Good afternoon, and thank you for standing by. Welcome to the Westlake Chemical Partners Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded today, November 2, 2023.

I would now like to turn the conference over to today's host, Jeff Holy, Westlake Chemical Partners Vice President and Treasurer. Sir, you may begin..

Thank you, Antoine. Good afternoon, everyone, and welcome to the Westlake Chemical Partners Third 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. 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 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 third 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 may be accessed via the partnership's website. Please note that information reported on this call speaks only as of today, November 2, 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 web page at wlkpartners.com. Now I'd 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 third quarter 2023 results. In this morning's press release, we reported Westlake Partners' third quarter 2023 net income of $13 million or $0.37 per unit.

Compared to the second quarter, our third quarter sales and earnings benefited from higher production and sales volumes following the completion of the Calvert City turnaround in May.

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 compared with the credibility of our business has enabled us to deliver the long history of reliable distributions and coverage. This quarter's distribution is the 37th consecutive quarterly distribution since the 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' third quarter 2023 net income of $13 million or $0.37 per unit. Consolidated net income, including OpCo's earnings was $81 million on consolidated net sales of $322 million.

The partnership had distributable cash flow for the quarter of $14 million or $0.39 per unit. Third quarter 2023 net income for Westlake Partners of $13 million decreased by $2 million compared to third quarter 2022 partnership net income of $15 million. Compared to the third quarter of 2022, the partnership was impacted by higher interest expense.

Distributable cash flow of $14 million for the third quarter of 2023 decreased by $3 million compared to third quarter 2022 distributable cash flow of $17 million due to the $2 million decline in net income and higher maintenance capital expenditures.

The year-over-year increase in maintenance capital spending in the third quarter is due to a change in timing as our 2023 capital program is more weighted than the second half of the year as compared to 2022. Turning our attention to the balance sheet and cash flows.

At the end of the third quarter, we had consolidated cash and cash investments with Westlake through our investment management agreement totaling $150 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 third quarter of 2023, OpCo spent $17 million on capital expenditures. We maintained our strong leverage metrics with a consolidated leverage ratio of approximately 1x. On October 31, 2023, we announced a quarterly distribution of $0.4714 per unit with respect to the third quarter of 2023.

Since our IPO in 2014, the Partnership has made 37 consecutive quarterly distributions to our unitholders, and we have grown our distributions 71% since the Partnership's original minimum quarterly distribution of $0.275 per unit.

The Partnership's third quarter distribution will be paid on November 27, 2023, to unitholders of record November 10, 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 have maintained a cumulative distribution cash flow of approximately 1x. And with the partnership stability and cash flows, we're able to sustain the current distribution without the need to access the capital markets.

For modeling purposes, our next planned turnaround is at our Petro 1 ethylene unit in Lake Charles, Louisiana, which is currently planned for mid-2024. And we'll provide additional details on the turnaround once we complete our turnaround planning. Now I'd like to turn the call back over to Albert for some closing comments.

Albert?.

Thank you, Steve. We are pleased with the Partnership's financial and operational performance in the third quarter. We believe that this performance should continue through the rest of the year.

We remain optimistic about the demand fundamentals for our globally cost advantage ethylene, driven by steady domestic demand for ethylene derivatives and export opportunities at our parent Westlake.

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 maintained a strong balance sheet with conservative financial and leverage metrics. As we continue to navigate market conditions, we'll evaluate opportunities.

We are 4 levers of growth in the future, including increases of our ownership interest of OpCo; acquisition 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 third quarter earnings call. Now I'll turn the call back over to Jeff..

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

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

I wanted to touch on the planned maintenance expenses that, Steve, I believe you said would be a little bit higher in the back half of 2023. It sounded like this was just a timing issue, but I wanted to see if you're seeing any sort of impacts from higher inflation or higher labor costs rolling through.

Does that mean that your CapEx would be structurally higher going forward? And if so, does that present any risk to the current distribution?.

Yes. It's a very good question, Matthew. And certainly, as we continue our turnaround planning for next year for our ethylene unit. It's something that we're certainly taking into consideration.

I do not see it as a risk because as you may recall, we think about budgeting for the capital expenditures related to the turnaround and those are built on a regular basis to Westlake by OpCo.

And so should we see inflation as it relates to manpower or materials, we're able to accumulate that turnaround reserve to be able to offset potentially higher cost in either one of those two categories.

So we don't see it as a risk to the ability to generate the cash and be able to make a distribution to meet the distribution requirements for a payment to our unitholders..

[Operator Instructions] Our next question comes from Vincent Andrews from Morgan Stanley..

Just wondering -- just looking at the margin expansion you saw in the housing segment. Just curious if you could talk about -- I know the release talked about lower cost, but what was the real driver of that, which were the costs? And how does that happen? It just seems like a big margin expansion..

You're talking about in our building products segment?.

Yes, exactly. Yes, exactly..

Yes. And so Vincent, the expansion really came from the fact that we saw lower inputs of a lot of those inputs, of course, are PVC related to the Building Products business as we buy resin from Westlake further downstream into our Building Products business. And certainly, we're able to maintain price prices as best that we could in this market.

And as a consequence, we did get some margin expansion. You also saw that we were able to improve volumes quarter-over-quarter in the Building Products division by about 7%.

So we've seen strength in volume and certainly challenges in trying to maintain headline price, but because we saw lower input cost, largely PVC resin, we're able to expand that margin in Building Products..

Okay. And then some of the outlook commentary related to mortgage rates and things like that, none of that stuff is necessarily new.

So I just couldn't tell whether you were sort of signaling that you're starting to see sort of a more -- a greater impact from those macro issues or whether that's just sort of the ongoing, hey, these are overhangs on the demand environment. So any clarity there would be helpful..

Well, yes, I think the compounding effect of the rising mortgage rate is certainly having a dampened effect on demand.

And certainly, as we know there's a large macro over drop -- backdrop that is concerning to many homebuyers or potential homebuyers because of the macro uncertainty in the economies and of course, the compounding effect of nearly 8% plus mortgage rate and a 30-year mortgage is even a higher hill to climb, if you will, than just 6 months or a year ago.

And so I do think that's an issue. And of course, this time of year, we also have a seasonality element that comes into play in terms of just underlying demand.

And so as we think about the effect in the fourth quarter for Building Products, certainly continued and higher headwinds related to mortgage rates and interest rates generally as well as the seasonal slowdown that exists and typically persist through the fourth quarter and sometimes into Q1 because of seasonal effects on construction demand..

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

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

Thank you for participating in today's Westlake Chemical Partners Third 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 Eastern Time on Thursday, November 16, 2023. The replay can be accessed via the Partnership website. Goodbye..