What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-02 · 84 added, 50 removed, 228 unchanged (37% of the section changed)

38 unchanged sentences

We capitalize the costs of major maintenance activities, or turnarounds, and amortize the costs over the period until the next planned turnaround of the affected facility.

We plan to commence the next planned maintenance turnaround at Petro 1 in the first quarter of 2025.

Operating expenses, maintenance capital expenditures and turnaround costs are built into the price per pound of ethylene charged to Westlake under the Ethylene Sales Agreement.

24 unchanged sentences

Results of Operations

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands of dollars)

19 unchanged sentences

(2) See "Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities" below.

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024 Six Months Ended June 30, 2024

Sales Price Volume Average

Sales Price Volume

Net sales percentage change from prior-year period due to average sales price and volume -1.2 % +8.8 % -3.9 % +3.3 %

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024 Six Months Ended June 30, 2024

Domestic US prices percentage change from prior-year period for fuel cost and feedstock

3 unchanged sentences

The following table presents reconciliations of MLP distributable cash flow to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands of dollars)

10 unchanged sentences

The following table presents reconciliations of EBITDA to net income, income from operations and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands of dollars)

10 unchanged sentences

EBITDA $ 123,199 $ 108,594 $ 247,630 $ 234,209

For the quarter ended March 31, 2024, net income was $89.6 million on net sales of $284.7 million.

This represents a decrease in net income of $1.9 million as compared to net income of $91.5 million on net sales of $307.7 million for the quarter ended March 31, 2023.

Net income attributable to the Partnership for the first quarter of 2024 was $14.8 million as compared to $14.9 million for the first quarter of 2023.

Income from operations was $95.1 million for the first quarter of 2024 as compared to $98.2 million for the first quarter of 2023.

Income from operations and net income for the first quarter of 2024 as compared to the first quarter of 2023 were lower primarily due to lower ethylene and co-products sales prices as well as lower ethylene sales volumes in the first quarter of 2024 compared to the first quarter of 2023, partially offset by lower ethane feedstock and natural gas costs.

Net income attributable to the Partnership for the first quarter of 2024 was comparable with the first quarter of 2023.

Net sales for the first quarter of 2024 decreased by $23.0 million as compared to net sales for the first quarter of 2023, mainly due to lower ethylene and co-products sales prices and lower ethylene sales volumes in the first quarter of 2024 compared to the first quarter of 2023.

For the quarter ended June 30, 2024, net income was $88.0 million on net sales of $284.2 million.

This represents an increase in net income of $12.7 million as compared to net income of $75.3 million on net sales of $264.2 million for the quarter ended June 30, 2023.

Net income attributable to the Partnership for the second quarter of 2024 was $14.4 million as compared to $11.9 million for the second quarter of 2023, an increase of $2.5 million .

Income from operations was $93.6 million for the second quarter of 2024 as compared to $80.5 million for the second quarter of 2023.

Income from operations, net income and net income attributable to the Partnership for the second quarter of 2024 as compared to the second quarter of 2023 were higher primarily due to higher ethylene sales volumes to Westlake and lower ethane feedstock costs in the second quarter of 2024 compared to the second quarter of 2023, partially offset by lower ethylene sales prices to Westlake.

Net sales for the second quarter of 2024 increased by $20.0 million as compared to net sales for the second quarter of 2023, mainly due to higher ethylene sales volumes to Westlake and higher ethylene and co-products sales prices to third parties in the second quarter of 2024 compared to the second quarter of 2023, partially offset by lower ethylene sales prices to Westlake.

For the six months ended June 30, 2024 , net income was $177.7 million on net sales of $568.8 million.

This represents an increase in net income of $11.0 million as compared to net income of $166.7 million on net sales of $571.9 million for the six months ended June 30, 2023 .

Net income attributable to the Partnership for the six months ended June 30, 2024 was $29.3 million as compared to $26.8 million for the six months ended June 30, 2023 , an increase of $2.5 million.

Income from operations was $188.7 million for the six months ended June 30, 2024 as compared to $178.7 million for the six months ended June 30, 2023 .

Income from operations, net income and net income attributable to the Partnership for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 were higher primarily due to higher ethylene sales volumes to Westlake and lower ethane feedstock costs and natural gas prices in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 , partially offset by lower ethylene sales prices to Westlake.

N et sales for the six months ended June 30, 2024 decreased by $3.1 million as compared t o net sales for the six months ended June 30, 2023, mainly due to lower ethylene sales prices, partially offset by higher sales volumes during the six months ended June 30, 2024 as compared t o the six months ended June 30, 2023 .

RESULTS OF OPERATIONS

First Quarter 2024 Compared with First Quarter 2023

Total net sales decreased by $23.0 million, or 7.5%, to $284.7 million in the first quarter of 2024 from $307.7 million in the first quarter of 2023.

The decrease in net sales in the first quarter of 2024 was primarily due to lower ethylene and co-products sales prices and lower ethylene sales volumes in the first quarter of 2024 compared to the first quarter of 2023, partially offset by higher co-products sales volumes.

Lower average sales prices in the first quarter of 2024 contributed to a 5.9% decrease in net sales compared to the first quarter of 2023.

Lower sales volumes in the first quarter of 2024 contributed to a 1.6% decrease in net sales compared to the first quarter of 2023.

Second Quarter 2024 Compared with Second Quarter 2023

Total net sales increased by $20.0 million, or 7.6%, to $284.2 million in the second quarter of 2024 from $264.2 million in the second quarter of 2023.

The increase in net sales in the second quarter of 2024 was primarily due to higher ethylene sales volumes to Westlake and higher ethylene and co-products sales prices to third parties in the second quarter of 2024 compared to the second quarter of 2023, partially offset by lower ethylene sales prices to Westlake.

Lower average sales prices in the second quarter of 2024 contributed to a 1.2% decrease in net sales compared to the second quarter of 2023.

Higher sales volumes in the second quarter of 2024 contributed to an 8.8% increase in net sales compared to the second quarter of 2023.

Gross Profit.

Gross profit decreased to $102.2 million in the first quarter of 2024 from $106.1 million in the first quarter of 2023.

The lower gross profit was primarily due to lower ethylene and co-products sales prices and lower ethylene sales volumes in the first quarter of 2024 compared to the first quarter of 2023, partially offset by lower ethane feedstock and natural gas costs.

Gross profit margin percentage in the first quarter of 2024 was 35.9%, which was comparable to 34.5% for the first quarter of 2023.

Gross profit increased to $101.2 million in the second quarter of 2024 from $87.7 million in the second quarter of 2023.

Gross profit margin percentage in the second quarter of 2024 was 35.6%, as compared to 33.2% for the second quarter of 2023.

The higher gross profit was primarily due to higher ethylene sales volumes to Westlake, higher ethylene and co-products sales prices to third parties and lower ethane feedstock costs in the second quarter of 2024 compared to the second quarter of 2023, partially offset by lower ethylene sales prices to Westlake.

The higher gross profit margin was primarily due to lower ethane feedstock costs in the second quarter of 2024 compared to the second quarter of 2023.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses decreased by $0.8 million, or 10.1%, to $7.1 million in the first quarter of 2024 as compared to $7.9 million in the first quarter of 2023.

The decrease in the first quarter of 2024 was mainly attributable to a reduction in the provision for credit losses recognized and lower service costs in the first quarter of 2024 as compared to the first quarter of 2023.

Selling, general and administrative expenses increased by $0.4 million, or 5.6%, to $7.6 million in the second quarter of 2024 as compared to $7.2 million in the second quarter of 2023.

The increase was mainly attributable to higher service costs in the second quarter of 2024 as compared to the second quarter of 2023.

Interest Expense—Westlake.

Interest expense of $6.6 million in the first quarter of 2024 decreased from $7.3 million in the first quarter of 2023 mainly due to lower average debt balance outstanding in the first quarter of 2024 as compared to the first quarter of 2023.

Interest expense of $6.7 million in the second quarter of 2024 increased from $6.1 million in the second quarter of 2023 mainly due to higher interest rates on the debt balance outstanding in the second quarter of 2024 as compared to the second quarter of 2023.

Other Income, net .

Other income, net increased by $0.5 to $1.3 million in the first quarter of 2024 from $0.8 in the first quarter of 2023, primarily due to higher interest earned on the balance with Westlake under the Investment Management Agreement due to higher market interest rates.

Other income, net increased by $0.2 million to $1.3 million in the second quarter of 2024 from $1.1 million in the second quarter of 2023, primarily due to higher interest earned on the balance with Westlake under the Investment Management Agreement due to higher market interest rates.

MLP Distributable Cash Flow.

MLP distributable cash flow decreased by $0.7 million to $16.9 million in the first quarter of 2024 from$17.6 million in the first quarter of 2023.

The decrease in the first quarter of 2024, as compared to the prior-year period, was primarily attributable to higher contribution to turnaround reserves and decreased earnings at OpCo, partially offset by lower distributable cash flow attributable to noncontrolling interest.

EBITDA decreased by $1.2 million to $124.4 million in the first quarter of 2024 from $125.6 million in the first quarter of 2023.

The decrease was primarily due to decreased earnings at OpCo.

CASH FLOW DISCUSSION FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

MLP distributable cash flow increased by $2.1 million to $17.1 million in the second quarter of 2024 from $15.0 million in the second quarter of 2023.

The increase in the second quarter of 2024, as compared to the prior-year period, was primarily attributable to increased earnings at OpCo, partially offset by higher reserves for turnarounds and maintenance capital expenditures.

EBITDA increased by $14.6 million to $123.2 million in the second quarter of 2024 from $108.6 million in the second quarter of 2023.

The increase was primarily due to higher ethylene sales volumes to Westlake and lower ethane feedstock costs in the second quarter of 2024 compared to the second quarter of 2023, partially offset by lower ethylene sales prices to Westlake.

Six Months Ended June 30, 2024 Compared with Six Months Ended June 30, 2023

Total net sales decreased by $3.1 million, or 0.5% , to $568.8 million in the six months ended June 30, 2024 from $571.9 million in the six months ended June 30, 2023 .

The decrease in net sales in the six months ended June 30, 2024 was primarily due to lower ethylene sales prices, partially offset by higher sales volumes during the six months ended June 30, 2024 as co mpared to the six months ended June 30, 2023.

The lower average sales prices in the six months ended June 30, 2024 contributed to a 3.9% decrease in net sales compared to the six months ended June 30, 2023.

The higher sales volumes in the six months ended June 30, 2024 contributed to a 3.3% increase in net sales as compared to the six months ended June 30, 2023 .

Gross Profit.

Gross profit increased to $203.4 million in the six months ended June 30, 2024 from $193.8 million in the six months ended June 30, 2023 .

Gross profit margin in the six months ended June 30, 2024 was 35.8% , as compared to 33.9% for the six months ended June 30, 2023 .

The increase in gross profit margin was primarily due to lower ethane feedstock costs and natural gas prices in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses decreased by $0.4 million, or 2.6% , to $14.7 million in the six months ended June 30, 2024 as compared to $15.1 million in the six months ended June 30, 2023 .

The decrease was mainly attributable to the provision for credit losses recognized in the six months ended June 30, 2023.

Interest Expense—Westlake.

Interest expense of $13.2 million in the six months ended June 30, 2024 was comparable to interest expense of $13.4 million in the six months ended June 30, 2023.

Other Income, net .

Other income, net increased by $0.7 million to $2.6 million in the six months ended June 30, 2024 from $1.9 million in the six months ended June 30, 2023, primarily due to higher interest earned on the balance with Westlake under the Investment Management Agreement due to higher market interest rates as well as a higher average amount of cash invested in the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

MLP Distributable Cash Flow.

MLP distributable cash flow increased by $1.5 million to $34.0 million in the six months ended June 30, 2024 from $32.5 million in the six months ended June 30, 2023 .

The increase in the six months ended June 30, 2024 , as compared to the prior-year p eriod, was primarily attributable to increased earnings at OpCo, partially offset by higher reserves for turnarounds and maintenance capital expenditures.

EBITDA increased by $13.4 million to $247.6 million in the six months ended June 30, 2024 from $234.2 million in the six months ended June 30, 2023 .

The increase was primarily due to higher ethylene sales volumes to Westlake and lower ethane feedstock costs and natural gas prices during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, partially offset by lower ethylene sales prices to Westlake.

CASH FLOW DISCUSSION FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Operating Activities

Operating activities provided cash of $104.6 million in the first three months of 2024 compared to cash provided by operating activities of $144.9 million in the first three months of 2023.

The $40.3 million decrease in cash flows from operating activities was mainly due to a decrease of $38.0 million in cash used by working capital during the three months ended March 31, 2024 as compared to the prior-year period.

Changes in components of working capital, which we define for the purposes of this cash flow discussion as accounts receivable, net—Westlake, accounts receivable, net—third parties, inventories, prepaid expenses and other current assets less accounts payable—Westlake, accounts payable—third parties and accrued and other liabilities, used cash of $9.7 million in the first three months of 2024 as compared to $28.3 million of cash provided in the first three months of 2023, resulting in an overall unfavorable change of $38.0 million.

The unfavorable change in working capital was mainly attributable to unfavorable changes in net accounts receivable—Westlake, accounts receivable—third parties, and accrued and other liabilities.

The unfavorable change in accounts receivable, net—Westlake was due to a smaller buyer deficiency fee and Shortfall collected in the first three months of 2024 as compared to the first three months of 2023 and lower ethane feedstock costs.

Unfavorable changes in accounts receivables— third parties and accrued and other liabilities were due to higher third party sales and lower maintenance costs in the first three months of 2024 as compared to the first three months of 2023.

Operating activities provided cash of $226.5 million in the first six months of 2024 compared to cash provided by operating activities of $243.4 million in the first six months of 2023.

The $16.9 million decrease in cash flows from operating activities was mainly due to a decrease of $49.4 million in cash provided by working capital during the six months ended June 30, 2024 as compared to the prior-year period.

Changes in components of working capital, which we define for the purposes of this cash flow discussion as accounts receivable, net—Westlake, accounts receivable, net—third parties, inventories, prepaid expenses and other current assets less accounts payable—Westlake, accounts payable—third parties and accrued and other liabilities, provided cash of $0.3 million in the first six months of 2024 as compared to $49.7 million of cash provided in the first six months of 2023, resulting in an overall unfavorable change of $49.4 million.

The unfavorable change in working capital was mainly attributable to unfavorable changes in net accounts receivable—Westlake, accounts receivable—third parties, accounts payable—third parties and accrued and other liabilities.

The unfavorable change in accounts receivable, net—Westlake was primarily due to a smaller buyer deficiency fee and Shortfall collected in the first six months of 2024 as compared to the first six months of 2023 partially offset by lower ethane feedstock costs.

Unfavorable changes in accounts receivables— third parties, accounts payable—third parties and accrued and other liabilities were due to higher third party sales and lower maintenance costs in the first six months of 2024 as compared to the first six months of 2023.

Investing Activities

Net cash used for investing activities in the first three months of 2024 was $9.8 million as compared to net cash provided by investing activities of $0.2 million in the first three months of 2023, resulting in an overall unfavorable change of $10.0 million in investing cash flows.

During the first three months of 2023, there were net maturities of investments of $12.9 million under the Investment Management Agreement, whereas, in the first three months of 2024 there were no investing activities under the Investment Management Agreement.

Capital expenditures during the first three months of 2024 was slightly lower than the first three months of 2023.

Net cash used for investing activities in the first six months of 2024 was $20.0 million as compared to net cash used for investing activities of $46.3 million in the first six months of 2023, resulting in an overall favorable change of $26.3 million in investing cash flows.

During the first six months of 2023, there were net investments with Westlake of $29.1 million under the Investment Management Agreement, whereas, in the first six months of 2024 there were no investing activities under the Investment Management Agreement.

Capital expenditures during the first six months of 2024 were slightly higher than the first six months of 2023.

For both the comparative periods, these capital expenditures were primarily related to projects to increase production capacity or reduce costs, maintenance costs and safety and environmental projects at our facilities.

Financing Activities

Net cash used for financing activities in the first three months of 2024 was $97.7 million as compared to net cash used for financing activities of $105.3 million in the first three months of 2023.

The outflows in the first three months of 2024 were related to distributions of $81.0 million to the noncontrolling interest retained in OpCo by Westlake and of $16.6 million to unitholders by the Partnership.

The cash outflows in the first three months of 2023 were related to distributions of $88.7 million to the noncontrolling interest retained in OpCo by Westlake and of $16.6 million to unitholders by the Partnership.

Net cash used for financing activities in the first six months of 2024 was $199.1 million as compared to net cash used for financing activities of $202.5 million in the first six months of 2023.

The cash outflows in the first six months of 2024 were related to distributions of $165.9 million to the noncontrolling interest retained in OpCo by Westlake and of $33.2 million to unitholders by the Partnership.

The cash outflows in the first six months of 2023 were related to distributions of $169.3 million to the noncontrolling interest retained in OpCo by Westlake and of $33.2 million to unitholders by the Partnership.

LIQUIDITY AND CAPITAL RESOURCES

2 unchanged sentences

The Partnership intends to use the net proceeds of sales of the common units, if any, for general partnership purposes, which may include the funding of potential drop-downs and other acquisitions.

No common units had been issued under the ATM Program as of March 31, 2024.

No common units had been issued under the ATM Program as of June 30, 2024.

Based on the terms of our cash distribution policy, we expect that we will distribute to our partners most of the excess cash generated by our operations.

7 unchanged sentences

By reserving additional cash annually, we intend to reduce the variability in OpCo's cash flow.

We expect to commence the next planned maintenance turnaround at Petro 1 in the first quarter of 2025.

Westlake's purchase price for ethylene purchased under the Ethylene Sales Agreement includes a component (adjusted annually) designed to cover, over the long term, substantially all of OpCo's turnaround expenditures.

4 unchanged sentences

Per the terms of the Investment Management Agreement, cash invested with Westlake earns a market return plus five basis points and Westlake provides daily availability of the invested cash to meet any liquidity needs of the Partnership or OpCo.

On April 30, 2024, the board of directors of Westlake Chemical Partners GP LLC, our general partner, approved a quarterly distribution of $0.4714 per unit payable on May 29, 2024 to unitholders of record as of May 13, 2024, which equates to a total amount of approximately $16.6 million per quarter, or approximately $66.4 million per year in aggregate, based on the number of common units outstanding on March 31, 2024.

On July 30, 2024, the board of directors of Westlake Chemical Partners GP LLC, our general partner, approved a quarterly distribution of $0.4714 per unit payable on August 27, 2024 to unitholders of record as of August 12, 2024, which equates to a total amount of approximately $16.6 million per quarter, or approximately $66.4 million per year in aggregate, based on the number of common units outstanding on June 30, 2024.

We do not have a legal or contractual obligation to pay distributions on a quarterly basis or any other basis at our minimum quarterly distribution rate or any other rate.

1 unchanged sentence

Westlake has historically funded expansion capital expenditures related to Lake Charles Olefins and Calvert City Olefins.

No such funding was required by OpCo during the three months ended March 31, 2024 and 2023.

Total capital expenditures for the three months ended March 31, 2024 and 2023 were $9.8 million and $12.7 million, respectively.

No such funding was required by OpCo during the six months ended June 30, 2024 and 2023.

Total capital expenditures for the six months ended June 30, 2024 and 2023 were $20.0 million and $17.2 million, respectively.

We expect that Westlake will loan additional cash to OpCo to fund its expansion capital expenditures in the future, but Westlake is under no obligation to do so.

Cash and Cash Equivalents

As of March 31, 2024, our cash and cash equivalents totaled $55.8 million.

As of June 30, 2024, our cash and cash equivalents totaled $66.0 million.

In addition, we have cash invested under the Investment Management Agreement (as described below) and a revolving credit facility with Westlake available to supplement cash if needed, as described under "Indebtedness" below.

1 unchanged sentence

Per the terms of the Investment Management Agreement, the Partnership earns a market return plus five basis points and Westlake provides daily availability of the invested cash to meet any liquidity needs of the Partnership or OpCo.

The Partnership had $94.5 million of cash invested under the Investment Management Agreement at March 31, 2024.

The Partnership had $94.5 million of cash invested under the Investment Management Agreement at June 30, 2024.

OpCo Revolver

5 unchanged sentences

The Applicable Margin under the OpCo Revolver is 1.75%.

As of March 31, 2024, outstanding borrowings under the OpCo Revolver totaled $22.6 million and bore interest at SOFR plus the Applicable Margin and credit spread adjustment, which is accrued in arrears quarterly.

As of June 30, 2024, outstanding borrowings under the OpCo Revolver totaled $22.6 million and bore interest at SOFR plus the Applicable Margin and credit spread adjustment, which is accrued in arrears quarterly.

In 2015, we entered into a senior, unsecured revolving credit agreement with an affiliate of Westlake, as amended in August and November 2017, March 2020 and July 2022 (the "MLP Revolver").

8 unchanged sentences

The repayment of borrowings under the MLP Revolver is subject to acceleration upon the occurrence of an event of default.

As of March 31, 2024, outstanding borrowings under the MLP Revolver totaled $377.1 million and bore interest at SOFR plus the Applicable Margin and credit spread adjustment, which is accrued in arrears quarterly.

As of June 30, 2024, outstanding borrowings under the MLP Revolver totaled $377.1 million and bore interest at SOFR plus the Applicable Margin and credit spread adjustment, which is accrued in arrears quarterly.

We intend to use the MLP Revolver to purchase additional limited partnership interests in OpCo in the future, in the event OpCo desires to sell such additional interests to us, for other acquisitions and for general partnership purposes.

22 unchanged sentences

• expected mitigation of exposure to commodity price fluctuations;

• turnaround activities and the variability of OpCo's cash flow;

• turnaround activities (such as our plan to commence Petro 1 turnaround in the first quarter of 2025) and the variability of OpCo's cash flow;

• receipt of any buyer deficiency fee and Shortfall under the Ethylene Sales Agreement;

9 unchanged sentences

• lower crude oil prices reducing the cost advantage of ethane-based ethylene producers;

• actions taken by Westlake;

• uncertainties associated with the United States and worldwide economies, including those due to political tensions and conflict in the Middle East and elsewhere, including the conflict between Russia and Ukraine;

21 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis