Enviva Partners, LP - FORM 10-Q

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EX-32.1 - EX-32.1 - Enviva Partners, LP	eva-20170930ex3216f52d3.htm
EX-31.2 - EX-31.2 - Enviva Partners, LP	eva-20170930ex312f2eb00.htm
EX-31.1 - EX-31.1 - Enviva Partners, LP	eva-20170930ex311bd96d4.htm
EX-4.3 - EX-4.3 - Enviva Partners, LP	eva-20170930ex43caa77bc.htm
EX-4.2 - EX-4.2 - Enviva Partners, LP	eva-20170930ex422d3689c.htm
EX-4.1 - EX-4.1 - Enviva Partners, LP	eva-20170930ex41507a690.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2017

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

For the transition period from to

Commission file number: 001-37363

Enviva Partners, LP

(Exact name of registrant as specified in its charter)

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

(301) 657-5560

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller reporting company ☐
		(Do not check if a	Emerging growth company ☒
		smaller reporting company)

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

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

As of October 31, 2017, 14,412,365 common units and 11,905,138 subordinated units were outstanding.

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ENVIVA PARTNERS, LP

QUARTERLY REPORT ON FORM 10‑Q

TABLE OF CONTENTS

		Page
CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS		1
GLOSSARY OF TERMS		3
PART I—FINANCIAL INFORMATION		4
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Income	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statement of Changes in Partners’ Capital	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	55
PART II—OTHER INFORMATION		56
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 6.	Exhibits	56

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CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS

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

the volume of products that we are able to sell;

the price at which we are able to sell our products;

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

the creditworthiness of our financial counterparties;

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

the amount of products that we are able to produce, which could be adversely affected by, among other things, operating difficulties;

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

changes in prevailing economic conditions;

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

unanticipated ground, grade or water conditions;

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

environmental hazards;

fires, explosions or other accidents;

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

changes in the regulatory treatment of biomass in core and emerging markets for utility‑scale generation;

inability to acquire or maintain necessary permits or rights for our production, transportation, and terminaling operations;

inability to obtain necessary production equipment or replacement parts;

operating or technical difficulties or failures at our plants or deep‑water marine terminals;

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labor disputes;

inability of our customers to take delivery of our products;

changes in the price and availability of transportation;

changes in foreign currency exchange rates;

failure of our hedging arrangements to effectively reduce our exposure to interest and foreign currency exchange rate risk;

risks related to our indebtedness;

customer rejection of our products due to our failure to maintain effective quality control systems at our production plants and deep‑water marine terminals;

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

the effects of the approval of the United Kingdom of the exit of the United Kingdom (“Brexit”) from the European Union, and the implementation of Brexit, in each case, on our and our customers’ businesses; and

our ability to borrow funds and access capital markets.

Please read the risks described in our Annual Report on Form 10-K for the year ended December 31, 2016. All forward‑looking statements in this Quarterly Report are expressly qualified in their entirety by the foregoing cautionary statements.

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

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GLOSSARY OF TERMS

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

CIF: Cost, Insurance and Freight. Where a contract for the sale of goods contains CIF shipping terms, the seller is obligated to procure and pay the costs, including insurance and freight, necessary to bring the goods to the named port of destination, but title and risk of loss are transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment.

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

cost pass‑through: a mechanism in commercial contracts that passes costs through to the purchaser.

FIFO: first‑in, first‑out method of valuing inventory.

FOB: Free On Board. Where a contract for the sale of goods contains FOB shipping terms, the seller completes delivery when the goods pass the ship’s rail at the named port of shipment, and the buyer must bear all costs and risk of loss from such point.

GAAP: generally accepted accounting principles in the United States.

General Partner: Enviva Partners GP, LLC, the general partner of the Partnership.

Hancock JV: a joint venture between our sponsor and Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company.

MT: metric ton, which is equivalent to 1,000 kilograms. One MT equals 1.1023 short tons.

MTPY: metric tons per year.

net calorific value: the amount of usable heat energy released when a fuel is burned completely and the heat contained in the water vapor generated by the combustion process is not recovered. The European power industry typically uses net calorific value as the means of expressing fuel energy.

off‑take contract: an agreement between a producer of a resource and a buyer of a resource to purchase a certain volume of the producer’s future production.

Partnership: Enviva Partners, LP.

sponsor: Enviva Holdings, LP, and, where applicable, its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC.

stumpage: the price paid to the underlying timber resource owner for the raw material.

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

weighted‑average remaining term: the average of the remaining terms of our customer contracts, excluding contingent contracts, with each agreement weighted by the amount of product to be delivered each year under such agreement.

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

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

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except for number of units)


	September 30,		December 31,
	2017		2016
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	9,453	$	466
Accounts receivable, net of allowance for doubtful accounts of $0 as of September 30, 2017 and $24 as of December 31, 2016		49,855		77,868
Related-party receivables		7,748		7,634
Inventories		34,477		29,764
Assets held for sale		3,354		3,044
Prepaid expenses and other current assets		1,186		1,939
Total current assets		106,073		120,715

Property, plant and equipment, net of accumulated depreciation of $104.6 million as of September 30, 2017 and $80.8 million as of December 31, 2016		495,366		516,418
Intangible assets, net of accumulated amortization of $10.3 million as of September 30, 2017 and $9.1 million as of December 31, 2016		140		1,371
Goodwill		85,615		85,615
Other long-term assets		2,040		2,049
Total assets	$	689,234	$	726,168

Liabilities and Partners’ Capital
Current liabilities:
Accounts payable	$	3,122	$	9,869
Related-party payables		19,948		11,118
Accrued and other current liabilities		30,710		38,432
Related-party accrued liabilities		372		382
Current portion of interest payable		10,625		4,414
Current portion of long-term debt and capital lease obligations		5,008		4,109
Total current liabilities		69,785		68,324
Long-term debt and capital lease obligations		338,115		346,686
Long-term interest payable		860		770
Other long-term liabilities		3,274		871
Total liabilities		412,034		416,651
Commitments and contingencies

Partners’ capital:
Limited partners:
Common unitholders—public (13,065,204 and 12,980,623 units issued and outstanding at September 30, 2017 and December 31, 2016, respectively)		228,961		239,902
Common unitholder—sponsor (1,347,161 units issued and outstanding at September 30, 2017 and December 31, 2016)		16,532		18,197
Subordinated unitholder—sponsor (11,905,138 units issued and outstanding at September 30, 2017 and December 31, 2016)		106,164		120,872
General partner (no outstanding units)		(67,875)		(67,393)
Accumulated other comprehensive (loss) income		(3,885)		595
Total Enviva Partners, LP partners’ capital		279,897		312,173
Noncontrolling partners’ interests		(2,697)		(2,656)
Total partners’ capital		277,200		309,517
Total liabilities and partners’ capital	$	689,234	$	726,168

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per unit amounts)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016 (Recast)		2017		2016 (Recast)
Product sales	$	125,422		103,577	$	366,142	$	323,269
Other revenue		6,036		7,217		14,387		14,486
Net revenue		131,458		110,794		380,529		337,755
Cost of goods sold, excluding depreciation and amortization		100,403		80,420		293,421		258,019
Loss on disposal of assets		1,237		1,523		3,242		1,679
Depreciation and amortization		8,700		6,434		26,085		20,429
Total cost of goods sold		110,340		88,377		322,748		280,127
Gross margin		21,118		22,417		57,781		57,628
General and administrative expenses		7,131		8,708		21,826		22,025
Income from operations		13,987		13,709		35,955		35,603
Other income (expense):
Interest expense		(7,652)		(3,314)		(23,062)		(9,535)
Related-party interest expense		—		(51)		—		(561)
Other (expense) income		(1)		2		(198)		274
Total other expense, net		(7,653)		(3,363)		(23,260)		(9,822)
Net income		6,334		10,346		12,695		25,781
Less net loss attributable to noncontrolling partners’ interests		5		1,366		41		3,467
Net income attributable to Enviva Partners, LP	$	6,339	$	11,712	$	12,736	$	29,248
Less: Pre-acquisition loss from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner		—		(1,321)		—		(3,332)
Enviva Partners, LP limited partners’ interest in net income	$	6,339	$	13,033	$	12,736	$	32,580
Net income per limited partner common unit:
Basic	$	0.20	$	0.51	$	0.40	$	1.28
Diluted	$	0.19	$	0.50	$	0.37	$	1.26
Net income per limited partner subordinated unit:
Basic	$	0.20	$	0.51	$	0.40	$	1.28
Diluted	$	0.20	$	0.50	$	0.40	$	1.26
Weighted-average number of limited partner units outstanding:
Common—basic		14,412		12,919		14,400		12,878
Common—diluted		15,385		13,480		15,343		13,420
Subordinated—basic and diluted		11,905		11,905		11,905		11,905

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016 (Recast)		2017		2016 (Recast)
Net income	$	6,334	$	10,346	$	12,695	$	25,781
Other comprehensive loss:
Net unrealized losses on cash flow hedges		(1,788)		(105)		(4,641)		(105)
Reclassification of net losses realized into net income		55		—		161		—
Total other comprehensive loss		(1,733)		(105)		(4,480)		(105)
Total comprehensive income		4,601		10,241		8,215		25,676
Less:
Pre-acquisition loss from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner		—		(1,321)		—		(3,332)
Total comprehensive income subsequent to Enviva Pellets Sampson, LLC Drop-Down		4,601		11,562		8,215		29,008
Less:
Comprehensive loss attributable to noncontrolling partners’ interests		5		1,366		41		3,467
Comprehensive income attributable to Enviva Partners, LP partners	$	4,606	$	12,928	$	8,256	$	32,475

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Partners’ Capital

(In thousands)

(Unaudited)


			Limited Partners’ Capital
			Common			Common			Subordinated			Accumulated
	General		Units—			Units—			Units—			Other		Non-		Total
	Partner		Public			Sponsor			Sponsor			Comprehensive		controlling		Partners'
	Interest		Units	Amount		Units	Amount		Units	Amount		Income		Interests		Capital

Partners’ capital, December 31, 2016	$	(67,393)	12,981	$	239,902	1,347	$	18,197	11,905	$	120,872	$	595	$	(2,656)	$	309,517
Distributions to unitholders, distribution equivalent and incentive distribution rights		(1,567)	—		(23,313)	—		(2,236)	—		(19,762)		—		—		(46,878)
Issuance of units through Long-Term Incentive Plan		—	21		497	—		—	—		—		—		—		497
Issuance of common units, net		—	63		1,715	—		—	—		—		—		—		1,715
Unit-based compensation		—	—		4,616	—		—	—		—		—		—		4,616
Excess consideration over Enviva Pellets Sampson, LLC net assets		(482)	—			—		—	—		—		—		—		(482)
Other comprehensive loss		—	—		—	—		—	—		—		(4,480)		—		(4,480)
Net income (loss)		1,567	—		5,544	—		571	—		5,054		—		(41)		12,695
Partners’ capital, September 30, 2017	$	(67,875)	13,065	$	228,961	1,347	$	16,532	11,905	$	106,164	$	(3,885)	$	(2,697)	$	277,200

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended
	September 30,
	2017		2016 (Recast)
Cash flows from operating activities:
Net income	$	12,695	$	25,781
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		26,096		20,452
Amortization of debt issuance costs and original issue discounts		1,161		1,338
Impairment of inventory		—		890
General and administrative expense incurred by Hancock JV prior to Enviva Pellets Sampson, LLC Drop-Down		—		561
Loss on disposal of assets		3,242		1,679
Unit-based compensation		5,113		2,662
Unrealized loss on foreign currency transactions		(13)		—
Change in operating assets and liabilities:
Accounts receivable, net		28,026		1,880
Related-party receivables		(2,766)		(280)
Prepaid expenses and other assets		53		638
Assets held for sale		(310)		—
Inventories		(4,401)		(8,850)
Other long-term assets		86		6,668
Derivatives		(1,442)		—
Accounts payable		(5,725)		(7,479)
Related-party payables		9,475		(1,056)
Accrued liabilities		(1,015)		5,670
Accrued interest		6,301		137
Other current liabilities		(249)		(241)
Deferred revenue and deposits		—		4,535
Other long-term liabilities		—		126
Net cash provided by operating activities		76,327		55,111
Cash flows from investing activities:
Purchases of property, plant and equipment		(14,289)		(54,237)
Premiums paid for purchased options		—		(78)
Proceeds from the sale of property, plant and equipment		—		1,763
Net cash used in investing activities		(14,289)		(52,552)
Cash flows from financing activities:
Principal payments on debt and capital lease obligations		(29,886)		(36,960)
Principal payments on related-party debt		—		(282)
Cash paid related to debt issuance costs		(209)		(22)
Proceeds from common unit issuance under the At-the-Market Offering Program, net		1,715		5,619
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder		(46,323)		(37,841)
Distributions to sponsor		—		(5,002)
Payment of deferred offering costs		—		(591)
Proceeds from borrowings on Revolving Credit Commitments		20,000		34,500
Contributions from sponsor related to Enviva Pellets Sampson, LLC Drop-Down		1,652		—
Proceeds from contributions from Hancock JV		—		57,288
Net cash (used in) provided by financing activities		(53,051)		16,709
Net increase in cash and cash equivalents		8,987		19,268
Cash and cash equivalents, beginning of period		466		2,128
Cash and cash equivalents, end of period	$	9,453	$	21,396
Non-cash investing and financing activities:
The Partnership acquired property, plant and equipment in non-cash transactions as follows:
Property, plant and equipment acquired included in accounts payable and accrued liabilities	$	4,413	$	19,912
Property, plant and equipment acquired under capital leases		1,124		1,578
Property, plant and equipment transferred from inventories		172		63
Related-party long-term debt transferred to third-party long-term debt		—		14,757
Third-party long-term debt transferred to related-party long-term debt		—		3,316
Distributions included in liabilities		937		449
Application of short-term deposit to fixed assets		258		—
Offering issuance costs included in accrued liabilities		—		22
Debt issuance costs included in accrued liabilities		—		135
Depreciation capitalized to inventories		483		498
Non-cash capital contributions from Hancock JV prior to Enviva Pellets Sampson, LLC Drop-Down		—		2,345
Supplemental information:
Interest paid	$	15,508	$	8,619

See accompanying notes to unaudited condensed consolidated financial statements.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

(1) Description of Business and Basis of Presentation

Description of Business

Enviva Partners, LP (the “Partnership”) is a publicly traded Delaware limited partnership formed on November 12, 2013, as a wholly owned subsidiary of Enviva Holdings, LP (together with its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC, where applicable, the “sponsor”). Through its interests in Enviva, LP and Enviva GP, LLC, the general partner of Enviva, LP, the Partnership supplies utility-grade wood pellets to major power generators under long-term, take-or-pay off-take contracts. The Partnership procures wood fiber and processes it into utility-grade wood pellets and loads the finished wood pellets into railcars, trucks and barges that are transported to deep-water marine terminals, where they are received, stored and ultimately loaded onto oceangoing vessels for transport to the Partnership’s principally European customers.

The Partnership owns and operates six industrial-scale wood pellet production plants located in the Mid-Atlantic and Gulf Coast regions of the United States. Wood pellets are exported from a wholly owned deep-water marine terminal in Chesapeake, Virginia, from a deep-water marine terminal in Wilmington, North Carolina (the “Wilmington terminal”), acquired from a joint venture between the sponsor and certain affiliates of John Hancock Life Insurance Company (the “Hancock JV”) on October 2, 2017 (see Note 18, Subsequent Events) and from third-party deep-water marine terminals in Mobile, Alabama and Panama City, Florida, under a short-term and a long-term contract, respectively.

Basis of Presentation

On December 14, 2016, under the terms of a contribution agreement by and among the Partnership and the Hancock JV (the “Sampson Contribution Agreement”), the Hancock JV sold to the Partnership all of the issued and outstanding limited liability company interests in Enviva Pellets Sampson, LLC (“Sampson”) for total consideration of $175.0 million. Sampson owns a wood pellet production plant in Sampson County, North Carolina (the “Sampson plant”). The acquisition (the “Sampson Drop-Down”) included the Sampson plant, an approximate ten-year, 420,000 metric tons per year (“MTPY”) take-or-pay off-take contract with DONG Energy Thermal Power A/S, an approximate 15-year, 95,000 MTPY off-take contract with the Hancock JV and related third-party shipping contracts. The Sampson Drop-Down included the payment of $139.6 million in cash, net of a purchase price adjustment of $5.4 million, to the Hancock JV, the issuance of 1,098,415 unregistered common units representing limited partnership interests in the Partnership (the “common units”) at a value of $27.31 per unit, or $30.0 million of common units, to affiliates of John Hancock Life Insurance Company, and the elimination of $1.2 million of related-party receivables and payables, net, included in the net assets on the date of acquisition. The Partnership accounted for the Sampson Drop-Down as a combination of entities under common control at historical cost in a manner similar to a pooling of interests. Accordingly, the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016 were retrospectively recast to reflect the Sampson Drop-Down as if it had occurred on May 15, 2013, the date Sampson was originally organized (see Note 2, Transactions Between Entities Under Common Control).

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments and accruals that are necessary for a fair presentation of the results of all periods presented herein and are of a normal recurring nature. The results reported in these statements are not necessarily indicative of the results that may be reported for the entire year. These statements should be read in conjunction with the

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

annual audited consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC.

Certain prior period amounts related to loss on disposal of assets have been reclassified to cost of goods sold from general and administrative expenses to conform to current period presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the Partnership’s unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Summary of Significant Accounting Policies

The accounting policies are set forth in the Notes to Consolidated Financial Statements in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes to these policies during the nine months ended September 30, 2017.

Recent and Pending Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging (Topic 815)—Targeted Improvements to Accounting for Hedging Activities. ASU No. 2017-12 expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Partnership is in the process of evaluating the impact of the adoption of ASU No. 2017-12 on its condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other. ASU No. 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the new standard, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Partnership does not expect the adoption of ASU No. 2017-04 to have a material impact on its condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities is not a

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is allowed (1) for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and (2) for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. Entities will be required to apply the guidance retrospectively when adopted. The Partnership is in the process of evaluating the impact of the adoption of ASU No. 2017-01 on its condensed consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230)—Restricted Cash: A Consensus of the FASB Emerging Issues Task Force, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance addresses the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption in an interim period is permitted, but any adjustments must be reflected as of the beginning of the fiscal year that includes such interim period. Entities will be required to apply the guidance retrospectively when adopted. The Partnership does not expect the adoption of the new standard to have a material effect on the presentation of changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in its condensed consolidated statements of cash flows.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows with the objective of reducing the existing diversity in practice. The guidance addresses the classification of cash flows related to (1) debt prepayment or extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance, including bank-owned life insurance, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. An entity will first apply any relevant guidance. If there is no guidance that addresses those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source of use. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. The new guidance will require adoption on a retroactive basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

earliest date practicable. The Partnership does not expect the adoption of the new standard to have a material effect on how cash receipts and cash payments are presented and classified in its condensed consolidated statements of cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases. Under the new pronouncement, an entity is required to recognize assets and liabilities arising from a lease for all leases with a maximum possible term of more than 12 months. A lessee is required to recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset (the underlying asset) for the lease term. For most leases of assets other than property (for example, equipment, aircraft, cars, trucks), a lessee would recognize a right-of-use asset and a lease liability, initially measured at the present value of lease payments and recognize the unwinding of the discount on the lease liability as interest separately from the amortization of the right-of-use asset. For most leases of property (that is, land and/or a building or part of a building), a lessee would recognize a right-of-use asset and a lease liability, initially measured at the present value of lease payments and recognize a single lease cost, combining the unwinding of the discount on the lease liability with the amortization of the right-of-use asset, on a straight-line basis. The new guidance is effective for public entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Upon adoption, a lessee and a lessor would recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. Although the Partnership is continuing to assess all potential qualitative and quantitative impacts of the standard, the Partnership currently expects the new standard to impact its accounting for equipment under operating leases.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 provides new guidance on the recognition of revenue and states that an entity should recognize revenue when control of the goods or services transfers to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires significantly expanded disclosure regarding qualitative and quantitative information about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers—Principal versus Agent Considerations. ASU No. 2016-08 clarifies the implementation guidance on principal versus agent considerations. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers, which provides narrow scope improvements and practical expedients related to ASU No. 2014-09. ASU No. 2014-09 and subsequent amendments have been codified as Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. ASC 606 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Partnership will adopt ASC 606 effective January 1, 2018. The Partnership currently expects to utilize the modified retrospective method of adoption, which will result in the presentation of the cumulative effect of initially applying ASC 606 at the date of initial application. The Partnership has established a cross-functional team to lead the assessment and implementation of ASC 606 and has finalized its implementation plans. In connection with the implementation plan, the Partnership has completed its initial evaluation of its off-take contracts to identify material performance obligations. The Partnership determined that revenue related to its off-take contracts will be recognized at the point in time at which control of the wood pellets passes to the customer, as the wood pellets are loaded onto shipping vessels, which is consistent with the timing of revenue recognition under the Partnership’s current accounting policy. ASC 606 permits an entity to account for shipping and handling activities occurring after control has passed to the customer as a fulfillment activity rather than as a revenue element. The Partnership has elected to account for shipping and handling activities as a fulfillment activity, consistent with its current policy. Additionally, the Partnership has concluded that certain transactions currently presented on a net basis in other revenue will be recognized as principal sales on a gross basis under ASC 606. The Partnership continues to evaluate the impact of the adoption on its business processes and accounting and information systems.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

(2) Transactions Between Entities Under Common Control

Recast of Historical Financial Statements

The condensed consolidated financial statements for the three and nine months ended September 30, 2016 have been recast to reflect the Sampson Drop-Down as if it had occurred on May 15, 2013, the date Sampson was originally organized. The historical net equity amounts of Sampson prior to the Sampson Drop-Down transaction date were attributed to the General Partner and any noncontrolling interest.

The following table presents the changes to previously reported amounts in the unaudited condensed consolidated balance sheet as of September 30, 2016 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended September 30, 2016:


	As of September 30, 2016
	As		Enviva Pellets
	Reported		Sampson, LLC		Total (Recast)
Cash and cash equivalents	$	21,396	$	—	$	21,396
Property, plant and equipment, net of accumulated depreciation		394,243		137,400		531,643
Goodwill		85,615		—		85,615
Other assets		65,394		7,766		73,160
Total assets	$	566,648	$	145,166	$	711,814

Accounts payable	$	1,726	$	946	$	2,672
Accrued and other current liabilities		23,623		18,949		42,572
Total long-term debt		206,690		1,114		207,804
Other liabilities		6,350		1,410		7,760
Total liabilities		238,389		22,419		260,808
Total partners’ capital		328,259		122,747		451,006
Total liabilities and partners’ capital	$	566,648	$	145,166	$	711,814

The following table presents the changes to previously reported amounts in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2016 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended September 30, 2016:


	Three Months Ended September 30, 2016
	As		Enviva Pellets		Total
	Reported		Sampson, LLC		(Recast)
Net revenue	$	109,774	$	1,020	$	110,794
Net income (loss)		13,012		(2,666)		10,346
Less net loss attributable to noncontrolling partners’ interests		21		1,345		1,366
Net income (loss) attributable to Enviva Partners, LP		13,033		(1,321)		11,712
Net loss attributable to general partner		—		(1,321)		(1,321)
Net income attributable to Enviva Partners, LP limited partners’ interest in net income		13,033		—		13,033

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)


	Nine Months Ended September 30, 2016
	As		Enviva Pellets		Total
	Reported		Sampson, LLC		(Recast)
Net revenue	$	336,735	$	1,020	$	337,755
Net income (loss)		32,511		(6,730)		25,781
Less net loss attributable to noncontrolling partners’ interests		69		3,398		3,467
Net income (loss) attributable to Enviva Partners, LP		32,580		(3,332)		29,248
Net loss attributable to general partner		—		(3,332)		(3,332)
Net income attributable to Enviva Partners, LP limited partners’ interest in net income		32,580		—		32,580

The following table presents the changes to previously reported amounts in the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2016 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended September 30, 2016:


	Nine Months Ended September 30, 2016
	As		Enviva Pellets		Total
	Reported		Sampson, LLC		(Recast)
Net cash provided by (used in) operating activities	$	67,612	$	(12,501)	$	55,111
Net cash used in investing activities		(7,813)		(44,739)		(52,552)
Net cash (used in) provided by financing activities		(40,578)		57,287		16,709
Net increase in cash and cash equivalents	$	19,221	$	47	$	19,268

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

The Partnership’s business is significantly impacted by greenhouse gas emission and renewable energy legislation and regulations in the European Union (the “E.U.”) as well as its member states. If the E.U. or its member states significantly modify such legislation or regulations, then the Partnership’s ability to enter into new contracts as the current contracts expire may be materially affected.

The Partnership’s primary industrial customers are located in the United Kingdom, Denmark and Belgium. Three customers accounted for 96% and 95% of the Partnership’s product sales during the three and nine months ended September 30, 2017, respectively. Three customers accounted for 99% and 94% of the Partnership’s product sales during the three and nine months ended September 30, 2016, respectively. The following table shows product sales to third-party customers that accounted for 10% or a greater share of consolidated product sales for each of the three and nine months ended:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016 (Recast)		2017		2016 (Recast)
Customer A	73	%	81	%	68	%	76	%
Customer B	14	%	13	%	15	%	16	%
Customer C	—	%	—	%	—	%	—	%
Customer D	9	%	5	%	12	%	2	%

The Partnership’s cash and cash equivalents are placed in or with various financial institutions. The Partnership has not experienced any losses on such accounts.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

(4) Property, Plant and Equipment

Property, plant and equipment consisted of the following at:


	September 30,		December 31,
	2017		2016
Land	$	13,492	$	13,492
Land improvements		42,755		42,148
Buildings		140,050		137,092
Machinery and equipment		387,643		382,740
Vehicles		609		513
Furniture and office equipment		5,234		5,113
		589,783		581,098
Less accumulated depreciation		(104,641)		(80,768)
		485,142		500,330
Construction in progress		10,224		16,088
Total property, plant and equipment, net	$	495,366	$	516,418

Total depreciation expense was $8.0 million and $24.9 million and $5.7 million and $18.5 million for the three and nine months ended September 30, 2017 and 2016, respectively.

(5) Inventories

Inventories consisted of the following at:


	September 30,		December 31,
	2017		2016
Raw materials and work-in-process	$	6,447	$	7,689
Consumable tooling		14,385		11,978
Finished goods		13,645		10,097
Total inventories	$	34,477	$	29,764

(6) Derivative Instruments

The Partnership uses derivative instruments to partially offset its business exposure to foreign currency exchange and interest rate risk. The Partnership may enter into foreign currency forward and option contracts to offset some of the foreign currency exchange risk on expected future cash flows and interest rate swaps to offset some of the interest rate risk on expected future cash flows on certain borrowings. The Partnership’s derivative instruments expose it to credit risk to the extent that hedge counterparties may be unable to meet the terms of the applicable derivative instrument. The Partnership seeks to mitigate such risk by limiting its counterparties to major financial institutions. In addition, the Partnership monitors the potential risk of loss with any one counterparty resulting from credit risk. Management does not expect material losses as a result of defaults by counterparties. The Partnership uses derivative instruments to manage cash flow and does not enter into derivative instruments for speculative or trading purposes.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

Cash Flow Hedges

Foreign Currency Exchange Risk

The Partnership is primarily exposed to fluctuations in foreign currency exchange rates related to off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”). Deliveries under these off-take contracts began in September 2017. The Partnership has and may continue to enter into foreign currency forward contracts, purchased option contracts or other instruments to partially manage this risk and has designated and may continue to designate these instruments as cash flow hedges.

For these cash flow hedges, the effective portion of the gain or loss on the change in fair value is initially reported as a component of accumulated other comprehensive income in partners’ capital and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss, if any, is reported in earnings in the current period. The Partnership considers its cash flow hedges to be highly effective at inception and as of September 30, 2017.

The Partnership’s outstanding cash flow hedges at September 30, 2017 expire on dates between 2017 and 2022.

Interest Rate Risk

The Partnership is exposed to fluctuations in interest rates on borrowings under its Senior Secured Credit Facilities. The Partnership entered into a pay-fixed, receive-variable interest rate swap in September 2016 to hedge the interest rate risk associated with its variable rate borrowings under its Senior Secured Credit Facilities. The Partnership elected to discontinue hedge accounting as of December 14, 2016 following the repayment of a portion of its outstanding indebtedness under its Senior Secured Credit Facilities, and subsequently re-designated the interest rate swap for the remaining portion of such outstanding indebtedness during the three months ended March 31, 2017. The Partnership’s interest rate swap expires concurrently with the maturity of the Senior Secured Credit Facilities in April 2020.

The counterparty to the Partnership’s interest rate swap is a major financial institution.

The fair values of cash flow hedging instruments included in the unaudited condensed consolidated balance sheet as of September 30, 2017 were as follows:


		Asset		Liability
	Balance Sheet Location	Derivatives		Derivatives
Derivatives designated as hedging instruments:
Foreign currency exchange forward contracts	Other current liabilities	$	—	$	580
Foreign currency exchange forward contracts	Other long-term liabilities		—		2,145
Purchased options:
Foreign currency purchased option contracts	Prepaid and other current assets		3		—
Foreign currency purchased option contracts	Other long-term assets		1,150		—
Interest rate swap:
Interest rate swap	Other current assets		82		—
Interest rate swap	Other long-term assets		331		—
Total derivatives designated as hedging instruments		$	1,566	$	2,725

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

The fair values of cash flow hedging instruments included in the condensed consolidated balance sheet as of December 31, 2016 were as follows:


		Asset		Liability
	Balance Sheet Location	Derivatives		Derivatives
Derivatives designated as hedging instruments:
Forward contracts:
Foreign currency exchange forward contracts	Prepaid and other current assets	$	188	$	—
Foreign currency exchange forward contracts	Other long-term assets		632		—
Foreign currency exchange forward contracts	Other long-term liabilities		—		51
Purchased options:
Foreign currency purchased option contracts	Other long-term assets		626		—
Total derivatives designated as hedging instruments		$	1,446	$	51
Derivatives not designated as hedging instruments:
Interest rate swap	Other long-term assets	$	484	$	—

The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive income and the gains and losses in income for the three months ended September 30, 2017 were as follows:

Amount of

Location of

Gain (Loss)

Location of Gain

Amount of Gain

Gain (Loss)

Reclassified from

(Loss) Recognized in

(Loss) in Other

Reclassified from

Accumulated Other

Income on Derivative

Comprehensive

Accumulated Other

Comprehensive

(Ineffective Portion

Income on

Comprehensive

Income

and Amount

Derivative

Income

into Income

Excluded from

(Effective Portion)

Effectiveness Testing)

Foreign exchange contracts

(1,484)

Product sales

(1)

Foreign exchange contracts

(22)

Other revenue

(30)

Other revenue

—

Purchased options

(294)

Product sales

—

Product sales

—

Interest rate swap

Other income (expense)

(51)

Other income (expense)

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive income and the gains and losses in income for the nine months ended September 30, 2017 were as follows:

Amount of

Location of

Gain (Loss)

Location of Gain

Amount of Gain

Gain (Loss)

Reclassified from

(Loss) Recognized in

(Loss) in Other

Reclassified from

Accumulated Other

Income on Derivative

Comprehensive

Accumulated Other

Comprehensive

(Ineffective Portion

Income on

Comprehensive

Income

and Amount

Derivative

Income

into Income

Excluded from

(Effective Portion)

Effectiveness Testing)

Foreign exchange contracts

(3,445)

Product sales

(1)

Foreign exchange contracts

(11)

Other revenue

(11)

Other revenue

—

Purchased options

(1,047)

Product sales

—

Product sales

—

Interest rate swap

(138)

Other income (expense)

(176)

Other income (expense)

The estimated net amount of existing gains and losses in accumulated other comprehensive income associated with derivative instruments expected to be transferred to the consolidated statements of income during the next twelve months is a gain of approximately $0.8 million, net.

The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive income and the gains and losses in income for the three and nine months ended September 30, 2016 were insignificant.

The Partnership enters into master netting arrangements, which are designed to permit net settlement of derivative transactions among the respective counterparties. If the Partnership had settled all transactions with its respective counterparties at September 30, 2017, the Partnership would have received a net settlement termination payment of $1.2 million, which differs from the recorded fair value of the derivatives. The Partnership presents its derivative assets and liabilities at their gross fair values.

The notional amounts of outstanding derivative instruments designated as cash flow hedges associated with outstanding or unsettled derivative instruments as of September 30, 2017 were as follows:


Foreign exchange forward contracts in GBP	£	42,570
Foreign exchange purchased option contracts in GBP	£	28,960
Interest rate swap	$	45,578

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

The notional amounts of outstanding derivative instruments designated as cash flow hedges associated with outstanding or unsettled derivative instruments as of December 31, 2016 were as follows:


Foreign exchange forward contracts in GBP	£	25,270
Foreign exchange purchased option contracts in GBP	£	8,160

(7) Fair Value Measurements

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

Derivative instruments and long-term debt and capital lease obligations, including the current portion, are classified as Level 2 instruments. The fair value of the Senior Notes (see Note 10, Long-Term Debt and Capital Lease Obligations – Senior Notes) was determined based on observable market prices in a less active market and was categorized as Level 2 in the fair value hierarchy. The fair value of other long-term debt and capital lease obligations classified as Level 2 was determined based on the usage of market prices not quoted on active markets and other observable market data. The carrying amount of derivative instruments approximates fair value as of September 30, 2017 and December 31, 2016. The carrying amount and estimated fair value of long-term debt and capital lease obligations as of September 30, 2017 and December 31, 2016 were as follows:


	September 30, 2017				December 31, 2016
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Senior Notes	$	294,501	$	314,361	$	293,797	$	306,547
Other long-term debt and capital lease obligations		48,622		48,622		56,998		56,998
Total long-term debt and capital lease obligations	$	343,123	$	362,983	$	350,795	$	363,545

The fair value of long-term debt and capital lease obligations is estimated based upon rates currently available for debt and capital lease obligations with similar terms and remaining maturities.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

(8) Goodwill and Other Intangible Assets

Intangible Assets

Intangible assets consisted of the following at:


			September 30, 2017						December 31, 2016
			Gross				Net		Gross				Net
	Amortization		Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Period		Amount		Amortization		Amount		Amount		Amortization		Amount
Favorable customer contracts	3	years	$	8,700	$	(8,560)	$	140	$	8,700	$	(7,468)	$	1,232
Wood pellet contract	6	years		1,750		(1,750)		—		1,750		(1,611)		139
Total intangible assets			$	10,450	$	(10,310)	$	140	$	10,450	$	(9,079)	$	1,371

Intangible assets include favorable customer contracts acquired in connection with the Partnership’s purchase of Green Circle Bio Energy, Inc. in January 2015. The Partnership also recorded payments made to acquire a six-year, wood pellet contract with a European utility in 2010 as an intangible asset. These costs are recoverable through the future revenue streams generated from the associated contract and are closely related to the revenue from the customer contract. The Partnership amortizes the customer contract intangible assets as deliveries are completed during the respective contract terms. During the three and nine months ended September 30, 2017 and 2016, $0.7 million and $1.2 million and $0.7 million and $1.9 million, respectively, of amortization was included in cost of goods sold in the accompanying unaudited condensed consolidated statements of income.

The estimated aggregate maturities of amortization expense for the next five years are as follows:


October 1, 2017 through December 31, 2017	$	—
Year ending December 31, 2018		140
Year ending December 31, 2019		—
Year ending December 31, 2020		—
Year ending December 31, 2021		—
Thereafter		—
Total	$	140

(9) Assets Held for Sale

The Partnership has a controlling interest in Enviva Pellets Wiggins, LLC (“Wiggins”), an entity that owns a wood pellet production plant in Stone County, Mississippi (the “Wiggins plant”). Wiggins is a joint venture controlled and consolidated by the Partnership. In December 2016, the Partnership, with the authorization of the Partnership’s board of directors, initiated a plan, and entered into a purchase and sale agreement, to sell the Wiggins plant. In December 2016, the Partnership reclassified the Wiggins plant assets to current assets held for sale and ceased depreciation. On January 20, 2017, the purchase and sale agreement terminated when the buyer failed to pay the purchase price. All operations at the Wiggins plant have ceased and the plant remains available for immediate sale. The Partnership remains in active negotiations with potential purchasers for the Wiggins plant assets.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

(10) Long-Term Debt and Capital Lease Obligations

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


	September 30,		December 31,
	2017		2016
Senior Notes, net of unamortized discount and debt issuance of $5.5 million as of September 30, 2017 and $6.2 million as of December 31, 2016	$	294,501	$	293,797
Senior Secured Credit Facilities, Tranche A-1 Advances, net of unamortized discount and debt issuance costs of $1.1 million as of September 30, 2017 and $1.4 million as of December 31, 2016		39,899		41,651
Senior Secured Credit Facilities, Tranche A-3 Advances, net of unamortized discount and debt issuance costs of $0.1 million as of September 30, 2017 and $0.2 million as of December 31, 2016		4,436		4,489
Senior Secured Credit Facilities, revolving credit commitments, at a Eurodollar Rate of 7.0% at September 30, 2017 and December 31, 2016		—		6,500
Other loans		2,025		2,759
Capital leases		2,262		1,599
Total long-term debt and capital lease obligations		343,123		350,795
Less current portion of long-term debt and capital lease obligations		(5,008)		(4,109)
Long-term debt and capital lease obligations, excluding current installments	$	338,115	$	346,686

Senior Notes Due 2021

On November 1, 2016, the Partnership and Enviva Partners Finance Corp. (together with the Partnership, the “Issuers”), Wilmington Trust, National Association, as trustee, and the guarantors party thereto entered into an indenture, as amended or supplemented (the “Indenture”), pursuant to which the Issuers issued $300.0 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”) to eligible purchasers (the “Senior Notes Offering”) in a private placement under Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “Securities Act”). Interest payments, which commenced on May 1, 2017, are due semi-annually in arrears on May 1 and November 1. In August 2017, holders of 100% of the Senior Notes tendered such notes in exchange for newly issued registered notes (the “Exchange Notes,” and together with the Senior Notes, the “Notes”) with terms substantially identical in all material respects to the Senior Notes (except that the Exchange Notes are not subject to restrictions on transfer). The Partnership recorded $6.4 million in issue discounts and costs associated with the issuance of the Senior Notes, which have been recorded as a reduction to long-term debt and capital lease obligations.

The Partnership used $139.6 million of the net proceeds from the Senior Notes, together with cash on hand, to pay a portion of the purchase price for the Sampson Drop-Down and $159.8 million to repay borrowings, including accrued interest, under the Senior Secured Credit Facilities.

At any time prior to November 1, 2018, the Issuers may redeem up to 35% of the aggregate principal amount of the Notes at a redemption price of 108.5% of the principal amount, plus accrued and unpaid interest, if any, to the

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Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

redemption date, in an amount not greater than the net cash proceeds of one or more equity offerings by the Partnership, provided that:

at least 65% of the aggregate principal amount of the Notes issued under the Indenture on November 1, 2016, remains outstanding immediately after the occurrence of such redemption (excluding notes held by the Partnership and its subsidiaries); and

the redemption occurs within 120 days of the date of the closing of such equity offering(s).

On and after November 1, 2018, the Issuers may redeem all or a portion of the Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, on the Notes redeemed to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), if redeemed during the twelve-month period beginning November 1 on the years indicated below:


Year:	Percentages
2018	104.250	%
2019	102.125	%
2020 and thereafter	100.000	%

The Notes contain certain covenants applicable to the Partnership including, but not limited to (1) restricted payments, (2) incurrence of indebtedness and issuance of preferred securities, (3) liens, (4) dividend and other payment restrictions affecting subsidiaries, (5) merger, consolidation or sale of assets, (6) transactions with affiliates, (7) designation of restricted and unrestricted subsidiaries, (8) additional subsidiary guarantees, (9) business activities and (10) reporting obligations.

As of September 30, 2017 and December 31, 2016, the Partnership was in compliance with all covenants and restrictions associated with, and no events of default existed under, the Indenture. The Partnership’s obligations under the Indenture are guaranteed by certain of the Partnership’s subsidiaries and secured by liens on substantially all of the Partnership’s assets.

Senior Secured Credit Facilities

On April 9, 2015, the Partnership entered into a credit agreement (the “Credit Agreement”) providing for $199.5 million aggregate principal amount of senior secured credit facilities (the “Original Credit Facilities”). The Original Credit Facilities consisted of (i) $99.5 million aggregate principal amount of Tranche A-1 borrowings, (ii) $75.0 million aggregate principal amount of Tranche A-2 borrowings and (iii) revolving credit commitments in an aggregate principal amount at any time outstanding, taken together with the face amount of letters of credit, not in excess of $25.0 million. The Partnership is also able to request loans under incremental facilities under the Credit Agreement on the terms and conditions and in the maximum aggregate principal amounts set forth therein, provided that lenders provide commitments to make loans under such incremental facilities.

On December 11, 2015, the Partnership entered into the First Incremental Term Loan Assumption Agreement (the “Assumption Agreement”) providing for $36.5 million of incremental borrowings (the “Incremental Term Borrowings” and, together with the Original Credit Facilities, the “Senior Secured Credit Facilities”) under the Credit Agreement. The Incremental Term Borrowings consisted of (i) $10.0 million aggregate principal amount of Tranche A-3 borrowings and (ii) $26.5 million aggregate principal amount of Tranche A-4 borrowings. On December 11, 2015, Enviva FiberCo, LLC (“Enviva FiberCo”), an affiliate and a wholly owned subsidiary of the sponsor, became a lender pursuant to the Credit

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Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

Agreement with a purchase of $15.0 million aggregate principal amount of the Tranche A-4 borrowings, net of a 1.0% lender fee. On June 30, 2016, Enviva FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. The Partnership recorded $0 million and $0.4 million as interest expense related to this indebtedness during the three and nine months ended September 30, 2016, respectively.

On October 17, 2016, the Partnership entered into a second amendment to the Credit Agreement (the “Second Amendment”). Following the consummation of the Sampson Drop-Down, the Second Amendment provided for an increase of the revolving credit commitments from $25.0 million to $100.0 million.

On December 14, 2016, proceeds from the Senior Notes were used to repay all outstanding indebtedness, including accrued interest, of $74.7 million for Tranche A-2 and $26.5 million for Tranche A-4 under the Senior Secured Credit Facilities, and to repay a portion of the outstanding indebtedness, including accrued interest, of $53.6 million for Tranche A-1 and $5.1 million for Tranche A-3 under the Senior Secured Credit Facilities. For the year ended December 31, 2016, the Partnership recorded a $4.4 million loss on early retirement of debt obligation related to the repayments.

The Senior Secured Credit Facilities mature in April 2020. Borrowings under the Senior Secured Credit Facilities bear interest, at the Partnership’s option, at either a base rate plus an applicable margin or at a Eurodollar rate (with a 1.00% floor for term loan borrowings) plus an applicable margin. Principal and interest are payable quarterly.

The Partnership had a $4.0 million letter of credit outstanding under the letters of credit facilities as of September 30, 2017 and December 31, 2016. The letter of credit was issued in connection with a contract between the Partnership and a third party in the ordinary course of business.

The Partnership had no amount outstanding under the revolving credit commitments as of September 30, 2017. The Partnership had $6.5 million outstanding under the revolving credit commitments as of December 31, 2016.

As of September 30, 2017 and December 31, 2016, the Partnership was in compliance with all covenants and restrictions associated with, and no events of default existed under, the Credit Agreement. The Partnership’s obligations under the Credit Agreement are guaranteed by certain of the Partnership’s subsidiaries and secured by liens on substantially all of its assets.

(11) Related-Party Transactions

Management Services Agreement

On April 9, 2015, the Partnership, Enviva Partners GP, LLC, its general partner (the “General Partner”), Enviva, LP, Enviva GP, LLC and certain subsidiaries of Enviva, LP (collectively, the “Service Recipients”) entered into a five-year Management Services Agreement (the “MSA”) with Enviva Management Company, LLC (the “Provider”), a wholly owned subsidiary of the sponsor, pursuant to which the Provider provides the Service Recipients with operations, general administrative, management and other services (the “Services”). Under the terms of the MSA, the Service Recipients are required to reimburse the Provider the amount of all direct or indirect internal or third-party expenses incurred, including, without limitation: (i) the portion of the salary and benefits of the employees engaged in providing the Services reasonably allocable to the Service Recipients; (ii) the charges and expenses of any third party retained to provide any portion of the Services; (iii) office rent and expenses and other overhead costs incurred in connection with, or reasonably allocable to, providing the Services; (iv) amounts related to the payment of taxes related to the business of the Service Recipients; and (v) costs and expenses incurred in connection with the formation, capitalization, business or other activities of the Provider pursuant to the MSA.

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Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

Direct or indirect internal or third-party expenses incurred are either directly identifiable or allocated to the Partnership by the Provider. The Provider estimates the percentage of salary, benefits, third-party costs, office rent and expenses and any other overhead costs incurred by the Provider associated with the Services to be provided to the Partnership. Each month, the Provider allocates the actual costs accumulated in the financial accounting system using these estimates. The Provider also charges the Partnership for any directly identifiable costs such as goods or services provided at the Partnership’s request.

During the three and nine months ended September 30, 2017, the Partnership incurred $14.4 million and $42.6 million, respectively, related to the MSA. Of this amount, during the three and nine months ended September 30, 2017, $9.5 million and $32.3 million, respectively, is included in cost of goods sold and $3.2 million and $8.6 million, respectively, is included in general and administrative expenses on the unaudited condensed consolidated statements of income. At September 30, 2017, $1.7 million incurred under the MSA is included in finished goods inventory.

During the three and nine months ended September 30, 2016, the Partnership incurred $14.4 million and $40.5 million, respectively, related to the MSA. Of this amount, $9.2 million and $26.9 million, respectively, is included in cost of goods sold and $4.6 million and $13.0 million, respectively, is included in general and administrative expenses on the unaudited condensed consolidated statements of income. At September 30, 2016, $0.6 million incurred under the MSA is included in finished goods inventory.

As of September 30, 2017 and December 31, 2016, the Partnership had $13.8 million and $10.6 million, respectively, included in related-party payables related to the MSA.

Common Control Transactions

Sampson Drop-Down

On December 14, 2016, the Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Sampson for total consideration of $175.0 million (see Note 1, Description of Business and Basis of Presentation).

Enviva Port of Wilmington, LLC Acquisition

On May 8, 2017, pursuant to a contribution agreement by and between the Partnership and the Hancock JV (the “Wilmington Contribution Agreement”), the Partnership agreed to purchase Enviva Port of Wilmington, LLC (“Wilmington”), a wholly owned subsidiary of the Hancock JV, from the Hancock JV for total consideration of $130.0 million. Wilmington owns the Wilmington terminal. The acquisition of Wilmington (the “Wilmington Drop‑Down”) closed on October 2, 2017 (see Note 18, Subsequent Events).

Related-Party Indemnification

In connection with the Sampson Drop-Down, the Hancock JV agreed to indemnify the Partnership, its affiliates, and its respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Sampson plant. At December 31, 2016, accrued liabilities related to such indemnifiable amounts included $6.4 million related to work performed by certain vendors. The Partnership recorded a corresponding related-party receivable from the Hancock JV (see Note 1, Description of Business and Basis of Presentation) of $6.4 million for reimbursement of such indemnifiable amounts in connection with the Sampson Drop-Down. At September 30, 2017, the related party receivable associated with such amounts was $5.3 million.

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Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

Terminal Services Agreement

On December 14, 2016, Enviva, LP and Wilmington entered into a terminal services agreement (the “Sampson TSA”) regarding wood pellets produced at the Sampson plant and transported by truck to the Wilmington terminal. Pursuant to the Sampson TSA, the wood pellets were received, stored and ultimately loaded onto oceangoing vessels for transport to the Partnership’s customers. During the three and nine months ended September 30, 2017, terminal services of $1.0 million and $2.5 million, respectively, were expensed and are included in cost of goods sold on the unaudited condensed consolidated statements of operations. No terminal services were provided by the Wilmington terminal to the Partnership during the three and nine months ended September 30, 2016. The Sampson TSA was terminated in connection with the Wilmington Drop-Down on October 2, 2017.

Enviva FiberCo, LLC

The Partnership purchases raw materials from Enviva FiberCo. Raw material purchases during the three and nine months ended September 30, 2017 and 2016 from Enviva FiberCo were $2.2 million and $6.3 million and $1.0 million and $2.4 million, respectively.

Biomass Purchase Agreement – Hancock JV

On April 9, 2015, Enviva, LP entered into a master biomass purchase and sale agreement (the “Biomass Purchase Agreement”) and a confirmation thereunder with the Hancock JV pursuant to which the Hancock JV sold to Enviva, LP, at a fixed price per metric ton, certain volumes of wood pellets per month. The Partnership sold the wood pellets purchased from the Hancock JV to customers under the Partnership’s existing off-take contracts. Such confirmation was terminated on December 11, 2015.

On September 7, 2016, Sampson entered into a confirmation under the Biomass Purchase Agreement pursuant to which Sampson agreed to sell to the sponsor 60,000 metric tons of wood pellets through August 31, 2017. On June 23, 2017, the sponsor satisfied its take-or-pay obligation under the agreement with a $2.7 million payment to the Partnership, which is included in “Other revenue.”

On September 26, 2016, Enviva, LP and Sampson entered into two confirmations under the Biomass Purchase Agreement pursuant to which Enviva, LP agreed to sell to Sampson 140,000 metric tons of wood pellets, and Sampson agreed to sell to Enviva, LP 140,000 metric tons of wood pellets. The confirmation pursuant to which Enviva, LP agreed to sell wood pellets to Sampson under the Biomass Purchase Agreement was terminated in connection with the Sampson Drop-Down.

Biomass Option Agreement – Enviva Holdings, LP

On February 3, 2017, Enviva, LP entered into a master biomass purchase and sale agreement and a confirmation thereunder, which confirmation was amended on April 1, 2017, each with the sponsor (together, the “Option Contract”), pursuant to which Enviva, LP has the option to purchase certain volumes of wood pellets from the sponsor, from time to time at a price per metric ton determined by reference to a market index. The sponsor has a corresponding right to re-purchase volumes purchased by Enviva, LP pursuant to the Option Contract at a price per metric ton determined by reference to such market index at then-prevailing rates in the event that Enviva, LP purchases more than 45,000 metric tons of wood pellets pursuant to the Option Contract.

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Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

During the three and nine months ended September 30, 2017, pursuant to the Option Contract, Enviva, LP purchased $5.2 million and $8.1 million, respectively, of wood pellets from the sponsor, which amounts are included in cost of goods sold in the Partnership’s unaudited condensed consolidated statements of income.

Related-Party Indebtedness

On December 11, 2015, Enviva FiberCo became a lender pursuant to the Credit Agreement with a purchase of $15.0 million aggregate principal amount of the Tranche A-4 term borrowings, net of a 1.0% lender fee. On June 30, 2016, Enviva FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. The Partnership recorded $0.4 million as related-party interest expense related to this indebtedness during the three and nine months ended September 30, 2016. The Partnership did not incur related-party interest expense during the three and nine months ended September 30, 2017.

Related-Party Notes Payable

On January 22, 2016, an indirect wholly owned subsidiary of the Partnership with a noncontrolling interest in Wiggins became the holder of a $3.3 million Wiggins construction loan and working capital line of credit. There were no changes to the terms of the loans. The loans were paid in full on the October 18, 2016 maturity date. Related-party interest expense associated with the related-party notes payable was insignificant during the three and nine months ended September 30, 2016.

Sampson Construction Payments

Pursuant to two payment agreements between the Partnership and the Hancock JV dated effective as of July 27, 2017 and September 30, 2017 (together, the “Payment Agreements”), the Hancock JV agreed to pay an aggregate amount of $1.0 million to the Partnership in consideration for costs incurred by the Partnership on or prior to September 30, 2017 to repair or replace certain equipment at the Sampson plant following the consummation of the Sampson Drop-Down.

(12) Income Taxes

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

As of September 30, 2017, the periods subject to examination for federal and state income tax returns are 2015 through 2016. The Partnership believes its income tax filing positions, including its status as a pass-through entity, would be sustained on audit and does not anticipate any adjustments that would result in a material change to its consolidated balance sheet. Therefore, no reserves for uncertain tax positions, interest or penalties have been recorded. For the three and nine months ended September 30, 2017 and 2016, no provision for federal or state income taxes has been recorded in the consolidated financial statements.

(13) Commitments and Contingencies

During the fourth quarter of 2016, the Partnership re-purchased a shipment of wood pellets from one customer and subsequently sold it to another customer in a back-to-back transaction. Smoldering was observed onboard the vessel

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Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

carrying the shipment, which resulted in damage to a portion of the shipment and one of the vessel’s five cargo holds (the “Shipping Event”). The disponent owner of the vessel (the “Shipowner”) had directly or indirectly chartered the vessel from certain other parties (collectively, the “Head Owners”) and in turn contracted with Enviva Pellets Cottondale, LLC (“Cottondale”) as the charterer of the vessel. Following the mutual appointment of arbitrators in connection with the Shipping Event, on June 8, 2017, the Shipowner submitted claims against Cottondale (the “Claims”) alleging damages of approximately $11.7 million (calculated using exchange rates as of September 29, 2017), together with other unquantified losses and damages. The Claims provide that the Shipowner would seek indemnification and other damages from Cottondale to the extent that the Shipowner is unsuccessful in its defense of claims raised by the Head Owners against it for damages arising in connection with the Shipping Event.

Although it is reasonably possible that the Shipping Event may result in additional costs for the Partnership’s account, responsibility for such costs and liabilities incurred in connection with the Shipping Event is disputed among the various parties involved. If any such costs and liabilities ultimately are allocated to the Partnership, a portion may be recovered under insurance. The Partnership believes it has meritorious defenses to the Claims, but is generally unable to predict the timing or outcome of any claims or proceedings, including the Claims, associated with the Shipping Event, or any insurance recoveries in respect thereof. Consequently, the Partnership is unable to provide an estimate of the amount or range of possible loss.

(14) Partners’ Capital

Allocations of Net Income

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

Incentive Distribution Rights

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

At-the-Market Offering Program

On August 8, 2016, the Partnership filed a prospectus supplement to the shelf registration filed with the SEC on June 24, 2016, for the registration of the continuous offering of up to $100.0 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of the offerings. In August 2016, the Partnership entered into an equity distribution agreement (the “Equity Distribution Agreement”) with certain managers pursuant to which the Partnership may offer and sell common units from time to time through or to one or more of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).

During the three months ended September 30, 2017, the Partnership did not sell common units under the ATM Program. During the nine months ended September 30, 2017, the Partnership sold 63,577 common units under the

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Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

Equity Distribution Agreement for net proceeds of $1.7 million, net of an insignificant amount of commissions. Net proceeds from sales under the ATM Program were used for general partnership purposes. No common units were sold under the Equity Distribution Agreement during the three and nine months ended September 30, 2016.

Sampson Drop-Down

As partial consideration for the Sampson Drop-Down, the Partnership issued 1,098,415 unregistered common units at a price of $27.31 per unit, or $30.0 million of common units, to affiliates of John Hancock Life Insurance Company (see Note 2, Transactions Between Entities Under Common Control).

Cash Distributions to Unitholders

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


								Total
								Payment to
								General
								Partner for
								Incentive
	Declaration	Record	Payment	Distribution		Total Cash		Distribution
Quarter Ended	Date	Date	Date	Per Unit		Distribution		Rights
March 31, 2016	May 4, 2016	May 16, 2016	May 27, 2016	$	0.5100	$	12.6	$	0.2
June 30, 2016	August 3, 2016	August 15, 2016	August 29, 2016	$	0.5250	$	13.0	$	0.3
September 30, 2016	November 2, 2016	November 14, 2016	November 29, 2016	$	0.5300	$	13.3	$	0.3
December 31, 2016	February 1, 2017	February 15, 2017	February 28, 2017	$	0.5350	$	14.1	$	0.4
March 31, 2017	May 3, 2017	May 18, 2017	May 30, 2017	$	0.5550	$	14.6	$	0.5
June 30, 2017	August 2, 2017	August 15, 2017	August 29, 2017	$	0.5700	$	15.0	$	0.7
September 30, 2017	November 2, 2017	November 15, 2017	November 29, 2017	$	0.6150	$	16.2	$	1.1

For purposes of calculating the Partnership’s earnings per unit under the two-class method, common units are treated as participating preferred units, and the subordinated units are treated as the residual equity interest, or common equity. IDRs are treated as participating securities.

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

The Partnership determines the amount of cash available for distribution for each quarter in accordance with the Partnership Agreement. The amount to be distributed to common unitholders, subordinated unitholders and IDR holders is based on the distribution waterfall set forth in the Partnership Agreement. Net earnings for the quarter are allocated to each class of partnership interest based on the distributions to be made. Additionally, if, during the subordination period, the Partnership does not have enough cash available to make the required minimum distribution to the common unitholders, the Partnership will allocate net earnings to the common unitholders based on the amount of distributions in arrears. When actual cash distributions are made based on distributions in arrears, those cash distributions will not be allocated to the common unitholders, as such earnings were allocated in previous quarters.

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Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

Accumulated Other Comprehensive Income

Comprehensive income consists of two components: net income and other comprehensive income. Other comprehensive income refers to revenue, expenses and gains and losses that under GAAP, are included in comprehensive income but excluded from net income. The Partnership’s other comprehensive income consists of unrealized gains and losses related to derivative instruments accounted for as cash flow hedges. Changes in other comprehensive income for the three and nine months ended September 30, 2016 were insignificant.

The following table presents the changes in accumulated other comprehensive income for the nine months ended September 30, 2017:


	Unrealized
	Losses on
	Derivative
	Instruments
Balance at December 31, 2016	$	595
Net unrealized losses		(4,641)
Reclassification of net losses realized into net income		161
Accumulated other comprehensive loss	$	(3,885)

Noncontrolling Interests—Enviva Pellets Wiggins, LLC

At September 30, 2017 and December 31, 2016, the Partnership held 20.0 million of the 30.0 million outstanding voting Series B units in Wiggins, which represented a 67% controlling interest in Wiggins.

In December 2016, the Partnership, with the authorization of the Partnership’s board of directors, initiated a plan, and entered into a purchase and sale agreement, to sell the Wiggins plant. In December 2016, the Partnership reclassified the Wiggins plant assets to current assets held for sale and ceased depreciation. On January 20, 2017, the purchase and sale agreement terminated when the buyer failed to pay the purchase price. All operations at the Wiggins plant have ceased and the plant remains available for immediate sale. The Partnership remains in active negotiations with potential purchasers for the Wiggins plant assets.

Noncontrolling Interests—Hancock JV

Sampson was a wholly owned subsidiary of the Hancock JV prior to the consummation of the Sampson Drop-Down. The Partnership’s financial statements have been recast to include the financial results of Sampson as if the consummation of the Sampson Drop-Down had occurred on May 15, 2013, the date Sampson was originally organized. The Partnership’s financial statements include the Hancock JV’s noncontrolling interest for the periods prior to the consummation of the Sampson Drop-Down. The Partnership’s unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2016 include net losses of $1.3 million and $3.4 million, respectively, attributable to the noncontrolling interests in Sampson.

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Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

(15) Equity-Based Awards

The following table summarizes information regarding phantom unit awards to employees of the Provider under the Enviva Partners, LP Long-Term Incentive Plan (“LTIP”) who provide services to the Partnership (the “Affiliate Grants”):


				Performance-Based			Total Affiliate Grant
	Phantom Units			Phantom Units			Phantom Units
		Weighted-			Weighted-			Weighted-
		Average			Average			Average
		Grant Date			Grant Date			Grant Date
		Fair Value			Fair Value			Fair Value
	Units	(per unit)(1)		Units	(per unit)(1)		Units	(per unit)(1)
Nonvested December 31, 2016	346,153	$	19.32	235,355	$	19.46	581,508	$	19.37
Granted	298,102	$	25.64	107,806	$	25.41	405,908	$	25.58
Forfeitures	(34,206)	$	22.00	—	$	—	(34,206)	$	22.00
Vested	—	$	—	—	$	—	—	$	—
Nonvested September 30, 2017	610,049	$	22.26	343,161	$	21.33	953,210	$	21.92

(1)

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

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


				Performance-Based			Total Director Grant
	Phantom Units			Phantom Units			Phantom Units
		Weighted-			Weighted-			Weighted-
		Average			Average			Average
		Grant Date			Grant Date			Grant Date
		Fair Value			Fair Value			Fair Value
	Units	(per unit)(1)		Units	(per unit)(1)		Units	(per unit)(1)
Nonvested December 31, 2016	17,724	$	22.57	—	$	—	17,724	$	22.57
Granted	15,840	$	25.25	—	$	—	15,840	$	25.25
Forfeitures	—	$	—	—	$	—	—	$	—
Vested	(17,724)	$	22.57	—	$	—	(17,724)	$	22.57
Nonvested September 30, 2017	15,840	$	25.25	—	$	—	15,840	$	25.25

(1)

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

On February 3, 2017, Director Grants valued at $0.4 million were granted and vest on the first anniversary of the grant date, February 3, 2018. On May 4, 2017, the Director Grants that were nonvested at December 31, 2016 vested and common units were issued. In addition, 3,280 common units were granted and issued to non-employee directors of the General Partner as compensation for services performed on the General Partner’s board of directors during the nine months ended September 30, 2017.

The distribution equivalent rights (“DERs”) associated with the Director Grants and the Affiliate Grants entitle the recipients to receive payments equal to any distributions made by the Partnership to the holders of common units within 60 days following the record date for such distributions. The DERs associated with the performance-based Affiliate Grants will remain outstanding and unpaid from the grant date until the earlier of the settlement or forfeiture of the

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

related Affiliate Grants. Payments related to DERs for the three and nine months ended September 30, 2016 were not significant.

(16) Net Income per Limited Partner Unit

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

In addition to the common and subordinated units, the Partnership has also identified the IDRs and phantom units as participating securities and uses the two-class method when calculating the net income per unit applicable to limited partners, which is based on the weighted-average number of common units and subordinated units outstanding during the period. Diluted net income per unit includes the effects of potentially dilutive time-based and performance-based phantom units on the Partnership’s common units. Basic and diluted earnings per unit applicable to subordinated limited partners are the same because there are no potentially dilutive subordinated units outstanding.

The following provides a reconciliation of net income and the assumed allocation of net income under the two-class method for purposes of computing net income per unit for the three and nine months ended September 30, 2017 and 2016:


	Three Months Ended September 30, 2017
	Common		Subordinated		General
	Units		Units		Partner
	(in thousands)
Weighted-average common units outstanding—basic		14,412		11,905		—
Effect of nonvested phantom units		973		—		—
Weighted-average common units outstanding—diluted		15,385		11,905		—


	Three Months Ended September 30, 2017
	Common		Subordinated		General
	Units		Units		Partner		Total
	(in thousands, except per unit amounts)
Distributions declared	$	8,863	$	7,322	$	1,063	$	17,248
Earnings less than distributions		(5,974)		(4,935)		—		(10,909)
Net income attributable to partners	$	2,889	$	2,387	$	1,063	$	6,339
Weighted-average units outstanding—basic		14,412		11,905
Weighted-average units outstanding—diluted		15,385		11,905
Net income per limited partner unit—basic	$	0.20	$	0.20
Net income per limited partner unit—diluted	$	0.19	$	0.20

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)


	Nine Months Ended September 30, 2017
	Common		Subordinated		General
	Units		Units		Partner
	(in thousands)
Weighted-average common units outstanding—basic		14,400		11,905		—
Effect of nonvested phantom units		943		—		—
Weighted-average common units outstanding—diluted		15,343		11,905		—


	Nine Months Ended September 30, 2017
	Common		Subordinated		General
	Units		Units		Partner		Total
	(in thousands, except per unit amounts)
Distributions declared	$	25,077	$	20,715	$	2,269	$	48,061
Earnings less than distributions		(19,345)		(15,980)		—		(35,325)
Net income attributable to partners	$	5,732	$	4,735	$	2,269	$	12,736
Weighted-average units outstanding—basic		14,400		11,905
Weighted-average units outstanding—diluted		15,343		11,905
Net income per limited partner unit—basic	$	0.40	$	0.40
Net income per limited partner unit—diluted	$	0.37	$	0.40


	Three Months Ended September 30, 2016
	Common		Subordinated		General
	Units		Units		Partner
	(in thousands)
Weighted-average common units outstanding—basic		12,919		11,905		—
Effect of nonvested phantom units		561		—		—
Weighted-average common units outstanding—diluted		13,480		11,905		—


	Three Months Ended September 30, 2016
	Common		Subordinated		General
	Units		Units		Partner		Total
	(in thousands, except per unit amounts)
Distributions declared	$	6,970	$	6,310	$	302	$	13,582
Earnings less than distributions		(345)		(204)		—		(549)
Net income attributable to partners	$	6,625	$	6,106	$	302	$	13,033
Weighted-average units outstanding—basic		12,919		11,905
Weighted-average units outstanding—diluted		13,480		11,905
Net income per limited partner unit—basic	$	0.51	$	0.51
Net income per limited partner unit—diluted	$	0.50	$	0.50

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)


	Nine Months Ended September 30, 2016
	Common		Subordinated		General
	Units		Units		Partner
	(in thousands)
Weighted-average common units outstanding—basic		12,878		11,905		—
Effect of nonvested phantom units		542		—		—
Weighted-average common units outstanding—diluted		13,420		11,905		—


	Nine Months Ended September 30, 2016
	Common		Subordinated		General
	Units		Units		Partner		Total
	(in thousands, except per unit amounts)
Distributions declared	$	20,280	$	18,632	$	716	$	39,628
Earnings less than distributions		(3,723)		(3,325)		—		(7,048)
Net income attributable to partners	$	16,557	$	15,307	$	716	$	32,580
Weighted-average units outstanding—basic		12,878		11,905
Weighted-average units outstanding—diluted		13,420		11,905
Net income per limited partner unit—basic	$	1.28	$	1.28
Net income per limited partner unit—diluted	$	1.26	$	1.26

(17) Supplemental Guarantor Information

The Partnership and its wholly owned finance subsidiary, Enviva Partners Finance Corp., are the co-issuers of the Notes on a joint and several basis. The Partnership has no material independent assets or operations. The Notes are guaranteed on a senior unsecured basis by certain of the Partnership’s direct and indirect wholly owned subsidiaries (excluding Enviva Partners Finance Corp., Wiggins, and certain recently formed immaterial subsidiaries) and will be guaranteed by the Partnership’s future restricted subsidiaries that guarantee certain of its other indebtedness (collectively, the “Subsidiary Guarantors”). The guarantees are full and unconditional and joint and several. Each of the Subsidiary Guarantors is directly or indirectly 100% owned by the Partnership. Enviva Partners Finance Corp. is a finance subsidiary formed for the purpose of being the co-issuer of the Notes. Wiggins is a non-Subsidiary Guarantor and unrestricted subsidiary that permanently ceased operations in January of 2017, and the assets of Wiggins are currently classified as held for sale. Other than certain restrictions arising under the Credit Agreement and the Indenture (see Note 10, Long-Term Debt and Capital Lease Obligations), there are no significant restrictions on the ability of any restricted subsidiary to (i) pay dividends or make any other distributions to the Partnership or any of its restricted subsidiaries or (ii) make loans or advances to the Partnership or any of its restricted subsidiaries.

(18) Subsequent Events

Wilmington Drop-Down

On October 2, 2017, pursuant to the terms of the Wilmington Contribution Agreement, the Hancock JV sold to the Partnership all of the issued and outstanding limited liability company interests in Wilmington for an initial payment of $54.6 million, net of an approximate purchase price adjustment of $1.4 million. The initial payment was funded with borrowings from the revolving credit commitments under the Senior Secured Credit Facilities and cash on hand.

Wilmington owns the Wilmington terminal and was a party to the Sampson TSA, which was terminated in connection with the Wilmington Drop-Down. Wilmington is also a party to a long-term terminal services agreement with

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

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

(Unaudited)

the sponsor to receive, store and load approximately 500,000 MTPY of wood pellets sourced by the sponsor from a third-party production plant. The terminal services agreement for production from the third-party production plant provides for deficiency payments if minimum throughput requirements are not met.

In addition, the Wilmington Contribution Agreement contemplates that Wilmington will enter into a long-term terminal services agreement (the “Wilmington Hamlet TSA”) with the Hancock JV and Enviva Pellets Hamlet, LLC (“Hamlet”) to receive, store and load wood pellets from the Hancock JV’s proposed production plant in Hamlet, North Carolina (the “Hamlet plant”) when the Hancock JV completes construction of the Hamlet plant. The Wilmington Hamlet TSA also provides for deficiency payments if minimum throughput requirements are not met. Pursuant to the Wilmington Contribution Agreement, following notice of the anticipated first delivery of wood pellets to the Wilmington terminal from the Hamlet plant, Wilmington, Hamlet, and the Hancock JV would enter into the Wilmington Hamlet TSA and the Partnership would make a final payment of $74.0 million to the Hancock JV, subject to certain adjustments, as deferred consideration for the Wilmington Drop-Down.

Wilmington also entered into a throughput option agreement with the sponsor granting the sponsor, subject to certain conditions, the option to obtain terminal services at the Wilmington terminal at marginal cost throughput rates for wood pellets produced by one of the sponsor’s potential wood pellet production plants.

The Partnership will account for the Wilmington Drop-Down as a combination of entities under common control at historical cost in a manner similar to a pooling of interests.

Senior Notes Due 2021 – Additional Notes

On October 10, 2017, pursuant to the Indenture, the Issuers issued and sold an additional $55.0 million in aggregate principal amount of the 8.5% senior unsecured notes due November 1, 2021 (the “Additional Notes”) to a purchaser (the “Additional Notes Purchaser”) at 106.25% of par value plus accrued interest from May 1, 2017. The Additional Notes were issued pursuant to the Indenture, have the same terms as the Notes and will be treated together with the Notes as a single class for all purposes under the Indenture. The sale of the Additional Notes resulted in gross proceeds to the Issuers of approximately $60.0 million. The proceeds were used to repay borrowings under the Partnership’s revolving credit commitments under the Senior Secured Credit Facilities, which were used to fund the Wilmington Drop-Down, and for general partnership purposes.

In connection with the issuance and sale of the Additional Notes, the Issuers, the guarantors party thereto and the Additional Notes Purchaser entered into a registration rights agreement pursuant to which the Issuers and the guarantors agreed to use reasonable best efforts to file a registration statement with the SEC to offer to exchange the Additional Notes for newly issued registered notes with terms substantially identical in all material respects to the Additional Notes (except that the registered notes will not be subject to restrictions on transfer) (the “Additional Notes Exchange Offer”, and such notes, the “Registered Additional Notes”), and cause the registration statement to become effective within 180 days of the closing date (the “Target Registration Date”) of the Additional Notes offering. The Partnership expects to register the Additional Notes no later than the Target Registration Date.

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

Enviva Partners, LP, together with its subsidiaries (“we,” “us,” “our,” or “the Partnership”), is a Delaware limited partnership formed on November 12, 2013. Our sponsor is Enviva Holdings, LP (and, where applicable, its wholly owned subsidiary Enviva Development Holdings, LLC) and references to our General Partner refer to Enviva Partners GP, LLC, a wholly owned subsidiary of our sponsor. References to the “Hancock JV” refer to Enviva Wilmington Holdings, LLC, a joint venture between our sponsor, Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company.

The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis in Part II‑Item 7 of our Annual Report on Form 10‑K for the year ended December 31, 2016 (the “2016 Form 10‑K”), as filed with the U.S. Securities and Exchange Commission (the “SEC”). Our 2016 Form 10‑K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations. You should also read the following discussion and analysis together with the risk factors set forth in the 2016 Form 10‑K and the factors described under “Cautionary Statement Regarding Forward‑Looking Information” in this Quarterly Report on Form 10‑Q.

Basis of Presentation

The following discussion of our historical performance and financial condition is derived from our audited consolidated financial statements and unaudited condensed consolidated financial statements.

On December 14, 2016, the Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Enviva Pellets Sampson, LLC (“Sampson”) for total consideration of $175.0 million. Sampson owns a wood pellet production plant in Sampson County, North Carolina (the “Sampson plant”). The acquisition (the “Sampson Drop‑Down”) also included two off‑take contracts and related third‑party shipping contracts.

Our unaudited condensed consolidated financial statements for periods prior to December 14, 2016 have been retroactively recast to reflect the consummation of the Sampson Drop‑Down as if it had occurred on May 15, 2013, the date Sampson was originally organized. Entities contributed by or distributed to our sponsor or the Hancock JV are considered entities under common control and are recorded at historical cost, with any excess consideration over cost being recorded as a distribution in partners’ capital.

Business Overview

We are the world’s largest supplier by production capacity of utility‑grade wood pellets to major power generators. We own and operate six industrial‑scale production plants in the Southeastern United States that have a combined wood pellet production capacity of 2.8 million metric tons per year (“MTPY”). We also own a deep‑water marine terminal at the Port of Chesapeake. All of our facilities are located in geographic regions with low input costs and favorable transportation logistics. Owning these cost‑advantaged assets, the output from which is fully contracted, in a rapidly expanding industry provides us with a platform to generate stable and growing cash flows that should enable us to increase our per‑unit cash distributions over time, which is our primary business objective.

Our sales strategy is to fully contract the production capacity of the Partnership. During 2017, contracted volumes under our existing off‑take contracts are approximately equal to the full production capacity of our production plants. Our off‑take contracts provide for sales of 2.7 million metric tons (“MT”) of wood pellets in 2017 and have a weighted‑average remaining term of 9.7 years from October 1, 2017. We intend to continue expanding our business by taking advantage of the growing demand for our product that is driven by the conversion of coal‑fired power generation and combined heat and power plants to co‑fired or dedicated biomass‑fired plants, principally in the United Kingdom, Europe and, increasingly, in South Korea and Japan.

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How We Evaluate Our Operations

Adjusted Gross Margin per Metric Ton

We use adjusted gross margin per metric ton to measure our financial performance. We define adjusted gross margin as gross margin excluding asset disposals and depreciation and amortization included in cost of goods sold. We believe adjusted gross margin per metric ton is a meaningful measure because it compares our revenue‑generating activities to our operating costs for a view of profitability and performance on a per metric ton basis. Adjusted gross margin per metric ton will primarily be affected by our ability to meet targeted production volumes and to control direct and indirect costs associated with procurement and delivery of wood fiber to our production plants and the production and distribution of wood pellets.

Adjusted EBITDA

We view adjusted EBITDA as an important indicator of our financial performance. We define adjusted EBITDA as net income or loss excluding depreciation and amortization, interest expense, income tax expense, early retirement of debt obligations, non‑cash unit compensation expense, asset impairments and disposals and certain items of income or loss that we characterize as unrepresentative of our ongoing operations. Adjusted EBITDA is a supplemental measure used by our management and other users of our financial statements, such as investors, commercial banks and research analysts, to assess the financial performance of our assets without regard to financing methods or capital structure.

Distributable Cash Flow

We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures and interest expense net of amortization of debt issuance costs and original issue discounts. We use distributable cash flow as a performance metric to compare the cash‑generating performance of the Partnership from period to period and to compare the cash‑generating performance for specific periods to the cash distributions (if any) that are expected to be paid to our unitholders. We do not rely on distributable cash flow as a liquidity measure.

Non‑GAAP Financial Measures

Adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with accounting principles generally accepted in the United States (“GAAP”). We believe that the presentation of these non‑GAAP financial measures provides useful information to investors in assessing our financial condition and results of operations. Our non‑GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non‑GAAP financial measures has important limitations as an analytical tool because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider adjusted gross margin per metric ton, adjusted EBITDA or distributable cash flow in isolation or as substitutes for analysis of our results as reported under GAAP. Our definitions of these non‑GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

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The following tables present a reconciliation of each of adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow to the most directly comparable GAAP financial measure for each of the periods indicated:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016 (Recast)		2017		2016 (Recast)

	(in thousands, except per metric ton)
Reconciliation of gross margin to adjusted gross margin per metric ton:
Metric tons sold		668		534		1,919		1,714
Gross margin	$	21,118	$	22,417	$	57,781	$	57,628
Loss on disposal of assets		1,237		1,523		3,242		1,679
Depreciation and amortization		8,700		6,434		26,085		20,429
Adjusted gross margin	$	31,055	$	30,374	$	87,108	$	79,736
Adjusted gross margin per metric ton	$	46.49	$	56.88	$	45.39	$	46.52


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016 (Recast)		2017		2016 (Recast)
	(in thousands)
Reconciliation of adjusted EBITDA and distributable cash flow to net income:
Net income	$	6,334	$	10,346		12,695	$	25,781
Add:
Depreciation and amortization		8,703		6,439		26,096		20,452
Interest expense		7,652		3,365		23,062		10,096
Non-cash unit compensation expense		1,833		1,162		5,113		2,662
Asset impairments and disposals		1,237		1,523		3,242		1,679
Transaction expenses		297		49		3,250		108
Adjusted EBITDA		26,056		22,884		73,458		60,778
Less:
Interest expense, net of amortization of debt issuance costs and original issue discount		7,259		2,919		21,901		8,758
Maintenance capital expenditures		857		1,375		2,870		2,758
Distributable cash flow attributable to Enviva Partners, LP		17,940		18,590		48,687		49,262
Less: Distributable cash flow attributable to incentive distribution rights		1,063		303		2,269		716
Distributable cash flow attributable to Enviva Partners, LP limited partners	$	16,877	$	18,287	$	46,418	$	48,546

Factors Impacting Comparability of Our Financial Results

Our future results of operations and cash flows may not be comparable to our historical consolidated results of operations and cash flows, principally for the following reasons:

Our sponsor contributed its interest in Sampson to us on December 14, 2016. Our historical condensed consolidated financial statements have been retroactively recast to reflect the contribution of our sponsor’s interest in Sampson as if the contributions had occurred on May 15, 2013, the date Sampson was originally organized. The recast amounts for the three and nine months ended September 30, 2016 primarily include general and administrative expenses associated with plant development and commissioning costs incurred during the construction of the Sampson plant. We do not expect to incur these costs going forward as the plant began producing wood pellets during the fourth quarter of 2016.

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We began deliveries under a new long‑term off‑take contract in December 2016. In connection with the Sampson Drop‑Down, the Hancock JV assigned to us a ten‑year, take‑or‑pay off‑take contract with DONG Energy Thermal Power A/S (the “DONG Contract”). The DONG Contract commenced September 1, 2016 and provides for sales of 360,000 MTPY for the first delivery year and 420,000 MTPY for years two through ten. The contract, accompanied by our increased production capacity from the Sampson plant, will have a material effect on our product sales and resulting gross margin.

We issued $300.0 million in aggregate principal amount of senior unsecured notes in a private placement to eligible purchasers. On November 1, 2016, we and Enviva Partners Finance Corp., a wholly owned subsidiary of the Partnership formed on October 3, 2016 for the purpose of being the co‑issuer of the notes, issued $300.0 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”) to eligible purchasers in a private placement under Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “Securities Act”), which resulted in net proceeds of $293.6 million after deducting estimated expenses and underwriting discounts of $6.4 million. On December 14, 2016, a portion of the net proceeds from the Senior Notes Offering, together with cash on hand and the issuance of 1,098,415 unregistered common units representing limited partnership interests in the Partnership (the “common units”) at a value of $27.31 per unit, or $30.0 million of common units, to affiliates of John Hancock Life Insurance Company, funded the consideration payable for the Sampson Drop‑Down. The remainder of the net proceeds from the Senior Notes Offering was used to repay certain outstanding term loan indebtedness under our Senior Secured Credit Facilities. As a result, our unaudited condensed consolidated financial statements reflect the outstanding debt and interest expense associated with the Senior Notes.

We repaid a portion of the Original Credit Facilities and increased the capacity of our revolving credit facility. On April 9, 2015, we entered into a credit agreement (the “Credit Agreement”) providing for a $199.5 million aggregate principal amount of senior secured credit facilities (the “Original Credit Facilities”). We entered into an assumption agreement on December 11, 2015, providing for $36.5 million of incremental term loan borrowings (the “Incremental Term Borrowings” and, together with the Original Credit Facilities, the “Senior Secured Credit Facilities”) under the Credit Agreement. In October 2016, we entered into a second amendment to the Credit Agreement (the “Second Amendment”), which became effective upon the closing of the Sampson Drop‑Down. Upon the consummation of the Sampson Drop‑Down, a portion of the net proceeds from the Senior Notes, together with cash on hand, was used to repay in full the outstanding principal and accrued interest on the Tranche A‑2 and Tranche A‑4 borrowings and to repay a portion of the outstanding principal and accrued interest on the Tranche A‑1 and Tranche A‑3 borrowings under the Senior Secured Credit Facilities. Following the consummation of the Sampson Drop‑Down and repayment of a portion of the Senior Secured Credit Facilities, the limit under our revolving credit commitments was increased from $25.0 million to $100.0 million pursuant to the Second Amendment.

Revenue and costs for deliveries to customers can vary significantly between periods depending upon the specific shipment and reimbursement for expenses, including the then‑current cost of fuel. Depending on the specific off‑take contract, shipping terms are either Cost, Insurance and Freight (“CIF”) or Free on Board (“FOB”). Under a CIF contract, we procure and pay for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. These costs are included in the price to the customer and, as such, are included in revenue and cost of goods sold. Under an FOB contract, the customer is directly responsible for shipping costs. Our customer shipping terms, as well as the timing and size of shipments during the year, can result in material fluctuations in revenue recognized between periods, but these terms generally have little impact on gross margin.

How We Generate Revenue

Overview

We primarily earn revenue by supplying wood pellets to our customers under off‑take contracts, the majority of the commitments under which are long‑term in nature. We refer to the structure of our contracts as “take‑or‑pay” because they include a firm obligation to take a fixed quantity of product at a stated price and provisions that ensure we will be compensated in the case of a customer’s failure to accept all or a part of the contracted volumes or termination of the contract. Each contract defines the annual volume of wood pellets that a customer is required to purchase and we are required to sell, the fixed price per MT for product satisfying a base net calorific value and other technical specifications. These prices are fixed for the entire term, subject to annual inflation‑based adjustments and price escalators, as well as,

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in some instances, price adjustments for product specifications and changes in underlying costs. In addition to sales of our product under these long‑term, take‑or‑pay contracts, we routinely sell volumes under shorter‑term contracts, which range in volume and tenor, and, in some cases, may include only one specific shipment. Because each of our contracts is a bilaterally negotiated agreement, our revenue over the duration of these contracts does not generally follow spot market pricing trends. Our revenue from the sale of wood pellets is recognized when the goods are shipped, title and risk of loss passes, the sales price to the customer is fixed, and collectability is reasonably assured.

Depending on the specific off‑take contract, shipping terms are either CIF or FOB. Under a CIF contract, we procure and pay for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. These costs are included in the price to the customer and, as such, are included in revenue and cost of goods sold. Under an FOB contract, the customer is directly responsible for shipping costs. Our customer shipping terms, as well as the timing and size of shipments during the year, can result in material fluctuations in revenue recognized between periods but generally have little impact on gross margin.

The majority of the wood pellets we supply to our customers is produced at our production plants, the sales of which are included in “Product sales.” We also fulfill our contractual commitments and take advantage of dislocations in market supply and demand by purchasing from and selling to third‑party market participants, including, in some cases, our customers. In these back‑to‑back transactions, where title and risk of loss are immediately transferred to the ultimate purchaser, revenue is recorded net of costs paid to the third‑party supplier. This revenue is included in “Other revenue.”

In some instances, a customer may request to cancel, defer, or accelerate a shipment. Contractually, we will seek to optimize our position by selling or purchasing the subject shipment to or from another party, including in some cases a related party, either within our contracted off‑take portfolio or as an independent transaction on the spot market. In most instances, the original customer pays us a fee, including reimbursement of any incremental costs, which is included in “Other revenue.”

Contracted Backlog

As of October 1, 2017, we had approximately $5.5 billion of product sales backlog for firm contracted product sales to power generators. Backlog represents the revenue to be recognized under existing contracts assuming deliveries occur as specified in the contracts. Contracted future product sales denominated in foreign currencies, excluding revenue hedged with foreign currency forward contracts, are included in U.S. Dollars at October 2, 2017 forward rates.

Our expected future product sales revenue under our contracted backlog as of October 1, 2017 is as follows (in millions):


Period from October 1, 2017 to December 31, 2017	$	85
Year ending December 31, 2018		543
Year ending December 31, 2019 and thereafter		4,829
Total product sales contracted backlog	$	5,457

Costs of Conducting Our Business

Cost of Goods Sold

Cost of goods sold includes the costs to produce and deliver our wood pellets to customers. The principal expenses incurred to produce and deliver our wood pellets consist of raw material, production and distribution costs.

We have strategically located our plants in the Southeastern United States, a region with plentiful wood fiber resources. We manage the supply of raw materials into our plants through a mixture of short‑term and long‑term contracts. Delivered wood fiber costs include stumpage (i.e., the price paid to the underlying timber resource owner for the raw material) as well as harvesting, transportation and, in some cases, size reduction services provided by our suppliers. The majority of our product volumes are sold under off-take contracts that include cost pass‑through mechanisms to mitigate increases in raw material and distribution costs.

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Production costs at our production plants consist of labor, energy, tooling, repairs and maintenance and plant overhead costs. Production costs also include depreciation expense associated with the use of our plants and equipment and any gain or loss on disposal of associated assets. Some of our off‑take contracts include price escalators that mitigate inflationary pressure on certain components of our production costs. In addition to the wood pellets that we produce at our owned and operated production plants, we selectively purchase additional quantities of wood pellets from our sponsor and third‑party wood pellet producers.

Distribution costs include all transportation costs from our plants to our port locations, any storage or handling costs while the product remains at port and shipping costs related to the delivery of our product from our port locations to our customers. Both the strategic location of our plants and our ownership or control of our deep‑water terminals have allowed for the efficient and cost‑effective transportation of our wood pellets. We seek to mitigate shipping risk by entering into long‑term, fixed‑price shipping contracts with reputable shippers matching the terms and volumes of our contracts under which we are responsible for arranging shipping. Certain of our off‑take contracts include pricing adjustments for volatility in fuel prices, which allow us to pass the majority of fuel price‑risk associated with shipping through to our customers.

Additionally, as deliveries are made during the applicable contract term, we amortize the purchase price of acquired customer contracts that were recorded as intangible assets.

Raw material, production and distribution costs associated with delivering our wood pellets to our deep‑water terminals and wood pellet purchase costs are capitalized as a component of inventory. Fixed production overhead, including the related depreciation expense, is allocated to inventory based on actual wood pellet production. These costs are reflected in cost of goods sold when inventory is sold. Distribution costs associated with shipping our wood pellets to our customers and amortization of favorable contracts are expensed as incurred. Our inventory is recorded using the first‑in, first‑out method (“FIFO”), which requires the use of judgment and estimates. Given the nature of our inventory, the calculation of cost of goods sold is based on estimates used in the valuation of the FIFO inventory and in determining the specific composition of inventory that is sold to each customer.

General and Administrative Expenses

We and our General Partner are party to a Management Services Agreement (the “MSA”) with Enviva Management Company, LLC (“Enviva Management”). Under the MSA, direct or indirect internal or third‑party expenses incurred are either directly identifiable or allocated to us. Enviva Management estimates the percentage of employee salary and related benefits, third‑party costs, office rent and expenses and any other overhead costs to be provided to us. Each month, Enviva Management allocates the actual costs accumulated in the financial accounting system using these estimates. Enviva Management also charges us for any directly identifiable costs such as goods or services provided at our request. We believe Enviva Management’s assumptions and allocations have been made on a reasonable basis and are the best estimate of the costs that we would have incurred on a stand‑alone basis.

Our unaudited condensed consolidated financial statements have been recast to reflect the contribution of our sponsor’s interest in Sampson as if the contribution had occurred on May 15, 2013, the date Sampson was originally organized. We do not develop plants or ports within the Partnership and therefore we do not incur startup and commissioning costs or overhead costs related to construction activities. Prior to the consummation of the Sampson Drop‑Down, Sampson incurred general and administrative costs related to plant development activities, which included startup and commissioning costs as well as incremental overhead costs related to construction activities. We do not expect to incur these costs going forward as the plant began producing wood pellets during the fourth quarter of 2016.

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Results of Operations

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016



	Three Months Ended
	September 30,
	2017		2016 (Recast)		Change
	(in thousands)
Product sales	$	125,422	$	103,577	$	21,845
Other revenue		6,036		7,217		(1,181)
Net revenue		131,458		110,794		20,664
Cost of goods sold, excluding depreciation and amortization		100,403		80,420		19,983
Loss on disposal of assets		1,237		1,523		(286)
Depreciation and amortization		8,700		6,434		2,266
Total cost of goods sold		110,340		88,377		21,963
Gross margin		21,118		22,417		(1,299)
General and administrative expenses		7,131		8,708		(1,577)
Income from operations		13,987		13,709		278
Interest expense		(7,652)		(3,314)		4,338
Related-party interest expense		—		(51)		(51)
Other (expense) income		(1)		2		3
Net income		6,334		10,346		(4,012)
Less net loss attributable to noncontrolling partners’ interests		5		1,366		(1,361)
Net income attributable to Enviva Partners, LP	$	6,339	$	11,712	$	(5,373)

Product sales

Revenue related to product sales (either produced or procured) increased to $125.4 million for the three months ended September 30, 2017 from $103.6 million for the three months ended September 30, 2016. The $21.8 million increase was attributable to greater sales volumes, primarily relating to tons sold under the contract acquired in connection with the Sampson Drop-Down, and was partially offset by lower pricing due to contract mix during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016.

Other revenue

Other revenue decreased to $6.0 million for the three months ended September 30, 2017 from $7.2 million for the three months ended September 30, 2016 primarily due to a decrease in the fees we earned related to customer requests to cancel, defer or accelerate shipments. During the three months ended September 30, 2017, we earned $2.2 million related to these fees compared to $5.7 million during the three months ended September 30, 2016. Offsetting the decrease was $3.2 million related to sales of wood pellets sourced from third-party pellet producers and delivered to our customers during the three months ended September 30, 2017 compared to $0.4 million during the three months ended September 30, 2016. In these back-to-back transactions, title and risk of loss immediately transfers to the ultimate purchasers; accordingly, such transactions are presented on a net basis. Other revenue also includes revenue derived from terminal services (see Note 11, Related-Party Transactions).

Cost of goods sold

Cost of goods sold increased to $110.3 million for the three months ended September 30, 2017 from $88.4 million for the three months ended September 30, 2016. The $21.9 million increase was primarily attributable to an increase in

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sales volumes and depreciation expense. The three months ended September 30, 2017 included approximately $2.2 million of incremental depreciation expense related to machinery and equipment at the Sampson plant. There was no depreciation expense incurred during the three months ended September 30, 2016 related to the Sampson plant. The increase was offset by a $0.3 million decrease in loss on disposal of assets during the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily attributable to growth and maintenance capital projects at our wood pellet production plants.

Gross margin

We earned gross margin of $21.1 million and $22.4 million for the three months ended September 30, 2017 and 2016, respectively. The change in gross margin was primarily attributable to the following:

A $5.3 million increase in gross margin due to higher sales volumes. Our wood pellet sales volumes increased by approximately 134,000 MT during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, representing a 25% increase.

Offsetting the above was:

A $2.3 million decrease in gross margin due to an increase in depreciation expense during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The increase is attributable to incremental depreciation expense related to machinery and equipment at the Sampson plant.

A $2.1 million decrease in gross margin during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 due to the mix of customer and shipping contracts.

A $1.2 million decrease in gross margin due to decreased other revenue during the three months ended September 30, 2017, as described above under the heading “Other revenue.”

A $0.6 million decrease in gross margin due to higher production costs during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The increase in production costs was primarily attributable to lower plant utilization during the three months ended September 30, 2017, which was partially offset by lower raw material costs during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016.

Adjusted gross margin per metric ton


	Three Months Ended
	September 30,
	2017		2016 (Recast)		Change
	(in thousands except per metric ton)
Metric tons sold		668		534		134
Gross margin	$	21,118	$	22,417	$	(1,299)
Loss on disposal of assets		1,237		1,523		(286)
Depreciation and amortization		8,700		6,434		2,266
Adjusted gross margin	$	31,055	$	30,374	$	681
Adjusted gross margin per metric ton	$	46.49	$	56.88	$	(10.39)

We earned an adjusted gross margin of $31.1 million, or $46.49 per MT, for the three months ended September 30, 2017 and an adjusted gross margin of $30.4 million, or $56.88 per MT, for the three months ended September 30, 2016. Excluding the fees earned in other revenue described above, we earned an adjusted gross margin of $28.8 million, or $43.15 per MT, and $24.7 million, or $46.25 per MT, during the three months ended September 30, 2017 and 2016, respectively. The factors impacting the change in adjusted gross margin are described above under the heading “Gross margin.”

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General and administrative expenses

General and administrative expenses were $7.1 million for the three months ended September 30, 2017 and $8.7 million for the three months ended September 30, 2016.

During the three months ended September 30, 2017, general and administrative expenses included allocated expenses of $3.2 million that were incurred under the MSA, $1.8 million of direct expenses, $1.8 million of non‑cash unit compensation expense associated with unit‑based awards under the Enviva Partners, LP Long-Term Incentive Plan (the “LTIP”), $0.2 million of expenses associated with the cessation of operations of the wood pellet production plant owned by Enviva Pellets Wiggins, LLC (“Wiggins”) and $0.1 million related to transaction expenses.

During the three months ended September 30, 2016, general and administrative expenses included allocated expenses of $3.3 million that were incurred under the MSA, $3.2 million related to plant development activities prior to the consummation of the Sampson Drop‑Down, $1.0 million of direct expenses and $1.2 million of non‑cash unit compensation expense associated with unit‑based awards under the LTIP.

Interest expense

We incurred $7.7 million of interest expense during the three months ended September 30, 2017 and $3.3 million of interest expense during the three months ended September 30, 2016. The increase in interest expense was primarily attributable to the issuance of our Senior Notes in November 2016. Please read “—Senior Notes Due 2021” below.

Adjusted EBITDA


	Three Months Ended
	September 30,
	2017		2016 (Recast)		Change
	(in thousands)
Reconciliation of adjusted EBITDA to net income:
Net income	$	6,334	$	10,346	$	(4,012)
Add:
Depreciation and amortization		8,703		6,439		2,264
Interest expense		7,652		3,365		4,287
Non-cash unit compensation expense		1,833		1,162		671
Asset impairments and disposals		1,237		1,523		(286)
Transaction expenses		297		49		248
Adjusted EBITDA	$	26,056	$	22,884	$	3,172

We generated adjusted EBITDA of $26.1 million for the three months ended September 30, 2017 compared to adjusted EBITDA of $22.9 million for the three months ended September 30, 2016. The $3.2 million increase was attributable to an increase in adjusted gross margin as described above as well as a decrease in general and administrative expenses, which was primarily attributable to plant development activities related to the Sampson plant incurred during the three months ended September 30, 2016.

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Distributable Cash Flow

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


	Three Months Ended
	September 30,
	2017		2016 (Recast)		Change
	(in thousands)
Adjusted EBITDA	$	26,056	$	22,884	$	3,172
Less:
Interest expense, net of amortization of debt issuance costs and original issue discount		7,259		2,919		4,340
Maintenance capital expenditures		857		1,375		(518)
Distributable cash flow attributable to Enviva Partners, LP		17,940		18,590		(650)
Less: Distributable cash flow attributable to incentive distribution rights		1,063		303		760
Distributable cash flow attributable to Enviva Partners, LP limited partners	$	16,877	$	18,287	$	(1,410)

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016


	Nine Months Ended
	September 30,
	2017		2016 (Recast)		Change
	(in thousands)
Product sales	$	366,142	$	323,269	$	42,873
Other revenue		14,387		14,486		(99)
Net revenue		380,529		337,755		42,774
Cost of goods sold, excluding depreciation and amortization		293,421		258,019		35,402
Related-party interest expense		3,242		1,679		1,563
Depreciation and amortization		26,085		20,429		5,656
Total cost of goods sold		322,748		280,127		42,621
Gross margin		57,781		57,628		153
General and administrative expenses		21,826		22,025		(199)
Income from operations		35,955		35,603		352
Interest expense		(23,062)		(9,535)		13,527
Related-party interest expense		—		(561)		(561)
Other (expense) income		(198)		274		472
Net income		12,695		25,781		(13,086)
Less net loss attributable to noncontrolling partners’ interests		41		3,467		(3,426)
Net income attributable to Enviva Partners, LP	$	12,736	$	29,248	$	(16,512)

Product sales

Revenue related to product sales (either produced or procured) increased $42.8 million to $366.1 million for the nine months ended September 30, 2017 from $323.3 million for the nine months ended September 30, 2016. The increase was largely attributable to greater sales volumes, primarily relating to tons sold under the contract acquired in connection with the Sampson Drop-Down. During the nine months ended September 30, 2017, we sold 1,919,000 MT of wood pellets compared to 1,714,000 MT of wood pellets sold during the nine months ended September 30, 2016, a 12% increase.

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Other revenue

Other revenue for the nine months ended September 30, 2017 remained consistent with the nine months ended September 30, 2016. Other revenue during both periods was primarily attributable to shipments purchased from third-party pellet producers and delivered into our long-term off-take contracts. In these back-to-back transactions, title and risk of loss immediately transfers to the ultimate purchasers; accordingly, such transactions are presented on a net basis. Other revenue also includes revenue derived from terminal services and transactions that capitalize on market dislocations, some of which, as disclosed in the consolidated financial statements, were with related parties (see Note 11, Related-Party Transactions).

Cost of goods sold

Cost of goods sold increased to $322.7 million for the nine months ended September 30, 2017 from $280.1 million for the nine months ended September 30, 2016. The $42.6 million increase was primarily attributable to increased sales volumes and increased depreciation expense. The nine months ended September 30, 2017 included approximately $6.8 million of incremental depreciation expense related to machinery and equipment at the Sampson plant. There was no depreciation expense incurred during the nine months ended September 30, 2016 related to the Sampson plant. We incurred $3.2 million of expense associated with the disposal of assets during the nine months ended September 30, 2017, which was primarily attributable to growth and maintenance capital projects at our wood pellet production plants. We incurred $1.7 million of expense associated with the disposal of assets during the nine months ended September 30, 2016.

Gross margin

We earned gross margin of $57.8 million and $57.6 million for the nine months ended September 30, 2017 and nine months ended September 30, 2016, respectively. The gross margin increase of $0.2 million was primarily attributable to the following:

A $7.9 million increase in gross margin due to higher sales volumes. Our wood pellet sales volumes increased by approximately 205,000 MT during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, representing a 12% increase, which is principally attributable to sales under the contract acquired in connection with the Sampson Drop-Down.

A $1.2 million increase in gross margin during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 due to the mix of customer and shipping contracts.

A $0.7 million increase in gross margin due to lower amortization costs as acquired contracts reach the end of their respective contract terms.

Offsetting the above were:

An increase in depreciation expense during the nine months ended September 30, 2017, which decreased gross margin by $6.4 million as compared to the nine months ended September 30, 2016. The increase is attributable to incremental depreciation expense related to machinery and equipment at the Sampson plant.

An increase of $1.6 million in loss on the disposal of assets during the nine months ended September 30, 2017, which is primarily attributable to growth and maintenance capital projects at our wood pellet production plants.

A $1.2 million decrease in gross margin due to higher production and shipping costs during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase in production and shipping costs is primarily attributable to lower plant utilization during the nine months ended September 30, 2017, which was partially offset by lower raw material costs during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.

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Adjusted gross margin per metric ton


	Nine Months Ended
	September 30,
	2017		2016 (Recast)		Change
	(in thousands except per metric ton)
Metric tons sold		1,919		1,714		205
Gross margin	$	57,781	$	57,628	$	153
Loss on disposal of assets		3,242		1,679		1,563
Depreciation and amortization		26,085		20,429		5,656
Adjusted gross margin	$	87,108	$	79,736	$	7,372
Adjusted gross margin per metric ton	$	45.39	$	46.52	$	(1.13)

We earned an adjusted gross margin of $87.1 million, or $45.39 per MT, for the nine months ended September 30, 2017 and an adjusted gross margin of $79.7 million, or $46.52 per MT, for the nine months ended September 30, 2016. The factors impacting this increase in adjusted gross margin are described above under the heading “Gross margin.”

General and administrative expenses

General and administrative expenses were $21.8 million for the nine months ended September 30, 2017 and $22.0 million for the nine months ended September 30, 2016.

During the nine months ended September 30, 2017, general and administrative expenses included allocated expenses of $8.4 million that were incurred under the MSA, $5.0 million of direct expenses, $5.1 million of non‑cash unit compensation expense associated with unit‑based awards under the LTIP, $1.6 million related to transaction expenses on consummated and unconsummated transactions and $1.7 million of expenses associated with the cessation of operations of the wood pellet production plant owned by Wiggins.

During the nine months ended September 30, 2016, general and administrative expenses included allocated expenses of $9.3 million that were incurred under the MSA, $6.4 million related to plant development activities prior to the consummation of the Sampson Drop‑Down, $3.5 million of direct expenses, $2.7 million of non‑cash unit compensation expense associated with unit‑based awards under the LTIP and $0.1 million related to transaction expenses.

Interest expense

We incurred $23.1 million of interest expense during the nine months ended September 30, 2017, and $9.5 million of interest expense during the nine months ended September 30, 2016. The increase in interest expense from the prior year was primarily attributable to our increase in long‑term debt outstanding. Please read “—Senior Notes Due 2021” below.

Related‑party interest expense

On December 11, 2015, under our Senior Secured Credit Facilities, we obtained incremental borrowings in the amount of $36.5 million and Enviva FiberCo became a lender with the purchase of $15.0 million aggregate principal amount of the incremental borrowings. On June 30, 2016, Enviva FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. During the nine months ended September 30, 2016, we incurred $0.4 million of related-party interest expense associated with this related-party debt. We did not incur related‑party interest expense during the nine months ended September 30, 2017. Please read “—Senior Secured Credit Facilities” below.

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Adjusted EBITDA


	Nine Months Ended
	September 30,
	2017		2016 (Recast)		Change
	(in thousands)
Reconciliation of adjusted EBITDA to net income:
Net income	$	12,695	$	25,781	$	(13,086)
Add:
Depreciation and amortization		26,096		20,452		5,644
Interest expense		23,062		10,096		12,966
Non-cash unit compensation expense		5,113		2,662		2,451
Asset impairments and disposals		3,242		1,679		1,563
Transaction expenses		3,250		108		3,142
Adjusted EBITDA	$	73,458	$	60,778	$	12,680

We generated adjusted EBITDA of $73.5 million for the nine months ended September 30, 2017 compared to adjusted EBITDA of $60.8 million for the nine months ended September 30, 2016. The $12.7 million increase in adjusted EBITDA was attributable to the $7.4 million increase in adjusted gross margin described above and a decrease in general and administrative expenses primarily attributable to the $6.4 million of plant development activities related to the Sampson plant incurred during the nine months ended September 30, 2016.

Distributable Cash Flow

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


	Nine Months Ended
	September 30,
	2017		2016 (Recast)		Change
	(in thousands)
Adjusted EBITDA	$	73,458	$	60,778	$	12,680
Less:
Interest expense, net of amortization of debt issuance costs and original issue discount		21,901		8,758		13,143
Maintenance capital expenditures		2,870		2,758		112
Distributable cash flow to Enviva Partners, LP limited partners		48,687		49,262		(575)
Less: Distributable cash flow attributable to incentive distribution rights		2,269		716		1,553
Distributable cash flow attributable to Enviva Partners, LP limited partners	$	46,418	$	48,546	$	(2,128)

Liquidity and Capital Resources

Overview

We expect our sources of liquidity to include cash generated from operations, borrowings under our revolving credit commitments and, from time to time, debt and equity offerings, including under our ATM Program. We operate in a capital‑intensive industry, and our primary liquidity needs are to fund working capital, service our debt, maintain cash reserves, finance maintenance capital expenditures and pay distributions. We believe cash generated from our operations will be sufficient to meet the short‑term working capital requirements of our business. However, future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors. Additionally, our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control.

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Our minimum quarterly distribution is $0.4125 per common and subordinated unit per quarter, which equates to approximately $10.9 million per quarter, or approximately $43.4 million per year, based on the number of common and subordinated units outstanding as of September 30, 2017, to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses. Because it is our intent to distribute at least the minimum quarterly distribution on all of our units on a quarterly basis, we expect that we will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund future acquisitions and expansions.

Non‑cash Working Capital

Non‑cash working capital is the amount by which current assets, excluding cash, exceed current liabilities, and is a measure of our ability to pay our liabilities as they become due. Our non‑cash working capital was $26.8 million at September 30, 2017 and $51.9 million at December 31, 2016. The primary components of changes in non‑cash working capital were the following:

Accounts receivable, net and related‑party receivables

A decrease in accounts receivable, net of allowance for doubtful accounts and related‑party receivables, decreased non‑cash working capital by $27.9 million during the nine months ended September 30, 2017 as compared to December 31, 2016, primarily due to the timing, volume and size of product shipments. Related‑party receivables at December 31, 2016 included $1.6 million related to the Sampson Drop‑Down.

Inventories

Our inventories consist of raw materials, work‑in‑process, consumable tooling and finished goods. An increase in inventory increased non-cash working capital by $4.7 million at September 30, 2017 compared to December 31, 2016. The increase was primarily attributable to a $3.5 million increase in finished goods inventory due to the timing, volume and size of product shipments and a $2.4 million increase in consumable tooling inventories to support the reliability of our planned production levels. The increase in inventory was partially offset by a $1.2 million decrease in raw material inventory.

Accounts payable, related‑party payables, accrued liabilities and related‑party accrued liabilities

A decrease in accounts payable, related‑party payables and accrued liabilities at September 30, 2017 as compared to December 31, 2016 increased non‑cash working capital by $5.6 million and was primarily attributable to a decrease in shipping and trading sales liabilities due to timing and volume of product shipments. Related‑party payables at September 30, 2017 consisted of $13.8 million related to the MSA compared to $10.6 million at December 31, 2016.

Current portion of interest payable

An increase in the current portion of interest payable at September 30, 2017 compared to December 31, 2016 decreased non‑cash working capital by $6.2 million. The current portion of interest payable is primarily related to accrued interest on our Senior Notes. Please read “—Senior Notes Due 2021” below.

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Cash Flows

The following table sets forth a summary of our net cash flows from operating, investing and financing activities for the nine months ended September 30, 2017 and 2016, respectively:


	Nine Months Ended
	September 30,
	2017		2016 (Recast)
	(in thousands)
Net cash provided by operating activities	$	76,327	$	55,111
Net cash used in investing activities		(14,289)		(52,552)
Net cash used in financing activities		(53,051)		16,709
Net increase in cash and cash equivalents	$	8,987	$	19,268

Cash Provided by Operating Activities

Net cash provided by operating activities was $76.3 million for the nine months ended September 30, 2017 compared to $55.1 million for the nine months ended September 30, 2016. The increase of $21.2 million was attributable to the following:

A $23.7 million increase related to accounts receivable, net and related‑party receivables during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase in accounts receivable during the nine months ended September 30, 2017 was primarily attributable to the timing, volume and size of product shipments.

A $6.2 million increase related to the current portion of interest payable during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The current portion of interest payable is primarily related to accrued interest on our Senior Notes. Please read “Senior Notes Due 2021” below.

A $5.6 million increase related to accounts payable, related‑party payables and accrued liabilities during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase during the nine months ended September 30, 2017 was primarily attributable to the timing of payments of related-party payables.

Offsetting the above was:

A decrease in net income, excluding depreciation and amortization, of $7.4 million during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease in net income, excluding depreciation and amortization, is primarily attributable to a $13.0 million increase in interest expense. Please read “—Senior Notes Due 2021” below.

During the nine months ended September 30, 2016 we received the return of a $6.7 million deposit in accordance with the terms of a customer contract.

Cash Used in Investing Activities

Net cash used in investing activities was $14.3 million for the nine months ended September 30, 2017 compared to $52.6 million for the nine months ended September 30, 2016. The decrease in cash used in investing activities of $40.0 million was related to a decrease in purchases of property, plant and equipment as a result of the completion of construction of our Sampson plant, which commenced operations during the fourth quarter of 2016. Of the $14.3 million used for property, plant and equipment during the nine months ended September 30, 2017, approximately $4.8 million related to projects intended to increase the production capacity of our plants, $2.9 million was used to maintain our equipment and machinery and $6.6 million related to construction costs at the Sampson plant previously incurred by the

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sponsor, which were accrued by the Partnership as a purchase price adjustment in connection with the Sampson Drop-Down.

Cash Used in Financing Activities

Net cash used in financing activities was $53.1 million for the nine months ended September 30, 2017 compared to net cash provided by financing activities of $16.7 million for the nine months ended September 30, 2016. Net cash used in financing activities for the nine months ended September 30, 2017 primarily consisted of $46.3 million of distributions paid to our unitholders and $9.9 million of repayments, net, for our debt and capital lease obligations.

Net cash provided by financing activities for the nine months ended September 30, 2016 primarily consisted of capital contributions made by the Hancock JV prior to the Sampson Drop‑Down of $57.3 million and $5.6 million of proceeds from common unit issuances under the At-the-Market Offering Program. These amounts were partially offset by cash distributions to our unitholders of $37.8 million, a $5.0 million distribution to our sponsor and repayments, net, of principal on debt of $2.7 million.

Senior Notes Due 2021

On November 1, 2016, we and Enviva Partners Finance Corp., Wilmington Trust, National Association, as trustee, and the guarantors party thereto entered into an indenture, as amended or supplemented (the “Indenture”), pursuant to which we issued $300.0 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”) to eligible purchasers (the “Senior Notes Offering”) in a private placement under the Securities Act, which resulted in net proceeds of $293.6 million after deducting expenses and underwriting discounts of $6.4 million. On December 14, 2016, a portion of the net proceeds from the Senior Notes, together with cash on hand and the issuance of $30.0 million in common units to the Hancock JV, funded the consideration payable in connection with the Sampson Drop‑Down. The remainder of the net proceeds from the Senior Notes was used to repay certain outstanding term loan indebtedness under our Senior Secured Credit Facilities. We were in compliance with the covenants and restrictions associated with, and no events of default existed under, the Indenture as of September 30, 2017. The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by substantially all of our existing subsidiaries and our future restricted subsidiaries that guarantee certain of our indebtedness.

In August 2017, holders of 100% of the Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the Senior Notes (except that such registered notes are not subject to restrictions on transfer).

Senior Secured Credit Facilities

On April 9, 2015, we entered into the Credit Agreement providing for the Original Credit Facilities. The Original Credit Facilities consisted of (i) $99.5 million aggregate principal amount of Tranche A‑1 borrowings, (ii) $75.0 million aggregate principal amount of Tranche A‑2 borrowings and (iii) up to $25.0 million aggregate principal amount of revolving credit commitments. We are also able to request loans under incremental facilities under the Credit Agreement on the terms and conditions and in the maximum aggregate principal amounts set forth therein, provided that lenders provide commitments to make loans under such incremental facilities.

On December 11, 2015, we entered into the First Incremental Term Loan Assumption Agreement (the “Assumption Agreement”) providing for the Incremental Term Borrowings under the Credit Agreement. The Incremental Term Borrowings consist of (i) $10.0 million aggregate principal amount of Tranche A‑3 borrowings and (ii) $26.5 million aggregate principal amount of Tranche A‑4 borrowings.

On October 17, 2016, we entered into the Second Amendment. The Second Amendment provided for an increase in the revolving credit commitments under our Senior Secured Credit Facilities from $25.0 million to $100.0 million upon the consummation of the Sampson Drop‑Down, the repayment of outstanding principal and accrued interest on the Tranche A‑2 and Tranche A‑4 borrowings and the receipt of certain associated deliverables. On December 11, 2015, Enviva FiberCo became a lender pursuant to the Credit Agreement with a purchase of $15.0 million aggregate principal amount of the Tranche A-4 borrowings, net of a 1.0% lender fee. On June 30, 2016, Enviva FiberCo assigned all of its

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rights and obligations in its capacity as a lender to a third party. The Partnership recorded $0 million and $0.4 million as interest expense related to this indebtedness during the three and nine months ended September 30, 2016, respectively.

On December 14, 2016, proceeds from the Senior Notes were used to repay all outstanding indebtedness, including accrued interest, of $74.7 million for Tranche A‑2 and $26.5 million for Tranche A‑4 under the Senior Secured Credit Facilities and to repay a portion of the outstanding indebtedness, including accrued interest, of $53.6 million for Tranche A‑1 and $5.1 million for Tranche A‑3, under the Senior Secured Credit Facilities. For the year ended December 31, 2016, the Partnership recorded a $4.4 million loss on early retirement of debt obligations related to the repayments.

The Senior Secured Credit Facilities mature in April 2020. Borrowings under the Senior Secured Credit Facilities bear interest, at our option, at either a base rate plus an applicable margin or at a Eurodollar rate (with a 1.00% floor for term loan borrowings) plus an applicable margin. Principal and interest are payable quarterly.

The Credit Agreement contains certain covenants, restrictions and events of default including, but not limited to, a change of control restriction and limitations on our ability to (i) incur indebtedness, (ii) pay dividends or make other distributions, (iii) prepay, redeem or repurchase certain debt, (iv) make loans and investments, (v) sell assets, (vi) incur liens, (vii) enter into transactions with affiliates, (viii) consolidate or merge and (ix) assign certain material contracts to third parties or unrestricted subsidiaries. An event of default could result in us having to accelerate the repayment of our borrowings prior to the due dates and may cause a net settlement of our derivative instruments with the respective counterparties. We will be restricted from making distributions if an event of default exists under the Credit Agreement or if the interest coverage ratio (determined as the ratio of consolidated EBITDA, as defined in the Credit Agreement, to consolidated interest expense, determined quarterly) is less than 2.25:1.00 at such time.

Pursuant to the Credit Agreement, we are required to maintain, as of the last day of each fiscal quarter, a ratio of total debt to consolidated EBITDA (“Total Leverage Ratio”), as defined in the Credit Agreement, of not more than a maximum ratio, initially set at 4.25:1.00 and stepping down to 3.75:1.00 during the term of the Credit Agreement; provided that the maximum permitted Total Leverage Ratio will be increased by 0.50:1.00 for the period from the consummation of certain qualifying acquisitions through the end of the second full fiscal quarter thereafter.

As of September 30, 2017, our Total Leverage Ratio was 2.96:1.00, as calculated in accordance with the Credit Agreement, which was less than the maximum of 4.25:1.00. As of September 30, 2017, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the Credit Agreement. Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our and their assets.

At‑the‑Market Offering Program

On August 8, 2016, we filed a prospectus supplement to our shelf registration statement filed with the SEC on June 24, 2016, for the registration of the continuous offering of up to $100.0 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings. In August 2016, we also entered into an equity distribution agreement (the “Equity Distribution Agreement”) with certain managers pursuant to which we may offer and sell common units from time to time through or to one or more of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).

During the three months ended September 30, 2017, we did not sell common units under the Equity Distribution Agreement. During the nine months ended September 30, 2017, we sold 63,577 common units under the Equity Distribution Agreement for net proceeds of $1.7 million, net of an insignificant amount of commissions. Net proceeds from sales under the ATM Program were used for general partnership purposes. As of September 30, 2017, $88.9 million remained available for issuance under the ATM Program.

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Off‑Balance Sheet Arrangements

As of September 30, 2017, we did not have any off‑balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S‑K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.

Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging (Topic 815)—Targeted Improvements to Accounting for Hedging Activities. ASU No. 2017-12 expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We are in the process of evaluating the impact of the adoption of ASU No. 2017-12 on our condensed consolidated financial statements, including potential early adoption.

In January 2017, the FASB issued ASU No. 2017‑04, Intangibles—Goodwill and Other. ASU No. 2017‑04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the new standard, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of ASU No. 2017‑04 to have a material impact on our results of operations, financial position and cash flows.

In January 2017, the FASB issued ASU No. 2017‑01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is allowed (1) for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and (2) for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. Entities will be required to apply the guidance retrospectively when adopted. We are in the process of evaluating the impact of the adoption of ASU No. 2017‑01 on our condensed consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016‑18, Statement of Cash Flows (Topic 230)—Restricted Cash: A Consensus of the FASB Emerging Issues Task Force, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance addresses the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance

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requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption in an interim period is permitted, but any adjustments must be reflected as of the beginning of the fiscal year that includes such interim period. Entities will be required to apply the guidance retrospectively when adopted. We do not expect the adoption of the new standard to have a material effect on the presentation of changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in our consolidated statements of cash flows.

In August 2016, the FASB issued ASU No. 2016‑15, Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows with the objective of reducing the existing diversity in practice. The guidance addresses the classification of cash flows related to (1) debt prepayment or extinguishment costs, (2) settlement of zero‑coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate‑owned life insurance, including bank‑owned life insurance, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions and (8) separately identifiable cash flows and application of the predominance principle. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. An entity will first apply any relevant guidance. If there is no guidance that addresses those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source of use. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. The new guidance will require adoption on a retroactive basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. We do not expect the adoption of the new standard to have a material effect on how cash receipts and cash payments are presented and classified in our consolidated statements of cash flows.

In February 2016, the FASB issued ASU No. 2016‑02, Leases. Under the new pronouncement, an entity is required to recognize assets and liabilities arising from a lease for all leases with a maximum possible term of more than 12 months. A lessee is required to recognize a liability to make lease payments (the lease liability) and a right‑of‑use asset representing its right to use the leased asset (the underlying asset) for the lease term. For most leases of assets other than property (for example, equipment, aircraft, cars, trucks), a lessee would recognize a right‑of‑use asset and a lease liability, initially measured at the present value of lease payments and recognize the unwinding of the discount on the lease liability as interest separately from the amortization of the right‑of‑use asset. For most leases of property (that is, land and/or a building or part of a building), a lessee would recognize a right‑of‑use asset and a lease liability, initially measured at the present value of lease payments and recognize a single lease cost, combining the unwinding of the discount on the lease liability with the amortization of the right‑of‑use asset, on a straight‑line basis. The new guidance is effective for public entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Upon adoption, a lessee and a lessor would recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. Although we are continuing to assess all potential qualitative and quantitative impacts of the standard, we currently expect the new standard to impact our accounting for equipment under operating leases.

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2014-09 and subsequent amendments have been codified as Accounting Standards Code (“ASC”) 606, Revenue from Contracts with Customers. ASC 606 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. We will adopt ASC 606 effective January 1, 2018. We currently expect to utilize the modified retrospective method of adoption, which will result in the presentation of the cumulative effect of initially applying ASC 606 at the date of initial application. We have established a cross-functional team to lead the assessment and implementation of ASC 606 and have finalized our implementation plans. In connection with the implementation plan, we have completed our initial evaluation of our off-take contracts to identify material performance obligations. We determined that revenue related to our off-take contracts will be recognized at the point in time at which control of the wood pellets passes to the customer, as the wood pellets are loaded onto shipping vessels, which is consistent with the timing of revenue recognition under our current accounting policy. ASC 606 permits an entity to account for shipping and handling activities occurring after control has passed to the customer as a fulfillment activity rather than as a revenue element. We have elected to account for shipping and handling activities as a fulfillment activity, consistent with its current policy. Additionally, we have concluded that certain transactions currently presented on a net basis in other revenue will be recognized as principal sales on a gross basis under ASC 606. We continue to evaluate the impact of the adoption on our business processes and accounting and information systems.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. We provide expanded discussion of our significant accounting policies, estimates and judgments in our 2016 Form 10‑K. We believe these accounting policies reflect our significant estimates and assumptions used in preparation of our financial statements. There have been no significant changes to our critical accounting policies and estimates since December 31, 2016.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information about market risks for the nine months ended September 30, 2017 does not differ materially from that disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk” in the 2016 Form 10‑K, other than as described below:

Interest Rate Risk

At September 30, 2017, our total debt had carrying value of $343.1 million and fair value of $363.0 million.

Although we seek to mitigate our interest rate risk through the interest rate swap described below, we were exposed to fluctuations in interest rates on borrowings under the Senior Secured Credit Facilities. Borrowings under the Senior Secured Credit Facilities bear interest, at our option, at either a base rate plus an applicable margin or at a Eurodollar rate (with a 1.00% floor for term loan borrowings) plus an applicable margin.

The applicable margin is (i) for Tranche A‑1 and Tranche A‑3 base rate borrowings, 3.10% through April 2017, 2.95% thereafter through April 2018 and 2.80% thereafter, (ii) for Tranche A‑1 and Tranche A‑3 Eurodollar rate borrowings, 4.10% through April 2017, 3.95% thereafter through April 2018 and 3.80% thereafter and (iii) for revolving facility base rate borrowings, 3.25%, and for revolving facility Eurodollar rate borrowings, 4.25%. We repaid in full the outstanding principal and accrued interest on the Tranche A‑2 and Tranche A‑4 borrowings upon the consummation of the Sampson Drop‑Down. As of September 30, 2017, $44.3 million, net of unamortized discount of $1.2 million, of Tranche A‑1 and Tranche A‑3 borrowings remained outstanding under our Senior Secured Credit Facilities.

In September 2016, we entered into a pay‑fixed, receive‑variable interest rate swap agreement to fix our exposure to fluctuations in London Interbank Offered Rate based interest rates. The interest rate swap commenced on September 30, 2016 and expires concurrently with the maturity of the Senior Secured Credit Facilities in April 2020. The Partnership elected to discontinue hedge accounting as of December 14, 2016 following the repayment of a portion of such outstanding indebtedness, and subsequently re‑designated the interest rate swap for the remaining portion of the outstanding indebtedness during the nine months ended September 30, 2017. We enter into derivative instruments to

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manage cash flow. We do not enter into derivative instruments for speculative or trading purposes. The counterparty to our interest rate swap agreement is a major financial institution. As a result, we have no significant interest rate risk on our Tranche A‑1 and Tranche A‑3 borrowings as of September 30, 2017.

Credit Risk

Substantially all of our revenue was from long‑term, take‑or‑pay off‑take contracts with three customers for the three and nine months ended September 30, 2017 and two customers for the three and nine months ended September 30, 2016. Most of our customers are major power generators in Europe. This concentration of counterparties operating in a single industry may increase our overall exposure to credit risk, in that the counterparties may be similarly affected by changes in economic, political, regulatory or other conditions. If a customer defaults or if any of our contracts expire in accordance with their terms, and we are unable to renew or replace these contracts, our gross margin and cash flows and our ability to make cash distributions to our unitholders may be adversely affected. Although we have entered into hedging arrangements in order to minimize our exposure to fluctuations in foreign currency exchange and interest rates, our derivatives also expose us to credit risk to the extent that counterparties may be unable to meet the terms of our hedging agreements.

Foreign Currency Exchange Risk

We are primarily exposed to fluctuations in foreign currency exchange rates related to contracts pursuant to which deliveries of wood pellets will be settled in British Pound Sterling (“GBP”). Deliveries under these contracts began in September 2017. We have entered into forward contracts and purchased options to hedge a portion of our forecasted revenue for these customer contracts. We have designated and accounted for the forward contracts and purchased options as cash flow hedges of anticipated foreign currency GBP denominated revenue and, therefore, the effective portion of the changes in fair value on these instruments will be recorded as a component of accumulated other comprehensive income in partners’ capital and will be reclassified to revenue in the consolidated statements of income in the same period in which the underlying revenue transactions occur.

As of September 30, 2017, we had notional amounts of 42.6 million GBP under foreign currency forward contracts and 29.0 million GBP under foreign currency purchased options that expire between 2017 and 2022. At September 30, 2017, the unrealized gain (loss) associated with foreign currency forward contracts and foreign currency purchased options of approximately ($2.7) million and ($1.2) million, respectively, are included in other comprehensive income.

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)‑15(e) and 15(d)‑15(e) under the Securities Exchange Act of 1934, as amended) was carried out under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of our General Partner. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of our General Partner concluded that the design and operation of these disclosure controls and procedures were effective as of September 30, 2017, the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2017, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes from the legal proceedings disclosed in the section entitled “Legal Proceedings” in the Form 10‑Q for the quarter ended June 30, 2017.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the section entitled “Risk Factors” in the 2016 Form 10‑K.

Item 6. Exhibits

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

Exhibit Index


Exhibit Number		Description

3.1		Certificate of Limited Partnership of Enviva Partners, LP (Exhibit 3.1, Form S‑1 Registration Statement filed October 28, 2014, File No. 333‑199625)
3.2		First Amended and Restated Agreement of Limited Partnership of Enviva Partners, LP, dated May 4, 2015, by Enviva Partners GP, LLC (Exhibit 3.1, Form 8‑K filed May 4, 2015, File No. 001‑37363)
4.1*		First Supplemental Indenture dated December 14, 2016 to Indenture dated November 1, 2016, among Enviva Partners, LP, Enviva Partners Finance Corp. and the subsidiary guarantors party thereto
4.2*		Second Supplemental Indenture dated July 6, 2017 to Indenture dated November 1, 2016, among Enviva Partners, LP, Enviva Partners Finance Corp. and the subsidiary guarantors party thereto
4.3*		Third Supplemental Indenture dated October 2, 2017 to Indenture dated November 1, 2016, among Enviva Partners, LP, Enviva Partners Finance Corp. and the subsidiary guarantors party thereto
4.4		Registration Rights Agreement, dated as of October 10, 2017, by and among Enviva Partners, LP, Enviva Partners Finance Corp., the subsidiary guarantors party thereto and FS Global Credit Opportunities Fund (Exhibit 4.1, Form 8-K filed October 11, 2017, File No. 001-37363)
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
32.1**		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
101.INS*		XBRL Instance Document
101.SCH*		XBRL Schema Document
101.CAL*		XBRL Calculation Linkbase Document
101.DEF*		XBRL Definition Linkbase Document
101.LAB*		XBRL Labels Linkbase Document.
101.PRE*		XBRL Presentation Linkbase Document.

* Filed herewith.

** Furnished herewith.

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SIGNATURE

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

Date: November 2, 2017


ENVIVA PARTNERS, LP

By:	Enviva Partners GP, LLC, its general partner


By:	/s/ STEPHEN F. REEVES
	Name:	Stephen F. Reeves
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Enviva Partners, LP - FORM 10-Q - November 2, 2017

Attached files

Enviva Partners, LP Reports