Westlake Chemical Partners LP Q3 2023 Earnings Call

Yeah.

Good afternoon, and thank you for standing by.

Welcome to the Westlake Chemical partners third quarter 2023 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 the question and answer session.

As a reminder, this.

This conference is being recorded today.

November 2nd 2023.

I would now like to turn the conference over to today's host, Jeff Holly Westlake Chemical partners, Vice President and Treasurer, Sir you may begin.

Thank you Antoine good afternoon, everyone and welcome to the Westlake Chemical partners third quarter 2023 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 L. P. A subsidiary of Westlake and the partnership which owns certain olefins assets.

Additionally, when we refer to distributable cash flow, we were referring to Westlake chemical partners' MLP distributable cash flow.

Commissions are 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 fees.

These forward looking statements suggest predictions or expectations and thus.

<unk> are subject to risks or uncertainties.

We encourage you to learn more about the 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 third quarter 2023 financial and operating results.

This document is available in the press release section of our webpage at W. L K partners Dotcom.

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 November.

<unk> 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 good afternoon, everyone.

And thank you for joining us to discuss our third quarter 2023 results.

In this morning's press release.

Important Westlake Partners' third quarter 2023, net income of $13 million.

All 37 cents per unit.

Compared to the second quarter.

Third quarter sales and earnings benefited from higher production and sales volume.

Following the completion of the Calvert city turnaround in May.

The stability of Westlake partners business model has consistently demonstrated.

Through our fixed margin ethylene sales agreement, which minimizes market volatility and other production risks.

The high degree of stability and cash flow.

When compared with the when paired with the visibility of our business.

<unk> enable us to deliver the long history of reliable distributions and coverage.

This quarters distribution.

Is the 37th consecutive quarterly distribution since our IPO in July of 2014 without 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.

This morning's press release, we reported Westlake Partners' third quarter 2023, net income of $13 million or 37 cents per unit.

Consolidated net income, including <unk> earnings was $81 million on consolidated net sales of $322 million the.

The partnership had distributable cash flow for the quarter of $14 million or <unk> 39 per unit.

Third quarter 2023, net income for Westlake partners up $13 million decreased by $2 million.

Compared to third quarter 2022 partnership net income of $15 million.

Compared to the third quarter of 2022, the partnership was impacted by higher interest expense.

Distributable cash flow of $14 million for the third quarter of 2023 decreased by $3 million compared to third quarter 2020 to distributable cash flow of $17 million due to the 2 million dollar decline in net income and higher maintenance capital expenditures the.

The year over year increase in maintenance capital spending in the third quarter is due to a change in timing as our 2023 capital program is more weighted in the second half of the year as compared to 2022.

Turning our attention to the balance sheet and cash flows at the end of the third quarter, we had consolidated cash and cash investments with Westlake through our investment management agreement totaling $150 million.

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

It was at the partnership and the remaining $23 million was at Opco.

In the third quarter of 2023, Opco spent $17 million on capital expenditures.

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

On October 31, 2023, we announced a quarterly distribution of 40 714 cents per unit with respect to the third quarter of 2023.

Since our IPO in 2014, the partnership has made 37 consecutive quarterly distributions to our unit holders.

We've grown our distributions, 71% since the partnership's original minimum quarterly distribution of <unk> 27, and a half cents per unit.

The partnerships third quarter distribution, we paid on November 27th 2023 to unit holders of record November 10 2023.

The partnership's 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 looking back since our IPO in July of 2014, we are maintaining a cumulative distributable distribution cash flow of approximately one times.

And with the partnership stability in cash flows we are able to sustain our current distribution without the need to access the capital markets.

For modeling purposes, our next plant turnaround is at our Petro one ethylene unit in Lake Charles Louisiana, which is currently planned for mid 2024.

And we will provide additional details on the turnaround once we complete our turnaround planning.

I turn the call back over to Albert for some closing comments Albert Thank you Steve.

We are pleased with the partnership's financial and operational performance in the third quarter.

We believe that this performance should continue through the rest of the year.

We remain optimistic about the demand fundamentals for globally cost advantage ethylene.

Driven by steady domestic demand for ethylene derivatives.

And export opportunities at <unk>.

Parent Westlake.

Our ethylene sales agreement, which provides a predictable fee based cash flow structure.

From our take or pay contract with Westlake, 495% of <unk> production.

We will continue to deliver stable and predictable cash flows through economic ups and downs as well as planned and unplanned turnarounds.

Turning to our capital structure.

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 the ownership interest of Opco.

Acquisitions of other qualified income streams.

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

The negotiation of a higher fixed margin 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'll continue to focus on safe operations.

Now 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 third quarter earnings call.

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

Thank you Albert before we begin taking questions I'd like to remind you that a replay of this teleconference.

He will be available two hours after the call has ended and one we will now take questions.

Thank you.

We will now conduct a question and answer session to.

To ask a question. Please press star one one on your telephone and wait for your name to be announced to.

To withdraw your question. Please press star one again please.

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

Our first question comes from Matthew Blair from T. P. H. Please go ahead.

Hey, good morning, good afternoon, Albert and Steve.

Good afternoon.

I wanted to touch on the planned maintenance expenses.

Steve I believe you said would be a little bit higher in the back half of 2023. It sounded like this was just a timing issue, but I wanted to see if youre seeing any sort of impacts from higher inflation or higher labor costs rolling through.

Does that mean that your capex to be structurally higher going forward and if so does that present any risk to the current distribution.

Yes, that's a very good question Matthew and certainly.

We continue our turnaround planning for next year for our ethylene unit.

It's something that we're certainly taking into consideration I do not see it as a risk because as you may recall, we think about budgeting for the capital expenditures related to the turnaround and those are billed on a regular basis to Westlake.

Bye Bye Opco and so should we see inflation as it relates to manpower or materials.

To accumulate that turnaround reserve to be able to offset potentially higher costs in either one of those two categories. So we don't see it as a risk to the to the ability to generate the cash it and be able to make a distribution to meet the distribution requirements for a payment to our unit holders.

Sounds good I'll leave it there thanks.

Youre welcome.

Thank you.

One moment for our next question.

As a reminder, if you would like to ask a question. Please press star one one and wait for your name to be announced.

Yeah.

Okay.

Our next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.

Oh, Hi, how are you guys.

Just wondering.

Just looking at the.

The margin expansion side.

Housing segment.

Curious if you could talk about I know the release talked about.

Lower costs, but what was the real driver of that.

Which were the costs and how does that how does that happen just seemed like a big margin expansion.

Yes.

Yes, youre talking about in our building products segment, yes, exactly yes exactly.

So Vincent the <unk>.

Spansion really came from the fact that we saw lower inputs.

Lot of those inputs of course, our PBC related to to the building products businesses, we buy resin from.

Westlake.

Further downstream into our building products business.

And certainly we're able to maintain price.

Prices.

Best that we could in this market and as a consequence, we did get some margin expansion. You also saw that we were able to improve volumes quarter over quarter and the building products division by about 7%.

So we've seen strength in volume it certainly challenges in trying to maintain headline price, but because we saw lower input cost largely PVC resin, we're able to expand that margin in building products. Okay.

Okay, and then some of the outlook commentary related mortgage rates and things like that that stuff necessarily news. So I just I just couldnt tell whether you were sort of signaling that you're starting to see.

Sort of or more.

A greater impact from those from those macro issues or whether thats just sort of the ongoing hey. These are these are overhangs on.

On the demand environment, so any clarity there would be helpful.

Yes, I think the compounding effect of a rising mortgage rate is certainly having a dampening effect on demand.

And certainly as we know there is a large macro overdraw a backdrop that is concerning to many homebuyers are potential homebuyers, because the macro uncertainty in the economies and of course, the compounding effect of nearly 8% plus mortgage rate and a 30 year mortgage is even a higher.

Hill to climb if you will than just six months or a year ago and so I do think that's an issue and of course. This time of year. We also have a seasonality element that comes into play in terms of just underlying demand.

And so as we think about the effect in the fourth quarter for building products, certainly continued at higher headwinds related to mortgage rates and interest rates generally as well as the seasonal slowdown that exist in typically persist through the fourth quarter and sometimes into Q1 because of seasonal effects on construction demand.

Okay. Thanks, very much I'll pass it along.

Thank you.

Thank you.

At this time the Q&A session has now indeed, I will now turn the call 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 fourth quarter 2023 results.

Thank you for participating in today's Westlake.

Chemical Partners' third quarter 2020 earnings conference call. As a reminder, this call will be available for replay beginning two hours. After the call has indeed it may be accessed until 11 59 eastern time.

On Thursday November 16, 2023, the replay can be accessed via the partner partnership website.

Bye.

Okay.

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