Q4 2021 Westlake Chemical Partners LP Earnings Call
A question and answer session. As a reminder, this conference is being recorded today February 22nd 2022.
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.
Thank you good afternoon, everyone and welcome to the Westlake Chemical partners fourth quarter 2021 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 referred to our parent company Westlake Corporation and references to Opco refer to Westlake chemical Opco L. P. 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 Jeff.
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.
We encourage you to learn more about the factors that could lead our actual results to differ met 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, which details our fourth quarter and full year 2021 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 replay may be accessed by dialing the following numbers domestic callers should dial 850 58592056 <unk>.
International callers may access the replay at 4045373406. The access code is 636 90 819. Please.
Please note that information reported on this call speaks only as of today February 22022, 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 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.
Thank you Jeff Good afternoon, everyone and thank you for joining us today to discuss our fourth quarter and full year 2021 results.
In this morning's press release.
<unk> record Westlake partners full year 2021, net income of $83 million.
Or $2.34 per unit.
Strong third party sales margins during the year.
And a biodiesel deficiency fee contributed to consolidated net income, including articles all $401 million.
In the second half of 2021, we completed our planned terrible at Opco Specular two facility in Lake Charles Louisiana.
Westlake Partners' financial results.
Continue to demonstrate the stability generated from our fixed margin ethylene sales agreement or 95% of annual planned production each year.
Insulating us from market volatility and other production risks.
This certainty combined with our investment grade sponsor Westlake.
This predictable earnings and stable cash flows.
This was evident despite many weather related challenges of 2021.
And the completion of a planned turnaround at Opco spent two two facility.
And we delivered solid results in sustained distributions to our unit holders.
The stable fee based cash flow generated by our fixed margin ethylene sales contract with Westlake.
Forms the foundation for us to deliver long term value to our unit holders.
As we have seen our IPO in July of 2014.
This quarters distribution is the 30th consecutive quarterly distribution since our IPO.
This high degree of cash flow stability and predictability provide for a long history of reliable distributions.
I would now like to turn a cold, but as Steve to provide more detail on the financial and operating results for the quarter Steve. Thank.
Thank you Albert and good afternoon, everyone.
This morning's press release, we reported Westlake Partners' fourth quarter 2021, net income of $30 million or 84 cents per unit Consol.
Consolidated net income, including <unk> earnings was $138 million on consolidated net sales of $330 million.
The partnership had distributable cash flow for the quarter of $15 million or <unk> 43 cents per unit.
Fourth quarter 2021, net income for Westlake partners of $30 million decreased by $15 million compared to fourth quarter 2020 partnership net income of $15 million.
<unk> benefited from a buyer deficiency fee as well as recovery of certain other costs from Westlake attributable to an unplanned outage.
Distributable cash flow of $15 million for the fourth quarter of 2021 was comparable to fourth quarter of 2020 distributable cash flow of $16 million.
For the full year of 2021 record net income of $83 million or $2.34 per unit increased by $17 million compared to full year 2020, net income of $66 million.
The increased net income attributable to the partnership was due to strong third party sales margins as well as benefits from the buyer deficiency fee and recovery of certain other costs from Westlake.
For the full year of 2021, MLP distributable cash flow was $70 million comparable to MLP distributable cash flow of $72 million for the full year of 2020.
Turning our attention to the balance sheet and cash flows at the end of the fourth quarter, we had consolidated cash balance and cash investments with Westlake to our investment management agreement totaling $106 million at.
At the end of the fourth quarter Westlake had payment obligations to opco of $110 million, representing the buyer deficiency fee for the lost production and the recovery of certain other costs.
These payment obligations will be received in 2022 under the terms of the ethylene sales agreement.
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 that up.
In 2021, Opco spent $81 million on capital expenditures, we maintained our strong leverage metrics with a consolidated leverage ratio of approximately one times.
On January 24, 2022, we announced a quarterly distribution of 47.1.
One four cents per unit with respect to the fourth quarter of 2021.
Since our IPO in 2014, the partnership has made 30 consecutive quarterly distributions to our unit holders and we have grown distributions, 71% since the partnership's original original minimum quarterly distribution of <unk> 27, and a half cents per unit.
For the full year of 2021 distributable cash flow provided coverage of one six times the declared distributions.
The partnership's fourth quarter distribution was paid on February 17, 2022.
To unit.
The unit holders of record on February three 2022.
The partners shifts 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.
The structure of our ethylene sales agreement and the associated cash flow 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.
Looking back since our IPO, we have maintained our cumulative coverage ratio above this target level further demonstrating the fortitude of our business.
For modeling purposes, we have no planned turnarounds in 2022.
Our next turnaround is that our Petro one facility in Lake Charles Louisiana, which is currently planned for 2023, and we will provide more 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 Thank you Steve.
We are pleased with the partnership's financial and operational performance through the fourth quarter and a year as a whole.
The stability of our business model and associated cash flows demonstrate a benefit of our ethylene sales agreement and its protective provisions provide the partnership's predictable long term earnings and cash flows despite both planned and unplanned production outages.
We remain optimistic about the continuing demand for ethylene driven by robust downstream dilutive it needs by our parent Westlake and a strong end use market demand and consumer products and packaging.
Our ethylene sales agreement, which provides a predictable fee based cash flow structure from a take or pay contract with Westlake.
95% of <unk> production.
We'll continue to deliver these stable and predictable cash flows.
With respect to the outlook for our third party sales.
We feel confident this should deliver healthy margins in 2022, driven by continued elevated demand and strong market fundamentals.
We maintain a strong balance sheet was conservative financial and leverage metrics.
As we continue to navigate market conditions.
Evaluate opportunities via our four 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.
<unk> sales agreement with Westlake.
We remain focused on our ability to continue to provide long term value to our unit holders.
As always we will continue to operate safely.
So with being good stewards of the environment, where we work and live.
Thank you very much for listening to our fourth quarter 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 today's teleconference will be available two hours. After the call has ended we will provide that number again at the end of the call Carmen We will now take questions.
Thank you Sorry reminder, to ask a question simply press star one on your telephone.
Draw your question press, the pound or hash key.
Please standby, while we compile the Q&A roster.
Your first question comes from the line of Steve Byrne with Bank of America. Your question. Please.
So Albert you made a comment about your expectations for increased demand for ethylene and my question for you is.
If if if the parent here Westlake was interested in expanding in.
More back integration into ethylene would that have to be initiated by by the parents or could partners raised capital and funds.
You know some expansions and if you were would it be more capital efficient to say debottleneck, one of the crackers or to acquire the other half.
The low pay cracker.
So Steve it's Steve vendor. So good question and you're right. We've got several alternatives available to us.
We have inside the partnership the three ethylene units. We also have outside the partnership Westlake Corporation has the <unk> ethylene JV.
So depending on the capital cost and the margin expectation and therefore the returns.
Westlake Corporation could consider going one of either paths or both.
So it really is a function of which path is most compelling would impact the partnership either not at all if if the parent shows go down the path with <unk> or if it chose to go down the path of Debottlenecking one of the other three ethylene units. It would work with Opco, which owns those three units to expand those facilities. So it.
Depends on which path they choose to go down.
And can you can you help me better understand what led to the surge of EBITDA in the quarter.
Yeah, so in the quarter we had.
A number of drivers we had of course, the turnaround and because of the turnaround at.
We had a.
Outage and because of that outage, we had and then the outage was extended we.
Had two issues driving the revenue growth that was both the buyer deficiency fee because there was no offtake of ethylene and so therefore, it incurred a buyer deficiency fee and of course, a shortfall fee for the maintenance cost incurred during the quarter. So it was both the buyer deficiency fees, Steve as well as the shortfall fee.
<unk>.
Those total by the way in the quarter, just about $90 million.
Okay. Thank you.
Thank you. Our next question comes from Mike <unk> with Barclays. Your question. Please.
Good afternoon guys.
Okay.
Just with all the changes going on apparel.
Yes.
Earlier this morning.
How are you thinking about the overall strategy.
Yes.
Mike you're you're a little garbled could I get you to repeat that question.
Yes, sorry about that just with all the changes going on our parent Westlake Corporation does that change at all how you're thinking about the overall strategy for Westlake partners.
No there's no change in in the structure at the partnership level the demand for ethylene that Westlake Corporation has for its various performance in our central materials businesses remain as they did irrespective of the changes at the parent level. So the the <unk>.
For ethylene and the demand that the apparent sees remains just as strong as it did prior to the re segmentation and the changes that you saw occur in 'twenty one.
Great and then secondly in regards to the potential for restarting distribution growth.
Sounded last quarter like it was mostly a valuation issue.
Is it fair to say, we're in a similar dynamic right now it looks like the enterprise has been roughly flat for the past few quarters.
Distribution growths, so relatively unlikely with where we are today.
Mike as you've assessed the market <unk> seen the market continues to reward value players and I think the presentation of the results this quarter.
Illustrate the benefits of the partnership as a value.
MLP delivering that consistency and predictability, we certainly stand ready to provide growth in the various four levers that we have which is additional interest in opco increase our margin arrangement with apparent increased production capacity as well as an accretive M&A opportunity, but as I said the market.
It's still rewarding those that are really demonstrating value and so we certainly stand ready if the market stands ready to reward.
For that that growth.
Mike.
Are there any other questions.
All right.
Our next question is from Matthew Blair with Tudor Pickering Holt Your question. Please.
Good morning, Albert and Steve.
Hi, Matthew how are you.
Good good thanks.
The $110 million of obligations.
Is that is repaid does that act as a headwind on earnings per unit for Westlake LP in 2022, and what's the cadence of that repayment liquid it'd be pretty pretty much in Q1, 2022 or would it be spread out evenly throughout the year, yes.
It does not provide any headwind whatsoever to the earnings profile of the partnership and that $110 million is made up as I mentioned earlier of our buyer deficiency fee and a shortfall fee.
As you know the buyer a deficiency fee is arises.
Arises when there is an extended outage or an unplanned outage and as a consequence of lack of uptake by Westlake Corporation.
And that fee is paid in the following.
A new year and so that fee has already been paid.
And then of course, the shortfall fee is any cost that may be associated with the production of ethylene and those are spread out over the course of the 12 months in the calendar year of 2022 and that just translates into higher costs pass back to Westlake Corporation. The margin for the partnership remains as it is.
So there is no headwind there on the shortfall fee nor is there any headwind on this buyer deficiency fee.
Okay. That's helpful and then.
Steve You mentioned earlier that you stand ready to.
Provide growth, but that's what the market wants.
I mean, it does look like your yield around 7% is that a premium compared to <unk>.
Recent averages.
How would you assess the availability of equity capital like do you feel you could cap MLP.
MLP markets, if you wanted to add.
And I guess, how would you think about the structure of a drop would it be 50 50 debt equity or do you think you could do a dropped all at all on the debt side.
So Matthew we did observe a number of transactions that occurred in 2021. These were all in the MLP space and they were at discounts that we thought were relatively elevated.
But certainly as we think about transactions via a dropdown or whether it be a contract renegotiation of that tencent margin or production capacity increases.
Or an acquisition of some of the interest in La Z by Opco those can be done with both leverage as well as with equity taps into the market. It's really a function of can we make it an accretive transaction for both parties Westway Corporation and the partnership.
And will the market reward that with growth of the unit price.
Accordingly.
And that as I said as I mentioned earlier, the market seems to still be rewarding value players in this space and so if we do see that pivot back to those who are growing their distribution. Then it certainly is of interest and capability for us to continue to grow that distribution.
Great. Thank you very much.
Youre welcome.
Thank you and at this time the Q&A session has now ended I will now turn the call back over to Jeff Holly.
Thank you. 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 2022 results.
Yes.
Thank you for participating in today's squeak snake 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 and May ask may be accessed until 11 59 P. M. Eastern time on Tuesday March 20.
2022 the replay can be accessed by calling the following numbers domestic callers should dial 8558592056 international callers may access the replay at 4045373 for series six.
The access code is 6369819 days.
This will conclude today's call.
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