Q4 2020 Westlake Chemical Partners LP Earnings Call

February 23, 2021

[music].

Good afternoon, and thank you for standing by and welcome to the Westlake Chemical partners fourth quarter 2020 earnings conference call. During the presentation, all participants will be in a listen only mode.

After the Speakers' remarks, you will be invited to participate in a question and answer session. As a reminder, this conference is being recorded today February 23rd 2021, I went and I like to turn the call over to today's host, Jeff Holy Westlake Chemical partners, Vice President and Treasurer, Sir you may begin.

Thank you Victor good afternoon, everyone and welcome to the Westlake Chemical partners fourth quarter 2020 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.

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, a subsidiary of Westlake chemical and the partnership which owns certain.

And <unk> assets. Additionally.

Additionally, when we refer to distributable cash flow, we are referring to Westlake chemical partners MLP distributable cash flow definitions 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 actual results could differ materially based upon many factors, including operating difficulties. The volume of ethylene that we are able to sell the price at which we're able to sell ethylene.

Changes and the prevailing economic conditions actual and proposed governmental regulatory actions competitive products and pricing pressures. The COVID-19 pandemic extreme weather conditions.

Our ability to borrow funds and access capital markets at a reasonable cost.

And other risk factors discussed in our SEC filings.

This morning, Westlake partners issued a press release with details of our fourth quarter and full year 2020 financial and operating results.

This document is available and the press release section of our webpage at W. LK partners Dot com.

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

The replay may be accessed by dialing the following numbers domestic.

Domestic callers should dial 855, 859, 2056 international callers may access the replay at 404 537, three 406. The access code is 390 25687.

Please note that information reported on this call speaks only as of today February 23 2021.

And therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay.

And we'll finally advise you that this conference call is being broadcast live through an internet webcast system that can be accessed on our webpage at W. L. K partners Dot Com now I would like to turn the call over to Albert Chao Albert.

Thank you, Jeff good afternoon, everyone and.

And thank you for joining us to discuss our fourth quarter and full year 2020 results.

And this morning's press release, we reported consolidated net income, including <unk> earnings.

$75 million for the fourth quarter of 2020.

What's the Big partners fourth quarter 2020, net income was $15 million or <unk> 43 per unit for.

For the full year consolidated net income was $341 million.

Westlake partners full year 2020, net income was $66 million.

This year proved to be another strong year for Westlake chemical partners.

In spite of the unprecedented challenges driven by the impacts of the COVID-19 pandemic lockdowns.

And the production outages caused by Hurricanes, Laura and Delta.

Our earnings for the year remains solid and.

Illustrating the strength of our business model.

And we will provide a brief update on the hurricanes impact and the fourth quarter.

Where the Sorrento lead flow of Hurricane Delta in October.

We either our facilities in Lake Charles Louisiana, and we're fortunate to have sustained minimal damage to our facilities.

Power was restored.

Worked quickly.

To resume operations and begin producing ethylene and.

I would like to say, especially with thank you to our dedicated employees who are vital to restarting these plants.

The solid financial results, we experienced in the fourth quarter as well as for the whole year.

And a testament to the stability generated from our fixed margin ethylene sales agreement for 95% of annual planned production each year.

And which insulates us from market volatility.

This certainty combined with our investment grade sponsor Westlake chemical.

Produces predictable earnings and stable cash flows.

I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the fourth quarter and full year of 2020, Steve. Thank you Robert and good afternoon, everyone.

And this morning's press release, we reported consolidated net income, including <unk> earnings of $75 million on consolidated sales of $246 million for the fourth quarter of 2020.

Westlake partners fourth quarter 2020, net income was $15 million or <unk> 43 per unit.

And the partnership partnership had distributable cash flow for the quarter of $16 million or <unk> 44 per unit.

Fourth quarter 2020, net income for Westlake partners was $15 million of $15 million decreased by $2 million.

Compared to fourth quarter 2019 partnership net income of $17 million.

The decrease in net income was primarily attributable to impacts from the Hurricanes and associated force majeure events for third party sales volumes and increased maintenance cost.

Partially offsetting these decreases was the benefit of the 28 million dollar buyer deficiency fee related to the loss production would have been sold or Westlake and the force majeure event not occurred.

To discuss this mechanism and more detail shortly.

Distributable cash flow of $16 million per the fourth quarter of 2020 decreased by $3 million compared to fourth quarter of 2019 distributable cash flow of $19 million.

The decrease and distributable cash flow is attributable to lower earnings increased maintenance expense and higher turnaround reserves, partially offset by the buyer deficiency fee and reduced interest expense for the quarter.

For the full year of 2020 net income for the partnership was $66 million it increased $5 million from the full year 2019, net income to the partnership of $61 million.

The increase and net income attributable to the partnership was primarily due to higher sales prices for ethylene and sold the Westlake per the terms of the ethylene sales agreement as well as the buyer deficiency fee of $70 million per.

Partially offset by lower third party sales volumes lower sales volumes to us might do to the force majeure events and increased maintenance expense.

MLP distributable cash flow of $72 million decreased $1 million from the full year of 2019 distributable cash flow of $73 million.

As we discussed last quarter the provisions in the ethylene sales agreement commit westlake to purchase and pay for a minimum amount of ethylene from opco each calendar year.

Thus insulating us from a majority of the impacts of these outages during the force majeure events.

Through this commitment Opco continues to receive a <unk> margin per pound for ethylene volumes that would have been produced plus production costs that were incurred allowing opco and in turn Westlake partners to deliver consistent earnings during these unplanned events.

The benefit of this provision provides <unk> with a buyer deficiency fee of $70 million for 2020.

This is an example of how our business model provides predictable earnings and cash flows and value to our investors.

Turning our attention to the balance sheet and cash flows at the end of the year, we had a consolidated cash and cash and invested with Westlake balanced through our investment management agreement of $140 million.

At the end of the year Westlake chemical had a payment obligation to the partnership of $70 million associated with the previously discussed buyer deficiency.

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This payment was received in January of 2021 under the terms of the sale agreement.

The long term debt at the end of the year was $400 million of which $377 million.

Was at the partnership and $23 million was that Opco.

In 2020, Opco spent $37 million on capital expenditures.

For the fourth quarter of 2020, we maintained strong leverage metrics with a consolidated leverage ratio below one times and a debt to capitalization ratio near 20%.

For modeling purposes.

And we provide and update on the planned turnaround of our Petro two unit that will begin in September of this year and is projected to last approximately.

Provision Westlake chemical partners.

You will have a large component of your return it's really a function of when when you chose to invest the K ones are life now so that you can receive those online should you choose to do that and certainly they will have they.

Been mailed within the last few days as well. So if you are looking for the mail it should be coming soon but you can also log on currently now and received electronically.

Well I bought last month from not getting a tough one but that's okay.

That's one of the advantages for investing and Master limited partnerships.

Often the distributions or not.

Current income.

So I'm sure for him.

Call or email to set up a time to go for some of these modeling issues you can certainly reach out to myself. This is Steve Bender and you can send me an email that S vendor at Westlake Dot com.

And I'll introduce you to my Treasurer, Jeff Holly and will both walk through the modeling questions that you might have.

Excellent. Thank you very much for your detailed answers to my questions.

You are quite welcome.

And at this time for Q&A session has now index.

Turning the call back for <unk>.

England.

Thank you again for participating in today's call. We hope you'll join US again for our next conference call to discuss our first quarter 2021 results.

Thank you for participating to the 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 the replay can be accessed by calling the following numbers.

Domestic callers should dial eight slide eight slide nine 206 international callers may access the replay at four zero for.

5373 for zero six.

Access code is 390 687.

This will conclude today's call goodbye.

Yeah.

Okay.

Sure.

Yes.

Okay.

[music].

Yes.

Hi.

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With regard.

[music].

Yeah.

[music].

Good afternoon, and thank you for standing by welcome.

For the Westlake Chemical partners fourth quarter 2020 earnings conference call. During the presentation, all participants will be in a listen only mode.

Our speakers remarks, you will be invited to participate in a question and answer session. As a reminder, this conference is being recorded today February 23rd 2021, I would now like to turn the call over to today's host Jeff Holy.

Chemical partners, Vice President and Treasurer, Sir you may begin.

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

For instance to Westlake for Westlake chemical refer to our parent company Westlake Chemical Corporation.

And references to Opco referred to Westlake Chemical Opco LP, a subsidiary of Westlake chemical and the partnership which owns certain olefins assets. Additionally.

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.

Changes in the prevailing economic conditions actual and proposed governmental regulatory actions competitive products and pricing pressures. The COVID-19 pandemic extreme weather conditions.

Our ability to borrow funds and access capital markets at a reasonable cost.

And other risk factors discussed in our SEC filings.

This morning, Westlake partners issued a press release with details of our fourth quarter and full year 2020 financial and operating results. This document is available in the press release section of our webpage at W. L K partners Dot com.

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

The replay may be accessed by dialing the following numbers domestic callers should dial 850, 58592 056 International callers may access the replay at for zero for 537 three for zero six the access code is 390 2568.

Seven.

Please note that information reported on this call speaks only as of today February 23, 2021 and.

And therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay.

Our finally advise you that this conference call broadcast live through an Internet webcast system that can be accessed on our webpage at W. L. K partners Dot Com now I would like to turn the call over to Albert Chao Albert.

Thank you Jeff Good afternoon, everyone and thank you for joining us to discuss our fourth quarter and full year 2020 results.

In this morning's press release, we reported consolidated net income.

Including <unk> earnings of $75 million for the first fourth quarter of 2020.

Westlake partners fourth quarter 2020, net income was $15 million or <unk> 43 per unit.

For the full year consolidated net income was $341 million.

Westlake partners for year 2020, net income was $66 million.

This year proved to be another strong year for Westlake chemical partners.

In spite of the unprecedented challenges driven by the impacts of the COVID-19 pandemic lockdowns.

And the production outages caused by Hurricanes Laura in Delta.

Our earnings for the year remains solid.

Illustrating the strength of our business model.

Let me provide a brief update on the hurricanes impact in the fourth quarter.

For the Sorretto led for a hurricane Delta in October.

We either our facilities in Lake Charles Louisiana, and we're fortunate to have sustained minimal damage to our facilities.

<unk> power was restored.

Worked quickly to resume operations and begin producing ethylene.

I would like to say, especially thank you to our dedicated employees who are vital to restarting these plants.

The solid financial results, we experienced in the fourth quarter as well as for the whole year.

A testament to the stability generated from our fixed margin ethylene sales agreement for 95% of annual planned production each year.

Which insulates us from market volatility.

This certainty combined with our investment grade sponsor Westlake chemical produces predictable earnings and stable cash flows.

I'd now like to turn our call over to Steve to provide more detail on our financial and operating results for the fourth quarter and full year of 2020, Steve.

Thank you Robert and good afternoon, everyone.

In this morning's press release, we reported consolidated net income, including <unk> earnings of $75 million on consolidated sales of $246 million for the fourth quarter of 2020.

Westlake partners fourth quarter 2020, net income was $15 million or <unk> 43 per unit.

The partnership partnership had distributable cash flow for the quarter of $16 million or <unk> 44 per unit.

Fourth quarter 2020, net income for Westlake partners was $15 million of $15 million decreased by $2 million.

Compared to fourth quarter 2019 partnership net income of $17 million.

The decrease in net income was primarily attributable to impacts from the Hurricanes and associated force majeure events for third party sales volumes and increased maintenance cost.

Partially offsetting these decreases was the benefit of the 28 million dollar buyer deficiency fee related to the loss production that would have been sold or Westlake had the force majeure event not occurred.

To discuss this mechanism in more detail shortly.

Distributable cash flow of $16 million for the fourth quarter of 2020 decreased by $3 million compared to fourth quarter of 2019 distributable cash flow of $19 million.

The decrease in distributable cash flow was attributable to lower earnings increased maintenance expense and higher turnaround reserves, partially offset by the buyer deficiency fee and reduced interest expense for the quarter.

For the full year of 2020 net income for the partnership was $66 million.

It increased $5 million from the full year 2019, net income to the partnership of $61 million.

The increase in net income attributable to the partnership was primarily due to higher sales prices for ethylene sold of Westlake per the terms of the ethylene sales agreement as well as the buyer deficiency fee of $70 million.

Partially offset by lower third party sales volumes lower sales volumes to estimate due to the force majeure events and increased maintenance expense.

MLP distributable cash flow of $72 million decreased $1 million from the full year of 2019 distributable cash flow of $73 million.

As we discussed last quarter the provisions in the ethylene sales agreement commit westlake to purchase and pay for a minimum amount of ethylene from opco each calendar year.

Thus insulating us from a majority of the impacts of these outages during the force majeure events.

The benefit of this provision provides <unk> with a buyer deficiency fee of $70 million for 2020.

This is an example of how our business model provides predictable earnings and cash flows and value to our investors.

Turning our attention to the balance sheet and cash flows at the end of the year, we had a consolidated cash and cash invested with Westlake balanced through our investment management agreement of $140 million.

At the end of the year Westlake chemical had a payment obligation to the partnership of $70 million associated with the previously discussed by a deficiency fee.

This payment was received in January 2021 under the terms of the sale agreement.

The long term debt at the end of the year was $400 million of which $377 million was at the partnership and $23 million was at Opco.

In 2020, Opco spent $37 million on capital expenditures.

For the fourth quarter of 2020, we maintained strong leverage metrics for the consolidated leverage ratio below one times and a debt to capitalization ratio near 20%.

For modeling purposes.

We provide an update on the planned turnaround of our Petro two unit that will begin in September of this year and is projected to last approximately 60 days.

The cost of this turnaround has been included in the amount we charge to Westlake chemical and will be fully reserved for at the commencement of the turnaround.

Last week extreme winter weather across much of the central and southern United States has caused widespread power outages and disrupted feedstock raw materials and utilities to some of our plants.

As a consequence several of our facilities have experienced some disruption to their operations.

We have triggered a force majeure under our ethylene sales agreement for one of our Lake Charles ethylene units and we will be benefiting from the buyer deficiency fees from Westlake chemical.

The partnership's predictable fee based cash flow continues to be attractive attribute in today's economic environment and is differentiated by the consistency of earnings and cash flows.

The structure of our ethylene sales agreement and the associated cash flow coming from this agreement allow the partnership to continue distributions at our current level, while sustaining our long term targeted one one times distribution coverage.

Thus, eliminating the need to access the equity capital markets, we will continue to evaluate market conditions and assess when and how we apply our four growth levers.

On January 25, 2021, we announced distributions of 40 714 cents per unit with respect to the fourth quarter of 2020.

Since our IPO in 2014, the partnership has made 26 consecutive quarterly distributions to our unit holders and we have grown distributions, 71% since the partnership's original minimum quarterly distribution of 27 five.

For the 12 months ending December 21, 2020, distributable cash flow provided coverage of one eight times the declared distributions.

For the fourth quarter as partnership distribution will be paid on February 19th 2021 unit record holders of February for.

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

Thank you Steve.

We are pleased with the partnership solid financial performance.

The stability of our business model was well illustrated in 2020.

Exiting sales agreement and its provisions provided us with the predictable earnings and cash flow, despite hurricanes and associated unplanned production outages.

Looking into 2021.

Main optimistic about sustained demand for ethylene driven by strong demand for polyethylene and PVC produced by our parent Westlake chemical.

Our ethylene sales agreement that provides predictable fee based cash flow structure from our take or pay contract with lesser chemical for 95% of <unk> production will continue to deliver stable and predictable cash flows.

As Steve outlined we have maintained our distribution limiting our alliance on the equity markets. We are excited about the partners future as we deliver long term value to our unit holders.

We maintain a strong balance sheet with conservative financial and leverage metrics.

As we continue to navigate market conditions.

We will reevaluate opportunities via our four levers of gross in the future, including increases 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.

<unk> sales agreement with Westlake.

We believe we have the ability to continue to provide long term value to our unit holders and can further enhance our growth utilizing our for levers as market conditions warrant.

As always we will continue to operate safely.

With being good stewards of the environment and commodities, which we work and live.

Thank you very much for listening to our fourth quarter 2000 and for the earnings call now I'll turn the call back over to Jeff. Thank you Albert before we begin taking questions I would like to remind you that a replay of this teleconference will be available today at <unk> PM Eastern time, Victor we will now take questions.

As you have 90 day.

Gentlemen to ask a question you will need to cash star one on your telephone and to withdraw your question for instance.

Thank you.

And while we compile the Q&A roster.

Our first question comes from line of Matthew Blair from Tudor Pickering, Holt you may begin.

Hey, good morning, Albert and Steve.

Good morning, good morning.

Steve You mentioned you triggered a force measure for the Lake Charles ethylene in Q1 do you think this payment will be smaller or larger than the $23 million.

That came in Q4.

We expect the unit to be up and running here in the reasonable near future and so I expect it to be smaller.

Great and then for.

The yield curve Westlake LP has improved to 8% or so.

That make you more likely to think about.

Restarting the drop program and resuming distribution growth.

We will continue to look at opportunities in the marketplace and see if those opportunities from a capital flow are there and if they are attractively financially and actionable and if there are if they are we'll continue to assess the value proposition that a drop Mike Frank.

Great. Thank you.

Okay.

Question for this line of Steve Byrne.

Bank of America.

To begin.

Yes. Thank you.

Albert you mentioned.

For levers that you have for growth here.

One of them would be to add additional assets in opco.

And I just wanted to ask about the low sales.

<unk> joint venture.

Is that an eligible assets that debt.

It could be.

Included in the Opco or the fact that the joint venture does that preclude it.

No. It does not precluded and it is an eligible asset it is possible to take our interest in that ethylene unit and contribute that into into the structure.

Structure that we have.

Again, it's something that we would call an acquisition when you think of the four levers of growth that we have available to us and as I mentioned to Matthew just a moment ago, we will continue to assess.

The interest in continuing to grow our distributions through added assets such as that and if that is viable and actionable, it's something that we'll consider.

Okay.

Youre welcome.

And once again as a reminder, our lines for questions.

And our next question comes from the line of Gen <unk> from Aviation Advisory.

May begin.

Good morning.

Thank you for taking my call.

Couple of questions first of all from.

Really both relate to modeling.

In the analysis.

You indicated that the.

Force from Azure payments, which leaves some of them from the odd million that were included in the.

For the fourth quarter financial results.

We're not actually paid until last month. So in terms of modeling them. If you look at the cash flow statement. Unlike in prior years.

Cash flow provided by operating activities more or less match that distributions to some of the distributions for the noncontrolling interest from the unit holders in the prior year cash.

Cash provided by operating activities was significantly greater than the sum of the distributions.

Is it reasonable.

Doing an analysis that we should add back to the AD for net cash provided by operating activities at 70 odd million you got from.

Westlake chemical for in terms of a force majeure payment.

Yes. It is.

Okay next accounting related.

Question for you look at the balance sheet, you have a big negative number for.

The general partner interest.

And in terms I'm wondering how to model that in terms of trying to figure out the total enterprise value of what why is that such a large negative number and as the general partner have any distribution rights that are likely to be distributed to triggered anytime soon how should I be modeling, what I'm trying to do price too.

Book to.

<unk> EBITDA, yes.

It simply reflects Westlake interest in the business and so.

It receives distributions from both auto as well as the partnership every quarter.

So youre looking at the partnership's balance sheet and it simply reflects the equity interest of the partnership that Westlake chemical has in the partnership.

Westlake is getting at this too because you have to <unk>.

<unk> lines, you have common unit holders publicly and privately held and Thats a large positive number you have common unitholder Westlake and Thats a smaller positive number and then you have general partner Westlake and Thats, a big negative number negative what didn't change year to year 242.

Negative $242 5 million.

Why is that such a large negative number and what I'm trying to calculate price TEP to epic.

Should I assign any value to the general partner interest, yes. So look at the total partnership capital is really how you should look at the total equity value of the partnership when you look at that so the total equity value here is the 900.

$15 million.

Looking at the total equity component. So it's both the Noncontrolling piece. So that's really how you should look at that and I'm happy to spend some time with you or Jeff Holly our treasurer just spend some time with the model through these if youre looking at both the balance sheet or the distributable cash flows.

Any of those numbers I'm happy to spend some time with you to go through the modeling questions you might have.

Okay, well, that's great I'll follow up.

And.

Perhaps we can set a time that's convenient for you and just one more thing because I'm only recently invest.

<unk>.

With many of the other master limited partnerships from which I have invested over the years.

When I guess the K one it typically it does it shows my share for the net income was a net loss so for all of the distributions count as a return of capital.

Our mind likely to have a similar experience as an investor in Westlake chemical partners.

You will have a large component of your return, it's really a function of when and when you chose to invest the K ones are live now so that you can receive those online should you choose to do that and certainly they will have they.

They've been mailed within the last few days as well so if youre looking for the mail it should be coming soon but you can also logon currently now and receive it electronically.

Well I bought last month from not getting a tough one but that's okay.

That's one of the advantages for investing in Master limited partnerships.

Often the distributions or not.

Current income.

So home should I.

Call or email to set up a time to go for some of these modeling issues you can certainly reach out to myself. This is Steve Bender and you can send me an email that S vendor at Westlake Dot com.

And I'll introduce you to my Treasurer, Jeff Holly and will both walk through the modeling questions that you might have.

Excellent.

You very much for your detailed answers to my questions.

You are quite welcome.

And at this time for Q&A session has now index I would like to turn the call back for Jeff.

Good morning.

Thank you again for participating in today's call. We hope you'll join US again for our next conference call to discuss our first quarter 2021 results.

Thank you for bleeding.

<unk> Westlake Chemical partners fourth quarter earnings Conference call. As a reminder, this total will be available for replay beginning two hours. After the call has ended the replay can be accessed by calling the following numbers domestic callers should dial 8589 zero.

Six <unk>.

International callers may access the replay at swarms zero for.

5373 for zero six day.

<unk>.

Is 390 687.

This will conclude today's call goodbye.

Q4 2020 Westlake Chemical Partners LP Earnings Call

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