got a few golden rules in this business, and that's one of them, is that we don't turn a spade of dirt until we have a fully contracted position. And unfortunately, the contract profile that we continue to have, as well as the sales pipeline, which is now north of $40 billion, gives us tremendous opportunity in a very, very quick basis of converting that sales pipeline into firm contracts, which means that the growth profile that we outlined over the last couple of months remains intact, if not accelerating. And part of the strength of this business is that we've got a great development team that has the ability to create the real executable options at sites that fill inside of our clusters and enable us to do a build and copy of these assets at roughly a five times adjusted EBITDA investment multiple.

So highly accretive investments, very quick conversions of that capex to EBITDA. It's about an 18-month cycle to turn dirt to start generating cash. And so that gives us a really great opportunity to continue to accelerate the deployment of capital into fully contracted assets and deliver high-return, highly accretive investment opportunities on a fully contracted long-term basis.

Ryan Levine -- Citi -- Analyst

Given the events in Ukraine and Europe, do you see opportunities to accelerate other use cases outside of the power markets, both from a contracting activity standpoint and political engagement? What's the lowest-hanging fruit? Is it more sustainable aviation fuel or cement or some of their industrial applications?

John Keppler -- Chairman and Chief Executive Officer

Well, I think it's frankly a pretty broad spectrum of those, right? The -- continuing to facilitate the energy transition with one of the most cost competitive ways to decarbonize, and the value and utility of baseload dispatchable renewable power continues to be very, very high. So as we talked about today, the power and heat sector, certainly, it's been very, very attractive to us, growing very, very rapidly. I think some of the implications on gas and energy security in light of the current crisis is perhaps a modest benefit. But from the industrial sector, the sustainable aviation fuel sector, when you look at the total addressable market, the IEA would suggest that to reach net zero by 2050, you need 15% of biojet in the mix by 2030 and 40% by 2050.

That's a total addressable market for us between 100 million and 300 million metric tons per year wood pellets. Do we think that we're ever going to have an industry that's delivering that scale? I think it's hard to believe from where we sit right now because that would be multiple orders of magnitude. But the acceleration of that, because it is so difficult to do without something like biomass, makes it really, really attractive. And so the use cases and the value of these use cases and the premium that we believe is ultimately available for solving the climate change problem in these incredibly difficult to abate industries with a willingness and ability to pay means that there's a tremendous amount of embedded margin enhancement in this business.

I mean, really, when you look at the long-term profile of this business and what our customers have the ability to pay across a number of these different segments, will it take time to mature? Absolutely. But the embedded opportunity here is remarkable.

Ryan Levine -- Citi -- Analyst

OK. And then last question for me. In terms of the one to two MPTA pellets coming from Russia, any sense of what percentage of that potential market Enviva could capture? And if there is any guidepost around margin opportunity on any incremental volumes that could be enabled?

John Keppler -- Chairman and Chief Executive Officer

So I think it would be very difficult to assess in the near term given the volatility of the situation. But clearly, we are the world's largest supplier. And we also have the world's largest book of demand, which means that we have an ability to, as we've described historically, participate in the market and provide physical liquidity. And to the extent that we have the ability to do so, we are going to continue to do so at margins at or better than what we've seen historically.

Ryan Levine -- Citi -- Analyst

I appreciate the color. Thank you.

John Keppler -- Chairman and Chief Executive Officer

Thanks, Ryan.

Operator

[Operator instructions] Our next question comes from Elvira Scotto with Royal Bank of Canada. Please go ahead.

Elvira Scotto -- RBC Capital Markets -- Analyst

Hey, good morning. A couple of questions for me. First, on this new 600,000 metric tons per annum MOU. Can you talk about the timing of the conversion from MOU to contract? And then secondly, just how to think about the cadence of the ramp from 2023 to 2030?

John Keppler -- Chairman and Chief Executive Officer

Yes. Elvira, really great to talk to you, and thanks for the question. The -- so the industrial sector is a little bit different in some ways than our utility counterparts. While the contracts themselves and the agreements that we have with them are very, very similar, right, you've got pricing, credit, tenor, Ts and Cs.

What you've got in the industrial sector is, instead of it being sort of one large consolidated single point asset, you actually have a whole fleet of production assets that are geographically disparate. And so within the industrial sector, our path to contracting has really been to work with a customer. And from their perspective, ensure that they have visibility and certainty around a fuel supply chain or a raw material supply chain in an industry that they hadn't really been exposed to before. But also, like they get that certainty with a company like Enviva.

And then as we convert that MOU to specific contract tranches, it's as we help them think through the optimal delivery to the various points in their overall fragmented manufacturing chain, work through the logistics, help them figure out which ones of their assets are the most cost competitive or the most -- that can benefit from most from this. And then as that process goes on, which is a couple of months, then those get converted into tranches. And then the ramp -- what I mean is get converted into binding contracts with tranches and specified delivery volumes like we have in our more traditional take-or-pay energy by contracts. And so then the ramp there is really about how fast they can replicate and the level of conversion activity required for any of those industrial processes.

And in the case of the lignite, the cold displacement we announced this morning, relatively modest, relatively short cycle in terms of the amount of work needed to be done by a customer. These have been in plans in place for some time. And so we're quite excited that we'll have the opportunity to convert this MOU to fully contracted volumes over the next couple of months. And you should expect similar MOU to full contract conversions across the industrial sector.

And to the extent the power generators ultimately elect to do the same thing, kind of like J-POWER did, given their multi-asset footprint, you'd expect us to do the same thing over the period of months and quarters as we move forward.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. Thank you very much. And then just my last question is can you talk a little bit about potential inflationary pressures? And then when you're thinking about plant construction, how you're building in those inflationary pressures? And then just if there's any issues with supply and logistics, just with respect to building your plants?

John Keppler -- Chairman and Chief Executive Officer

Yes, sure. Thanks, Elvira. So the way that we describe the business and the way we've seen it operate is that our business model and our contract structure generally insulates us from inflation, it doesn't make us immune. But the headline price considerations and the escalations in those contracts, which are oftentimes tied to CPI, PPI, provide for great headline price escalation in an inflationary environment.

And given that you're inflating the headline price, you're also inflating your margin. And so if we're doing our jobs reasonably well at the operating line, given the leverage and scale of our operations, we're able to mitigate potential cost increases within that overall cost tower. We also, of course, to the extent possible in -- we made a couple of really important decisions around this, we seek to fix, where possible, the cost of our operations in those parts of our overall supply chain or value chain that could be exposed to inflation area pressures volatility. And a good example of that is shipping.

And so for each of our long-term contracts, when we've entered into that long-term contract, we've laid off the risk of shipping. We've entered into similar duration and -- as well as volumetric contracts for affreightment with a portfolio of shipping partners, where we fix on a U.S.-dollar-denominated basis the cost of shipping per ton for the life of the contract. The variable component under our contract structure, the variable component of shipping, bunker fuel, for instance, we pass through directly to our customers on a vessel-by-vessel basis. And so we seek through, both our contract and our operations, to largely insulate us from inflation.

That doesn't mean it doesn't exist at all. I mean, certainly, when you think about labor generally, we tend to build plants where there are lots of trees and very few people. So we tend to mitigate the effects of sort of a bit away on labor. Although certainly with a highly degreed electrical engineer or some of those types of positions, we certainly do have -- we're very mindful of that and need to be competitive in making sure that we have that level of talent.

But we're pretty fortunate that we've largely insulated ourselves from that inflationary component. And of course, wood fiber, given the underlying dynamics of the supply and demand on the residual wood fiber, the leftover from the sawtimber harvest, it means that a greater variance of harvesting activity produces a higher degree of residuals against a demand profile that is quite small. And so as a result, you can look historically and even in the current market for the products that we're generally procuring, you generally see that accreting at roughly 1% to 2% a year. So really, really modest in terms of our overall exposure.

Again, insulated but not immune.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. Thanks a lot.

John Keppler -- Chairman and Chief Executive Officer

Always great, talking to you Elvira.

Operator

Our next question comes from Mark Strouse with JPMorgan. Please go ahead.

Joe Hernandez -- JPMorgan Chase and Company -- Analyst

Good morning. It's Joe Hernandez for Mark. Thanks for taking our questions. Firstly, just on guidance.

So when you issue your 2022 guidance in October, there was no such thing as Omicron at that point. And so you've since talked about an issue today that you've experienced some headwinds in the first six weeks of the year here. How do you think about getting to 2022 guidance given the reaffirming it today? And should we look at like a stronger back half of the year? Or really just any context there would be helpful.

John Keppler -- Chairman and Chief Executive Officer

Yes, sure. I appreciate that very much. One of the benefits of this business is, it is a fully contracted business. And so we understand sort of the volume metric and the pricing considerations for our offtake partners and what the opportunity set for us is during the year.

And naturally, given the inflationary environment that we just talked about, you have seen certainly the benefits from inflation and an uplift in overall offtake pricing given the way that full year 2021 ended. And so you've got some lift in offtake pricing that I think accommodates on a reasonable basis some of the challenges that we saw in Q4 and early Q1 associated with Omicron. Good news is that's largely behind us. And so as we look for full year, really, it's about volume and price.

And clearly, now that the Lucedale plant is in its commissioning and we're expecting its full ramp during the course of the year, we're obviously reaffirming guidance this morning. When we think about more generally speaking in terms of the full year 2022 impact, you have to take into account, of course, that we are in a somewhat seasonal business. Like every year in our company's history, the back half is expected to be a pretty big step-up over the first half. As Shai mentioned, it's about two-thirds back half weighted, one-third first half weighted, given the seasonal profile.

So Q1 being our softest quarter, Q2, a step over Q1. Q3 and Q4, pretty big steps up over the first half. What's interesting though as we continue to grow this business, is that as our fleet continues to migrate south, so where we're putting ships on the table, where we're building new plants, what you see is a mitigation of that seasonality, right? Obviously, it's much warmer in the south. You're mitigating some of the seasonal impacts.

And again, you really focus on some of the embedded margin opportunity that you see as our facility continues to our footprint continues to migrate further south, mitigating some of the seasonality effects in providing, frankly, a pretty significant opportunity for margin uplift in the first half of the year as we look forward.

Joe Hernandez -- JPMorgan Chase and Company -- Analyst

Got it. Thank you. And then just one follow-up. The third additional point you're talking about, is that the one you've been discussing in Bond, Mississippi?

John Keppler -- Chairman and Chief Executive Officer

That's right. Southern Mississippi. That's right.

Joe Hernandez -- JPMorgan Chase and Company -- Analyst

Yes. So I think in the last call, you talked about the timing on that and when you make a decision, then subsequent construction being fluid based on demand. And given the state of the backlog right now and everything that's going on, are you thinking more aggressively about that and looking to move up timing, if possible? Just any color there would be helpful.

John Keppler -- Chairman and Chief Executive Officer

Yes, absolutely. Absolutely. The contracting profile that we've continued to see, the great work of our sales and marketing teams, the incredible tailwinds we see around the world on decarbonization means that our opportunity -- we're a fully contracted business. We have the opportunity to put the $200 million, $250 million into a ground in a new facility at [inaudible] across the Southeast U.S.

at very accretive investment multiples. That are contracted for a very, very long period of time. We can sell everything we can produce for a very long period of time going forward. And we are working to quite dramatically accelerate our investments into new capacity.

You've seen some of that pull forward in the announcements we made in January, and we're working aggressively to do as much of that as possible.

Shai Even -- Chief Financial Officer

And I would add that we have the financial flexibility to accelerate our capex program without the need for additional capital. As you saw, we completed the netted to our liquidity, the net cash proceeds from the equity issuance, $234 million a few weeks ago. We have longer maturities still left on both the high mill. And we expanded the revolver to $570 million.

Both have a maturity of 2026, so no need to refinance. So actually, no need for additional capital for us to execute on our long-term capital expenditure program. And everything that we'll do, if we will do something on the debt side will be on an opportunistic basis.

Joe Hernandez -- JPMorgan Chase and Company -- Analyst

Thank you.

Operator

Our next question comes from Kevin Pollard with Pickering Energy Partners. Please go ahead.

Kevin Pollard -- Pickering Energy Partners -- Analyst

I have two quick questions. So the first one, I guess, is with the improving economics of biomass, plus I guess, rapidly increasing concerns over energy security. Are you seeing any chance to drive higher pricing? Or any other -- maybe it's other terms and conditions in your long-term contracts that -- to drive higher margins as you work through your sales channel?

John Keppler -- Chairman and Chief Executive Officer

Yes. Simply, yes. As long as I've been fortunate to run this business, what we've seen year-over-year is the opportunity for our contract pricing to continue to escalate, the terms and conditions to move in our favor and the general economics of each of our agreements from a margin basis continue to improve. You see that flow through to the bottom line on both AGM per ton, EBITDA as well as DCF.

And we're certainly quite optimistic and quite encouraged by, frankly, the demand side of our business and the fact that we're the premium supplier into that. And we are naturally looking to continue to grow that base as we move forward.

Kevin Pollard -- Pickering Energy Partners -- Analyst

Right. So these aren't just volume drivers. There's a chance for pre sustained margin enhancement, as well as you add new contracts to the portfolio.

John Keppler -- Chairman and Chief Executive Officer

Yes, Kevin. What's so interesting about this is that as you look at the use cases and you look at the sort of relative customer ability to pay, not only do we see the constructive environment around rising conventional energy alternatives. But certainly, the forward-looking EU ETS carbon as well as the very difficult to decarbonize industries where their own customers are willing to pay a premium associated with greener products produced by our manufacturers. And so that provides for the opportunity for us to provide for incremental embedded margin enhancement over time.

Operator

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

John Keppler -- Chairman and Chief Executive Officer

Well, thanks, everybody, for taking the time to join us again today. We continue to be very privileged to be in the position that we are in. And we continue to believe that with that privilege, we have a responsibility to continue to deliver the same, consistent strong business execution that you've seen from us over the last several years. We're delighted that, that now is in a regular way pure play ESG Corporation.

But that doesn't, in any way, mean that we're not going to do exactly the same things, working hard every single day, stably, safely and reliably displacing fossil fuels. We're doing a pretty good job of growing more trees. And we're going to continue to deliver those benefits to fight climate change. And we look forward to talking again in several weeks as we deliver our first quarter of 2022 earnings.

And in the meantime, I look forward to everyone remaining healthy and safe. And thank you for joining us today. Have a great day.

Operator

[Operator signoff]

Duration: 55 minutes

Call participants:

Kate Walsh -- Vice President of Investor Relations

John Keppler -- Chairman and Chief Executive Officer

Shai Even -- Chief Financial Officer

John Mackay -- Goldman Sachs -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

Ryan Levine -- Citi -- Analyst

Elvira Scotto -- RBC Capital Markets -- Analyst

Joe Hernandez -- JPMorgan Chase and Company -- Analyst

Kevin Pollard -- Pickering Energy Partners -- Analyst

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