Q3 2026 Westlake Chemical Partner's Earnings Conference Call - WESTLAKE CHEMICAL PARTNERS LP

Financial Performance:

• Reported third quarter 2026 net income of $16 million ($0.46 per unit), exceeding both Q2 2026 and Q3 2025 results.
• Consolidated net income (including Opco) reached $91 million on consolidated net sales of $314 million.
• Distributable cash flow (DCF) stood at $18 million ($0.51 per unit), a $3 million increase year-over-year driven by higher volumes and lower maintenance capex.
• Trailing 12-month distribution coverage ratio improved to 1.09 times from 1.04 times.
• End-of-quarter consolidated cash and investments totaled $113 million.
• Long-term debt was $400 million ($377 million at the partnership, $23 million at Opco), resulting in a consolidated leverage ratio of approximately 1.0x.
• Opco capital expenditures for the quarter were $12 million.

Guidance and Future Outlook:

• No planned major turnarounds scheduled for the remainder of 2026 or 2027.
• Q4 2026 ethylene prices are trending higher than the Q3 2026 average, potentially benefiting the ~5% of sales to third parties.
• Future growth strategies will leverage four pillars: increasing Opco ownership, acquiring qualified income streams, organic expansions, and negotiating higher fixed margins in the sales agreement with Westlake.
• Fourth quarter 2026 quarterly distribution announced at $0.4714 per unit.

Business Segments and Product Lines:

• Business model relies on a fixed margin ethylene sales agreement with parent company Westlake Corporation, minimizing market volatility.
• Revenue growth is primarily attributed to increased production and sales volumes rather than price fluctuations.
• The partnership has executed 49 consecutive quarterly distributions since July 2014, with distributions grown 71% from the original minimum.

Market and Competitive Landscape:

• 2026 third-party ethylene prices experienced volatility largely due to ongoing conflict in the Middle East.
• Current polyethylene (PE) margins are described as constructive, supporting the rationale for potential margin negotiations.
• The fixed margin structure provides differentiation through predictable earnings and cash flows compared to competitors exposed to market price swings.

Risks and Challenges:

• Geopolitical instability (Middle East conflict) continues to drive ethylene price volatility.
• The partnership relies on negotiations with Westlake (parent company) regarding the ethylene sales agreement, raising potential conflict of interest dynamics.
• Maintenance capital expenditures may differ between cash flow statements and property, plant, and equipment (PP&E) additions due to expense vs. capitalization treatment.
• Turnaround expenses are pre-funded via reserves but still impact cash flow statements in the year incurred.

Management Commentary and Tone:

• Management expressed confidence in the stability of the fee-based business model and the safety of the dividend.
• Tone remained focused on long-term value creation, operational safety, and environmental stewardship.
• Management affirmed no immediate plans to alter the current fixed margin structure despite market conditions, viewing the current level as appropriate.

Analyst Questions and Answers:

• Incentive for Margin Increases: Analyst questioned Westlake's incentive to raise the fixed margin given its dual role as buyer and seller; Management replied that while the current ~10-cent margin is appropriate, they intend to negotiate higher levels, and Westlake also values operational stability.
• Capital Expenditure Accounting: Clarified that maintenance capex figures include both capitalized items and expense items, causing discrepancies with PP&E additions in cash flow statements.
• Turnaround Funding: Confirmed turnaround costs are covered by pre-funded reserves, though they appear as cash outflows in the turnaround year.

Other Key Points:

• The 49th consecutive quarterly distribution reinforces the reliability of the MLP structure.
• The partnership does not anticipate needing capital markets to sustain current distribution levels due to strong coverage ratios.
• A replay of the call was made available two hours post-conference via the investor relations website.