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spk02: Good afternoon, thank you for standing by. Welcome to the Westlight Chemical Partners fourth quarter and full year 2022 earnings conference call. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, you will be invited to participate in a question and answer session. As a reminder, this conference is being recorded today, February 21st, 2023. I would now like to turn the call over To today's host, Jeff Holley, Westlake Chemical Partners, Vice President and Treasurer. Sir, you may begin.
spk05: Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners fourth quarter and full year 2022 conference call. I'm joined today by Albert Chow, our President and CEO, Steve Bender, our Executive Vice President and CFO, and other members of our management team. During this call, we refer to ourselves as Westlake Partners or the partnership. References to Westlake refer to our parent company, Westlake Corporation, and references to Opco refer to Westlake Chemical Opco LP, a subsidiary of Westlake and the partnership, which owns certain Oliphant assets. Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners MLP distributable cash flow, Definitions of these terms are available on the partnership's website. Today, management is going to discuss certain topics that will contain forward-looking information that is 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. We encourage you to learn more about the factors that could lead to our actual results to differ by reviewing the cautionary statements and our regulatory filings, which are also available on our investor relations website. This morning, Westlake Partners issued a press release with details of our fourth quarter and full year 2022 financial and operating results. This document is available in the press release section of our webpage 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 via the partnership's website. Please note that information reported on this call speaks only as of today, February 21, 2023, and therefore you're advised that time-sensitive information may no longer be accurate as of 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 webpage at wlkpartners.com. Now, I'd like to turn the call over to Albert Chow. Albert?
spk01: Thank you, Jeff. Good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year 2022 results. In this morning's press release, we reported Westlake Partners' full year 2022 net income of $64 million, or $1.82 per unit. Consolidated net income, including off-goal, was $335 million for the full year 2022. Westlake Partners' financial results continue to demonstrate the stability generated from our fixed-margin Ethylene sales agreement for 95% of annual planned production each year, insulating us from market volatility and other production risks. This structure, combined with our investment-grade sponsor, Westlake, produces predictable earnings and stable cash flows. This was evident despite heightened macroeconomic and ethylene margin volatility in 2022 as we delivered solid results and sustained distributions to our unit holders. The stable fee-based cash flow generated by our fixed margin ethylene sales contract with Westlake forms the foundation for us to deliver long-term value to our unit holders. This quarter's distribution is the 34th consecutive quarterly distribution since our IPO in July of 2014, without any reductions. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter. Steve?
spk04: Thank you, Albert, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' fourth quarter 2022 net income of $17 million, or 48 cents per unit. Consolidated net income, including OPCO's earnings, was 91 million on consolidated net sales of 367 million. The partnership had distributable cash flow for the quarter of $20 million, or 58 cents per unit. Fourth quarter 2022 net income for Westlake partners of $17 million decreased by 13 million compared to the fourth quarter of 2021 net income of 30 million. In the year ago period, the partnership benefited from a larger buyer deficiency fee as well as recovery of certain other costs from Westlake attributable to an unplanned outage. Distributable cash flow of $20 million for the fourth quarter of 2022 increased by $5 million compared to fourth quarter 2021's distributable cash flow of $15 million due to lower maintenance capital spending and the timing of certain receivables from Westlake. For the full year of 2022, net income of $64 million, or $1.82 per unit, decreased by $19 million compared to full year 2021 net income of $83 million. The decrease in net income attributable to partnerships was due to weaker third-party sales margins and higher interest expense. Despite the headwinds to net income from weaker third-party sales margins and higher interest rates, our full-year 2022 MLP distributable cash flow of $76 million increased by $6 million compared to MLP distributable cash flow of $70 million for the full year of 2021. And our distribution coverage for 2022 was 1.14 times. Turning our attention to the balance sheet and cash flows, at the end of the fourth quarter, we had consolidated cash balance and cash investments with Westlake through our investment management agreement, totaling $130 million. At the end of the fourth quarter, Westlake had payment obligations to OPCO of $31 million, representing a buyer deficiency fee for lost production and the recovery of certain other costs. The buyer deficiency fee was received in January 2023. under the terms of the Ethylene Sales Agreement. Long-term debt at the end of the quarter was $400 million, of which $377 million was at the partnership, and the remaining 23 was at OPCO. In 2022, OPCO spent $54 million in capital expenditures. We maintained our strong leverage metrics with a consolidated leverage ratio of approximately one time. On January 23, 2023, we announced a quarterly distribution for 47.14 cents per unit with respect to the fourth quarter of 2022. Since her IPO in 2014, the partnership has made 34 consecutive quarterly distributions to her unitholders, and we've grown distributions 71% since the partnership's original minimum quarterly distribution of 27.5 cents per unit. The partnership's fourth quarter distribution was paid on February 16, 2023 to unitholders of record February 2nd, 2023. The partnership's predictable fee-based cash flow continues to provide benefits in today's economic environment and is differentiated by the consistency of our earnings and cash flows. Looking back, since our IPO in July of 2014, we've maintained a cumulative distribution coverage ratio in excess of 1.1 times, and the partnership's stability in cash flows are able to sustain our current distribution without the need to access capital markets. For modeling purposes, we have one planned turnaround in 2023 at our Calvert City, Kentucky facility. This turnaround is scheduled to begin in May and is projected to last approximately 30 days. In prior years where we have had a planned turnaround, such as this one, the distribution ratio is impacted for the period before recovering, and for this turnaround, we would expect a similar result. The cost of this turnaround has been included in the amount we charge to Westlake and has been fully reserved for and funded as we commence the turnaround. Now, I'd like to turn the call back over to Albert to make some closing comments. Albert?
spk01: Thank you, Steve. We are pleased with the partnership's financial and operational performance through the fourth quarter and the year as a whole. The stability of our business model and associated cash flows demonstrate a benefit our ethylene sales agreement and its protective provisions provide a partnership through predictable long-term earnings and cash flows despite both planned and unplanned production outages. While recent economic weakness has negatively impacted demand for ethylene derivatives, the nature of our ethylene sales agreement provides for the recovery of old costs related to sales to Westlake Thus, we are very well positioned to navigate these markets. Our efforting sales agreement, which provides a predictable fee-based cash flow structure from our take-or-pay contract with Westlake for 95% of Opco's production, will continue to deliver stable and predictable cash flows. Turning to our capital structure, we maintain a strong balance sheet with conservative financial and leverage metrics. As we continue to navigate market conditions, we will evaluate opportunities via our four levers of growth in the future, including increases of our ownership interest of Bobco, acquisitions of other qualified income streams, organic growth opportunities such as expansion of our current Ethylene facilities, and negotiation of a higher fixed margin in our Ethylene sales agreement with Westlake. We remain focused on our ability to continue to provide long-term value and distributions to our unit holders. As always, we will continue to focus on safe operations, along with being good stewards of the environment where we work and live as part of our broader sustainability efforts. Thank you very much for listening to our fourth quarter earnings call. Now I'll turn the call back over to Jeff.
spk05: Thank you, Albert. Before we begin taking questions, I'd like to remind you that a replay of this teleconference will be available two hours after the call has ended. We will provide that number again at the end of the call. Michelle, we will now take questions.
spk02: As a reminder, to ask a question, please press Star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from James Utschel with Avian Advisory. Your line is open. Please go ahead.
spk03: Thanks for taking my call. A couple of questions. You mentioned that you are going to have one outage. Is that the right word for one of your facilities this year?
spk04: It'll be a maintenance turnaround. Okay.
spk03: Do you have an estimate of what the impact on net or operating income and EBITDA and cash flow will be?
spk04: And so because we have that contract, that ethylene contract with our parent Westlake Corporation, we'll be losing those pounds that are subject to that 95% offtake at that $0.10 margin. The turnaround is expected to last 30 days, and we'll update as we get closer, but that turnaround is expected to start in May.
spk03: Okay. Thank you. Why did third-party margins decline, and do you have any? outlook for this year as to what's going to happen with third-party margins?
spk04: So third-party margins were depressed in the quarter simply because of lack of demand of ethylene derivatives in the marketplace. We're selling ethylene into that market. And so there was a pullback, as you've seen, in the macroeconomic environment for ethylene-related derivatives. And so, therefore, margins were below that threshold. historical threshold that we've seen historically. So therefore, margins were under pressure. As we look forward, we'll look to see where we can optimize ethylene margins. The market is volatile in terms of ethylene margins, and we certainly look to maximize those third-party sales when we can optimize margin to exceed the targeted 10 cents. In 2023, the consultants are looking to forecast margins could be below that 10-cent threshold currently.
spk03: So if they're below that threshold, does that mean you just won't make the sales?
spk04: We'll make sales, but we'll certainly be opportunistic when we find markets that are attractive to us. Certainly we'll look to see if we can optimize, but we are interested in making those third-party sales because they are contributory to net income during the course of the year.
spk03: Okay. I don't want to take too much of your time, but I did notice that you had a meaningful decline in SG&A expenses quarter-on-quarter and a less pronounced decline year-on-year. Why did that happen?
spk04: Yeah, from time to time we have peaks and valleys in some of the maintenance activities, and time to time we have changes in timing as it relates to some of the expenses administratively. So I would say that if you look at over the course of a year, it does tend to average out, but there are some peaks and valleys in terms of when certain administrative costs are incurred, and we have certain activities at the plant site that occur that impact G&A.
spk03: Thank you very much for your detailed answers to all my questions.
spk04: You're welcome.
spk02: At this time, the Q&A session has now ended. I will now turn the call back over to Jeff Holley.
spk05: Thank you again for participating in today's call. We hope you will join us for our next conference call to discuss our first quarter 2023 results.
spk02: Thank you for participating in today's Westlake Chemical Partners fourth quarter and full year 2022 earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended and may be accessed until 1159 p.m. Eastern Time on Tuesday, February 28, 2023. The replay can be assessed by the
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