10-Q: Westlake Chemical Partners LP Reports Increased Profitability in Second Quarter 2024

Westlake Chemical Partners LP saw a rise in net income for the second quarter of 2024, driven by higher sales volumes and lower feedstock costs.

Summary

• Westlake Chemical Partners LP reported a net income of $88.0 million on net sales of $284.2 million for the second quarter of 2024.
• This is an increase compared to a net income of $75.3 million on net sales of $264.2 million for the same period in 2023.
• Net income attributable to the Partnership was $14.4 million for Q2 2024, up from $11.9 million in Q2 2023.
• The increase in profitability was primarily due to higher ethylene sales volumes to Westlake and lower ethane feedstock costs, partially offset by lower ethylene sales prices.
• For the first six months of 2024, net income was $177.7 million on net sales of $568.8 million, compared to $166.7 million on net sales of $571.9 million for the same period in 2023.
• Net income attributable to the Partnership for the first six months of 2024 was $29.3 million, compared to $26.8 million for the first six months of 2023.
• The company's gross profit margin increased to 35.6% in Q2 2024 from 33.2% in Q2 2023, and to 35.8% for the first six months of 2024 from 33.9% for the same period in 2023.
• MLP distributable cash flow was $17.1 million for Q2 2024, up from $15.0 million in Q2 2023, and $34.0 million for the first six months of 2024, up from $32.5 million for the same period in 2023.
• EBITDA increased to $123.2 million in Q2 2024 from $108.6 million in Q2 2023, and to $247.6 million for the first six months of 2024 from $234.2 million for the same period in 2023.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with improved financial results and a strong cash position. However, there are some risks and challenges, such as reliance on a single customer and exposure to interest rate risk, which temper the overall sentiment.

Positives

• The company experienced higher ethylene sales volumes to Westlake.
• There was a reduction in ethane feedstock costs.
• The company saw an increase in gross profit and gross profit margin.
• MLP distributable cash flow and EBITDA both increased year-over-year.
• The company's net income attributable to the Partnership increased for both the quarter and the first six months of 2024.
• The company's cash position remains strong with $66.0 million in cash and cash equivalents and $94.5 million invested under the Investment Management Agreement.

Negatives

• Ethylene sales prices to Westlake were lower in both the second quarter and first six months of 2024.
• Net sales for the first six months of 2024 decreased slightly compared to the same period in 2023.
• Cash flow from operating activities decreased by $16.9 million in the first six months of 2024 compared to the same period in 2023.

Risks

• The company is exposed to interest rate risk due to its variable rate debt.
• The company's performance is heavily reliant on its relationship with Westlake, which accounts for a significant portion of its sales.
• The company is subject to environmental laws and regulations that could impose costs and liabilities.
• The company is exposed to commodity price risk, although this is partially mitigated by the Ethylene Sales Agreement.
• The company's future performance could be affected by general economic conditions, including inflation and recession.

Future Outlook

The company expects to commence the next planned maintenance turnaround at Petro 1 in the first quarter of 2025. The company intends to use the MLP Revolver to purchase additional limited partnership interests in OpCo in the future, for other acquisitions and for general partnership purposes. The company expects to distribute most of the excess cash generated by its operations to its partners.

Management Comments

• Management seeks to maximize the profitability of our operations by effectively managing operating expenses, maintenance capital expenditures and turnaround costs.
• Management believes that cash generated from operations, the OpCo Revolver, the MLP Revolver and, if necessary and possible under then current market conditions, the issuance of additional equity interests or debt will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions.

Industry Context

The report reflects the performance of a midstream energy company operating in the ethylene production sector. The results are influenced by factors such as feedstock costs, sales volumes, and pricing dynamics within the chemical industry. The company's reliance on a major customer, Westlake, is a key aspect of its business model.

Comparison to Industry Standards

• Westlake Chemical Partners LP's performance is closely tied to the ethylene market, which is influenced by global supply and demand dynamics.
• Compared to other midstream companies, Westlake Chemical Partners LP has a unique structure with a significant portion of its revenue derived from a long-term agreement with its parent company, Westlake Corporation.
• The company's focus on managing operating expenses and turnaround costs is a common theme among midstream operators, as these factors directly impact profitability.
• The company's use of non-GAAP measures like MLP distributable cash flow and EBITDA is consistent with industry practice for evaluating performance.
• The company's debt levels and interest rate exposure are typical for companies in the midstream sector, which often rely on debt financing for capital expenditures.

Legal Proceedings

• The Partnership is involved in legal proceedings incidental to the conduct of its business.
• The Partnership does not believe that any of these legal proceedings will have a material adverse effect on its financial condition, results of operations or cash flows.
• Westlake and its subsidiaries are responsible for indemnifying the Partnership in connection with any losses incurred by OpCo as a result of the fire at the Petro 2 facility.

Related Party Transactions

• The Partnership has significant related party transactions with Westlake, including ethylene sales, feedstock purchases, and service agreements.
• The Partnership's revenue is heavily reliant on sales to Westlake under the Ethylene Sales Agreement.
• The Partnership has debt payable to Westlake under the OpCo Revolver and the MLP Revolver.
• The Partnership invests excess cash with Westlake under the Investment Management Agreement.

Stakeholder Impact

• Shareholders will benefit from the increased profitability and the quarterly cash distribution.
• Employees are impacted by the company's operational performance and safety measures.
• Customers, primarily Westlake, are affected by the company's ability to supply ethylene.
• Suppliers are impacted by the company's feedstock purchases.
• Creditors are affected by the company's debt levels and ability to service its debt.

Next Steps

• The company plans to commence the next planned maintenance turnaround at Petro 1 in the first quarter of 2025.
• The company intends to use the MLP Revolver to purchase additional limited partnership interests in OpCo in the future.
• The company will continue to monitor market conditions and manage its operating expenses and capital expenditures.

Key Dates

Keywords

ethylene, Westlake Chemical Partners LP, MLP, distributable cash flow, EBITDA, feedstock, ethane, sales volume, net income, gross profit, turnaround, operating expenses