Earnings Call Transcript - WLKP Q4 2025

Operator, Operator

Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this conference is being recorded today, February 24, 2026. I would now like to turn the call over to today's host, Jeff Holy, Westlake Chemical Partners' Vice President and Chief Accounting Officer. Sir, you may begin.

Jeff Holy, Vice President and Chief Accounting Officer

Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners fourth quarter and full year 2025 conference call. I'm joined today by Albert Chao, our Executive Chairman; Kal Jean-Marc Gilson, our President and CEO; and Steve Bender, our Executive Vice President and Chief Financial Officer; 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 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 fourth quarter and full year 2025 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 two 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, February 24, 2026, 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 Jean-Marc Gilson. Jean-Marc?

Jean-Marc Gilson, President and CEO

Thank you, Jeff, and good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year 2025 results. In this morning's press release, we reported Westlake Partners full year 2025 net income of $49 million or $1.38 per unit. Consolidated net income including OpCo was $299 million for the full year 2025. Westlake Partners' financial results continue to demonstrate the stability generated from our fixed margin ethylene sales agreement for 95% of annual plant 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 in 2025 as we delivered another year of 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 holders. This quarter's distribution is the 46th 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 and full year. Steve?

Steven Bender, Executive Vice President and Chief Financial Officer

Thank you, Jean-Marc, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' fourth quarter 2025 net income of $15 million or $0.41 per unit; consolidated net income, including OpCo's earnings, was $84 million on consolidated net sales of $323 million. The partnership had distributable cash flow for the quarter of $19 million or $0.53 per unit. Fourth quarter 2025 net income for Westlake Partners of $15 million was in line with the fourth quarter of 2024's partnership net income. Distributable cash flow of $19 million for the fourth quarter of 2025 increased by $4 million compared to the fourth quarter of 2024's distributable cash flow of $15 million, due primarily to lower maintenance capital expenditures due to the shift in the timing of these cash flows to earlier in the year. For the full year of 2025, net income of $49 million or $1.38 per unit decreased by $13 million compared to full year 2024's net income of $62 million. The decrease in net income attributable to the partnership was due to lower production and sales volumes as a result of the planned Petro 1 turnaround. Our full year 2025 MLP distributable cash flow of $53 million decreased by $14 million compared to MLP distributable cash flow of $67 million for the full year of 2024 due to lower net income. Our distribution coverage for the full year of 2025 was 0.8x. During 2025, OpCo successfully renewed its ethylene sales agreement with Westlake through 2027 with no changes to the contract terms or conditions. We believe that Westlake's decision to renew the ethylene sales agreement under the same terms that have been in place since its origination demonstrates the critical nature of OpCo's supply of ethylene to their operations and their commitment to support OpCo's continued safe, reliable operations through stable, predictable cash flows. Turning our attention to the balance sheet and cash flows. At the end of the fourth quarter, we had a consolidated cash balance and cash investments with Westlake through our investment and management agreement totaling $68 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 2025, OpCo spent $79 million in capital expenditures. We maintained our strong leverage metrics with a consolidated leverage ratio below 1x. On January 27, 2026, we announced a quarterly distribution of $0.4714 per unit with respect to the fourth quarter of 2025. Since our IPO in 2014, the Partnership has made 46 consecutive quarterly distributions to our unitholders, and we've grown distributions by 71% since the partnership's original minimum quarterly distribution of $0.275 per unit. The partnership's fourth quarter distribution was paid on February 23, 2026, to unitholders of record on February 6, 2026. The partner's predictable fee-based cash flow continues to provide benefits to 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 coverage ratio of approximately 1.1x, and with the partnership's stability and cash flows, we are able to sustain our current distribution without the need to access the capital markets. For modeling purposes, we have no planned turnarounds in 2026. Now I'd like to turn the call back over to Jean-Marc to make some closing comments. Jean-Marc?

Jean-Marc Gilson, President and CEO

Thank you, Steve. We are pleased with the partnership's financial and operational performance during the fourth quarter and the year as a whole. The stability of our business model and associated cash flows demonstrate the benefit that our ethylene sales agreement and its protective provisions provide the partnership to predictable, long-term earnings and cash flows. During 2025, we successfully completed the planned turnaround at our Pecan ethylene facility in Lake Charles, Louisiana. As expected, our coverage ratio for 2025 dipped below 1x as it typically does during years where we conduct a turnaround. As we look ahead, we expect the absence of any turnarounds in 2026 to result in solid production and sales volume growth that should drive a recovery in our distributable cash flow and coverage ratio back to historical levels. 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 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 fourth quarter and full year 2025 earnings call. Now I will turn the call back over to Jeff.

Jeff Holy, Vice President and Chief Accounting Officer

Thank you, Jean-Marc. 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. We will provide instructions to access the replay at the end of this call. Jill, we'll now take questions.

Operator, Operator

First question comes from the line of James Altschul with Aviation Advisory Service.

James Altschul, Analyst

I have a couple of questions. First, when reviewing the balance sheet and cash flow statement, it seems that over the past year, you drew down on the item receivable from the investment management agreement with Westlake to pay the distribution. It looks like there isn't much left in that category. Am I interpreting that correctly? Additionally, you mentioned in your remarks and in the release that you expect the distribution coverage ratio to improve this year. Is that how you plan to cover the distributions from operations without needing to draw from the receivable again?

Steven Bender, Executive Vice President and Chief Financial Officer

Yes. And so the investment balance you see there at the beginning of the year of 2025 that was drawn down reflects the cost of the maintenance turnaround. Just to remind you that every month, we invoice Westlake Corporation for planned turnaround expenses and that cash is received and invested in that investment management account. Over the course of the year, we accumulate cash balances in that investment account and then we'll spend those funds to undertake a planned turnaround activity, which occurs every 5 to 8 to 9 years, depending on the performance of that particular operating unit. Since that unit was down for maintenance over the course of a period of 2025, there is no production out of that unit. So therefore, it does have an impact on production and, therefore, income generated as a result of that loss of production. But we have the ability to pull on our operating reserves and the operating reserves in the year 2025 were strong enough that we had strong enough balances in that operating reserve to continue to pay distributions. And so when you think about the operating surplus we had at the end of 2025, it was approximately $74 million. So that well covers any current or actually future expected annual distributions by the partnership. Because in our prepared remarks, we commented we have no planned turnaround in 2026. Therefore, we expect our coverage ratio to rise above 1.1x, which is our target ratio. And because it should rise with no planned turnarounds, it will continue to replenish the operating surplus and build cash in that investment account we also use to pay distributions to unitholders. So as we look forward, I do expect that operating surplus to build and that investment balance to also promote. In a year when we undertake planned turnarounds, it is very typical that our cash balances will diminish because of the planned maintenance and also the payments of those distributions to unitholders. But given the many years going back to the IPO in 2014, we've seen this play through over many years, and we do expect those operating surplus balances to build as well as cash investments and that operating investment account to build.

James Altschul, Analyst

Well, that's an excellent answer. And if I may ask one more. In his prepared remarks, the CEO talked about various opportunities for expansion growth, such as increasing the percentage ownership of the OpCo organic growth. How would you anticipate financing any of these initiatives if you decide to pursue them?

Steven Bender, Executive Vice President and Chief Financial Officer

Yes. Should we decide to undertake any of those growth opportunities, we would undertake what we'd characterize as a drop-down where a party would monetize a portion of OpCo interest and contribute that down, and we would finance that with external funding, whether it be debt or equity or some combination. That's how we've undertaken the multiple drop-downs in growth over the course of the years, which represents the ownership today that we've monetized out of OpCo. So should we take any of those actions, that's really how we would finance it through a combination of issuance of new units as well as potentially leveraging the balance sheet.

Operator, Operator

At this time, as I'm seeing no other questions in the queue, the Q&A session has ended. I will now turn the call back over to Jeff Holy.

Jeff Holy, Vice President and Chief Accounting Officer

Thank you again for participating in today's call. We hope you'll join us for our next conference call to discuss our first quarter 2026 results.

Operator, Operator

Thank you for participating in today's Westlake Chemical Partners fourth quarter and full year 2025 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 PM Eastern Time on Tuesday, March 3, 2026. The replay can be accessed via the Partnership website. Goodbye.