Q2 2022 Westlake Chemical Partners LP Earnings Call

Okay.

Good afternoon. Thank you for standing by and welcome to the Westlake Chemical partners second quarter 2022 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 August 2nd 2022.

I'd now 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 Latif and good afternoon, everyone and welcome to the Westlake Chemical partners second quarter 2022 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.

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.

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 2022 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 via the partnership website.

Please note that information reported on this call speaks only as of today August <unk> 2022.

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 you, Jeff Good afternoon, everyone.

And thank you for joining us to discuss our second quarter 2022 results.

In this morning's press release, we reported Westlake Partners' second quarter 2022, net income of $16 million.

47 cents per unit.

Let's say optical benefited from strong operating performance in the second quarter across all of our ethylene units.

Which when paired with favorable third party ethylene sales margins drove consolidated net income, including <unk> of $84 million for the second quarter of 2022.

The stability of Westlake partners business model has consistently demonstrated through our fixed margin ethylene sales agreement, which minimises market volatility and other production risks.

The high degree of stability and cash flow when compared with the predictability of our business has enabled us.

To deliver the long history of reliable distributions and coverage.

This quarter's distribution.

30, <unk> consecutive quarterly distribution since our IPO.

I'd now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter Steve. Thank.

Thank you Robert and good afternoon, everyone.

In this morning's press release, we reported Westlake Partners' second quarter 2022, net income of $16 million or <unk> 47 per unit.

Consolidated net income, including <unk> earnings was $84 million on consolidated net sales of $291 million.

The partner had partnership had distributable cash flow for the quarter of $20 million or <unk> 56 per unit.

During the quarter the partnership benefited from strong production and profitable third party ethylene sales early in the second quarter.

Second quarter 2022, net income for Westlake partners decreased by $9 million compared to second quarter 2021 partnership net income of $25 million as the partnership benefited from a buyer deficiency fee of approximately $9 million in the second quarter of 2021 related to outages that occur.

Third last year.

Distributable cash flow of $20 million for the second quarter of 2022 decreased $6 million compared to second quarter of 2021 distributable cash flow of $26 million.

Resulting from the buyer deficiency fee in the second quarter of 2021, partially offset by a significantly higher production volumes and lower operating cost this quarter.

Turning our attention to the balance sheet and cash flows at the end of the second quarter, we had a consolidated cash balance and cash investments with Westlake through our investment management agreement totaling $148 million.

Consolidated debt at the end of the quarter was $400 million of which $377 million.

Gartner ship and the remaining $23 million was at Opco.

In July Opco, and the partnership extended the revolving lines of credit with Westlake for a new five year period.

Each of these mines are $600 million H and capacity are now committed to July 2000, 2027, ensuring both opco and the partnership has ample liquidity for future capital needs.

We maintained our strong leverage metrics with a consolidated leverage ratio below one times.

In the second quarter, Opco spent $12 million on capital expenditures.

Yesterday, we announced a quarterly distribution of 40 714 cents per unit with respect to the second quarter of 2002.

Since our IPO in 2014, the partnership has made 32 consecutive quarterly distributions to our unit holders and we have grown distributions by 71% since the partnership's original minimum quarterly distribution of <unk> 27 per unit.

Our quarterly distribution cash flow coverage ratio for the second quarter was $1. One eight times and is typical and expected after a planned turnaround.

Our distributable cash flow coverage fell below our one one times coverage target to 1.01 for the 12 months ending June 32022.

The partnerships second quarter distribution will be paid on August 25, 2022 to unit holders of record August 11th.

As we look forward.

We will continue to extend our distribution thesis, while remaining mindful of broad market conditions and the value of the partnership delivers to unit holders.

The partnership's predictable fee based cash flow provides benefits in today's economic environment is differentiated by the consistency of our earnings and cash flows.

Since our IPO in July of 2014, we have maintained the cumulative distribution coverage ratio in excess of one one times and with the partnership's stability and cash flow, we were able to maintain our current distribution without any need to access the capital markets.

For modeling purposes, we have no planned turnarounds during 2022, our next planned turnaround is at our Calvert City ethylene facility in Calvert City, Kentucky, which is currently planned for the first half of 2023, and we will 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.

Thank you Steve.

The partnership's financial and operational performances.

Through the first half of the year was strong and we believe these performance. This should continue through the rest of the year.

We remain optimistic about the demand fundamentals for ethylene.

Driven by robust downstream derivative needs by our parent Westlake.

And the end use market demand and consumer products and packaging.

Insulative ethylene sales agreement, which provides a predictable fee based cash flow structure from our contract with Westlake for 95% op cost production.

We will continue to deliver on these ratable and Forecastable cash flows.

When current market ethylene margins, although the ethylene sales agreement ensures that a partnership continues to receive a fixed net cash margin of 10 cents per pound are 95% of its sales.

Providing predictable and consistent cash flows to its unitholders.

Insulated from the market ethylene price volatility.

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

As we continue to navigate market conditions.

We will evaluate opportunities via our four levers of growth in the future, including increases of ownership interest of Opco.

Acquisitions of other qualified income streams.

Organic growth opportunities such as expansions of our current ethylene facilities.

And negotiations 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 unit holders.

As always we will continue to operate safely.

Along with being good stewards of the environment, where we work and live.

Thank you very much for listening to our second 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 this teleconference will be available two hours. After the call has ended we.

We will provide that number again at the end of the call.

We will now take questions.

Thank you as a reminder to ask a question you will need to press star one one on your telephone.

Thats Star one one on your telephone to ask a question.

Please standby, while we compile the Q&A roster.

Again, Thats star one one to ask a question.

Once again Thats star one one.

Our first question.

Comes from the line.

Matthew Blair.

Tudor Pickering, Holt and company.

Your line is open.

Good morning, Albert and Steve.

Good morning, Matthew.

Sure.

Dropdown MLP with no drops for a little while now hoping you could talk about your efforts on potential external growth.

And how active you are looking at.

External M&A opportunities.

So Matthew as Albert noted in his remarks, certainly looking at opportunities to either grow additional income streams organic growth opportunities are and negotiating a higher.

Our fixed margin ethylene sales agreement or increases in that dropdown. As you noted all four of those levers are available to us.

And we continue to be quite interested in providing the mechanisms to be able to continue that growth.

And as you know, it's really just been about providing the right amount of capital in the marketplace and the right kind of value to achieve those we stand ready to be able to do that when we see the opportunity is right to do so, but we certainly stand ready.

Sounds good and then thanks for the guidance on the turnarounds could you just talk about.

How are the crackers running so far in the third quarter has there been any.

Any downtime, we should be aware of.

Theres been no unplanned downtime as you think about the second quarter and you see how strongly they performed in the second quarter, we have a very strong operating rates and remember we have a variety of provisions.

That should there be any outages unplanned.

Of any sort whether it be the buyer deficiency mechanism or other tools within the ethylene sales agreement that provides for stability of earnings and cash flows and we've been able to demonstrate that all throughout 2021 with.

Unplanned outages, whether it was freezes or other events. So we're quite comfortable that even in times such as these.

Maybe a concern kind of macro economically that the business of the partnership continues to be very stable and providing income and cash flow stability.

Great. Thank you.

Youre welcome.

Thank you again to ask a question. Please press star one one on your Touchtone telephone again Thats Star one one.

I'll ask a question.

And at this time I'd like to turn the call back over to Jeff Holly FERC any remarks, Sir.

Thank you.

Thank you for participating in today's call. We will hope you will join US for our next conference call to discuss our third quarter 2022 results.

Thank you for participating in today's Westlake Chemical partners second quarter earnings Conference call. As a reminder, this call will be available for replay beginning two hours. After the call has ended and may be accessed until 11 59 P M Eastern time on Tuesday.

August nine 2022.

The replay can be accessed via the partnership website.

Goodbye.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Yeah.