Westlake Chemical Partners LP (WLKP) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Partners third quarter 2014 earnings conference call.

During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in a question and answer session.

As a reminder, ladies and gentlemen, this conference is being recorded today November 4, 2014. I would now like to turn the call over to today's host, Dave Hansen, Westlake Chemical Partners Senior Vice President of Administration. Sir, you may begin.

Thank you very much. Good morning everyone and welcome to the Westlake Chemical Partners third quarter 2014 conference call. I am joined today by Albert Chao, our President and CEO; Steve Bender, our Senior Vice President and Chief Financial Officer and other members of our management team.

The conference call agenda will begin with Albert who will open with a few comments regarding Westlake Chemical Partners' performance in the third quarter and a current outlook on our performance and opportunities. Steve will then provide a more detailed look at our financial and operating results. Finally, Albert will add a few concluding comments and we will then open the call up to questions.

Unless otherwise noted, all numbers that are referenced today will be for the period following the close of the IPO that occurred on August 4 through September 30.

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. Actual results could differ materially based upon factors including the cyclical nature of the chemical industry; availability, cost and volatility of raw materials, energy and utilities; governmental regulatory actions and political unrest; global economic conditions; industry operating rates; the supply demand balance for Westlake's products; competitive products and pricing pressures; access to capital markets; technological developments and other risk factors.

This morning, Westlake Chemical Partners issued a press release with details of our third quarter 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 four hours after completion of this call until 4 PM Eastern Time on November 11, 2014.

The replay may be accessed by dialing the following numbers. Domestic callers should dial 888-286-8010. International callers may access the replay at 617-801-6888. The access code for both numbers is -- excuse me, the access code for both numbers is 97033646.

Please note that information reported on this call speaks only as of today, November 4, 2014. 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 webpage at wlkpartners.com.

Now I would like to turn the call over to Albert Chao. Albert?

Albert Chao: Thank you, Dave. Good morning, ladies and gentlemen, and thank you for joining us on our inaugural earnings call to discuss our third quarter results of Westlake Chemical Partners.

We closed initial public offering of Westlake Chemical Partners on August 4. Therefore, our results reflect both operations before and after our IPO. Our comments today will only speak to operations post IPO from August 4 through September 30.

I'm pleased to report that net sales post IPO were $172 million with net income of $55 million. As we own about 10% of OpCo, the net income attributable to the net limited partners was $5 million.

Westlake Chemical Partners is sponsored by an investment grade parent, Westlake Chemical Corporation, with a significant capacity of MLP qualifying assets that can be acquired in the future to provide a platform to grow our distributions. We have also announced an expansion of one of our ethylene units at our Lake Charles, Louisiana complex.

Westlake Chemical Partners' growth in cash flow is expected to come from these expansions and future acquisitions of MLP qualifying assets from Westlake. We believe we have created an MLP that has some very attractive features for investors. Our financial flexibility combined with our strategic relationship with Westlake Chemical, our commitment to outstanding operational performance and disciplined capital management position us well to provide stable, fee-based cash flow growth over the long term to our unit holders.

I would now like to turn our call over to Steve to provide more details on the financial and operating results for the third quarter.

Thank you, Albert, and good morning everyone. As Albert just noted, our comments this morning will only refer to the results of our business since the IPO. In this morning's press release, Westlake Chemical Partners reported net income attributable to the limited partners for the third quarter of 2014 of $5 million or $0.19 per diluted unit. Westlake Chemical Partners also reported distributable cash flow of $5.3 million on revenue of $172 million.

On October 28, Westlake Chemical Partners declared its inaugural distribution to unit holders of $0.1704 per unit, a prorated distribution since the public offering which is equivalent to the $0.275 net on quarterly distribution disclosed in our prospectus. This represents a coverage ratio of 1.14% which as we have previously indicated we intend to target an annual average coverage ratio of 1.1%.

At the end of the third quarter, we had $90 million of cash and $189 million in debt. We are well capitalized with a $600 million line of credit to fund growth opportunities such as our recently announced ethylene expansion in Lake Charles.

Please see the schedules attached on the back of the earnings release for a reconciliation to the full quarter's performance which combines the operation of Westlake Chemical Partners with those of its predecessor.

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

Thank you, Steve. Westlake Chemical Partners is well positioned to develop and grow its value to unit holders. Looking forward, we continue to work towards expansion of our Petro 1 ethylene unit in Lake Charles that will increase our ethylene capacity by approximately 250 million pounds annually and is anticipated to become complete in late 2015 or early 2016. We expect this to be immediately accretive to the unit holders and we will continue to evaluate other opportunities as they become available.

Thank you very much for listening to our third quarter earnings call this morning. Now I will turn the call back over to Dave Hansen.

Thank you, Albert. Before we begin taking questions, I'd like to remind you that a replay of this teleconference will be available starting four hours after we conclude the call. We'll provide that number again at the end of the call.

Operator, if there are any questions, we will now take them.

(Operator Instructions).

Your first question comes from the line of David Begleiter with Deutsche Bank. Please proceed.

Hey, Albert. This is actually Ram Sivalingam sitting in for David this morning.

Hi, Ram.

Morning.

Good morning. Just a quick question -- how should we think about the distributable cash flow CAGR maybe over three to five year period? And then perhaps the split between internal dropdowns from OpCo and third party acquisitions, if there's a nuance there?

Yeah, when we think of the growth of the distributable cash flow as we've indicated, we continue to expect it will grow that distribution at a low double digit growth rate in that range commensurate with our kind of high growth midstream peers that you see out there. And that's the guidance that I continue to think is appropriate.

In terms of opportunities to grow that, we certainly think that as I mentioned, we'll grow that. And there are four ways to grow that. Obviously dropdown capacity is one that is clear and transparent. We certainly as we mentioned in our prepared remarks also have this expansion of this ethylene unit also that will be completed in late 2015 or 2016 as well as opportunities to grow opportunistically, as well.

That's helpful. Thank you very much.

You're welcome.

As a reminder, ladies and gentlemen, to present your question please press star one.

Your next question comes from the line of Dana Mcginnis of Mission Advisors. Please proceed.

Hi, good morning.

Hi.

Maybe it's a follow-up question but so how have you chosen this particular growth rate which your dropdown and your combination with your organic growth? And why couldn't it be faster or slower or why have you chosen that?

Well, we think it's appropriate given the peer set that I just mentioned. When we think of those other high growth, midstream peers, we think that this is the kind of growth rate that makes sense for the kind of structure that we have today -- that low double digit growth rate we think is sensible.

So, you could grow that just off of your dropdowns of OpCo or is that a combination of everything? Or is that just what you've chosen? Is it possible to accelerate that by any -- is there any reason to?

Yeah, there are a few ways -- I'm sorry, there are four ways to grow that distributable cash flow. As I mentioned just a moment ago, there are ways in which we can drop the assets that are held in OpCo down. And it's very transparent, the capacity that we have there. We can also expand and debottleneck as we've just recently announced the intention to expand and debottleneck one of our crackers in Lake Charles, Petro 1.

We certainly can acquire assets either on our own or through our sponsor, Westlake Chemical, or jointly together. And certainly as you may be aware, we have an agreement with Westlake Chemical for a 12 year period which has got a $0.10 margin and over time that certainly can be renegotiated with the eye toward expanding that margin. So, those are the four paths of growth and that growth in DCF certainly can be achieved using all or one or one or multiple sources of those growth measures.

Sure, understood. Thank you.

You're welcome.

At this time, the Q&A session has now ended. Are there any closing remarks?

We would like to thank you for participating in today's call. We hope you will join us again for our next conference call to discuss our fourth quarter and full year 2014 results. Have a wonderful day.

Thank you for participating in today's Westlake Chemical Partners third quarter earnings conference call.

As a reminder, this call will be available for replay beginning four hours after the call has ended and may be accessed until 4 PM Eastern Time on Tuesday, August (sic) 11, 2014. The replay can be accessed by calling the following numbers. Domestic callers should dial 888-286-8010. International callers may access the replay at 617-801-6888. The access code for both numbers is 97033646.

You may now disconnect. Have a great day.