Westlake Chemical Partners LP - 10-Q Summary (Q3 2024)
Business Context and Reporting Period
This report covers the quarterly period ended September 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 (Lake Charles Olefins and Calvert City Olefins) 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 (in thousands) | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Total Net Sales | $276,995 | $321,664 | $845,836 | $893,518 |
| Gross Profit | $116,943 | $92,981 | $320,355 | $286,776 |
| Gross Margin % | 42.2% | 28.9% | 37.9% | 32.1% |
| Net Income (Consolidated) | $104,100 | $80,853 | $281,772 | $247,569 |
| Net Income Attributable to WLKP | $18,136 | $13,206 | $47,396 | $39,984 |
| Net Income Per Unit (Basic/Diluted) | $0.51 | $0.37 | $1.35 | $1.14 |
| EBITDA | $139,126 | $115,738 | $386,756 | $349,947 |
| MLP Distributable Cash Flow | $17,879 | $13,620 | $51,906 | $46,156 |
| Cash from Operating Activities (9M) | $352,532 | $344,328 | ||
| Capital Expenditures (9M) | ||||
| Long-Term Debt (Westlake) | $399,674 | |||
| Cash and Cash Equivalents | $60,208 |
Material Changes vs. Prior Period
- Revenue Decline: Total net sales decreased 13.9% in Q3 2024 and 5.3% in the first nine months of 2024 compared to the prior year. This was primarily driven by lower ethylene sales volumes and prices to Westlake, partially offset by higher sales volumes and prices to third parties.
- Margin Expansion: Gross profit margins improved significantly (42.2% in Q3 2024 vs. 28.9% in Q3 2023) due to lower ethane feedstock costs and natural gas prices. Q3 2024 results also included approximately $6.2 million in insurance recoveries related to Hurricane Laura.
- Profitability Growth: Despite lower sales, consolidated net income increased 28.7% in Q3 2024 and 13.8% for the nine-month period, driven by cost efficiencies and higher third-party sales.
- Working Capital: Cash provided by operating activities increased to $352.5 million for the nine months ended September 30, 2024, primarily due to lower cash usage for turnaround activities compared to the prior year.
Guidance, Outlook, and Risks
- Turnaround Deferral: Management decided to defer the planned maintenance turnaround at the Petro 1 facility from Q3 2024 to Q1 2025. This decision was made to maintain production and capitalize on higher third-party ethylene sales prices in the second half of 2024. This deferral resulted in "excess quantities" of ethylene, leading to a $5.9 million reduction in sales to Westlake for the quarter due to reimbursement charges.
- Distributions: A quarterly cash distribution of $0.4714 per unit was declared for Q3 2024, payable November 27, 2024. This amount did not exceed the threshold for incentive distribution rights.
- Liquidity: The Partnership maintains $60.2 million in cash and cash equivalents, plus $109.5 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 capacity, with $399.7 million outstanding as of September 30, 2024.
- Risks: Key risks include commodity price volatility (mitigated by the cost-plus agreement with Westlake), interest rate risk on variable-rate debt, and operational interruptions. The Partnership relies heavily on Westlake, which accounted for 77.9% of net sales in Q3 2024.
Investor Verification Checklist
- Related Party Dependence: Verify the stability of the Ethylene Sales Agreement with Westlake, which accounts for the vast majority of revenue.
- Turnaround Timing: Confirm the execution and cost impact of the deferred Petro 1 turnaround scheduled for Q1 2025.
- Insurance Recoveries: Assess the sustainability of earnings given the $6.2 million one-time insurance recovery included in Q3 2024 results.
- Debt Servicing: Monitor interest rate exposure on the $399.7 million variable-rate debt, which bears interest at SOFR plus a margin.
- Third-Party Sales: Evaluate the growth trajectory of third-party sales, which are subject to market price volatility unlike the fixed-margin sales to Westlake.