WLKP

Westlake Chemical Partners LP - 10-Q Summary (Q1 2025)

Business Context and Reporting Period

This report covers the quarterly period ended March 31, 2025. Westlake Chemical Partners LP (WLKP) is a Delaware limited partnership that operates, acquires, and develops ethylene production facilities. The Partnership owns a 22.8% limited partner interest in Westlake Chemical OpCo LP ("OpCo"), which owns three ethylene production facilities (Petro 1, Petro 2, and Calvert City Olefins) and a common carrier pipeline. The remaining 77.2% interest in OpCo is held by Westlake Corporation. The Partnership consolidates OpCo's results as it is the primary beneficiary of the variable interest entity.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by $47.1 million (16.5%) primarily due to lower ethylene sales volumes to Westlake and lower co-product sales to third parties. This volume reduction was driven by the planned maintenance turnaround at the Petro 1 facility, which commenced in January 2025. Higher average sales prices (+11.2%) partially offset the volume decline (-27.7%).
• Margin Compression: Gross profit margin fell to 22.8% from 35.9%. This was caused by significantly higher input costs, with domestic natural gas fuel costs up 58.8% and ethane feedstock costs up 41.9% compared to Q1 2024.
• Profitability: Net income attributable to the Partnership dropped $9.9 million to $4.9 million. Income from operations decreased by $48.5 million.
• Cash Flow: Operating cash flow decreased by $58.8 million due to lower operating income and cash used for the Petro 1 turnaround. However, working capital changes provided $81.7 million in cash, a favorable shift compared to the prior year.
• Capital Expenditures: Capital expenditures increased to $16.0 million from $9.8 million, largely due to the Petro 1 turnaround activities.

Guidance, Outlook, and Risks

• Distributions: The Partnership declared a quarterly cash distribution of $0.4714 per common unit, payable May 29, 2025. This distribution exceeds the net income attributable to the Partnership for the quarter ($4.9 million vs. $16.6 million distributed), resulting in a distribution in excess of net income of $11.7 million.
• Turnaround Status: The Petro 1 turnaround concluded in April 2025. Management expects production volumes to normalize following the completion of this maintenance.
• Liquidity: The Partnership maintains $49.6 million in cash and cash equivalents, plus $104.5 million invested under an 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 prices, and the concentration of revenue (Westlake accounted for 80.3% of net sales in Q1 2025). The Partnership relies heavily on Westlake for feedstock supply and as its primary customer.

Investor Verification Checklist

• Turnaround Impact: Verify the timeline for full production recovery at the Petro 1 facility and the expected impact on Q2 2025 volumes.
• Input Cost Sustainability: Assess whether the 41.9% increase in ethane feedstock costs and 58.8% increase in natural gas costs are temporary or indicative of a new cost baseline.
• Distribution Coverage: Monitor the ratio of distributable cash flow to distributions declared, as the current quarter's distribution significantly exceeded net income attributable to unitholders.
• Debt Covenants: Confirm continued compliance with the MLP Revolver leverage ratio covenant (4.50:1.00 or less) given the reduced earnings.
• Related Party Dependence: Review the terms of the Ethylene Sales Agreement to understand the pricing mechanism's ability to pass through higher feedstock costs to Westlake.