Enviva (EVVAQ) 10-Q2021 Q2 Quarterly report

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:

Please read the risks described in our Annual Report on Form 10-K for the year ended December 31, 2020 and the risk factors included herein in Item 1A. Risk Factors. 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.

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

As of June 30, 2021, we own and operate 9 industrial-scale wood pellet production plants located in the Southeast United States. In addition to the volumes from our plants, we also procure wood pellets from third parties. Wood pellets are exported from our wholly owned deep-water marine terminals at the Port of Chesapeake, Virginia and terminal assets at the Port of Wilmington, North Carolina (the “Wilmington terminal”) and third-party deep-water marine terminals in Mobile, Alabama, Panama City, Florida and Savannah, Georgia.

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

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

The unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Certain prior year amounts have been reclassified to conform to current period presentation on the condensed consolidated statements of cash flows.

On July 1, 2020, we acquired from our sponsor all of the limited liability company interests in Enviva Pellets Greenwood Holdings II, LLC, the indirect owner of Enviva Pellets Greenwood, LLC (“Greenwood”), which owns a wood pellet production plant located in Greenwood, South Carolina (the “Greenwood plant” and such transaction, the “Greenwood Drop-Down”) for a purchase price of $129.7 million, after accounting for certain adjustments. The Greenwood Drop-Down was an asset acquisition between entities under common control and accounted for on the carryover basis of accounting. Accordingly, we recorded net assets of $67.8 million as of July 1, 2020 to reflect the Greenwood Drop-Down.

On July 31, 2020, we acquired all of the limited liability company interests in Georgia Biomass Holding LLC (the “Georgia Biomass Acquisition”), the owner of a wood pellet production plant located in Waycross, Georgia (the “Waycross plant”). The Georgia Biomass Acquisition was recorded as a business combination and accounted for using the acquisition method. Assets acquired and liabilities assumed were recognized at fair value on the acquisition date of July 31, 2020, and the difference between the consideration transferred, excluding acquisition-related costs, and the fair values of the assets acquired and liabilities assumed was recognized as goodwill. Accordingly, we recorded net identifiable assets of $150.0 million and goodwill of $14.0 million as of July 31, 2020 to reflect the Georgia Biomass Acquisition.

During interim periods, we follow the accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

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

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

We disaggregate our revenue into two categories: product sales and other revenue. Product sales includes sales of wood pellets. Other revenue includes fees associated with customer requests to cancel, defer or accelerate shipments in satisfaction of the related performance obligation and third- and related-party terminal services fees. Other revenue also includes fees received for other services, including for sales and marketing, scheduling, sustainability, consultation, shipping and risk management services, where the revenue is recognized when we have satisfied the performance obligation and have a right to the corresponding fee. These categories best reflect the nature, amount, timing and uncertainty of our revenue and cash flows.

As of June 30, 2021, the aggregate amount of consideration from contracts with customers allocated to the performance obligations that were unsatisfied or partially satisfied was approximately $13.8 billion. This amount excludes forward prices related to variable consideration including inflation, foreign currency and commodity prices. Also, this amount excludes the effects of the related foreign currency derivative contracts as they do not represent contracts with customers. As of June 30, 2021, we expect to recognize approximately 4.0% of our remaining performance obligations as revenue during the remainder of 2021, an additional 9.0% in 2022 and the balance thereafter. Our off-take contracts expire at various times through 2043 and our terminal services contract expires in 2021.

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

Variable consideration from our terminal services contract arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services. There was no variable consideration from our terminal services contract for the three and six months ended June 30, 2021 and 2020.

For the three and six months ended June 30, 2021, we recognized $0.2 million and $0.4 million, respectively, of product sales revenue related to performance obligations satisfied in previous periods. For the three months ended June 30, 2020, we reversed an insignificant amount of product sales revenue related to performance obligations satisfied in previous periods. For the six months ended June 30, 2020, we recognized $0.1 million of product sales revenue related to performance obligations satisfied in previous periods.

Accounts receivable related to product sales as of June 30, 2021 and December 31, 2020 were $70.9 million and $108.5 million, respectively. Of these amounts, $58.7 million and $95.0 million, at June 30, 2021 and December 31, 2020, respectively, related to amounts that were not yet billable under our contracts with customers pending finalization of prerequisite billing documentation. The amounts that had not been billed are billed upon receipt of prerequisite billing documentation, where substantially all is typically billed one to two weeks after full loading of the vessel and where the remaining balance is typically billed one to two weeks after discharge of the vessel.

As of June 30, 2021 and December 31, 2020, we had $0.1 million and $4.9 million, respectively, of deferred revenue for future performance obligations under contracts associated with off-take contracts.

Accrued and other current liabilities included approximately $34.7 million and $50.6 million at June 30, 2021 and December 31, 2020, respectively, for amounts associated with our product sales.

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

Inventories consisted of the following at:

Property, plant and equipment, net consisted of the following at:

Total depreciation expense and interest capitalized related to construction in progress were as follows:

Accrued amounts for property, plant and equipment and construction in progress included in accrued and other current liabilities were $22.7 million and $10.8 million at June 30, 2021 and December 31, 2020, respectively.

We use derivative instruments to partially offset our business exposure to foreign currency exchange risk from expected future cash flows and interest rate risk resulting from certain borrowings. Although the preponderance of our off-take contracts are U.S. Dollar-denominated, we are exposed to fluctuations in foreign currency exchange rates related to a minority of our off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”) and Euro (“EUR”).

We seek to mitigate the credit risk associated with derivative instruments by limiting our counterparties to major financial institutions. Although we monitor the potential risk of loss due to credit risk, we do not expect material losses as a result of defaults by counterparties. We use derivative instruments to manage cash flow and do not enter into derivative instruments for speculative or trading purposes.

We have entered and may continue to enter into foreign currency forward contracts, purchased option contracts or other instruments to partially manage foreign currency exchange risk. In 2020, we entered into pay-fixed, receive-variable interest rate swaps that expire in September 2021 and October 2021 to hedge interest rate risk associated with our variable rate borrowings under our senior secured revolving credit facility that are not designated and accounted for as cash flow hedges.

Derivative instruments are classified as Level 2 assets or liabilities based on inputs such as spot and forward benchmark interest rates (such as LIBOR) and foreign exchange rates. The fair value of derivative instruments at June 30, 2021 and December 31, 2020 were as follows:

Unrealized gains related to the change in fair value of interest rate swaps are recorded in interest expense and were insignificant and $0.1 million, respectively, for the three and six months ended June 30, 2021, and unrealized losses of $0.1 million and $0.2 million, respectively, for the three and six months ended June 30, 2020.

During the three months ended June 30, 2021 and 2020, product sales included net unrealized gains of $0.4 million and losses of $0.1 million, respectively, related to the change in fair value of foreign currency derivatives. During the six months ended June 30, 2021 and 2020, net unrealized losses of $0.8 million and gains of $6.7 million, respectively, related to the change in fair value of foreign currency derivatives were included in product sales.

Included in product sales on the condensed consolidated statements of income are realized losses related to foreign currency derivatives settled of $1.5 million and $2.5 million during the three and six months ended June 30, 2021, respectively. Realized gains related to derivatives settled were insignificant and $0.2 million, respectively, during the three and six months ended June 30, 2020, and were included in product sales.

We enter into master netting arrangements designed to permit net settlement of derivative transactions among the respective counterparties. If we had settled all transactions with our respective counterparties at June 30, 2021, we would have had to pay a net settlement termination payment of $5.4 million, which differs by $0.1 million from the recorded fair value of the derivatives. We present our derivative assets and liabilities at their gross fair values.

The notional amounts of outstanding derivative instruments associated with outstanding or unsettled derivative instruments as of June 30, 2021 and December 31, 2020 were as follows:

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

The carrying amount and estimated fair value of long-term debt at June 30, 2021 and December 31, 2020 was as follows:

(9) Intangibles

Intangible assets (liabilities) consisted of the following as of June 30, 2021 and December 31, 2020:

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

At June 30, 2021 and December 31, 2020, we were in compliance with the covenants and restrictions associated with, and no events of default existed under, the indenture dated as of December 9, 2019 governing the 2026 Notes. The 2026 Notes are guaranteed jointly and severally on a senior unsecured basis by our existing subsidiaries (excluding Enviva Partners Finance Corp.) that guarantee certain of our indebtedness and may be guaranteed by certain future restricted subsidiaries.

In April 2021, we amended the credit agreement governing our senior secured revolving credit facility to, among other things, increase the revolving credit commitments from $350.0 million to $525.0 million, extend the maturity from October 2023 to April 2026, increase the letter of credit commitment from $50.0 million to $80.0 million and reduce the cost of borrowing by 25 basis points.

At June 30, 2021 and December 31, 2020, we were in compliance with the covenants and restrictions associated with, and no events of default existed under, our senior secured revolving credit facility. Our obligations under the senior secured revolving credit facility are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our assets; however, the senior secured revolving credit facility is not guaranteed by the Hamlet JV or secured by liens on its assets.

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

We are party to management services agreements (“MSAs”) with Enviva Management Company, LLC, a Delaware limited liability company and wholly owned subsidiary of our sponsor (together with its affiliates that provide services to us, as applicable, “Enviva Management Company”). Enviva Management Company provides us with operations, general administrative, management and other services. We believe the costs allocated to us 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.

Enviva Partners, LP reimburses Enviva Management Company for all direct or indirect internal or third-party expenses it incurs in connection with the provision of such services.

Under the Hamlet JV’s MSA (the “Hamlet JV MSA”), the Hamlet JV pays an annual management fee to Enviva Management Company; to the extent allocated costs exceed the annual management fee, the additional costs are recorded with an increase to partners’ capital.

In connection with the acquisition of the Hamlet JV on April 2, 2019 (the “Hamlet Drop-Down”), Enviva Management Company waived the Hamlet JV’s obligation to pay approximately $2.7 million of management fees payable to Enviva Management Company from the date thereof until July 1, 2020 (the “Hamlet JV MSA Fee Waiver”).

Related-party amounts included on the unaudited condensed consolidated statements of income under our MSAs were as follows:

During the three and six months ended June 30, 2021, $0.8 million and $1.5 million, respectively, of fees expensed under the Hamlet JV MSA were waived pursuant to the Hamlet JV MSA Fee Waiver and recorded as an increase to partners’ capital. During the three and six months ended June 30, 2020, $0.6 million and $1.3 million, respectively, of fees expensed under the Hamlet JV MSA were waived pursuant to the Hamlet JV MSA Fee Waiver and recorded as an increase to partners’ capital.

On the date of the Greenwood Drop-Down:

On the date of the Hamlet Drop-Down:

The Hamlet Make-Whole Agreement, First EVA MSA Fee Waiver and Hamlet ISA expired pursuant to their terms on June 30, 2020. For the three and six months ended June 30, 2020, $1.0 million and $3.5 million of fees expensed under the Hamlet JV MSA and waived under the First EVA MSA Fee Waiver were recorded as an increase to partners’ capital. For the three and six months ended June 30, 2020, cost of goods sold included $14.6 million and $25.2 million, respectively, net of a cost of cover deficiency fee from our sponsor pursuant to the Hamlet Make-Whole Agreement, offset by contract price due to Hamlet Operator for wood pellets under the Hamlet ISA. As of June 30, 2021 and December 31, 2020, related-party receivables included $0.4 million and $12.3 million related to the Hamlet ISA.

We were party to a contract with Greenwood to purchase wood pellets produced by the Greenwood plant through March 2022 (the “Greenwood Contract”). The Greenwood Contract was terminated on the date of the Greenwood Drop-Down. During the three months ended June 30, 2020, we purchased $10.1 million of wood pellets from Greenwood and recorded 0 cost of cover deficiency fee from Greenwood. During the six months ended June 30, 2020, we purchased $18.8 million of wood pellets from Greenwood and recorded a cost of cover deficiency fee of approximately $0.3 million from Greenwood. As of June 30, 2020, of the net purchased amount of $18.5 million related to the Greenwood contract, $18.1 million was included in cost of goods sold and $0.4 million was included in finished goods inventory.

Prior to its termination on the date of the Greenwood Drop-Down, we were party to a long-term terminal services agreement with our sponsor (the “Holdings TSA”). The Holdings TSA was amended and assigned to Greenwood and provided for deficiency payments if quarterly minimum throughput requirements were not met. During the three and six months ended June 30, 2020, we recorded $0.7 million and $1.3 million, respectively, of deficiency fees from Greenwood, which was included in other revenue.

We purchase raw materials from Enviva FiberCo, LLC (“FiberCo”), a wholly owned subsidiary of our sponsor, including through a wood supply agreement that provided for deficiency fees in the event FiberCo did not satisfy certain volume commitments. Purchased raw materials net of cost of cover deficiency fees are included in cost of goods sold. Raw materials purchased during the three and six months ended June 30, 2021 were $3.9 million and $9.9 million, respectively. Raw materials purchased during three and six months ended June 30, 2020 were $0.8 million and $2.2 million, respectively. No cost of cover deficiency fees were recognized during the three and six months ended June 30, 2021 and 2020, respectively. At June 30, 2021, related-party payables of $0.6 million is included in related-party payables related to raw materials purchased from FiberCo. At December 31, 2020, related-party payables included $0.3 million related to raw materials purchased from FiberCo.

Hamlet JV Revolver

At June 30, 2021 and December 31, 2020, the Hamlet JV had a revolver outstanding balance to Enviva, LP, of $46.9 million and $41.7 million, respectively, both of which were eliminated upon consolidation.

As of June 30, 2021, the only periods subject to examination for U.S. federal and state income tax returns are 2017 through 2019. We believe our income tax filing positions, including our status as a pass-through entity, would be sustained on audit and do not anticipate any adjustments that would result in a material change to our condensed consolidated balance sheet. Therefore, no reserves for uncertain tax positions or interest and penalties have been recorded.

Our condensed consolidated statements of income for the three and six months ended June 30, 2021 included an insignificant income tax expense. For the three and six months ended June 30, 2020, 0 provision for income tax was recorded in the condensed consolidated financial statements.

In June 2021, we issued 4,925,000 common units at a price of $45.50 per common unit for total net proceeds of $214.5 million, after deducting $9.5 million of issuance costs. As of June 30, 2021, $0.3 million of the issuance costs was included in accrued and other current liabilities.

Our partnership agreement contains provisions for the allocation of net income and loss to our unitholders and Enviva Partners GP, LLC (the “General Partner”), a wholly owned subsidiary of our sponsor. 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 holder of our incentive distribution rights (“IDRs”).

Prior to the Hamlet Drop-Down, John Hancock had received all of its capital contributions and substantially all of its preference amount and the historical net losses of the Hamlet JV had been allocated to the members of the Hamlet JV in proportion to their unreturned capital contributions; consequently, the balance of members’ capital attributable to John Hancock was negative at the time of the Hamlet Drop-Down. We have not received full repayment of revolving borrowings from the Hamlet JV pursuant to the Hamlet JV Revolver or its capital contributions and full preference amount as of June 30, 2021; as a result, none of the earnings of the Hamlet JV have been allocated to John Hancock following the Hamlet Drop-Down and no change has been recognized to the negative noncontrolling interest balance attributable to John Hancock that we acquired.

IDRs represent the right to receive increasing percentages (from 15.0% to 50.0%) of quarterly distributions from operating surplus after we achieve distributions in amounts exceeding specified target distribution levels. Our sponsor currently holds 100% of our IDRs through its wholly owned subsidiary Enviva MLP Holdco, LLC. Prior to 2021, the IDRs were held by the General Partner, a wholly owned subsidiary of our sponsor.

For purposes of calculating our earnings per unit under the two-class method, common units are treated as participating preferred units. 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.

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

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

The unrecognized estimated unit-based compensation cost relating to outstanding Affiliate Grants at June 30, 2021 was $17.9 million, which will be recognized over the remaining vesting period.

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

In January 2021 and April 2021, Director Grants valued at $0.6 million and $0.1 million, respectively, and which vest on the first anniversary of the grant date in January and April 2022, respectively, were granted.

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

In addition to the common units, we have identified the IDRs and phantom units as participating securities and apply the two-class method when calculating the net income (loss) per unit applicable to limited partners, which is based on the weighted-average number of common units outstanding during the period. Diluted net income per unit includes the effects of potentially dilutive time-based and performance-based phantom units on our common units.

The computation of net income (loss) available per limited partner unit is as follows:

On July 1, 2021, our sponsor contributed to us all of the limited liability company interests in Lucedale, which owns a wood pellet production plant under construction in Lucedale, Mississippi, Enviva Port of Pascagoula, LLC, which owns a deep-water marine terminal under construction in Pascagoula, Mississippi, Enviva Development Finance Company, LLC, and three long-term, take-or-pay off-take contracts with creditworthy Japanese counterparties for a purchase price of $260.0 million, subject to certain adjustments. The purchase price was funded with a combination of proceeds from the issuance of common units in June 2021 and borrowings under the senior secured credit facility on July 1, 2021.

The following discussion about matters affecting the financial condition and results of operations of the Partnership should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this report and the audited consolidated financial statements and related notes that are included in the 2020 Form 10-K. Among other things, those financial statements and the related notes include more detailed information regarding the basis of presentation for the following information.

We aggregate a natural resource, wood fiber and process it into a transportable form, wood pellets. We sell a significant majority of our wood pellets through long-term, take-or-pay off-take contracts with creditworthy customers in the United Kingdom, Europe and increasingly in Japan. As of June 30, 2021, we owned and operated nine plants (collectively, “our plants”) with a combined production capacity of approximately 5.3 million metric tons (“MT”) of wood pellets per year (“MTPY”) in Virginia, North Carolina, South Carolina, Georgia, Florida and Mississippi, the production of which is fully contracted through 2025. On July 1, 2021, we acquired from our sponsor a wood pellet production plant in Lucedale, Mississippi, a deep-water marine terminal in Pascagoula, Mississippi and three long-term, take-or-pay off-take contracts with creditworthy Japanese counterparties. We export wood pellets through our wholly owned dry-bulk, deep-water marine terminal at the Port of Chesapeake, Virginia (the “Chesapeake terminal”) and terminal assets at the Port of Wilmington, North Carolina and from third-party deep-water marine terminals in Savannah, Georgia, Mobile, Alabama and Panama City, Florida. 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. Our plants are sited in robust fiber baskets providing stable pricing for the low-grade fiber used to produce wood pellets. Our raw materials are byproducts of traditional timber harvesting, principally low-value wood materials, such as trees generally not suited for sawmilling or other manufactured forest products, and tree tops and limbs, understory, brush and slash that are generated in a harvest.

Our strategy is to fully contract the wood pellet production from our plants under long-term, take-or-pay off-take contracts with a diversified and creditworthy customer base. Our long-term off-take contracts typically provide for fixed-price deliveries that may include provisions that escalate the price over time and provide for other margin protection. During 2021, production capacity from our wood pellet production plants and wood pellets sourced from our affiliates and third parties were approximately equal to the contracted volumes under our existing long-term, take-or-pay off-take contracts. Our long-term, take-or-pay off-take contracts provide for a product sales backlog of $16.0 billion and have a total weighted-average remaining term of 13.2 years from July 1, 2021. Under our current product sales backlog, our plants are fully contracted through 2025. Assuming all volumes under the firm and contingent long-term off-take contracts held by our sponsor were included with our product sales backlog for firm and contingent contracted product sales, our product sales backlog would increase to $20.4 billion and the total weighted-average remaining term from July 1, 2021 would increase to 14.4 years.

Our customers primarily use our wood pellets as a substitute fuel for coal in dedicated biomass or co-fired coal power plants. Wood pellets serve as a suitable “drop-in” alternative to coal because of their comparable heat content, density and form. Due to the uninterruptible nature of our customers’ fuel consumption, our customers require a reliable supply of wood pellets that meet stringent product specifications. We have built our operations and assets to deliver and certify the highest levels of

On July 1, 2021, we completed the purchase from our sponsor of a wood pellet production plant in Lucedale, Mississippi (the “Lucedale plant”), a deep-water marine terminal in Pascagoula, Mississippi (the “Pascagoula terminal”) and three long-term, take-or-pay off-take contracts with creditworthy Japanese counterparties (the “Associated Off-Take Contracts”), which we refer to collectively as the “Lucedale-Pascagoula Acquisitions.” The purchase price for the Lucedale-Pascagoula Acquisitions was $260.0 million, subject to certain adjustments. We expect to invest approximately $85.0 million in remaining construction capital expenditures in the Lucedale plant and Pascagoula terminal, representing a total investment of $345.0 million in the Lucedale-Pascagoula Acquisitions.

The Lucedale-Pascagoula Acquisitions increase our production capacity by 14% and increase our deep-water marine terminal throughput capacity by 38%. The Associated Off-Take Contracts represent incremental deliveries of 630,000 MTPY of wood pellets to Japan, have an aggregate weighted-average contract life of 15 years and add a total sales backlog of $1.9 billion to our portfolio.

The Lucedale plant, which will have a production capacity of approximately 750,000 MTPY of wood pellets, is permitted to produce 1.1 million MTPY. Its production will be transported via rail service to the Pascagoula terminal. The Pascagoula terminal is expected to have total throughput capacity of 3.0 million MTPY when fully constructed, allowing for throughput from multiple plants.

On the date of the Lucedale-Pascagoula Acquisitions:

In June 2021, we issued 4,925,000 common units at a price of $45.50 per common unit for total net proceeds of $214.5 million, after deducting $9.5 million of issuance costs. The net proceeds partially financed the Lucedale-Pascagoula Acquisitions as well as our development activities to expand our wood pellet production plants in Sampson, North Carolina, Hamlet, North Carolina, and Cottondale, Florida (collectively the “Multi-Plant Expansions”).

In April 2021, we amended our senior secured revolving credit facility to increase the revolving credit commitments from $350.0 million to $525.0 million, extend the maturity from October 2023 to April 2026, increase the letter of credit commitment from $50.0 million to $80.0 million and reduce the cost of borrowing by 25 basis points.

We have completed the recent expansion project of our Northampton, North Carolina wood pellet production plant and we are commissioning the recent expansion project at our Southampton, Virginia wood pellet production plant (the “Mid-Atlantic Expansions”). We continue to expect each plant to reach its expanded nameplate production capacity of approximately 750,000 and 760,000 MTPY, respectively, by the end of 2021.

We expect to invest approximately $50.0 million in the aggregate for the Multi-Plant Expansions to de-bottleneck manufacturing processes, eliminate certain costs and increase production capacity. We expect to fund the Multi-Plant Expansions in accordance with our 50/50 equity/debt capital structure and to complete the Multi-Plant Expansions by the end of 2022, subject to receiving the necessary permits.

Consistent with our mission to displace coal, grow more trees and fight climate change, we and our sponsor recently announced our commitment to become “net-zero” in greenhouse gas (“GHG”) emissions from our operations by 2030. The product we manufacture helps reduce the lifecycle GHG emissions of our customers, but we believe we must also do our part within our operations to mitigate the impacts of climate change. We expect to accomplish neutrality with respect to our Scope 1 emissions (i.e., direct emissions from our manufacturing) by improving energy efficiency and adopting lower-carbon processes, as well as through investment in carbon offsets. We also plan to neutralize our Scope 2 emissions (i.e., indirect emissions from energy we purchase) by using 100% renewable energy by 2030 through the purchase of renewable electricity and/or onsite generation where practicable. Moreover, we will seek to proactively engage with our suppliers, transportation partners and other stakeholders to drive innovative improvements in our supply chain to reduce our Scope 3 emissions (i.e., indirect emissions in our value chain). We intend to report our Scopes 1, 2 and 3 emissions annually and fully meet the requirements of CDP (formerly known as the Carbon Disclosure Project) by 2022. Although it is difficult to project the incremental cost to our operations in 2030, we do not expect any material impact to our financial performance as a result of our efforts to achieve “net-zero” in GHG emissions from our operations.

The outbreak of a novel strain of coronavirus (“COVID-19”) has significantly adversely impacted global markets and continues to present global public health and economic challenges. Although the full impact of COVID-19 remains unknown, to date, our operations have not been materially impacted by the outbreak.

We have taken prescriptive safety measures including social distancing, hygienic policies and procedures and other steps recommended by the Centers for Disease Control and Prevention (the “CDC”), and adopted the CDC’s risk management approach, since the beginning of the outbreak, and have established risk levels based on the degree to which the virus has spread in a given community and the nature of the work performed at that location. Within our field operations, we have continued operations largely as normal with the additional precautionary measures; however, we continue to monitor local data on a daily basis and have prioritized putting the right plans, procedures and measures in place to mitigate the risk of exposure and infection and the related impacts to our business. We also have facilitated access for our employees to receive vaccines at our locations.

We specifically designed our operations and logistics systems with flexibility and redundancies so they are capable of effectively responding to unforeseen events. We operate a portfolio of nine wood pellet production plants geographically dispersed across the Southeast United States. Our wood pellet production capacity is committed under long-term, take-or-pay off-take contracts with fixed pricing and fixed volumes that are not impacted by the market prices of crude oil, natural gas, power or heat. We export our product from a portfolio of five bulk terminals and transport it to our customers under long-term, fixed-price shipping contracts with multiple shipping partners. These operations currently are unaffected by COVID-19.

On July 31, 2020, we acquired all of the limited liability company interests in Georgia Biomass Holding LLC, a Georgia limited liability company (“Georgia Biomass”) and the indirect owner of a wood pellet production plant located in Waycross,

On the date of and in connection with the Greenwood Drop-Down, our sponsor assigned five biomass off-take contracts to us (collectively, the “Associated Off-Take Contracts”). The Associated Off-Take Contracts call for aggregate annual deliveries of 1.4 million MTPY and mature between 2031 and 2041. Our sponsor also assigned to us fixed-rate shipping contracts with aggregate annual shipping volume of 1.4 million MTPY. The Associated Off-Take Contracts were assigned to fully contract wood pellets produced by the Greenwood plant and Waycross plant. The shipping contracts were assigned to facilitate transportation of those produced wood pellets.

The Greenwood plant current production capacity is 500,000 MTPY of wood pellets and transports its production via rail service to our terminal assets at the Port of Wilmington, North Carolina. We expect to invest a total of $28.0 million to expand the Greenwood plant’s production capacity to 600,000 MTPY. We expect to complete the expansion, which is currently underway, by year-end 2021.

On the date of the Greenwood Drop-Down:

We define adjusted net income as net income excluding interest expense associated with incremental borrowings related to a fire that occurred in February 2018 at the Chesapeake terminal (the “Chesapeake Incident”) and Hurricanes Florence and Michael (the “Hurricane Events”), early retirement of debt obligation, and acquisition and integration and other costs, adjusting for the effect of certain sales and marketing, scheduling, sustainability, consultation, shipping, and risk management services

We define adjusted gross margin as gross margin excluding loss on disposal of assets, depreciation and amortization, changes in unrealized derivative instruments related to hedged items included in gross margin, non-cash unit compensation expenses, and acquisition and integration costs and other, adjusting for the effect of Commercial Services, and including MSA Fee Waivers. We define adjusted gross margin per metric ton as adjusted gross margin per metric ton of wood pellets sold. We believe adjusted gross margin and adjusted gross margin per metric ton are meaningful measures because they compare our revenue-generating activities to our operating costs for a view of profitability and performance on a total-dollar and a per-metric ton basis. Adjusted gross margin and 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 wood pellet production plants and our production and distribution of wood pellets.

We define adjusted EBITDA as net income excluding depreciation and amortization, interest expense, income tax expense (benefit), early retirement of debt obligations, non-cash unit compensation expense, loss on disposal of assets, changes in unrealized derivative instruments related to hedged items included in gross margin and other income and expense, and acquisition and integration costs and other, adjusting for the effect of Commercial Services, and including MSA Fee Waivers. 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.

We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures, cash income tax expenses, and interest expense net of amortization of debt issuance costs, debt premium, original issue discounts, and the impact from incremental borrowings related to the Chesapeake Incident and Hurricane Events. We use distributable cash flow as a performance metric to compare our cash-generating performance 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.

Adjusted net income, adjusted gross margin, 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 net income, adjusted gross margin, 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. Please see below for a reconciliation of each of adjusted net income, adjusted gross margin and adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow to the most directly comparable GAAP financial measure.

Revenue related to product sales for wood pellets produced or procured by us increased to $271.2 million for three months ended June 30, 2021 from $155.7 million for three months ended June 30, 2020. The $115.6 million, or 74%, increase was primarily attributable to a 61% increase in product sales volumes and improved pricing based on contract mix, offset by approximately $1.1 million less in unrealized and realized gains from the fair value of foreign currency derivative instruments, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Other revenue for the three months ended June 30, 2021 and 2020 included $12.3 million and $8.9 million, respectively, in payments to us for adjusting deliveries under our take-or-pay off-take contracts, which otherwise would have been included in product sales. Other revenue for the three months ended June 30, 2020 also included $1.9 million from the Commercial Services. During the three months ended June 30, 2021 and 2020 the $12.3 million and $10.8 million in other revenue was recognized under a breakage model based on when the pellets would have been loaded.

Total cost of goods sold increased to $257.7 million for the three months ended June 30, 2021 from $140.0 million for the three months ended June 30, 2020, primarily as a result of higher finished product costs given increased product sales volumes, a greater percentage of the sales volumes being volumes procured from third parties, costs incurred during the commissioning of expansion projects and an increase in depreciation and amortization expense associated with the Greenwood Drop-Down and the Georgia Biomass Acquisition.

Gross margin was $27.3 million for the three months ended June 30, 2021 as compared to $27.7 million for the three months ended June 30, 2020, a decrease of $0.4 million, or 1%.

We earned an adjusted gross margin of $56.1 million, or $41.02 per MT, for the three months ended June 30, 2021 compared to $42.0 million, or $49.55 per MT, for the three months ended June 30, 2020. The increase in adjusted gross margin was primarily attributable to higher product sales volumes and higher pricing due to customer contract mix, which were partially offset by higher cost of goods sold as described above. The decrease in adjusted gross margin per ton was primarily attributable to the factors impacting adjusted gross margin.

Total general and administrative expenses were $11.8 million for the three months ended June 30, 2021 and $9.0 million for the three months ended June 30, 2020. The $2.8 million increase in total general and administrative expenses is primarily due to our increased size and activities resulting from the acquisitions in July 2020 and non-cash unit-based compensation between the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

We incurred $12.6 million of interest expense during three months ended June 30, 2021 and $10.1 million during the three months ended June 30, 2020. The increase in interest expense from the prior year was primarily attributable to an increase in borrowings as a result of our acquisitions in July 2020 compared to the three months ended June 30, 2020.

We recorded an insignificant income tax expense during the three months ended June 30, 2021 related to an entity acquired in the Georgia Biomass Acquisition.

We generated adjusted net income of $9.8 million for the three months ended June 30, 2021 compared to $8.7 million for the three months ended June 30, 2020. The increase in adjusted net income for the three months ended June 30, 2021 was primarily attributable to the decrease in net income from the three months ended June 30, 2020, which was mainly driven by an increase in depreciation and amortization expense, offset by the increase attributable to MSA Fee Waivers compared to the three months ended June 30, 2020.