Westlake Chemical Partners LP WLKP CEO Albert Chao on Q4 2019 Results

🎥 Feb 19, 2020 📺 Daily Earnings Calls ⏱ 21m 👁 73 views

About Albert Chao

Albert Chao, executive chairman at Westlake, discussed the company's 2019 financial performance on a February 2020 earnings call, describing it as "a very successful year for Westlake Partners." He reported record net income of $61 million and record MLP distributable cash flow of $73 million for the 12 months ending December 31, 2019, which he attributed to record production at OpCo and higher third-party sales margins. Chao noted that the partnership's long-term ethylene sales agreement with Westlake Chemical, a take-or-pay arrangement covering 95% of sales, "protects the partnership's cash flows from the margin volatility associated with the ethylene business." He stated that the partnership continues to evaluate growth through periodic drop downs of OpCo, acquisitions of other qualified income streams, organic expansions, and negotiating a higher fixed margin in the ethylene sales agreement. In earlier years, Chao represented the Air Quality Egg community at sensor journalism workshops in 2013 and 2014, describing the project as "an experiment both scientific and social." He explained that the project uses low-cost, uncalibrated sensors to make air quality data visible, acknowledging that the sensors "constantly get criticized" for their lack of precision. Chao stated that the goal is to deploy many sensors to cover more ground and identify trends, rather than replace expensive regulatory monitors. He also participated in the T.T. Chao Symposium on Innovation, where he thanked organizers and noted that the event brought together leading innovators in energy and hosted a student forum with Nobel laureate Yuan Lee for nearly 400 Houston high school students.

Source: AI-verified profile updated from Albert Chao's recent appearances. Browse all interviews →

Transcript (20 segments)

Operator0:00

Good morning, thank you for standing by. Welcome to the Westlake Chemical Partners fourth quarter and full year 2019 earnings conference call. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in a question and answer session. As a reminder, this conference is being recorded today, February 18, 2020. I'd like to turn the call over to today's host, Jeff Holley, Westlake Chemical Partners Vice President and Treasurer. There you may begin.

Jeff Holley0:32

Thank you. Good morning everyone and welcome to the Westlake Chemical Partners fourth quarter and full year 2019 conference call. I'm joined today by Albert Chao, our President and CEO; Steve Fender, our Senior Vice President and CFO; and other members of our management team. The conference call will begin with Albert, who will open up with a few comments regarding Westlake Chemical Partners' performance as well as the current outlook on our strategy and opportunities. Steve will then provide a more detailed look at our financial and operating results. Finally, Albert will give a few concluding comments and then we'll open the call up to questions. During this call, we refer to ourselves as Westlake Partners or the Partnership. References to Westlake or Westlake Chemical refer to our parent company, Westlake Chemical Corporation, and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake Chemical and the Partnership which owns certain olefins assets. Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners MLP distributable cash flow. Definitions of these items are available on the Partnership's website. Today, management is going to discuss certain topics that will contain forward-looking information based on management's beliefs as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. Actual results could differ materially based on many factors, including operating difficulties, the volume of ethylene that we're able to sell, the price at which we are able to sell ethylene, changes in the prevailing economic conditions, actual and proposed governmental regulatory actions, competitive products and pricing pressures, our ability to borrow funds and access capital markets at a reasonable cost, and other risk factors discussed in our SEC filings. This morning, Westlake Partners issued a press release with details of our fourth quarter and record 2019 financial and operating results. This document is available in the press release section of our web page at wlkpartners.com. A replay of today's call will be available beginning two hours after the conclusion of this call. The replay may be accessed by dialing the following numbers: domestic callers should dial 855-859-2056; international callers may access the replay at 404-537-3406. The access code for both is 5679302. Please note that information reported on this call speaks only as of today, February 18, 2020, and therefore you are advised that time-sensitive information may no longer be accurate at the time of any replay. I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our web page at wlkpartners.com. Now I would like to turn the call over to Albert Chao. Albert?

Albert Chao3:58

Thank you, Jeff. Good morning ladies and gentlemen and thank you for joining us to discuss our fourth quarter and record year 2019 results. In this morning's press release, we reported consolidated net income including OpCo earnings of $92 million for the fourth quarter of 2019. Westlake Partners' fourth quarter net income was $70 million. In the fourth quarter of 2019, we achieved strong financial performance driven by continued strong operations of our facilities and the acquisition of an incremental 4.5% interest of OpCo by the Partnership in the first quarter of 2019. 2019 was a very successful year for Westlake Partners, anchored by the record production across the OpCo facilities. These facilities in Louisiana and Kentucky consistently ran well and above industry operating rates. This consistent production, when combined with a sales agreement which insulates us from commodity price risk with our investment-grade rated sponsor Westlake Chemical, produces exceptionally stable cash flows to drive distribution growth. On January 27, 2020, we announced distributions of 47.14 cents per unit with respect to the fourth quarter of 2019. This represents a 6% annualized increase as compared to the third quarter 2019 distributions. Since our IPO in 2014, this is the 20th consecutive quarterly increase in distributions to our unit holders, an increase of 71% over the Partnership's original minimum quarterly distribution of 27.5 cents per unit. For the twelve months ending December 31, 2019, the distributable cash flow provided coverage of 1.13 times the declared distributions. I will now like to turn our call over to Steve to provide more detail on the financial and operating results for the fourth quarter. Steve?

Steve Fender6:33

Thank you, Albert, and good morning everyone. In this morning's press release, we reported consolidated net income including OpCo earnings of $92 million on consolidated sales of $273 million for the fourth quarter 2019. Westlake Partners' fourth quarter 2019 net income was $17 million, or 49 cents per unit. The Partnership had distributable cash flow for the quarter of $19 million, or 53 cents per unit. Fourth quarter 2019 net income for Westlake Partners of $17 million increased by $5 million compared to fourth quarter 2018 Partnership net income of $12 million. Distributable cash flow of $19 million for the fourth quarter of 2019 increased $4 million from fourth quarter 2018 distributable cash flow. The increase in both net income and distributable cash flow was primarily due to the 4.5% increase in ownership interest of OpCo. The Partnership's fourth quarter 2019 net income of $17 million increased $2 million from third quarter 2019 net income of $15 million. The increase in net income was attributed to higher production at OpCo and higher margins on third party sales. Fourth quarter 2019 distributable cash flow of $19 million decreased $1 million from third quarter 2019 distributable cash flow of $20 million, driven by higher maintenance capital spending. For the 12 months of 2019, the Partnership had record net income of $61 million and record MLP distributable cash flow of $73 million. The record performance in net income and distributable cash flow was driven by record production at OpCo, the increase in ownership interest of OpCo, and higher third party sales margins, partially offset by higher maintenance capital expenditures. As Albert mentioned, we benefit from the long-term ethylene sales agreement with Westlake Chemical, who is short ethylene for their derivative production. This take-or-pay agreement covers 95% of our ethylene sales and protects the Partnership's cash flows from the margin volatility that can be associated with the ethylene business. This sales agreement also incentivizes us to continue to look for opportunities to increase capacity and maximize operating rates. Turning our attention to the balance sheet and cash flows, at the end of the fourth quarter we had a consolidated cash balance of $20 million in cash invested with Westlake Chemical through our investment management agreement of $163 million. The $163 million in cash invested under the investment management agreement includes cash generated from operations throughout the quarter and the reserve for turnaround expenditures. Long-term debt at the end of the quarter was $400 million, of which $377 million was at the Partnership and $23 million at OpCo. In the fourth quarter of 2019, OpCo spent $14 million in capital expenditures. For the fourth quarter of 2019, we maintain strong leverage metrics with a consolidated leverage ratio below 1 times and a net debt-to-capital ratio below 20%. We are planning for a turnaround of our Petro 2 ethylene unit, which could occur in September or later. The turnaround and associated outage is expected to last approximately 60 days. We will update you later in the year as we finalize our turnaround plan. The cost for this turnaround has been included in the amounts we charge to Westlake Chemical and has been reserved for. On January 27, 2020, we announced a quarterly distribution to unit holders of 47.14 cents per unit. This distribution will be paid on February 18, 2020 to unit holders of record February 3, 2020. Now I turn the call back over to Albert to make some closing comments. Albert?

Albert Chao10:39

Thank you, Steve. We are pleased with the Partnership's record operational and financial performance in 2019. As we enter 2020, we continue to reap benefits of investments made to grow our earnings, cash flows, and production while strengthening the Partnership through the strategic alignment with our sponsor, Westlake Chemical. Furthermore, we have continued to maintain a strong balance sheet with conservative financial leverage metrics. We intend to maintain our top-tier distribution growth rate to unit holders that reflects the underlying value of our business. We will continue to deliver on our top-tier distribution growth strategy with reduced capital market needs, bolstered by a strong balance sheet, to deliver long-term value to our unit holders as we navigate evolving market conditions. We continue to evaluate opportunities via our four levers of growth, including: continuation of periodic drop-downs of OpCo into the MLP; acquisitions of other qualified income streams, such as Westlake's interest in the LACC cracker; organic expansions of our current ethylene facilities; and negotiating a higher fixed margin in our ethylene sales agreement with Westlake. With these four levers, we have the sustainable capability to continue our history of steady growth in distributions to our unit holders over time. In closing, we remain excited about the future prospects in front of us. We will continue to focus on the investment thesis we have laid out to drive value to our unit holders. We'll do this while continuing to operate safely, along with being good stewards of the environment and the communities in which we live and work. Thank you very much for listening to our fourth quarter 2019 earnings call. Now I'll turn the call back over to Jeff.

Jeff Holley12:53

Thank you, Albert. Before we begin taking questions, I would like to remind you that a replay of this teleconference will be available starting today at 2:00 p.m. Eastern Time. We will provide that number again at the end of the call. Please be aware that we have also posted a presentation outlining our distribution philosophy, which is available on the Partnership's website at wlkpartners.com. The room will now take questions.

Operator13:22

Thank you, sir. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. I show our first question comes from Matthew Blair from Tudor, Pickering, Holt. Please go ahead.

Matthew Blair13:41

Hey, good morning Albert and Steve. Just a couple of elevated questions. The release mentioned increased production at OpCo quarter over quarter. Could you provide detail on the overall volumes or at least the magnitude of the quarter-over-quarter improvement?

Steve Fender13:59

Yeah, Matthew, we haven't given production numbers specifically, but as you can see, it continues to perform quite strongly. And as I noted earlier, we do expect to assess the turnaround for later this year. But I will say that we had very strong production and you can see it clearly drove our results for the quarter.

Matthew Blair14:17

Indeed. OK. And then back in the second quarter of 2016, with the Petro 1 turnaround, your quarter-over-quarter distributable cash flow fell by about $20 million. Is that a good ballpark impact estimate for the upcoming Petro 2 turnaround? And I guess it's going to be the third quarter of 2020?

Steve Fender14:35

Yes. So the way to think about the impact is really going to be the number of days of outage, because we've got a fixed tolling arrangement around the facilities. And so as you think about the turnarounds, and we've given guidance of approximately 60 days, that really should give you guidance in terms of the margin times the production that will be lost during that turnaround period.

Matthew Blair14:57

Sounds good. Thank you.

Steve Fender14:59

You're welcome.

Operator15:03

Thank you. Our next question comes from Michael Leithead from Barclays. Please go ahead.

Michael Leithead15:08

Thanks. Good morning again, guys. Just one quick one for me on the new ethylene Lotte stake. How should we think about potential drop-down into the MLP as you think about distribution growth going forward versus other drop-downs of OpCo that we already know?

Albert Chao15:28

We know that the ethylene unit is a qualifying income stream and we've identified it over time as a potential acquisition opportunity for OpCo. And certainly, as we consider the four levers of growth that we have, it would be considered as one of those levers that we'll consider as we think about growing the earnings later this year.

Michael Leithead15:46

Thank you.

Albert Chao15:47

You're welcome.

Operator15:53

Thank you. At this time, the Q&A session has ended. I will now like to turn the call back over to Jeff Holley.

Jeff Holley16:00

Thank you again for participating in today's call. We hope you'll join us for our next conference call to discuss our first quarter of 2020 results. Thank you for participating in today's Westlake Chemical Partners fourth quarter earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended. The replay can be accessed by calling the phone numbers: domestic callers should dial 855-859-2056; international callers may access the replay at 404-537-3406. The access code is 5679302. This will conclude today's call. Goodbye.