Westlake Chemical Partners(US:WLKP)2023-08-03 19:58Financial Data and Key Metrics Changes - Westlake Partners reported a net income of $12 million or $0.34 per unit for Q2 2023, a decrease of $4 million compared to Q2 2022's net income of $16 million [6][23] - Consolidated net income, including OpCo's earnings, was $75 million on consolidated net sales of $264 million [13] - Distributable cash flow for Q2 2023 was $15 million or $0.43 per unit, down from $20 million in Q2 2022 [23] - The partnership maintained a consolidated leverage ratio that increased approximately 1x, with long-term debt at $400 million [14][24] Business Line Data and Key Metrics Changes - Production and sales volumes were below both Q1 2023 and Q2 2022 levels due to a planned maintenance turnaround at Calvert City [11] - The ethylene sales agreement provides a predictable fee-based cash flow structure, which minimizes market volatility and production risks [12][16] Market Data and Key Metrics Changes - Sales to third parties declined more sharply than sales to Westlake Corporation, reflecting lower margins in the merchant ethylene market [46] - The ethylene margins for the merchant market have been below the $0.10 net margin for the first six months of the year [46] Company Strategy and Development Direction - The company plans to evaluate growth opportunities through increasing ownership interest in OpCo, acquisitions, organic growth, and negotiating higher fixed margins in ethylene sales agreements [29] - The partnership aims to provide long-term value and distributions to unitholders while focusing on safe operations and sustainability efforts [29] Management's Comments on Operating Environment and Future Outlook - Management expects financial results to improve in Q3 and Q4 2023 following the completion of the planned turnaround [22] - The financial performance in Q2 was consistent with historical performances during quarters with planned turnarounds, with expectations for recovery in upcoming quarters [28] Other Important Information - The partnership announced a quarterly distribution of $0.4714 per unit for Q2 2023, marking the 36th consecutive quarterly distribution since its IPO in 2014 [25] - The next planned turnaround is scheduled for the second half of 2024 at the Petro 1 ethylene facility in Lake Charles, Louisiana [27] Q&A Session Summary Question: Thoughts on restarting distribution growth and asset drops from OpCo - Management is continuously assessing opportunities for drop-down transactions that would support additional earnings and cash flows to the partnership [33] Question: Limiting factors regarding valuation and MLP investor appetite - The current yield is attractive to yield-oriented investors, and the trading multiple reflects a nice arbitrage relative to the parent C corp [35] Question: Costs for turnarounds and inflation trends - Costs per turnaround have trended higher due to rising labor and materials costs, which are built into the charges to the parent [48][49] Question: Interest expense increase despite unchanged total debt - Interest expense has increased due to rising interest rates on floating rate credit agreements [37] Question: Incentives for pursuing higher-value opportunities for hydrogen byproducts - The partnership assesses the value mix for coproducts and benefits accordingly [40]