Westlake Chemical Partners LP — Q1 2024 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2024, compared with Q1 2023. The Partnership owns a 22.8% limited partner interest in Westlake Chemical OpCo LP and controls OpCo through its general partner; Westlake owns the remaining 77.2%. OpCo operates three ethylene production facilities and an ethylene pipeline. The Partnership’s sales are predominantly to Westlake under a long-term cost-plus ethylene agreement.
Key financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $284.7 million | $307.7 million |
| Gross profit / gross margin | $102.2 million / 35.9% | $106.1 million / 34.5% |
| Income from operations | $95.1 million | $98.2 million |
| Consolidated net income | $89.6 million | $91.5 million |
| Net income attributable to the Partnership | $14.8 million | $14.9 million |
| Net income per common unit | $0.42 | $0.42 |
| Net cash provided by operating activities | $104.6 million | $144.9 million |
| MLP distributable cash flow (non-GAAP) | $16.9 million | $17.6 million |
| EBITDA (non-GAAP) | $124.4 million | $125.6 million |
Cash, debt and liquidity. At March 31, 2024, cash and cash equivalents were $55.8 million, and $94.5 million was receivable under the Investment Management Agreement with Westlake, which provides daily availability of invested cash. Total assets were $1.295 billion; total liabilities were $446.8 million. Long-term debt payable to Westlake was $399.7 million, unchanged from year-end 2023; it is variable-rate debt with a 7.2% weighted-average rate and scheduled maturity of July 12, 2027. The Partnership reported compliance with debt covenants. A 100-basis-point increase in average variable rates would raise annual interest expense by approximately $4.0 million, based on quarter-end debt.
Operating cash flow was lower year over year, while working capital used $9.7 million of cash in Q1 2024 versus providing $28.3 million in Q1 2023. Capital expenditures were $9.8 million. Financing cash outflows included $81.0 million distributed to Westlake’s noncontrolling interest in OpCo and $16.6 million to unitholders. Cash declined by $2.9 million to $55.8 million during the quarter.
Material changes versus Q1 2023
- Net sales fell $23.0 million, or 7.5%, primarily from lower ethylene and co-product prices and lower ethylene sales volumes. Management attributed 5.9% of the decrease to average selling prices and 1.6% to volume.
- Lower ethane feedstock and natural gas costs partly offset lower sales and helped gross margin rise to 35.9% from 34.5%; gross profit nevertheless declined $3.9 million.
- Consolidated net income declined $1.8 million; Partnership-attributable net income was broadly unchanged. Interest expense fell $0.7 million, while other income rose $0.5 million, mainly due to higher interest earned on the Westlake investment balance.
- Operating cash flow decreased $40.3 million, driven by an unfavorable $38.0 million year-over-year change in working-capital cash flows. MLP distributable cash flow declined $0.7 million, primarily due to higher turnaround reserves and lower OpCo earnings.
Outlook, risks and notable items
Management provided no specific earnings or operating guidance. It stated that cash from operations, available revolving facilities and other potential sources are expected to meet short- and long-term requirements and support quarterly distributions. The board declared a Q1-related distribution of $0.4714 per unit, payable May 29, 2024; the filing notes distributions are not contractually required. The distribution exceeded Partnership-attributable Q1 net income by $1.8 million.
- Revenue and cash generation depend substantially on Westlake: it accounted for 82.6% of Q1 2024 net sales. The ethylene agreement includes a minimum purchase commitment equal to 95% of budgeted production and formula-based pricing, but volumes, costs and fee collections remain relevant uncertainties.
- All $399.7 million of debt is variable-rate and owed to Westlake affiliates, creating interest-rate and related-party financing exposure. The facilities have $600 million stated capacity each; actual undrawn availability is not specified in the supplied filing text.
- Key risks include commodity and energy price changes, industry cyclicality, operating interruptions, environmental regulation and remediation, climate-related requirements, customer creditworthiness, and access to capital. Direct commodity-price exposure is described as approximately 5% of ethylene production; no derivative positions were open at quarter-end.
- Following a 2021 flash fire at the Petro 2 facility, settlements with all plaintiffs were reached, but insurance-carrier payments were not yet complete. Westlake and its subsidiaries are responsible for indemnifying the Partnership for related OpCo losses. Management does not expect the legal proceedings to materially affect financial condition, results or cash flows.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. It reported no material changes to the risk factors in the 2023 Form 10-K.
Important facts for investors to verify
- Future ethylene sales prices, volumes and production costs, including the operation of the Westlake minimum-purchase and cost-recovery provisions.
- Cash conversion and working-capital trends, turnaround reserve requirements, capital spending and whether distributable cash flow supports the declared distribution.
- Variable-rate debt costs, covenant headroom, actual revolving-facility availability and continued access to Westlake financing.
- Collection and timing of insurance proceeds for the Petro 2 fire settlements and the scope and enforceability of Westlake indemnification.
- The continuing concentration of sales, investment balances and debt relationships with Westlake and its affiliates.