Westlake Chemical Partners(WLKP) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Unaudited statements show increased net income driven by higher sales prices and a significant buyer deficiency fee Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2020 ($ thousands) | Dec 31, 2019 ($ thousands) | | :--- | :--- | :--- | | Total current assets | 278,162 | 238,411 | | Total assets | 1,382,282 | 1,393,456 | | Total current liabilities | 41,694 | 38,849 | | Total liabilities | 443,450 | 441,321 | | Total equity | 938,832 | 952,135 | Consolidated Statements of Operations Highlights (Unaudited) | Metric | Q3 2020 ($ thousands) | Q3 2019 ($ thousands) | Nine Months 2020 ($ thousands) | Nine Months 2019 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Total net sales | 231,969 | 249,925 | 721,018 | 819,073 | | Gross profit | 100,391 | 93,219 | 293,969 | 275,831 | | Income from operations | 94,136 | 86,397 | 275,379 | 254,397 | | Net income | 91,848 | 82,479 | 265,995 | 240,985 | | Net income attributable to WLKP | 18,535 | 14,922 | 51,142 | 43,610 | | EPS (Common units, basic & diluted) | $0.53 | $0.42 | $1.45 | $1.27 | Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 ($ thousands) | Nine Months Ended Sep 30, 2019 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 340,876 | 335,154 | | Net cash used for investing activities | (58,170) | (45,982) | | Net cash used for financing activities | (279,298) | (290,269) | | Net increase (decrease) in cash | 3,408 | (1,097) | - The Partnership operates ethylene production facilities and holds a 22.8% limited partner interest in OpCo, consolidating its results[21][22][25] - A quarterly cash distribution of $0.4714 per unit was declared for Q3 2020, payable on November 24, 2020[38] Management's Discussion and Analysis of Financial Condition and Results of Operations Strong Q3 results were driven by a $41.3 million buyer deficiency fee, offsetting lower production volumes Recent Developments Hurricanes Laura and Delta forced facility shutdowns, triggering a force majeure event and a buyer deficiency fee - The business did not experience significant disruptions from COVID-19 due to its take-or-pay contract with Westlake covering 95% of production[99] - A force majeure declaration following Hurricane Laura resulted in a $41.3 million buyer deficiency fee from Westlake, recognized as net sales in Q3 2020[50][102] Results of Operations Net income increased for both Q3 and the nine-month period, primarily due to a deficiency fee and higher contractual prices Q3 2020 vs Q3 2019 Performance | Metric | Q3 2020 | Q3 2019 | Change | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $232.0M | $249.9M | -7.2% | Lower production volume (-34.5%) offset by higher sales price (+10.8%) and $41.3M deficiency fee | | Gross Profit | $100.4M | $93.2M | +7.7% | Higher earnings from Westlake due to deficiency fee, despite lower third-party sales | | Net Income | $91.8M | $82.5M | +11.3% | Higher gross profit and lower interest expense | | MLP Distributable Cash Flow | $21.2M | $20.5M | +3.4% | Higher income and lower interest expense, partially offset by increased turnaround reserves | Nine Months 2020 vs Nine Months 2019 Performance | Metric | Nine Months 2020 | Nine Months 2019 | Change | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $721.0M | $819.1M | -12.0% | Lower production volume (-15.2%) and lower third-party prices, partially offset by $41.3M deficiency fee | | Gross Profit | $294.0M | $275.8M | +6.6% | Higher earnings from Westlake and the deficiency fee | | Net Income | $266.0M | $241.0M | +10.4% | Higher gross profit, lower SG&A, and lower interest expense | | MLP Distributable Cash Flow | $56.4M | $54.4M | +3.7% | Higher income and lower interest expense, partially offset by increased turnaround reserves | Liquidity and Capital Resources Liquidity is primarily sourced from operations and credit facilities with Westlake, with total debt at $399.7 million - The Partnership has an at-the-market (ATM) program to sell up to $50.0 million in common units, but no units were issued as of September 30, 2020[132] - As of September 30, 2020, the Partnership had $23.3 million in cash and cash equivalents, plus $191.2 million invested with Westlake[139][140] Outstanding Debt to Westlake (as of Sep 30, 2020) | Facility | Outstanding Amount ($ millions) | Maturity | | :--- | :--- | :--- | | OpCo Revolver | 22.6 | Sep 2023 | | MLP Revolver | 377.1 | Mar 2023 | | Total | 399.7 | | Quantitative and Qualitative Disclosures about Market Risk The primary market risk is interest rate exposure on its variable-rate debt, while commodity price risk is limited - Direct commodity price risk is limited to approximately 5.0% of total ethylene production sold to third parties due to a cost-plus agreement with Westlake[151] - The Partnership is exposed to interest rate risk on its $399.7 million of variable-rate debt, with a 100 basis point increase raising annual interest expense by about $4.0 million[152] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[154] - No material changes in internal control over financial reporting occurred during Q3 2020[155] PART II. OTHER INFORMATION Legal Proceedings The Partnership is involved in an EPA enforcement initiative regarding flare emissions that may result in a monetary sanction - The EPA is conducting an enforcement action related to flares at the Calvert City and Lake Charles facilities, which may result in a monetary sanction exceeding $100,000[158] Risk Factors The primary risk is credit exposure to Westlake, whose financial condition could be adversely affected by the COVID-19 pandemic - A key risk is the creditworthiness of Westlake, as the Partnership's distributions depend on Westlake meeting its contractual obligations[161] - The COVID-19 pandemic poses a risk to Westlake's business and financial condition, which could indirectly impact the Partnership[163][165] Exhibits This section lists standard exhibits filed with the report, including officer certifications and XBRL data files - The report includes standard exhibits such as CEO and CFO certifications and XBRL data files[167]