Enviva's (EVA) CEO John Keppler on Q4 2016 Results - Earnings Call Transcript

Feb. 25, 2017 1:14 PM ETEnviva Inc. (EVA)
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Enviva Partners, LP (NYSE:EVA) Q4 2016 Earnings Conference Call February 23, 2017 10:00 AM ET


John Keppler - CEO

Steve Reeves - CFO

Ray Kaszuba - VP & Treasurer


John Ragozzino - Drexel Hamilton

Poe Fratt - D.A. Davidson

Pavel Molchanov - Raymond James


Good morning, and welcome to the Enviva Q4 2016 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Ray Kaszuba, Vice President and Treasurer. Please go ahead, sir.

Ray Kaszuba

Thank you. Good morning, and welcome to the Enviva Partners, LP fourth-quarter and full-year 2016 financial results conference call. We appreciate your interest in Enviva Partners, and thank you for participating today. On this morning's call we have John Keppler, Chairman and CEO; and Steve Reeves, Chief Financial Officer. Our agenda will be for John and Steve to discuss our financial results released this morning and provide an update on our current business outlook. We will then open up the phone lines for questions.

Before we get started, a few housekeeping items. First, please keep in mind that during the course of our remarks and subsequent Q&A session, we will be making some forward-looking statements and we will refer to certain non-GAAP measures. Our forward-looking statements or comments about future expectations are subject to a variety of business risks. Information concerning the risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements can be found in our press release issued this morning, and is posted on the investor relations section of our website, www.envivabiomass.com as well as our 10-K and other recent filings with the SEC. We assume no obligation to update any forward-looking statements to reflect new or changed events or circumstances.

During this call, we will be using GAAP and non-GAAP figures, and want to be clear on the basis of each.

On December 14, 2016, we consummated the acquisition of the fully operational would pellet production plant in Sampson County, North Carolina, a 10-year, 420,000 metric ton per year off-take contract with DONG Energy Thermal Power; a 15-year, 95,000 metric ton per year off-take contract with our sponsor's joint venture; and related third-party shipping contracts.

Because this was a transfer between entities under common control, GAAP requires us to recast all financial results of the Partnership to include the results of the Sampson drop-down such that Sampson's results are now included in our GAAP results for each period presented in our earnings release; and certain intercompany transactions between us and Sampson were eliminated. The effect of this recast is to present financial statements as if we had developed a Sampson facility in the Partnership, when in fact it is our sponsor's stated strategy to develop new projects outside the Partnership.

Unless otherwise indicated, our financial results are recast on this basis, and we'll make it clear when we use figures that are not re-casted. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures may also be found in today's press release.

I would now like to turn it over to John.

John Keppler

Thank you, Ray. Good morning, everyone, and thanks for joining us today. Let me begin by saying that we are very pleased with what we were able to do in 2016 in the fourth quarter, and how we ended the year. The headline is pretty simple: we made more tons at lower cost and higher margins. But we are still a relatively new public company. And we continue to think it is important to communicate clear expectations, and then go about the business of executing so that our investor base has clear visibility into what we're trying to accomplish, and our conviction and track record of doing what we said we were going to do.

As you may recall from our earnings call last February, we set some fairly specific and aggressive objectives for 2016. We accomplished each and every one of those. And I'll start by providing a bit of color commentary around those successes beyond the great results we posted in our earnings release this morning. At the beginning of last year, we said we would grow adjusted EBITDA substantially to between $83 million and $87 million for 2016. Our base business generated $87.6 million. And when we exclude the impact of the Sampson drop for the period the Partnership didn't actually own it, we generated a total of $89.6 million in adjusted EBITDA.

We said we would distribute at least $2.10 per unit in 2016. We did, and we continued the track record of distribution increases for all six quarters since our IPO, based on a level of distributable cash flow growth that enabled a full-year coverage ratio of 1.28 times. We said we would continue expanding margins through debottlenecking activities and other productivity improvements, and we were able to increase production across our fleet of plants, giving us the opportunity to initiate the sale of our highest-cost, smallest plant whose production was absorbed by our other facilities.

We said we would extend our contracted position, and we increased our weighted average remaining term of off-take contracts to 9.8 years, and added $3.4 billion, more than doubling our contracted revenue backlog which now totals $5.7 billion, with contracts that extend as far as 2034. These contracts, which account for, in some cases, 100% of our utility partner's imported fuel supply, demonstrate that we are the preferred supplier of wood pellets.

We said we would continue to do so by maintaining operational excellence, safety, reliability, sustainability, and continuous improvement; and we have. Not only did we finish the year safer than we were the year before, and continued to be a leader in the industry on safety, we also set a new bar on sustainability. As you know, we are committed and we depend on healthy, growing forests. And we invest in third-party certifications from leading sustainability organizations which certify our underlying supply chain and activities. But we believe we need to do more.

To that end, you may have seen that we recently released our Track & Trace program; to our knowledge, the first-of-its-kind system, not only for the wood pellet industry but for the broader forest products industry as a whole. This system provides complete detail of the wood we buy, where it comes from, how it was harvested, and what impact our activities have on the broader forest landscape. We've taken the initiative to publish the results online in detail, providing unprecedented transparency into our fiber sourcing. This action was met with universally positive feedback across our stakeholder base. That's no surprise, because the data set demonstrates that there are larger, healthier forests growing in our supply area than there were before we started up.

While we are happy with these accomplishments, we are still just getting started. I'm pretty excited about the long-term growth opportunities ahead of us. And we expect 2017 to be another year of safely and sustainably making more high-quality tons at lower cost and higher margin. This year, we expect to extend our position as the preferred supplier of wood pellets to customers around the world. This means we expect to not only extend our contracted position further, but also to serve both new and existing geographies in places like Japan, as well as further diversifying our customer base.

We also expect to continue to capitalize on our market leadership to leverage short-term market dislocations as they arise. We expect to continue to leverage our investment and operational excellence and continuous improvement to drive organic EBITDA growth through production cost reductions, throughput improvements that drive increased fixed cost absorption, and improved sourcing, all while maintaining and improving quality.

We expect to deliver substantial growth in EBITDA and DCF, guiding to $110 million to $114 million in adjusted EBITDA, and between $76 million and $80 million in distributable cash flow for 2017. We expect to distribute at least $2.35 per unit in 2017, a significant increase from our aggregate 2016 distribution, before accounting for potential drops or other acquisitions.

And on that note, we expect to have the opportunity to acquire the fully operational Port of Wilmington terminal in 2017; and in concert with our sponsor and its joint venture with John Hancock, to continue to consider opportunistic third-party acquisitions when they arise. On that point, several of our investors have inquired about our interest in a few of the distressed assets on the market. And while we maintain an open mind on opportunities, given our operating excellence and proven capabilities, to date, much of what we have seen contained inherent fatal flaws as if they remain unremediated limit our enthusiasm.

As we think about our Company and our goals, we benefit from being the largest supplier in an industry that is fundamentally a growing business, needing substantial incremental infrastructure assets to serve the expected demand. Against that backdrop, our goal is to continue to distinguish our durable, increasing, contracted cash flows and to execute on visible growth opportunities, whether based on our core European industrial market or other geographies and pellet applications, and translate that into continued per-unit distribution increases that drive unitholder value over time. We did that again in 2016, and have a great plan ahead for 2017.

I would like to now hand it over to Steve to discuss the financial results, before returning to provide an update on the market and where we see the growth opportunities.

Steve Reeves

Thanks, John. On a GAAP a basis for the fourth quarter of 2016, we generated net revenue of $126.5 million, an increase of 8.3% or $9.7 million from the corresponding quarter of 2015. Included in net revenue were product sales of $121.2 million on volume of 632,000 metric tons of wood pellets. Product sales increased $6.1 million from the corresponding quarter of last year due to an increased number of shipments under CIF terms which increased both revenue as well as the cost of sales, and a favorable contract pricing mix.

For the fourth quarter of 2016, gross margin improved to $20.1 million, an increase of $1.9 million from the corresponding period of 2015. Adjusted gross margin per metric ton was $43.25 during the fourth quarter of 2016 as compared to $39.37 for the same period of 2015. Gross margin benefited from the lower fiber cost experienced during the quarter.

We had a net loss of $8.1 million compared to net income of $7.6 million for the fourth quarter of 2015, a decrease of $15.7 million, driven by the $10 million non-cash impairment charge associated with the plant sale that John mentioned, and an increase in interest expense during the period. The fourth quarter was a transitional period as we had both the cost of both our term loans and the senior unsecured notes, which were held in escrow until the December 14 drop; as well as the units issued in connection with the Sampson transaction, while we only had the benefit of the Sampson facility for a few weeks.

The Sampson drop-down was completed on December 14. Excluding the results of Sampson for the period, the Partnership did not actually -- for the period that the Partnership did not actually own it, adjusted EBITDA for the fourth quarter was $22.2 million, an increase from the fourth quarter of 2015, driven by increased product sales. Distributable cash flow, prior to any distributions attributable to incentive distribution rights paid to the general partner, was $12.9 million.

For the full year on a GAAP basis, 2016 net revenue was $464.3 million, representing an increase of 1.5% over 2015. Pellet sales revenue was $444.5 million as compared to pellet sales of $451 million last year. Other revenue increased $13.4 million, due primarily to fees earned related to customer requests to delay or cancel shipments.

For the year, we sold 2.3 million metric tons of wood pellets.

Gross margin increased $17.8 million to $79.4 million for the full-year 2016 as compared to 2015. Adjusted gross margin per metric ton also improved relative to 2015, from $38.89 per ton to $45.64 per ton. Net income for the year was $17.7 million, a decrease of $1.7 million relative to 2015. This decrease was driven by the non-cash impairment charge related to the plant disposition and higher interest expense, which offset greater operating performance.

Excluding the results of Sampson for the period the Partnership did not actually own it, adjusted EBITDA was $89.6 million for 2016, an increase of more than $12 million from 2015 due to increased other revenue and cost improvements across our operations due to increased plant utilization, lower fiber costs, and lower fuel costs, reducing the cost to transport our product to ports.

Distributable cash flow, prior to any distributions available, attributable to incentive distribution rights paid to the general partner was $68.8 million. On November 3, we provided guidance for 2016 which did not include any impact from the Sampson drop-down. On that basis, for comparison purposes, adjusted EBITDA for 2016 would've been $87.6 million at the high end of the range of adjusted EBITDA guidance of $86 million to $88 million provided in November.

After maintenance capital expenditures of $5.2 million; interest expense, net of amortization of debt issuance costs; and original issue discount of $16 million; distributable cash flow prior to any distributions attributable to incentive distribution rights paid to the general partner would've been $66.5 million, which was within the guidance range of $66 million to $68 million. Maintenance capital was above our prior guidance primarily as a result of a decision to increase spare parts inventory.

On February 28, we will pay a $0.535 distribution; as John noted, our sixth straight increase, and a more than 16% increase from the distribution for the fourth quarter of 2015. The fourth-quarter distribution brings us to a total of $2.10 per unit for 2016 which was our objective for the year.

The Partnership's distributable cash flow, excluding the results of the Sampson drop-down prior to December 14, and net of amounts attributable to incentive distribution rights, was $67.8 million, resulting in a distribution coverage ratio of 1.28 times for 2016, well over our target.

As we have discussed in the past, our distribution strategy is to maintain at least a 1.15 times coverage on an annual basis from increased net distribution each quarter. Due to our growth profile, distribution increases for some quarters, for example, after the full effect of a drop-down is realized, may be larger than others. Due to the transitional nature of the fourth quarter of 2016, and given that the upcoming first quarter is typically our softest period of the year due to the colder weather, the Board thought a $0.535 distribution per unit was prudent.

That brings me to 2017. And consistent with the guidance we provided previously, we expect to distribute at least $2.35 per common and subordinated unit for 2017. We project to earn net income in the range of $31 million to $35 million, with associated adjusted EBITDA of between $110 million and $114 million. We expect maintenance capital expenditures of $5 million; and interest, less amortization of debt issuance costs and original issue discount, to be $29 million. As a result, the Partnership expects to generate distributable cash flow of $76 million to $80 million for the year, prior to any incentive distributions to our general partner.

As I've said in the past, please keep in mind that although deliveries to our customers are generally ratable over the year, the mix and timing of customer shipments can impact results which may vary somewhat quarter to quarter. As a result our Board evaluates our distribution and coverage on an annual basis.

Now I would like to turn it back over to John.

John Keppler

Thanks, Steve. Before we open the lines to Q&A, I'd like to take a few minutes to provide an update on the market and the growth implications for Enviva. Our strategy continues to be to fully contract the production capacity of the Partnership. We are substantially balanced for the foreseeable future, and have a weighted average remaining contract term of 9.8 years, and a contracted revenue backlog of $5.7 billion. We are also focused on diversifying our customer base with potential new customers in Europe and Asia. In particular, we expect to capitalize on our market leadership in 2017 and contract to sell volumes into the growing Japanese market.

There have been several market developments that continue to underpin the nearly 20% year-on-year long-term demand growth expected by industry experts. I'd like to begin with a few developments in our current core market of Europe, as countries continue to work towards the binding renewable energy requirements for 2020 and beyond. In Denmark, DONG Energy, our customer and the country's largest power producer, recently stated that it will completely eliminate coal by 2023 and replace the fuel with biomass in all of its combined heat and power generation assets. That's after already committing that by 2020, half of the power and heat production at its Danish power stations will be based on biomass.

In December, Drax received EU state aid approval for its CfD for its third unit which is expected to require 2 million metric tons per year of wood pellets. In addition, Drax has said that under the right conditions, it can convert the remaining three units still firing coal to biomass over the next several years.

In the Netherlands, the results from the second round of the 2016 applications for the renewable incentive program called the SDE+ are out. Biomass projects were awarded a majority of the €5 billion in available funding, including €2.1 billion to large-scale coal plants operated by RWE, Uniper, and Engie that plan to co-fire biomass. In addition, the funding for the 2017 SDE+ is expected to be significantly increased to €12 billion, up from €9 billion after the 2016 rounds were heavily oversubscribed.

The Netherlands is clearly committed to the role biomass can play in reducing emissions and increasing renewable generation, which we believe can result in a demand profile of more than 3 million tons per year for at least eight years under the Dutch program.

In addition, the cold winter in Europe is increasing demand for wood pellets but given their fungibility, are increasingly migrating from the utility sector to the thermal and retail sector at increased prices, a trend that, should it continue, may lead to short- and medium-term opportunities for the Partnership.

Strong growth is also materializing elsewhere, particularly in Asia. Japan continues to confirm its commitment to reducing emissions, and officially ratified the Paris Climate Agreement last fall. The Japanese market has two material segments. First, the country has enacted a 20-year feed-in tariff system to create incremental renewable generation, distributed throughout the Japanese island to better generate power where it is needed in a suboptimal transmission system. These typically 50 to 100 megawatt newbuilds are sponsored by utilities and independent power producers, often in joint ventures with major trading houses, and are expected to support long-term off-take contracts for wood pellets for numerous projects around the country.

Projects totaling 3.2 gigawatts have already been approved through Japan's FIT system, employing market demand of more than 10 million metric tons. And many other projects are either awaiting approval or expected to apply prior to the deadline for the 2017 awards later this fall. The other major segment in the Japanese market is driven by co-firing plans at the major utilities, who are seeking to comply with increasingly restrictive emissions requirements for their large coal and fossil fuel fired baseload generating fleet. This segment looks and feels like the European model. And several large creditworthy sponsors, like J-Power, have announced projects in Japan.

In South Korea, there have been several new large-scale biomass projects announced, increasing the potential demand there to 6 million metric tons by 2020 which is expected to shift the market mechanic for fulfilling demand from short-term tenders towards long-term contracts as consumers require a reliable, price-certain, on-time supply.

And while it is early in its development, China has made several announcements that could quickly create a large market for wood pellets, notably the plan to spend at least $360 billion on renewable energy through 2030, and increase biomass-fired generation to 15 gigawatts. As one of the largest importers of wood and pulp in the world, Chinese demand for wood pellets is expected to be principally imported.

With the strong tailwinds the industry is experiencing, we're expecting to even further extend our contracted position, as well as add to our customer diversification. In addition, our sponsor is preparing for the next tranche of demand growth which is expected to facilitate the need for additional production plants. It is progressing through the detailed design phase for the build and copy production plant we have permitted in Hamlet County, North Carolina; and continuing to evaluate additional plant and port sites in Mississippi and Alabama; as well as sites positioned around the existing terminal capacity, at the Port of Chesapeake and the Port of Wilmington.

As the markets in Europe and Asia continue to grow, we've also recognized the need for port and storage infrastructure to profitably facilitate the distribution of wood pellets in those markets.

As I started the call, we are pleased with 2016: solid operating performance and financial results, strong growth in the durable cash flows of the Partnership, and further length in our contracted position with new customers. With the strong operating performance by our fleet of production and terminaling facilities underpinning the business, and the highly visible growth opportunities in front of us, I expect 2017 to be another busy and successful year.

A hallmark of Enviva's culture saying what we are going to do, going out and doing it, and likely doing a little bit better. To recap, for 2017, we intend to extend and diversify our customer base, including a foothold in Japan; grow EBITDA organically through productivity and cost reduction; deliver adjusted EBITDA of $110 million to $114 million; distribute at least $2.35 per unit; and pursue the acquisition of the Port of Wilmington from our sponsor; and look to take advantage of unanticipated opportunities in the market.

Thank you all for listening. As we close, I would like you to join me in thanking all the dedicated Enviva associates for their hard work, resulting in another strong year, doing exactly what we said and laying the foundation for what we will do this coming year.

Operator, can you please open the line to questions?

Question-and-Answer Session


[Operator Instructions]. And the first question comes from John Ragozzino from Drexel Hamilton.

John Ragozzino

Just a couple housekeeping items, real quick. The guidance for 2017, that does not include the contribution from Wilmington. But let's assume that that took a second-quarter drop or event. Can you kind of give me a rough idea of how confident we are timing that solution?

Steve Reeves

The last part of your question kind of faded out a little bit. But if your question is kind of the timing of the port, kind of the midyear assumption I think is appropriate.

John Ragozzino

Okay perfect. That's exactly what I asked. And then also on the maintenance CapEx, the run rate for the fourth quarter implied a fairly significant increase. It's 2 times what you are guiding to for 2017. Is there something going on there? Should we expect that to be down quarter-over-quarter for the first quarter of 2017? And how should we think about it in terms of a sequential increase? Is it going to be likely flat or a little more lumpy?

Steve Reeves

Sure, yes. I think for 2017, we've guided to $5 million, with the addition of the Sampson facility. What happened in the fourth quarter was we made a business decision to add some spare parts to our inventory which gets captured and maintenance CapEx. And that was just largely to facilitate efficiency during down times and as we do regular maintenance. So it's not indicative of an ongoing trend.

John Ragozzino

Okay, that's helpful. Thank you. And then just one more thing. John, maybe you can help expand a little bit on the trends in the Netherlands and what the demand implications are, given the €2.1 billion of incentives allocated to coal-fired conversions. You may have touched on it, but I cut out for a minute there in the call.

John Keppler

That's great. The Netherlands has been a real leader in the broader European market on elimination of coal. They have been very direct in saying, we want to migrate completely away from coal, and it working with the generating set through the SDE+ program to both co-fire biomass and think about where the long-term coal shutdowns can occur. And what's happened here over the last several years is you've seen some material essentially SDE+ awards to people like RWE, Uniper, Engie, the major generators to incent co-firing to displace coal.

I think the broader market estimates would suggest that that's a 3 million-plus tons per-year market. It's complemented by the industrial activities, the large steam users that are typically combined heat and power plants that are also increasingly migrating away from coal, away from oil, in favor of biomass-fired commodity and power generation. So the market estimates we see, the sort of customer talk that we are engaged in would suggest that that's a 3 million to 5 million ton market for the foreseeable future, really with those conversions underway late 2017, 2018.

John Ragozzino

That's extremely helpful. Just one more: any preliminary discussions with J-Power in Japan?

John Keppler

I can't comment about any specific customer. But I spent a lot of time in Japan. We talked last quarter about the in-country presence we're building. I've got a tremendous amount of frequent flyer miles building up on those trips. We are pretty excited about that market. The segmentation that's occurring is quite remarkable. Again, they've got the feed-in tariff system which is really incenting a new capacity dealing with the limited nuclear restart, the limited generation capacity that they have, meaning that that demand profile, great renewables filling that need.

The biomass adoption rate is very high there. Again, projects there; new builds; 2019, 2020 conversion; intermediated by trading houses, so strong credits; we are very excited about that. The other big segment, the large utilities, feels a lot like Europe. Again, these are major utilities, major generating stations, looking to co-fire biomass over a very long period of time. Again, these are agreements that, given the FIT system, can extend as far out as 2040.

John Ragozzino

All right, thanks so much. That was very helpful, guys.


And the next question comes from Poe Fratt of D.A. Davidson.

Poe Fratt

Steve, if you could just sort of highlight just your plans for distribution growth. As far as timing, you implied that after the full first quarter of drop, you'd see an increase and then it would be you'd smooth it after there. Can you give us a little more color on sort of the progression of quarterly distributions over the next, over the year?

Steve Reeves

Sure, yes. So I think maybe the way to think about it, and obviously it's ultimately a Board decision, but our first quarter is typically our lightest quarter of the year for the seasonal factors we've articulated previously. So as you fully realize the benefit of Sampson, you should probably look towards the final three quarters of the year for the substantial portion of that step up from $2.10 to $2.35, bearing in mind that we, as a policy, like to increase our dividend every quarter on quarter.

Poe Fratt

Great. And then John, you talked about distressed assets out there. Can you quantify the amount of capacity that you classify as distressed? And then could you highlight some of the fatal flaws, as you see them, when you have looked at these plants?

John Keppler

Sure. Again, if you really look at the most broadly defined market for wood pellets, you could probably say that there are hundreds of plants in the United States that -- and abroad -- that constitute a wood pellet plant. I think from our perspective, you'd be focused on the large-scale industrial plants that can achieve scale based on a solid build, a good location, and a relatively good operating profile. And what I would tell you is those are rare. We acquired the Cottondale facility several years ago because it was a great plant. It was a great set of operations, and it had a great opportunity for improvement.

The fatal flaws aren't always just build limitations. They aren't always just logistics limitations. It could be in the wrong spot. It can have the wrong contract profile against it. It can have other encumbrances that you really need to understand what it means from a long-term basis to try and operate in what is inherently a logistics business, these midstream assets, where the lowest cost position is essential to your long-term success. And much of what we have seen just doesn't meet any of those characteristics.

Poe Fratt

Can you quantify the capacity out there that you think is distressed? I mean is it 2 million, 3 million tons a year? Or sort of any color would be helpful.

John Keppler

I think you are probably in the right ZIP Code.

Poe Fratt

And then is this creating any opportunity? Just looking this week at what happened at Rentech and idling the Wawa plant, it looks like if, maybe you could just highlight it, if you've had any discussions with Drax on whether they are potentially short supply in 2017, and whether that potentially creates any opportunities for you?

Steve Reeves

Naturally, I can't talk about any particular customer, and I wouldn't care to wade into any assessment of another public company. But what I would say is that in a macro trend, where demand continues to increase and some of the inherently essential supply is no longer available, that should create opportunities both the near-term and the long-term.

Poe Fratt

But if I could just ask you about this: you quantified the CfD that was approved at the potential demand of about 2 million tons a year. The other three plants that potentially are candidates for conversion, could you quantify the potential demand there, too?

Steve Reeves

Sure. And I think that there is a long road to hoe before that would materialize. What we've seen our customer set indicate is that under the right circumstances. facing the alternative of a coal shutdown, there may be opportunities to convert incremental assets in select markets to biomass. So you could look at a unit like Drax's unit, for instance, and those are all identical units. So the math is pretty simple on what each of those would incrementally require. Although, again, I think a lot of pieces need to fall into place for that to materialize, for that company in that location.


Thank you. And the next question comes from Pavel Molchanov of Raymond James.

Pavel Molchanov

I remember three months ago, we were one week following the election. And I asked about the Clean Power Plan and what the outlook might look like for domestic adoption of pellets. Obviously there's still a lot that's in flux in Washington. But one thing that we seem to be hearing is that even though the CPP seems basically dead, federally, there are individual states that are moving forward with their de-carbonization mandates. And my question to you is in any of those jurisdictions, whether is a defined de-carbonization plan currently, are you seeing interest in pellet adoption by utilities that have not historically used them?

John Keppler

Pavel, that's a great question, and you are spot-on. I mean it doesn't take a whole lot of coal conversions to create a quite large market here in the United States. And I think you can look to the activities underway in Oregon, underway in Utah, and a selection of the Southern states that would suggest that the coal infrastructure, a co-firing model, a conversion model, is still viable here in the U.S. Although I would tell you as we've always said, most of our markets are in Europe, increasingly in Asia. The U.S. market has always been upside to the estimate. We wouldn't necessarily back off that today, and there are some interesting things happening here in the U.S.

Pavel Molchanov

Okay. Care to comment a little more on what's interesting?

Steve Reeves

I don't think any of us should get over our skis, given the continued, I think, policy-making and activities underway here in Washington.

Pavel Molchanov

Maybe I will frame it this way. Would you anticipate any U.S. utility, whether or not they are a potential customer of you specifically -- will any U.S. electric utility that's currently decommissioning coal be a viable candidate for pellets, prior to the end of this decade?

John Keppler

Absolutely. And I think you can look at activities underway in Oregon and Utah that would suggest that there is a keen mindset to go figure that one out.


And as there are no more questions at the present time, I would like to return the call to management for any closing comments.

John Keppler

Absolutely. Thanks, everybody, for joining us on today's call. 2016 was a great year; got a lot of things done. We are really excited about what 2017 holds, and we look forward to chatting again next quarter.


Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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