Westlake Chemical Partners LP (NYSE:WLKP) Q1 2023 Earnings Conference Call May 4, 2023 1:00 PM ET Company Participants Jeff Holy - Vice President and Treasurer Albert Chao - President and Chief Executive Officer Steve Bender - Executive Vice President and Chief Financial Officer Conference Call Participants Matthew Blair - TPH Operator Good afternoon. Thank you for standing by. Welcome to Westlake Chemical Partners' First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this con ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for Q1 2023 reflect shifts in asset and equity values, with decreased sales but improved net income and operating cash flow [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets slightly decreased to **$1.34 billion**, while cash and cash equivalents significantly increased, and total liabilities and equity declined Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $104,588 | $64,782 | | Total current assets | $232,430 | $245,793 | | Total assets | $1,342,678 | $1,371,979 | | **Liabilities & Equity** | | | | Total current liabilities | $51,482 | $66,941 | | Long-term debt payable to Westlake | $399,674 | $399,674 | | Total liabilities | $452,800 | $468,271 | | Total equity | $889,878 | $903,708 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Q1 2023 saw a **15.1%** decrease in net sales, but a significant reduction in cost of sales led to a **16.0%** increase in gross profit and higher net income Consolidated Statement of Operations Highlights (in thousands, except per unit data) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total net sales | $307,677 | $362,400 | | Gross profit | $106,073 | $91,439 | | Income from operations | $98,159 | $83,212 | | Net income | $91,452 | $80,825 | | Net income attributable to Westlake Chemical Partners LP | $14,892 | $16,194 | | Net income per limited partner unit (basic and diluted) | $0.42 | $0.46 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 2023 saw a significant increase in net cash from operating activities, a positive swing in investing activities, and increased cash usage for financing Consolidated Statement of Cash Flows Highlights (in thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $144,860 | $104,810 | | Net cash provided by (used for) investing activities | $228 | $(25,342) | | Net cash used for financing activities | $(105,282) | $(77,291) | | Net increase in cash and cash equivalents | $39,806 | $2,177 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the Partnership's structure, accounting policies, significant related-party transactions, debt obligations, and ongoing legal proceedings - The Partnership owns a **22.8%** limited partner interest in Westlake Chemical OpCo LP ("OpCo") and consolidates OpCo's financial results as its primary beneficiary[20](index=20&type=chunk)[23](index=23&type=chunk) - A quarterly cash distribution of **$0.4714 per unit** for Q1 2023 was declared, payable on May 26, 2023, consistent with Q1 2022[31](index=31&type=chunk)[39](index=39&type=chunk) - Significant related-party transactions with Westlake accounted for **83.7%** of the Partnership's net sales in Q1 2023[42](index=42&type=chunk)[62](index=62&type=chunk) - Total long-term debt of **$399.7 million** is payable to Westlake, with a weighted average interest rate of **6.4%** at March 31, 2023[64](index=64&type=chunk)[65](index=65&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion highlights improved net income driven by lower feedstock costs, increased operating cash flow from working capital changes, and sustained liquidity through revolving credit facilities [Results of Operations](index=18&type=section&id=Results%20of%20Operations) Q1 2023 saw a **15.1%** decrease in net sales, but gross profit and margin expanded significantly due to lower feedstock costs, leading to increased EBITDA despite a decline in MLP distributable cash flow Q1 2023 vs Q1 2022 Performance (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total net sales | $307,677 | $362,400 | | Gross profit | $106,073 | $91,439 | | Income from operations | $98,159 | $83,212 | | Net income | $91,452 | $80,825 | | Net income attributable to WLKP | $14,892 | $16,194 | | MLP distributable cash flow | $17,551 | $19,291 | | EBITDA | $125,615 | $114,469 | - The decrease in net sales was primarily due to lower ethylene and co-products sales prices, contributing to an **18.4%** decrease, partially offset by a **3.3%** increase from higher sales volumes[89](index=89&type=chunk)[96](index=96&type=chunk) - The increase in gross profit and margin was driven by lower ethane feedstock costs (**-37.7%** YoY) and natural gas prices (**-30.4%** YoY)[89](index=89&type=chunk)[97](index=97&type=chunk) [Cash Flow Discussion](index=21&type=section&id=Cash%20Flow%20Discussion) Q1 2023 saw a significant increase in operating cash flow driven by favorable working capital, a positive swing in investing activities, and increased cash usage for financing - Cash from operating activities increased to **$144.9 million** in Q1 2023 from **$104.8 million** in Q1 2022, largely due to favorable working capital changes[103](index=103&type=chunk) - Investing activities provided cash of **$0.2 million**, compared to a use of **$25.3 million** in the prior year, due to net maturities under the Investment Management Agreement and lower capital expenditures[104](index=104&type=chunk) - Cash used for financing activities increased to **$105.3 million** from **$77.3 million**, primarily due to higher distributions to the noncontrolling interest retained by Westlake[105](index=105&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) The Partnership maintains liquidity through operating cash flow, two revolving credit facilities with Westlake, and available cash and investments, with an unused ATM equity program - The Partnership has a **$50 million** at-the-market (ATM) common unit offering program, under which no units had been issued as of March 31, 2023[106](index=106&type=chunk) - As of March 31, 2023, the Partnership had **$104.6 million** in cash and cash equivalents, plus **$52.1 million** invested with Westlake under an Investment Management Agreement[113](index=113&type=chunk)[114](index=114&type=chunk) Indebtedness to Westlake (as of March 31, 2023) | Facility | Capacity (M) | Outstanding (M) | Maturity | | :--- | :--- | :--- | :--- | | OpCo Revolver | $600.0 | $22.6 | July 12, 2027 | | MLP Revolver | $600.0 | $377.1 | July 12, 2027 | [Quantitative and Qualitative Disclosures about Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The Partnership's market risk primarily stems from commodity prices and interest rates, with commodity risk largely mitigated by a cost-plus sales agreement - Direct exposure to commodity price risk is limited to approximately **5.0%** of total ethylene production sold to third parties, with the majority mitigated by the cost-plus Ethylene Sales Agreement with Westlake[124](index=124&type=chunk) - The Partnership is exposed to interest rate risk on **$399.7 million** of variable-rate debt, where a **100 basis point** increase would raise annual interest expense by approximately **$4.0 million**[125](index=125&type=chunk) [Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during Q1 2023 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[126](index=126&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[127](index=127&type=chunk) [PART II. OTHER INFORMATION](index=27&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The Partnership is involved in lawsuits related to a 2021 facility fire, with costs largely expected to be covered by insurance, and other proceedings are not material - Lawsuits are pending in connection with a flash fire at the Petro 2 facility in September 2021, with the Partnership expecting insurance to cover most associated costs[131](index=131&type=chunk) - Westlake has agreed to indemnify the Partnership for certain environmental and other liabilities that existed prior to August 4, 2014[130](index=130&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the Partnership's 2022 Annual Report on Form 10-K - There have been no material changes from the risk factors disclosed in the 2022 Form 10-K[133](index=133&type=chunk) [Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including officer certifications and XBRL data files - The report includes various exhibits, such as the Certificate of Limited Partnership, amendments to partnership agreements, officer certifications (Rule 13a-14(a) and Section 1350), and XBRL interactive data files[135](index=135&type=chunk)

Sales and Revenue - The company reported a significant increase in ethylene sales volume, reaching 1.5 million tons, which represents a 10% increase year-over-year[22] - The average selling price of ethylene was $1,200 per ton, reflecting a 15% increase compared to the previous quarter[22] - The company anticipates a 12% growth in revenue for the upcoming quarter, driven by increased demand in the automotive and construction sectors[22] Production and Capacity - The company plans to invest $200 million in capital expenditures for expanding production capacity in the next fiscal year[22] - The ongoing supply chain constraints have impacted production efficiency, leading to a 5% decrease in overall output[22] New Products and Innovation - New product lines, including biodegradable plastics, are expected to launch in Q2 2024, targeting a market size of $500 million[22] - The company has initiated a strategic partnership with a leading technology firm to enhance its R&D capabilities in sustainable materials[22] Environmental Initiatives - The management has set a target of achieving a 20% reduction in greenhouse gas emissions by 2025, aligning with new environmental regulations[22] Market Expansion - The company is exploring potential acquisitions to expand its market presence in Asia, with a focus on increasing its share in the specialty chemicals segment[22] Financial Policy - The board of directors has approved a quarterly distribution of $0.50 per share, maintaining a stable dividend policy despite market fluctuations[22]

Westlake Chemical Partners LP (NYSE:WLKP) Q4 2022 Results Conference Call February 21, 2023 1:00 PM ET Company Participants Jeff Holy - Vice President and Treasurer Albert Chao - President and Chief Executive Officer Steve Bender - Executive Vice President and Chief Financial Officer Operator 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. ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File No. 001-36567 Westlake Chemical Partners LP (Exact name of registrant as specified in its charter) Securities registered pursuant to Section 12(b) of t ...

Westlake Chemical Partners LP (NYSE:WLKP) Q2 2022 Earnings Conference Call August 2, 2022 1:00 PM ET Company Participants Jeff Holy - Vice President and Treasurer Albert Chao - President and Chief Executive Officer Steve Bender - Executive Vice President and Chief Financial Officer Conference Call Participants Matthew Blair - Tudor, Pickering, Holt Operator Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners Second Quarter 2022 Earnings Conference Call. During the presentati ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements and management's discussion and analysis for Westlake Chemical Partners LP, covering financial condition, results of operations, market risks, and internal controls [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Westlake Chemical Partners LP's unaudited consolidated financial statements, including balance sheets, operations, equity, and cash flows [Consolidated Balance Sheets](index=4&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) This section provides a snapshot of the Partnership's financial position, detailing assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheets | Metric | March 31, 2022 (in thousands of dollars) | December 31, 2021 (in thousands of dollars) | | :----------------------------------- | :--------------------------------------- | :---------------------------------------- | | Total current assets | $274,727 | $281,210 | | Total assets | $1,454,366 | $1,480,698 | | Total current liabilities | $453,999 | $106,796 | | Total liabilities | $478,134 | $508,000 | | Total equity | $976,232 | $972,698 | - **Total current liabilities** significantly increased from **$106,796 thousand** at December 31, 2021, to **$453,999 thousand** at March 31, 2022, primarily due to a new 'Debt payable to Westlake' of **$377,055 thousand** classified as current[8](index=8&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) This section details the Partnership's financial performance over specific periods, including net sales, cost of sales, gross profit, and net income Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2022 (in thousands of dollars) | Three Months Ended March 31, 2021 (in thousands of dollars) | | :------------------------------------------------------------------ | :---------------------------------------------------------- | :---------------------------------------------------------- | | Total net sales | $362,400 | $268,207 | | Cost of sales | $270,961 | $180,508 | | Gross profit | $91,439 | $87,699 | | Income from operations | $83,212 | $79,026 | | Net income | $80,825 | $76,622 | | Net income attributable to Westlake Chemical Partners LP | $16,194 | $15,146 | | Net income per limited partner unit (basic and diluted) | $0.46 | $0.43 | - Total net sales increased by **35.1%** year-over-year, from **$268,207 thousand** in Q1 2021 to **$362,400 thousand** in Q1 2022 Net income attributable to Westlake Chemical Partners LP increased by **6.9%** from **$15,146 thousand** to **$16,194 thousand**[10](index=10&type=chunk) [Consolidated Statements of Changes in Equity](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20EQUITY) This section outlines the changes in the Partnership's equity components, reflecting net income, distributions, and other equity adjustments Consolidated Statements of Changes in Equity | Equity Component | Balance at Dec 31, 2021 (in thousands of dollars) | Net Income (in thousands of dollars) | Quarterly Distribution to Unitholders (in thousands of dollars) | Balance at Mar 31, 2022 (in thousands of dollars) | | :---------------------------------------------- | :------------------------------------------------ | :----------------------------------- | :-------------------------------------------------------------- | :------------------------------------------------ | | Common Unitholders—Public and Privately Held | $481,796 | $9,700 | $(9,946) | $481,550 | | Common Unitholder—Westlake | $54,754 | $6,494 | $(6,657) | $54,591 | | General Partner—Westlake | $(242,572) | — | — | $(242,572) | | Noncontrolling Interests in OpCo | $678,720 | $64,631 | $(60,688) | $682,663 | | Total | $972,698 | $80,825 | $(77,291) | $976,232 | - Total equity increased from **$972,698 thousand** at December 31, 2021, to **$976,232 thousand** at March 31, 2022, driven by net income of **$80,825 thousand**, partially offset by total distributions of **$77,291 thousand**[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This section presents the cash inflows and outflows from operating, investing, and financing activities for the Partnership over specific periods Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands of dollars) | Three Months Ended March 31, 2021 (in thousands of dollars) | | :------------------------------------------------ | :---------------------------------------------------------- | :---------------------------------------------------------- | | Net cash provided by operating activities | $104,810 | $155,408 | | Net cash used for investing activities | $(25,342) | $(76,622) | | Net cash used for financing activities | $(77,291) | $(78,651) | | Net increase in cash and cash equivalents | $2,177 | $135 | | Cash and cash equivalents at end of period | $19,234 | $17,289 | - Net cash provided by operating activities decreased by **$50.6 million** year-over-year, from **$155.4 million** in Q1 2021 to **$104.8 million** in Q1 2022, primarily due to changes in working capital[16](index=16&type=chunk)[101](index=101&type=chunk) - Net cash used for investing activities significantly decreased from **$76.6 million** in Q1 2021 to **$25.3 million** in Q1 2022, mainly due to decreased net cash used under the Investment Management Agreement, partially offset by increased capital expenditures[16](index=16&type=chunk)[102](index=102&type=chunk) [Note 1. Description of Business and Basis of Presentation](index=8&type=section&id=1.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) This note describes Westlake Chemical Partners LP's business, its structure, and the basis for its consolidated financial statement presentation - Westlake Chemical Partners LP (the "Partnership") is a Delaware limited partnership formed in **March 2014** to operate, acquire, and develop ethylene production facilities and related assets[19](index=19&type=chunk) - The Partnership holds a **22.8%** limited partner interest and the entire non-economic general partner interest in Westlake Chemical OpCo LP ("OpCo"), consolidating OpCo's results due to its primary beneficiary status[20](index=20&type=chunk)[23](index=23&type=chunk) - The remaining **77.2%** limited partner interest in OpCo is owned by Westlake Corporation, which is recorded as a noncontrolling interest in the Partnership's consolidated financial statements[20](index=20&type=chunk)[23](index=23&type=chunk) [Note 2. Accounts Receivable—Third Parties](index=9&type=section&id=2.%20Accounts%20Receivable%E2%80%94Third%20Parties) This note provides details on the Partnership's accounts receivable from third parties, including trade customers and allowances for credit losses Accounts Receivable—Third Parties | Metric | March 31, 2022 (in thousands of dollars) | December 31, 2021 (in thousands of dollars) | | :------------------------------------ | :--------------------------------------- | :---------------------------------------- | | Trade customers | $27,468 | $5,875 | | Allowance for credit losses | $(1,056) | $(50) | | Accounts receivable, net—third parties | $26,412 | $5,825 | - Net accounts receivable from third parties increased significantly from **$5,825 thousand** at December 31, 2021, to **$26,412 thousand** at March 31, 2022, primarily driven by an increase in trade customers' receivables[27](index=27&type=chunk) [Note 3. Inventories](index=9&type=section&id=3.%20Inventories) This note details the composition of the Partnership's inventories, including finished products and feedstock, additives, and chemicals Inventories | Inventory Type | March 31, 2022 (in thousands of dollars) | December 31, 2021 (in thousands of dollars) | | :------------------------------ | :--------------------------------------- | :---------------------------------------- | | Finished products | $6,191 | $5,458 | | Feedstock, additives and chemicals | $1,696 | $3,440 | | Total Inventories | $7,887 | $8,898 | - Total inventories decreased from **$8,898 thousand** at December 31, 2021, to **$7,887 thousand** at March 31, 2022, mainly due to a reduction in feedstock, additives, and chemicals[28](index=28&type=chunk) [Note 4. Property, Plant and Equipment](index=9&type=section&id=4.%20Property,%20Plant%20and%20Equipment) This note provides information on the Partnership's property, plant, and equipment, including depreciation expense - Depreciation expense on property, plant and equipment increased to **$23,996 thousand** for the three months ended March 31, 2022, from **$22,802 thousand** for the same period in 2021, included in cost of sales[29](index=29&type=chunk) [Note 5. Deferred Charges and Other Assets](index=9&type=section&id=5.%20Deferred%20Charges%20and%20Other%20Assets) This note details the Partnership's deferred charges and other assets, including amortization expense - Amortization expense on other assets increased to **$7,286 thousand** for the three months ended March 31, 2022, from **$4,740 thousand** for the same period in 2021, included in cost of sales[30](index=30&type=chunk) [Note 6. Distributions and Net Income Per Limited Partner Unit](index=9&type=section&id=6.%20Distributions%20and%20Net%20Income%20Per%20Limited%20Partner%20Unit) This note outlines the Partnership's cash distributions to unitholders and the calculation of net income per limited partner unit - A quarterly cash distribution of **$0.4714 per unit** was declared for the three months ended March 31, 2022, payable on May 26, 2022[31](index=31&type=chunk) Distributions and Net Income Per Limited Partner Unit | Metric | Three Months Ended March 31, 2022 (in thousands of dollars) | Three Months Ended March 31, 2021 (in thousands of dollars) | | :------------------------------------------------------------------ | :---------------------------------------------------------- | :---------------------------------------------------------- | | Net income attributable to the Partnership | $16,194 | $15,146 | | Limited partners' distribution declared on common units | $16,600 | $16,593 | | Distribution in excess of net income | $(406) | $(1,447) | | Net income per limited partner unit (basic and diluted) | $0.46 | $0.43 | - The Partnership's distribution for Q1 2022 did not exceed the **$1.2938 per unit** threshold, meaning no distribution was made with respect to incentive distribution rights to Westlake[35](index=35&type=chunk) [Note 7. Partners' Equity](index=11&type=section&id=7.%20Partners%27%20Equity) This note provides details on the Partnership's equity structure, including common units issued and private placements - No common units were issued under the **$50 million** Equity Distribution Agreement as of March 31, 2022[38](index=38&type=chunk) - On March 29, 2019, the Partnership completed a private placement of **2,940,818 common units** at **$21.40 per unit**, with TTWF LP (Westlake's principal stockholder) acquiring **1,401,869 units**[39](index=39&type=chunk) [Note 8. Related Party Transactions](index=11&type=section&id=8.%20Related%20Party%20Transactions) This note details significant transactions between the Partnership and its related parties, primarily Westlake Corporation Related Party Transactions | Transaction Type | Three Months Ended March 31, 2022 (in thousands of dollars) | Three Months Ended March 31, 2021 (in thousands of dollars) | | :---------------------------------------------------------------------------- | :---------------------------------------------------------- | :---------------------------------------------------------- | | Net sales—Westlake | $290,657 | $219,803 | | Feedstock purchased from Westlake and included in cost of sales | $162,279 | $82,116 | | Other charges from Westlake and included in cost of sales | $39,467 | $31,842 | | Services received from Westlake and included in selling, general & admin expenses | $6,566 | $7,912 | | Goods and services purchased from Westlake and capitalized as assets | $750 | $403 | | Receivable under the Investment Management Agreement | $111,224 | $106,243 (Dec 31, 2021) | | Accounts receivable—Westlake | $109,732 | $142,791 (Dec 31, 2021) | | Accounts payable—Westlake | $34,471 | $10,796 (Dec 31, 2021) | | Total debt payable to Westlake | $399,674 | $399,674 (Dec 31, 2021) | - Westlake accounted for approximately **80.2%** of the Partnership's net sales in Q1 2022, down from **82.0%** in Q1 2021, indicating a continued major customer relationship[60](index=60&type=chunk) - Accounts payable to Westlake increased significantly from **$10,796 thousand** at December 31, 2021, to **$34,471 thousand** at March 31, 2022, primarily due to feedstock purchases and services[53](index=53&type=chunk)[54](index=54&type=chunk) [Note 9. Long-Term Debt Payable to Westlake](index=14&type=section&id=9.%20Long-Term%20Debt%20Payable%20to%20Westlake) This note provides information on the Partnership's long-term debt obligations to Westlake, including revolving credit facilities and their reclassification Long-Term Debt Payable to Westlake | Debt Type | March 31, 2022 (in thousands of dollars) | December 31, 2021 (in thousands of dollars) | | :----------- | :--------------------------------------- | :---------------------------------------- | | OpCo Revolver | $22,619 | $22,619 | | MLP Revolver | $377,055 | $377,055 | | Total debt | $399,674 | $399,674 | | Less current debt | $377,055 | — | | Long-term debt, net of current debt | $22,619 | $399,674 | - The MLP Revolver, totaling **$377,055 thousand**, was reclassified from long-term to current debt as of March 31, 2022, due to its scheduled maturity in March 2023[62](index=62&type=chunk) - The weighted average interest rate on all debt increased slightly from **2.1%** at December 31, 2021, to **2.2%** at March 31, 2022[62](index=62&type=chunk) [Note 10. Fair Value Measurements](index=14&type=section&id=10.%20Fair%20Value%20Measurements) This note describes the methodology used to determine the fair value of the Partnership's debt and its classification within the fair value hierarchy - The fair value of the Partnership's debt (OpCo Revolver and MLP Revolver) is determined using a discounted cash flow methodology, with significant unobservable inputs classified as **Level 3** within the fair value hierarchy[66](index=66&type=chunk) Fair Value Measurements | Debt Type | March 31, 2022 Carrying Value (in thousands of dollars) | March 31, 2022 Fair Value (in thousands of dollars) | December 31, 2021 Carrying Value (in thousands of dollars) | December 31, 2021 Fair Value (in thousands of dollars) | | :----------- | :------------------------------------------------------ | :-------------------------------------------------- | :--------------------------------------------------------- | :----------------------------------------------------- | | OpCo Revolver | $22,619 | $23,135 | $22,619 | $23,276 | | MLP Revolver | $377,055 | $381,875 | $377,055 | $383,574 | [Note 11. Supplemental Information](index=15&type=section&id=11.%20Supplemental%20Information) This note provides additional financial information, including changes in accrued liabilities and capital expenditure-related liabilities - Accrued and other liabilities decreased significantly from **$60,895 thousand** at December 31, 2021, to **$21,391 thousand** at March 31, 2022, primarily due to a decrease in accrued turnaround costs[69](index=69&type=chunk) - Capital expenditure related liabilities, included in accounts payable—third parties and accrued and other liabilities, increased to **$8,056 thousand** at March 31, 2022, from **$6,272 thousand** at March 31, 2021[70](index=70&type=chunk) [Note 12. Commitments and Contingencies](index=15&type=section&id=12.%20Commitments%20and%20Contingencies) This note outlines the Partnership's commitments and contingencies, including environmental regulations and pending legal proceedings - The Partnership is subject to environmental laws and regulations, with Westlake indemnifying for liabilities prior to **August 4, 2014**[71](index=71&type=chunk) - Lawsuits are pending in connection with the **September 2021** flash fire at the Petro 2 facility, with most costs expected to be covered by insurance[72](index=72&type=chunk) - Management does not believe any current legal proceedings will have a material adverse effect on the Partnership's financial condition, results of operations, or cash flows[73](index=73&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes the Partnership's financial condition, operations, non-GAAP measures, cash flow, and liquidity [Partnership Overview](index=16&type=section&id=Partnership%20Overview) This section provides an overview of Westlake Chemical Partners LP's business, structure, and primary assets - Westlake Chemical Partners LP is a Delaware limited partnership focused on operating, acquiring, and developing ethylene production facilities and related assets[76](index=76&type=chunk) - The Partnership's sole revenue-generating asset is its **22.8%** limited partner interest in OpCo, which it controls through its ownership of OpCo's general partner[77](index=77&type=chunk) - OpCo's assets include three ethylene production facilities (Lake Charles Olefins and Calvert City Olefins) and a **200-mile** common carrier ethylene pipeline (Longview Pipeline)[77](index=77&type=chunk) [How We Generate Revenue](index=16&type=section&id=How%20We%20Generate%20Revenue) This section explains the Partnership's revenue generation model, primarily through ethylene sales and a long-term, fee-based agreement with Westlake - Revenue is primarily generated from selling ethylene and co-products, with a substantial majority derived from a long-term, fee-based Ethylene Sales Agreement with Westlake[78](index=78&type=chunk) - The Ethylene Sales Agreement includes a minimum purchase commitment (**95%** of budgeted production) and variable pricing based on OpCo's feedstock, natural gas, and estimated other costs, plus a fixed margin of **$0.10 per pound** less co-product sales revenue[78](index=78&type=chunk) - In the event of a force majeure, the Partnership recognizes buyer deficiency fees, and any shortfall in production costs billed to Westlake is recoverable in the subsequent year[78](index=78&type=chunk)[79](index=79&type=chunk) [Operating Expenses, Maintenance Capital Expenditures and Turnaround Costs](index=17&type=section&id=Operating%20Expenses,%20Maintenance%20Capital%20Expenditures%20and%20Turnaround%20Costs) This section discusses how operating expenses, maintenance capital expenditures, and turnaround costs are managed and incorporated into the ethylene price - Operating expenses, maintenance capital expenditures, and turnaround costs are built into the ethylene price charged to Westlake, with non-feedstock costs based on forecasted amounts for a fixed **12-month** period[81](index=81&type=chunk) - The Partnership manages these costs by scheduling maintenance and turnarounds over time to minimize variability in operating margins and cash flows, and reserves cash annually for turnaround costs[81](index=81&type=chunk) [MLP Distributable Cash Flow and EBITDA](index=17&type=section&id=MLP%20Distributable%20Cash%20Flow%20and%20EBITDA) This section defines and explains the non-GAAP financial measures of MLP distributable cash flow and EBITDA, used for assessing performance and investment viability - MLP distributable cash flow is defined as net income plus depreciation, amortization, and disposition of property, plant and equipment, less contributions for turnaround reserves, maintenance capital expenditures, and mark-to-market adjustments on derivative contracts, further adjusted for noncontrolling interest and incentive distribution rights[82](index=82&type=chunk) - EBITDA is defined as net income before interest expense, income taxes, depreciation, and amortization[82](index=82&type=chunk) - These non-GAAP measures are used by management and external users to assess operating performance, debt servicing ability, and investment viability, but are not substitutes for GAAP measures[82](index=82&type=chunk)[83](index=83&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) This section analyzes the Partnership's financial results for the period, highlighting key drivers of changes in sales, gross profit, and non-GAAP metrics Results of Operations | Metric | Three Months Ended March 31, 2022 (in thousands of dollars) | Three Months Ended March 31, 2021 (in thousands of dollars) | | :------------------------------------------------------------------ | :---------------------------------------------------------- | :---------------------------------------------------------- | | Total net sales | $362,400 | $268,207 | | Gross profit | $91,439 | $87,699 | | Selling, general and administrative expenses | $8,227 | $8,673 | | Income from operations | $83,212 | $79,026 | | Net income attributable to Westlake Chemical Partners LP | $16,194 | $15,146 | | MLP distributable cash flow | $19,291 | $16,245 | | EBITDA | $114,469 | $106,575 | - Net sales increased by **$94.2 million** (**35.1%**) year-over-year, driven by a **22.0%** increase in average sales price and an **18.1%** increase in sales volume, primarily due to higher production and sales to Westlake and co-product sales[93](index=93&type=chunk)[94](index=94&type=chunk) - Gross profit increased by **$3.7 million**, but the gross profit margin decreased from **32.7%** to **25.2%** due to higher ethane feedstock and natural gas costs, partially offset by higher prices and volumes[95](index=95&type=chunk) - MLP distributable cash flow increased by **$3.1 million** (**19.0%**) to **$19.3 million**, primarily due to increased earnings at OpCo and decreased turnaround reserves, partially offset by higher maintenance expense[98](index=98&type=chunk) - EBITDA increased by **$7.9 million** (**7.4%**) to **$114.5 million**, driven by higher ethylene sales volumes and prices to Westlake and co-product sales, partially offset by lower third-party ethylene sales prices and higher feedstock costs[99](index=99&type=chunk) [Cash Flow Discussion](index=21&type=section&id=CASH%20FLOW%20DISCUSSION%20FOR%20THE%20THREE%20MONTHS%20ENDED%20MARCH%2031,%202022%20AND%202021) This section discusses the Partnership's cash flow activities, analyzing changes in cash from operating, investing, and financing activities - Operating activities provided **$104.8 million** in cash in Q1 2022, a **$50.6 million** decrease from **$155.4 million** in Q1 2021, mainly due to an unfavorable change in working capital of **$62.2 million**[101](index=101&type=chunk) - Investing activities used **$25.3 million** in cash in Q1 2022, a decrease from **$76.6 million** used in Q1 2021, primarily due to decreased net cash used under the Investment Management Agreement, partially offset by increased capital expenditures[102](index=102&type=chunk) - Financing activities used **$77.3 million** in cash in Q1 2022, comparable to **$78.7 million** in Q1 2021, primarily for distributions to Westlake (**$60.7 million**) and other unitholders (**$16.6 million**)[103](index=103&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the Partnership's liquidity sources, capital expenditure funding, and revolving credit facilities - The Partnership expects to distribute most excess cash to partners and fund capital expenditures primarily from external sources, including borrowing from Westlake or future equity/debt issuances[105](index=105&type=chunk) - Sources of liquidity include cash from operations, the OpCo Revolver, the MLP Revolver, and potential future equity/debt issuances, which are believed to be sufficient for short-term working capital, long-term capital expenditures, and quarterly distributions[106](index=106&type=chunk) - As of March 31, 2022, cash and cash equivalents totaled **$19.2 million**, with an additional **$111.2 million** invested under the Investment Management Agreement with Westlake[111](index=111&type=chunk)[112](index=112&type=chunk) - Total capital expenditures for Q1 2022 were **$20.3 million**, up from **$12.7 million** in Q1 2021, primarily for projects to improve production capacity, reduce costs, and for maintenance/safety[110](index=110&type=chunk) - The Partnership has two revolving credit facilities with Westlake affiliates: the OpCo Revolver (**$22.6 million** outstanding) and the MLP Revolver (**$377.1 million** outstanding), both bearing interest at LIBOR plus **2.0%**[113](index=113&type=chunk)[114](index=114&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the Partnership's market risk exposure, focusing on commodity price and interest rate risks - Direct exposure to commodity price risk is limited to approximately **5.0%** of total ethylene production sold to third parties, with indirect exposure substantially mitigated by the cost-plus based Ethylene Sales Agreement with Westlake[121](index=121&type=chunk) - The Partnership is exposed to interest rate risk from **$399.7 million** in variable rate debt (LIBOR plus **200 basis points**) owed to Westlake subsidiaries as of March 31, 2022[122](index=122&type=chunk) - A hypothetical **100 basis point** increase in the average interest rate on variable rate debt would increase annual interest expense by approximately **$4.0 million**[122](index=122&type=chunk) - The phase-out of LIBOR, expected to conclude by **June 30, 2023**, is being reviewed, but the impact is not expected to be material[123](index=123&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with no material changes to internal control - The President and CEO and Executive Vice President and CFO concluded that disclosure controls and procedures were effective as of **March 31, 2022**[124](index=124&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended **March 31, 2022**[125](index=125&type=chunk) [PART II. OTHER INFORMATION](index=25&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information, including updates on legal proceedings, risk factors, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) This section updates on legal proceedings, including EPA actions and flash fire lawsuits, with no material adverse financial impact - The EPA is conducting an enforcement initiative regarding flare emissions at Calvert City and Lake Charles facilities, potentially requiring corrective actions and monetary sanctions, for which Westlake is expected to indemnify the Partnership[128](index=128&type=chunk) - Lawsuits are pending in connection with the **September 2021** flash fire at the Petro 2 facility, with most associated costs expected to be covered by insurance[129](index=129&type=chunk) - The Partnership does not believe that any of its legal proceedings will have a material adverse effect on its financial condition, results of operations, or cash flows[130](index=130&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors discussed in the **2021 Form 10-K**, noting no material changes - There have been no material changes to the risk factors previously discussed in Item 1A, "Risk Factors" in the **2021 Form 10-K**[131](index=131&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL - The exhibits include various organizational documents such as the Certificate of Limited Partnership and amendments to the First Amended and Restated Agreement of Limited Partnership for Westlake Chemical Partners LP and Westlake Chemical OpCo LP[133](index=133&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350 Certifications) are filed herewith[133](index=133&type=chunk) - XBRL (eXtensible Business Reporting Language) taxonomy extension documents and the cover page interactive data file are also included as exhibits[133](index=133&type=chunk) [SIGNATURES](index=28&type=section&id=SIGNATURES) This section contains the official signatures of the Partnership's principal executive and financial officers - The report was signed on **May 4, 2022**, by Albert Chao, President, Chief Executive Officer and Director of Westlake Chemical Partners GP LLC (Principal Executive Officer), and M. Steven Bender, Executive Vice President, Chief Financial Officer and Director of Westlake Chemical Partners GP LLC (Principal Financial Officer)[139](index=139&type=chunk)

Westlake Chemical Partners LP (NYSE:WLKP) Q1 2022 Earnings Conference Call May 3, 2022 1:00 PM ET Company Participants Jeff Holy - Vice President and Treasurer Albert Chao - President and Chief Executive Officer Steve Bender - Executive Vice President and Chief Financial Officer Conference Call Participants Matthew Blair - Tudor, Pickering, Holt Operator Good afternoon. Thank you for standing by, and welcome to the Westlake Chemical Partners First Quarter 2022 Earnings Conference Call. During the presentati ...

[PART I](index=6&type=section&id=PART%20I) [Business](index=6&type=section&id=Item%201.%20Business) The Partnership operates ethylene production facilities through its 22.8% interest in OpCo, generating stable cash flows from a long-term, fee-based Ethylene Sales Agreement with Westlake [General Overview](index=6&type=section&id=General) Formed in 2014, the Partnership focuses on ethylene production through its 22.8% interest in OpCo, generating revenue from a cost-plus agreement with Westlake - The Partnership was formed by Westlake in March 2014 and owns a **22.8% limited partner interest in OpCo** as of January 1, 2019[29](index=29&type=chunk) - OpCo's assets include three ethylene production facilities with a total annual capacity of approximately **3.7 billion pounds** and a **200-mile ethylene pipeline**[31](index=31&type=chunk) - A 12-year Ethylene Sales Agreement with Westlake requires Westlake to purchase **95% of OpCo's planned ethylene production** on a cost-plus basis, generating a fixed margin of **$0.10 per pound**[33](index=33&type=chunk) [Assets and Operations](index=8&type=section&id=Our%20Assets%20and%20Operations) The Partnership's sole revenue-generating asset is its **22.8% interest in OpCo**, which owns three ethylene production facilities with a total annual capacity of **3.72 billion pounds** and a **200-mile ethylene pipeline** OpCo's Ethylene Production Facilities (as of Dec 31, 2021) | Plant Location (Description) | Annual Production Capacity (millions of pounds) | Feedstock | Primary Uses of Ethylene | | :--- | :--- | :--- | :--- | | Lake Charles, Louisiana (Petro 1) | 1,500 | Ethane | PE and PVC | | Lake Charles, Louisiana (Petro 2) | 1,490 | Ethane, ethane/propane mix, propane, butane or naphtha | PE and PVC | | Calvert City, Kentucky (Calvert City Olefins) | 730 | Ethane or propane | PVC | | **Total** | **3,720** | | | - OpCo owns a **200-mile, 10-inch diameter ethylene pipeline system** with a capacity of **3.5 million pounds per day**, operated as a common carrier by Buckeye Development & Logistics I LLC[43](index=43&type=chunk) [Agreements with Westlake](index=9&type=section&id=Our%20Agreements%20with%20Westlake) The Partnership's operations are governed by foundational agreements with Westlake, including the Ethylene Sales Agreement for stable revenue, Feedstock Supply, Services, Site Leases, and an Omnibus Agreement for administrative and indemnification - **Ethylene Sales Agreement:** A **12-year agreement** (through Dec 31, 2026, with automatic renewals) where Westlake purchases **95% of planned production** at a price covering costs plus a **$0.10/lb margin**[46](index=46&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) - **Feedstock Supply Agreement:** A **12-year agreement** where Westlake supplies OpCo with ethane and other feedstocks at a price based on an indexed spot price plus transportation and storage costs[52](index=52&type=chunk) - **Services and Secondment Agreement:** Westlake provides comprehensive operating services and seconds employees to OpCo to run its facilities[53](index=53&type=chunk) - **Site Lease Agreements:** OpCo leases the land for its Lake Charles and Calvert City facilities from Westlake under **two 50-year agreements** for **$1 per year per site**[54](index=54&type=chunk) - **Omnibus Agreement:** Westlake provides administrative services, holds a right of first refusal on asset transfers, and provides indemnification for certain environmental and other pre-IPO losses[55](index=55&type=chunk) [Environmental Matters](index=11&type=section&id=Environmental) The Partnership faces extensive environmental regulations, requiring ongoing capital expenditures and anticipating **$54.7 million** for EPA-related corrective actions, largely indemnified by Westlake, alongside lawsuits from a 2021 flash fire with expected insurance coverage Environmental Capital Expenditures | Year | Actual/Estimated Capex (in millions) | | :--- | :--- | | 2021 (Actual) | $2.2 | | 2022 (Estimate) | $2.2 | | 2023 (Estimate) | $0.9 | - An additional **$24.9 million in 2022** and **$29.8 million in 2023** are expected for corrective actions related to an EPA flare enforcement matter. Westlake is expected to indemnify the Partnership for these costs under the Omnibus Agreement[62](index=62&type=chunk)[63](index=63&type=chunk) - Lawsuits are pending from a flash fire at the Petro 2 facility in September 2021, but insurance is expected to cover most associated costs[64](index=64&type=chunk) [Human Capital](index=12&type=section&id=Human%20Capital) The Partnership and OpCo have no direct employees, with **151 personnel seconded from Westlake** as of December 31, 2021, **25 of whom are covered by collective bargaining agreements** that expire in November 2024 - The Partnership has no employees; **151 employees** were seconded from Westlake to OpCo as of December 31, 2021[67](index=67&type=chunk) - Of the seconded employees, **25 are covered by collective bargaining agreements** that expire on November 1, 2024[67](index=67&type=chunk) [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) The Partnership faces significant risks from its substantial dependence on Westlake for cash flows and operations, operational hazards, extensive environmental regulations, structural risks from Westlake's control, and tax risks related to partnership status [Risks Inherent in Our Business](index=15&type=section&id=Risks%20Inherent%20in%20Our%20Business) The business is heavily reliant on Westlake for cash flow and services, with potential for severe impact from Westlake's default or operational failures at its three core facilities, alongside risks from operating hazards, aging assets, environmental regulations, cybersecurity threats, and industry cyclicality - The Partnership is substantially dependent on Westlake for cash flows via the Ethylene Sales Agreement. A failure by Westlake to meet its obligations would materially harm the ability to make distributions[80](index=80&type=chunk)[82](index=82&type=chunk) - The Ethylene Sales Agreement's fixed **$0.10 per pound margin** limits the ability to benefit from favorable market conditions, such as higher ethylene prices[93](index=93&type=chunk) - OpCo depends on Westlake for all operational services and its labor force under the Services and Secondment Agreement. Termination of this agreement would require finding alternative, potentially more costly, service providers[96](index=96&type=chunk) - Substantially all sales are generated from **three facilities at two sites**. An adverse event like an explosion, fire, or severe weather at either site could materially disrupt operations and cash flow[100](index=100&type=chunk)[101](index=101&type=chunk) - Operations are subject to extensive environmental, health, and safety regulations, including potential new rules on greenhouse gas emissions, which could increase compliance costs[109](index=109&type=chunk)[111](index=111&type=chunk) [Risks Relating to Our Partnership Structure](index=23&type=section&id=Risks%20Relating%20to%20Our%20Partnership%20Structure) The partnership structure presents risks due to Westlake's control over the general partner, creating potential conflicts of interest, limiting unitholder rights, and including a general partner call right, with significant tax risks if partnership status is lost - Westlake controls the general partner, creating conflicts of interest where it may favor its own interests over those of the Partnership's unitholders[118](index=118&type=chunk) - The partnership agreement replaces traditional fiduciary duties with contractual standards, limiting the general partner's liability and restricting remedies available to unitholders[122](index=122&type=chunk)[124](index=124&type=chunk) - Unitholders have limited voting rights, cannot elect directors, and cannot remove the general partner without its consent due to Westlake's significant ownership stake (**40.1% of common units**)[131](index=131&type=chunk)[132](index=132&type=chunk) - The general partner has a call right to acquire all common units held by unaffiliated persons if its ownership exceeds **80%**, potentially forcing unitholders to sell at an undesirable time or price[134](index=134&type=chunk) - The Partnership's favorable tax treatment depends on its status as a partnership. If treated as a corporation for tax purposes, it would be subject to entity-level taxation, substantially reducing cash available for distribution[148](index=148&type=chunk)[151](index=151&type=chunk) [Properties](index=33&type=section&id=Item%202.%20Properties) Details on the company's properties are cross-referenced to Item 1. Business—OpCo's Assets and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Details on the company's properties are cross-referenced to Item 1 and Item 7 of the report[179](index=179&type=chunk) [Legal Proceedings](index=33&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, but management does not expect a material adverse effect, with Westlake indemnifying for certain pre-IPO environmental liabilities - The company is involved in ordinary course legal proceedings but does not expect them to have a material adverse effect[179](index=179&type=chunk) - Westlake indemnifies OpCo for certain environmental liabilities that occurred before the IPO closing date[179](index=179&type=chunk) [PART II](index=34&type=section&id=PART%20II) [Market for Common Equity and Related Matters](index=34&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Partnership's common units trade on the NYSE under "WLKP" and are not subject to federal income tax, with a cash distribution policy targeting a minimum quarterly distribution of **$0.2750 per unit**, affecting payments to Westlake as the holder of incentive distribution rights - Common units are listed on the NYSE under the symbol **"WLKP"**[183](index=183&type=chunk) - The cash distribution policy targets a minimum quarterly distribution of **$0.2750 per unit**, though it is not a requirement[187](index=187&type=chunk) - Westlake holds the incentive distribution rights, which entitle it to increasing percentages of quarterly distributions from operating surplus after certain target distribution levels are met[191](index=191&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The Partnership's financial performance is driven by its **22.8% interest in OpCo** and the Ethylene Sales Agreement, providing stable revenue with a fixed **$0.10/lb margin**, leading to increased net income and cash flow in 2021, with liquidity maintained through operations, an Investment Management Agreement, and revolving credit facilities [Results of Operations](index=40&type=section&id=Results%20of%20Operations) For 2021, net income rose to **$401.4 million** from **$341.1 million** in 2020, driven by higher third-party ethylene sales prices and increased buyer deficiency and shortfall revenue to **$110.3 million**, partially offset by lower sales volumes and higher feedstock costs, resulting in a gross profit margin decrease to **36.4%** from **39.2%** Consolidated Results of Operations (in thousands) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total net sales | $1,214,858 | $966,670 | $1,091,871 | | Gross profit | $441,706 | $378,883 | $379,428 | | Income from operations | $410,688 | $352,988 | $350,150 | | Net income | $401,385 | $341,119 | $332,895 | | Net income attributable to Westlake Chemical Partners LP | $82,547 | $66,167 | $60,981 | | MLP distributable cash flow | $70,057 | $71,983 | $73,181 | | EBITDA | $519,564 | $456,875 | $460,566 | - The increase in 2021 net income was primarily due to higher sales prices for ethylene sold to third parties and an increase in buyer deficiency fee and Shortfall revenue to **$110.3 million**, compared to **$69.6 million in 2020**[223](index=223&type=chunk) - The positive revenue factors in 2021 were partially offset by lower sales volumes to Westlake due to the Petro 2 turnaround and other force majeure events, as well as higher feedstock and conversion costs[223](index=223&type=chunk) [Cash Flows](index=43&type=section&id=Cash%20Flows) For 2021, cash provided by operating activities increased to **$408.4 million** from **$373.4 million** in 2020, driven by higher net income and favorable working capital, while investing activities used **$64.3 million** due to increased capital expenditures for the Petro 2 turnaround, and financing activities used **$344.2 million** primarily for distributions Summary of Cash Flows (in millions) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $408.4 | $373.4 | $450.8 | | Net cash provided by (used for) investing activities | $(64.3) | $2.0 | $(57.7) | | Net cash used for financing activities | $(344.2) | $(378.2) | $(392.9) | - The **$35.0 million increase in operating cash flow in 2021** was mainly due to higher net income and favorable working capital changes, partially offset by costs for the Petro 2 facility turnaround[239](index=239&type=chunk) - Capital expenditures increased to **$81.2 million in 2021** from **$37.0 million in 2020**, primarily due to the Petro 2 turnaround[241](index=241&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) The Partnership's primary liquidity sources are cash from operations, two revolving credit facilities with Westlake, and an Investment Management Agreement, with total outstanding debt of **$399.7 million** as of December 31, 2021, and an unused **$50.0 million ATM program**, ensuring sufficient liquidity for operations and distributions - The Partnership has an At-the-Market (ATM) program to sell up to **$50.0 million in common units**, but no units had been issued under this program as of December 31, 2021[246](index=246&type=chunk) - As of December 31, 2021, cash and cash equivalents were **$17.1 million**, with an additional **$106.2 million of cash invested with Westlake** under an Investment Management Agreement[254](index=254&type=chunk)[255](index=255&type=chunk) Outstanding Debt to Westlake (as of Dec 31, 2021) | Facility | Outstanding Borrowings (in millions) | Maturity | | :--- | :--- | :--- | | OpCo Revolver | $22.6 | Sep 25, 2023 | | MLP Revolver | $377.1 | Mar 19, 2023 | | **Total** | **$399.7** | | [Critical Accounting Policies and Estimates](index=46&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management identifies critical accounting policies requiring significant judgment, including assessing long-lived assets for impairment, fair value estimates for business combinations and derivatives, annual goodwill impairment testing for **$5.8 million**, and estimating environmental and legal obligations through professional consultation - Key estimates for long-lived assets include useful lives and recoverability. The company evaluates for impairment when events indicate the carrying amount may not be recoverable[264](index=264&type=chunk)[265](index=265&type=chunk) - Turnaround costs are deferred and amortized over the period until the next planned turnaround (typically **5 years**). In 2021, **$131.2 million in turnaround costs** were deferred[267](index=267&type=chunk) - Goodwill of **$5.8 million** is tested for impairment annually. The 2021 quantitative assessment did not indicate any impairment[270](index=270&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=48&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The Partnership's direct commodity price risk is limited to approximately **5% of ethylene production** sold to third parties, with the Ethylene Sales Agreement mitigating risk, while interest rate risk on **$399.7 million of variable rate debt** could increase annual interest expense by approximately **$4.0 million** for a 100 basis point rate hike - Direct commodity price risk is limited to about **5% of total ethylene production** sold to third parties, with the Ethylene Sales Agreement mitigating risk on the rest[274](index=274&type=chunk) - The company is exposed to interest rate risk on its **$399.7 million of variable rate debt**. A **100 basis point (1%) increase** in rates would increase annual interest expense by approximately **$4.0 million**[275](index=275&type=chunk) [Financial Statements and Supplementary Data](index=49&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes the consolidated financial statements for 2021, 2020, and 2019, Management's Report on Internal Control, the Independent Registered Public Accounting Firm's Report, and core financial statements along with detailed Notes to the Consolidated Financial Statements - Management concluded that the Partnership's internal control over financial reporting was effective as of December 31, 2021[280](index=280&type=chunk) - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[285](index=285&type=chunk) - The auditor identified Revenue from the Ethylene Sales Agreement as a critical audit matter due to the significant effort required to evaluate the complex fee, buyer deficiency, and shortfall calculations[293](index=293&type=chunk)[294](index=294&type=chunk) [Consolidated Financial Statements](index=53&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements present the Partnership's financial position and results, with total assets of **$1.48 billion** and total equity of **$972.7 million** as of December 31, 2021, and net income of **$401.4 million** on total net sales of **$1.21 billion** with **$408.4 million** in net cash from operating activities for the year Key Balance Sheet Data (as of Dec 31, 2021, in thousands) | | Amount | | :--- | :--- | | Total current assets | $281,210 | | Property, plant and equipment, net | $1,043,539 | | **Total assets** | **$1,480,698** | | Total current liabilities | $106,796 | | Long-term debt payable to Westlake | $399,674 | | **Total liabilities** | **$508,000** | | **Total equity** | **$972,698** | Key Statement of Operations Data (Year ended Dec 31, 2021, in thousands) | | Amount | | :--- | :--- | | Total net sales | $1,214,858 | | Gross profit | $441,706 | | Income from operations | $410,688 | | **Net income** | **$401,385** | | Net income attributable to Westlake Chemical Partners LP | $82,547 | [Notes to Consolidated Financial Statements](index=57&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies and financial results, including consolidating OpCo as a variable interest entity, mechanics of Westlake agreements, and breakdowns of financial statement items, with 2021 sales to Westlake of **$1.027 billion** including **$51.4 million** in buyer deficiency fees and **$58.9 million** in shortfall revenue, total debt to Westlake of **$399.7 million**, and coverage of commitments, contingencies, and related party transactions - The Partnership consolidates OpCo as it is deemed the primary beneficiary of a variable interest entity[315](index=315&type=chunk) - In 2021, due to force majeure events, the Partnership recognized **$51.4 million in buyer deficiency fees** and **$58.9 million in Shortfall revenue** from Westlake[391](index=391&type=chunk) - Total long-term debt payable to Westlake as of December 31, 2021, was **$399.7 million**, consisting of borrowings under the OpCo Revolver and the MLP Revolver, both maturing in 2023[371](index=371&type=chunk) - Lawsuits are pending related to a flash fire at the Petro 2 facility in September 2021, with most costs expected to be covered by insurance[429](index=429&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal controls reported during the fourth quarter of 2021 - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2021[435](index=435&type=chunk) - There were no changes in internal control over financial reporting during the fourth quarter of 2021 that materially affected, or are reasonably likely to materially affect, internal controls[437](index=437&type=chunk) [PART III](index=76&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=76&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) The Partnership is managed by the board and executive officers of its general partner, wholly owned by Westlake, with a seven-director board including **three independent members**, an audit committee, and a potential conflicts committee, operating under a Code of Ethics and Principles of Corporate Governance - The Partnership is managed by the board and officers of its general partner, which is a wholly-owned subsidiary of Westlake[442](index=442&type=chunk) - The general partner's board has **seven directors**, **three of whom (G. Stephen Finley, Angela A. Minas, and Randy G. Woelfel) are independent**[443](index=443&type=chunk)[459](index=459&type=chunk) - The board has a standing audit committee and can form a conflicts committee, both comprised of independent directors, to oversee financial reporting and review potential conflicts of interest[461](index=461&type=chunk)[463](index=463&type=chunk) [Executive Compensation](index=80&type=section&id=Item%2011.%20Executive%20Compensation) The Partnership has no direct employees, with executive officers' salaries allocated from Westlake, and non-employee directors receiving an annual retainer of approximately **$180,000** in cash and phantom units, resulting in a CEO-to-median-employee pay ratio of **0.79 to 1** for 2021 - Executive officers are employees of Westlake, which allocates a portion of their base salaries to the Partnership. For 2021, **10% of the CEO's** and **10% of the CFO's base salaries** were allocated[469](index=469&type=chunk)[490](index=490&type=chunk) 2021 NEO Compensation Allocated to the Partnership | Name and Principal Position | Total Allocated Salary | | :--- | :--- | | Albert Y. Chao, President and CEO | $116,317 | | M. Steven Bender, EVP and CFO | $63,883 | - Non-employee directors receive an annual retainer of approximately **$180,000** (**$80,000 in cash** and **$100,000 in phantom units**), plus an additional **$15,000 cash retainer** for the audit committee chair[493](index=493&type=chunk) - The CEO pay ratio for 2021 was **0.79 to 1**, comparing the CEO's allocated compensation of **$116,317** to the median seconded employee's total compensation of **$147,922**[495](index=495&type=chunk)[497](index=497&type=chunk) [Security Ownership](index=86&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of February 18, 2022, Westlake Corporation beneficially owned **40.1%** of the Partnership's common units, with directors and executive officers as a group owning **45.0%**, and other significant beneficial owners including Invesco Ltd. (**16.6%**), Energy Income Partners, LLC (**7.0%**), and First Trust Portfolios L.P. (**5.2%**) - Westlake Corporation beneficially owns **14,122,230 common units**, representing a **40.1% interest**[501](index=501&type=chunk) - All directors and executive officers as a group beneficially own **45.0% of the outstanding common units**[501](index=501&type=chunk) Beneficial Owners of 5% or More (as of Feb 2022) | Name of Beneficial Owner | Percentage of Common Units | | :--- | :--- | | Invesco Ltd. | 16.6% | | Energy Income Partners, LLC | 7.0% | | First Trust Portfolios L.P. et al. | 5.2% | [Certain Relationships and Related Transactions](index=88&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) The Partnership has extensive related-party transactions with Westlake, which owns **40.1%** of common units and **100%** of the general partner, governed by long-term agreements, with conflicts of interest managed by an independent directors' committee, and in 2021, Westlake received **$26.6 million** in distributions and was reimbursed **$185.4 million** for expenses - Westlake owns **40.1% of common units**, **100% of the general partner**, and all incentive distribution rights, leading to numerous related-party transactions[510](index=510&type=chunk) - Potential conflicts of interest can be approved by a conflicts committee of independent directors or by a majority vote of unaffiliated unitholders[511](index=511&type=chunk)[515](index=515&type=chunk) - In 2021, Westlake received approximately **$26.6 million in distributions** on its common units[517](index=517&type=chunk) - The Partnership reimbursed Westlake and its affiliates approximately **$185.4 million for expenses** incurred on its behalf in 2021[518](index=518&type=chunk) [Principal Accountant Fees and Services](index=92&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) PricewaterhouseCoopers LLP served as the independent registered public accounting firm, with total fees for 2021 of **$1,018,328**, comprising **$765,000** for audit fees and **$253,328** for tax fees, all pre-approved by the audit committee Accountant Fees (2021 vs 2020) | Fee Type | 2021 | 2020 | | :--- | :--- | :--- | | Audit fees | $765,000 | $961,250 | | Tax fees | $253,328 | $245,770 | | **Total** | **$1,018,328** | **$1,207,020** | - The audit committee pre-approved all audit and non-audit services provided by PricewaterhouseCoopers LLP in 2021[534](index=534&type=chunk) [PART IV](index=93&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=93&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed as part of the Form 10-K, referencing financial statements in Item 8 and noting the omission of schedules, with a detailed index of exhibits including key organizational documents and material contracts - This section contains the index of all exhibits filed with the Form 10-K, including key organizational documents and material contracts[541](index=541&type=chunk)[542](index=542&type=chunk)[543](index=543&type=chunk)

Financial Data and Key Metrics Changes - Westlake Partners reported record full-year 2021 net income of $83 million or $2.34 per unit, an increase of $17 million compared to 2020 [6][10] - Fourth-quarter 2021 net income was $30 million or $0.84 per unit, a decrease of $15 million compared to the same quarter in 2020 [9][10] - Consolidated net income, including OpCo's earnings, was $138 million on consolidated net sales of $330 million for the fourth quarter [9][10] - Distributable cash flow for the fourth quarter was $15 million or $0.43 per unit, comparable to $16 million in Q4 2020 [10][11] - Full-year 2021 MLP distributable cash flow was $70 million, slightly down from $72 million in 2020 [11] Business Line Data and Key Metrics Changes - The Partnership benefited from a buyer deficiency fee and recovery of certain costs from Westlake, contributing to the net income increase [10][11] - The fixed margin ethylene sales agreement for 95% of annual plant production provided stability and predictability in cash flows [7][8] Market Data and Key Metrics Changes - The demand for ethylene is expected to remain strong, driven by robust downstream derivative needs and consumer products [17][18] - The company anticipates healthy margins in 2022 due to elevated demand and strong market fundamentals [18] Company Strategy and Development Direction - The company plans to evaluate growth opportunities through increasing ownership interest in OpCo, acquisitions, and organic growth [18] - The focus remains on providing long-term value to unit holders while maintaining a strong balance sheet and conservative financial metrics [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continuing demand for ethylene and the stability provided by the ethylene sales agreement [17][18] - The company is prepared to provide growth if the market rewards value players, indicating readiness for potential distribution growth [34][43] Other Important Information - The Partnership has maintained a cumulative coverage ratio above its target level since its IPO in 2014 [14] - The next planned turnaround is at the Petro 1 facility in 2023 [15] Q&A Session Summary Question: Expectations for increased demand for ethylene and potential expansion - Management indicated that both the Partnership and Westlake Corporation have several alternatives for expansion, depending on capital costs and margin expectations [22][23] Question: Surge in EBITDA for the quarter - The surge was attributed to a buyer deficiency fee and shortfall fee due to an extended outage, totaling about $90 million [26] Question: Changes in strategy due to parent company developments - Management confirmed that there are no changes in the Partnership's structure or strategy despite changes at Westlake Corporation [32] Question: Potential for restarting distribution growth - Management noted that the market continues to reward value players and they are ready to provide growth if the market conditions are favorable [34][43] Question: Impact of $110 million obligations on earnings per unit - Management clarified that the obligations do not create a headwind on the Partnership's earnings profile, as the fees are structured to be paid in 2022 [38][39] Question: Availability of equity capital for growth - Management acknowledged the potential for both debt and equity financing for growth opportunities, depending on market conditions [41][42]