Westlake Chemical Partners LP Announces Third Quarter 2019 Results

Westlake Chemical Partners LP (NYSE: WLKP) (the "Partnership") today reported net income attributable to the Partnership of $14.9 million, or $0.42 per limited partner unit, for the three months ended September 30, 2019, an increase of $2.5 million compared to third quarter 2018 net income attributable to the Partnership of $12.4 million. The increase in net income attributable to the Partnership was primarily due to the Partnership’s increased ownership interest in Westlake Chemical OpCo LP (“OpCo”) resulting from the acquisition of an additional 4.5% interest in OpCo in the first quarter of 2019 (the “Acquisition”), and higher production volumes. Cash flows from operating activities in the third quarter of 2019 were $121.5 million, an increase of $12.1 million compared to third quarter 2018 cash flows from operating activities of $109.4 million, primarily due to a decrease in working capital. For the three months ended September 30, 2019, MLP distributable cash flow of $20.5 million increased by $5.5 million from third quarter 2018 MLP distributable cash flow of $15.0 million. This increase was primarily due to the Acquisition, partially offset by increased interest expense.

Third quarter 2019 net income attributable to the Partnership of $14.9 million increased by $1.2 million from second quarter 2019 net income attributable to the Partnership of $13.7 million, primarily due to higher production at OpCo and lower SG&A expense. Third quarter 2019 cash flows from operating activities of $121.5 million increased by $21.3 million compared to second quarter 2019 cash flows from operating activities of $100.2 million, primarily due to higher production volumes at OpCo and a decrease in working capital. Third quarter 2019 MLP distributable cash flow of $20.5 million increased by $4.1 million compared to second quarter 2019 MLP distributable cash flow of $16.4 million, primarily due to lower SG&A expense and a reduction in maintenance capital spending.

Net income attributable to the Partnership of $43.6 million, or $1.27 per limited partner unit, for the nine months ended September 30, 2019 increased by $6.1 million compared to the first nine months of 2018 net income attributable to the Partnership of $37.5 million. The increase in net income attributable to the Partnership as compared to the prior-year period was primarily due to the Acquisition and higher ethylene margins, partially offset by higher SG&A expenses. Cash flows from operating activities in the first nine months of 2019 were $335.2 million, an increase of $5.2 million compared to the first nine months of 2018 cash flows from operating activities of $330.0 million, primarily due to a reduction in working capital. For the nine months ended September 30, 2019, MLP distributable cash flow of $54.4 million increased by $8.9 million compared to the first nine months of 2018 MLP distributable cash flow of $45.5 million. The increase in MLP distributable cash flow as compared to the prior-year period was primarily due to the Acquisition and higher production at OpCo, partially offset by the timing of maintenance capital expenditures and one-time costs associated with the Acquisition.

On October 31, 2019, the Board of Directors of Westlake Chemical Partners GP LLC announced a quarterly distribution with respect to the third quarter of 2019 of $0.4646 per unit to be payable on November 26, 2019 to unitholders of record as of November 12, 2019. The third quarter 2019 distribution increased by 1.5% compared to the second quarter 2019 distribution, or by 6.0% on an annualized basis. MLP distributable cash flow provided trailing twelve-month coverage of 1.11x the declared distributions for the third quarter of 2019.

“The acquisition of the incremental interest in OpCo in the first quarter of this year has set us on a path to continue to deliver increasing cash flows and distributions to unitholders throughout the year,” said Albert Chao, President and Chief Executive Officer. “We continue to benefit from the strong relationship with our sponsor, Westlake Chemical, and have taken recent steps to modify and align our distribution growth strategy with the current capital markets to maximize long-term value to unitholders. This quarter we increased our distribution for the 19th consecutive quarter. We intend to retain a sustainable, top-tier distribution growth rate, which reduces our reliance on the equity markets, better aligning our future capital requirements with the availability of today’s MLP equity capital. We continue to evaluate all opportunities available to us, including growth through acquisition and margin expansion, as a means to further grow our cash flows and maintain a path of long-term value creation for our unitholders.”

OpCo's Ethylene Sales Agreement with Westlake is designed to provide for stable and predictable cash flows. The agreement provides that 95% of OpCo's ethylene production is sold to Westlake for a cash margin of $0.10 per pound, net of operating costs, maintenance capital expenditures and reserves for future turnaround expenditures.

The statements in this release and the related teleconference relating to matters that are not historical facts, such as those with respect to the potential for future growth of cash flows and distributions, are forward-looking statements. These forward-looking statements are subject to significant risks and uncertainties. Actual results could differ materially, based on factors including, but not limited to, operating difficulties; the volume of ethylene that we are able to sell; the price at which we are able to sell ethylene; changes in the price and availability of feedstocks; changes in prevailing economic conditions; actions of Westlake Chemical Corporation; actions of third parties; inclement or hazardous weather conditions, including flooding, and the physical impacts of climate change; environmental hazards; changes in laws and regulations (or the interpretation thereof); inability to acquire or maintain necessary permits; inability to obtain necessary production equipment or replacement parts; technical difficulties or failures; labor disputes; difficulty collecting receivables; inability of our customers to take delivery; fires, explosions or other industrial accidents; our ability to borrow funds and access capital markets; and other risk factors. For more detailed information about the factors that could cause actual results to differ materially, please refer to the Partnership's Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC in March 2019.

This release is intended to be a qualified notice under Treasury Regulation Section 1.1446-4(b). Brokers and nominees should treat one hundred percent (100.0%) of the Partnership's distributions to non-U.S. investors as being attributable to income that is effectively connected with a United States trade or business. Accordingly, the Partnership's distributions to non-U.S. investors are subject to federal income tax withholding at the highest applicable effective tax rate.

Use of Non-GAAP Financial Measures

This release makes reference to certain “non-GAAP” financial measures, such as MLP distributable cash flow and EBITDA. For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission ("SEC") as a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that (1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or (2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. We report our financial results in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), but believe that certain non-GAAP financial measures, such as MLP distributable cash flow and EBITDA, provide useful supplemental information to investors regarding the underlying business trends and performance of our ongoing operations and are useful for period-over-period comparisons of such operations. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the financial measures prepared in accordance with U.S. GAAP. We define MLP distributable cash flow as distributable cash flow less distributable cash flow attributable to Westlake's noncontrolling interest in OpCo and distributions attributable to the incentive distribution rights holder. MLP distributable cash flow does not reflect changes in working capital balances. We define EBITDA as net income before interest expense, income taxes, depreciation and amortization. MLP distributable cash flow and EBITDA are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

our operating performance as compared to other publicly traded partnerships;
• our ability to incur and service debt and fund capital expenditures; and
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Reconciliations of MLP distributable cash flow to net income and to net cash provided by operating activities and of EBITDA to net income, income from operations and net cash provided by operating activities can be found in the financial schedules at the end of this press release.

Westlake Chemical Partners LP

Westlake Chemical Partners is a limited partnership formed by Westlake Chemical Corporation to operate, acquire and develop ethylene production facilities and other qualified assets. Headquartered in Houston, the Partnership owns an 22.8% interest in Westlake Chemical OpCo LP. Westlake Chemical OpCo LP's assets consist of three ethylene production facilities in Calvert City, Kentucky, and Lake Charles, Louisiana and an ethylene pipeline. For more information about Westlake Chemical Partners LP, please visit http://www.wlkpartners.com.

Westlake Chemical Partners LP Conference Call Information:

A conference call to discuss Westlake Chemical Partners' third quarter 2019 results will be held Tuesday, November 5, 2019 at 12:00 PM Eastern Time (11:00 AM Central Time). To access the conference call, dial (855) 765-5686 or (234) 386-2848 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 976 44 56.

A replay of the conference call will be available beginning two hours after its conclusion until 11:59 p.m. Eastern Time on November 12, 2019. To hear a replay, dial (855) 859-2056 or (404) 537-3406 for international callers. The replay passcode is 976 44 56.

The conference call will also be available via webcast at: https://edge.media-server.com/mmc/p/i28xs6p4 and the earnings release can be obtained via the Partnership web page at: http://investors.wlkpartners.com/CorporateProfile.

WESTLAKE CHEMICAL PARTNERS LP ("WESTLAKE PARTNERS")

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

(In thousands of dollars, except per unit data)

Revenue

Net sales—Westlake Chemical Corporation ("Westlake")

$

216,678

$

313,381

$

703,765

$

802,085

Net co-product, ethylene and other sales—third parties

33,247

50,269

115,308

147,812

Total net sales

249,925

363,650

819,073

949,897

Cost of sales

156,706

269,743

543,242

666,367

Gross profit

93,219

93,907

275,831

283,530

Selling, general and administrative expenses

6,822

5,909

21,434

20,417

Income from operations

86,397

87,998

254,397

263,113

Other income (expense)

Interest expense—Westlake

(4,411

)

(5,639

)

(15,436

)

(16,052

)

Other income, net

565

668

2,533

1,742

Income before income taxes

82,551

83,027

241,494

248,803

Income tax provision (benefit)

72

(772

)

509

(186

)

Net income

82,479

83,799

240,985

248,989

Less: Net income attributable to noncontrolling interests in Westlake Chemical OpCo LP ("OpCo")

67,557

71,387

197,375

211,525

Net income attributable to Westlake Partners

$

14,922

$

12,412

$

43,610

$

37,464

Net income per limited partners unit attributable to Westlake Partners (basic and diluted)

Common units

$

0.42

$

0.38

$

1.27

$

1.14

Distributions declared per unit

$

0.4646

$

0.4207

$

1.3677

$

1.2270

MLP distributable cash flow

$

20,452

$

15,024

$

54,429

$

45,500

Distributions declared

Limited partner units—publicly and privately held

$

9,787

$

7,625

$

28,812

$

22,232

Limited partner units—Westlake

6,561

5,941

19,315

17,327

Incentive distribution rights

733

Total distributions declared

$

16,348

$

13,566

$

48,127

$

40,292

EBITDA

$

113,643

$

115,558

$

337,312

$

347,031

WESTLAKE CHEMICAL PARTNERS LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

September 30,
2019

December 31,
2018

(In thousands of dollars)

ASSETS

Current assets

Cash and cash equivalents

$

18,647

$

19,744

Receivable under the Investment Management Agreement—Westlake

164,888

148,956

Accounts receivable, net—Westlake

35,001

57,280

Accounts receivable, net—third parties

14,543

16,404

Inventories

3,698

4,388

Prepaid expenses and other current assets

559

370

Total current assets

237,336

247,142

Property, plant and equipment, net

1,113,010

1,148,265

Other assets, net

56,710

66,718

Total assets

$

1,407,056

$

1,462,125

LIABILITIES AND EQUITY

Current liabilities (accounts payable and accrued liabilities)

$

40,938

$

48,772

Long-term debt payable to Westlake

399,674

477,608

Other liabilities

3,713

1,664

Total liabilities

444,325

528,044

Common unitholders—publicly and privately held

470,977

409,608

Common unitholder—Westlake

47,940

48,774

General partner—Westlake

(242,572

)

(242,572

)

Total Westlake Partners partners' capital

276,345

215,810

Noncontrolling interest in OpCo

686,386

718,271

Total equity

962,731

934,081

Total liabilities and equity

$

1,407,056

$

1,462,125

WESTLAKE CHEMICAL PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Nine Months Ended September 30,

2019

2018

(In thousands of dollars)

Cash flows from operating activities

Net income

$

240,985

$

248,989

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

80,382

82,176

Other balance sheet changes

13,787

(1,161

)

Net cash provided by operating activities

335,154

330,004

Cash flows from investing activities

Additions to property, plant and equipment

(30,028

)

(30,047

)

Maturities of investments with Westlake under the Investment Management Agreement

405,445

270,050

Investments with Westlake under the Investment Management Agreement

(421,445

)

(285,000

)

Other

46

Net cash used for investing activities

(45,982

)

(44,997

)

Cash flows from financing activities

Net proceeds from private placement of common units

62,661

Proceeds from debt payable to Westlake

123,511

3,648

Repayment of debt payable to Westlake

(201,445

)

Quarterly distributions to noncontrolling interest retained in OpCo by Westlake

(229,260

)

(258,824

)

Quarterly distributions to unitholders

(45,736

)

(39,798

)

Net cash used for financing activities

(290,269

)

(294,974

)

Net decrease in cash and cash equivalents

(1,097

)

(9,967

)

Cash and cash equivalents at beginning of period

19,744

27,008

Cash and cash equivalents at end of period

$

18,647

$

17,041

WESTLAKE CHEMICAL PARTNERS LP

RECONCILIATION OF MLP DISTRIBUTABLE CASH FLOW TO NET INCOME

AND NET CASH PROVIDED BY OPERATING ACTIVITIES

(Unaudited)

 

Three Months
Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2019

2018

2019

2018

(In thousands of dollars)

Net cash provided by operating activities

$

100,173

$

121,482

$

109,433

$

335,154

$

330,004

Changes in operating assets and liabilities and other

(20,063

)

(39,003

)

(25,634

)

(94,169

)

(81,015

)

Net Income

80,110

82,479

83,799

240,985

248,989

Add:

Depreciation, amortization and disposition of property, plant and equipment

26,903

26,582

26,918

80,787

82,769

Mark-to-market adjustment loss on derivative contracts

516

7,195

6,996

Less:

Contribution to turnaround reserves

(3,889

)

(3,932

)

(4,250

)

(11,669

)

(12,602

)

Maintenance capital expenditures

(11,725

)

(5,568

)

(8,380

)

(28,613

)

(22,184

)

Incentive distribution rights

(733

)

Distributable cash flow attributable to noncontrolling interest in OpCo

(75,493

)

(86,304

)

(83,063

)

(234,057

)

(250,739

)

MLP distributable cash flow

$

16,422

$

20,452

$

15,024

$

54,429

$

45,500

WESTLAKE CHEMICAL PARTNERS LP

RECONCILIATION OF EBITDA TO NET INCOME, INCOME FROM OPERATIONS AND NET CASH

PROVIDED BY OPERATING ACTIVITIES

(Unaudited)

 

Three Months
Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2019

2018

2019

2018

(In thousands of dollars)

Net cash provided by operating activities

$

100,173

$

121,482

$

109,433

$

335,154

$

330,004

Changes in operating assets and liabilities and other

(20,063

)

(39,003

)

(25,634

)

(94,169

)

(81,015

)

Net Income

80,110

82,479

83,799

240,985

248,989

Less:

Other income, net

1,153

565

668

2,533

1,742

Interest expense

(5,125

)

(4,411

)

(5,639

)

(15,436

)

(16,052

)

Income tax provision (benefit)

(237

)

(72

)

772

(509

)

186

Income from operations

84,319

86,397

87,998

254,397

263,113

Add:

Depreciation and amortization

26,857

26,681

26,892

80,382

82,176

Other income, net

1,153

565

668

2,533

1,742

EBITDA

$

112,329

$

113,643

$

115,558

$

337,312

$

347,031

Contacts:

Media Relations – Ben Ederington – 713.585.2900
Investor Relations – Steve Bender – 713.585.2900

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