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Enviva Inc (EVVAQ)
:EVVAQ
Risk Overview Q4, 2023
Risk Distribution
33% Legal & Regulatory
29% Finance & Corporate
18% Production
14% Ability to Sell
4% Macro & Political
2% Tech & Innovation
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Enviva Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q4, 2023
Main Risk Category
Legal & Regulatory
With 17 Risks
Legal & Regulatory
With 17 Risks
Number of Disclosed Risks
51
+9
From last reportS&P 500 Average: 31
51
+9
From last reportS&P 500 Average: 31
Recent Changes
20Risks added
11Risks removed
4Risks changed
Since Dec 2023
20Risks added
11Risks removed
4Risks changed
Since Dec 2023
Number of Risk Changed
4
No changes from last report
S&P 500 Average: 3
4
No changes from last report
S&P 500 Average: 3
See the risk highlights of Enviva in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 51
Legal & Regulatory
Total Risks: 17/51 (33%)Above Sector Average
Regulation3 | 5.9%
Regulation - Risk 1
Federal, state, and local legislative and regulatory initiatives relating to forestry products and the potential for related litigation could result in increased costs and additional operating restrictions and delays, which could cause a decline in the demand for our products and negatively impact our business, financial condition, and results of operations.Regulation - Risk 2
Challenges to or delays in the issuance of air permits, or our failure to comply with our permits, could impair our operations and ability to expand our production.Our plants are subject to the requirements of the Clean Air Act and must either receive minor source permits from the states in which they are located or a major source permit, which the U.S. EPA has the right to object to if it determines any proposed permit is not in compliance with applicable requirements. In general, our facilities are eligible for minor source permits following the application of pollution control technologies. However, we could experience substantial delays with respect to obtaining such permits, including as a result of any challenges issuing such permits to the Company or other factors, which could impair our ability to operate our wood pellet production plants or expand our production capacity. In addition, any new air permits we receive could require that we incur additional expenses to install emissions control technologies or limit our operations. Such new permits could also impede our ability to satisfy emission limitations and/or stringent testing requirements to demonstrate compliance therewith. Failure to meet such requirements could have a material adverse effect on our results of operations, business and financial position.
Regulation - Risk 3
The DIP Facility is only available if we satisfy certain conditions and imposes significant restrictions on our operationsAdded
Proceeds of the DIP Facility may be used only in connection with an approved budget (adjusted for agreed variances). The DIP Facility will be made available in up to five draws, with the first draw occurring substantially contemporaneously with entry of the Interim DIP Order and the up to four additional draws subject to entry of the Final DIP Order. Each draw is subject to the satisfaction of certain conditions under the DIP Credit Agreement, including compliance with meeting the milestones required by the RSA. Borrowings under the DIP Facility bear interest at a rate equal to, at the Company's option, (i) the alternate base rate plus 7% per annum or (ii) the adjusted SOFR rate plus 8% per annum. The Debtors are required to pay certain other agreed fees to the DIP Creditors and the agents under the DIP Credit Agreement. The DIP Credit Agreement contains usual and customary affirmative and negative covenants and events of default for transactions of this type. In addition, the Debtors are required to maintain a minimum liquidity of $30.0 million. There can be no assurance that funding sources will continue to be available, as our ability to generate cash flows from operations and our ability to continue to access the DIP Facility may be impacted by a variety of business, economic, legislative, financial, and other factors, which may be outside of our control.
Litigation & Legal Liabilities8 | 15.7%
Litigation & Legal Liabilities - Risk 1
Our business is subject to risks related to legal proceedings and governmental inquiries.Litigation & Legal Liabilities - Risk 2
Termination penalties within our off-take contracts may not fully compensate us for our total economic losses.Certain of our off-take contracts provide the customer with a right of termination for various events of convenience or changes in law or policy. Although some of these contracts are subject to certain protective termination payments, the termination payments made by our customers may not fully compensate us for losses. In addition, if a contract is terminated due to financial distress of the counterparty, we may be unable to receive all or a portion of the compensation due to us under these contracts. We may be unable to re-contract our production at favorable prices or at all, and our results of operations, business and financial position, may be materially adversely affected as a result.
Litigation & Legal Liabilities - Risk 3
The Chapter 11 Cases limit the flexibility of our management team in running our business.Added
While we operate our businesses as debtor-in-possession under supervision by the Bankruptcy Court, we are required to obtain the approval of the Bankruptcy Court, and in some cases certain lenders, prior to engaging in activities or transactions outside the ordinary course of business. Bankruptcy Court approval of non-ordinary course activities entails preparation and filing of appropriate motions with the Bankruptcy Court, negotiation with the various creditors' committees and other parties-in-interest, and one or more hearings. The creditors' committees and other parties-in-interest may be heard at any Bankruptcy Court hearing and may raise objections with respect to these motions. This process may delay major transactions and limit our ability to respond quickly to opportunities and events. Furthermore, in the event the Bankruptcy Court does not approve a proposed activity or transaction, we would be prevented from engaging in activities and transactions that we believe are beneficial to us.
Litigation & Legal Liabilities - Risk 4
We may be subject to claims that will not be discharged in the Chapter 11 Cases, which could have a material adverse effect on our business, cash flows, liquidity, financial condition and results of operations.Added
The Bankruptcy Code provides, subject to certain limited exceptions, that the confirmation of a plan of reorganization pursuant to Chapter 11 may discharge a debtor from, among other things, substantially all debts arising prior to consummation of a plan of reorganization. Except where otherwise contemplated by the Plan, it is expected that claims against the Debtors that arose prior to March 12, 2024 or before consummation of the Plan would be subject to discharge pursuant to confirmation of the Plan. It is possible, however, that certain claims may not be subject to discharge or that parties in subsequent litigation could argue that they were not ultimately discharged. Such claims could be asserted against the reorganized entities and may have an adverse effect on our business, cash flows, liquidity, financial condition, and results of operations on a post-reorganization basis.
Litigation & Legal Liabilities - Risk 5
As a result of the Chapter 11 Cases, our historical financial information may not be indicative of our future performance, which may be volatile.Added
During the Chapter 11 Cases, we expect our financial results to continue to be volatile as restructuring activities and expenses impact our consolidated financial statements. As a result, our historical financial performance is likely not indicative of our financial performance after the date of the filing of the Chapter 11 Cases. In addition, if we emerge from Chapter 11, the amounts reported in subsequent consolidated financial statements may materially change relative to our historical consolidated financial statements. We also will be required to adopt fresh start accounting, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our historical consolidated balance sheets. Our financial results after the application of fresh start accounting may be different from historical trends.
Litigation & Legal Liabilities - Risk 6
In certain limited instances, a Chapter 11 case may be converted to a case under Chapter 7 of the Bankruptcy Code.Added
Upon a showing of cause, the Bankruptcy Court may convert the Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution to our creditors in accordance with the priorities established by the Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our creditors than those provided for in the Plan because of: (i) the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern; (ii) additional administrative expenses involved in the appointment of a Chapter 7 trustee; and (iii) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation and from the rejection of executory contracts in connection with a cessation of operations.
Litigation & Legal Liabilities - Risk 7
The Chapter 11 Cases may have a material adverse impact on our business, financial condition, and results of operations.Added
As previously disclosed, we engaged legal and financial advisors to assist us in evaluating potential strategic alternatives available to us to reduce or restructure our outstanding indebtedness. These efforts led to the execution of the RSAs and the commencement of the Chapter 11 Cases on March 12, 2024. The Chapter 11 Cases are ongoing.
The Chapter 11 Cases could have a material adverse effect on our business, financial condition, and results of operations. So long as the Chapter 11 Cases continue, our management will be required to spend a significant amount of time and effort focused on the restructuring, which may limit their ability to focus on our ongoing business operations. Bankruptcy Court protection and operating as debtors-in-possession also may make it more difficult to retain management and the key personnel necessary to the success of the business. In addition, during the pendency of the Chapter 11 Cases, our customers and suppliers may lose confidence in our ability to reorganize our business successfully and may seek to establish alternative commercial relationships, renegotiate the terms of our agreements, terminate their relationships with us, or require financial assurances from us. Customers may lose confidence in our ability to provide them the quality of product and level of service they expect, resulting in a significant decline in our revenues, profitability, and cash flow.
Other significant risks include or relate to the following:
- the effects of the filing of the Chapter 11 Cases on our business and the interests of various constituents, including our stockholders;- Bankruptcy Court rulings in the Chapter 11 Cases, including with respect to our motions and applications and third-party motions, as well as the outcome of other pending litigation;- our ability to operate within the restrictions and the liquidity limitations of the DIP Credit Agreement and any related orders entered by the Bankruptcy Court in connection with the Chapter 11 Cases;- our ability to maintain strategic control as debtor-in-possession during the pendency of the Chapter 11 Cases;- the length of time that we will operate with Chapter 11 protection and the continued availability of operating capital during the pendency of the Chapter 11 Cases;- increased advisory costs during the pendency of the Chapter 11 Cases;- the risks associated with restrictions on our ability to pursue some of our business strategies during the pendency of the Chapter 11 Cases;- our ability to complete the financing and to satisfy all other conditions to consummation of the Plan;- the potential adverse effects of the Chapter 11 Cases on our business, cash flows, liquidity, financial condition, and results of operations;- the ultimate outcome of the Chapter 11 Cases in general;- the ultimate treatment of our existing equity in the Chapter 11 Cases;- the potential material adverse effects of claims, if any, that are not discharged in the Chapter 11 Cases;- uncertainties regarding the reactions of our customers, prospective customers, suppliers, and service providers to the Chapter 11 Cases;- uncertainties regarding our ability to retain and motivate key personnel;- uncertainties and continuing risks associated with our ability to achieve our stated goals and continue as a going concern;- employee attrition and our ability to retain senior management and other key personnel due to distractions and uncertainties associated with the Chapter 11 Cases, including our ability to provide adequate compensation and benefits during the Chapter 11 Cases; and - we may experience employee attrition as a result of the Chapter 11 Cases.
Further, under Chapter 11, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond in a timely manner to certain events or take advantage of certain opportunities or to adapt to changing market or industry conditions.
Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 Cases may have on our business, cash flows, liquidity, financial condition, and results of operations, nor can we provide any assurance as to our ability to continue as a going concern.
As a result of the Chapter 11 Cases, realization of assets and liabilities are subject to uncertainty. While operating under the protection of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, we may sell or otherwise dispose of assets or liquidate or settle liabilities for amounts other than those reflected in our consolidated financial statements.
As a result of the Chapter 11 Cases, we may experience employee attrition, and our employees may face considerable distraction and uncertainty. Our ability to engage, motivate, and retain key employees or take other measures intended to motivate and incentivize key employees to remain with us through the pendency of the Chapter 11 Cases is limited by restrictions on the implementation of incentive programs under the Bankruptcy Code. The loss of services of members of our senior management team could impair our ability to execute our business strategies and implement operational initiatives, which may have a material adverse effect on our business, cash flows, liquidity, financial condition, and results of operations.
While we have maintained our operations as "debtor in possession" since the Chapter 11 Cases were filed, the filing of the
Chapter 11 Cases and related changes have been disruptive to our employees. In addition, we have undertaken, and may undertake in the future, restructuring, reorganization, or other strategic initiatives and business transformation plans. As a result of these restructuring initiatives, we may experience a loss of continuity, loss of accumulated knowledge and proficiency, loss of key employees, and/or other retention issues during transitional periods. Further, reorganization and restructuring can impact a significant amount of management and other employees' time and focus, which may divert attention from operating and growing our business.
Litigation & Legal Liabilities - Risk 8
Delays in the Chapter 11 Cases may increase the risks of our being unable to reorganize our business and emerge from bankruptcy and increase our costs associated with the bankruptcy process.Added
There can be no assurance that the Plan will become effective in accordance with its terms on the timeline we anticipate or at all. Prolonged Chapter 11 proceedings could adversely affect our relationships with customers, subcontractors, suppliers, and employees, among other parties, which in turn could adversely affect our business, competitive position, financial condition, liquidity, and results of operations and our ability to continue as a going concern. A weakening of our financial condition, liquidity, and results of operations could adversely affect our ability to implement the Plan (or any other Chapter 11 plan of reorganization). If we are unable to consummate the Plan (or any other Chapter 11 plan of reorganization), we may be forced to liquidate our assets.
Taxation & Government Incentives2 | 3.9%
Taxation & Government Incentives - Risk 1
Changes to applicable tax laws and regulations or exposure to additional tax liabilities could affect our business, cash flows, and future profitability.Taxation & Government Incentives - Risk 2
As a result of the implementation of the Plan, our ability to utilize our net operating loss carryforwards and certain other tax attributes to reduce our income tax obligations may be subject to limitation under Section 382 of the Internal Revenue Code.Added
Under U.S. federal income tax law, a corporation is generally permitted to offset all or a portion of its net taxable income in a given year with net operating losses carried forward from prior years. As of December 31, 2023, we had U.S. federal net operating loss carryforwards of approximately $407.1 million. Our ability to utilize our net operating loss carryforwards and certain other tax attributes to offset future taxable income and reduce U.S. federal income tax liability is subject to certain requirements and restrictions. In particular, if we experience an "ownership change," as defined in section 382 of the U.S. Internal Revenue Code (generally, a cumulative change of ownership of greater than 50% of our capital stock over a three-year testing period), then our ability to use our net operating loss carryforwards and certain other tax attributes may be substantially limited, which could have a negative impact on our financial position and results of operations.
We expect that we may undergo an ownership change under Section 382 of the U.S. Internal Revenue Code in connection with the consummation of the Plan. On April 12, 2024, the Bankruptcy Court entered an order that sets forth procedures (including notice requirements) with which certain existing and potential shareholders must comply regarding transfers of, or declarations of worthlessness with respect to, our common stock, as well as certain obligations with respect to notifying us of current share ownership (the "Stock Procedures"). The Stock Procedures are designed to protect our net operating loss carryforwards (and other tax attributes) from the effect of a premature ownership change and to preserve our ability to rely on certain favorable rules that can apply to ownership changes occurring in connection with the implementation of the Plan. However, there is no assurance that the Stock Procedures will prevent all transfers or declarations of worthlessness that could result in such an ownership change.
In addition, our net operating losses (and certain other tax attributes) will be reduced by the amount of any cancellation of indebtedness income we recognize as a result of the implementation of the Plan. As such, at this time, there can be no assurance regarding the amount of net operating loss carryforwards and other tax attributes that will be available to offset future taxable income.
Environmental / Social4 | 7.8%
Environmental / Social - Risk 1
Increasing attention to ESG matters could adversely affect our business.Changed
Environmental / Social - Risk 2
Our business is subject to privacy and data protection legislation compliance risks.We are subject to a variety of federal, state and local laws, directives, rules, and policies relating to privacy and the collection, protection, use, retention, security, disclosure, transfer, and other processing of personal data and other data. The regulatory framework for data privacy and security worldwide is continuously evolving and developing and, as a result,interpretation, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. The European Union, e.g., has enacted the General Data Protection Regulation (EU 2016/679) (the "EU GDPR"). The United Kingdom has implemented the Data Protection Act 2018 and the EU GDPR as it forms part of the laws of England and Wales, Scotland, and Northern Ireland by virtue of section 3 of the European Union (Withdrawal) Act 2018 (the "UK GDPR"), each of which (to the extent such laws apply) broadly impacts businesses that handle various types of personal data, including employee personal data.
Environmental / Social - Risk 3
Changes in laws or government policies, incentives, and taxes related to low-carbon and renewable energy may affect customer demand for our products.Consumers of utility-grade wood pellets currently use our products either as part of a binding obligation to generate a certain percentage of renewable energy or because they receive direct or indirect financial support or incentives to do so. Financial support is often necessary to cover the generally higher costs of wood pellets compared to conventional fossil fuels like coal. In most countries, once the government implements a tax (e.g., the U.K.'s carbon price floor tax) or a preferable tariff or specific renewable energy policy either supporting a renewable energy generator or the energy generating sector as a whole, such tax, tariff, or policy is guaranteed for a specified period of time, sometimes for the investment lifetime of a generator's project. However, governmental policies that currently support the use of biomass may adversely modify their tax, tariff, or incentive regimes, and the future availability of such taxes, tariffs, or incentive regimes, either in current jurisdictions beyond the prescribed timeframes or in new jurisdictions, is uncertain. Demand for wood pellets could be substantially lower than expected if government support is removed, reduced, or delayed or, in the future, is insufficient to enable successful deployment of biomass power at the levels currently projected.
In addition, regulatory changes such as new requirements to install additional pollution control technology could require us to curtail or amend operations to meet new GHG and other emission limits. This may also affect demand for our products in addition to increasing our operational costs. Regulatory directives may require certain biomass standards to be satisfied in order for our customers to capture any available direct or indirect regulatory incentives from the use of our products. This typically is implemented through biomass sustainability criteria, which either are a mandatory element of eligibility for financial subsidies to biomass energy generators or may be expected to become mandatory in the future. For more information, see our risk factor titled "Changes in the treatment of biomass could adversely impact our business." As a biomass fuel supplier, the viability of our business is therefore dependent on our ability to comply with such requirements. These requirements may restrict the types of biomass we can use and the geographic regions from which we source our raw materials and may require us to reduce GHG emissions associated with our supply and production processes.
Currently, some criteria with which we must comply, including rules relating to certain customer regulatory requirements, forestry best management practices, future adaption of climate smart forestry techniques and carbon accounting, are under revision. If different sustainability requirements are adopted in the future, demand for our products could be materially reduced in certain markets, and our results of operations, business and financial position, may be materially adversely affected.
Environmental / Social - Risk 4
Our operations are subject to stringent environmental and occupational health and safety laws and regulations that may expose us to significant costs and liabilities.Our operations are subject to stringent federal, regional, state, and local environmental, health, and safety laws and regulations. These laws and regulations govern environmental protection, occupational health and safety, the release or discharge of materials into the environment, air emissions, wastewater discharges, the investigation and remediation of contaminated sites, and allocation of liability for cleanup of such sites. These laws and regulations may restrict or impact our business in many ways, including by requiring us to acquire permits or other approvals to conduct regulated activities, limiting our air emissions or wastewater discharges or requiring us to install costly equipment to control, reduce, or treat such emissions or discharges and impacting our ability to modify or expand our operations. We may be required to make significant capital and operating expenditures to comply with these laws and regulations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil, and criminal penalties, imposition of investigatory or remedial obligations, suspension or revocation of permits, and the issuance of orders limiting or prohibiting some or all of our operations. Adoption of new or modified environmental laws and regulations may impair the operation of our business, delay or prevent expansion of existing facilities or construction of new facilities, and otherwise result in increased costs and liabilities, which may be material.
Finance & Corporate
Total Risks: 15/51 (29%)Above Sector Average
Share Price & Shareholder Rights4 | 7.8%
Share Price & Shareholder Rights - Risk 1
The corporate opportunity provisions in our certificate of incorporation could enable affiliates of ours to benefit from corporate opportunities that might otherwise be available to us.Share Price & Shareholder Rights - Risk 2
Upon emergence from bankruptcy, the equity interests in the reorganized company may not be listed on the NYSE or any other stock exchange and we may no longer be a SEC reporting company.Added
Based on the terms of the Proposed Plan, Enviva may emerge from the Chapter 11 Cases as a private company not subject to reporting requirements under Sections 12 or 15 of the Exchange Act. As a nonpublic company, the equity interests in the reorganized company and the New Warrants would not be listed on the NYSE or any other stock exchange and there can be no assurance as to the development of or liquidity of any market for such equity interests or warrants. Further, the reorganized company may enter into a stockholders agreement, which may significantly restrict trading in the equity interests. Our listing and SEC registration status upon emergence from bankruptcy are subject to negotiation with creditors, approval of the Bankruptcy Court and affirmative vote of certain parties and may change materially from the terms set forth in the Proposed Plan.
Share Price & Shareholder Rights - Risk 3
There can be no assurance that we will be able to regain compliance or comply with the continued listing standards of the New York Stock Exchange, which could result in the delisting of our securities, limit investors' ability to make transactions in our securities, and subject us to additional trading restrictions.Added
Our common stock is listed on the NYSE under the symbol "EVA." On January 23, 2024 we received a written notice from the NYSE that because the average closing price for our common stock had fallen below $1.00 per share for 30 consecutive trading days, we no longer comply with the minimum share price criteria of Section 802.01C of the NYSE Listed Company Manual (the "NYSE Manual") for continued listing on the NYSE. On April 2, 2024 we received a second written notice from the NYSE that due to the delay in filing this Annual Report on Form 10-K for the year ended December 31, 2023 with the SEC, we were no longer in compliance with Section 802.01E of the NYSE Manual. If we fail to regain compliance with Section 802.01C and Section 802.010E of the NYSE Manual during a 6-month cure period, the NYSE may commence suspension and delisting procedures.
In addition, if our total market capitalization falls below an average of $50 million for 30 consecutive trading days and we are unable to regain compliance during an 18-month cure period, the NYSE may commence suspension and delisting procedures pursuant to Section 802.01B of the NYSE Manual. As of August 30, 2024, our 30 day average market capitalization was approximately $36.0 million. Lastly, if (i) the price per share of our common stock falls to an "abnormally low price," (ii) our market capitalization falls below an average of $15 million for 30 consecutive trading days, or (iii) we choose to liquidate the Company, the NYSE may immediately commence suspension and delisting procedures pursuant to Section 802.01D, 802.01B, and 802.01D, respectively.
If the NYSE delists our common stock from trading on its exchange for failure to meet the continued listing standards, we and our stockholders could face significant material adverse consequences, including: a limited availability of market quotations for our securities; reduced liquidity for our securities; a determination that our common stock is a "penny stock," which will require brokers trading in our common stock to adhere to more stringent rules and regulations, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of our common stock; a limited amount of analyst coverage; a decreased ability to issue additional securities or obtain additional financing in the future; and a negative impact to, or termination of, our critical business relationships.
Share Price & Shareholder Rights - Risk 4
Trading in our common stock during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks and the Chapter 11 Cases may render the common stock worthless.Added
All of our indebtedness is senior in priority to the existing common stock in our capital structure. The Proposed Plan, the currently expected valuation, contemplates that the holders of equity interests, including the holders of common stock would be entitled to only a de minimis recovery. The recovery would be significantly less than the previous trading value of such existing equity interests. We expect that potential revisions to the Plan will result in equity receiving no recovery. The amount and nature of any potential recovery is subject to approval by the Bankruptcy Court and there can be no certainty that holders of equity interests will receive any recovery in the Chapter 11 Cases. Accordingly, any trading in our common stock during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risk to purchasers of our common stock.
Accounting & Financial Operations3 | 5.9%
Accounting & Financial Operations - Risk 1
The actual results achieved during the periods covered by the projections included as an exhibit to the Disclosure Statement will vary from those set forth in those projections, and such variations may be material.Added
Accounting & Financial Operations - Risk 2
Goodwill and other long-lived assets are subject to impairment risk.Added
During the fourth quarter of 2023, the Company performed an interim goodwill impairment test, which indicated that the carrying value of its sole reporting unit was above its fair value. On December 4, 2023, the Board concluded that a material charge for impairment to goodwill would be required for the fourth quarter of 2023. As a result, the Company recorded a material non-cash pretax impairment charge related to goodwill of $103.9 million in the fourth quarter of 2023.
The assessment for potential impairment of other long-lived assets requires management to make judgments on a number of significant estimates and assumptions, including projected cash flows, discount rates, and projected long-term growth rates. We may be required to record a significant charge in our consolidated financial statements during the period in which any impairment of our other long-lived assets is identified and this could negatively impact our financial condition and results of operations.
Accounting & Financial Operations - Risk 3
We identified material weaknesses in our internal control over financial reporting for the fiscal years ended December 31, 2023 and 2022. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner.Changed
In connection with the preparation of the Company's audited financial statements for the years ended December 31, 2023 and 2022, management identified multiple material weaknesses in our internal control over financial reporting whereby the Company did not design and execute controls in accordance with U.S. generally accepted accounting principles. These material weaknesses and the Company's plans to remediate those material weaknesses are described in Item 9A. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud.
We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. Even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
Debt & Financing5 | 9.8%
Debt & Financing - Risk 1
Our level of indebtedness may increase, thereby reducing our financial flexibility.Debt & Financing - Risk 2
We may be required to make substantial capital expenditures to maintain and improve our facilities.Although we currently use a portion of our cash generated from our operations to maintain, develop, and improve our assets and facilities, such investment may, over time, be insufficient to preserve the operating profile required for us to meet our planned profitability or meet the evolving quality and product specifications demanded by our customers. Moreover, our current and future construction and other capital projects may be capital-intensive or suffer cost overruns. Accordingly, if we exceed our budgeted capital expenditures and/or additional capital expenditures become necessary in the future and we are unable to execute our construction, maintenance, or improvement programs successfully, within budget, and in a timely manner, our results of operations, business and financial position, and our ability to generate cash flows, may be materially adversely affected. Our future success depends on our ability to continuously improve and upgrade our existing plants to meet customer demands while at the same time maintaining the reliability and integrity of our existing plants. We may not be able to maintain or replace key technology and infrastructure at our existing plants as quickly as we would like or in a cost-effective manner. The profitability of our business is dependent on the continuous improvement of both our supply and maintenance costs. We may not be able to continuously reduce costs as effectively as we need to increase profitability.
Debt & Financing - Risk 3
The actions of certain special interest groups could adversely impact our business.Certain special interest groups that focus on environmental issues have expressed their opposition to the use of biomass, both publicly and directly to domestic and foreign regulators, policy makers, power, heat or combined heat and power generators, and other industrial users of biomass. These groups are also actively lobbying, litigating, and undertaking other actions domestically and abroad in an effort to increase the regulation of, reduce, or eliminate the incentives and support for, or otherwise delay, interfere with, or impede the production and use of biomass for or by heat and power generators. Such efforts, if successful, could materially adversely affect our results of operations, business and financial condition.
Debt & Financing - Risk 4
Upon emergence from bankruptcy, the composition of our board of directors may change significantly.Added
The composition of our board of directors may change significantly following the Chapter 11 Cases. Any new directors may have different backgrounds, experiences, and perspectives from those individuals who previously served on our board of directors and, thus, may have different views on the issues that will determine the future of our company. As a result, our future strategy and plans may differ materially from those of the past.
Debt & Financing - Risk 5
Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.Added
We face uncertainty regarding the adequacy of our liquidity and capital resources and have extremely limited, if any, access to additional financing. In addition to the cash requirements necessary to fund our ongoing operations, we have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughout the Chapter 11 Cases. We cannot assure you that cash on hand and cash flow from operations will be sufficient to continue to fund our operations and allow us to satisfy our obligations related to the Chapter 11 Cases. Although we entered into the DIP Credit Agreement providing for an aggregate principal amount of up to $500 million pursuant to the DIP Facility in connection with the Chapter 11 Cases, we cannot assure you that such financing sources will be sufficient, that we will be able to secure additional interim financing, or adequate exit financing sufficient to meet our liquidity needs (or if sufficient funds are available, that they will be offered to us on acceptable terms).
Our liquidity, including our ability to meet our ongoing operational obligations, depends on, among other things: (i) our ability to comply with the terms and conditions of any order governing the use of cash collateral that may be entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (ii) our ability to access credit under the DIP Facility, (iii) our ability to maintain adequate cash on hand, (iv) our ability to generate cash flow from operations, (v) our ability to consummate the Plan or other alternative restructuring transaction, and (vi) the cost, duration and outcome of the Chapter 11 Cases.
Corporate Activity and Growth3 | 5.9%
Corporate Activity and Growth - Risk 1
Even if the Plan or another Chapter 11 plan of reorganization is consummated, we may not be able to achieve our stated goals.Added
Corporate Activity and Growth - Risk 2
The Plan may not become effective.Added
Even if the Plan is confirmed by the Bankruptcy Court, it may differ materially from the Plan filed by the Company and may not become effective because it is subject to the satisfaction of certain conditions precedent (some of which are beyond our control). There can be no assurance that such conditions will be satisfied and, therefore, that the Plan will become effective, and that the Debtors will emerge from the Chapter 11 Cases as contemplated by the Plan. If the Effective Date is delayed, the Debtors may not have sufficient cash available to operate their businesses. In that case, the Debtors may need new or additional post-petition financing, which may increase the cost of consummating the Plan. There can be no assurance of the terms on which such financing may be available or if such financing will be available. If the transactions contemplated by the Plan are not completed, it may become necessary to amend the Plan. The terms of any such amendment are uncertain and could result in material additional expense and result in material delays to the Chapter 11 Cases.
Corporate Activity and Growth - Risk 3
The RSA is subject to significant conditions and milestones that may be difficult for us to satisfy.Added
There are certain material conditions we must satisfy under the RSA, including the timely satisfaction of milestones in the Chapter 11 Cases, which include the consummation of the financing contemplated by the DIP Facility and other transactions contemplated by the Plan. Our ability to timely satisfy such milestones is subject to risks and uncertainties, many of which are beyond our control, and it is possible that the failure to timely complete such milestones or comply with other conditions of the RSA may give rise to termination events thereunder.
Production
Total Risks: 9/51 (18%)Above Sector Average
Manufacturing5 | 9.8%
Manufacturing - Risk 1
Changes in the treatment of biomass could adversely impact our business.Manufacturing - Risk 2
Our business is subject to operating hazards and other operational risks, which may have a material adverse effect on our business and results of operations. We may also not be adequately insured against such events.Our business could be materially adversely affected by operating hazards and other risks to our operations. We produce a combustible product that presents a risk of fires and explosions or other hazards at our plants or terminals. Any such fire or explosion could cause injury, damage production plants or disrupt production or transportation, which could adversely impact our financial results or our ability to satisfy our obligations under our customer contracts. Moreover, severe weather, such as floods, earthquakes, hurricanes, or other natural disasters, climatic phenomena, such as drought, and other catastrophic events, such as plant or shipping disasters, could impact our operations by causing damage to our facilities and equipment, affecting our ability to deliver our product to our customers and impacting our customers' ability to take delivery of our products. Floods, hurricanes, and wet conditions can damage production plants in the short term and forests in the long term, and result in increased costs associated with drying our product. Such events may also adversely affect the ability of our suppliers or service providers to provide us with the raw materials or services we require or the ability to load, transport, and unload our product.
In addition, the scientific community has concluded that severe weather will increase in frequency and intensity as result of increasing concentrations of GHGs in the Earth's atmosphere, and that climate change will have significant physical effects, including sea-level rise, increased frequency and severity of hurricanes and other storms, flooding, drought, and forest fires. We and our suppliers operate in coastal and wooded areas in geographic regions that are susceptible to such climate impacts.
We maintain insurance policies to mitigate against certain risks related to our business, in types and amounts that we believe are reasonable depending on the circumstances surrounding each identified risk; however, we may not be fully insured against all operating hazards and other operational risks incident to our business. Furthermore, we may be unable to maintain or obtain insurance of the type and amount we desire at reasonable rates, if at all. As a result of market conditions and certain claims we may make under our insurance policies, premiums and deductibles for certain of our insurance policies could escalate. In some instances, insurance could become unavailable or available only for reduced amounts of coverage or at unreasonable rates. If we were to incur a significant liability for which we are not fully insured, it could have a material adverse effect on our financial condition, results of operations, and cash available for dividends to our stockholders.
Manufacturing - Risk 3
Failure to maintain effective quality control systems at our production plants and deep-water marine terminals could have a material adverse effect on our business and operations.Our customers require a reliable supply of wood pellets that meet stringent product specifications. We have built our operations and assets to consistently deliver and certify the highest levels of product quality and performance, which is critical to the success of our business and depends significantly on the effectiveness of our quality control systems, including the design and efficacy of such systems, the success of our quality training program and our ability to ensure that our employees and contract counterparties adhere to our quality control policies and guidelines. Moreover, any significant failure or deterioration of our quality control systems could impact our ability to deliver product that meets our customers' specifications and, in turn, could lead to rejection of our product by our customers, which could have a material adverse effect on our business, financial condition, and results of operations.
Manufacturing - Risk 4
The satisfactory delivery of substantially all of our production is dependent on continuous access to infrastructure at our owned, leased, and third-party-operated terminals. Loss of access to our ports of shipment and destination, including through failure of terminal equipment and port closures, could adversely affect our financial results and cash available for dividends.Substantially all of our production is dependent on infrastructure at our owned, leased, and third-party-operated terminals. Should we or a third-party operator suffer a catastrophic failure of the equipment at these terminals or otherwise experience port closures, including for security or weather-related reasons, we could be unable to fulfill off-take obligations or incur substantial additional transportation costs, which would reduce our cash flow. Moreover, we rely on various ports of destination, as well as third parties who provide stevedoring or other services at our ports of shipment and destination or from whom we charter oceangoing vessels and crews, to transport our product to our customers. Loss of access to these ports for any reason, or failure of such third-party service providers to uphold their contractual obligations, may impact our ability to fulfill our obligations under our off-take contracts, cause interruptions to our shipping schedule and cause us to incur substantial additional transportation or other costs, all of which could have a material adverse effect on our business, financial condition, and results of operations.
Manufacturing - Risk 5
We may be unable to complete our construction projects on time, and our construction costs could increase to levels that make the return on our investment less than expected.We may face delays or unexpected developments in completing the Epes facility or future construction projects, including as a result of inflation, supply chain issues, our failure to timely obtain the equipment, services, or access to infrastructure necessary for the operation of our projects at budgeted costs, maintain all necessary rights to land access and use and/or obtain and/or maintain environmental and other permits or approvals. These circumstances could prevent our construction projects from commencing operations or from meeting our original expectations concerning timing, operational performance, the capital expenditures necessary for their completion, and the returns they will achieve. In particular, the DIP Facility and the Plan contemplate include financing to complete the Epes facility. However, the amount and allocation of those funds are subject to the progress and timing of the Chapter 11 Cases and ultimate confirmation of the Plan by the Bankruptcy Court. Any material delay in the timing of the Chapter 11 Cases or material change in the proposed funding could have a material effect on the costs and timing of the completion of the Epes facility, and such delays may result in increased costs associated with the project.
Moreover, design, development, and construction activities associated with a project may occur over an extended period of time but may generate little or no revenue or cash flow until the project is placed into commercial service. This mis-match in timing could reduce our available liquidity. For example, we had incurred construction expenses related to the construction of the Bond facility, which development was ceased in connection with the filing of the Chapter 11 Cases. Our inability to complete and transition our construction projects into financially successful operating projects on time and within budget or the failure of our projects to generate expected returns could have a material adverse impact on our liquidity, results of operations, business, and financial position.
Employment / Personnel2 | 3.9%
Employment / Personnel - Risk 1
Our business may suffer if we lose, or are unable to attract and retain, key personnel, or if we are unable to successfully adapt to the new leadership team.Employment / Personnel - Risk 2
Labor strikes or work stoppages by our employees could harm our business.As of December 31, 2023, none of our employees were represented by a labor union. However, unionization activities could occur among our employees. If employees strike, participate in a work stoppage or slowdown, or engage in other forms of labor strike, it could lead to disruptions in our business, increases in our operating costs, and constraints on our operating flexibility. Strikes, work stoppages, or an inability to negotiate collective bargaining agreements on commercially reasonable terms could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
Costs2 | 3.9%
Costs - Risk 1
Impacts to the cost or availability of transportation and other infrastructure could reduce our revenues.Costs - Risk 2
Significant increases in the cost, or decreases in the availability, of raw materials or sourced wood pellets could result in lower revenue, operating profits, and cash flows, or impede our ability to meet commitments to our customers.We purchase wood fiber from third-party landowners and other suppliers for use at our plants. Our reliance on third parties to secure wood fiber exposes us to potential price volatility and unavailability of such raw materials, and the associated costs may exceed our ability to pass through such price increases under our contracts with our customers. Further, delays or disruptions in obtaining wood fiber may result from a number of factors affecting our suppliers, including extreme weather, production or delivery disruptions, inadequate logging capacity, labor disputes, impaired financial condition of a particular supplier, the inability of suppliers to comply with regulatory or sustainability requirements, or decreased availability of raw materials. In addition, other companies, whether or not in our industry, could procure wood fiber within our procurement areas and adversely change regional market dynamics, resulting in insufficient quantities of raw material or higher prices.
Any interruption or delay in the supply of wood fiber, or our inability to obtain wood fiber at acceptable prices in a timely manner, could impair our ability to meet the demands of our customers and expand our operations.
In addition to our production, we purchase wood pellets produced by other suppliers to fulfill our obligations under our portfolio of long-term off-take contracts or take advantage of market dislocations on an opportunistic basis. Any reliance on other wood pellet producers exposes us to the risk that such suppliers will fail to satisfy their obligations to us pursuant to the associated off-take contracts, including by failing to timely meet quality specifications and volume requirements. Any such failure could increase our costs or prevent us from meeting our commitments to our customers.
The materialization of any of the foregoing risks could have an adverse effect on our results of operations, business, and financial position, and cash generated from our operations.
Ability to Sell
Total Risks: 7/51 (14%)Above Sector Average
Competition1 | 2.0%
Competition - Risk 1
We compete with other wood pellet producers and, if growth in domestic and global demand for wood pellets meets or exceeds management's expectations, the competition within our industry may grow significantly.Demand2 | 3.9%
Demand - Risk 1
Our business and operating results are subject to seasonal fluctuations.Demand - Risk 2
We expect to derive the majority of our revenues from four customers in 2024, three of which are located in Europe. If we fail to continue to diversify our customer base, our results of operations, business and financial position could be materially adversely affected.Changed
Our contracts with four customers, three of which are located in Europe and one of which is located in Japan, represent the majority of our expected product sales volumes in 2024; as a result, we face counterparty and geographic concentration risk. The ability of each of our customers to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include the overall financial condition of the counterparty, the counterparty's access to capital, delay or shutdown of the counterparty's operations due to regulatory, financial or operational challenges, the condition of the regional and global power, heat, and combined heat and power generation industry, continuing regulatory and economic support for wood pellets as a fuel source, pricing trends in the spot market for wood pellets and general economic conditions. In particular, in 2023 and 2024, certain of our counterparties experienced significant operational shutdowns of their facilities that impacted their ability to accept contracted volumes. In addition, in depressed market conditions, our customers may no longer need the amount of our products they have contracted for or may be able to obtain comparable products at a lower price. Should any counterparty fail to honor its obligations under a contract with us, we could sustain losses, which could have a material adverse effect on our business, financial condition, and results of operations.
In addition if we fail to continue to diversify our customer base geographically within and outside of Europe in the future, our results of operations, business and financial position could be materially adversely affected.
Upon the expiration of our off-take contracts, our customers may decide not to recontract on terms as favorable to us as our current contracts, or at all. For example, our current customers may acquire wood pellets from other providers that offer more competitive pricing or logistics or develop their own sources of wood pellets. Some of our customers could also exit their current business or be acquired by other companies that purchase wood pellets from other providers. The demand for wood pellets or their prevailing prices at the times at which our current off-take contracts expire may also render entry into new long-term-off-take contracts difficult or impossible.
Any reduction in the amount of wood pellets purchased by our customers or our inability to renegotiate or replace our existing contracts on economically acceptable terms, or our failure to successfully penetrate new markets within and outside of Europe in the future, could have a material adverse effect on our results of operations, business and financial position.
Sales & Marketing3 | 5.9%
Sales & Marketing - Risk 1
Our long-term off-take contracts with our customers may only partially offset certain increases in our costs or preclude us from taking advantage of relatively high wood pellet prices in the broader markets.Sales & Marketing - Risk 2
We may be unable to renegotiate our long-term contracts with our existing customers on favorable terms or at all.Added
In connection with our ongoing restructuring through Chapter 11, we are renegotiating many of our long-term contracts with the goal of improving profitability and to better protect against future inflation and other cost risks. We may be unable to complete these negotiations on the proposed terms, or at all. The Plan makes certain assumptions regarding the outcome of these negotiations. If we are unable to finalize these contracts on favorable terms, or at all, our results of operations, business and financial position, may be materially adversely affected and we may be unable to achieve the results anticipated by the projections set forth in the Plan.
Sales & Marketing - Risk 3
We are exposed to the credit risk of our contract counterparties, including the customers for our products, and any material nonpayment or nonperformance by our customers could adversely affect our financial results and cash generated from our operations.We are subject to the risk of loss resulting from nonpayment or nonperformance by our contract counterparties, including our long-term off-take customers and suppliers. Our credit procedures and policies may not be adequate to fully eliminate counterparty credit risk and we may be unable to enforce payment or performance from distressed counterparties. If we fail to adequately assess the creditworthiness of existing or future customers or suppliers, or if their creditworthiness deteriorates unexpectedly, any resulting nonpayment or nonperformance by them could have an adverse impact on our results of operations, business and financial position, and cash generated from our operations.
Brand / Reputation1 | 2.0%
Brand / Reputation - Risk 1
Adverse publicity in connection with the Chapter 11 Cases or otherwise could negatively affect our business.Added
Macro & Political
Total Risks: 2/51 (4%)Above Sector Average
International Operations1 | 2.0%
International Operations - Risk 1
The international nature of our business subjects us to a number of risks, including foreign exchange risk and unfavorable political, regulatory, and tax conditions in foreign countries.Capital Markets1 | 2.0%
Capital Markets - Risk 1
Our exposure to risks associated with foreign currency and interest rate fluctuations, as well as any hedging arrangements we may enter into to mitigate those risks, could have an adverse effect on our financial condition and results of operations.Changed
Tech & Innovation
Total Risks: 1/51 (2%)Above Sector Average
Cyber Security1 | 2.0%
Cyber Security - Risk 1
Our business is subject to cybersecurity risks.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.