Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, August 3, 2023. I would now like to turn the call over to today's host, Jeff Holy, Westlake Chemical Partners' Vice President and Treasurer.

Sir, you may begin. .

Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners' Second Quarter 2023 Conference Call. I'm joined today by Albert Chao, 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 olefins assets. Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners' MLP distributable cash flow.

Definition 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 these factors that could lead our actual results to differ by reviewing the cautionary statements in our regulatory filings, which are also available on our Investor Relations website.

This morning, Westlake Partners issued a press release with details of our second quarter 2023 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 2 hours after the conclusion of this call.

The replay can be accessed via the Partnership's website. Please note that information reported on this call speaks only as of today, August 3, 2023, and therefore, you are 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 web page at wlkpartners.com. Now I would like to turn the call over to Albert Chao.

Albert?.

Thank you, Jeff. Good afternoon, everyone, and thank you for joining us to discuss our second quarter 2023 results. In this morning's press release, we reported Westlake Partners' second quarter 2023 net income of $12 million or $0.34 per unit.

As planned, these financial results were impacted by the 30-day planned maintenance turnaround at Calvert City that was completed in May. As a result of our Calvert City turnaround, our production and sales volumes were below the levels of both the first quarter of 2023 and the second quarter of 2022.

Consequently, our second quarter of 2023 sales, net income and distributable cash flow were below both the prior quarter and prior year levels. Importantly, the Calvert City turnaround was completed as planned, and volumes, sales and cash flow returned to expected levels in June.

Looking forward, with our only planned turnaround for the year behind us, we expect financial results to improve in the third and fourth quarter of 2023 from second quarter levels.

The stability of Westlake Partners' business model is consistently demonstrated through our fixed margin ethylene sales agreement, which minimizes market volatility and other production risks.

The high degree of stability in cash flow, when paired with the predictability of our business, has enabled us to deliver the long history of reliable distributions and coverage. This quarter's distribution is the 36th 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?.

Thank you, Albert, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners second quarter 2023 net income of $12 million or $0.34 per unit. Consolidated net income, including OpCo's earnings, was $75 million on consolidated net sales of $264 million.

The Partnership had distributable cash flow for the quarter of $15 million or $0.43 per unit. Second quarter 2023 net income for Westlake Partners of $12 million decreased by $4 million compared to second quarter 2022 Partnership net income of $16 million.

Compared to the second quarter of 2022, the Partnership was impacted by lower production levels due to the planned Calvert City turnaround and higher interest expense.

Distributable cash flow of $15 million for the second quarter of 2023 decreased by $5 million compared to second quarter 2022 distributable cash flow of $20 million due to the $4 million decline in net income and lower depreciation expense. Turning our attention to the balance sheet and cash flows.

At the end of the second quarter, we had consolidated cash and cash investments with Westlake through our investment management agreement totaling $154 million. Long-term debt at the end of the quarter was $400 million, of which $377 million was at the Partnership and the remaining $23 million was at OpCo.

In the second quarter of 2023, OpCo spent $5 million on capital expenditures. We maintain our strong leverage metrics with a consolidated leverage ratio up approximately 1x. On August 1, 2023, we announced a quarterly distribution of $0.4714 per unit with respect to the second quarter of 2023.

Since our IPO in 2014, the Partnership has made 36 consecutive quarterly distributions to unitholders, and we have grown distributions 71% since the Partnership's original minimum quarterly distribution of $0.275 per unit. Partnership's second quarter distribution will be paid on August 25, 2023, to unitholders of record of August 11, 2023.

The Partnership's predictable fee-based cash flow continues to prove beneficial 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 accumulative distribution -- distributable cash flow coverage in excess of 1.1x, and the Partnership's stability in cash flows, we were able to sustain our current distribution without the need to access the capital markets.

For modeling purposes, we have no planned turnarounds during the remainder of 2023. Our next planned turnaround is at our Petro 1 ethylene facility in Lake Charles, Louisiana, which is currently planned for the second half of 2024, and we'll provide additional details on the turnaround once we complete our planning.

Now I'd like to turn the call back over to Albert to make some closing comments.

Albert?.

Thank you, Steve. The partnership's financial performance in the second quarter was consistent with our expectations and historical performances during quarters when a planned turnaround occurred. Similar to those historical precedents, we expect financial performance to recover in the coming quarters now that the planned turnaround is behind us.

Our ethylene 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 through economic ups and downs as well as planned and unplanned turnarounds. Turning to our capital structure.

We maintain a strong balance sheet with conservative financing -- financial and leverage metrics.

As we continue to navigate market conditions, we'll evaluate opportunities via our 4 levers of growth in the future, including increases of our ownership interest of OpCo, acquisitions of other qualified income streams, organic growth opportunities, such as expansions 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 unitholders. 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 second quarter earnings call. Now I'll turn the call back over to Jeff. .

Thank you, Albert. Before we begin taking questions, I would like to remind you that a replay of this teleconference will be available 2 hours after the call has ended. Stacy, we will now take questions. .

[Operator Instructions] Our first question comes from Matthew Blair with TPH. .

Could you share with us your current thoughts on potentially restarting distribution growth as well as resuming asset drops from OpCo?.

Matthew, those two transactions are obviously related. And so as we think about a drop-down that would support additional earnings and cash flows to the Partnership, we're always looking at opportunities and assessing those for the value proposition to both the Partnership and of course, the C corp parent. So we'll continue to look at those.

And if those make sense, a drop-down transaction would then occur, which would generate that cash flow to then restart distributions. Certainly, it's something that we'll consider and assess at all points. .

And what do you think would be the limiting factor today? Just looking at the valuation, I think the MLP is around an 8.3% yield.

Is that still a headwind in your mind? Do you see MLP investor appetite for more equity issuances? Any thoughts there?.

Matthew, it's an attractive yield to any yield-oriented investor. And I would say that the trading multiple continues to be reflective of a nice arbitrage relative to our parent C corp Westlake Corporation.

So it's just finding the right attractive transactional value for a drop-down to make the transaction accretive to both the Partnership and of course, our C corp parent. .

Our next question comes from James Altschul with Aviation Advisory Service. .

A couple of questions, if I may. First of all, and I'm just doing a very rough calculation. It appears if you look at the year-on-year results, both for the second quarter and the first half, the sales -- in percentage terms, the sales to third parties have declined more sharply than the sales to Westlake.

Am I correct? And if so, why is that?.

Yes, you are correct. And the third-party sales are a reflection of lower margins in the merchant ethylene market relative to the rateable margin that we have with Westlake Corporation. So with Westlake Corporation we have that $0.10 net margin that is attributable to 95% of its production.

And of course, the ethylene margins for the merchant market are reflective of market conditions, which have been below that $0.10 net margin for the first 6 months of the year. .

So in other words, because the margins are lower, you just don't want to -- you don't want be bothered selling as much?.

Well, we have a contractual arrangement with our C corp parent to sell 95% of our production. So that leaves 5% of the production to sell in the merchant market. And so as we sell that 5% of the merchant market, we're exposed to the merchant prices in that market.

And so if those merchant prices are lower, then that's reflective of the lower value we get for that 5% of the sales. .

Okay. And the other question I have is, the total debt on the balance sheet does not seem to have changed, but the interest expense has more than doubled year-on-year. I believe that, that is all owned to the [parent or to] Westlake.

What are the terms of the debt? Why is the interest rate -- interest expense gone up so much?.

It's a floating rate interest rate on that facility. And so that is a long-term multiyear facility. But as we all know, interest rates in the marketplace have risen meaningfully over the last 18 months, and so interest expense has gone up accordingly on that floating rate credit agreement. .

Our next question comes from Stephen Byrne with Bank of America Securities. .

I got a couple of questions about your cracker operations.

One being, what have you seen in recent years about the costs for turnarounds with labor rates and equipment materials inflation and so forth? Has that trended unfavorably? And how are those costs absorbed by the Partnership?.

So Steve, the way we think about those costs, and of course, with the labor cost rising and materials costs rising, yes, cost per turnaround have trended higher naturally.

And so as we think about the fee that the Partnership charges the parent on a monthly basis, those estimated costs are built into the charges that are charged to the parent on a monthly basis. So we charge the parent on a monthly basis, those expected cost, and they accumulate in the cash balances that you see on the balance sheet.

And then as we undertake a turnaround, we use those funds to undertake the cost of the turnaround. So that turnaround reserve that you might think about as some of that cash balance is designed to be able to address those costs. .

Okay. That makes sense.

And the crackers also generate hydrogen as a byproduct, and I was just curious how the Partnership is incentivized to pursue higher-value opportunities for that hydrogen?.

So we constantly assess what is the right value mix certainly as we think about it, Steve. And so certainly, to the extent that there is a credit associated with the coproducts or byproducts, the Partnership will see the associated benefits accordingly. .

And then just lastly, the continuous improvements on cracker operations could potentially lead to some incremental production rate, maybe nothing like what it would take if you added on additional furnaces.

But is there incentives in place for the partnership to pursue those operating advances as well?.

Yes, there is, Steve.

And so when you think about the opportunity to debottleneck, and we've undertaken a number of debottlenecks since the IPO of the Partnership, and there is naturally an incentive to increase the production of the ethylene units because we -- the Partnership is able to achieve that increased volume with that margin that is associated with those increased pounds.

That allows us, therefore, to grow the cash balances, grow the distributable cash flow, which allows us to increase distributions over time. So there is a strong motivation to undertake opportunities that are economically valued for a debottleneck if 1 is so there -- 1 of their. .

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

Thank you again for participating in today's call. We hope you'll join us for our next conference call to discuss our third quarter 2023 results. .

Thank you for participating in today's Westlake Chemical Partners' Second Quarter 2023 Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended, and may be accessed until 11:59 p.m. Eastern Time on [Thursday], August, 17, 2023. The replay can be accessed via the Partnership website.

Goodbye..