Q1 2024 Westlake Chemical Partners LP Earnings Call
Operator: Good afternoon, and thank you for standing by. Welcome to the Westlake Chemical Partners first quarter 2024 earnings conference call. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, you will be invited to participate in the question and answer session. As a reminder, this conference is being recorded today, May 1st, 2024. I would now like to turn the call over to today's host, John Zeller, Westlake Chemical Partners Vice President and Treasurer. Sir, you may begin.
Good afternoon.
John Zeller: Thank you for standing by and welcome to the Westlake Chemical partners first quarter 2024 earnings Conference call.
Operator: During the presentation, all participants will be in a listen only mode.
Operator: 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 may 1st 'twenty 'twenty four.
Operator: I would now like to turn the call over to todays host John Zeller, Westlake Chemical Partners', Vice President and Treasurer, Sir you may begin.
John Zeller: Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners first quarter 2024 conference call. I am 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 refer to our parent company, Westlake Corporation, and references to OPCO refer to Westlake Chemical OPCO LP, a subsidiary of Westlake and the partnership which owns certain of Oliphant's assets.
Operator: Okay.
John Zeller: Thank you good afternoon, everyone and welcome to the Westlake Chemical partners first quarter 2024 conference call I'm joined today by Albert Chao, our President and CEO.
John Zeller: Steve Bender, our executive Vice President and CFO and other members of our management team.
John Zeller: 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 L. P. A subsidiary of Westlake and the partnership which owns certain olefins assets. Additionally.
John Zeller: Additionally, when we refer to distributable cash flow, we are referring to Westlake chemical partners' MLP distributable cash flow.
John Zeller: Definitions of these terms are available on the partnership's website.
John Zeller: 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. Such forward-looking statements suggest predictions or expectations, and thus are subject to risks or uncertainty.
John Zeller: 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.
John Zeller: These forward looking statements suggest predictions or expectations, and thus are subject to risks or uncertainties.
John Zeller: 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 all also available on our investor relations website. This morning, Westlake Partners issued a press release with details of our first quarter 2024 financial and operating results. This document is available in the press release section of our website at wlkpartners.com. A replay of today's call will be available beginning two hours after the conclusion of this call.
John Zeller: 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 all also available on our Investor Relations website.
John Zeller: This morning, Westlake partners issued a press release with details of our first quarter 'twenty 'twenty four financial and operating results.
John Zeller: Document is available in the press release section of our webpage at W. L K partners Dot com.
John Zeller: Replay of today's call will be available beginning two hours after the conclusion of this call.
John Zeller: The replay can be accessed via the partnership website.
John Zeller: Please note that information reported on this call speaks only as of today may <unk> 'twenty 'twenty four and therefore, you are advised that time sensitive information.
John Zeller: Longer be accurate as of the time of any replay.
John Zeller: 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.
John Zeller: The replay can be accessed via the partnership website. Please note that information reported on this call applies only as of today, May 1st, 2024, and therefore, you are 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 wlkpartners.com. Now, I'd like to turn the call over to Albert Chao. Albert?
Albert Yuan Chao: Thank you, John. Good afternoon, everyone, and thank you for joining us to discuss our first quarter 2024 results. In this morning's press release, we reported Westlake Partners' first quarter 2024 net income of $50 million, or $0.42 per unit. Compared to the fourth quarter of 2023, our first quarter sales and earnings benefited from a higher sales price for ethylene sold to Westlake per the terms of the ethylene sales agreement, as well as a slight improvement in third-party ethylene sales margins.
Speaker Change: Thank you Joe Good afternoon, everyone and thank you for joining us to discuss our first quarter 2024 results.
Albert Yuan Chao: In this morning's press release, we reported Westlake Partners' first quarter 2024, net income of $15 million or 42 cents per unit.
Albert Yuan Chao: Compared to the fourth quarter of 2023.
Albert Yuan Chao: Our first quarter sales had earnings benefited from a higher sales price for ethylene so to Westlake per the terms of the ethylene sales agreement.
Albert Yuan Chao: As well as a slight improvement in third party ethylene sales margins.
Albert Yuan Chao: The stability of Westlake Partners' business model is consistently demonstrated through our fixed margin ethylene sales agreement, which minimizes market volatility and other production risk. The high degree of stability in cash flow, when paired with the producibility of our business, has enabled us to deliver a long history of reliable distributions and coverage. This quarter's distribution is the 39th consecutive quarterly distribution since the IPO in July of 2014 without any reductions. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter. Steve? Thank you.
Albert Yuan Chao: The stability of Westlake partners business model has consistently demonstrated through our fixed margin ethylene sales agreement.
Steve: Which minimize this market volatility.
Steve: And other production risks.
Steve: The high degree of stability in cash flow.
Steve: <unk> pad with the predictability of our business.
Steve: Has enabled us.
Steve: The long history of reliable distributions and coverage.
Steve: This quarters distribution is the 13 nice consecutive quarterly distribution since our IPO in July of 2014 without any reductions.
Albert Yuan Chao: I would now like to turn our call over to Steve provide more detail on our financial and operating results for the quarter Steve. Thank.
Albert Yuan Chao: Thank you, Albert, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' first quarter 2024 net income of $15 million, or $0.42 per unit. Consolidated net income, including OPCO's earnings, was $90 million on consolidated net sales of $285 million. The partnership had distributable cash flows for the quarter of $17 million, or $0.48 per unit. First quarter 2024 net income for Westlake Partners of $15 million was unchanged compared to first quarter 2023 partnership net income.
Speaker Change: Thank you Robert and good afternoon, everyone.
Albert Yuan Chao: This morning's press release, we reported Westlake Partners' first quarter 2024, net income of $15 million or <unk> 42 cents per unit.
Albert Yuan Chao: Holiday to net income, including <unk> earnings was $90 million on consolidated net sales of $285 million.
Albert Yuan Chao: The partnership had distributable cash flows for the quarter of $17 million or <unk> 48 per unit.
Albert Yuan Chao: First quarter 2024, net income for Westlake partners of $15 million was unchanged compared to first quarter 2023 partnership net income.
Albert Yuan Chao: Compared to the first quarter of 2023, the partnership was impacted by slightly lower production and sales volumes, which were offset by lower interest expense. Distributable cash flow of $17 million for the first quarter of 2024 decreased by less than $1 million compared to the first quarter of 2023 due primarily to lower production and sales volumes. Turning your attention to the balance sheet and cash flows, at the end of the first quarter, we had a consolidated cash balance and investments with Westlake through our investment management agreement totaling $150 million.
Albert Yuan Chao: Compared to the first quarter of 2023, the partnership was impacted by slightly lower production.
Albert Yuan Chao: Sales volumes, which were offset by lower interest expense.
Albert Yuan Chao: Distributable cash flow of $17 million for the first quarter of 2024 decreased by less than $1 million compared to the first quarter of 2023, due primarily to lower production and sales volumes.
Albert Yuan Chao: Turning your attention to the balance sheet and cash flows at the end of the first quarter, we had consolidated cash balance and investments with Westway through our investment management agreement totaling $150 million.
Albert Yuan Chao: 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 at OPCO. In the first quarter of 2024, OPCO spent $10 million on capital expenditures.
Albert Yuan Chao: 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 though.
Albert Yuan Chao: In the first quarter of 2020 for Opco spent $10 million on capital expenditures.
Mark Steven Bender: We maintained our strong leverage metrics with a consolidated leverage ratio of approximately one times. On April 30, 2024, we announced a quarterly distribution of 47.14 cents per unit with respect to the first quarter of 2024. Since its IPO in 2014, the partnership has made 39 consecutive quarterly distributions to unit holders, and we have grown distributions 71% since the partnership's original minimum quarterly distribution of $0.275 per unit. The partnership's first quarterly distribution will be paid on May 29, 2024, to unit holders of record on May 13, 2024.
Mark Steven Bender: We maintained our strong leverage metrics with a consolidated leverage ratio of approximately one time.
Mark Steven Bender: On April 32024, we announced a quarterly distribution of 40 714 cents per unit with respect to the first quarter of 2024.
Mark Steven Bender: Since our IPO in 2014, the partnership has made 39 consecutive quarter quarterly distributions to unit holders and we have grown distributions, 71% since the partnership's original minimum quarterly distribution of 27 five cents per unit.
Mark Steven Bender: The partnerships first quarter distribution will be paid on May 29, 2024 to unitholders of record may 13th 2024.
Mark Steven Bender: 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 have maintained a cumulative distribution coverage of nearly 1.1 times, and with partnership stability and cash flows, we have been able to sustain our current distribution without the need to access the capital market. For modeling purposes, we have one planned turnaround in 2024 at our Petro One ethylene unit in Lake Charles, Louisiana.
Mark Steven Bender: The partnership's predictable fee based cash flow continues.
Mark Steven Bender: Beneficial in today's economic environment and is differentiated by the consistency of our earnings and cash flows.
Mark Steven Bender: Looking back since our IPO in July of 2014, we have maintained a cumulative distribution coverage of nearly one one times and the partnership stability in cash flows we have been able to sustain our current distributions without the need to access the capital markets.
Mark Steven Bender: This turnaround is scheduled to begin in the second half of 2024 and is projected to last approximately 60 days. In prior years, when we have had planned turnarounds, such as this one, the distribution coverage ratio was impacted for the period before recovery. And for this turnaround, we would expect a similar result. The cost of this turnaround has been included in the amount we charged to Westlake and has been fully reserved and funded as we commence the turnaround. Now I'd like to turn the call back over to Albert to make some closing comments. Okay, Albert?
Mark Steven Bender: For modeling purposes, we have one planned turnaround in 2024 at our Petro one ethylene unit in Lake Charles Louisiana.
Albert: This turnaround is scheduled to begin in the second half of 2024 and is projected to last approximately 60 days.
Albert: In prior years, where we have had planned turnarounds such as this one the distribution coverage ratio was impacted for the period before recovering.
Albert: And for this turnaround we expect a similar result, the cost of this turnaround has been included in the amount we charged to Westlake and has been fully reserved and funded as we commence to turnaround.
Mark Steven Bender: Now I'd like to turn the call back over to Albert to make some closing comments Albert.
Albert Yuan Chao: We are pleased with the partnership's financial and operational performance in the first quarter. In particular, the recent improvement in margins on ethylene sales to third parties, primarily as a result of lower feedstock and fuel costs, is encouraging following a period of low third-party ethylene sales margins in 2023. While the overall global macroeconomic environment remains unpredictable, our Efforting Sales Agreement, which provides a predictable fee-based cash flow structure from our take-or-pay contract with Westlake for 95% of off-coast production, will continue to deliver stable and predictable cash flows through economic ups and downs, as well as planned and unplanned turnarounds.
Albert: Thank you Steve.
Albert Yuan Chao: We're pleased with the partnership's financial and operational performance in the first quarter.
Albert Yuan Chao: In particular, the recent improvement in margins exiting.
Albert Yuan Chao: Editing sales to third parties.
Albert Yuan Chao: Primarily as a result of lower feedstock and fuel costs.
Albert Yuan Chao: As encouraging following a period of low third party ethylene sales margin in 2023.
Albert Yuan Chao: While the overall global macroeconomic.
Albert Yuan Chao: Environment remains unpredictable.
Albert Yuan Chao: Putting sales agreement, which provides a predictable fee based cash flow structure from a take or pay contract with Westlake.
Albert Yuan Chao: 95% of op cost production.
Albert Yuan Chao: We continue to deliver stable and predictable cash flows through economics ups and downs as well as planned and unplanned turnarounds.
Albert Yuan Chao: 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 in our ownership interest in Opco and acquisitions of other qualified income streams. Organic growth opportunities such as expansions of our current ethylene facilities and negotiation of a higher fixed margin in our Etherlink sales agreement with Westlake.
Albert Yuan Chao: Turning to our capital structure, we maintain a strong balance sheet with conservative financial and leverage metrics.
Albert Yuan Chao: As we continue to navigate market conditions.
Albert Yuan Chao: We'll evaluate opportunities via all four levers of growth in the future.
Albert Yuan Chao: Including increases of the ownership interest of Opco.
Albert Yuan Chao: Issuance of other qualified income streams.
Albert Yuan Chao: Organic growth opportunities such as expansions of our current ethylene facilities.
Albert Yuan Chao: And negotiation of a higher fixed margin.
Albert Yuan Chao: Ethylene sales agreement with Westlake.
Albert Yuan Chao: 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 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 first quarter earnings call. Now, I'll turn the call back over to John. Thank you.
Albert Yuan Chao: We remain focused on our ability to continue to provide long term value and distributions to our unit holders.
Albert Yuan Chao: As always we will continue to focus on safe operations.
Albert Yuan Chao: Along with being good stewards of the environment, where we work and live.
Albert Yuan Chao: Part of our broader sustainability efforts.
John Zeller: Thank you very much for listening to our first quarter earnings call now ill turn the call back over to Joe.
John Zeller: 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 will provide instructions to access the replay at the end of the call. Andrew, we will now take questions. Thank you.
John Zeller: 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.
Speaker Change: We will provide instructions to access the replay at the end of the call Andrew We will now take questions.
Operator: To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment, please. Our first question comes from the line of Matthew Blair with P.P.H. Thank you.
Andrew: Thank you.
Operator: To ask a question. Please press star one one on your telephone and wait for your name to be announced.
Operator: Draw. Your question. Please press star one again.
Operator: Please.
Operator: Our first question comes from the line of Matthew Blair with BPH.
Matthew Robert Lovseth Blair: Thank you, and good morning, Albert and Steve. Good morning, Matthew. Yeah, good morning. Albert, you mentioned at the beginning that the Q1 earnings benefited from a higher sales price to Westlake. What was the driver of the higher sales price, and does that represent a renegotiation of the fixed margin contract?
Speaker Change: Thank you and good morning, Albert and Steve.
Albert Yuan Chao: Yeah, Matthew, the reference was external third-party sales that were at slightly improved margins relative to prior quarters and not to Westlake itself. That Westlake sale agreement is still in force and is unchanged, but it's just the market for third-party sales has improved.
Speaker Change: Good morning, Matthew Good morning.
Albert Yuan Chao: So Albert you mentioned at the beginning that the Q1 earnings benefited.
Albert Yuan Chao: From a higher sales price to Westlake.
Albert Yuan Chao: What was the driver of the higher sales price and does that represent a renegotiation of the.
Albert Yuan Chao: The fixed margin contracts.
Albert Yuan Chao: Yes, Matthew the reference was external third party sales that were at slightly improved margins relative to prior quarters and not too to Westlake itself that Westlake sale agreement still has enforced and is unchanged, but it's just the market for third party sales has improved.
Mark Steven Bender: Okay, sounds good. And then could you talk about the outlook for coverage? You know, you're below your 1.1 target, but I guess we would expect the coverage to improve next quarter as you roll off the Calvert City turnaround from Q2 2023. Is that how you're looking at it as well? Yes, Matthew.
Speaker Change: Okay sounds good and then could you talk about the outlook for for coverage.
Mark Steven Bender: Youre below your one one target.
Mark Steven Bender: But I guess, we would expect the coverage to improve.
Mark Steven Bender: Next quarter as you roll off the Calvert city turnaround from Q2.
Matthew: 2023 is that is that how youre looking at it as well.
Mark Steven Bender: Yes, Matthew, I do expect that the coverage will trend higher as we roll off that turnaround from last year. And, of course, we've had three consecutive years of turnaround with this plan turnaround this year. So you're right, we'll see improvement in Q2. And I would expect, as we enter the second half of 24, that coverage will also be impacted as we do the turnaround for Petro One. But as in previous years, we have had a rebound in coverage, and as you know, we have ample capacity under our reserves to be able to continue to make distribution. So I don't see any issues with those with those issues.
Mark Steven Bender: Yes, Matthew I do expect that the coverage will trend higher as we drove off that turnaround from last year.
Mark Steven Bender: Of course, we've had with this planned turnaround this year three consecutive years of turnaround. So youre right, we will see improvement in Q2.
Mark Steven Bender: And I would expect as we enter the second half of 'twenty four.
Mark Steven Bender: <unk> will also be impacted as we do the turnaround for Petro one.
Mark Steven Bender: But as in prior years, we have.
Mark Steven Bender: Rebound of coverage and as you know we have ample capacity under our.
Mark Steven Bender: Under our reserves to be able to continue to make distributions. So I don't see any issues with with those with those issues.
Matthew: Okay. That's great. Thank you.
Operator: Thank you. One moment, please, for our next question. Our next question comes from the line of Salvatore Tiano with Bank of America Securities.
Speaker Change: Youre welcome.
Salvatore Tiano: One moment please for our next question.
Salvatore Tiano: Our next question comes from the line of Salvator Tiano with Banc of America Securities.
Salvatore Tiano: Thank you very much. So, my first question is, as you think about the options to either expand the company or its earnings, you mentioned that you could consider projects to expand ethylene capacity or even M&A. Does any of this make sense if you still get 10 cents per pound from Westlake, or does it have to be accompanied by a better margin in your agreement with a sponsor?
Salvatore Tiano: Thank you very much. So my first question is as you think about the options.
Salvatore Tiano: So you have an Rx product company or.
Speaker Change: It's turning side.
Speaker Change: Sure Kevin.
Salvatore Tiano: <unk> approach its fixed time afternoon capacity already been MMA.
Speaker Change: It does.
Speaker Change: It does.
Speaker Change: Makes sense.
Salvatore Tiano: You still get them from.
Salvatore Tiano: Per pound from Westlake or does it have to be a compounded by a better margin.
Salvatore Tiano: <unk>.
Salvatore Tiano: In your agreement.
Salvatore Tiano: With the sponsor.
Albert Yuan Chao: No, it doesn't necessarily have to be a different margin associated with those sales to Westlake; rather, it just has to do with the valuation we receive for those units and the valuation of that transaction in any undertaking. So whether it is an increase in ownership of OPCO or the acquisition of other assets such as LACC or any other asset, it just revolves around the valuation of those transactions will drive the value and, therefore, the ability to grow earnings and, therefore, distribution.
Salvatore Tiano: Okay.
Salvatore Tiano: No it doesn't have to necessarily be a different margin associated with those sales to westlake rather it just has to do with the valuation we receive for those those units and the evaluation of that transaction and any undertaking so whether it is an increase in ownership of <unk>.
Albert Yuan Chao: Co or acquisition of other assets, such as <unk> or any other asset. It's just revolves around the valuation.
Albert Yuan Chao: Those transactions.
Albert Yuan Chao: We will drive the value and therefore, the ability to grow the earnings and therefore distributions.
Speaker Change: Okay perfect.
Albert Yuan Chao: Okay, perfect. With regard to, I guess, sustainability, I know many of the companies, petrochemical companies, are looking into a lot of things, including, you know, some options for their ethylene crackers, electrifying them or using hydrogen. I understand that, obviously, you would have to work with Westlake Corporation on that, but is it something that would make sense for the specific assets that are included in Westlake Partners?
Albert Yuan Chao: Okay.
Albert Yuan Chao: Okay.
Albert Yuan Chao: Kurt.
Speaker Change: Correct, yes.
Albert Yuan Chao: Pvp I know many of the companies.
Albert Yuan Chao: The petrochemical complex.
Speaker Change: Thanks, and good evening.
Albert Yuan Chao: Some options for their ethylene crackers electrifying their mortgage hydro Jim I understand that obviously you have to work with Westlake Corporation for that.
Albert Yuan Chao: Is it something that would make sense for the specific assets that are going to count that into Westlake partners.
Albert Yuan Chao: Yeah, and so we do have an ongoing, very public statement about reducing our scope one and scope two emissions. And so, as we think about Scope 1 emissions, we certainly continue to invest in capital that allows us to reduce those Scope 1 emissions. As we think about Scope 2 emissions, we'll certainly look at opportunities to invest or undertake transactions that allow us to also reduce those Scope 2 emissions. As you might have seen, Westlake Corporation has made good strides in reducing its Scope 1 emissions, and certainly part of that is attributable to the efforts of the ethylene crack
Albert Yuan Chao: Yes, so we do have an ongoing very public statement about reducing our scope one and scope two emissions.
Salvatore Tiano: Great. Thank you very much.
Salvatore Tiano: So as we think about the.
Salvatore Tiano: The scope one emissions, we certainly continue to invest in capital that allow us to reduce those scope one emissions as we think about scope two emissions. We will certainly look at opportunities to invest or undertake transactions that allow us to also reduce those scope two emissions.
Salvatore Tiano: As you might have seen Westlake Corporation has made good strides in reducing its scope one emissions and certainly part of that is attributable to the efforts of the ethylene crackers.
Speaker Change: Alright, Thank you very much.
Speaker Change: Youre welcome.
Operator: Thank you. At this time, the Q&A session has now ended. I will now turn the call back over to Jon Zeller.
Speaker Change: Thank you.
Jon Zeller: At this time the Q&A session has now ended I will now turn the call back over to John Zeller.
John Zeller: Thank you again for participating in today's call. We hope you will join us for our next conference call to discuss our second quarter 2024 results.
Jon Zeller: Thank you again for participating in today's call. We hope you will join US for our next conference call to discuss our second quarter 2024 results.
Operator: Thank you for participating in today's Westlake Chemical Partners first quarter 2024 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 Wednesday, May 15, 2024. The replay can be accessed via the partnership website.
Jon Zeller: Thank you for participating in today's Westlake Chemical partners first quarter 2024 earnings conference call.
Operator: Goodbye.
Operator: 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 PM Eastern time on Wednesday may 15th 2020 for the.
Operator: The replay can be accessed via the partnership website Goodbye.
Operator: Okay.
Operator: [music].
Operator: Okay.
Operator: Okay.
Operator: [music].