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Westlake Chemical Partners LP (NYSE:WLKP) Q2 2023 Earnings Call Transcript

Westlake Chemical Partners LP (NYSE:WLKP) Q2 2023 Earnings Call Transcript August 3, 2023

Westlake Chemical Partners LP misses on earnings expectations. Reported EPS is $0.34 EPS, expectations were $0.36.

Operator: Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, August 3, 2023. I would now like to turn the call over to today's host, Jeff Holy, Westlake Chemical Partners' Vice President and Treasurer. Sir, you may begin.

Jeff Holy : Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners' Second Quarter 2023 Conference Call. I'm joined today by Albert Chao, our President and CEO; Steve Bender, our Executive Vice President and CFO; and other members of our management team. During this call, we refer to ourselves as Westlake Partners or the partnership. References to Westlake refer to our parent company, Westlake Corporation; and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake and the Partnership, which owns certain olefins assets. Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners' MLP distributable cash flow. Definition of these terms are available on the Partnership's website.

Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs as well as assumptions made by, and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. We encourage you to learn more about these factors that could lead our actual results to differ by reviewing the cautionary statements in our regulatory filings, which are also available on our Investor Relations website. This morning, Westlake Partners issued a press release with details of our second quarter 2023 financial and operating results. This document is available in the Press Release section of our web page at wlkpartners.com.

A replay of today's call will be available beginning 2 hours after the conclusion of this call. The replay can be accessed via the Partnership's website. Please note that information reported on this call speaks only as of today, August 3, 2023, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an Internet webcast system, that can be accessed on our web page at wlkpartners.com. Now I would like to turn the call over to Albert Chao. Albert?

Albert Chao : Thank you, Jeff. Good afternoon, everyone, and thank you for joining us to discuss our second quarter 2023 results. In this morning's press release, we reported Westlake Partners' second quarter 2023 net income of $12 million or $0.34 per unit. As planned, these financial results were impacted by the 30-day planned maintenance turnaround at Calvert City that was completed in May. As a result of our Calvert City turnaround, our production and sales volumes were below the levels of both the first quarter of 2023 and the second quarter of 2022. Consequently, our second quarter of 2023 sales, net income and distributable cash flow were below both the prior quarter and prior year levels. Importantly, the Calvert City turnaround was completed as planned, and volumes, sales and cash flow returned to expected levels in June.

Looking forward, with our only planned turnaround for the year behind us, we expect financial results to improve in the third and fourth quarter of 2023 from second quarter levels. The stability of Westlake Partners' business model is consistently demonstrated through our fixed margin ethylene sales agreement, which minimizes market volatility and other production risks. The high degree of stability in cash flow, when paired with the predictability of our business, has enabled us to deliver the long history of reliable distributions and coverage. This quarter's distribution is the 36th consecutive quarterly distribution since our IPO in July of 2014 without any reductions. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter.

Steve?

Steve Bender : Thank you, Albert, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners second quarter 2023 net income of $12 million or $0.34 per unit. Consolidated net income, including OpCo's earnings, was $75 million on consolidated net sales of $264 million. The Partnership had distributable cash flow for the quarter of $15 million or $0.43 per unit. Second quarter 2023 net income for Westlake Partners of $12 million decreased by $4 million compared to second quarter 2022 Partnership net income of $16 million. Compared to the second quarter of 2022, the Partnership was impacted by lower production levels due to the planned Calvert City turnaround and higher interest expense. Distributable cash flow of $15 million for the second quarter of 2023 decreased by $5 million compared to second quarter 2022 distributable cash flow of $20 million due to the $4 million decline in net income and lower depreciation expense.

protect, clothes, work
protect, clothes, work

Marcin Balcerzak/Shutterstock.com

Turning our attention to the balance sheet and cash flows. At the end of the second quarter, we had consolidated cash and cash investments with Westlake through our investment management agreement totaling $154 million. Long-term debt at the end of the quarter was $400 million, of which $377 million was at the Partnership and the remaining $23 million was at OpCo. In the second quarter of 2023, OpCo spent $5 million on capital expenditures. We maintain our strong leverage metrics with a consolidated leverage ratio up approximately 1x. On August 1, 2023, we announced a quarterly distribution of $0.4714 per unit with respect to the second quarter of 2023. Since our IPO in 2014, the Partnership has made 36 consecutive quarterly distributions to unitholders, and we have grown distributions 71% since the Partnership's original minimum quarterly distribution of $0.275 per unit.

Partnership's second quarter distribution will be paid on August 25, 2023, to unitholders of record of August 11, 2023. The Partnership's predictable fee-based cash flow continues to prove beneficial in today's economic environment and is differentiated by the consistency of our earnings and cash flows. Looking back, since our IPO in July of 2014, we've maintained accumulative distribution -- distributable cash flow coverage in excess of 1.1x, and the Partnership's stability in cash flows, we were able to sustain our current distribution without the need to access the capital markets. For modeling purposes, we have no planned turnarounds during the remainder of 2023. Our next planned turnaround is at our Petro 1 ethylene facility in Lake Charles, Louisiana, which is currently planned for the second half of 2024, and we'll provide additional details on the turnaround once we complete our planning.

Now I'd like to turn the call back over to Albert to make some closing comments. Albert?

Albert Chao : Thank you, Steve. The partnership's financial performance in the second quarter was consistent with our expectations and historical performances during quarters when a planned turnaround occurred. Similar to those historical precedents, we expect financial performance to recover in the coming quarters now that the planned turnaround is behind us. Our ethylene sales agreement, which provides a predictable fee-based cash flow structure from our take-or-pay contract with Westlake for 95% of OpCo's production, will continue to deliver stable and predictable cash flows through economic ups and downs as well as planned and unplanned turnarounds. Turning to our capital structure. We maintain a strong balance sheet with conservative financing -- financial and leverage metrics.

As we continue to navigate market conditions, we'll evaluate opportunities via our 4 levers of growth in the future, including increases of our ownership interest of OpCo, acquisitions of other qualified income streams, organic growth opportunities, such as expansions of our current ethylene facilities, and negotiation of a higher fixed margin in our ethylene sales agreement with Westlake. We remain focused on our ability to continue to provide long-term value and distributions to our unitholders. As always, we will continue to focus on safe operations, along with being good stewards of the environment where we work and live as part of our broader sustainability efforts. Thank you very much for listening to our second quarter earnings call.

Now I'll turn the call back over to Jeff.

Jeff Holy : Thank you, Albert. Before we begin taking questions, I would like to remind you that a replay of this teleconference will be available 2 hours after the call has ended. Stacy, we will now take questions.

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