Q4 2022 Westlake Chemical Partners LP Earnings Call

The conference.

Vince will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

[music].

Okay.

Yeah.

Good afternoon. Thank you for standing by welcome to the Westlake Chemical partners fourth quarter and full year 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.

A reminder, this conference is being recorded today.

Worried twenty-first 2023.

I'd now like to turn the call over.

Today's host, Jeff Holly 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 and full year 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 references to Opco referred to Westlake Chemical Opco LP, a subsidiary of Westlake 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 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 to 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 fourth quarter and full year 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 may be accessed via the partnership's website.

Please note that information reported on this call speaks only as of today February 21 2023.

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.

Everyone and thank you for joining us to discuss our fourth quarter and full year 2022 results.

In this morning's press release reported Westlake partners full year 2022, net income of $64 million.

$1.82 per unit.

Columns holiday to net income, including uncle was $335 million.

For the full year 2022.

Westlake Partners' financial results.

Continue to demonstrate our stability generated from our fixed margin ethylene sales agreement for 95% of annual planning production each year.

Insulating us from market volatility and other production risks.

This structure combined with our investment grade sponsor Westlake.

Produces predictable earnings and stable cash flows.

This was evident despite heightened macroeconomic and ethylene margin volatility in 2022, as 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.

This quarters distribution is a 34th consecutive quarterly distribution since our IPO in July of 2014.

Any reductions.

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

Thank you Albert and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' fourth quarter 2022, net income of $17 million or <unk> 48 per unit.

Consolidated net income, including <unk> earnings was 91 million on consolidated net sales of $367 million.

The partnership had distributable cash flow for the quarter of $20 million or 58 per unit.

Fourth quarter 2022, net income for Westlake partners of $17 million decreased by $13 million compared to the fourth quarter of 2021 net income of $30 million.

In the year ago period, the partnership benefited from a larger buyer deficiency fee as well as recovery of certain other costs from Westlake attributable to an unplanned outage.

Pivotal cash flow of $20 million for the fourth quarter of 2022 increased by $5 million compared to fourth quarter of 2021, distributable cash flow of $15 million due to lower maintenance capital spending and the timing of certain receivables from Westlake.

For the full year of 2022 net income of $64 million.

Dollars 82 per unit decreased by $19 million compared to full year 2021, net income of $83 million.

The decrease in net income attributable to the partnership was due to weaker third party sales margins and higher interest expense.

Fight the headwinds to net income from weaker third party sales margins and higher interest rates, our full year 2022, MLP distributable cash flow of $76 million increased by $6 million compared to MLP distributable cash flow of $70 million for the full year of 2021.

And our distribution coverage for 2022 was one four times.

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 through our investment management agreement totaling $130 million.

At the end of the fourth quarter Westway kept payment obligations to opco of $31 million, representing a buyer deficiency fee for loss production and the recovery of certain other costs.

The buyer deficiency fee was received in January 2023 under the terms of the ethylene sales agreement.

Long term debt at the end of the quarter was $400 million of which $377 million does that the partnership and the remaining 23 was that up though.

In 2022, Opco spent $54 million in Capex expenditures.

We maintained our strong leverage metrics with a consolidated leverage ratio of approximately one time.

On January 23, 2023, we announced a quarterly distribution of 40 714 cents per unit with respect to the fourth quarter of 2022.

Since our IPO in 2014, the partnership has made 34 consecutive quarterly distributions to our unit holders and we have grown distributions, 71% since the partnership's original minimum quarterly distribution of $27.05 per unit.

The partnership's fourth quarter distribution was paid on February 16th 2023 to unit holders of.

A record February <unk> 2023.

The partnership's predictable fee based cash flow continues to provide benefits 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 a cumulative distribution coverage ratio in excess of $1. One times in the partnership's stability in cash flows are able to sustain our current distributions without the need to access capital markets.

For modeling purposes, we have one planned turnaround in 2023 at our Calvert City, Kentucky facility. This turnaround is scheduled to begin in May and is projected to last approximately 30 days.

In prior years, where we have had a planned turnaround such as this one the distribution ratio is impacted for the period for recovery and for this turnaround we do expect a similar result.

The cost of this turnaround has been included in the amount we charge to Westlake has been fully reserved for in funded as we commenced the turnaround.

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 the year as a whole.

Stability of our business model and associated cash flows demonstrate a benefit.

Ethylene sales agreement and its protective provisions provide the partnership through predictable long term earnings and cash flows despite both planned and unplanned production outages.

While recent economic weakness is there.

<unk> impact the demand for ethylene derivatives.

<unk> of our ethylene sales agreement.

Provides for the recovery of all costs.

Related to sales to Westlake.

That's why we're very well positioned.

These markets.

Our ethylene sales agreement.

Which provides a predictable fee based cash flow structure.

Take or pay contract with Westlake for 95% of the <unk> production.

We will continue to deliver stable and predictable cash flows.

Turning to our capital structure.

We maintain a strong balance sheet was COO.

So there's financial and leverage metrics.

As we continue to navigate market conditions.

We'll evaluate opportunities via our fall leavers of growth in the future <unk>.

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 and distributions to our unitholders.

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 fourth quarter earnings call.

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

Albert before we begin taking questions I'd like to remind you that a replay of this teleconference will be available two hours. After the call has ended.

We will provide that number again at the end of the call Michelle we will now take questions.

As a reminder to ask a question. Please press star one one on your telephone.

And wait for your name to be announced.

Your question. Please press star one one again.

Sam.

We compile the Q&A roster.

Our first question comes from James Armstrong with AVN.

Your line is open. Please go ahead.

Thanks for taking my call.

Couple of questions.

Hugh.

You mentioned that you are going to have one.

Hum.

Outage is that the right port from one of your facilities this year.

So it'll be a maintenance turnaround.

Okay.

What will be.

Do you have an estimate of what the.

Impact on.

Our operating income and EBITDA and cash flow will be.

And so because we have that contract that ethylene contract with our parent Westlake Corporation will be losing that those pounds that are subject to that 95% offtake at that 10% margin. The turnaround is expected to last 30 days and we will update as we get closer but that turnaround is expected to start in may.

Okay.

Why did you why did the third party margins decline and do you have any.

Outlook for this year as to what's going to happen with third party margins.

So third party margins were depressed in the in the quarter simply because of lack of demand of ethylene derivatives in the marketplace, we're selling ethylene into that market and so there was a pullback as you've seen in the macroeconomic environment for ethylene and related derivatives.

So therefore margins were below that historical.

Historical threshold, what we've seen historically, so therefore margins were under pressure as.

As we look forward, we'll look to see where we can optimize ethylene margins market is volatile in terms of ethylene margins and we certainly look to maximize those third party sales when we can optimize margin to exceed the targeted 10.

In 2023.

Consultants are looking to see looking to forecast margins could be below that 10% threshold currently.

So if they're if they're below that threshold does that mean, you just won't make the sales.

We will make we will make sales, but we'll certainly be opportunistic when we find more.

Markets that are attractive to us certainly we will look to see if we can optimize but we are interested in making those third party sales because they are contributory to net income during the course of the year.

Okay.

I don't want to.

Thanks, so much for your time, but I did notice that you've had a meaningful decline in SG&A expenses quarter on quarter and less.

Pronounce decline year on year.

Why did that happen.

Yes from time to time, we have we have peaks and valleys in some of the maintenance activities and time to time, we have changes in timing as it relates to some of the expenses administratively.

So I would say that if you look at over the course of a year. It does tend to average out but there are some peaks and valleys in terms when certain administrative costs are incurred and we have certain activities at the plant site that occur that impact G&A.

Thank you very much for your detailed answers all my questions.

Youre welcome.

At this time the Q&A session has now ended I will now 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 2023 results.

Thank you for participating in today's Westlake chemical partners fourth quarter and full year 2022 earnings conference call.

As a reminder, this call will be available for replay.

Two hours after the call has ended and may be accessed until 11 59 P M Eastern time.

Tuesday February 28 2023.

Replay can be SaaS by the partnership website Goodbye.

Yeah.

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

[music].

Okay.

Okay.

[music].