Westlake Chemical Partners LP Announces Second Quarter 2024 Results

Rhea-AI Summary

Westlake Chemical Partners LP (NYSE: WLKP) reported Q2 2024 results with net income of $14.4 million, or $0.41 per unit, up from $11.9 million in Q2 2023. Cash flows from operating activities increased to $121.9 million, and MLP distributable cash flow rose to $17.1 million. The company declared a quarterly distribution of $0.4714 per unit, marking its 40th consecutive quarterly distribution.

Key highlights include:

• Improved third-party ethylene sales prices and margins
• Upcoming planned maintenance turnaround at Petro 1 ethylene unit in Q3
• Trailing twelve-month distribution coverage ratio of 0.96x
• Appointment of Jean-Marc Gilson as President, CEO, and director of the general partner

Positive

• Net income increased by $2.5 million compared to Q2 2023
• Cash flows from operating activities increased by $23.4 million year-over-year
• MLP distributable cash flow increased by $2.1 million compared to Q2 2023
• Improved third-party ethylene sales prices and margins
• Declared 40th consecutive quarterly distribution of $0.4714 per unit

Negative

• Net income decreased by $0.4 million compared to Q1 2024
• Planned maintenance turnaround at Petro 1 ethylene unit may temporarily impact earnings and cash flows
• Trailing twelve-month distribution coverage ratio of 0.96x is below 1.0x

Insights

Financial Analyst

Westlake Chemical Partners LP's Q2 2024 results show mixed performance. Net income of $14.4 million ($0.41 per unit) increased 21% year-over-year but decreased 2.7% sequentially. Cash flows from operations surged to $121.9 million, up 23.8% YoY and 16.5% QoQ, indicating improved operational efficiency.

The MLP distributable cash flow of $17.1 million grew 14% YoY and 1.2% QoQ, primarily due to higher margins on third-party ethylene sales. The trailing twelve-month coverage ratio improved to 0.96x from 0.93x in Q1, showing better distribution sustainability.

Investors should note the upcoming Petro 1 ethylene unit turnaround in Q3, which may temporarily impact earnings. However, the improved outlook for third-party ethylene sales prices and margins, coupled with the stable Westlake agreement, should provide a buffer against potential volatility.

Chemical Industry Expert

The Partnership's Q2 performance reflects resilience in the ethylene market. The increase in third-party ethylene sales prices and margins is a positive indicator for the industry, suggesting improved demand or supply constraints. This trend, if sustained, could benefit Westlake Chemical Partners in the coming quarters.

The planned maintenance turnaround at the Petro 1 ethylene unit is a critical event to monitor. While it will temporarily impact production, such maintenance is essential for long-term operational efficiency and safety. The company's proactive communication about this event demonstrates transparency and good operational planning.

The ethylene sales agreement with Westlake, providing a fixed $0.10 per pound margin on 95% of production, offers significant downside protection. This unique arrangement differentiates WLKP from other chemical companies, providing more stable cash flows in a cyclical industry.

Corporate Governance Analyst

The recent appointment of Jean-Marc Gilson as President, CEO and director of the general partner signals a significant leadership transition. Such changes can bring fresh perspectives and strategies, potentially impacting the Partnership's future direction. Investors should closely monitor any shifts in strategic focus or operational approach under the new leadership.

The Partnership's consistent quarterly distribution history, now at its 40th consecutive payout, demonstrates a strong commitment to shareholder returns. However, the coverage ratio of 0.96x, while improved, remains below 1.0, indicating that distributions slightly exceed distributable cash flow. This warrants attention, as sustained ratios below 1.0 could raise questions about long-term distribution sustainability.

The structure of the Ethylene Sales Agreement with Westlake provides predictable cash flows but also creates a significant dependency. While this arrangement offers stability, it's important for investors to understand the potential risks associated with such a concentrated business relationship.

• Declared quarterly distribution of $0.4714 per unit; 40^th consecutive quarterly distribution

HOUSTON--(BUSINESS WIRE)-- Westlake Chemical Partners LP (NYSE: WLKP) (the "Partnership") today reported net income attributable to the Partnership in the second quarter of 2024 of $14.4 million, or $0.41 per limited partner unit, an increase of $2.5 million compared to the second quarter 2023 net income of $11.9 million. Cash flows from operating activities in the second quarter of 2024 were $121.9 million, an increase of $23.4 million compared to second quarter 2023 cash flows from operating activities of $98.5 million, due to higher net income. For the three months ended June 30, 2024, MLP distributable cash flow was $17.1 million, an increase of $2.1 million compared to second quarter 2023 MLP distributable cash flow of $15.0 million. The increase in MLP distributable cash flow and associated trailing twelve-month coverage ratio was primarily due to higher production and sales volume due to the Calvert City turnaround in the second quarter of 2023.

Second quarter 2024 net income attributable to the Partnership of $14.4 million decreased by $0.4 million compared to first quarter 2024 net income of $14.8 million, primarily due to higher selling, general and administrative expenses. Second quarter 2024 cash flows from operating activities of $121.9 million increased by $17.3 million compared to first quarter 2024 cash flows from operating activities of $104.6 million due to more favorable working capital changes. Second quarter 2024 MLP distributable cash flow of $17.1 million increased by $0.2 million compared to first quarter 2024 MLP distributable cash flow of $16.9 million, primarily due to higher margins on third-party ethylene sales.

"We are pleased with the Partnership's performance for the second quarter of 2024. During the second quarter, we benefitted from improved third-party ethylene sales prices and margins, which supported the growth in our MLP distributable cash flow. Last month, Westlake Chemical Partners GP LLC, the general partner of the Partnership, implemented a succession plan that included the appointment of Jean-Marc Gilson as President, CEO and director of our general partner. We are pleased to welcome Jean-Marc to the Partnership as he continues implementing our strategy of long-term value creation," said Albert Chao, Executive Chairman. "Looking ahead to the second half of 2024, preparations are well underway for our planned maintenance turnaround at our Petro 1 ethylene unit, which is scheduled to begin later in the third quarter. While the Petro 1 turnaround will have a temporary impact on our earnings and cash flows, our outlook for third-party ethylene sales prices and margins has improved and OpCo's ethylene sales agreement with Westlake will continue to support our earnings and cash flows."

On July 30, 2024, the Partnership announced that the Board of Directors of Westlake Chemical Partners GP LLC had approved a quarterly distribution for the second quarter of 2024 of $0.4714 per unit to be payable on August 27, 2024 to unitholders of record as of August 12, 2024, representing the 40th consecutive quarterly distribution to our unitholders. MLP distributable cash flow provided trailing twelve-month coverage of 0.96x the declared distributions for the second quarter of 2024, which was higher than the trailing twelve-month coverage ratio of 0.93x at the end of the first quarter of 2024. Since our IPO in July of 2014 our cumulative coverage ratio is 1.08x.

OpCo's Ethylene Sales Agreement with Westlake is designed to provide for stable and predictable cash flows. The agreement provides that 95% of OpCo's ethylene production is sold to Westlake for a cash margin of $0.10 per pound, net of operating costs, maintenance capital expenditures and reserves for future turnaround expenditures.

The statements in this release and the related teleconference relating to matters that are not historical facts, such as those with respect to the timing of the anticipated Petro 1 turnaround, results of our turnaround reserves and activities, our future coverage ratio, our outlook for third-party ethylene margins, our expectations regarding feedstock and energy costs, the ability to deliver value, returns, predictable cash flows and distributions to unitholders, the expectation that strong distributions will continue, and the nature of the sales agreement with Westlake, are forward-looking statements. These forward-looking statements are subject to significant risks and uncertainties. Actual results could differ materially, based on factors including, but not limited to, operating difficulties; the volume of ethylene that we are able to sell; the price at which we are able to sell ethylene; changes in the price and availability of feedstocks; changes in prevailing economic conditions; actions and commitments of Westlake Corporation; actions of third parties; the timing and results of capital expenditures, including turnaround activities; inclement or hazardous weather conditions, including flooding, and the physical impacts of climate change; environmental hazards; changes in laws and regulations (or the interpretation thereof); inability to acquire or maintain necessary permits; inability to obtain necessary production equipment or replacement parts; technical difficulties or failures; labor disputes; difficulty collecting receivables; inability of our customers to take delivery; fires, explosions or other industrial accidents; our ability to borrow funds and access capital markets; and other risk factors. For more detailed information about the factors that could cause actual results to differ materially, please refer to the Partnership's Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC in February 2024, and the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, which was filed with the SEC in May 2024.

This release is intended to be a qualified notice under Treasury Regulation Section 1.1446-4(b). Brokers and nominees should treat one hundred percent (100.0%) of the Partnership's distributions to non-U.S. investors as being attributable to income that is effectively connected with a United States trade or business. Accordingly, the Partnership's distributions to non-U.S. investors are subject to federal income tax withholding at the highest applicable effective tax rate.

Use of Non-GAAP Financial Measures

This release makes reference to certain "non-GAAP" financial measures, such as MLP distributable cash flow, coverage ratio and EBITDA. For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission ("SEC") as a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that (1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or (2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. We report our financial results in accordance with U.S. GAAP, but believe that certain non-GAAP financial measures, such as MLP distributable cash flow, coverage ratio and EBITDA, provide useful supplemental information to investors regarding the underlying business trends and performance of our ongoing operations and are useful for period-over-period comparisons of such operations. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the financial measures prepared in accordance with U.S. GAAP. We define MLP distributable cash flow as distributable cash flow less distributable cash flow attributable to Westlake Corporation's noncontrolling interest in OpCo and distributions attributable to the incentive distribution rights holder. MLP distributable cash flow does not reflect changes in working capital balances. We define EBITDA as net income before interest expense, income taxes, depreciation and amortization. MLP distributable cash flow, coverage ratio and EBITDA are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess our operating performance as compared to other publicly traded partnerships, our ability to incur and service debt and fund capital expenditures and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities. Reconciliations of MLP distributable cash flow to net income and to net cash provided by operating activities and of EBITDA to net income, income from operations and net cash provided by operating activities can be found in the financial schedules at the end of this press release.

Westlake Chemical Partners LP

Westlake Chemical Partners is a limited partnership formed by Westlake Corporation to operate, acquire and develop ethylene production facilities and other qualified assets. Headquartered in Houston, the Partnership owns a 22.8% interest in Westlake Chemical OpCo LP. Westlake Chemical OpCo LP's assets consist of three ethylene production facilities in Calvert City, Kentucky, and Lake Charles, Louisiana, and an ethylene pipeline. For more information about Westlake Chemical Partners LP, please visit http://www.wlkpartners.com.

Westlake Chemical Partners LP Conference Call Information:

A conference call to discuss Westlake Chemical Partners' second quarter 2024 results will be held Tuesday, August 6^th, 2024 at 1:00 PM Eastern Time (12:00 PM Central Time). To access the conference call, please register at: https://register.vevent.com/register/BI05d1ab2ca68249b69a922d0eae472d31. A dial-in will be provided upon registration.

The conference call will also be available via webcast at: https://edge.media-server.com/mmc/p/qjg77gba and the earnings release can be obtained via the Partnership web page at: https://investors.wlkpartners.com/corporate-profile/default.aspx.

WESTLAKE CHEMICAL PARTNERS LP ("WESTLAKE PARTNERS")  CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
			2024				2023				2024				2023
		(In thousands of dollars, except per unit data)
Revenue
Net sales—Westlake Corporation ("Westlake")		$	239,527			$	224,575			$	474,736			$	482,046
Net co-products, ethylene and other sales—third parties			44,641				39,602				94,105				89,808
Total net sales			284,168				264,177				568,841				571,854
Cost of sales			182,936				176,455				365,429				378,059
Gross profit			101,232				87,722				203,412				193,795
Selling, general and administrative expenses			7,605				7,229				14,682				15,143
Income from operations			93,627				80,493				188,730				178,652
Other income (expense)
Interest expense—Westlake			(6,651	)			(6,117	)			(13,232	)			(13,432	)
Other income, net			1,257				1,061				2,591				1,881
Income before income taxes			88,233				75,437				178,089				167,101
Provision for income taxes			207				173				417				385
Net income			88,026				75,264				177,672				166,716
Less: Net income attributable to noncontrolling interest in Westlake Chemical OpCo LP ("OpCo")			73,599				63,378				148,412				139,938
Net income attributable to Westlake Partners		$	14,427			$	11,886			$	29,260			$	26,778
Net income per limited partner unit attributable to Westlake Partners (basic and diluted)
Common units		$	0.41			$	0.34			$	0.83			$	0.76
Distributions declared per unit		$	0.4714			$	0.4714			$	0.9428			$	0.9428
MLP distributable cash flow		$	17,135			$	14,985			$	34,027			$	32,536
Distributions declared
Limited partner units—publicly and privately held		$	9,951			$	9,946			$	19,901			$	19,892
Limited partner units—Westlake			6,657				6,658				13,314				13,315
Total distributions declared		$	16,608			$	16,604			$	33,215			$	33,207
EBITDA		$	123,199			$	108,594			$	247,630			$	234,209

WESTLAKE CHEMICAL PARTNERS LP  CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
		June 30, 2024				December 31, 2023
		(In thousands of dollars)
ASSETS
Current assets
Cash and cash equivalents		$	65,999			$	58,619
Receivable under the Investment Management Agreement—Westlake			94,478				94,444
Accounts receivable, net—Westlake			39,090				49,565
Accounts receivable, net—third parties			27,128				18,701
Inventories			4,487				4,432
Prepaid expenses and other current assets			944				442
Total current assets			232,126				226,203
Property, plant and equipment, net			912,752				943,843
Other assets, net			143,484				146,796
Total assets		$	1,288,362			$	1,316,842
LIABILITIES AND EQUITY
Current liabilities (accounts payable and accrued and other liabilities)		$	49,607			$	56,335
Long-term debt payable to Westlake			399,674				399,674
Other liabilities			4,234				4,583
Total liabilities			453,515				460,592
Common unitholders—publicly and privately held			471,199				473,513
Common unitholder—Westlake			47,408				48,993
General partner—Westlake			(242,572	)			(242,572	)
Total Westlake Partners partners' capital			276,035				279,934
Noncontrolling interest in OpCo			558,812				576,316
Total equity			834,847				856,250
Total liabilities and equity		$	1,288,362			$	1,316,842

WESTLAKE CHEMICAL PARTNERS LP  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
		Six Months Ended June 30,
			2024				2023
		(In thousands of dollars)
Cash flows from operating activities
Net income		$	177,672			$	166,716
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			56,309				53,676
Net loss on disposition and other			1,870				725
Other balance sheet changes			(9,390	)			22,286
Net cash provided by operating activities			226,461				243,403
Cash flows from investing activities
Additions to property, plant and equipment			(19,951	)			(17,169	)
Investments with Westlake under the Investment Management Agreement			—				(164,116	)
Maturities of investments with Westlake under the Investment Management Agreement			—				135,000
Net cash used for investing activities			(19,951	)			(46,285	)
Cash flows from financing activities
Proceeds from debt payable to Westlake			108,000				98,500
Repayment of debt payable to Westlake			(108,000	)			(98,500	)
Distributions to noncontrolling interest retained in OpCo by Westlake			(165,916	)			(169,259	)
Distributions to unitholders			(33,214	)			(33,207	)
Net cash used for financing activities			(199,130	)			(202,466	)
Net increase (decrease) in cash and cash equivalents			7,380				(5,348	)
Cash and cash equivalents at beginning of period			58,619				64,782
Cash and cash equivalents at end of period		$	65,999			$	59,434

WESTLAKE CHEMICAL PARTNERS LP  RECONCILIATION OF MLP DISTRIBUTABLE CASH FLOW TO NET INCOME AND NET CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited)
		Three Months Ended March 31,				Three Months Ended June 30,								Six Months Ended June 30,
			2024				2024				2023				2024				2023
		(In thousands of dollars)
Net cash provided by operating activities		$	104,565			$	121,896			$	98,543			$	226,461			$	243,403
Changes in operating assets and liabilities and other			(14,919	)			(33,870	)			(23,279	)			(48,789	)			(76,687	)
Net income			89,646				88,026				75,264				177,672				166,716
Add:
Depreciation, amortization and disposition of property, plant and equipment			28,265				29,869				27,095				58,134				54,098
Less:
Contribution to turnaround reserves			(11,476	)			(8,672	)			(6,967	)			(20,148	)			(14,273	)
Maintenance capital expenditures			(7,749	)			(9,306	)			(6,521	)			(17,055	)			(14,545	)
Distributable cash flow attributable to noncontrolling interest in OpCo			(81,794	)			(82,782	)			(73,886	)			(164,576	)			(159,460	)
MLP distributable cash flow		$	16,892			$	17,135			$	14,985			$	34,027			$	32,536

WESTLAKE CHEMICAL PARTNERS LP  RECONCILIATION OF EBITDA TO NET INCOME, INCOME FROM OPERATIONS AND NET CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited)
		Three Months Ended March 31,				Three Months Ended June 30,								Six Months Ended June 30,
			2024				2024				2023				2024				2023
		(In thousands of dollars)
Net cash provided by operating activities		$	104,565			$	121,896			$	98,543			$	226,461			$	243,403
Changes in operating assets and liabilities and other			(14,919	)			(33,870	)			(23,279	)			(48,789	)			(76,687	)
Net income			89,646				88,026				75,264				177,672				166,716
Less:
Other income, net			1,334				1,257				1,061				2,591				1,881
Interest expense—Westlake			(6,581	)			(6,651	)			(6,117	)			(13,232	)			(13,432	)
Provision for income taxes			(210	)			(207	)			(173	)			(417	)			(385	)
Income from operations			95,103				93,627				80,493				188,730				178,652
Add:
Depreciation and amortization			27,994				28,315				27,040				56,309				53,676
Other income, net			1,334				1,257				1,061				2,591				1,881
EBITDA		$	124,431			$	123,199			$	108,594			$	247,630			$	234,209

 

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(713) 585-2900

Investors—Steve Bender

Media—L. Benjamin Ederington

Source: Westlake Chemical Partners

FAQ

What was Westlake Chemical Partners LP's (WLKP) net income for Q2 2024?

Westlake Chemical Partners LP (WLKP) reported a net income of $14.4 million, or $0.41 per partner unit, for Q2 2024.

How much was the quarterly distribution declared by WLKP for Q2 2024?

WLKP declared a quarterly distribution of $0.4714 per unit for Q2 2024, payable on August 27, 2024, to unitholders of record as of August 12, 2024.

What is the trailing twelve-month distribution coverage ratio for WLKP as of Q2 2024?

The trailing twelve-month distribution coverage ratio for WLKP was 0.96x as of Q2 2024, an improvement from 0.93x at the end of Q1 2024.

When is the planned maintenance turnaround for WLKP's Petro 1 ethylene unit scheduled?

The planned maintenance turnaround for WLKP's Petro 1 ethylene unit is scheduled to begin later in the third quarter of 2024.