Q4 2019 Earnings Call

During the presentation, all participants will be to listen only mode.

After the speaker's remarks, you'll be invited to participate in a question and answer session.

As a reminder, this conference is being recorded today February 18, 2020, I like to turn the call over to today's host, Jeff Holly Westlake Chemical partners, Vice President and Treasurer, Sir you may begin.

Thank you good morning, everyone and welcome to the Westlake Chemical partners fourth quarter and full year 2019 conference call.

I'm joined today by Albert Chao, our President and CEO, Steve Bender, our senior Vice President and CFO and other members of our management team.

The conference call will begin with Albert who will open up a few comments regarding Westlake chemical partners performance.

Well the current outlook on her strategy and opportunities.

Steve will then provide a more detailed look at her financial and operating results.

Finally, Albert will add a few concluding comments and then we'll open the call it two questions.

During this call we refer to ourselves as Westlake partners or the partnership.

References to Westlake or Westlake chemical refer to our parent company Westlake Chemical Corporation.

And references to Opco refer to Westlake chemical Opco LP.

Urea Westlake chemical and the partnership which owns certain olefins assets. Additionally, when we refer to distributable cash flow, we're referring to Westlake chemical partners MLP distributable cash flow.

Definitions of these items are available on the partnership's website.

Today management is going to discuss certain topics that will contain forward looking information.

Based on management's beliefs as well as assumptions made by an information currently available to management.

These forward looking statements suggests predictions were expectations and thus are subject to risks or uncertainties.

Actual results could differ materially based upon many factors, including operating difficulties.

Volume of ethylene that we're able to sell the price at which we were able to sell ethylene changes in the prevailing economic conditions.

Actual and proposed governmental regulatory actions.

Additive products and pricing pressures.

Our ability to borrow funds and access capital markets at a reasonable cost and other risk factors discussed interest SEC filings.

This morning, Westlake partners issued a press release with details of our fourth quarter and record 2019 financial and operating results.

Document is available in the press release section upper wet age at W. Ell K partners Dotcom.

A replay of today's call will be available beginning two hours after the conclusion of this call.

A replay may be accessed by Darling to following numbers.

Domestic callers should dial 8558 fivenine to 056.

International callers may access the replay at 4045373 406, the access code for both is 567 930 too.

Please note that information reported on this call speaks only as of today February 18th 2020, and therefore, you're 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 wife through Internet webcast system that can be accessed on our web page at W. Ell K partners Dotcom now I'd like to turn the call over to Albert Chao Albert.

Thank you, Jeff good morning, ladies and gentlemen.

And thank you for joining the let's discuss our fourth quarter and record Yeah 2019 results.

In this mornings press release.

We reported consolidated net income, including Opcos earnings of $92 million.

For the fourth quarter of 2019.

Westlake Partners' fourth quarter net income was $17 million.

In the fourth quarter of 2019, we achieved strong financial performance driven by continued strong operations although facilities.

And the acquisition of an incremental 4.5% interest of ill go by the partnership into first quarter of 2019.

Putting 19 was a very successful year for Westlake partners.

And could buy the record production across the Opco facilities.

These facilities in Louisiana and Kentucky.

Consistently ran well and above industry operating rates.

This consistent production.

When combined with the sales agreement.

Insulates us from commodity price risk.

Without investment grade rated sponsor.

Westlake chemical.

Produces exceptionally stable cash flows to drive distribution growth.

On January 27 2020.

We announced distribution of 47.14 cents per unit.

With respect to the fourth quarter of 29 team.

This represents a 6% annualized increase.

As compared to the third quarter 2019 distributions.

Since the IPO in 2014.

This is a 20 consecutive quarterly increase in distributions to unit holders.

An increase of 71%.

Over the partnership's original minimum quarterly distribution of 27.5 cents per unit.

For the 12 months ending December 31st 2019.

Distributable cash flow provided coverage of 1.13 times the declared distributions.

I will now light to turn I'll call over to Steve to provide more detail on the financial operating results for the fourth quarter Steve.

Thank you Albert and good morning, everyone.

In this mornings press release, we reported consolidated net income, including Opcos earnings of $92 million on consolidated sales of 273 million for the fourth quarter 2019.

It's like partners fourth quarter 2019, net income was $17 million or 49 cents per unit.

Hartner ship had distributable cash flow for the quarter of $19 million or 53 cents per unit.

Fourth quarter 2019, net income per Westlake partners of $17 million increased by $5 million compared to fourth quarter 2018 partnership net income of 12 million.

Distributable cash flow of $19 million for the fourth quarter of 2019 increased $4 million from fourth quarter of fourth quarter 2018, distributable cash flow.

The increase in both net income and distributable cash flow was primarily due to the 4.5% increase in ownership interest of Opco.

The partnership's fourth quarter 2019, net income of $17 million increased $2 million from third quarter 2019, net income of 15 million.

The increase in net income was attributable to higher production at Apco and higher Martin margins on third party sales.

Fourth quarter 2019, distributable cash flow night $2 million decreased $1 million from third quarter 2019, distributable cash flow of 20 million, resulting from higher maintenance capital spending.

For the 12 months of 2019, the partnership had record net income of $61 million and record MLP distributable cash flow of $73 million.

The record performance net income and distributable cash flow was driven by record production and Opco.

The increase in ownership interest of Opco and higher third party sales margins, partially offset by higher maintenance capital expenditures.

As Albert mentioned, we benefit from long term ethylene sales agreement Westlake chemical who is short ethylene for their derivative production. This take or pay agreement is 95% of our ethylene sales and protect the partnership's cash flows from the margin volatility that can be associated with the ethylene business.

The sales agreement also incentivizes us to continue to look for opportunities to increase capacity and maximize operating rates.

Turning our attention to the balance sheet and cash flows at the end of the fourth quarter, we had a consolidated cash balance of $20 million in cash invested with Westlake chemical through our investment management agreement of $163 million.

The $163 million in cash invested through the investment management agreement.

Alludes cash generated from operations throughout the quarter and the reserve for turnaround expenditures.

Long term debt at the ended the quarter was $400 million of which 377 was at the partnership and 23 million held at Apco.

For the fourth quarter of 2019, Apco spent $14 million and capital expenditures.

For the fourth quarter 2019, we maintained strong leverage metrics with a consolidated leverage ratio below one times and a net debt to cap ratio below 20%.

We are planning for turnaround of our Petro to ethylene unit, which could occur in September for later.

Turnaround and associated outage is expected to last approximately 60 days.

We will update you later in the year as we finalize our turnaround plan.

Cost for this turnaround has been included in the amounts we charge to Westlake chemical and has been reserved for.

On January 27th 2020, we announced a quarterly distributions to unit holders of 47.14 cents per unit. This distribution. We've paid on February 18, 2022 unit holders of record February Threerd 2020.

Now I'll turn the call back over to effort to make some closing comments Albert thank.

Thank you Steve.

We are pleased with the partnerships that could operational and financial performance in 2019.

As we ended 2020, we continue to reap benefits of investments made to grow our earnings cash flows and production.

While strengthening the partnership.

Duty strategic alignment with our sponsor Westlake chemical.

Furthermore, we have continued to maintaining a strong balance sheet.

Just conservative financial leverage metrics.

We intend to maintain our top tier distribution growth rate to unit holders have been flex underlying value above business.

We will continue to deliver deliver on our top tier distribution growth strategy with reduced capital market needs.

Bolstered by our strong balance sheet to deliver the long term value to our unit holders.

As we navigate the evolving market conditions.

We continue to evaluate opportunities via our four levers of growth including.

A continuation of periodic dropdowns of optical into the MLP.

Acquisitions of other qualified income stream since your Westlake interest in the L. ADC cracker.

Organic expansions of our Copeland and selling facilities.

Negotiating a higher fixed margin.

Ethylene sales agreement with Westlake.

With these four levers we have the sustainable capability to continue our history of steady growth in distributions to unit holders overtime.

In closing.

We remain excited about future prospects in front of us.

We will continue to focus on the investment thesis we have laid out.

To drive value to our unit holders.

We'll do it is while continuing to operate safely.

Along with being good stewards of the environment and the communities in which we live and work.

Thank you very much for listening to our fourth quarter 29 earnings call now I'll turn the call back over to Jeff. Thank you Albert before big begin taking questions I'd like to remind you that a replay of this teleconference will be available starting today at two PM Eastern time.

We will provide that number again at the ended the call.

Please be aware that we have also previously posted a presentation outlining our distribution philosophy.

Which is available on the partnership's web site at W. LK partners Dotcom.

Balloon, we'll now take questions.

Thank you Sir as a reminder to ask a question you would need to press star one on your telephone so withdraw your question press the pound.

Please standby, while we've compiled acumen a roster.

I show our first question comes from Matthew Blair from Tudor Pickering Holt. Please go ahead.

Hey, good morning, Albert and Steve Good morning volume.

The release mentioned.

Increased production that opco quarter over quarter can you share any detail on the overall volumes or at least the magnitude of the quarter over quarter improvement.

Yes, Matthew we havent given production numbers, specifically, but as you can see it continues to perform quite strongly and as I noted earlier, we do expect to assess the turnaround for later this year.

But I will say that we had very strong production and you can see it really drove our results for the quarter.

Indeed.

Okay, and then back in the second quarter of 26 team with the Petro one turnaround grew quarter over quarter EBITDA fell by about 20 million is that a good ballpark impact to estimate for the upcoming Petra to turnaround and I guess, it's going to be the third quarter of 2020 here.

So the way to think about the impact is really going to be the number of days of outage.

Because we've got a fixed total arrangement round the facility.

And so as you think about the turnaround and we've given guidance of approximately 60 days that really should give you guidance in terms of the margin times that production that will be lost during that that is that turnaround period.

Sounds good. Thank you you welcome.

Thank you. Our next question comes from Mike why cash from Barclays. Please go ahead.

Thanks, Good morning, again, guys just one morning, Tony on.

One quick one for me.

On the new ethylene locate stake how should we think about with central drop down into the MLP as you think about distribution growth for him forward.

Versus other dropdowns of Opco already.

So Mike we know that the unit the ethylene unit as a qualifying income stream and we've identified it over time as a potential acquisition opportunity for Apco and certainly as we consider the four levers of growth that we have certainly it would be considered as one of those levers that we'll consider as we think about growing the earnings later this year.

Got it thank you.

You're welcome.

Thank you.

Times, a cure in a session has and that I would now like turn the call back over to Jeff Holly.

Thank you again for participating in today's call. We hope you'll join US for our next conference call to discuss our first quarter 2020 results.

Thank you for participating in today's Westlake Chemical partners fourth quarter earnings Conference call. As a reminder, this call will be available for replay beginning two hours. After the call has ended.

A replay can be accessed by calling the phone numbers.

Domestic callers should dial 8558592 056.

International callers may access the replay at 404537.

Three 406.

The access code 567.

Three zero to.

This will conclude today's call goodbye.

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