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Westlake Chemical Partners(WLKP) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements 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 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 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 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 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 beneficiary2023 - A quarterly cash distribution of $0.4714 per unit for Q1 2023 was declared, payable on May 26, 2023, consistent with Q1 20223139 - Significant related-party transactions with Westlake accounted for 83.7% of the Partnership's net sales in Q1 20234262 - Total long-term debt of $399.7 million is payable to Westlake, with a weighted average interest rate of 6.4% at March 31, 20236465 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 volumes8996 - The increase in gross profit and margin was driven by lower ethane feedstock costs (-37.7% YoY) and natural gas prices (-30.4% YoY)8997 Cash Flow Discussion 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 changes103 - 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 expenditures104 - 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 Westlake105 Liquidity and Capital Resources 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, 2023106 - 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 Agreement113114 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 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 Westlake124 - 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 million125 Controls and Procedures 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 report126 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls127 PART II. OTHER INFORMATION Legal Proceedings 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 costs131 - Westlake has agreed to indemnify the Partnership for certain environmental and other liabilities that existed prior to August 4, 2014130 Risk Factors 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-K133 Exhibits 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 files135