Westlake Chemical Partners LP - 10-Q Summary (Q2 2024)
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024. Westlake Chemical Partners LP (WLKP) is a Delaware limited partnership that operates, acquires, and develops ethylene production facilities. The Partnership holds a 22.8% limited partner interest in Westlake Chemical OpCo LP ("OpCo"), which owns three ethylene production facilities and a common carrier pipeline. The remaining 77.2% interest in OpCo is held by Westlake Corporation. WLKP consolidates OpCo's results as the primary beneficiary of the variable interest entity.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Total Net Sales | $284.2 million | $264.2 million | $568.8 million | $571.9 million |
| Gross Profit | $101.2 million | $87.7 million | $203.4 million | $193.8 million |
| Gross Margin | 35.6% | 33.2% | 35.8% | 33.9% |
| Net Income (Consolidated) | $88.0 million | $75.3 million | $177.7 million | $166.7 million |
| Net Income Attributable to WLKP | $14.4 million | $11.9 million | $29.3 million | $26.8 million |
| Net Income Per Unit (Basic/Diluted) | $0.41 | $0.34 | $0.83 | $0.76 |
| EBITDA | $123.2 million | $108.6 million | $247.6 million | $234.2 million |
| MLP Distributable Cash Flow | $17.1 million | $15.0 million | $34.0 million | $32.5 million |
| Cash from Operating Activities | N/A | N/A | $226.5 million | $243.4 million |
| Long-Term Debt (Payable to Westlake) | $399.7 million | $399.7 million | $399.7 million | $399.7 million |
| Cash and Cash Equivalents | $66.0 million | $59.4 million | $66.0 million | $59.4 million |
Note: Cash flow figures for operating activities are presented on a six-month basis as per the Statement of Cash Flows.
Material Changes vs. Prior Period
- Revenue Growth (Q2): Net sales increased by $20.0 million (7.6%) in Q2 2024 compared to Q2 2023. This was driven by higher ethylene sales volumes to Westlake and higher third-party sales prices, partially offset by lower ethylene sales prices to Westlake.
- Revenue Decline (YTD): Net sales decreased by $3.1 million (0.5%) for the six months ended June 30, 2024, primarily due to lower ethylene sales prices, partially offset by higher sales volumes.
- Profitability: Gross profit margins improved to 35.6% in Q2 2024 from 33.2% in Q2 2023. This improvement was primarily due to lower ethane feedstock costs and natural gas prices.
- Interest Expense: Interest expense increased to $6.7 million in Q2 2024 from $6.1 million in Q2 2023 due to higher interest rates on outstanding debt.
- Working Capital: Cash provided by operating activities decreased by $16.9 million YTD 2024 compared to YTD 2023, mainly due to a $49.4 million decrease in cash provided by working capital changes (specifically accounts receivable and payables).
Guidance, Outlook, and Risks
- Distributions: On July 30, 2024, the General Partner declared a quarterly cash distribution of $0.4714 per unit, payable August 27, 2024. This distribution did not exceed the threshold for incentive distribution rights.
- Capital Expenditures: Total capital expenditures for the six months ended June 30, 2024, were $20.0 million. The next planned maintenance turnaround at the Petro 1 facility is expected to commence in the first quarter of 2025.
- Liquidity: The Partnership maintains $66.0 million in cash and cash equivalents and $94.5 million invested under the Investment Management Agreement with Westlake. It has access to two revolving credit facilities (OpCo Revolver and MLP Revolver) totaling $1.2 billion in capacity, with $399.7 million currently outstanding.
- Risks: Key risks include the cyclical nature of the chemical industry, volatility in raw material and energy costs, and the concentration of revenue (Westlake accounted for approximately 84.3% of net sales in Q2 2024). The Partnership is also subject to environmental regulations and potential legal proceedings, though management does not believe current proceedings will have a material adverse effect.
Investor Verification Checklist
- Verify the impact of the upcoming Petro 1 turnaround (Q1 2025) on future cash flows and capital expenditure requirements.
- Monitor the stability of the Ethylene Sales Agreement with Westlake, which accounts for the vast majority of revenue.
- Review the variable interest rate exposure on the $399.7 million debt balance, which is tied to SOFR.
- Assess the sustainability of the distribution coverage ratio, noting that distributions ($16.6 million for Q2) exceeded net income attributable to the Partnership ($14.4 million) for the quarter.
- Track feedstock (ethane) and natural gas price trends, as these are primary drivers of gross margin expansion or contraction.